Encore: Talking to Doug Landis about AI in Sales

Doug Landis, thanks for doing this, but it's great to see you. I think we've become way more friends over the years than business colleagues, but I appreciate always everything you've done for me personally, by the way, just to let everybody know, Doug Landis helped me kind of get to where I am in my career with Salesforce. And so I owe him a debt of gratitude and box. But anyways, but now you're working with Emergence. So give me a little rundown of Emergence, what you're doing with them and what the investment strategy is. And then I want to talk about the premise of this conversation is investments and companies looking for investment. Why startups? Because I've personally never gone to go get money.

So I don't know that game. And I think there's a lot of people out there that don't know that game either. And I would love to just get some of your insights on what's working these days and what you're looking at. So give me a little blurb. Give me a little blurb on Emergence and then we'll get into it. For sure. And my perspective is going to be a little skewed because, you know, as you know, I've been an operator, you know, Google Salesforce and Box for the last 15 years. So I've only been on the money side, the venture capital side for the last six months. So I've been learning a lot about it. Although I did start a company a long time ago where we raised venture capital money. And so we can talk a little bit about that.

But Emergence as a whole is a venture capital fund or venture capital firm with four funds. We're funding out of fund four right now. We're hyper, hyper focused. Unlike a lot of other venture firms, we only invest in B2B enterprise SaaS companies. So for 14 years, that's all we had a hypothesis that the cloud was going to eat traditional software. Yeah. And that's what we built the backbone of our firm on invested in Salesforce and many, many, many, many, many other successful SaaS companies. But by being hyper focused, it allows us to actually say no to a lot of things. Right. And so we're a thesis driven firm. So our thesis basically is an original. Originally, it was like SaaS is going to eat software.

Now, the next question is, is what's the next evolution of software and technology that's really going to that's that's going to elevate SaaS. Right. And so our thesis basically is around kind of three categories for us as a firm. And we typically only invest in Series A or Series B companies. So what that means is for a Series A fund or to go raise a Series A fund means you have at least about a million in ARR. OK. You've got some serious customer traction. You've got a leadership team and you're looking to accelerate your growth. Right. So our expertise happens to be on the go to market side. So we're not like we're not the product guys. We're not the engineers that's going to test the code.

We're like, oh, you want to grow? Cool. We're the guys to help you do it. OK. And we've had some great track record, right, with Salesforce and Yammer and Viva and Box and Service Max and SuccessFactors and Steelbrick. And yeah, we're OK. We've done OK. Yeah. Yeah. And for us, really, it's like we look at do you want to build a billion dollar software company or do you want to get acquired for a hundred million dollars? We only want the people who want to build a billion dollar software company. Right. So therefore, the market has to be big enough. Right. Yeah. And so that's just a little bit about our investment philosophy and the structure of our organization, which is different than a lot of other VCs out there.

You mentioned something about focus. I want to translate that to businesses in general, because I think focus is a huge... I am learning that that is like the number one thing that we look for. Because like, so you know my training, right? So the reason I think my training, and I've kind of defaulted to it, but I got two things. I got two products. You totally do. Fill in the funnel, drive in the clothes. Totally. And it's easy to sell because it's either it fits or it doesn't. And if it's outside of that, I've learned to just be like, nope. Even if it's a little bit of outside of that, I'm like, nope. And it just has made it so easy to identify who the fit is and then sell it. Yeah. So help me, you know, because the challenge that I see a lot of startups is that they do whatever it takes to generate money.

They'll bring on whatever shitty customer it is. Totally. Just because it's revenue. So, but what's that balance that they can find about, hey, no, we should only look for our best, like the exact client that we can do the exact thing to. Yeah. Versus we need money to even get to the point where we're even a Series A. So how do they do, I don't know. I guess it's a question of like, how do you deal with that? Or how have you seen companies deal with that successfully? Yeah. Because one more thing is when I was, when we started our, Chris Merrill started Thrive Networks, we brought on that. And then we had to go through a firing process with clients. We had to straight up say, this is our model.

If you don't fit this model, we're sorry. Thanks for helping us get here, but see you later. So what do you see in companies who are successful in getting that idea around with focus? What do you see in some of those attributes? What are some of those characteristics and what are they doing? Well, so there's, there's two parts to this in my answer. Number one, there are certain characteristics that we look for as a firm to say, okay, this is potentially a company that we'll invest in. Right. And then, and so I'll talk about that. And then I want to also want to talk about this notion of focus because it comes into play in terms of our investment strategy. Because one of the things we want to make sure is that the company that we're investing in is hyper focused on doing what they do best.

