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- [00:00]
CJ
I want to talk about the afterlife here because there are a ton of zombie SaaS, companies out there.
- [00:05]
Brett Queener
Like, the product either does the job or it doesn't. They're not going to buy and stick. You can't pass go. And so I just think these companies are going to die. We were trying to get Dell as a customer. The business side was here. It was here at. It was irate. The idea that we would let business users configure workflows, it was like sitting at the dinner table between Jesus Christ and Charles Darwin. Well, if an AI SDR could replace 15 SDRs, do you charge for the replacement of one? How do you split the value? It's like, here's 6 minute abs and somebody's like, oh, I'm going to sell you five minute apps. Is it a race to the bottom?
- [00:36]
CJ
Seven minute Abs.
- [00:39]
Brett Queener
But I remember like with people who are building software and more screens and more stuff, and I'd say we really got to look at this AI thing and the agentic thing and what's coming and they'd be like, my customers aren't asking for AI. It's always hard to be a founder, but in this world I have founders that have to find and refine product market fit every six months. And if you don't hit, you're going to be a loser. Reminds me of Talladega Knights. If you're not first, you're last. If you ain't first, you're last.
- [01:06]
CJ
You know what I'm talking about. That phrase, trademark not to be Ricky Bobby. Is this thing on? Yesterday's price is not today's price. Welcome back to Run the Numbers, the podcast where we talk with the world's top CFOs and every once in a while, the investors who back them. I'm cj, a tech cfo and my goal is to tease out the playbooks and tactics the best finance leaders rely upon to make you better at your job. On today's show, I'm speaking with Brett Queenan. Brett is a partner at Bonfire Ventures where he invests and partners with early stage software founders. At the seed stage companies like Vanta, the Trade Desk and taxjar. Prior to Bonfire, Brett spent over a decade at Salesforce, where he helped grow the company from its early days and witnessed firsthand the birth of ARR and tcb. He later led operations and product smart recruiters, scaling the company toward unicorn status. In this episode, we go deep on the origins of ARR, how the shift from annual commitments to outcome and usage based models changes both Buyer and seller dynamics, what new revenue models mean for forecasting go to market and what Brett sees as the next aha moments in B2B software as the industry evolves department by department. If you like the show, please remember to like and subscribe. It helps us with the algorithmic overlords. And if you're looking to hire the best finance and accounting talent, I'd love to help you. I have a recruiting service that will pair you with qualified and amazing candidates from our WARM database. It's full of podcast listeners and newsletter readers who self select into learning about CAC payback periods on weekends. If that's of interest, shoot me an email@talentostlymetrics.com on to today's episode with Brett Queener. Brett, thanks for joining me again on the run the Numbers podcast was I.
- [02:59]
Brett Queener
One of your early ones way back.
- [03:00]
CJ
In when we're well over 200 episodes now. You were in the first, probably in the first 15.
- [03:05]
Brett Queener
That motivated you to keep going, right?
- [03:07]
CJ
Because your episode just did numbers. I said, I think this really has some product market idea.
- [03:11]
Brett Queener
Yeah, people always start with me. I'm glad you're coming back to me.
- [03:15]
CJ
Well, speaking of going back to the beginnings, you were at Salesforce during the birth of or creation of ARR in tcv. And so I want to start at this point because we're going to go through the podcast asking about what's changed with how we look at the momentum of companies and how you measure success in revenue. And you wrote this amazing piece on it's the End of ARR as We Know it, playing off the REM song.
- [03:42]
Brett Queener
Well, I'm glad you got that reference because I always throw out these references now and people look at me like Connor, that that ages me. But that some people did get it.
- [03:49]
CJ
Well, take us back to that moment.
- [03:51]
Brett Queener
In time when I was at Siebel. The old people understand this software used to be shipped on CDs and somebody would have to install the CD. It was on premise revenue. People would pay you software fees up front one time companies would depreciate it. They love that the buyers. You would spend 10x that on services and software and Unix. I remember in product like I was product manager on Siebel and I had to like have four different versions. One that worked for like the S3 90 which was the IBM mainframe and there was a different version that worked for like the AS 400. It was nuts. And so, you know, when I left Siebel, I was actually going to get out of software. It's going to leave the software industry. Because before I'd gone to business school, I had run a factory in lovely Milpitas, California. This is how long ago there were no tech jobs in San Francisco. So we all lived in San Francisco. But you drove like 45 to 60 miles down to Sunnyvale or San Jose or Milpitas. And I'm a process ops guy. Like anybody's gone to business school, they read the goal like I'm a process guy. I keep trying to operationalize VC and everybody just chuckles at me. Can't we just do this repeatedly? And in the on premise world, I was like, what is this business? We would basically either like sell the software and make our quarter because there's all upfront revenue, or you wouldn't and like you would do layoffs, your stock would drop. I remember going to see TJ Rogers at Cypress Semiconductor. He was a Dartmouth alum and he was speaking, giving career advice and he was like, boys and girls, in your career, look at what you're doing. You either make shit or sell shit. And if you don't do that, you're bullshit. And I was like, oh man, I'm bullshit. I gotta get out of this. But then I met Mark Benioff and I was like, oh, you could probably sell a piece of code to many different segments of a market if you got the right intersection of the buyer, the packaging and pricing, et cetera. But the recurring nature of the business, that if you kept people paying every year they were happy to, or continuously paying, you would make a lot more money over time than a traditional on premise. So that was very interesting to me. But when I joined Salesforce, it was not cloud, it wasn't ARR, it was called on demand. And that was the big thesis, remember? Like, it was like, don't buy software, rent software. And we didn't tell them to sign a one year lease. It was renting software.
- [06:15]
CJ
Does it literally mean on demand? Is it month to month? So annual wasn't really a thing.
- [06:19]
Brett Queener
It was not a thing. It was month to month. We had like five to eight reps. And I think before I joined they had a cash crunch and it was early, right? This was a, this product had like four tabs, no API, no customization, no dashboard. It even had like sales information. If you go back to the Wayback Machine, like, oh, it helps sellers sell. Young companies were using it and it was being used on the side to some extent, large companies. So it wasn't seen as like a real enterprise investment. And I think the Challenge. There was a little bit of a cash crunch. And when people say they invested VC dollars, I was a VC investor in Salesforce. That wasn't the case. It was a cash crunch. And Mark and others sold some primary stock to keep the company afloat.
- [06:57]
CJ
Brett, I want to go back to something you said about the on prem era. You alluded to it being really expensive to upkeep these things. I think you said it was 10 times as expensive as the actual software because you had this army of consultants, et cetera. Can you touch on that? Because I think we're a bit spoiled in today's day and age.
- [07:16]
Brett Queener
Well, like my big job there was like helping run alliances. My first job at a business school at Siebel was running the Anderson Consulting, which is now called Accenture relationship. And Siebel had one floor in San Mateo. The other floor was all Accenture people.
- [07:32]
CJ
No way.
