Nate Sanders - Artifact

Artifact: Overcoming Early-Stage SaaS Scaling Pitfalls – with Nate Sanders [368]

Artifact: Overcoming Early-Stage SaaS Scaling Pitfalls

Nate Sanders is the co-founder and CEO of Artifact, an AI-powered SaaS that analyzes customer data to uncover growth opportunities.

While working at Pluralsight, Nate experienced firsthand the frustrating and manual process of synthesizing customer research data across the company's different departments.

That experience got him thinking that there had to be a better way.

In 2019, Nate and his co-founders set out to build Artifact using large language models to automate these painful tasks. But developing AI products presents unique challenges.

One of the biggest obstacles they initially faced was not having the necessary data to train their machine-learning models, which was a critical component for an AI-powered product.

They also discovered that the champion persona, on whom they depended to advocate for Artifact, differed significantly across various organizations. This meant they couldn't rely on a single buyer profile and instead had to figure out how to customize their sales approach.

Despite those challenges, the founders believe they have found product market fit. Today, Artifact is doing over $1M ARR, and they've raised just over $7 million in funding.

In this episode, you'll learn:

  • The clever tactic Nate used to get valuable training data from early design partners for building Artifact's AI models.
  • How scaling up too early caused problems and almost sank Artifact due to disappointing results and poor unit economics.
  • How the founders tested different growth channels and how they eventually found what worked to reach their ideal customers and eventually hit their first $1 million ARR.
  • W hy Nate values speed but focuses more on making quality decisions than making many decisions, which ultimately led them to find the right market fit.
  • The subtle signs Nate watches for that show a prospect is truly interested and ready to become a customer.

I hope you enjoy it.


Click to view transcript

This is a machine-generated transcript.

00:02 (Omer Khan) Nate, welcome to the show.

00:03 (Nate Sanders) Thank you. Glad to be here.

00:05 (Omer Khan) Do you have a favorite quote, something that inspires or motivates you that you can share with us?

00:09 (Nate Sanders) Yeah, I definitely do. All models are wrong, but some are useful.

00:13 (Omer Khan) I have never heard that before. It's kind of making me think a little.

00:17 (Nate Sanders) Yeah, it's a good one. I think it's been very representative of my founder journey, and I've had to be able to step through a lot of learnings and the fact that you get a lot of, I would say whiplash from mentors, investors, customers, whatever it might be. And everyone has these mental models, and frankly, none of them are the territory. The map is never the territory, but some can be really useful to be able to move fast and make good decisions.

00:48 (Omer Khan) Nice, I like that. So tell us about Artifact. What does the product do, who's it for, and what's the main problem you're hoping to solve?

00:55 (Nate Sanders) So Artifact is predictive CX. So we use AI to be able to analyze everything your customers say, everything they do, and to be able to use that information to help you get actionable insights so you understand what's going to drive growth and customer loyalty. We primarily serve right now, product teams, but frankly, our customer inside of the organization is whoever is most passionate about turning voice of customer insights into actionable insights that can drive customer growth across the business. And that's usually right now, product teams.

01:10 (Nate Sanders) We see CX strategy, customer success sites.

01:32 (Omer Khan) Teams, and give us a sense of the size of the business. Where are you in terms of revenue, size of team?

01:38 (Nate Sanders) Yeah. So seven seven-figure business we're chasing towards, our next big milestone will be 2 million in ARR, and we're a team of 16. Expect to be probably 20 by the end of the year. And yeah, we've been around since kind of the late part of 2019.

01:55 (Omer Khan) And you've raised about seven and a half million dollars to date.

02:00 (Nate Sanders) Yeah, that's right. So seven and a half million, about a million and a half pre-seed round and then a $5 million seed round that we oversubscribed. That Josh Buckley from Buckley Ventures Led.

02:13 (Omer Khan) So your background is in product and UX, and I noticed you were working at Pluralsight for a while. I used to love using Pluralsight, great
product. So tell me, what were you doing at the time? Where did the idea come from?

02:34 (Nate Sanders) Yeah, the idea came when I was at the Plural site, and like you said, my background is in product design, product leadership, and I think if you
ask me what I really resonate with and who I am as a person, from a job title perspective, it would probably be designer. And every shop that I've ever been at, every business, I've been a part of mostly early-stage and growth-stage startups. I've gone through this process of operationalizing, qualitative and quantitative data to be able to find product market fit. So the pain point was observed from my experience as a practitioner of the fact that I was spending 70% to 85% of my time interfacing with other departments.

