Lior Handelsman of Grove Ventures on marketing problems and product problems

Lior Handelsman

Hi, good to be here, the pleasure is all mine.

Lior Handelsman

Going in my timeline backwards: I'm now a partner at Grove Ventures. Grove is a venture capital firm in Israel. We invest in early-stage startups, which means most of our investments are seed stage. We currently manage a little bit over half a billion dollars, and we have very wide expertise, with a bit of emphasis on deep tech. About a third of our portfolio is software, vertical SaaS and AI companies. Then we have a big part we call cloud and data center infrastructure, from the really hard stuff like semiconductors for cloud, silicon photonics, quantum computers, all the way up to infrastructure as code, software infrastructure, data infrastructure and DevOps.

Then a third is what we call edge: compute on the edge, communication on the edge, energy, climate, software at the edge too. Quite wide. I've been here at the fund for almost five years. Prior to that I was a founder of a company called SolarEdge, which I founded together with friends. Most of that period I was responsible for the company's product strategy and marketing, hence my marketing background, even though I didn't have any marketing background before I became a founder. But basically 15 years at SolarEdge, from inception all the way to taking the company public, and then five more years after that. When I left, SolarEdge was already quite big, valued at about 20 billion. Before that I had a military career; I was in one of the tech units here in Israel, [unit 81], for almost [unclear].

Lior Handelsman

So first of all, really understanding the market. When I meet founders, and when I talk to them, before investment, after investment, I think the most important thing is to really understand the market, and the only way to really understand the market is to be somehow immersed in it. What I appreciate most in founders is when they're aware of the key players, key trends, key metrics of other companies, how other companies are selling. In every market I've ever invested in, or been in myself, it's always more complicated than the Google explanation of how the market works. It's always several sales mechanisms, always more complicated than that: there are distributors, sub-distributors, or direct sale at different sizes. Really understanding, breaking down the subcategories, is what makes a good marketing team, because I rarely saw a company with one marketing strategy that works. You always have to adapt it to anything between two to ten different sales channels or sub-channels. That's the most important thing.

Lior Handelsman

That's actually very common. Most of the teams we meet are very strong tech people, not very experienced in marketing, but we rarely meet a team where there's some person in the team, unless it's second-time founders, who already have a seasoned marketing person, let alone sales. And that's okay. We weren't a team like that; most of the teams I've invested in aren't like that. The trick is to learn. Again, I'm most impressed when I start talking with them about who the competing players are, how they sell, who sells to who, what the dynamics are, and they already know it. That's the most impressive thing. I usually gauge their ability to learn, their ability to adapt, and their willingness. Sometimes you meet a team and they're all tech people, and they say, "we'll build a product and at some point we're going to bring in a marketing expert or a sales expert." Usually they don't even know the difference between sales and marketing. If they're like that, and they think that person is going to figure it out for them, it's very hard to make that work, because most professional marketing people I work with need someone to jump-start their marketing activity.

They start and say, "okay, but I need collateral, I need sales tricks, I need marketing tricks, I need a system, I need the software." That's not it. These people are needed, but at a second stage, only after you have founder-led sales and founder-led marketing, and only after you've really understood who the right customers are, who the right sub-customers are. There's the ICP, and then there's a separate thing: knowing our pitch works better with this type of customer and not with this type of customer. We always need a champion, and our champion needs to be this way, because it always worked for us with this type of champion. Now is the time to bring in a marketing expert, to help you expand, move faster, maybe reach some other types of customers. But I've never seen it work without the founders doing, or at least one of the founders doing, the initial go-to-market and the initial marketing trial and error himself. I always caution founders I've already invested in, when they say "okay, I want to bring in a sales professional, I want to bring in a marketing professional," I always ask them: is this the right time? I'm all for it, there's a time to press hard and move forward, but only when you really know what's working and what's not, and in my experience only founders can do that.

