Hi, I'm with SIEM co pilot. Thanks for joining us. I have with me today Hans Robertson. Hans is the founder of Meraki the first enterprise cloud managed networking solution that today has over 230,000 customers. Cisco acquired Meraki for $1.2 billion in December 2012. Han subsequently started Verkada, a cloud managed security camera company, and he's an active angel investor. Hans, thanks for being with us today. Looking forward to it.
So Hans is a founder of two successful startups, Meraki and Verkada, you seen the path of these companies, from the beginning? All the way to real success, something many founders ask us is in the very, very early stages of the company? What are the things they should be putting into place from kind of a finance or internal operations side? Sure. Well, I think as with most things related to the early stages, getting, you know, the best people involved is probably, you know, one of the most important aspects.
The even on the finance side, I think in the early stages, you're not going to want your own finance team. It's just doesn't make sense. But getting a reasonably good accounting firm or good accounting firm, just to take that whole element of the business off your mind is probably one of the best things to do early on.
And how do you think about like, tasks that are good to continue being done in house versus tasks that are good to outsource along these lines? Yeah, I mean, I think in the early stages, for most certainly, you know, software tech companies, you don't really want to spend a lot of time thinking about finance. So, you know, I guess I would sort of bias towards doing as little as possible, you know, certainly, having the founders and executives spend not a whole lot of time on on finance.
Unless your business is kind of somewhat strange and requires that but I think for your typical, you know, kind of even consumer or SAS company, you just don't want to spend time thinking about it, you want to, you know, let's just say something like expenses, you sort of want the classic like, Well, I haven't really done anything in a month. But here's a pile of receipts, like, have someone go deal because you don't really want to be sitting in there. And you're Expensify, like categorizing which receipt is for, you know, gas, and which ones for, you know, postage, I mean, like, you don't want to be doing that kind of stuff. So you really want somebody who can absorb, you know, most of the hours without you having to really do much. Sure. Yeah, it makes total sense, which isn't, I think one of the things we've thought about in general is, what are the things that are actually high leverage for the founders to be doing that they're gonna be able to do better than anyone else? And what are the things that are not? And for the things that are not there strike me as good candidates to try to bring in external providers on? Yeah, sure. I mean, I think the elements of finance that that are important to think about is like cash.
The only way companies really dies, they run out of money, right. So I think having a firm grasp of what the cashflow needs are like today, and what they're likely to be over the next six to 12 months. So you can, you know, basically calibrate your fundraising appropriately makes tons of sense. I mean, it seems obvious, but, you know, having a firm grip on what's going to happen to cash flow is probably something that's actually worth, you know, spending time on.
And then, of course, there's the whole, you know, venture funding side, that's not really the topic of our discussion, but I think, you know, being pretty good at, you know, understanding how the venture game is played is also important. Sure. And in terms of kind of financial metrics that you think founders should be keeping their eyes on, you think it's like, cash position and burn rate? Do you think something more fancy is required? Or how do you think about how founders? Yeah, I mean, I guess my instinct is that it sort of depends on what kind of business you're in.
And they're even within categories, businesses, or just management philosophies. You know, for example, in the case of Rocky, I think we, we were pretty careful to run a high margin, you know, relatively conservative cash burn type of business.
But one of our, you know, competitors.
ubiquity, who led him not really being a competitor in the early stages was, I mean, they raised no venture money. So they were like, cashflow positive, which is a completely different, you know, route to success and that that company has done great.
And then there are other companies I might put, you know, like box in this example, which just, you know, have a really high burn don't really optimize margins, until, you know, a long, long time down, and that's also a successful strategy. So I think there's a combination of like, what kind of business mi n as well as, what's my general approach? Am I going to just burn as quickly as possible to grow revenue? I don't care about things like you know, operating margins or sales efficiency.