03:05 (Nate Sanders) So success, support, sales, doing my own primary research, and it elicits a lot of data that's pretty difficult to synthesize, but a gold
mine to be able to find product market fit and just drive growth across the business.

03:28 (Omer Khan) Okay, so what was the spark of the idea?

03:32 (Nate Sanders) When I was at Pluralsight, I was tasked, first of all, amazing product organization. I had joined the team because two of my longest mentors,
nate Walking Shaw and Gilbert Lee, were leading the product team there and convinced me to be able to come over and join this wonderful product team that they had put together. And we were doing thousands of customer interviews a year across the entire product team. There wasn't a lot of synthesis happening.

04:00 (Nate Sanders) There was some, and we were using everything that was being said by the customer every day to be able to drive product decisions. But I was
asked with one of my colleagues, Mike Baird, to be able to actually go and try and operationalize synthesis across a few different teams that were running different product research efforts and things like so we did. Almost half a dozen of those activities where a lot of the folks listening probably have been in activities like this, where after two days, you end up with a glass conference room with thousands of sticky notes over the wall that are in, like affinity maps.

04:37 (Nate Sanders) And they're expensive. It's like ten people that are paid $150,000 plus to be able to spend two days doing these activities. And the natural
course of events was, man, I wonder if we could use machine learning to be able to solve these problems.

04:37 (Nate Sanders) And at the time, the language models and the NLP techniques were quite naive and simple and didn't really produce super actionable results.
But then in 2018, at the tail end of my time there, the first large language model. Burke came out and we ran some internal experiments using these kind of fill mask NLP activities or techniques and saw some really promising results and thought to myself, I think it's time.

04:37 (Nate Sanders) And that the technology has come far enough that we could probably start a business around this.

05:28 (Omer Khan) Okay, great. So you've seen an opportunity here. What did you do next? Like, once you've had the idea and you're like, okay, we got this
business we can go and build, did you quit your job that afternoon or did it take some time for you to figure out or lay some groundwork? What did you do next to get to the point where you could finally make the leap?

05:57 (Nate Sanders) Yeah, me and one of my two co founders, Trey, before our third co founder joined us. His name is Caleb, but Trey and I spent our evenings for
about six or seven months. Tinkering so we'd build little prototypes and react and just put them in front of friends or colleagues, just be able to get early feedback. And we're, in a sense, just trying to try as many things as we possibly could before we were, I would say, obligated to the lifecycle of a business.

06:28 (Nate Sanders) And, yeah, so we tried probably half a dozen different little prototypes and directions and product ideas and finally started to be able to see some interest around one of those particular areas, which at the time, we were actually focused on data gathering and the synthesis. And so we raised a small angel round from friends and family here in the Salt Lake City area to be able to actually go full time. So it ended up being almost seven months from the first time that we started exploring things in code to when we actually went full time as a company.

06:55 (Nate Sanders) So lots of nights and weekends, lots of fed up spouses, things like that, before we actually went full time.

07:11 (Omer Khan) So when you went full time, what kind of runway did you have and were you generating any revenue at that point?

07:20 (Nate Sanders) We had an initial feature, not a product. It was like as slim as it could be. And we had a couple of really promising conversations that we
thought could lead to revenue. So, no, I would say significant traction before we went full time.

07:27 (Nate Sanders) And the runway aspect it gave us with the capital that we had raised and how we kind of penny pinched and reduced our salaries, et cetera,
about 18 months to be able to figure out what is the play here? Is there an opportunity for us to even raise venture capital that we could use to be able to build a real big business here? So we explored quite a bit for about six or seven months, pivoted a couple of times in that direction before we landed on what Artifact is as a business today and the product that we've been building since early 2020.

08:10 (Omer Khan) The thing about Artifact is that obviously everyone is talking about AI today. You guys have been obviously doing it for a little bit longer
than three months, since whatever it was, since Chat GPT came out. It strikes me as that in order for the product to work, and you mentioned machine learning earlier, that you need to have a lot of training data and a bunch of stuff to basically make that the AI effective. How did you overcome that problem on day one when you didn't have any of that?

08:48 (Nate Sanders) Yeah, it was actually pretty painful. So the interesting part with these AI native SaaS startups, and I think there's degrees of how true this is, there are folks that can certainly consume these models via endpoints and get a lot of value that way. For us, fine tuning and even pretraining in some ways was pivotal to actually creating a product that we could satisfy what our customers were hoping to accomplish. So the first big problem was this kind of cold start aspect of in order to fine tune, you need training data.