- [07:32]
Brett Queener
And they were an investor in Siebel. If you bought a dollar of software per dollar software you spent in Siebel, you spent 10 to 15x because you bought. You had to buy the databases, you had to buy the client servers, you had to buy the database server and you hire consultants, right, to go install and customize it. Here's what's worse. And this was the big thing about Salesforce. People at Salesforce come back like, and they write their blogs. How amazing they were. I'm like, well, they had pretty amazing business model technology differentiation. There's no such thing as a metadata customization model. We all take that for granted. But back then, like, oh, I've got Siebel 3.2, it's got all these features, you should deploy it, you hand them a new cd. But all the configuration that somebody did with Accenture to make it work for you wasn't portable. So you had to repay them to update your customizations. And God forbid if you actually put in the customizations you did a year ago because your business model changed. And so this whole idea of like, hey, you can configure and customize this product and improve on it and when you get an upgrade, you don't lose it. Salesforce is the first person to do that. Like the whole concept of a multi tenancy way to explain that. And that was what got people like super excited. The other big thing was, and there's still weird Laggard Industries, I've invested in some companies trying to change it, but it's still like a, you know, 12 month deployment where they start out an Ulan Bator to see if Mikey likes it and then maybe they'll roll it out somewhere else and you just like. I mean nothing against the Mongolians. In fact, I'm reading an amazing book right now called like the History of Genghis Khan was a crazy story about the Mongolians. Yeah, it was just frigging nuts. And so I manage these relationships and so what we would do and I see Nvidia doing stuff and it kind of scares me a little bit. It's called the partner jam scam. If you wanted to be a partner with Siebel, you had to buy Siebel internally. So the question was how much of your revenue or customers buying it versus like partners buying it. But the whole idea was get all these vendors out there to build a big enough practice on Siebel that in theory they were supposed to be neutral. Let me give you a crazy story. I was in a negotiation with Thomas, the other customer. And the customer goes Tom, your software is so expensive. He's like what the fuck are you talking about? You're going to spend 15x what you're spending on what I'm spending. Why are you giving me a hard time what you're spending? And the customer goes oh, you're right, sorry, silly question. Not questioning why the hell you have to spend 15x. But that was what on premise was.
- [09:58]
CJ
So Salesforce, some of the innovations they made outside of the software were around the contract terms, the deployment.
- [10:06]
Brett Queener
Oh, and also who could do the change?
- [10:09]
CJ
Yes, and that's what I wanted to talk about.
- [10:11]
Brett Queener
The first website had no CIA required. And remember teens woe has now gone on was a very successful CEO. Me and him debating like teen, you gotta take that shit off the website. We can't upset it. But remember it deployed all software business gave requirements. If you were a sales admin, you were kind of a loser. You were stuck in between. I was brought in to sit in a dinner table. We were trying to get Dell as a customer. The business side was here. It was here and it was irate that we the idea that we would let business users configure workflows and the rest of it, you would give them that power. It was like sitting at the dinner table between Jesus Christ and Charles Darwin. But like that's what it was.
- [10:47]
CJ
Brett. Eventually Salesforce did start to get into annual contracts and multi year contracts. How did that change the buyer and the seller relationship in terms of predictability and lock in and may maybe they were unintended consequences. I'm not thinking about.
- [11:02]
Brett Queener
Well, the first big thing is we changed the Comp plan. So, like, when you go back and some of my old blogs talk about comp plans and the rest of it, right? If you go, what do you think about how do we get multi year? How do we get cash up front? I'm like, well, you put a comp plan together. So early days ACV equaled cash equal multi year, which meant the rep would get paid equally on a dollar of an annual commitment, on a dollar of cash and a dollar of an extra year. And the second you drive that motivation with the rep, you get that behavior. It became problematic when we started selling in the enterprise and famous Joe Williams came back to me and goes, I've got a five year, $10 million deal from Merrill lynch and they'll give us $55 million up front. And that was the first house deal at Salesforce where I just say, I hate doing this dude. But like, no, we're not paying you 9 million.
- [11:52]
CJ
Did you have to comp him on a $55 million sale upfront?
- [11:55]
Brett Queener
I told him, no, we're not doing that. It was also silly because the reality is that's basically telling a rep. It's as much effort it is to get cash up front and to get an extra year that it is actually to win the deal on the month to month. It's just really hard to run a business, right? But like, if we think about how did this change on the seller side? Look, I get recurring revenue, right? And then you saw all these multiples and ratios. The magic number, right? Or the cash multiple. And the way to understand how to invest in these businesses, if your efficiency is very high, then you should invest ahead of the curve because that growth will come, right? If you got cash up front, you could play in opex. But in the early days before we had this hiring was like people would submit in Steve Kickbred and Nancy Connery, who's a famous talent person, and Steve Kickbread, who's been a cfo. It would come back out of like the star chamber, which 10 people would be approved. The other really interesting thing is that the reps, it also allowed us to hire the best reps in industry, right before. How could you afford to hire the best rep from Siebel, Oracle, et cetera? They were making million, maybe making a million bucks a year if you can't count on that. But we could come up with comp plans. The old famous, oh, well, four times ote, right? If your quote is four times ote and accelerators, it's profitable. And then we were able to Amortize, you were able to amortize that commission expense over a two or three year period. So it makes your magic number efficiency look a lot higher but basically allowed you a rep to become a cash machine. If you get high retention, your reps become a cash machine by year two or three because I'm not paying them on renewals. Everyone has to go public. But the reality is I tell all founders, there's like three outcomes. You die or there's an exit. And the exit is you either selling to a private equity, you're selling to a strategic or you're selling to the public. Really understanding the shape of your business and what, what's the cash economics of your business. But over time you could compound to like stackable AR and become this PE acquisition. And the rise of Vista and all these people became a thing from a buyer at some point. It gives them cost predictability. And if there's an annual commitment, I think it does force sort of an adoption effort because in theory you can leave, right? As opposed to on premise Software was so hard to like put new software and go through this hard thing. I think it forced sort of an adoption effort where you like push the vendor to do what needed to be done. The unintended consequences is that I think the lock in became a crutch for product. It allowed you to spend more time focused on what you needed to win or get the market excited and not necessarily deliver what your existing customers need. We used to call these at Dreamforce the Snappies versus the clappies. So the snappy would be like ooh, the social enterprise or chatter or da da da. And the analysts would be like oh, Salesforce is so far ahead and the admins are like dude, forecasting's fucking broken. And then the Clappies would be like hey, we fixed forecasting for the third time and the room would go nuts. And how do you balance the core versus keeping the people that use you and are your energy and bring all the sort of free marketing out the market. But like if you have this lock in, you're like oh, success is the CSM's job as opposed to the product org's job. And that got crazy like we saw in the zerby days and the rest of it people lost their mind. We became an IBM seven person account team. I remember in a meeting with IBM where so many people, IBM in the meeting they had a professional outside coordinator for the meeting.
- [15:35]
CJ
Brought an army.
- [15:36]
Brett Queener
I've got a csm, I got an account manager, I've got a renewal man, I'm like what the it became so like inefficient. And then I think buyers also started in the last couple years get boxed in by renewal calendars and nasty renewal price hikes. You started to see I don't know if you follow Spitz and his ratios that he publishes. I remember meeting him back when he was first doing the survey. But if you look at it right now like the cost of money to acquire a dollar is going the wrong way in many of the traditional, even public SaaS companies. And so you're seeing these crazy renewal price hikes Jason talks about all the time. Some vendor comes, your price is 20% higher. We got away. We've gotten far away from the promise of what On Demand was at the time.
- [16:21]
CJ
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- [19:59]
Brett Queener
Do look to make investments where a 55 year old person who hasn't coded since high school and playing around with Claude code doesn't count as coding in.
- [20:06]
CJ
My mind, I don't qualify then I.
- [20:08]
Brett Queener
Don'T want to be the AI expert in a room. But I remember like with people who are building software and more screens and more stuff and I'd say we really gotta look at this AI thing and the agentic thing and what's coming and they'd be like my customers aren't asking for AI. And so I'd say to them, I said I have an idea for you, let's just pick a category. FP And A. But if you went to them and said, what if I gave you a solution that was as good as anybody you could hire at FP&A that worked 24 by 7, had no attitude, and quickly came up to speed on the way you do FP&A and would get.
- [20:48]
CJ
Better every day, I would love to hire that person if they're out there.
