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Chat with Champions · Staying True To Your Vision: Ep 2 with Phil Fernandez
This week Navin speaks with Phil Fernandez, CEO of Marketo. In this podcast, Phil speaks about his entrepreneurial history and how to build a diverse team of active learners who communicate well. Phil also talks about how he and his teams have been working on a consistent vision of bringing customer visibility to a marketing team for over 20 years, and about how holding true to that vision and an appropriate go-to-market model has helped keep Marketo on track.
The full transcript is below.
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Phil Fernandez on building a series of companies around a long-term vision:
The inspiration of the business… great question because it is in some sense the center of all of my entrepreneurial learning which is that we had a set of ideas come together around the technology, the notion that we could build a generation of technology that let marketers truly build personal, individual long term relationships with customers. That was an idea that had been written about as early as 1988 or 1989 and came to be called one-to-one but the vision for Marketo was that the technology infrastructure and the digital economy had gotten to a place that this now 20-year-old vision could actually be made reality.
Phil on listening to his customers during the downturn of 2007-8 even when conventional wisdom says otherwise:
I had investors around my table which were saying batten down the hatches and stop. And the learning of, no the reality of the business is not that. We have to actually look at the reality of our business and the challenge of saying no to that world which was all about hunker down and instead we invested into that which made or broke Marketo at a key juncture. I guess what that says is you’ve got to be willing to make a hard call to stop something when the world’s telling you that and then if you’ve got signals inside your business that everything’s working right, then lean into it. Because all the pattern matchers in the outside world aren’t going to know what your business is really doing.
Phil on keeping the vision:
And at Marketo we had one very, very core essence that I think was the winning strategy for the company, which was that we follow our own North Star. We’re active learners. I talked about being a curious learner, being an always learner, being eyes up and out earlier. But what we do is we don’t react. We follow our star. We follow our vision. We have confidence in ourselves. And that sort of ability to stay true to a North Star even while you’re ready to pivot when something’s not working, I think, is one of the areas that so many people miss because a competitor gets under their skin. A competitor announces something and we go, “Oh, we’re better. We can do that, too.”
Phil on Marketo’s go-to-market model:
The thing I’m proudest of at Marketo is the go-to market model we’ve built. We’ve built a go-to-market model that’s incredibly high intensity, very good economics for the kind of market that we’re playing in and which has shown the ability to scale and mature in an almost continuous basis at a velocity and a pace that I think very few companies have achieved. And that ability to combine a product vision with a vision for a sales and marketing model and to build a company around those two pillars in parallel, I think, is the thing I’m proudest of.
Navin: Hi. Welcome to Chat with Champions podcast series. I have the pleasure of hosting Phil Fernandez, Founder and CEO of Marketo today. We have had the great fortune of partnering with Phil and Marketo as one of their venture investors. Phil is an accomplished entrepreneur, executive and is a well-known writer and speaker on topics related to digital marketing, marketing automation, big data and has also authored the book Revenue Disruption. Phil, welcome to the broadcast.
Phil: Delighted to be with you, Navin.
Navin: So Phil, let’s start with your story. I’m pretty sure entrepreneurs know about Marketo, they know about you, but it’s always good to hear from the entrepreneur himself – especially for you, your journey over the last 25 to 30 years.
Phil: So you’re calling me old to start with, I guess, Navin. That’s unfortunately true, but as a result I’ve seen the long arc here in Silicon Valley that in some ways I think are very unique that I’d love the chance to share. I actually entered the Silicon Valley tech scene in 1981 during my senior year at Stanford where I got through a series of strange circumstances that I won’t take the time now to describe.
I got invited to join a Kleiner Perkins-funded Silicon Valley startup in 1981 that was building high speed networking and data storage software, and that went public in 1983. Even though I was just a young kid at the time, I got to see the entire entrepreneurial cycle happen before my very eyes as I was graduating from Stanford and entering the workforce. And it just embedded in me a passion for building and creating companies for the venture entrepreneurial cycle in the Valley. I’ve spent the whole rest of my career at a time that is now so far away from the modern hype cycle and tech cycle when the Valley was slower and smaller but it’s informed everything I’ve done since.
Navin: That’s great. Before you started Marketo, and we’ll get into Marketo, what were the other places you worked at and what were the key learnings in your journey?