It's the distractions that get people into real trouble. I have some examples actually of that for sure. So our investment philosophy is, or investment strategy is, we look for, first and foremost, we look for leadership. Right. So, you know, it's, it's, it's easy to invest in somebody that's done it before because they've, hopefully they've learned from their mistakes and they know what success looks like. They know how to make the hard decisions. They know how to stay focused. Right. So we like that. But more importantly, we look for a good leadership team. That's very well balanced. They've got some industry domain expertise. They've got some, you know, some business savvy. They know the market.

They know that they've got some product sense. They've got the right product people. They know how to build a company to scale. So we look first and foremost for leadership. Secondarily, we look for, look for market size, right? We're in the business of building multi-billion dollar software companies as we have in the past. We don't want to hire, we don't want to invest in a company that's going to potentially sell for a hundred, two hundred million dollars. Like Steelbrick is a perfect example. Built on the Salesforce platform easily could be a two, three billion dollar company standalone on its own right now. But because they were built on the Salesforce platform, they basically got, I don't know, shackled into being sold for $350 million.

So two billion, 350 million, right? Sure, it's a great exit, but could have been way bigger, right? And so market size is really important. If you come to us and say, yeah, this is a two billion dollar market. It's like, okay, so in order for you to be a billion dollar company, you need to own 50% of that market. It's really hard, right? And look, it's fine. If you want to sell your company for $250 million, it's great. It's just not what we want to do. It's not our mindset. We also look at customer traction. So early on, we want to know, do you have the right customers? And are the customers there to grow? Like, do you have the right seed and grow strategy? Meaning, like, can you continue to sell and gain revenue from your existing customers?

We also look for... Is that critical, though? Is the seed and grow portion of it critical, or is the renewal critical? Which one's more? Well, they're equally as critical. Okay. I can't pick one of the other, because I think in the early days, your number one most important factor for an early company is customer success. So that then would predicate that renewal is going to be really important. However, what I mean is, like, those early customers that you have, you have to make them wildly successful, right? And ideally, in order for you to become a multi-billion dollar company, you have to have the opportunity to seed and grow. Okay. Right? The opportunity has to be there, whether that's growing through multiple products, or that's growing by your usage within the organization is growing wide, right?

So that has to be part of your strategy, because otherwise, you know, otherwise, it's kind of like a one-and-done scenario, right? And that's not a good growth strategy. No, not at all. And so that actually leads to another question about customer success. If you said that customer success is one of the most critical factors, should early-stage startups prior to seed A, you know, their A rounds, be hiring somebody specifically dedicated for customer success? You might want to think about it. Because the thing that matters, again, if you think about these factors, we're also looking at churn, right? So if you can land a bunch of customers, that's great, but if you can't keep them, then you're, like, you're pouring water in a bucket with a bunch of holes, right?

And so we're looking at overall negative net churn, because that basically says that, A, you're able to land a bunch of customers, B, you're able to expand those relationships and actually sell them more, and you're able to keep them happy, right? So I would 100% argue that you focus on customer success, hire a CS person right away, because they need to help you figure out how to make your customers wildly successful. Super, super important. Let's switch gears, though, and talk about focus, because what I see with a lot of companies is they chase the money, right? And by chasing the money, you end up maybe adding some capabilities that maybe weren't part of your core, but one of your big customers really wanted.

Ask for it, yeah. So now you're at the mercy of a big customer, and the truth is, is that big customer could potentially take you down, right? So I'll give you a great example. Box. In the early days, Procter & Gamble, she was their first multi-million dollar customer, but they came to him and said, with a whole list of functional demands. And Box did an amazing job of saying no. At the risk of losing a massive customer, but they said, look, if we do this, it's going to take us down. And guess what? We're doing this just for you. We have to focus on what we want to do, what is best for everyone. And it can't just be for you. And so the important thing to do as an early stage company is try not to be all things to everyone.