- [20:51]
Brett Queener
I said, all the software you have, and trust me, I know this, my entire career, this entire nice little backdrop in Santa Barbara is all funded on software that requires a ton of explanation. There's software, you do a job. I do marketing about the value and I do customer marketing and these events and I send swag and people love you. I do medpick and all. I got sales methodologies at the wazoo where I ask the right discovery question, do you have this pain? All you do is it, oh, based on that pain, if it could be solved, et cetera, et cetera. And you're not trying to show product, you're trying to get them to believe what could be possible. And then you get an SE that hopefully listens to what their pain was and then takes the software and configures it best the day in the life. And then it gets deployed and then a CSM goes and does it. But you do some software where you're recording your work to some extent and then you actually go do your job, but it doesn't help you do your job. And I would say all of this software sucks. It just sucks. You remember I started writing like, I don't know, like 18 months ago, and I was like, all the software sucks and it's okay. And it's super exciting for me, like, this AR stuff is super exciting because I look at it and I write in their long form, partially as therapy and anxiety for me to sort of figure out, like, oh, shit, what is changing when you think of agentic and whether it's helping somebody do their job as an assistant, doing parts of their job, or doing whole jobs that you don't hire for. They're doing the work. And so you are hiring them to do the work. And so, like, the natural conclusion is if you're hiring them to do the work, we have to rethink through contracts, pricing and packaging, ARR and the rest of it. And I get that people are pissed that people are doing vibe revenue and taking like my last monthly revenue and some highly churny agency that you call AI now and then multiply and say, okay, fair enough.
- [22:46]
CJ
Like that's, that's always Been bad though.
- [22:48]
Brett Queener
But there's some truth in that, like, well, who the fuck knows?
- [22:51]
CJ
How are contracts going to change in your opinion? Because you were describing the perfect analyst. If I was to hire that analyst, I probably wouldn't sign them up to like a three year contract. Like I was hiring a running back, right?
- [23:02]
Brett Queener
I tell people like if you were going to hire a 200k employee, would you give them 200k on day one and would you keep them for three years if they sucked like 30 days in? No, you wouldn't, right? So like if that's what we're going to. So what does the packaging look like? I think part of the mistake is we're trying to package up stuff and I would beat, even in the SaaS age, people that were trying to translate and convert their stuff to ARR for investors, but it was the wrong thing for the business model they were in. It was unnecessary friction for the buyer. Like don't do that. That's not what you are price. The way in which that allows you that when you talk to a customer, say this is how they price, they look at you go, that seems fair. Like whenever it's all these pricing and packaging. I said if you were the buyer, what would seem fair? What does it make sense that I pay for? I think there's some base fee around, like a job to be done. And then I think to some extent there's some variable that's tied to usage or outcome proxy tied to like the jobs you're doing for someone. It varies. Like in a lot of the vertical companies you invest in, there's a lot of like what I call, I'm in the legal space, practice management, onboarding, intake, et cetera, Those are process solutions. There's a question, do you even charge for that or do you charge some base fee or estimate? But, but they're basically systems of record. But then the jobs that I do for you on top of they're variable and they're tied to some usage, et cetera. Right now the trick is there are different jobs that are more valuable than others and what do people pay for, et cetera. Like, you know, I remember Craig who just sold to Salesforce, one of the best, you know, product marketers that I ever worked with. Initially when he was thinking of Piper, the one thing was, the challenge was, well, if an AI SDR could replace 15 SDRs, do you charge for the replacement of one? 15, how do you split the value? How do you split the value? And the other question, do you remember what was it Zoolander, if you charge Y and it's like, here's six minute abs and somebody's like, oh, I'm going to sell you five minute abs. Is it a race to the bottom? We don't know yet, but I think you're going to pay for the value. And the reason you're going to pay for the value is you can see the value. In the SaaS world you couldn't charge for value because somebody bought you for an outcome or TCO roi. Well after you deployed, the buyer never kept track of it because they want to be held accountable and you could never go track that. In theory, some CSM and a QBR was going to figure that out. But in an agentic world, like is it doing the job that I want it to do? It is, okay, I'm getting value. How well is it doing if it's not doing the job? It's very clear. So that entire like abstraction layer is gone which allows you to think about this type of pricing.
- [25:42]
CJ
So you helped Benny off with the sales ops and forecasting and devised the first way to look at the rep comp plans and just figure out how much you could sell off the back of the truck. And you had this wonderful tool of, I guess it was MRR if it was on demand back then, but it had this predictable nature to it. How do you think about forecasting the future? Is it harder for the seller and is it going to be extremely difficult for us to come up with a forecast that's reliable?
- [26:09]
Brett Queener
Well, it's very interesting. I'm an investor, fortunate investor in a couple of these AR companies and we're sitting down and we're trying to do the annual plan for next year. One's going for like 25 to 75. And the tools we have within our playbook are like, well, what's the quota on the street and what's our assumption of this? The forecasting is much harder, but it's also kind of exciting, right? So first of all, like if you don't have committed arrangements or some level of recurring, it's hard to fund growth from within. You can't run the classic invest way ahead of revenue. And the other reality is in some of these businesses that are booming, even if they have high gross margins, when you're doing the job, people are paying you monthly. I have people that are three year contract but they pay you monthly partially because it's part of their opex. It's how they run their business, like how they empower their employees. And so that cash Is a weird cycle to sort of work through, right? You got to manage that cash show. Like you either have to have super patient capital it's invested in you, or a radically more efficient go to market, which you can have now. You, you had asked me before, does funding so high. It doesn't matter. We'll get to that scenario. Why are we seeing these rounds that seem to conflict with like one person can build a billion dollar company. I think the biggest challenge people have right now, and I have it and it's really fun, right? When I work with founders in the past, they would ask me a question and I'd be like, okay, here's the answer. You know, whatever question it had, I had failed at that thing like 10 times. So I was super smart now. And now I'm like, I don't know, let's think about it. Which is really fun. Like the early days of sas, we were making this shit up. There was no playbook. We'd go to a room, we'd be like, here's two paths. What do we think? All right, let's try this one. Let's track it. Did that work? Well, let's do more of that. That's part of our bible. That was a disaster. Let's write that down. Don't do that again. So the hardest part of forecasting is the talent side. If your product is super agentic, it fundamentally changes the roles that you have. If your product kind of just works, do I need like an sdr, an ae, an se, a value seller, a csm? Da da da da da. Probably not. So trying to figure out what in the old world of SaaS we keep and what we toss is hard. And then like all the rules are fundamentally changing the ratios. Before it was like full stack Engineer. No, I need front end, back end infrastructure and then DevOps. But the entire like platform stack is getting collapsed. Right. And commoditized. Okay, so within dev, if I use cursor and the other stuff, how does that change? Well, what is the role of product inclusion design now? Like it used to be it took so long to dev release stuff that product people had to spend six months coming up with mrds. Designers had plenty of time to do usually analysts and testing. And then we go to release and we had Sprint and then Dev wouldn't write the front end code. And then we go hire Pendo to track why people weren't using the software and put like that's all changing. The question is, who do I, what do I hire? And then what type of people Do I hire? Am I hiring somebody who's 39 and 40, been in SAS for 12 years, understands the playbook, or am I hiring somebody younger, who's smarter, who has more first principles? Because in the SaaS world, I was the king of this. I think it was part of our first play conversation we had about segmentation and specialization of roles. And in SaaS it's a process. So we hire somebody who's good at this and somebody's good at this and somebody's good at this and it's like a bread factory, you know, it was like my crazy dream. Oh, the factory. But now like the roles blend and that's the hardest thing to actually forecast.
