235. Why Corporate VC Gets a Bad Wrap; Microsoft’s Fresh Approach to CVC; and Key Insights to Acquire Mass Users (Tamara Steffens)

235. Why Corporate VC Gets a Bad Wrap; Microsoft's Fresh Approach to CVC; and Key Insights to Acquire Mass Users (Tamara Steffens)
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Tamara Steffens of M12 joins Nick on a special Crisis Coverage installment to discuss Why Corporate VC Gets a Bad Wrap; Microsoft’s Fresh Approach to CVC; and Key Insights to Acquire Mass Users. In this episode, we cover:

  • Background and path to venture
  • Overview of the thesis at M12
  • Investments since COVID? Changes in strategy, markets of interest
  • CVC has the reputation of being very slow, not leading deals, imposing restrictive terms, and thinking only about broader success of their parent company— what’s different about M12?
  • What’s your approach to sourcing?
  • You are known as a user acquisition expert in the valley… having generated millions of app downloads for Path, Color and Acompli. One of your main suggestions is to “Dismantle the silos” … what do you mean by that?
  • You’ve cited the top three things you need to make your app part of the zeitgeist — can you walk us through each and why they’re critical?
  • Talk about the ‘Leaky Bucket’ of new user acquisition and how to avoid it?
  • What’s a good level of user retention (%) after 6 weeks?
  • What are the biggest differences in approach when acquiring consumers vs. enterprise customers?
  • What are the main KPIs/OKRs you track when optimizing a sales funnel / team?
  • I’d like to talk a bit more about the startups you work with… What are the key factors you’re looking for in investments?
  • How do you work with your portfolio companies?
  • Why should every startup be thinking about culture as they build their companies?
  • How are founders today different from founders 20 years ago?
  • What tips do you have for founders pitching investors remotely?

Guest Links:

Transcribed with AI

Intro 0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the full ratchet.

Nick Moran 0:23
Tamara Steffens joins us today from Dallas. She is managing director at m 12 Microsoft’s venture arm focusing on series A and beyond. Prior to m 12. Tamra was an operator with over 20 years of experience in Silicon Valley. Her last startup accompli was a mobile productivity app where she led sales and BD. Prior to that she helped many startups like software.com Boingo and fusion one hit IPO or acquisition. Tamra, welcome to the show. Thanks, Nick.

Tamara Steffens 0:51
Good. Happy to be here. Yeah,

Nick Moran 0:54
it’s a pleasure. So you know, I gave a really brief overview of your background. Can you talk about your path to venture?

Tamara Steffens 1:02
Yeah, so you mentioned the coplay. So that was my last startup. And we were acquired by Microsoft, in the end of 2014. I think we made it official in January of 2015. And I, you know, they asked me to help them with mobile, and BD and help the productivity group. When I got here. And I loved it, I surprisingly, thought I would not like it. And I would leave and go do another startup after doing six that it becomes addictive. But I didn’t. And it was really fun being inside Microsoft and having so many resources. So when we got acquired, then I ran BD. For kind of the productivity group, think of it as the office 365. And a lot of the products that are under that umbrella. And then, you know, they said, Hey, we think we need an operator on the M 12. Team to come over and lead investments in North America and India, you know, would you consider doing that? And I said, Hmm, that sounds interesting. And I thought, well, I’ve raised 16 rounds in my many in my tenure of many startups. And so I thought, certainly, I know how to raise money, I should be able to figure out how to invest. And it’s great. It’s fantastic being on the other side of the table.

Nick Moran 2:32
I love that. So So what does the team look like at m 12.

Tamara Steffens 2:36
So we’re quite small, it’s 25 people in total, in the organization. And on my team, I have a group of investors, some associates and partners and principals. And then we and I have a lead investor in India. And then we have a venture team that’s really focused on supporting all of our Venture Capital Partners, regardless if we make an investment in one of their companies. And then we have a team that really does a lot of our research our insights and events. So we run a lot of events, Microsoft has a whole runs a lot of events. And so we’ve tried to make sure our portfolio companies can take advantage of the broader Microsoft. And then we have a portfolio development team that sits in Seattle that actually works with all of our product and engineering teams and make sure that anyone we do invest in gets the full support of Microsoft, both from a go to market sales perspective. And from an engineering perspective, so pretty small team, but really focused and really try to work. We’re not a Strategic Fund, we’re financially focused. So we really try to make sure that whatever we invest in, we can help them grow and become, you know, more profitable.