We have some companies in our portfolio that initially were selling to every industry and every company size, and we try and get them to be like, no, get that ICP hyper-focused. Where's the low-hanging fruit? How are you going to go from, you can't afford, as an early stage company, to have a 9, 12-month sales cycle for every deal. You have to get that down to 30 days so you can generate the long tail. I mean, look, Salesforce was built on the long tail, and then they went upstream. Same thing with Box. So the question is, what are you doing to support that long tail that will allow you to go upstream? And you can't spread yourself too thin because you're going to burn through your cash. And you know what?

Truth is, you're not going to be able to make it repeatable because you've got customer here and customer here and customer here, and they don't look alike. Actually, that was Thrive, going back to that company. That was the hardest thing to do is turn down revenue, especially as a sales rep. I'm like, I found this fucking awesome thing, and the client wants to pay us a whole shitload of money. And it's like, yeah, but it's not what we do. And it's going to take us away from what we actually do. It's like bad customers are the worst because they suck away from your good customers. And now you're not going to support your good customers because you're sucked out of them. Because your resources are going to take care of your bad customers or your costly customers.

I mean, in fact, even at Box, one of the things they had to do is look at all the free users. This is, I have some interesting, I have a perspective about freemium, right? It's really expensive and it could really cost you. But some of the freemium customers at Box were costing Box millions of dollars because the amount of stuff that they were storing in there and not really paying for it because they're a free customer. So they had to evaluate. You weren't one of the top 20 culprits, but there was like a top 20 list and they were costing the company millions of dollars. So we had to go through and put some boundaries around what they were actually able to do. But the other problem with not being focused is now every potential prospect fills your pipeline.

So your pipeline could be full of a bunch of fluff because you don't know enough about all the different customer types as to whether or not they're actually going to take action. So we talk a lot about at this conference about pipeline and pipeline management. And the reality is like you need to be fanatical about getting shit out of your pipeline. Like if it's not real, get it out, right? And how do you know if it's going to be real? Well, you're hyper-focused because it's a good fit, because it fits your profile, because you understand the buyers, you understand how they buy, right? So that's, that is all 100% driven by focus. So let me ask you, so it kind of brings up another kind of iteration of the conversation of focus.

And I think it's a different piece of it, but it's, you know, there's, right now there's point solutions that people are coming out with. And then there's platforms that, right? And I'm seeing a lot of these point solutions fail hard, right? So that kind of goes a little bit against, but it's a different type of focus, right? Because they're focused on one product that does one awesome thing and they crush it. But then all of a sudden, because everybody has platform fatigue, I get this other platform and like, I don't want to yet another thing. Yeah. So does it plug into, like, so I'll use my training as an example, right? Like, I built my portal on WordPress and, and for a very specific reason.

I didn't want to put it on any one specific platform. So now what I'm doing is I'm realizing there's LearnCore, there's all these other ones. So I got my content. I'm just like, screw it. I'm just going to put it on all these things. Totally. So instead of trying to beat a dead horse and say, no, you have to buy my thing. You're spreading yourself across multiple platforms. Distribution, right? It's all about integrations. So, okay. So integrations, because there's focus. I could argue ToutApp, focus. Yeah. They did one thing really, really well. Well. Well. Whatever. However we're going to argue. Really well in the beginning, maybe not so well again. And they didn't get out of that, whereas SalesLoft kind of evolved and started adding things.

And so I would argue a little bit to say, well, Salesforce, was that focus for SalesLoft? Because they seem to be doing a lot of different things. So, yeah. So help me understand that. This is what, we have a philosophy. And so, you know, just take a step back. Part of our investment thesis is we believe in fundamentally what we call industry cloud or vertical cloud solutions, right? Take Viva as a great example, right? We fundamentally believe in enterprise mobile, because we believe 80% of the workers in the United States are deskless. And so there has to be great solutions for those folks that are working in hospitality, architecture, engineering, restaurant business, which I think is hospitality.

And then we fundamentally believe in that AI and ML is the next iteration of SaaS. ML. Machine learning. Okay. AI and machine learning, right? So let's take this notion of focus. Let's take SalesLoft as an example. It's okay if you're building a point solution that is hyper-focused and solving a specific problem. But you better have a strategy to layer the cake. Okay. What else can you add on to your technology that's going to continue to add value and allow you to expand your usage within the organization, right? Either you're going to add more users because of those capabilities or your offering is going to get wider, right? So you could potentially have new modules. It's the modular approach, right?