09:27 (Nate Sanders) In order to be able to get training data, you have to be able to have customers. You don't have any customers yet. So how do you actually get
to that point where you can actually get this training data to be able to fine tune these models? So essentially we had to take a design partner route where we ended up reaching out to almost a dozen different organizations that we felt were very forward thinking about this problem.

09:51 (Nate Sanders) Most of them were in our network. Folks that we had either worked with, worked for, knew were passionate about solving a problem like this
networked into them, called them, emailed them, whatever it might be and essentially said, look, if you will give us the data, we will let you use the product for free as it's productionized and gets to a general release for a certain amount of time. And if what we're showing you in these prototypes, these clickable prototypes, if this is real and we can create this and you can give us the data to be able to do so, all we're asking for is your feedback, your data and your time.

10:19 (Nate Sanders) And we did letters of intent that had paid deposits about one thousand dollars to one thousand five hundred dollars. Something that would
disappear on a corporate card. It was just enough to be able to tell us this is real.

10:45 (Nate Sanders) People aren't just doing us a favor. They obviously are a little bit because they're networked into us and we're asking for a favor. But we just wanted to see that they were willing to put a little bit of skin in the game and then participate with the data.

10:59 (Nate Sanders) So that's how we started overcome this problem. And then we ended up with three, and then at the latter end, four design partners that we
were just collaborating with weekly, getting feedback, trying lots of different things in the products and fine tuning these models as often as we could.

11:15 (Omer Khan) So before you started going out and trying to effectively pre sell the product and get some training data, you mentioned that you and Trey,
over six to seven months, were building prototypes and react and whatever. Were you also going out and trying to validate the idea with potential customers back then?

11:36 (Nate Sanders) Yeah, we definitely were. I think more than I like to today. As a product person, I had learned quite a bit of the really great practices that come from human centered design. So we would do voice of customer interviews without a prototype, without a product in front of them.

11:56 (Nate Sanders) We were just trying to understand the problems, what people needed, how they worked, anything that would help us understand recall versus
idealistic kind of scenarios. Like how do you actually do this? What does the work actually look like. And so we spent quite a bit of time just interviewing and understanding.

12:12 (Nate Sanders) And then we would do little design studios, little design sprints, where we'd put together prototypes as fast as we possibly could. And then
we would present those figma prototypes to our potential target customer and get their perspectives and watch them use it, watch them suffer, not know where to click all those good things before we ever started building.

12:36 (Omer Khan) So I want to talk about the presale piece of this and getting the data. In those early days, if you can presell the product, that is such a powerful signal that you're onto something. You don't have a product, you're just showing people slides or some kind of clickable prototype. And even on the basis of that, they're willing to get a credit card out and give you some money.

12:51 (Omer Khan) You were doing more than that. You were saying, hey, can you give us the data because we really need it and it would help us out. And by the
way, we're going to charge you for that as well.

13:10 (Omer Khan) So it was like a double whammy. When you look back at that experience, what do you think were some of the things that you got right? Think
about maybe a founder today who's in the same place where you were back then. What are some tips you could give them to say if you want to go out and presell this thing or maybe have more of an ask, like as an example of the data.

13:41 (Omer Khan) These are the kind of things you really need to do to be able to get those people on board bought into your vision, feeling like you guys
are the right people, credibility, whatever, right? So what will be some of those tips that you could share?

14:00 (Nate Sanders) It's a great question. I think the first thing that we weren't afraid of was this almost binary aspect of like, you either get it or you
don't. And I think some founders get locked into the spectrum of is this product correct and how right is it? Or how correct is it? And trying to move the needle left or right throughout that entire early stage process. And the fact of the matter is that you need to try a lot of things very fast.

14:34 (Nate Sanders) My team, I presume, is very sick of hearing me say that startups don't get outperformed. They get outdecided. Essentially, someone is just
going to try more things and make more decisions than you do in a faster amount of time.

14:49 (Nate Sanders) So I think that's one aspect that we were very unafraid of is the fact that let's find folks that resonate with what we're trying to do. They
get the pain point, they get what we're trying to do and let's see if it's real. If it's real, they're going to give us money.