Nick Moran 4:00
And when we knew joins, was the DNA of the team, mostly Microsoft folks that kind of came up through the business or were they you know, outside folks that were in venture, you know, with other organizations? Yeah,

Tamara Steffens 4:14
actually, we didn’t have anybody from inside Microsoft. Oh, wow. Um, we hired all you know, I would say 90% Or just experienced venture people came from private private equity, banking, definitely, you know, I would say 80 to 90% have that background. I think I’m thinking out loud here. I think I’m the only one on the investment side that came from inside Microsoft. The we do our portfolio development team, which sits in Seattle Redmond, they are all or most I would say are from Microsoft. And they because we wanted people that really knew the inner workings of Microsoft so that if they are representing one of our portfolio companies both inside Microsoft and through our sales organization. We wanted them to have you know that DNA. So a number of them, I would say 80% of our portfolio development team comes from Microsoft, but the rest is all. Not from Microsoft.

Nick Moran 5:15
Wow. Interesting. Interesting. Yeah. Many, many years ago, I spent some years in m&a for a corporation called Danaher and was responsible for strategic acquisitions. It sounds like you guys are purely financially motivated. Not, you know, following the strategy of Microsoft, per se, and in the way that you operate and make investments in startups. Can you talk more about the thesis at m 12?

Tamara Steffens 5:44
Yeah, we try to stick to our knitting. I know, that’s an old cliche, but I do think we’ve done a decent job of that with only a few exceptions. And what I mean by that is we focus on b2b SaaS companies. And that’s a pretty broad bucket in itself, because in that we do some deeper tech stuff who’ve done it, you know, a few things in robotics and, but really, we try to focus on b2b Right, so we have an entire Salesforce that’s focused on that. And so we feel like we can help our portfolio companies the best if we have expertise inside Microsoft that is able to help them. While we, you know, I won’t say that Microsoft is doesn’t do well in consumer, because obviously, we do great in gaming. And in a few other things, we don’t have any experts on the team that know that space. So we’ve stayed away from the consumer space gaming space to date. Never say never. But right now, we’re just focused on b2b. And as you mentioned, we do lean in on Series A, we’d like to lead our preference. And so what we’ve done B’s and C’s, as well, when the fun got started, we started out doing a little bit more in series B Series C. buckets, and we’ve now in the past 18 months, really leaned in on trying to do Series A, and we even preferred a lead. I mean, if we can we try to lead?

Nick Moran 7:16
Yeah, what is sort of the ideal profile of a common company that comes through your door? That’s the right sort of stage sector fit. You mentioned b2b SaaS, you know, is it is it workflow tools? You know, what? What’s a great fit for M 12? Yeah,

Tamara Steffens 7:32
it is pretty broad. So I would say workflow, productivity, big, big focus for us, cyber, the cyber areas, a huge focus for us, just cyber insecurity, in general, has been a big focus for us. artificial intelligence, machine learning, we’ve invested in some things that that do some really intelligent stuff with computer vision. So it seems like a big a big brush, but it really anything b2b That you would see in larger enterprises. We have had some success in mid market and small business tech as well. Generally speaking, it’s that tech that kind of is a is broad, meaning it could start in small business mid market and move up to enterprises is a good fit as well. Is there?

Nick Moran 8:28
Are there traction? benchmarks or, you know, is there a floor that you usually like to see before you engage? Or is it all case by case?

Tamara Steffens 8:38
Well, we it is all case by case. And so if you, if you see some some of the investments we’ve made, we’ve even done a little bit in silicon. And I’ll use that as an example. Usually, there’s not going to be any revenue and in early stage silicon companies, but we try to look at, you know, how fast they’re getting the testing and what, you know, who’s looking at it, what, what are their Beta and Alpha projects, because we can make some decisions on how quickly we think they’ll get into market. But generally speaking, you know, we’re looking at, you know, two to $4 million in revenue before they get to their series. A, it’s a super generalization because we’ve done less and we’ve done more, right. You know, some companies have had more revenue before they’ve gotten into their series A and some of them have less, but generally speaking, some early stage signs that they’ve got product market fit and, you know, have some revenue and you know, a site to the following year, that looks like it’s going to, you know, increase by 100%. So, if they’re two to 4 million, we like to see that you know, they’ve got line of sight to say 8 million or 4 million in you know, follow on yours. Got it. These are really a broad brush though, because if we find technology And it’s less revenue or their projections aren’t as high. But we know in the third year, they’ll take off for whatever reason, we really try to listen and understand, like I said, the product market fit. And if we can help them, those are probably more important, even then, you know, maybe the early stage revenue that we see and where they’re where their projections are.

Nick Moran 10:22
Are most of the investments done on the West Coast?