- [29:45]
CJ
Hey, thanks for listening. We'll be right back after a word from our sponsors. We've all been burned. We've all bought that enterprise planning tool that promised the world, only to realize six months later that we've basically taken on a second full time job just to keep the software running. I want to talk about a company that was built specifically to kill that cycle, Abacument. I actually remember my very first conversation with their founder and CEO Julio Martinez over three years ago. Back then they were just starting out in Spain. Fast forward to today. Julio moved the home base to NYC and they're the engine behind finance teams at Strava Replit and JG Wentworth. Avicom doesn't turn you into a software admin. The integrations are actually self service. You don't need a $300 an hour consultant to plug in your ERP or HRIs. And they're doing AI in a way that actually impacts the things FP and A teams are doing every day. Things like creating variant summaries, building formulas and modeling scenarios. If you're scaling fast and you're trying to avoid that legacy platform trap, Avakum is the move. They're building the future of our tech stack and they're doing it with a CFO's perspective. Go to Abacum AI to see it for yourself. That is Abacum AI. Well, well, well. Here's what nobody tells you about being a CFO. You'll spend 50% of your time on stuff that is killing your momentum. The best CFOs I know are business leaders who know how to drive growth in heroic fashion. But most of us end up spending our days buried in manual work. I'm talking about collecting receipts, reviewing expenses and manually reconciling spend. It's painful. That's why CFOs need Brex. Brex built an intelligent finance Platform that pairs corporate cards with built in expense management. Plus a team of AI agents to handle the manual finance tasks for you. That way CFOs have more time for the high impact projects that drive growth. You know the shit actually worthy of your CFO time. Bottom line, Brex is automating hundreds of thousands of hours of manual finance work every month across 35,000 companies like Anthropic, Coinbase and Doordash. Ready to spend less time buried in expenses and more time driving results. Check out Brexit@brex.com metrics. It is brex.com metrics please guys. How the hell do I have three kids in daycare? Brex.com metrics, you just launched your new AI product. The new pricing page looks great. I'm talking crisp but behind it, last minute glued code, messy spreadsheets and running ad hoc queries to figure out what to bill. Customers get invoices they can't understand. Engineers are chasing billing bugs. Finance can't close the books. Well, with Metronome, you hand it all off to the real time billing infrastructure that just works. Reliable, flexible and built to grow with you. They turn raw usage events into accurate invoices, give customers bills they actually understand and keep every team in sync in real time. Whether you're launching usage based pricing, managing enterprise contracts or rolling out new AI services, Metronome does the heavy lifting so you can focus on your product, not your billing. That's why some of the fastest growing companies in the world like OpenAI and Anthropic run their billing on Metronome. Visit metronome.com to learn more. That's metronome.com My career took the trajectory of running FP&A groups at companies from 10 million in revenue to a billion in revenue. And the recurring nature of monthly and annual contracts and multi year allowed me to look at how many people I could hire with the cash that we had coming in the door, right? But I also had these very handy heuristics or rules of thumb to say this is what a classic sales pod should look like we're going to do. For every two AES, there'll be one SE for the enterprise, but there'll be this number of BDRs, this number of CSM. Once we have men in 2003 to.
- [33:36]
Brett Queener
Figure out who we're going to hire, my job was to work and figure out what do we hire, where to dominate this market. And like I would look and look at regions and I'd be like what was the growth of AE? Growth. And what was the ARR growth? Okay, ARR growth. Hiring more. Hire more AES. And we had a 50k. A man. Mark would be funny, he'd be like, how many reps do you have? We give a forecast, give them the reps. He multiplied 50k a month. That's what you're gonna do. And I'd be like, no, Mark, I've got these segments, enterprise, the rest. This is a ramp. Da da da da da. He's like 50k a margin. Those are all getting thrown out now. I think what it means is if you're in the earlier stage startup, what we're seeing is we have a high level annual plan that roughly makes sense. But we're doing really a first half plan or a quarterly plan and we're doing check marks. And this is the same thing at Salesforce. We would have an annual plan and we would track how are we. And then we would accelerate or decelerate. So I think in the FP and a world of an investor company in this space, the idea of annual planning or FP&A or time is you're constantly synthesizes in planning. It's a little chaotic, right? It's like that's the hardest thing about forecasting right now.
- [34:43]
CJ
How do you think about comp plans in this future? Because we started the pod talking about 1/3, 1/3, 1/3. I have no idea how to set a comp plan for a rep. Now I guess it's kind of putting the cart before the horse because you have to figure out what the pricing and packaging is. But what are companies that you talk to trying to do with forecasting wrap comp?
- [35:01]
Brett Queener
Well, it turns out there are far less people that have done comp plans than me. I think there's two challenges on the comp plans. If you have to pay AES on renewals, you know that the business model.
- [35:12]
CJ
Falls apart because that was a big unlock for Salesforce.
- [35:14]
Brett Queener
Right.
- [35:15]
CJ
That person becomes a cash machine year two, three.
- [35:17]
Brett Queener
That's a question. The second thing, and you've worked with companies before, if you're doing a Ford deployed engineer or in the sales process if you're already deploying and then that buyer starts using and they see more and more value and is the rep needed. You get into this weird model of like well what am I paying for the rep of the growth of that firm over time.
- [35:39]
CJ
Stupid question. Brett, I have to ask you what's a Ford deployed engineer? Because I've heard it before and I still don't know what it is.
- [35:45]
Brett Queener
Half of it's bullshit, okay?
- [35:47]
CJ
Cause it's all on Twitter and I don't know what it means.
- [35:49]
Brett Queener
One, it came out of Palantir, which didn't have a defined ontology data model. And instead of tools that were met for one customer, so they would go into a given customer, understand the requirements, and build, if you will, a custom ontology layer and the rest of it, and then have a hunting license. And then when Generative AI came out, that's why their stock has taken off a lot. Suddenly now you've got that ontology layer and you can generate a lot of solutions. So if you're a custom platform, you need to put somebody into the account to figure out their needs and show them, oh, this is the solution.
- [36:21]
CJ
Because of course you have it. Once you understand what the problem is.
- [36:24]
Brett Queener
There'S a part of it. I wouldn't call it Ford Deployed Engineer, which is becoming the case, which is in many of my AI native companies, they're already deployed as part of the sales process. Before you close. In the old world, like, oh, if I imagine what this product could do and then what I could do with it, does it do what you told me it could do? And I would evaluate it in a world that it's agentic and you're telling me you can do this job? Well, show me, do the job. And sometimes you do a sample data and sometimes they put their own data in it to see how it works. Now the good news is if your products are like a what the fuck product somebody looks at and goes, holy shit. They don't have four months of dealing with purchasing and the rest of it. You can even do stuff. And I have customers, Companies have done this. Like, what does this cost? It's 200 grand. Get started now, we'll turn on tomorrow. You can walk in 60 days. You could argue, Brett, what the hell is that? But I promise you, like the sales process is like a week.
- [37:17]
CJ
You're investing precious technical resources. Then I guess you got to really believe in your product.
- [37:21]
Brett Queener
No, no, no, no, no, no, no. You can't do that for customers in which your product doesn't work for. Dev isn't in there. So in that you have to figure out the problem you're solving if you're going to do that, your product has the context and solves for that problem. And so when you show it to them, it solves for that problem. If they want to solve other problems down the road, you can move iterate fast. But then people get in there like, wow. And what I think is exciting about that is a lot of these agentic solutions are basically ripping and replacing existing categories. Somebody need to look at your product and goes, oh my God. The way I'm doing this is completely wrong. I need to get off whatever existing SaaS category I'm doing because like granddad called and he wants his DeLorean back. That's kind of what a Ford plate engineer is. But like, we get excited about Palantir and we get excited about Clay, which we forget that Clay had no revenue for six years. And it's sort of this horizontal, like bolty thing. And it was hard to use. And so if somebody came in and got you to use it, they had to do it to get revenue. Be very, very careful about that in my mind, because I still love intentionality. And the AI founders are hilarious. For a while there, I'm like, we still need intentionality around product. Why do we win? What do we believe? Da da, da da. Where's the defensibility? And for months they'd be like, oh, you're just like a boomer SaaS guy that doesn't really work. And then about six months in, they're like, oh, okay, all right, I understand what you're saying. Because otherwise you look in slack and it's just fucking chaos. Like they're releasing new stuff every day. Customer has no idea what's going on. The salesperson can't keep track of it. I'm like, hey, if your go to market team or your customers can't understand what job you do for them that they care about better than others, then who cares that you shipped it? Humans still have a basic rate of comprehension. I still believe in intentionality. But there is an example where a forward deploy person is very interesting. And this is my latest blog that I write. That's mind blowing. Have you played around with Lovable or Replit or Vercel at all?