Am I going to, you know, be in a business where,
you know, I really want to make sure that I can show investors that I have a high gross margin. So I am going to, you know, pay attention to that. So I think there's a lot of variance there. And I don't mean to kind of punt the question, but I think you should think about it and understand that your decisions around things like efficiency and margins are sort of it depends type of question. Sure. So depending on the needs of the business, you may want to track the certain metrics. And therefore you may want tooling in place to kind of make that that easier. Or you may decide that actually, it's not relevant for the stage of the business, but the only thing we're focusing on is growth, and of course, not running out of money. Right. Right. I'll give you another example there. So in the case of Verkada, this is a Systems Company, that business really should run at a pretty high margin. And so you don't want to put in place a business process and way of selling where that company runs at, you know, like a 30% gross margin, because that's just not really where it needs to be. So in that case, yeah, you would want to keep keep your eye on gross margins. For most SaaS companies where margins are so high, it doesn't really matter whether it's like 95 or 85%, like, probably not a metric worth optimizing. And when do you think is the right time to think about those kinds of questions like they've got, you know, it's let's say it's two founders, they just raised a seed round. Do you think that's a time when they should really start to be concerned about some of these some of the metrics of the business? Or do you think that's something they can defer to the A or even beyond? Yeah, I mean, I guess, you know, speaking generically, I think it's probably worth having a sense of, you know, what some metrics are, and not spending necessarily time optimizing them at least knowing I mean, I think if you're the CEO of a startup, and someone asks you, what's your burn rate? You sort of have you should answer that question. I think other questions that you really should know are,
you know, what's your plan for the next six to 12 months when it comes to bookings, or revenue and cash burn?
Questions around gross margin may or may not be relevant, but seem like that's a pretty basic number, you should probably know what that is.
Those are some of the basics that I think I would think about even relatively early. Sure. And at the seed stage, are there particular processes or systems that you'd want to put into place from an internal tooling perspective? Yeah, I mean, I think
having basic financial statements that are competently prepared is always something you want, I mean, investors are going to want to see that. So useful discipline. So I think you don't want to go too long without basically having, you know, a reasonably accurate income sheet balance statement, cash flow statement, and a model around your business could be a simple Excel model. But those are probably some of the early things that you want to do.
And from a software perspective, do you think like something like QuickBooks is sufficient there? Do you think they need to do something bigger in the early stages, I would definitely not do anything more complicated than QuickBooks, or its equivalent, Xero, etc, in the early stages, for a couple of reasons. One,
those systems really want a dedicated person in house to set them up.
They're more complicated to set up. And I think you don't want to get locked into a certain type of system before your business has had a chance to mature somewhat. Because it's just going to be another thing that makes it hard to change, you know, and you want to in the early stages of any startup, I think you want to be flexible. And accounting isn't one of the things that you want to lock you into a certain way of doing things. Cost is of course, another reason I don't think it's the dominant reason.
So I think, you know, a simple, probably hosted system is the way to go.
I think some people might tell you that the on prem versions are still somewhat more sophisticated. But I've seen plenty of companies use the hosted versions, even up to a couple 100 people, and I think it works pretty well. Sure.
And so that's kind of at the seed stage. Now. Let's say the company has gone and they've successfully raised a Series A the team size is growing, is that for you kind of an inflection point where they you'd recommend they start to improve their financial discipline in a particular way.
So yeah, I think the more complicated your business gets, the bigger you get, probably the more you can invest in setting up more robust processes and so forth. I think you always want to kind of look at it like what's the benefit? You know, what am I going to get by doing this? I think just kind of like making things more complicated for its own sake doesn't doesn't really make sense. I think what you find is a startups get bigger is it just becomes harder to kind of keep track of everything that's going on.
And that's when you're going to want more sophisticated systems to help you do that.
Let me give you
You know, an example, let's say, now you've got four or five different product lines and picking apart like exactly which one is contributing to revenue in which ways which one's more profitable?