Tamara Steffens 10:26
I know. Wow. We’re kind of all over. We do have a lot on the west coast. But you know, we’ve made a few here in Texas. We have some in York couple in turn, think Chicago, I think is well, definitely we have some in Europe, we have a my peer that focuses on that. Lots in Tel Aviv, we have a research group in Tel Aviv and a small team from M 12, Intel the that focuses on that. So we’ve done a lot of cyber security out of the Tel Aviv office, we’ve done a couple of investments in Australia. And then we opened our M 12. India focus last summer and really got it going at the beginning of this year and just made one of our first investments in the Indian market. So pretty broad. We’re not doing a lot right now in Southeast Asia. So that’s not a focus for us. But otherwise, we’re pretty open. Wow.

Nick Moran 11:22
And have you guys invested at all since the the pandemic broke? And are you? Are you changing the strategy or the areas of focus at all?

Tamara Steffens 11:31
Yeah, we’ve definitely invested since the pandemic broke. I mean, I think we’ve announced two or three since March. And there’s a couple more that we’ll be closing on here in the next 30 days. We are not changing our focus, or our thesis at all. That stayed true, it is a little more difficult when you can’t meet the founders and the team and, you know, get a little more hands on with the organization before you make an investment. Most of the investments we’ve made, we started in, you know, January, February, March, right, so we had a chance to meet those teams. But there are definitely a few that we feel confident, are great. And we’ll continue to move forward. You know, I think everybody agrees that it is nicer to be in person. But if it can be done, and I’m pleasantly surprised that the technology has, you know, whether zoom or teams or you know, other video Tech has been fantastic. I think Satya said in an interview recently that we did, you know, two years of digital transformation in two months, right, because our teams, our teams product, like took off like crazy. I mean, I think we, I was reading one of the stats the other day that we did the entire country of Saudi Arabia, their school system, right, so that all their students could get online, it was a million students in two weeks, so that they could continue to go to school. So I you know, that part, I think, has been phenomenal. And so I think being able to take advantage of that technology has been an advantage for us. I think it’s been an advantage for all the venture companies out there,

Nick Moran 13:15
in our you shifting kind of the markets of interest are the areas of focus.

Tamara Steffens 13:22
Not Not really, um, you know, because I think because our thesis has always been b2b, that’s been, you know, that market still seems to be moving pretty quickly, as far as new technology and new ideas. So we really aren’t changing our thesis at all. I mean, I, you know, dabbled in a little bit of the consumer stuff of late, more technology that could fall into a consumer category or into a b2b category. And it’s interesting, you know, the areas of consumer that are taking off, right, like gaming, right, it’s just really, our gaming team said that, you know, they’re their numbers are, you know, off the charts as far as users and and you would think that right, when you’re stuck inside of you, yeah, you get tired of Netflix, and you gotta get going. Right. Right.

Nick Moran 14:18
Right. So, Tamra, you corporate venture capital, has had the reputation of being slow, not leading deals and posing restrictive terms. You know, mostly thinking about the broader success of the parent company. You know, what, what, how have you adjusted your approach and kind of what’s your response to kind of be in putting this CVC bucket that, you know, often, you know, other investors raise an eyebrow?

Tamara Steffens 14:49
Yeah, I mean, I think, you know, the proof is in the pudding. Right? If you talk to any of our portfolio companies that we’ve invested in over the last four years, I think they will I would say it was a great and a great partner, we’re glad we took that investment because they’ve helped us either from a technology perspective or from a go to market perspective and growth. So I think that, first and foremost, if they look at the companies we’ve invested in, they’ll see that we’re really focused on success and getting those companies, you know, on the right growth trajectory with our own customers. And with Microsoft, as a customer, we’re very clear that we’re not a Strategic Fund. And we’ve actually invested in things where Microsoft has technology or even a competitive product. So we don’t, we don’t look at that. And we are, you know, we use separation of church and state, right, we don’t, if a company that we’re investing in really doesn’t want Microsoft to understand what they’re doing, or we don’t share that there’s very clear about keeping the, the technology separate, and the information about our investments separate, unless, of course, we both agree that it would be beneficial to, to make that happen. So it’s really up to the investment. It’s up to the portfolio company to make that decision. So I think now that we’ve been around for 40 years, it’s we proven that we’re not a Strategic Fund, and that we really do look at the financials, I think most of our partners, other investment partners that we’ve co invested in, you know, rounds will say that we were one of the better or one of the best, you know, corporate venture funds out there. And I think they quickly figured out that we’re not strategic, right? Meaning we’re not we’re not aligning to Microsoft strategy. That doesn’t mean we don’t try to make sure when we’re investing that Microsoft, as a broader company can’t help those portfolio companies, because that’s one of our big value ads. So we’re not going to go you know, invest in some, you know, consumer, you know, I don’t retail type company that we can’t help at all right, right, where it’s a product, you know, that has no benefit to getting help from Microsoft, then it wouldn’t make sense for

Nick Moran 17:19
us. Got it. Got it. In, what’s your approach to sourcing?