Phil: Well first the key learning was obviously from this experience in the early ’80s. It was the way in which risk investment can produce phenomenal returns for investors, for employees, for stakeholders of all sorts and just the dynamism that that process brings. I had a chance to do a company in the late ’80s called Metaphor Computer Systems that… obviously I know Yogen Dalal who was at Mayfield for a number of years who was the gentleman who actually recruited me into that company many years ago and that’s where I got a taste of the intersection of technology and marketing that has become my passion ever since.
Metaphor was a company that was founded and came out of Xerox PARC in the 1980s and its mission was to put powerful big data analytic tools in the hands of marketers. Our biggest customer was Procter and Gamble, and we were doing breakthrough creation of graphical analytic tools built around big data resources to let marketers make better decisions about their business. And I saw the way in which data and compelling next generation graphical user interfaces in the hands of business users could just unlock tremendous value. And it became the passion that really defined my career from there. We sold that company to IBM at the end of 1991, and I had the chance to become effectively part of the founding team of a company called Redbird Systems that was another big data company in the ’90s.
That was my first time as a senior executive to be part of an entrepreneurial team and that was just a wild experience of raising money on Sandhill Road and understanding how to put it to work. We built a breakthrough product and took the company public in 1996 where I think we were the second best IPO of the year after Netscape. So I saw the very start of the Internet years in those days and realized the power of this entrepreneurial cycle and the power of the intersection of technology and marketing that has then fueled everything I’ve done in my career since. A stint building a company called Epiphany that was a leader in the wild bubble years of $9 billion market cap on a company that had almost no revenue. And founding and building Marketo almost 10 years ago into a very real company in today’s very exciting tech cycle.
Navin: Thanks for sharing those stories and the learnings you had along the way. My strong belief is that any company which is going to be a built-to-last company starts with a very strong vision and mission. So when you started Marketo, you had been doing marketing-related tech companies, you had been doing big data, as you shared, from the early ’80s. What was the inspiration and the vision behind it to be doing it 10 years back?
Phil: The inspiration of the business… great question because it is in some sense the center of all of my entrepreneurial learning which is that we had a set of ideas come together around the technology, the notion that we could build a generation of technology that let marketers truly build personal, individual long term relationships with customers. That was an idea that had been written about as early as 1988 or 1989 and came to be called one-to-one but the vision for Marketo was that the technology infrastructure and the digital economy had gotten to a place that this now 20-year-old vision could actually be made reality. So that’s where taking a long term arc and understanding how ideas sometimes can be ahead of technology can be helpful. It was all part of the context that might be an interesting thing to talk more about — timing and technology.
And so the founding of Marketo was all about a powerful technology vision and a long arc vision that was there, combined with seeing and understanding a business model that could really unlock that vision for the masses. And we were intrigued at the time that we started Marketo seeing freemium models emerge, the SaaS model or the cloud-based software delivery model which seems so routine now, but even at the founding of Marketo a few years ago was kind of radical and new. We were seeing open source.
It was a time when software distribution was getting a lot of attention and the founding vision for Marketo was one of powerful technology and how can we get it in the hands of 100,000 customers not just 100 customers like earlier marketing technologies had.
Navin: Very interesting. And from the experience I’ve had working with great entrepreneurs like you, I think it all starts with the inspiration and knowing where true north is and having a mission and vision. But then the next thing I’ve come to realize is – it’s all about people. Because people make products, products don’t make people, and it’s very important to have a shared set of values and culture. So how important was creating a set of values and culture in building a company like Marketo?
Phil: Well, culture and values is everything. Because having now done this a number of times over my career a company when it’s small can be just focused on the mission of getting the first product out the door… you know you have to have a great team come together; really talented people that want to work with passion and a shared mission. But that can all be very tacit, can be something that’s not talked about explicitly as people just get after a mission. And people naturally swarm a problem, I find, in the entrepreneurial world.
But as a company gets to about 75 or 80 people — and I’ve seen this happen over and over and over again now — somewhere in that zone, the sort of oral tradition no longer works. And companies can either disperse a lot of energy or they can continue to thrive through what I would call the first moment of truth. And that’s where making explicit culture, making explicit values, making explicit norms, writing them down, transmitting them becomes not just an important thing; it becomes essential to not just have centrifugal force drive a successful idea into fragmentation. And that’s when it becomes essential, I think, if not before for a management team to really explicitly explore what it stands for. Be prepared to write it down, be prepared to socialize it and then start to norm it and hold people accountable for it because simply having a shared vision doesn’t do it; you have to have accountability and show you mean it.
And I just think that that becomes probably right about the time a series B investment is on the entrepreneur’s mind, the notion of making culture and values an explicit part of the experience probably ought to precede that first fund raising call.