Lior Handelsman

First of all, I always make the recommendation: don't. If you want to hire someone full time, don't make them a CMO. Start with a VP of marketing, just in case they're not the right person but good enough, and you want to bring someone above them later. If you hire a CMO and they're not a good one, the only thing you can do is replace them, and replacement is always expensive and sometimes dangerous. So my first recommendation, if you want to go full time, is: start with a VP, not a C-level. If it's working, maybe you bring someone above them, and it's always less risky. I would not recommend bringing in a full-time CMO too early. I very much encourage what I call advisors, or fractional CMOs.

You can look at them as an advisor: someone who helps you, guides you, gives you tips and tricks, shows you tools, but you, the relevant founder, or the relevant team, still does the heavy lifting, all the hard work. If there's someone on the side who helps and guides, I'm very much for that, because people have a lot of knowledge and can help. The shift to a full-time CMO, or a full-time VP sales, it's almost the same thing: it's dangerous, and should be done only when you already know if the person is doing a good job or not. Otherwise you bring someone in, they take a big salary, they do a lot of things, and it takes you six months to understand they're not the right person. Those are very, very expensive six months, in terms of the company's lifetime and burn rate.

Lior Handelsman

I say, okay, let's look at your last three closes. Is it the same type of company? Did you use the same pitch? Did they want the same value from your product? Sometimes you say, no, this company wanted this, that company wanted a different feature, they don't actually use the main product, they use something else. So it's not repeatable. A CMO will just take one or two strategies and run with them, and if it's not repeatable, it's going to be a flop. Or, yes, it's the same feature, but one is a large enterprise, the second is a small startup, the third is a government agency: not repeatable. My test is repeatability. Show me your last three, four, five deals, and show me that for the most part it's the same pitch, the same value proposition, a similar type of customer. Yes, you might have one that's different, and that's a vertical you might want to explore, or not, later. But I want to see repeatability in sales. If sales are repeatable, bring in the sales and marketing professionals and wash, rinse, repeat. If sales are not repeatable, let's keep tinkering with it.

Lior Handelsman

Obviously different companies are different, but the go-to ones are always ACV. You want to see ACV, you want to see cost of customer acquisition, time to close. Time to close is very important, because sometimes, and I've seen these cases, cost of customer acquisition isn't that big, it just takes a lot of time, and you don't calculate that into your cost of customer acquisition. But it's impossible to scale this way. What I like to see, if you already have a sales and marketing team: let's say you have BDRs or SDRs, and then you have salespeople. I want to see the metrics across the team, not just aggregated per sales and marketing department, because this really shows if you're ready to scale. In many cases you see the metrics are very widespread between, say, one BDR and another BDR, or one sales group and the other sales group.

Sometimes there are teams of an SDR and a salesperson that work together. If one is very efficient and the other is less efficient, it's going to be hard to scale, because how do you scale? You bring more, and you expect to see, you have two, you bring two more, you want to see double. But you never know, you might bring in two of the bad kind, not the good kind. First of all, it helps sometimes to look at these numbers just to realize that there might be knowledge to share within the team. And two, if it's fairly uniform, it doesn't have to be, it's never perfectly uniform, there are always stars, but if it's fairly uniform, then you're ready to scale. Then I encourage founders to bring more, say, okay, you have one, you have two, it works well, now let's bring more, show scale, show velocity, even if it shortens the runway.

13:25 I'm all for it, and there are always ways to mitigate that, either with debt or by helping them as an internal investor. But I want to know it will work, that when we bring in more people and push the gas, the car will really run faster. So uniformity of metrics across the team is very important, and time to close, because it's often overlooked.

Lior Handelsman

Deep tech is a different game, and there's a huge wide range for a seed-stage company's marketing budget allocation. Pure marketing budget allocation needs to be proportionally larger, because usually it's just the founders. I'd expect a marketing allocation that's really small; hundreds of thousands of dollars over a year would already be a lot at that stage. At round A, once the company is selling, let's say two million ARR and above, spending anything up to the ARR figure makes sense. So let's say even at the beginning, investing around a dollar in marketing for every dollar of ARR you bring in starts nearing a red flag, or maybe is a red flag, depending on the type of company.