Tamara Steffens 17:27
Well, a lot of sourcing does come from our relationships with other venture funds that we have close partnerships with, and we’ve had success with already. So that continues to be probably our, our lead, top of funnel source. But I think each of us as investors has our own personal relationships, you know, both in Silicon Valley and beyond. So we, we go from there, we do get leads internally from Microsoft, I talked to one of the heads of Microsoft research today. And they’re, they’re working with some technology, a company that just did a series A that we unfortunately missed, so maybe we can look at B but I was I ended up talking to the CEO just before this call, and I was just blown away. And I was like, how did we not know about this technology, and this company that had great success just in the last year, so we do get some top of funnel from folks inside Microsoft and, and sometimes it’s fantastic. So there’s a number of ways and I think it’s a big advantage for us too, because we we do take advantage of so much technology that’s out there. So I think there’s a number of ways, you know, relationships, current venture partners that we have already invested in or we know and also internally. And

Nick Moran 18:47
does it is it structured as a dedicated fund or is it evergreen?

Tamara Steffens 18:53
It is. It’s we like to call it every year, we get a new vintage. So you know, tech, technically we’re investing off balance sheet, right? It comes from our, our CFO, but the every year it, we have a new vintage fund, and that’s what we focus on for that year. And those investments. We do have a small Growth Fund as well. And we use that for the companies that are growing really fast and we can give them a little bit more investment and help them grow faster than we’ll take it out of that.

Nick Moran 19:27
Got it. Got it. So Tamra in the valley you’re you’re sort of known as this user acquisition expert and Guru. You generate millions of app app downloads across path color and accompli you know, one of your main suggestions has been to well you’ve had a lot of good thought advice and, and content that you’ve contributed in this area. But what are your main suggestions to start is to dismantle the silo was, What do you mean by that?

Tamara Steffens 20:03
Well, I mean, I would say if you’re to there’s different. If you look at growth, particularly on mobile, first, you have to figure out who is your who is your user? Right? Who is that? Is it a consumer user? Is it a business user is it both in a lot of cases it could be, and then determine what each user needs, right? And I, I’m a big fan of design. And I, I maybe fell in love with design more than I was already in love with design when I was at path. But it is it I do believe that the right design on a mobile app makes or breaks that out. And you design the app different based on who your customer is, right who the end user is. And you’re going to have lots of different types of end users, right? Whether it’s, you know, an older, an older person that is using the app for, you know, in a particular way, a business person that’s using the app in a particular way. And I look at a company, and I think about how much time we spent just looking at that user interface and making the smallest changes, just based on the way people were using the app and how many more users we got, or how many more users didn’t churn right after we made the right little changes in the UI. So I, I refer to silos more as if you think of that end user who is that and you’re going to need a lot of them, right. And so you got to be able to really figure out which user is in which bucket and really focus, make, make your product work for all of them. Because the broader you can make the product or the broader appeal that you can make in your product that the stickier it will be and the less churn you’ll have. And the more users you’ll keep and get.

Nick Moran 21:58
Got it. Yeah. And you said sort of the top three things that are required to make your app part of the Zeitgeist. What are the top three? And why are each so critical?