Navin: Got it. Now I wholeheartedly agree with you. I think the next thing on the journey which I’m pretty sure people will love to hear from you is all about teams. What have been your learnings in hiring and building teams that others can learn from?
Phil: It is clearly the most important thing that any entrepreneur does is build a team to surround himself or herself to be successful. You’ve got to spend a lot of time together. What a team has to do is it has to be one that is natural for the style. Some teams are hot, some are cold in personality, some are thoughtful, some are boastful. There’s no one recipe that fits in a team but understanding that you have to actually like and respect and reinforce each other is first.
Second is teams can’t be a monoculture. So in building a team I’ve always looked for a common vision, but differences. And I mean differences in gender and diversity and race and background and all of the explicit things that are still very much and need to be a dialog. Also just in the ways people think. Some people think in a dollars and cents and a numbers way. Some people think very expansively and understanding explicitly that you need to have a little bit of this sauce and a little bit of salt and pepper to make the broth taste good. And so there’s some sense of hiring outside your comfort zone also becomes very, very important so that you see that you have that diversity. Sometimes I see teams that become monocultures at that stage.
And then finally realizing that companies are moving really fast, and in assembling a team, the time it takes for a team member to join a company, learn the culture, learn the job and start to contribute is measured in months and in a fast-growing company the puck moves pretty far and executives having the sort of sense of hiring for a year from now and not hiring for the problems that I feel today. I find that that’s often the feeling that problems today are so critical that it’s very hard for the entrepreneur to hire a year from now, but if you’re going to hire into growth that has to be job one. So there are a lot of thoughts there, probably a pretty dense answer to that question.
Navin: No, I think it’s very, very insightful. My follow-up to that would be as an entrepreneur I understand I have to do these things, but what should I be looking for in people? You have done so many companies; there must be learnings, right? Things work out, things don’t work out, so what do you look for in people today?
Phil: My biggest thing I look for in people is an active learner who has immense curiosity and knows how to explain it. So I think on the journey of building a company there are just guaranteed to be any number of junctures where you’ve got to make a decision. You’ve drawn on all your experience but make a new decision that you’ve never made before. And I find so much of the interviewing process is about what have you done, tell me about the teams you’ve managed, tell me about the products you’ve delivered, tell me about the sales quotas you’ve met. And I find that that doesn’t predict for who’s going to make the decisions when the next unsolved problem’s going to come.
So I spend all my time trying to make sure the basics are in place but understand is this somebody who’s curious about the world? Are they bright? Are they asking questions? Do they think they have all the answers and want to tell me about the things they did, or do they want to tell me about some new learning? And so I really test and probe for that because I think what that does is it produces the ability to resiliently take on new challenges.
And then to me it’s all about… what I try to do is I know that I’m going to have 20 minutes with somebody where I have to get across a big idea. Hey, we have to go solve this problem. We have to go seize this opportunity. We have to go build a relationship with somebody. I need to be able to use 20 minutes to scale myself to have an executive on my team go do a whole thing. And there are people I can communicate with in 20 minutes and it’s like we’ve talked for a day, and there are other people I can communicate with in 20 minutes and it’s like we’ve talked for two minutes. And so I really look at that fidelity of communication because if ultimately I can’t scale myself by saying a few words and having somebody know what I mean and go take it, you waste a lot of time. And so it’s high fidelity communication, high bandwidth communication, curiosity, continuous learning. And then I almost don’t care what people did before that other than basic fundamentals on a job.
Navin: Got it. Well that’s pretty insightful. Let’s switch gears. Things don’t always go the way we hope, and there’s always a struggle that any company anybody goes through. So can you share any learnings you have had from difficult experiences along the way?
Phil: Yeah, there are lots. We built our first product at Marketo and we were very proud of it. It was a search optimization product. It was going to take on the world of Google AdWords which was growing really fast. We decided through a set of reasons of how Google was behaving and how the market was behaving to throw it away and start over. It took a lot of courage and that’s the pivot that gets talked about so many times in entrepreneurial speak these days. The ability to really look at a market and say is there something that the market’s telling you and to do that with cold dispassionate eyes no matter how proud you are of the product is a learning that has saved my butt a million times.
I think another learning is to realize how much you’ve got to listen to the outside world and look at your inside reality. Marketo had only had our products in market – the products that we built the company on for five months when the music stopped in 2008. You may recall that some other venture capitalists sent around decks to all entrepreneurs that said stop spending money, stop hiring, preserve capital, RIP kind of stuff. We looked at our business and we said no. We have sales pipelines. Our people are making their quotas. This is a market that’s happening.