15:05 (Nate Sanders) And if they give us money, then they're going to spend time with us and if they spend time with us, inevitably the product is going to get
better. So we were just very unafraid of that. I think that initial classification of the folks that we were working with, and I think that proved to be quite effective as we worked through our early design partners.

15:21 (Nate Sanders) The second part, man, I would say finding organizations that think the way that you think as well, not just like a specific user or a customer, but that they also have the ethos. And I think what that helped us do is that when it came time to ask for budget outside of this credit card expenditure, it wasn't like this was a foreign entity to the rest of the organization that they just couldn't lift or persuade anyone else to do. So I think thinking about what's happening around the champion that you're working with from this kind of presale aspect, are they going to be able to sell it to the rest of their organization? I think that ended up being very important to us and the nature of the product that we had.

15:37 (Nate Sanders) And then, yeah, I would say the last thing that came to my mind as we were going through that is we had a very strict, almost demanding ask
of the amount of time that we needed from these early presale customers. We told them that we needed to spend at least 30 minutes a week with them, and that proved to be one of the most valuable things that we've ever done. I'm sincerely grateful that we pushed on that even though it was an uncomfortable ask.

16:34 (Omer Khan) And that on itself is a great signal in lieu of not asking a customer to pay, that if they're willing to commit, not just in an abstract sense, will you use the product and try it out and give feedback, but will you actually commit to meeting with us for 30 weeks, 30 minutes every week, or whatever? That, again, I think is a powerful signal that there's something there. This is a problem that they care enough about to be able to say, I'll take some time out of my schedule to do this.

17:09 (Nate Sanders) Absolutely.

17:10 (Omer Khan) So I think what you described there in terms of finding those right types of potential customers makes total sense. The challenge is, how do
you find those people? Right? It's not like, oh yeah, we're looking for product teams at companies between 25 and 100 employees or whatever. You're talking about some very specific behaviors that aren't necessarily easy to target and then find. So how did you overcome that?

17:39 (Nate Sanders) Yeah, you don't have the benefit of thermographics to go target these companies. It's all about the jobs to be done, of how they're thinking
about it. One of the biggest things was networking. We had a lot of calls with a lot of folks that we trust, and outside of job title and the easy things, it was just a lot of who do you know that's trying to solve this right now? Do you know anyone that has mentioned this pain point? Lots of questions like that over a three or four week period, networking into dozens of different individuals that helped us get exposed to a lot of different ideas and priorities and things like that as fast as we could.

18:21 (Omer Khan) I mean, I think that on itself it sounds pretty obvious when you say it like that, but I think sometimes it's easy to just focus directly on how can I find those people? Whereas if you take a step back and say, well, I know at least 20 people in my network who are in that space. Loosely, they might not be target customers, but if each one of those people is bought, into what we're doing and knows even five people each, that's a potential another 80 people who could be target customers that I can get connected to. So that's a good way of thinking about it. Let's talk about beyond the first year and figuring this out and getting those initial customers, and let's kind of switch mode into getting to that first million in ARR.

19:17 (Omer Khan) Once you had started to pre sell this product, you're getting training data, you're getting people who are using the product and helping you
make it better. How did you find the next set of customers?

19:34 (Nate Sanders) Yeah, this process took longer and was much more difficult than I think I expected it to be. A lot of my experience as a product practitioner
throughout my career had been in Bottoms Up SaaS, our ability to create just a wonderful product that could create these nice network effects across lots of champions. And what we found pretty quickly with Artifact is not only did the technology have to be right, the right person inside of the right organization had to be also targeted. And what I mean by that is one of the initial challenges that we encountered is we would find that the persona that valued Artifact wasn't always the same.

20:21 (Nate Sanders) Kind of like I mentioned at the beginning of the podcast, which is sometimes it was product, sometimes it was customer success, sometimes it
was CX strategy, and other times it was an insights group. Our ability to traverse and predict which group that was inside of an organization was hard in the sense that the first SDR was me. And I didn't have the ability to spend every day, all day doing that outreach and trying to be able to put together sophisticated plays.

20:48 (Nate Sanders) So that first initial part was quite difficult of just even trying to be able to do direct outreach to be able to identify the right champion. The second part, as I think about that journey that was difficult was we had an initial MVP that we released in the fall of it would have been 2021. That was kind of post design partner.

21:10 (Nate Sanders) We had already closed like our 1st $100,000 in Arr from our design partners and we're starting to be able to commercialize it into that spring and summer outside of our group. And as we started taking the product to market, we noticed that a lot of the assumptions and things that were true for those initial design partners obviously weren't true for the broader market. So we then again had to go iterate as fast as we could around some of those high priority aspects of the product.