Tamara Steffens 22:11
Well, I mean, I do think that changes by the way, too, as as if I think back at, you know, my early days, at Boingo. It’s very different, right, when people were just trying to get on Wi Fi, right. And so, right, you know, I mean, it’s still I still, you know, I’ll walk into a place and I’ll think, Okay, I gotta get on Wi Fi, and you just, you know, how difficult it is to find? Which one, do you click on? What network? Is this? And how do I know? Is this? Is this the network? Or is that, you know, it still is a problem? And was one of the things that they and the designers there, and the engineers they’re really worked on was like, How can we follow up the right network? How can we make sure they get on that network, and they’re able to connect, right? So and that was a long time ago. And so now, you know, in doing it, it’s, you know, the product has improved drastically, they’ve been able to do more engineering, single click, tell you what the problem is, you know, tell you what the most strongest network is. So, if you look at it from, you know, 10 years ago, to now it’s, it’s very, very different. But I do, I still believe, especially in mobile, when you’re looking, you know, you gotta, you got to catch that person who download the app and use the app, and within the first 90 seconds, because you download the app, you know, you’re thinking about it, you want to be able to use it, you want to be able to get on, right? If you start, oh, my gosh, you got to get a code, you got to go back in, you got to do this, you got to sign up, you got to, you know, give your firstborn. And, you know, here’s a retina eye scan, everybody, just, um, you really feel like you’ve got to capture the user, make it easy, let them know the value of the app right away. The other thing I think, is figure out why people use the app and what’s keeping them there. And I know, when we were half, it was seven friends. So if you download the app and use that, and you got seven friends to follow you, and you were following them, right? And that’s how it works. We never lost you, you stayed forever, right? And you became, you know, a better better user. So we tried early on to figure out how to you know, do a lot of our a lot of our data scientists looked at, you know, what was keeping the customers and what was keeping them using the product, right? So I do think that each app has its own. Each product has its own thing that will make you keep using it right I know in Outlook, which accompli you know, if people put their contacts in, that was enough, right? If they got their contacts into, into the app, so if we could just sync the contacts we usually became In the app of choice, so there’s going to be something in each one of those apps and you’ve got to try it, you need to do a B testing, it’s critical, and you need to figure out what your users are doing. And you need to be looking at that every day, all day, when you’re doing your alpha when you’re doing your beta. And when you go to GA, and you got to keep looking at it. Because products change, and people change, right? As they become more sophisticated, you’re going to want to add to that, as you take on new users, you’re not going to want to lose the focus you have in the beginning to keep those initial users, once

Nick Moran 25:34
you’ve identified what that action is, or that hook that just locks them in, you know, what, what sorts of things have you done in the past to kind of encourage the onboarding or the integration of new customers? You know, without that hand holding, right, because we’re not talking about, you know, a one to one customer success? Rep. That’s, that’s working with a customer, you know, you’re trying to do this at scale. You know, how do you get folks kind of, from that first download of the app to that, that action that kind of locks them in for the long term?

Tamara Steffens 26:14
Yeah. Again, I think it’s different with every product. So walking somebody in for the long term is, I think you have to continue to add value back to them. I know, I’ll use path and accomplish because those are closest to my memory, you know, before I got to Microsoft, but with past, you know, we added things as we had a more sophisticated user, I mean, at one point, we had, you know, 25 million diu, mostly in Southeast Asia. But the interesting thing about that, was they loved stickers, right. And so we tried to continue to get more and more stickers and cooler ones, whether it was you know, you remember, we had Hello Kitty, but some of the, you know, more popular football teams and different in it to keep that audience and keep them coming back and make sure they were, you know, in the app and being able to gift those stickers to friends, etc. So it was interesting, because you as the product evolved coming up with, you know, cooler features. And now that’s super common, right? Everybody uses they’re just in your in your normal messaging. But back then that was relatively new. In accompli, I think we just tried to add features that were super easy, and really valuable. So one of the features we added was to go was focused, and you know, unfocused, I guess it was or other I think we called it. And if you flip that switch, pretty much anything that was spam, or just sent out to a big broad audience went into other. So you knew that everything was your mailbox was already pretty important. Was it perfect? No. Was it 98%? Perfect? Yes. And so yeah, few things would fall into other people would like, Oh, my mom sent me this, and I didn’t get it. But it was very easy to check other it’s not like we threw it away, or actually put it into spam. It was just the other folder, right? So you knew that in the other folder was going to be all those messages you got from you know, the entire company like all this or all bad or everybody, you know, come to this meeting. So it was great. And people loved that future. And when we got to Microsoft, they were a little uncertain. They’re like, Oh, maybe we shouldn’t do this, you know, people, we shouldn’t move now over for people. And we took it out in an AV testing and people went crazy. They’re like, what happened to focus? I need focus. So it proved to be a great, a great feature and a reason why people were using the product because it made them more productive. So I think, you know, consumer app path, we tried to make it more fun and give them more fun things to do. You know, every now like I said, Now, it’s super common to have filters for photos. And, you know, but, you know, back then it was kind of PAP and Instagram in the early stages, trying to figure that out. So I think, adding features that people want and making the product more valuable.

Nick Moran 29:23
Do you have any tips or suggestions for the users that go dormant? Right? You know, you’ve maybe, maybe you never reach that major activation step that gets them locked in for the long term? Or maybe it’s users where you did but for whatever reason, it’s been a year or more and they’re no longer a monthly active. Any tips on kind of re engaging those those users? Yeah,