I had investors around my table which were saying batten down the hatches and stop. And the learning of, no the reality of the business is not that. We have to actually look at the reality of our business and the challenge of saying no to that world which was all about hunker down and instead we invested into that which made or broke Marketo at a key juncture. I guess what that says is you’ve got to be willing to make a hard call to stop something when the world’s telling you that and then if you’ve got signals inside your business that everything’s working right, then lean into it. Because all the pattern matchers in the outside world aren’t going to know what your business is really doing.
Navin: Great. I have a belief as a VC, if you back A+ people the initial market they might pick may not be a good market. But if they are the right people they’ll quickly pivot to find a new market. I wholeheartedly agree with you and I think as entrepreneurs and VCs one can’t be afraid of pivots. You have to listen to customers. You have to change because dinosaurs never survived. So I think a lot of other things went well for Marketo. For example, you guys created a category owned it and built a movement around it. How does another company do it? What was the process? Was it just an organic phenomenon or it just happened by chance?
Phil: I’d like to think it happened more than by chance. I would say there were really strong underpinnings. My co-founders and I did a lot of really good research. We challenged ourselves. We got outside of our network. When we talked to CMOs and prospective buyers, we threw away initial ideas. And so there’s very, very little to substitute for really a lot of good fundamentals and research and vision and domain understanding. But then the ability to seize the moment and seize the day and execute with confidence into a vision is so important. And the most important thing from all of that is to realize when you’re creating a category, when you’re fulfilling a vision in a market that’s starting to perform, that’s starting to gel and like you said we created a category but we didn’t do it alone. We spotted that a category was coming together.
There are tremendous pressures on a company, on an entrepreneur, on a product team to respond to others, to tack when a competitor goes west you tack in a different direction, you respond to them. And at Marketo we had one very, very core essence that I think was the winning strategy for the company, which was that we follow our own North Star. We’re active learners. I talked about being a curious learner, being an always learner, being eyes up and out earlier. But what we do is we don’t react. We follow our star. We follow our vision. We have confidence in ourselves. And that sort of ability to stay true to a North Star even while you’re ready to pivot when something’s not working, I think, is one of the areas that so many people miss because a competitor gets under their skin. A competitor announces something and we go, “Oh, we’re better. We can do that, too.”
We’re going to respond, we’re going to react defensively, and basically the earliest mantra at Marketo was keep our offense on the field. And every day that we’ve had a good day, month, quarter, year at Marketo was one that we kept our offense on the field and any time we’ve hit a bump it’s been when we accidentally put our defense on the field. And so that’s all I think you need to know about building a great company. Keep your offense on the field.
Navin: Completely agree. As an entrepreneur, as a CEO, one needs to know where true north is. Have conviction and just go make it happen. And if along the way you realize that it’s not the hill you want to climb, quickly pivot and go after the right one. I want to come back to a comment you made on the founding of Marketo. I completely agree with you as we were investors with you. Not only did you have disruption through your technical vision but there was something unique in your business model. You mentioned you didn’t want to go after 1000 companies or 5000 companies; you wanted to go after 100,000 companies.
Conventional wisdom told everyone… and I’m pretty sure you heard that from VCs and others along the way – how do you reach these businesses? How do you serve them at 10k ASP per year, 20k ASP, 30k ASP, 40k? How do you do it? So what do you think changed and what did you learn? Because since you guys pioneered this, there are so many companies which are learning from what you guys did and some others have done. So what was the key learning and what can people learn from it? How do you go after these 100k businesses at low price points?
Phil: Yep, yep. Well, the economics at some level are pretty simple. You need to have an acquisition cost that is in the range of one year… Again I’m going to talk about a recurring revenue, a SaaS or cloud kind of business or subscription business or a product that has an annuity revenue stream because that’s where I can provide maybe some real meaningful learnings.
The first thing is you need to be able to have an acquisition cost that’s in the range of one year of revenue. If you’re going to sell a product for $10,000 a year, you better figure out how you can acquire on average at such a customer for $10,000 or less. Then the leaky bucket out the other side is the single most economic, the single biggest driving factor in a business; and so what does it take to make a customer adopt and be successful and be able to renew. And so we really went after both of those things really aggressively.