You know, how much cost is being associated with them? That's a reasonable question to ask. And so you're gonna want systems and people that can help you answer those types of questions. Maybe you've decided to expand internationally, that's complicated, you're gonna need systems that can handle that. So I think you just evolve the processes and systems, you know, depending on what the real needs are. I mean, it sounds sort of trite. But I think that's how you approach it as opposed to a here is a set of rules when you have to under people you should be doing acts, I think I'd sort of take a more first principles approach to that makes sense? And particularly for for especially, like, first time founders or early stage, you know, executives, do you have any advice for them? They're not like it buyers by background, do you have any advice for them about how to think about when the right time to purchase a particular tool is or how to evaluate what level of complexity I mean, in general, I would say, like when it starts to feel broken, is when you probably want to buy a new tool, but don't prematurely optimize. I mean, I think in general, premature optimization is dangerous. And that's true for accounting, and finance systems as well. Let me give an example. Let's say you're doing, you have a sales team, and you're paying sales commissions. And you know, obviously, everybody starts out with spreadsheets and you've got, you know, 10 salespeople, you put the bookings in there, you calculate their Commission's and then now you have 50, people, it starts to become a little bit more onerous. They have 200. Salespeople, it's like, man, like this is really hard to do in a spreadsheet. So I think when it becomes so painful, that's when you start looking at, Okay, now we're going to buy, you know, exactly, or some other sales comp, you know, tool that plugs into Salesforce, but you really don't want to do that too early, for a couple reasons. One, those tools tend to be more complicated actually use than, then they might appear from the outside, Excel for all of its faults, is like a lot of people can use it. Number two, it also reduces flexibility, once you've gone and, you know, take in your process and essentially codified it in software, it's harder to change than like an Excel spreadsheet. So you want to proceed cautiously when it comes to, you know, investing in more sophisticated tools, but at some point you, you really will need to do it because it's just so painful to keep doing it in a more manual way. And do you have feelings on when evaluating particular vendors going with what feels like the industry standard versus adopting a challenger or a new entrant in the market? Yeah, I mean, I think my approach to that has been somebody relatively senior should actually try the software is crazy, if that is that seems. And you should be nervous when they don't let you try it.
I've personally experienced software where I didn't do that, or somebody on the team didn't do that. And the first time you use it, you think to yourself, oh, man, like, this was not a good idea. And it doesn't take a lot of time. But if you you know, try the tool, and after 30 minutes, it seems modern, it seems like you know, it sort of does what you expect. That's that's a good sign. And conversely, I think you can knock out a decent amount of tools just by looking at them being like, Yeah, I mean, I read the marketing, the marketing all looked great. But clearly, this is not very well implemented. So you can tell a lot pretty quick without really needing to be a domain expert. So that's number one. I'd say just actually try it and be skeptical of a vendor that won't let you try me if they say, Oh, yes, we'll do a web demo. We'll take you through it. And you say, Yeah, great. Thanks for doing the web demo now. Like, just send me a login and password? And they say, Well, you know, we don't really do that. You ask again and say, Yeah, but I know you don't usually. But I actually want to try it. If they refuse, I think you should probably like keep looking for probably a red flag. Well, also, I think there's probably a distinction between tools that are built for someone at the company to operate, and tools or products where you also have to hire a person to operate it or Yeah, or install it, for example. Yeah, I mean, I think there are certainly tools that are so notoriously difficult to implement that they don't really want you to try it because they're sort of trying to hide the fact that, yes, it's probably going to take six months and you know, $200,000 to get it working, you have to be really pretty big to want to bite something like that off. I think other things you can do when you're evaluating tools, obviously, is talked to people that are further along than you that have gone down a particular route. I think you get a lot of information that way. And I think in Silicon Valley, and in general, you know, there's a big enough startup community that you can usually find something, obviously don't just want to ask the vendor for their references because they're gonna get somebody who, you know, says good things all the time. So I think kind of asking around is usually something that's pretty straightforward to do, unless it's some exotic thing.