Lior Handelsman 15:28

Anything that's easily outsourced and easily insourced, I like outsourcing it, I think it's a good idea. Let's say you have an outbound machine reaching out to SaaS companies, trying to sell them some kind of SaaS solution. The outbound machine, the reach-out, call it the lead generation: I don't really care if it's insourced or outsourced. It might even be better outsourced, because you can scale it up and down really fast. BDRs and SDRs, as an example: these are the kind of roles that are very value-driven, they need to talk the pitch, and I much prefer to have them inside than outside, because initially, one or two good people can make all the difference in your performance, and I prefer them inside. So anything that's company-specific, pitch-specific, should be inside.

16:30 Anything that's a lead-generation machine, content generation that captures leads, doesn't really matter. Anything that works for the CEO in terms of budget management and speed of scaling is fine, doesn't really matter, that's not where the value sits.

Lior Handelsman

I've seen in many cases, not in your company, but in others, not in Grove Ventures, in other companies, the reality people don't like to talk about: the marketing team pointing at the sales team, "hey, you don't know how to close the leads," and the sales team pointing back at marketing, "hey, your leads are terrible." I wanted to say unqualified leads, I wanted to be more polite. No, so usually marketing teams aren't compensated on number of leads, because you're basically encouraging them to bring, I'd say, low-quality leads. So usually I'm not in favor of compensating per volume, and it's very hard to compensate on closing, because that's a sales metric, not a marketing metric.

I did see some cases, especially with internal agencies, or sometimes at CMO level, where you want to compensate by performance, and then the metric has to be either the number of qualified leads or the worth of qualified leads. If you bring in a big enterprise as a quality lead, it's worth more than a small number of leads. It's very hard, it always boils down eventually to an argument: was it a quality lead, wasn't it a quality lead, how do I know it's a quality lead, the fact that it didn't close doesn't mean it wasn't quality, as you said. So I'm not really in favor of compensating like that, though I've seen it happen.

Lior Handelsman

I would tell you that only sales needs to be compensated on performance. Marketing needs to get a salary, and there's the annual bonus. You can always promise marketing, if you do your job right, like R&D, like customer support, there's an annual bonus. In marketing you can always argue about how many leads, good leads, bad leads, but at the end of the year everybody knows if you did a good job or a bad job. You can argue about it, but the CEO knows if marketing did a good job or not. If they did a good job, give them a big annual bonus. Tie the annual bonus to sales, because everything has to be tied to sales, but everybody also knows if you did a good job, you're going to get an annual bonus. I much prefer that to counting leads, or multiplying number of leads by quality of leads by size of lead.

Lior Handelsman

And that's exactly true, and then brand marketing will say it's a brand problem, the brand isn't being pushed. And how do you measure a campaign that pushes the brand? When you run a good campaign that pushes the brand, you usually see an increase in leads. So who gets compensated for that? The performance marketing people didn't do anything, it was brand marketing, and I already said you don't compensate brand marketing on leads. It's definitely something I see a lot of founders struggle with, and I hope this podcast gives a bit of clarity on this topic.

Lior Handelsman

First of all: is there a process, does the process make sense. Process is everything. Process is inbound, process is analysis, and process is how you transfer a lead to sales, process is how you analyze the bad leads, how you measure everything. For seed companies it's more founder mayhem than process, and that's okay. At round A, first of all: is there a process, is the process understandable, effective, measurable. Those are the three most important things. And then all the metrics I spoke about earlier: understanding who you're targeting, and even more important, understanding who you're not targeting.

Because if you understand who you're not targeting, and you're saying, okay, all of this marketing effort will never bring leads from companies bigger than X, or smaller than Y, or companies that are adjacent in some way, that's good. Because if you have a process, and you know how to run it, and you know who you're not targeting, and let's say we get convinced together that the product might be relevant for an untargeted segment, then I can estimate the potential for growth, because now we'll build a process and target another segment, another ICP, and I know that if you did a good job here, you'll do a good job there, and I know how much potential business is there. So: process, and a real understanding of who you're targeting and who you're not.