- [39:12]
CJ
Oh, yeah.
- [39:13]
Brett Queener
So I got a little frustrated because you'd go in and you'd be like, I want to fix this one thing. And it would just rewrite the entire. No, dude, I don't want you to rewrite the entire thing. And like it was kind of a cute app, right? And then like, oh, it's like a bubble app. Okay. And then like, is it a production app for large companies? No, but people and product would start like doing prototypes and designers like, what are you doing over their product? But like you'd prototype instead of running an mrd. Show it to people. These companies are very clever. They're componentizing their solution, going to software companies and saying, hey, you can start to insert this as the front end part of your architecture. Put the rails around it. You want, like, if you're hitrust certified or HIPAA certified, you can tell us what we can or can't do. But if you have the ontology layer, you have the context, you have the schema, you can plug this in. And so there are people, one I just let an investment in that started out as like boring analytics companies. They went into companies and they're like, I'm going to harmonize all your data. And even like data lakes, they bring all their data together and then they're like, oh, here's some dashboards. And they're like, wow. Instead of like dashboards, we'll just vibe code the dashboards. Just what do you want? And it would give them the dashboard. And then they realized, oh, if I put a vercel replit in this, I can put like an SE to go into a customer. And a customer goes like, well, what are you, what's your problem? Oh, this thing's a piece of shit. I can't really do this. Well, tell me a little more about it. And like the recording, and they convert the recording to a front end prompt that they give to the sales engineer. They still haven't figured out how to like bring in like taste UX components. We're still figuring that out. Two days later, they walk the customer go, here you go. Fuck. Did you just give me custom software? Yeah. Did your dev build it? Goes, my dev didn't build it. I did. And they're like, well, what does that cost? I don't know.
- [40:51]
CJ
So what is the role of the salesperson? Just to bring it full circle here. Do they just show up at the end and to print an invoice?
- [40:58]
Brett Queener
It's a very interesting question. You know James Kakis.
- [41:01]
CJ
No.
- [41:02]
Brett Queener
From the Revenue Collective. And now he's got, he's got his own podcast, the restaurant go to market. We've been having this debate. Look, we all knew over time in SaaS. Look, sellers are great, they build relationships, they ask for the order, they're fearless, et cetera. But my people in product at Salesforce were the SEs. They did like 80% of the trust and value. They were the people that engaged that people could make the translation between what was being positioned to them and the product and how it was going to meet their need. But for some reason, like, they didn't want, like the risk of having a quota. You know, I remember I was at a company once and the SDS were kind of complaining. The reps were making all this money, they're doing all the work. And I called the A and he'd be like, dude, I, I send my envelopes with $30,000 in cash. What do they, dude, you can't do that. What are they arguing? He's like, what are they arguing about? But we do know that like reps that have tenure do well. Why they understand the product or how to speak to the product. And so in this new world, is it the AE who understands the product or the SE who's willing to take a quota, going to win or evolve?
- [42:06]
CJ
Right?
- [42:06]
Brett Queener
Right. I don't know. But I think we do have fewer classic enterprise ceremony roles.
- [42:12]
CJ
And do you need separation of church and state anymore? Does it become one?
- [42:16]
Brett Queener
I don't know. But like here's the interesting thing though. You see this in some of my fast growing AI companies because the product does what it does, it's actually much easier for a traditional seller who wasn't technical because it doesn't matter to kind of explain and show what the product does. Here's what it does. And relationship selling is weirdly more effective. Like dropping off donuts to a PI firm in like rural Louisiana. Trade shows are amazing. Experiential marketing works because what they're trying to do is build a relationship and trust and the SC has to back it up. But if the product can back it up, it's kind of interesting. So I don't have an answer either way. Basically it just means like, like what we all did, what was SaaS? What was the value prop? What was all this? What was all of this sales stuff which is like can you get the customer to believe there's an important job that you can do for them that they have to do and you do it better than others. And is the value exchange what they're paying for what you deliver make sense? That's 99% of every sales go to market blog sales enablement in training in.
- [43:24]
CJ
This new world, just to get tactical here, do you think we're still going to give, you know, a million dollar quota to someone in mid market, a $2 million quota to someone in enterprise and be able to do the same quick back of the envelope math on how many deals they have to get done?
- [43:41]
Brett Queener
No. Couple reasons why the value of your product if you ship like you need to increases 5x over over a quarter year. Wow. Remember in the past it's like maybe once a year there was something that would change Positioning and packaging and you had plenty of time to put the Dreamforce pitch together, think through pricing and packaging how we're going to sell it of it. But like the biggest challenge of the AI founders today is that when they go into a job to be done, customer's like that's amazing. There's other pieces of shit software. Can you do that? In the past you'd had to wait until you raised a series A and a B and hire three scrum teams and go build the stack at and the reality is if you have the schema and your AI understands it, you could so the only challenge is how do you make sure the job you were doing doesn't fall behind what others can go do and so you can build a broader, more powerful solution relative quickly that people are going to pay more money for. So the answer is we can't. We can do high level back of the math envelope and then watch it. And so I think the old Forex Dakota ARR is really hard to predict given pricing package are fluid and ARR is not what it once was. I see some founders, I don't like it are paying them more like a higher salary and no variable.
- [44:52]
CJ
No variable. That's a weird incentive plan.
- [44:54]
Brett Queener
I still believe your best Salespeople, whether they're SEs or the rest of it and your best engineers make the most money.
- [45:01]
CJ
Well if you think about Snowflake and the way that they do it, you try to sign them up for a commitment but you're not going to make your full nut unless they actually consume it. You don't want someone just sitting there on the sidelines who's angry because they're paying this amount but they're not using it. And that puts the onus on the account executive to go and find incremental workflows to move on. Oh, you're not using it in finance. Move it on here.
- [45:22]
Brett Queener
The answer is small seed and tons of growth. And that's why we don't do this hunter farmer model. Like no, no, no, no, no. Like these comp plans, like you get your initial land and money for the first year and then somebody else does the expansion. You're like, that didn't work in SaaS. What that meant was reps did no seed, tried to give the largest deal possible discount the hell out of it and then your forecast went from pretty predictable to like large lumpy deals where you made your quarter on or not like do not do that. Um, so I don't have the answer yet. As I think about It I'll publish the updated comp models for this world, but I like the fact that I don't know.
- [45:58]
CJ
Well Brett, I want to talk about the afterlife here because there are a ton of zombie SaaS companies out there. I've read what you've put out there and you've said you think the zombie companies are finally going to die off. Why is that?