Tamara Steffens 29:49
I think if you look at it, you want to really watch that when it’s happening, right? So instead of waiting a year, like you’re gonna see when people drop off at that 90 Day or six month mark, and you’re gonna want to try to bring them back in at that point. And it can just be letting them know about a new feature or send an email to say, Hey, I know you haven’t, you know, checked on this, here’s some new things that you would be really beneficial. And I don’t, I think, trying to understand what that user was using it for, and bring him back to that use case, again, is pretty important. LinkedIn does a really good job of that. And in all the ways I’ve never worked for them, obviously, it’s a Microsoft company, and it, they’re able to continually remind you to add more, add more people that you know, either from your university or from, you know, your workplace, and they do a really good job of trying to reconnect you with some of those folks, Pac did a good job of that as well. So they would tell you, if a friend of a friend joined, right, like, hey, so and so just join, and that might pull you back in, we couldn’t do as much of that at accompli, right, because it’s a business app. Even though people use it for consumer based email, you weren’t going to tell people who was using the product, but you could let them know about a feature that might be you know, really important to them, whether it’s organizing their address book, or the way they you know, could organize context. Now, the other types of mail products they can stick to, you know, the way they can separate out their folders. So letting them know of new features that were that were requested in the market, and then that they came out, if you bring those back into somebody’s inbox, sometimes they’ll come back to you. It’s hard once a user churns, it’s really hard. But if you can pull those back, even if you can pull back 20% of your churn users over time, it can be a big number, for sure.

Nick Moran 31:55
Yeah, well, while we’re talking about the churned users, you know, what, what is a good level of user retention after six weeks.

Tamara Steffens 32:06
So, you know, again, it does depend on the product. So if it’s consumer versus b2b, but a rule of thumb is, hopefully you’re not losing more than 40%, that you’re keeping 60%, after six weeks. It’s, it’s aggressive. But I think it’s, you know, it’s harder in consumer, you do end up, you know, if you, if I look at consumer success, if you can keep 50%, that’s amazing. But if your product is good, you can do better than that, right? And you can, you know, again, the easier it is for the person to use the product, and the less you make them do to get going, then less people, you’ll lose in the first 90 seconds, right or in the first day. So that’s number one. And then number two, when they start using the product, you gotta keep feeding and stuff so that they don’t turn. Right. So you can’t lose sight of that. Is

Nick Moran 33:11
there a way to tease out let’s say, you know, your retention is lower? Is there a way to tease out whether it’s a product issue or a messaging issue? Or maybe just, you know, you’re you’re targeting the wrong type of customer? I imagine that the data science would help a great deal with that if you had enough data. But is there a way that you kind of diagnose, you know, what is the source of our lack of retention?

Tamara Steffens 33:43
Yeah, yeah, I mean, there’s a number of different ways to do this. Although I never worked for this company, I actually was a big fan of a company we bought at Microsoft. And I helped with the acquisition of a company called Mile IQ. And I look at the way with the one of the reasons that I was so enamored with them, and that Microsoft was excited to acquire them was their UI and their user interface, their user interface people, right, and the data scientists, they actually looked at a heat map of how you how you use the product, like where you touch the screen, and how often you clicked right or left. And the product was really cool. They, they put the product on your phone, and you swipe left if it’s business and right if it’s personal when you’re driving. And all it did was pick up the miles so that if you were a real estate agent or a plumber, or somebody that you know, independent business person that had to track your mileage, super easy way to do it, and you could do it at the end of the day, at the end of the month. At the end of the week. It was always running. And so when you had to quit your mileage and on your taxes that you know it would give you everything that you did that was business and everything that was personal, and they work so hard. I found that user interface and had such a sticky, customer base, it was really impressive. So what they did is they let you use the product for 30 days for free. And at the end of the 30 days, they said you drove 510 miles per business. So this would be x dollars toward you either in a tax write off, or if you’re turning it into your, you know, corporate office or company that would reimburse you for those, those miles. And people were like, wow, this is amazing. i Are you kidding me out, certainly paying whatever it was $65 a year to do this, this saves me, you know, a ton of money. So they could tell you, in the first 30 days, how much you would say what the product was going to cost and wasn’t going to be worth it for you to pay them to keep this app. And their conversion rate was insane. And that just shows that they wrote a good UI, they kept track of what their customer was doing. They made it super easy to use. And it’s just a great, a great mobile app that could work for consumer or a business person. And just ease of use was everything.

Nick Moran 36:08
It’s surprising how much I used to be a product manager have launched a number of products. But it’s always been surprising to me how much ease of use and elegance of design and interaction is just a superpower, even beyond like technical capability. And I mean, it depends on the application, of course and the the customer SEC set but ease of use is just such a superpower that’s undervalued.