Lior Handelsman

A lot of the replacements happen because someone isn't happy. Happy people don't leave, and happy CEOs don't send away happy people. I think the most important thing is that as long as you have definite targets, at least people know why they're being let go. If someone isn't executing, let them go sooner rather than later. In my view, this cyclical process, where you give another chance, and another chance, and if nothing significant is going to change, it won't work, and you won't be happy. Startups don't have time. You have until your next round to show that you can raise more money, and you can only raise more money if you're meeting some level of growth and acceleration.

So in my view, the most important thing is for everyone to have the targets in front of them, and then separations happen faster and with much less pain. If you didn't bring in the right person, or you're not supporting the right person correctly, you'll have to replace them, or they'll go. And the other thing, even though it's hard: try to understand whose fault it is, is it sales, is it marketing, is it somewhere else. This is why it's so important that at the beginning, founders actually put their hands in and do marketing and sales, because that's the only way they'll be able to analyze where the weak link is. The weak link has to be replaced. By the way, it never stops: you can have the right management team to scale up to a certain point, and then maybe you need other people. It happens.

Lior Handelsman

It's because you see the market, and on the other hand you have this sword on your neck to meet the KPIs the company needs to scale and raise more money, so it's much easier to see what doesn't work. The trick is always: marketing and sales will say the product is not the right product. Being sensitive to that is the most important thing, because if the product isn't right, you can replace as many marketing people as you want, it won't sell. Either change the ICP to someone the product fits, or change the product so it fits your ICP. It's sometimes hard for founders to see the real truth, because most founders come from a technological background, they fall in love with their product. But if you're convinced the product is close, and it's never the perfect product, nobody sells a perfect product, but if it's close, and you have a strong conviction that customers need this product, and there are enough customers who need this product, then change your marketing.

Lior Handelsman

For years I thought that one more improvement in something, pick something, product, marketing, people, admin, tech, R&D, pick something, one more improvement, and I'm going to have things stable there, and smooth sailing. Fifteen years in a company, starting with 12 million dollars of sales in our first years, and finishing at three-point-something billion dollars of sales, I never had a day of smooth sailing. There is never smooth sailing. The real question is what you can delay improving, and what you should improve today. Once you change your mindset to "nothing is perfect, nothing works well," the minute I fix something, something else is going to be the bottleneck, and even something I fixed, eventually I'm going to have to touch again. Then your mindset changes to: what don't I have to fix today, and what do I have to fix today. And then it moves. Now you don't have to fix marketing, but you might have to fix sales, or product, or I don't know, tech, R&D. The trick is to know what not to touch today, that you're going to have to fix tomorrow or the day after, and what you have to fix today. That's what you need to look for every day you come to the office. Smooth sailing is a myth.

Lior Handelsman

Don't try to optimize everything. You cannot optimize everything. It's okay to sell partial products, it's okay not to address all the customers, it's okay to miss a customer. Don't try to optimize everything. In fact, nothing should be optimized, everything should be just right for now. Trying to optimize everything is the way to either get stuck in what I call analysis paralysis, or running circles around things that don't need it, going into a rabbit hole for a small change, for everything.

Lior Handelsman

I think you breezed through it, and I was happy you breezed through it: the structure of the sales and marketing organization, the breakdown between customer success, marketing, sales. That's a complex breakdown, there are a few options. As you said, performance marketing can move, brand marketing can move outside. And customer success, sales, marketing: should customer success do marketing, because they're with the customer much more than almost anyone else? It's a complex subject, and I'm happy you didn't ask about it, so we can leave something for inviting me again. This could be a full episode just on this triangle.

Lior Handelsman

Thank you so much. Thank you very much. Bye-bye.