- [46:11]
Brett Queener
Weirdly, in the on premise world, because it was so difficult to win, it required a lot of efficient cash and execution before SaaS in a given application market it was like winner take all. The number one player had like 60% of the market, number two at like 25 and everybody has scrapped and died. And then in the SaaS world and we're seeing the AI world for now, 50 Solutions product market fit is far less deniable. Like the product either does the job or it doesn't. One, you're not going to win. Customers are going to toss it right. They're not going to buy and stick. You can't pass go, you can't invest and hide behind the usual SaaS smoothing functions. So CMS love QBR swag reviews on G2 so that playbook's dead. Two, we lost our way in the SaaS world. I remember we had the sales cloud and we're trying to build the app exchange and I remember trying to get VCs to invest in native AI companies on Salesforce. Why would we do that? And like a salesperson would use like Salesforce Arcano and maybe they got data from D and B. That was it. And now the average rep uses like 14 friggin tools and the rep instead of being productive is navigating across 14 tools. But the second you start to use an agent and it's your buddy, it's your assistant and it knows you and it gets context over time. I don't want to use six of them. Don't you hate it like when you've got like text and then somebody whatsapps you or Facebook? What the I don't want.
- [47:35]
CJ
Oh it's the worst.
- [47:36]
Brett Queener
It's the worst. I want one. What's going to happen is first and foremost, 80% of these companies, if they exist, are not going to be the application layer, the battle for the agent that the person's going to use. And given that that agent can do much more. And now with MCP it can integrate to other agents that may be in the background but has the context. So like that world is over. And so I just think these companies are going to die and I Think they can't hide, they're not going to have recurring nature, they're not going to hire the best talent. And also in the venture world that we're seeing is like, you know, I saw an investment yesterday come out of yc. It was kind of interesting, but I was like, am I going to bet that they're going to upset cursor here? I don't have the patience for that. The other thing is startups so much earlier can build all of the point solutions that funded another company. Oh, Salesforce Marketo doesn't do this. Buy it for this. You can build it. Yep. If you had an FPA analyst or you hired somebody on your team and they didn't know this one little skill, you'd be like, dude, learn that. You wouldn't be like, let me go hire some junior person along that for one skill set that the person doesn't use, you'd be like, no, you want to be promoting your career, here's the skills you need to pick up. It is very similar.
- [48:53]
CJ
So what happens to the private equity part of the equation here?
- [48:57]
Brett Queener
There's one world that says the classic model gets completely punched in the face, which is if you buy these companies, you slash opex, you ride NRR to its natural end. That's great. But like if your product doesn't do the job, it can be done. And churn is now 50% as opposed to 10% and you gotta pay off the debt on the cash flow that you borrowed in, the deal falls apart. But interesting opportunities. When you buy three or four assets in a space and you say, now I've got this broader solution, it was never an integrated product. It was integrated on the website and the PowerPoint. If you've actually invested in Agentic at the top layer, if these companies have schema and context and an API, then you can actually deliver like a couple months a unified solution that's Agentic, that has all the know how. So you could be buying companies that maybe didn't crack the code. So there is upside. And then these crazy things you're seeing now General Catalyst is doing this, others are doing it. You could buy services firms at very low PE multiples. You can add Agentic to it, make it far more efficient and then either use that cash to do a roll up much faster or flip it at a much higher price. We're seeing a lot of like General Catalyst bought a hospital. So it's evolving. But they're not stupid people. They know how to make money. You know, that's why you saw Vista has its own AI lab.
- [50:17]
CJ
Yeah. Robert Smith was saying that the rule of 40 is going to turn into the rule of 60 if you can deploy AI correctly within the companies that he's buying.
- [50:25]
Brett Queener
I don't think he's wrong.
- [50:25]
CJ
So are you long private equity model or short in the world of AI.
- [50:29]
Brett Queener
I'm long those that really understand how best to leverage AI. I am short those that think otherwise like the idea I was involved with. One where they was in private equity was late stage growth and they brought in these traditional private operating CEO that would come in whatever their late 50s, 60s. They've been doing this bot for the last 20 years.
- [50:47]
CJ
The silver haired fox gets 5% of the business. Run this to the next logical conclusion.
- [50:52]
Brett Queener
Those people are completely dinosaurs for this age. They'll be dead. I'm sort of mixed.
- [50:56]
CJ
Brett, the word context has come up a couple of times in our conversation and you've been shouting from the mountaintops that context is king. Can you touch on that one more time and what it'll unlock in this next phase?
- [51:07]
Brett Queener
I started writing about this just as we were raising our $250 million fund for and in that I wrote 75% of the application software category customer will die and 50% of the categories will disappear. Which led to interesting conversations with our LPs because the question is, what is an application software company today? At Salesforce, the other thing we had to do with our MRR cache, we ran our own data centers. We also had to take that cache, buy servers, host them with their own team at Equinus data centers in Santa Clara. So if you think about everything we had to do at Salesforce, we had to build our own cloud stack. It didn't exist. The cloud stack didn't exist until Google called it cloud. And the servers are all commoditized. You just move up the stack. Right? And now if reasoning is getting commoditized with the LLM models and if UX development or coding is getting commoditized, then what the hell is a defensible application software?
- [52:06]
CJ
Yeah, where does the value accrue to?
- [52:07]
Brett Queener
In the old days with Siebel, I have to be had to be custom built. I wrote 18 months ago that custom builds back, baby. Think about this. What do software companies do? They come in and say, I understand, I built this company that solved this problem really well. We understand the context of this problem. Then you buy the software and you spend a bunch of money and time to deploy it to take your context how you want to run your business into our software. So it can be useful for you. If you're selling me software that has no specific context, there are horizontal categories like this. You're like, well, why wouldn't I just take my own shit and just build an agent? It can do this work. Why would I pay you to do it if the stack is being commoditized And I told you what I'm seeing. The UX world from a product perspective, as an application software company, on the technology or product side, I think you have two areas of defensibility, the data and ontology that you have or understand. Because if you have that, that's the context. Two is the UX taste in delivering it. But taste matters. Like when cursor first came out, like, if you looked at it, you were like, was that a technological marvel, right? Or is that a UX marvel? No, it's more constrained. It was an environment they live in the ide. But like on the UX side, they friggin nailed that, right? Like, oh, outside of the product side, the other context is what is the founder's customer problem? Intimacy, the context, do they understand that? And it's the ability of those founders to have what I call iterative velocity. Can they run a marathon where they're sprinting the entire time? But every so often they got to look to the left and right because there's snipers or there's bombs being thrown at them and they got to go, oh shit, that didn't work. And juck and jive. You're juking and jiving. You're juking and jiving. You're juking and jiving. That's the context. I just signed a term sheet and it's a little later. We normally invest. I beat out a Series A company that was coming in early. Been talking to this founder for a year. That's what we do, right? Like I invest when there's some traction. They come to me early. I try to build a relationship with them. And we'd say, hey, work with us over the next year, you'll get to know us, we'll get to know you. You can see if we're helpful with the rest of it. And they didn't build a business as it was a boring analytics business. They'd harmonize this data. But they've harmonized all the data now. Then agents come out and they go to the company and they're like, hey, for this important manufacturing process, you have civic analytics, I can deploy these agents that do all this work. What if I charge you 50, $100,000 a year for these agents and the people look at it and go, holy shit. They get paid $250,000 a year to harmonize the data, which I call the hunting license. I now have your context, I now have your intelligence layer when I talk to a customer about them, like what do you want to do with this company? Like, oh, I spent a hundred million dollars a year on Accenture. I want to get rid of Accenture and all these shitty SaaS apps. I want to get rid of them. They've got context and trusted. The other really interesting thing I talk about it's time to stick in this air is customer specific context. When I talk to the founders of what they're building, AI, like where are we on the learning model? And the really interesting thing about AI is users, executives, et cetera are actually willing to do configuration. They're like no, this is not how I work, this is not how I talk. How fast does your system learn this customer, the user, the customer or what they're doing, retain that memory, improve reinforcement, then that context is really hard to swap. Two things are interesting. One is I used to have employees doing this work where I had employees that had know how, they're gone, I don't know how to do this anymore. And then the agent, if I replace it with a new agent, it has to relearn everything because remember in the old days like bad vendors would be like lock in. No, I'm not going to let you move your data to a new vendor. And maybe over time customers will start to say you give me my context. But I think you hold on to the customer specific context the customer has to restart.