Tamara Steffens 36:34
Yes, it’s literally I think the biggest mistake people make in a mobile app or even in a desktop app, you know, you look at it, you can’t figure it out. And then you just start like left, you know. And you don’t go back to it. Most people if they try it, and they couldn’t figure it out in a few minutes, if not a minute. They just don’t go back. Right? Because they’re busy doing other stuff. And if it’s, you know, yeah, the engineering types might sit and try to make it work. But I will I just I give up. So if if I’m the average consumer, and I think I am, it’s got a it’s got to be easy. And it’s kind of look pretty, too, right? I know that a lot of people, you know, you’ll download an app or it’ll be a mobile based web and web app on your phone, right? Then you can tell because somebody didn’t actually design it so that it would fit a number of different phones. It doesn’t. And then you’re like clicking on the wrong buttons accidentally. What who designed this?

Nick Moran 37:35
Yeah, it’s kind of funny, like we invest much earlier than you at precede, but we flip that whole concept. And we actually look for really poorly designed products that have amazing data and metrics around them. You know, painful, just poor design. And it’s, we found some real gems. By doing that, and doing design pivots and UX improvements. It’s always amazing when you find a product that’s hard to use, and yet people are clamoring to use it, and they’re going through the pain still, to use it, because the benefit is so large. But anyway, that’s,

Tamara Steffens 38:12
that’s an interesting way to invest. I’ve never thought of that. But you’re right. That is because it’s the actual need for the tool is so great that people put themselves through the pain to use it. And can you imagine if you made it

Nick Moran 38:24
easy, right. And it’s worked. I mean, we’ve we’ve only done that three times. But in each of those three cases, you know, once the design pivot occurs, and the UX improves significantly, the numbers just get get very, very positive. Any thoughts? Appreciate it? Um, any thoughts? Tamra on the biggest differences in approach when acquiring consumers versus enterprise customers?

Tamara Steffens 38:53
Um, well, I mean, I do think from an enterprise customer base, if you’re starting from, you know, groundswell where you’re trying to be more like a Slack, where you tried to get small groups of users to use the product and then grow it from, you know, bottom up, and a consumer is going to be pretty similar, right? Because you’re getting just that user to understand the product and ease of use and getting, you know, a number of users connected to each other. That’ll be really similar. on the enterprise side, if you’re selling from, you know, mid range or top down, then you do have to make that product easy to implement so that they can get it into their enterprise quickly. And there’s actually a very quick return on investment that they can see. Right, so if you’re trying to get I mean, I look at teams like we, you know, teams versus Slack. Slack is a phenomenal product. We use it a ton of the company. We were a small startup and easy get put in an easy to get everybody to use. And they took that and did very well across a number of enterprises at, you know, from the, you know, got a groundswell going, if you will, you know, teams, we didn’t do that, right, we had Microsoft. And so we made it part of BIM 365, it got out there got into these big enterprises, because of our, you know, we were huge on security, right, we make sure everything was done exactly the way enterprises needed to be done. And teams was a little bit slower to take off, and then it was fire, right? I mean, it was on fire, right. And so it can work both ways. But you’ve got to make sure the product is easy to use, I, you know, I actually, I still use Slack for a number of the boards that I’m on, or they’ve got Slack teams on that. So I use that every day. And I think I love teams, and I used to love slack, I used to think slack is so much better. And now I’m like, I love teams, they’ve made it so easy to use. I hard for me to make a mistake on the product. And they didn’t they haven’t added a lot of complexities that I don’t need. So, you know, I think it’s different, depending on if you’re going from the bottom up, or the top down and your sales approach.

Nick Moran 41:22
Yeah, I’d love to hear a bit more about that at m 12. Do you guys look at both product lead, you know, bottom bottom up growth as well as top down enterprise sales?

Tamara Steffens 41:32
We do we do? We just looked at a company the other day that I is more of a seed investment, or would be we do very few of those, if any, but we but they they are doing a bottoms up approach. And it is working. And it’s a great productivity product. It’s amazing. And somebody one of the investors we were talking to the other day, and I can’t remember what venture firm it was from but he was like, you know, I think we’re only going to invest in companies that can do this from the bottoms up now, because who needs top down selling? I don’t know that I would go that far.

Nick Moran 42:11
I’ve heard it. I’ve heard it from investors. Yeah,

Tamara Steffens 42:14
that seems extreme, because I still think that some I mean, think about security, right? You’re not going to sell security products from the bottom up, right, you’re gonna sell security product, so that it’s protecting the company in the enterprise in their assets, right. And so whether it’s going to be on your device or on, you know, in the network, or something that’s going to be a top down sale, right, you’re gonna have to go to the seaso. And you’re gonna have to work with them. So I don’t, you’re not going to have, you know, hey, we’re only going to look at products that go from the bottom up, because I do think that companies make decisions on tools. And they, you know, make it across the board. And security is a big deal. I mean, we use a number of different Microsoft’s really flexible in, in letting different teams use different products, believe it or not, not Microsoft based products, you know, at m 12. We use Zoom a lot because it works for us as a venture firm. But we, if the product you’re using it Microsoft turns out to have big security holes, they will they will shut it down, right. And I had a number of well known productivity tools that I used and, you know, over the years, and sure enough, it would get get into Microsoft Security. And there we go, there’s like 90 holes in this you can’t use it anymore. So I think in big companies fortune 1000, you’re still going to have to have a top down approach just because they’re you know, companies are, are very security conscious. And you’ve got to make sure that you sell from that point.