21:24 (Nate Sanders) And then you get into this cycle of the fact that really Product Market Fit is a system and the really difficult part of Product Market Fit is that everything has to work in concert at the same time and you have to this huge lift and it all has to work right at that same moment. And that was very difficult for us. I'm not sure I'm really in a place where I would say we have Product Market Fit yet and it might be just because I'm too hard on ourselves, but that is an enormous lift and it's hard.

21:24 (Nate Sanders) And I admire founders that have the grit to be able to make it through that initial step. For us, our ability to be able to try and learn from prospects, existing customers, what is working and what isn't as fast as we can and then turn that into a decision as fast as we possibly could, has become a superpower for our team. So one of the big values that we have inside the company is to be able to make high quality good decisions as fast and frequently as possible.

21:24 (Nate Sanders) And that's just become a huge part of our ethos, is just making really good decisions as fast as we possibly can, as frequently as we can. And that's the only way I think we made it through some of those initial trodges of you have to make it through this. I don't know what's right, I need to go figure it out, I need data now, I need to act on this as fast as I can to be able to get a feedback loop in here.

22:05 (Nate Sanders) I would say trite as that is for startup founders, it's so difficult and it's hard to get right sometimes and I think that's what helped us through some of those initial stages.

23:19 (Omer Khan) So you said making high quality decisions. I think most people get the idea of making decisions quickly, but how do you know it's a high-quality decision? Was this just about making decisions quickly and then getting better at seeing what worked, what didn't work? Or was there more of a framework or a mental model talking about models that you were using to make these high quality decisions quickly?

23:54 (Nate Sanders) I am a really big fan of mental models in general. I don't know if you've seen Farnham Street and the wonderful blog they have on mental models. That has influenced quite a bit of my product career, let alone my founder journey. So I would say we talk a lot about mental models and we talk about its ability to be able to help us make faster decisions, things like that.

23:54 (Nate Sanders) I think there's a couple of things, if I reduced it past mental models that have helped us, the first of which is the ability to understand
and identify your known, knowns and known unknowns. If you remember Donald Rumsfeld's famous word soup that he had back in the weapons of mass destruction days. But it's actually a great framework.

24:43 (Nate Sanders) It's called the Jahari window. And it's about this ability for you to map out like, what do you know right now, what do you know is true, what do you know you don't know right now? And it allows you to be able to frame all this information asymmetry and assumptions and everything else that you have to go tackle. So every single product decision we make, every go-to-market decision we make, we end up having that conversation of like, what's the known knowns, what are the known unknowns? And we go chase as fast as we possibly can the information that we need.

24:44 (Nate Sanders) And then two would be diagnostic thinking. So if we're going to make a decision, how will we know it was effective, how will we know our
ability to be able to measure it? And then rather than throwing out the baby with the bathwater, with each initiative, taking the time to be able to think about, well, what didn't make that work? What went wrong? And how can we improve it this next time around? To be able to create a system that can actually get us to a result that we like. Throughout my career, I've used OKRs quite a bit.

25:48 (Nate Sanders) One of the maddening parts of my experience in organizations that use OKRs is they almost always wholesale change every quarter, regardless
of whether you achieve the initiative or not. They almost always just wholesale get swapped out. And if you think about the equivalent to that, there's no diagnostic thinking.

26:07 (Nate Sanders) It would be like if a check engine light and a car came on, you'd throw the car out and go get a brand new car every single quarter. It doesn't make any sense and it's maddening. So we try and take a very diagnostic approach to when we make decisions.

26:19 (Nate Sanders) The fact that every localized outcome is not going to be great, but if we keep making as high-quality decisions as we can throughout this process, it's going to amortize out to these really great it.

26:29 (Omer Khan) Love it. Thanks for sharing those. I think those are going to have to look up that Jihari framework. It didn't work out too well for Romsfeld, but the model still applies.

26:38 (Omer Khan) Yeah. So let's talk about getting to that first million in AR. I know you eventually figured out one growth channel that worked for you and
is still working for you and you're doubling down on that.

26:51 (Omer Khan) But before we talk about that, tell me about a couple of the other channels that you tried and either they didn't work or they just failed.