- [55:46]
CJ
Well, there have been certain departments within a typical org who have been able to build upon this context and have this aha moment. I'll call it within B2B SaaS using AI. I think support was the first one. When you see the decagons in the Sierras of the world and then we saw an engineering with Claude code and cursor. Which department do you think is next to have this aha moment?
- [56:08]
Brett Queener
Well, the support one is very interesting and obvious because in the past you'd be in an app if you have an issue, you could do like an FAQ or you go over a support.
- [56:16]
CJ
Page, it's documented, that's context.
- [56:19]
Brett Queener
But the interesting thing is weird people roll out an agentic assistant who use the product and I'm like if they have a problem with the product, why are you sending them to another agent? The other obvious high Volume, repetitive work, back office operations, sales operations, procurement, vendor management's obvious dev, we see the less obvious ones. But if you think about the best SaaS, B2B companies, if you really dig down they can't have shitty products or bad sales organizations. But what were they better at than anybody else? Product marketing. Right? They understood product marketing, they understood how to look at a market, what people saying and position appropriately. But in those days it was really hard. I would be one of those guys that listen to sue sales calls and I'd be like oh well shit, that doesn't make any sense, like we gotta chuck on a drive. But synthesis was so hard. Where AI is coming now, I can synthesize everything that's going on, all the conversations, et cetera. I can understand what's working or not working and I can derive, oh, is this your messaging or is this your icp? Is this what you're saying? Et cetera. And then AI can tell me like hey, that's the same as everybody else's. And then if your execution is going to be agentic, if I use an AI SDR or AI to write call notes, or an AI to write a script, or an AI to do this, or AI to generate gamma, well I can feed that context to the execution. And so I think this whole world of product marketing and messaging is really exciting and I think it's going to change. And the other really interesting thing, people did really poorly. But if your product changes every month, how do you make sure all that execution gets updated? So this is, I've invested in disclosure. I visit company called Octave and it's basically context is king and you need to go to market context because you look at all these agents, even like qualified or all these things like they have no customer context, they don't understand the customer, they understand its value prop, they don't understand so they can't speak to them in the language. That's that value exchange. I think there's going to be a complete collapse of the traditional sales enablement, sales cms, sales assistant space. There is going to be a cursor for salespeople. It's going to be bloody. We first saw there was gong and then we saw outreach and there was sales loft and da da da and there's Clary with the et cetera. Like all these people are trying to be the systems of engagement on top of Salesforce but there's going to be a cursor for salespeople and that winner is going to be worth tens of billions of dollars because a Salesperson is not going to want to use more than one. And so that battle is going to be fierce. And I'm watching it, I'm looking at vestments, but like, that is not for the faint of heart. Right. And so it'll be interesting. That's on the horizontal side. We do a lot of vertical.
- [58:41]
CJ
Can you give a couple examples of vertical aha moments?
- [58:44]
Brett Queener
You invest in a company called Tire Tutor. It's software for tire shops.
- [58:48]
CJ
Oh, I love this. This is near and dear to my heart.
- [58:51]
Brett Queener
Maybe like tire shops. But if you really dig into tire shops, it's actually really complicated. If you want to go on the website and tell somebody you had this car and they have to tell you what tire you needed and when you could come into schedule. Let's think about this. Well, what car? Where do you drive? What's the weather? What's your driving style of the tires? What's your budget? Well, where is that tire? Most tire shops don't keep inventory on hand. It could be at the wholesaler or it could be at the manufacturer. And then I have to figure out when you can come in and what bay is available when somebody's there. So Jason is this crazy guy. He used to run a tire shop. His dad was in tires. He sold the first BMW and cars to Bob Marley. Bob Marley used to drive around in this BMW in Kingston. His dad was Jamaican. He's been out there. Instead of starting with a wedge product, and there are other people in the space that started early that had a positive that was sort of simplistic or web conversion, front end. It was simplistic. It had to be simplistic because the users aren't tech savvy. They're not tech savvy. So you had to get very simplistic products. And he's like, I have spent five years building this broad platform that connects wholesalers to the distributors to the retailers. I have all of these elements. And now with Agentic, I can actually deliver a software to these people that's very easy for them to use, that has all of this power. So it's easy to replace the existing process. And in these businesses you get payments. Well, you can start to think about what's the labor replacement. Because if somebody's paying 50 to $75,000 a year to have somebody to answer their phones on the front desk that turns every time and they're not that knowledgeable. And this person's ability to scale because it's relation basis, they know tires so can't open the shops. But If I can train a voice agent that understands all of my schema and the rest of it, Instead of getting 10k 15k ARPU per year, they probably gimme 25 grand for that or more. Now it is a race to the bottom. Probably at some point it was the five minute abs. We see this in all these verticals and so the TAMs in these verticals are so much larger than what people think about it Is one of my most exciting founders, Jerry Zwo at Supio, which we invested was Doc Equity was two and a half years ago at the time he cut out of Microsoft and Avalara and he was like look, I figured out a way to extract schema out of documents. And there are all these industries that are in the pre industrial revolution that weren't on documents, starting with legal. If somebody has a Kaiser medical record, if I understand that schema that anytime I have a Kaiser medical record, I know everything about it, I can apply a on top of it. And he went into an industry that never used software before. And their first version of AI was service as a software. I'll give you a better demand letter. And he's like, you know what? I think if I can grab all these canonical data objects and build golden data master objects, I can actually give people software to use for the first time. They've never used software before and they're willing to pay a lot of money. Like a top legal firm in PI, there's this whole business where they sell half their cases because they can't process them. If you can tell me at 2 o' clock in the morning I got a case in the mower. Everything I need to know about this case and how I'm thinking about it, what the approach is and what's the right to mail a letter to ask for in real time that I can go be the lawyer. Because if you think about lawyers, they spend 90% of their time trying to synthesize what's in these documents and piece together to come up with being a great strategy that's now all been automated.
- [62:12]
CJ
Brett, I want to gear towards a close here and wrap up with a spicier one. You've got to explain to me the dichotomy between Sam Altman saying there would be a billion dollar ARR startups with less than 10 people, yet seemingly every day there's a big brand VC who's leading a 50 to $100 million round into companies with 10 less than 5 million in ARR. What's going on there?
- [62:36]
Brett Queener
Yeah, it's A very interesting conversation. Right. Because they're often dipping into seed. And so I have to play this game all the time with seed investors, with seed founders. If you raise a round worth 2 to 3 to 4,500 million, you understand in your investor's mind the only really exciting return is a billion. And so you've just closed off 90 doors to exit value that could deliver generational wealth for your great grandchildren. And maybe it's not a fun returner for us, but it could be a money maker and it could be change your life money. That's what you want to do and you want to go do that. That's great. Because PMF durability is harder. The LLM platforms are moving up the stack. Competitors appear fast. Customers right now are doing a lot of a call try shit out. We're seeing a lot of like experiential buying. We haven't seen the first renewal cycles. Right. They're doing king making to pick winners and fund go to market ahead of traditional ARR. Economic and sometimes gross margins be damned.
- [63:29]
CJ
What's king making? Because I've heard that term thrown around before.
- [63:32]
Brett Queener
I'm going to put 50 million in this fender and I'm going to crowd out everybody else. I've made my bet, I'm going to scare the rest of the market away.
- [63:40]
CJ
So just give them so much money that people think it's too hard to compete.