Nick Moran 43:52
Yeah, I remember being on on Dropbox very early days back in when I worked for a corporate and they caught that pretty quick and was no longer allowed to use that. So I can relate. Tamra, how do you think founders today are different than founders? Maybe 20 years ago?

Tamara Steffens 44:15
Yeah, you know, I think they’re I’m so impressed. I we just did a female founders competition. Right at the beginning of COVID. We had to turn the entire competition into a virtual one. And I will I will say that I think today’s founders are much more sensitive to culture and making the culture of their company great from the beginning. They do understand diversity and the need for it. And they’ve seen the success of companies that are more diverse, you know, so they’ve got good examples to look at and they they know that will make their company better. They they’re very really sensitive to retention and making your employees happy? And, you know, I’m not saying that 10 years ago, we didn’t look at any of that. I just didn’t I don’t think there was a spotlight on that in, you know, keeping your employees happy and having a culturally diverse company, you know, did that make you a much better company? Well, I think we all knew it. I think it was more unspoken, and it shouldn’t have been, but it was more unspoken. And, you know, now people are aware, they understand how to how to build a great long term company, and they’re learning from great leaders in the market, right? So whether it’s Satya, or Tim Cook, or, you know, you, you have so much more visibility into these leaders who are iconic and really have done a great job is shared their knowledge broadly so that they can learn from it. And the founders, new founders take, they’re taking advantage of that.

Nick Moran 46:03
So Tamra, I’m gonna put you on the spot, we got a hypothetical question we’d like to ask, it’s called three data points. Let’s say, let’s say you’re approached to invest in an enterprise SAS business, let’s say the business has 2 million of ARR. Let’s say it’s growing 20% month over month, and the quick ratio is four. The catch is you can only ask three questions for three specific data points. With three questions you ask.

Tamara Steffens 46:34
I generally like to know total addressable market, like do they understand what their total addressable market is? It is still one question and what that revenue would be in that total addressable market. So whether it’s number of users and then the value for each user. So usually, that’s one question that I need to understand. So it’s not a point product, right? Yeah, they might be growing 20% month over month, but it’s, I need a big market so that I can see that they’ve got, you know, two to five years of growth ahead of them. Yep. Um, I generally, I’m I like to know how they manage their cash. So I’ll usually ask, you know, number of employees and burn so I know what their burn is per headcount. M, and n number of employees. I have been asking the diversity question lately, right. Like, what’s the makeup of your employee base? It’s a, it’s a good question to ask. Because if it’s a really small team, 1012 people, it’s hard to, you know, hard to really. So I, if it’s that small, I generally wouldn’t ask that question. But if it’s 25 or more, I would ask that question.

Nick Moran 47:45
Perfect, love it. Samara, what do you know, you need to get better at?

Tamara Steffens 47:51
Well, I’d like to work less and be more productive. I think sometimes I work too many hours. And I don’t think I’m as productive as I could be. And I think that’s maybe becoming worse during the pandemic. So I continually try to be more productive in a less in less hours during the week. And I, you know, it’ll probably be the thing I focus on for the rest of my life, just because I, you know, you know, get more done in less time, so you can have a little more free time for yourself. Hear

Nick Moran 48:23
that? And then finally, what’s the best way for listeners to connect with you and follow along with them? 12?

Tamara Steffens 48:30
Yeah, so you can follow us, you can follow me on Twitter, you can follow me at Tamra Stephens on Twitter, you can link in to me, I’m always open to that, please tell me a little bit about yourself. So I know who you are, and why you want to link in so put that in your note. And yeah, we’re always looking for top of funnel so any great early stage companies that fit the model and the thesis that we talked about, I’d love to hear from you.

Nick Moran 48:55
Awesome. Well, thank you so much for doing this. We’ve we’ve heard a lot of great things about you over the years and of course about the firm 12 and really appreciate you coming on and in doing it.

Tamara Steffens 49:06
Thank you so much. It’s been really fun. And that last question that was tough.

Nick Moran 49:15
That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest competently. Thanks for joining us