But we call it layering the cake, right? It's exactly what Viva did. And they're an $8 billion company. And that's what SalesLoft is fantastic. And that's what SalesLoft is doing, right? Adding these pieces to it. And Tout didn't do it. And those companies out there that are point solutions, they have to have a vision for what is layering the cake look like for them over time. If they don't have that, it's okay. But then the question is, how are you going to be a billion-dollar company? Well, then that's the acquisition versus the billion-dollar company. A hundred percent. Okay. Right. Totally. Absolutely. Cool. Very cool. So the last question I have is, if you were to start a company today in this environment, like let's keep us in the SaaS world because we're in this bubble and it's fun.

But if you were to start a company today and you were to, not a kind of little lifestyle thing to what I'm doing, but you wanted to blow it out and say, I want to be that billionaire, where would it be? Would it be in AI? Would it be in machine learning? Would it be in tools? Because I think there's a lot of people out there with a lot of great ideas, but I think a lot of those great ideas right now are great ideas for the next six months and then are going to get completely annihilated. Totally. So they're going to put all this effort into this great freaking thing, and all of a sudden AI is going to come out and go, yeah, yeah, thanks. We can now do that without you. So where would you be, if you wanted to go get money, you know what I mean?

Like I need accelerating money. Where would you be looking to start? Yeah. I would take two out of three of our buckets. I would go find an industry that is right for disruption, trucking as an example, just off the top of my head, right? Really interesting. Maybe pretty hard to do, but really interesting. What about shipping and logistics, like for a shipping company that deals with, you know, they ship everything over the water. Disrupting the port authority, right? Maybe that's an interesting idea. So I would look for an industry that is perhaps ripe for disruption, and then I would figure out how can we leverage AI and ML to help accelerate that disruption. Because AI and ML can certainly accelerate disruption in a lot of markets.

Unfortunately, it's almost a little overutilized in the world of sales and marketing, right? But maybe it's not overutilized in the world of legal or in the world of finance. So maybe you build a solution that's for financial services or the legal vertical or for the legal function across every industry, right? So we just funded a company called Simple Legal, and they're going after, you know, the legal function across every industry, right? Not just the law firm world, because law firms are a little tough to work with, right? So you really have to understand that industry that you're going after, who the buyers are, why do they buy, why does the existing problem actually exist? Why hasn't it been disrupted yet?

And then the next iteration is, how can we use AI and ML to disrupt that? Okay. I got, sorry, one more stoner question for you. Yeah, yeah, totally. Which is, which is my, my, David and I were just having this conversation, which is, I personally think, with artificial intelligence, that we're headed to inevitably be a socialist society, and hear me out, in the sense that we're at this inflection point where technology used to create jobs, or to displace jobs or to create jobs. I see right now that we're at an inflection point where technology is just going to start erasing jobs. So, and not creating enough to, to, to, to displace them. So inevitably, I think we're moving towards 10, 20, 30 percent unemployment in the future, because world population.

Totally disagree. Okay, no, but let me just finish. So, world population is growing massively. So, and, and, and, and Bill Gates said, hey, you know, a solution here is for every robot that takes over a job, that robot should have to pay taxes. Like, to subsidize the amount of people that are going to be displaced without jobs. So, you know, it could lead in one of two ways. One, into a very euphoric state where everybody actually goes and gets a, like France is doing this right now, right? And David was saying, like, France is like 15, minimum, minimum livable wage. Like, everybody gets it no matter what, not just minimum wage, but you're, you live in France, you get this much money. So, it'll allow people to actually follow their passions.

Instead of going to school for something and getting $200,000, $300,000 in debt and then having to go find a bullshit job some other area to support that that's not out what they wanted to do, now they can do it. Or it's going to turn into Back to the Future 3 where Biff is sitting at the top of the mountain and everybody else is killing themselves down here. I'm nervous that we're headed for that because of the mass population growth and artificial intelligence displacement jobs. Tell me why I shouldn't be freaked out stoner about this. No problem. No problem. So, we fundamentally believe that AI and ML, we believe in the thesis that AI and ML can be used and it will be used to coach and develop people, to up-level their skill sets so that they can take on new jobs.