- [63:43]
Brett Queener
That's not going to work. It never worked. And the other challenge is the second you do that, you kind of screw the founder because if you have so much capital you're not forced into the world of constraints. And constraints is still very important regardless of the capital you have and what you're doing. How are you making the hard calls of the bets you make and the bets you don't make. And we could argue it's on a shorter period of time in the SaaS in the AR world but like it's not very helpful. So look, the less than 10 people claim has been operational leverage, that in theory it compresses the headcount you need to build and run, but that doesn't give you distribution, doesn't give you trust. And enterprise adoption if you need forward deployed engineers to put people on site managed to come free like glean sick 100, 200 million. They have 750 people. And look, we do the best we can, we invest, do high level squint tam tests but it's hard. Like if you saw for the first time but we don't do is like return the Fun math. Because now a $50 million fund, I have a $250 million fund to return the fund. That means there has to be a $2.5 billion exit that didn't get diluted enough for I still own 10% of exit. But if I don't see a path to 200 billion an ARR with less than 20% of market share, I gotta love the founder. Now look, these people are raising tons of funds. Was Lightspeed just raised a nine and.
- [64:52]
CJ
A half billion dollar fund in nine billion I think and then someone else just raised it 12 billion.
- [64:56]
Brett Queener
So look, the economics of these businesses, they make a lot of money off of fees. I don't think they're writing to a 3x fund. Right? Whereas like if you're an early stage VC or God loved the pre seed, the people I love, they're my peeps. Those people we want, indeed they make no money. That's for the love of God. But there is an argument that if I can build so much faster, if I can build a solution that adds so much more value, that normally somebody would have to raise a series C or D to build that solution so much earlier in my journey. And if I have a sense early that the economics are running this firm are so much more efficient, why not invest earlier? Like I had a startup is one that was like 200 grand you can leave in 60 days and it got from like 0 to 2 million in like nine months. And I was like, why not spend $3 million next year to own the events to go be the bell of the ball and use that to attract employees and talent? Because it's a lot about war for talent now. Why not be the bell of the ball if you're ready as long as you can deliver on that. If the sense is that people are going to pay so much at series C or D, why not take the A and the B used to be you invest the company gets to a million dollars in ARR, raise an A. We have companies that I invest at the C stage, probably get past 10 million now. And some of the rounds you're seeing are these are just the brightest, most technical minds, right? And I have a couple of those swings. We don't do a lot of the infrastructure breaks. We do some of them. It's a flyer, right? And so but like they can actually crack something that's really hard. Now that all being said, I don't understand some of the rounds that are being unwritten because I don't know what the outcome they're underwriting to because they're.
- [66:31]
CJ
Not doing less rounds afterwards. Like I could understand if you, if you thought, well, let's give him the money now so we don't get diluted later and it's just like, take the money and run with it. But it, it seems like the rounds keep happening afterwards and it's even more dilution.
- [66:44]
Brett Queener
We make money off returns and the hardest call we have to make now is, look, I Invest, I get 12 to 15% of a company because we do a lot of work. We try to keep it sub 25. It used to be sub 15 post. We normally do our Prada in the second round. So let's say my average cost of capital of my first 3 to 5 million is 25 million. If the next round is like 200, I'm a seed fund. My second check's larger because remember, I own a percentage, so it's a much larger round. Now my average cost capital is like 125. But I think in the world of like, hey, there could be less zombie companies and more winners. We may need to concentrate those additional checks in some of the winners. But I've had a company we've invested in two years ago. I think it's going to be an amazing company. They've already raised an A and a B. The A, we did our thing and the B, like, that's not what my LPs invested in. You know, I'm an operator pretending to be a venture capitalism. Who am I to second guess? But I don't think it's healthy. And I don't think it's healthy having been a founder is you are going to have to run as fast as you've ever run. It's always hard to be a founder, but in this world I have founders that have to find and refine product market fit every six months. And the exit that your founders are going to like and if you don't hit, you're going to be a loser. Reminds me of Talladega Nights. If you're not first, you're last. And his dad came back with the Puma and was like, well, that's dumb. There's second, there's third, there's fourth. And look, life is difficult and this stuff is really hard. And you didn't start a startup to like have a multibillion dollar exit. Hopefully you started a startup because there was a problem you couldn't imagine not solving. And how do you make sure that, like, you enjoy the journey along the way? And if you want to put that pressure in hey, we'll go for it. I said, are you ready to go for it? Do you want to go down that playbook? Then I'm going to push you really, really hard. Or there are other playbooks and it's perfectly fine. Maybe you raise a day and never raise again. We had a company my partner invested in, he invested in, didn't raise again until it took secondary from Insight and then sold for a billion dollars through Stripe. And those guys controlled their own domain. I think they had 60 employees max at the end. They made a lot more money than a founder going and diluting along the way. And it's just, you know, what I tell founders is choose the path of energy that's comfortable for you. I don't do this for money. Like seed stage investing where you take all your liquid net worth and put it in your own funds as a GP, it might change in 15 years when the entire market changes. And going used to be 50 million and now it's like a billion. Now you do this, hopefully that you get good fortune to partner with a founder. We talk about, you know, you have your third child. Congratulations, just came home and do you have the opportunity to like spend time with them and can you be helpful that somewhere, somewhere there's some happy event? I don't know if they're on Wall Street. I don't know if it's a company meeting or they've achieved some level of success that maybe you saw in them. They didn't in the back room. They look at you and they just give you the nod. That's why we do this. Maybe it's a stupid reason, but that's why you do it.
- [69:57]
CJ
Brett, this has been an amazing time. I would love it if you could just plug your substack real quick and where people can find you.
- [70:02]
Brett Queener
Yes, it's queener.substack.com I don't write every week. It's probably once every two months. I've been writing back in the SaaS days and then when I saw AI come on the board of what it means. And for me it's fun because it basically makes obsolete all the knowledge I had before. They're longer. They're meant for investors and founders for you to digest. You can always just take it and upload it to Claude and little, you know, a little GPT. It's funny, my old buddies that hang out that either were founders or investors or the rest of it or sold to PE shops are like, oh my God, maybe we need to get to back in the game. Because the purity of running these businesses and what you don't have to do to be a successful SaaS to CEO before you had to be the master of explaining don't have to do that anymore. Remember in public SaaS companies, 98% of the market value of those companies was in year 11 through 20, not in year one through 10.
- [70:57]
CJ
Wow, that is nuts.
- [70:59]
Brett Queener
Yeah, I wish I had known that. Not sold my Salesforce stock when I left in 2013, I was like, Ah, $15 billion market cap. That's pretty good. It's got to be the top now maybe that's in the AI world, maybe that's down to 3 and 10. It's a really exciting time. And then if you're a founder, the rest of it and your seed or pre seed and want to like shoot the shit. I can't guarantee my opinions, but I'm one of those weird VCs that responds to cold inbound because having been a founder before, like if it's a good message, you're solving a good problem and you seem authentic, I'm here for that all day long.
- [71:32]
CJ
Awesome. Well, thanks Brett. Big fan of what you built at Bonfire and always appreciate the perspectives.
- [71:37]
Brett Queener
I just have to upgrade my light. Your skin looks so beautiful in the light. I've gotta.
- [71:41]
CJ
It's my skincare routine.
- [71:42]
Brett Queener
Yeah, I've gotta do that. My pleasure.
- [71:44]
CJ
Ear on the Numbers is a mostly media production. Yelling an intro by Fat Joe. Artwork by Meg delessandro. Show is executive produced by Ben Hillman. Nothing said on this podcast is intended to be business or investment advice. It's the sole opinion of me. A guy who feeds his dog way too much ice cream and has a history of net operating losses. Lol. If you like this podcast, hit subscribe and give us five stars. It will take like two seconds and our algorithm overlords love it. Drink water, call your mom and have a great day.
- [72:13]
Brett Queener
Peace.