27:05 (Nate Sanders) I mean, over the last three years, it's no surprise that in the founder zeitgeist, there's been a lot of attention put on Bottoms Up SaaS and
that Go to Market Motion is so amazing, it's wonderful. It can create really formidable businesses. It also has to be right for the product and for the company. I think one of the missteps that we had early on was we decided that we would try and take a bottom-up approach and then feather that very closely with kind of a high mid market commercial and enterprise segmentation and we try and bring this together.

27:43 (Nate Sanders) So we made some initial product decisions, self-service onboarding, trying to be able to create some share-based loops, things like that, that could expand throughout the organization. What we found is that it attracted the wrong type of champion. People that can make these decisions on their own and can do them with immediacy of a self-service sign-up usually don't have enough data or are at a large enough organization that they would get value from Artifact.

28:14 (Nate Sanders) It's usually small and medium-sized businesses that are, I would say, making up the long tail of Bottoms Up SaaS. And that just proved to be
very quickly not an effective way for us to be able to target champions that got the most amount of value out of Artifact. We saw a stark difference between churn and retention, between folks that we had targeted in the enterprise and a direct outreach approach versus folks that had come through a bottom-up sales motion.

28:42 (Nate Sanders) So that was one of the first learnings that we had. The second was we looked at different channels. So outside of the strategy, we tried a
lot of different ways to be able to get in front of folks.

28:52 (Nate Sanders) One of them was Community, which I'm still very passionate about just from a company perspective of building a community. But as a go-to
market motion. What we found is, if you recall, when I was talking about the fact that the champion can be different inside of our organization is the community ability to be able to bring folks in is very commonly attached to the activities of a job description rather than an affinity for what you're passionate about.
29:23 (Nate Sanders) So Voice of Customer is not as effective to be able to build a community around as much as product management or design or community  building or customer success, things like that. So we found that it was too difficult for us to be able to traverse a lot of the different personas
that end up being passionate about Artifact, with community building as a primary channel at least.

29:49 (Omer Khan) So were you building your own community or were you trying to kind of infiltrate other communities?

29:55 (Nate Sanders) The former primarily, and a little bit of the latter as. Well, but we started by hosting these biweekly events that we call craft notes, where we'd bring in speakers from different persona types. And it was just difficult to be able to find, I would say, a steady drumbeat on who we could target in an effective way there and actually kind of build this gravitational bubble around in the community strategy.

30:10 (Nate Sanders) And then the other was like dinners. We would go out to San Francisco monthly and we would have dinners with a cohort of folks and just found the same that we had to change the theme, the perspective of those events. Too much there was too much thrash to be able to build out a
consistent community, to be able to target the personas we needed.

30:44 (Omer Khan) Okay, so that was community. You tried events and conferences as well. How did they go?

30:50 (Nate Sanders) Yeah, I love conferences for learning. Events are actually a great place to be able to talk to as many people as you can. For us, what we found is that especially as a startup, the ability for that channel to be effective is almost like three parts in the event runner's hands and one part in yours. And that asymmetry is not great for a startup where your budget is limited.

31:20 (Nate Sanders) You're spending a nontrivial amount of money to be able to have a booth there. So I think they can be effective when they're not a primary
channel, at least for our business. For some businesses they're incredibly successful, but for us, we just had to learn very quickly that it wasn't the right place to be able to put dollars and that the ability to find the right person at that event was too random.

31:43 (Nate Sanders) Stochastic not going to be predictable at each event we went to and we found more success from the direct outreach aspect.

31:51 (Omer Khan) Roughly how much do you think you invested in conferences, events before you realized time to move on?

31:59 (Nate Sanders) Probably 30 to 40,000 between the actual booth set up, event fees, things like that, which is again, not like a huge amount. I know there are
people that spend hundreds of thousands of bucks on ads before they figure out this isn't the right channel for us, but this is.

32:15 (Omer Khan) Not the show for that.

32:18 (Nate Sanders) For us, 30 $40,000 is pretty close to the base salary of an SDR before OTE commissions. So it was pretty hard for us to be able to see the difference in efficiency and effectiveness and think that that was how we were going to spend the rest of the six months of that year of spend.

32:39 (Omer Khan) Right, so let's talk about the channel that you did get to work and is still working for you today, which is basically outbound. Tell us, how did you figure that out? Did it start working right away or did it take some time to start getting results from that? And why do you feel that this was the best channel for your business? And your market. And I think this is really one of the takeaways from this part of the conversation is that just because something works for Artifact, it doesn't mean everybody listening out there should go and do outbound. Right.