That AI and ML might eliminate the tedious tasks that we all do in our daily life that I freaking hate. Of course. Take a look at Amazon Prime. I don't need to go to the grocery store anymore. I'm like, click, click, click, click, click, click, click, these are all the things that I need, boom, it's on my doorstep tomorrow, right? That's, hold on, that's just, that's just an example, but that's, that's an example of like how we're using automation in some cases to eliminate the tedious tasks, right? Here's, here's the example where AI and ML though is really, we believe in this notion of coaching versus a crutch, right? So, a crutch would be something like predictive analytics, right? So, which basically says, hey, call this person right now, they're, they're, they're a high, they have a higher level of intent to buy.

Sure. Cool. That's basically telling me what to go do. Right. Coach is like, hey, here's how you're in that conversation that you're having with that person. You know, you missed some opportunities. You missed some buying signals. You missed, you know, you missed them. You, you actually, you, you steamrolled over that objection. You didn't really get to the root of what they were really struggling with, right? So, it's almost like having that one-on-one manager listening in on that phone call. Okay. But in fact, technology is listening on behalf of the manager. Technology is, is educating you on how to get smarter and better and faster at what you're doing. So, the notion that AI and ML is used to coach people, make them smarter, better, faster, so they can do different jobs.

Jobs that actually have more meaning and more value to them and to society. Because the jobs that are going to go away are the jobs that are, that don't really have, as we may designate, don't really have a ton of meaning or value in society, right? It's things like, you know, the pickers or like the, you know, the, the task management jobs, right? It's, it's, it's. But don't you think there's a, there's such a mass quantity of those jobs that, like I said, the inflection point piece, where it's like, I agree with you that it's going to take those bullshit, but I believe that 80% of the jobs in the United States of America are those mundane bullshit things that people go through their process around.

Right, so again, let's go back. We have 80% of the United States that are desk, deskless workers, right? And so, the fear is AI and ML are going to create these robots that are going to eliminate these deskless worker jobs, right? The job of the person who's in a, you know, the front desk of a hotel or the maid that cleans the, you know, the shit show that you just left out from the hotel you were in, right? So, it's like, is a robot going to change that? Is a robot going to eliminate that job? I mean, maybe not for 20, 30 years. Like, there's, there's, there are things that robots can do and they can't do. Like, the technology's just not there yet. So, so, that kind of disruption isn't really happening.

Let's think about the disruption that's, that's happening today. Fine. But the idea is, is let's take people out of those meaning, meaningless task-oriented jobs and educate them in a way so they can actually do something different. Let's take the auto manufacturer, right? He's like, I've got an auto parts store and I, I work on cars and all of a sudden I can't do it because I've got arthritis in my arm. And all of a sudden I can't work on cars anymore. So, what do I go do? They're like, I got an education as a, you know, a car mechanic. Now, what do I do? Well, you know what, what if now that I'm sitting at home because of technology, I can answer the phone and do, be a customer service agent, right?

Okay. But I've never done that before. So, how do I get better and smarter at being, delivering great customer service? Okay. So, guess what, the technology can help me, guide me through what's a great conversation, what does that look like, what does it sound like, how I should answer questions. So, the technology can help me become a great customer service agent even though I've never had that experience. That's where AI and ML can really help. Okay. That's what we believe. I hope you're right. So do I. No, and I do agree. I mean, I think that in your and my lifetime, I think that is, is, is, is reality. I think, you know, why, and this is where I, a lot of my questions come from, you know, looking at my daughter when Charlotte's six and a half years old.

Of course. Like, what's the world going to be like for her? When she's our age. Yeah, totally. Like, holy shit. Totally. But, you know, hopefully by then I'm old and still. You know what's going to be happening? This interview is going to be happening. It's going to be live on every screen around us at the same time. And we're going to be able to, like, just, it's full on minority reporting. Totally. Right. But, by the way, I just picked up the Oculus. Oh, yeah. Like. Pretty cool. I know. Holy crap. My good buddy from Neil Mant from Mant Brothers VR builds content for VR. That's the game right there, man. And it's just, I mean, he's a remarkable storyteller. And it's such an amazing experience.

Because now all of a sudden you can have an experience without actually having to go there and be there. Like, I want to go to Hawaii. Hold on. Yeah, totally. I want to go to Hawaii. Turn the heat up in the house and just put your pants on. I'm in Hawaii. Yeah. And that's cool. But, again, it's not going to take us away from the real visceral experience that we used to have. Cool. Awesome, man. Well, always a pleasure. Thanks. Appreciate it. Cool. Good times. Yeah, absolutely. As always. As always.