Marketo, of course, was a company founded on this premise that in a world where basically all buying starts online, starts with a Google search, starts with asking a friend for advice on Facebook that this notion of using marketing to create a vast inbound funnel of prospective buyers to get nurtured and winnowed down, that’s of course what Marketo does for our customers — allow the use of digital mobile and social technologies to feed a sales funnel. And we of course mastered that, but we demonstrated how that can happen and that you can, even in a nascent market with an unknown brand that by mastering content marketing we were seeing 100,000 people a month start to come to our website and sample the very, very top of our funnel. And so realizing that in today’s web era with Google and Facebook you can reach audiences numbering in the 100,000s or millions even as a tiny little company.
And the second thing is to understand the models of how that all works and to be absolutely strict about the economics of the model even from day one. And then second is to understand that it’s all about adoption and consumption and success. So that if you’re trying to sell a model where there’s a $10,000 product, if you think it takes more than 10 days to get somebody up and running and successful with it, you don’t have a model that works. We see for example in the predictive analytics market today people pursuing models with the right acquisition strategy but they need $100,000 of services to get up and running. That’s a business model that’s never going to scale. And I think understanding how to acquire for the right amount, how to get somebody live for the right amount, scaled to the price and how to retain them has to be something that’s wholly understood when the entrepreneur embarks on the business model. My co-founders and I nailed that aspect of the business right on day one.
Navin: Well, that’s great insight. I think many new companies have to keep that in mind, that if they can keep their cost of acquisition lower than what they’re going to make in the first year, and if they have high renewal rates, they can build a great business.
Phil: You have to identify that and understand it deeply, and then you’ve got to immediately say what does that tell you about the product? What does that tell you about what the user experience has to be on day of sale plus one? And one of the things that we did so right at Marketo is our very first employee after the three founders was a very senior user experience executive who saw it from the *outside customer eyes in* about exactly this problem. How are we going to actually create that experience. And so the fact that we were thinking about how to reduce it to practice and seeing it through the eyes of the customer is I think what’s served us so well to come out to the fast start and be hopefully well on our way to that race to 100,000.
Navin: Got it. So I think coming back to you basically it seems having a mission, vision, setting a core set of values, having a culture, betting on people is important. So if you had to pick one accomplishment that you would want to be known for as Phil Fernandez. what would it be?
Phil: I have been, for my entire career, kind of a product guy with a fair amount of success under my belt of designing and creating products that hit a market fit and they were breakthrough and stuff. The thing I’m proudest of at Marketo is the go-to market model we’ve built. We’ve built a go-to-market model that’s incredibly high intensity, very good economics for the kind of market that we’re playing in and which has shown the ability to scale and mature in an almost continuous basis at a velocity and a pace that I think very few companies have achieved. And that ability to combine a product vision with a vision for a sales and marketing model and to build a company around those two pillars in parallel, I think, is the thing I’m proudest of. Because I’ve seen companies built by great go-to market leaders. I’ve seen companies built by great product people, and I think my claim to fame is that we hit the perfect balance of the two that I think has been incredibly gratifying to me to think about how to make a name as a sales leader, if you will.
Navin: Well, that’s great. So I think that we’re getting to the end of the podcast. So in parting, what would be your key advice to entrepreneurs in today’s environment? It’s a very frothy environment, right? There’s all this talk of private unicorns which sometimes I think is silly, but what would be your advice to entrepreneurs as they look at building future industrial leaders?
Phil: I started out by saying I came out in 1981 and the hype cycles and the boom and bust cycles and the frothy cycles and the not so frothy cycles – I’ve seen them over and over and over again. And the primary advice to any entrepreneur is it’s still hard work, it still takes a lot of luck, it takes associating yourself with great people who can help you be successful exactly like Mayfield and the team you build around you.
The main thing is we have not escaped any bounds of reality in the current tech cycle. It’s going to revert to the mean; I can guarantee everybody that. The notion of building on a sound foundation, building for durability, building a culture that can hire people when we’re in a different environment, all of those things matter and to understand that it’s about the fundamentals, not about the hype cycle and that you have to build for long term value. The cycle will go on and there will be another environment that everybody who’s building a company and starting a company today will be in, that’s going to be different than the one that we’re in today. I can promise that.
So build for resiliency, build for creativity, build for the long term and build for knowing that whatever is true today is not going to be true in two years.
Navin: That’s so true. Phil, it has been a pleasure hosting you on this podcast. I know you’re really busy. I’m sure the listeners of this podcast who are fellow entrepreneurs like you would really appreciate the key insights you’ve shared with us today.
Phil: Navin, it has been a delight to be with you. Thank you for producing this podcast and thank you for all your support over the years.
Navin: Thank you very much.