33:16 (Omer Khan) It's like you need to find your own channels, your own growth channels, and it's going to take some testing and experimentation to figure
that out. But I think it is worth understanding how you arrive there and how you've been able to get that to work for you.

33:30 (Nate Sanders) Yeah. And by the way, Julian Shapiro has a wonderful framework on how to be able to assess and understand which channels are going to be most effective for you that we really love and think really heavily of him and everything he's done there. And that helped us through, I think, our framework of how do we try a lot of different things as fast as we can there. Yeah.

33:50 (Nate Sanders) Initially we were doing the direct outreach ourselves, so again, I was the first SDR and what we found is that almost every single one of the
folks that we saw good retention, high engagement, just good qualification from, came from the fact that I spent time doing the hyper qualification and doing the direct outreach myself. So that was the obvious impetus leading us towards SDR as that kind of early part of our go-to-market funnel as we brought on our first SDR. His name is Chase, who's our first SDR at a company.

34:26 (Nate Sanders) He did an amazing job and we saw Know skyrocket from the fragmented time that I was able to put my attention on it and our MQL to SQL
Conversion was really healthy. And so that was enough impetus for us build to say, okay, we saw this previous signal, now let's take this next signal and invest further in it based on the fact that we're also seeing a lot of other channel investments not be as effective. And so we doubled down with another STR and this time it was an actual manager and someone that we were looking, can we have this person turn one to three with their contribution which ended up being a super effective investment and we're now currently doubling down on that same channel with Headcount and Spend.

35:14 (Omer Khan) So you hired an SDR and they're basically generating your leads, your marketing qualified leads. In terms of conversion, did you also have an
Ae on board or was the SDR also doing that part of the job?

35:34 (Nate Sanders) From the earliest stage we brought on an Ae and comped them like a biz dev role. So there was still OTE commission, but we comped them high on the salary aspect and told them that their job was exploration, understanding, learning. And I sat in shotgun with them obviously throughout the entire sales process. So I've always been very involved on the sales process side because I think it's a valuable learning of product market fit and it's not something I'm willing to just abdicate to someone entirely yet even still.

35:50 (Nate Sanders) And so we brought on someone that could actually help me operationalize and build out a system around the Ae sales aspect. And we've had some wonderful learnings there as well. For us, some of the biggest things that we've learned from Enterprise Sales Motion is that initially our sales funnel was our perception of how the customer was moving through our sales process.

35:50 (Nate Sanders) And we've learned through mentors and our own experience that it needs to actually be commitment pattern based. It needs to be the certain
things that we ask a customer to do that they agree to keep. And that if they do, we know they're actually making progress towards becoming a closed one  opportunity.

35:53 (Nate Sanders) So that commitment pattern actually becomes super important for us.

36:48 (Omer Khan) So it'd be great if you can give me an example of that. But just so I understand, you're saying if somebody is looking at a pipeline and they're looking at a customer and they're saying, well I had a pretty good conversation with them so I'm going to move them to a 60% on my pipeline, the probability of closing. Now you're saying rather than it being some kind of subjective thing you were saying here's a checklist of things that we want the customer or the prospect to commit to and once they do that then they meet the exit criteria to move to the next stage.

37:24 (Nate Sanders) Yeah, exactly. So an example of that is that in our old sales process we had a stage that was called POC for proof of concept. And what we've
changed that to is customer has sent us an identified list of data sources they want to integrate. Customer has signed in and authenticated
with those data sources.

37:40 (Nate Sanders) Customer has logged in for the first time. It's actual commitment patterns that we know actually progress the customer towards a healthy
engagement and something that we can recognize they're going to be qualified and get value out of Artifact. Rather than our perception of our ability to carry and shepherd someone through a process, it's our perception of how they're moving through.

38:07 (Omer Khan) Love that. I think the Sdrae question, I asked that because one founder I spoke to had on the show. What they ended up doing was they were
both tech founders, they hired someone to generate leads. They basically just hired more SDRs and they had these people doing both jobs.

38:30 (Omer Khan) And what would happen was that these people would generate a bunch of leads and then they would spend their time trying to close these leads
for some weeks or months and as a result there were no new leads coming in. So when they'd go back, the pipeline was kind of dry. And admittedly, he told me, he said look, at the time we didn't know what an SDR was or what an Ae was or whatever.

38:44 (Omer Khan) So we're just trying to figure that out. But it sounds like you did a better job at getting that set up better from the outset.

39:03 (Nate Sanders) The interesting part there is that like you said a few moments ago, it's not always going to be right for every single company. But the approach that we wanted to take is rather than having me be the sole salesperson that did everything, knowing that there's valuable learnings of being involved at every step of the process, our perspective was, if we try and operationalize a system that works at a really reduced, low spend way. But we can actually see reproduce over and over again. That's the best possible signal for a gross stage capital allocation.

39:41 (Nate Sanders) Not from investor standpoint necessarily, which is also great signal for them. For us, of this is something that's ready to scale is if we can see this system work and we can see it repeat itself, we know that if we put money in, we're going to get X amount of dollars out. That was a perspective that we took on this.

39:59 (Nate Sanders) So we had an SDR, we had an Ae and me. And that's the system that we want to see. Can we make this scale? There's obviously great founder
advice sometimes for just have the CEO be the only salesperson in every possible way, and I'm sure that works out for a lot of companies.
40:15 (Nate Sanders) For us, it was much more important in an enterprise environment to be able to make sure we had something that we could repeat for very large enterprises over and over again.

40:23 (Omer Khan) We should wrap up soon and get on to the lightning round. I have one more question for you. I know one of the challenges or you had to overcome was being super focused on your target market and the segments you were going to go after. Tell me about some of the early struggles with that because it wasn't that clear cut, right? And you were being pushed in several different directions.

40:54 (Omer Khan) Yeah.

40:55 (Nate Sanders) We have always had this weird OD bifurcation of the further down market we went. It took a lot more hyper qualification for us to be able to
know that they're the right customer. But they moved faster, they would respond quicker, they were more responsive. It was very tempting because of those dynamics.

41:15 (Nate Sanders) So you had to talk to more people, but they ended up engaging faster. The further up market we went to Enterprise, the qualification was
incredibly easy. It's hard for us to find an enterprise that isn't just screaming with pain around the aspects that Artifact solves, but they move slower.

41:20 (Nate Sanders) The sales process are dramatically longer. So as an early stage company, it's hard to be able to figure out which one of these paths do I choose based on the fact that I only have so much capital, I can allocate towards it. And we had a lot of investor feedback, a lot of other founder friend feedback, that, hey, just go focus on this easier aspect.

41:45 (Nate Sanders) And time and time again, that has proven to not be the best decision for us and that we should actually just grit and bear the fact that we
need to take the time to be able to invest in the best possible customer for our business. And if we need to be able to find some sort of dilutive capability to capitalize that, then let's do it, because that's the best decision for the business. So that's our biggest learning from that is do what is right for the business and finding the best possible customer for the business rather than trying to fit or shoehorn this framework that you think is going to propel you along.

42:29 (Omer Khan) So, I mean, on the face of it makes sense. And many founders I talk to will say, I picked that segment because they were the only people that
would talk to me. So I said, why not? That's where I'm going to focus my time. But if you had done that, what do you think the consequences would have been? Where you've gone down market and you say, well, these are the people who seem most engaged and they're most responsive.

42:29 (Omer Khan) I mean, that sounds like a good thing. Why was that not a good thing for your business?

43:02 (Nate Sanders) Churn would be higher, ACVs would be 90% lower. Everyday engagement would be lower. It would just create a much less healthy business
overall. And we saw those signals in the product, analytics, in the email, responsiveness, et cetera.

43:15 (Nate Sanders) And at first it was hard to see that pattern. But increasingly, as we saw more and more of it, that's what became very indicative of, if we
had gone that direction, what would I think be the nature of the business? So our ability to just stay focused on that upper end market has just created a much healthier business. The unit economics are better, the ACVs are better, engagement and retention adoption is better.

43:43 (Omer Khan) Okay. And as a quick follow up question to that, there's one step or part of this decision making is figuring that out that this group here,
even though they take longer, there's more challenges, it's the right group of customers to go after. I would say the second part of that challenge is saying no, and we're going to stop doing this. We're going to stop going after these people.

43:43 (Omer Khan) And I think it's even more complicated when it's not just a discussion between you, the founders. You also have to go and explain that to
investors and other stakeholders who have been pushing you in that direction. So how did you handle that part of the decision?

44:39 (Nate Sanders) Not well. I had a lot of whiplash there, for sure. As a really quick example of that, in the fall of this last year of 2022, we had almost 80% to 90% of our enterprise pipeline disappear because of workforce reductions, layoffs, budget cuts, et cetera. So we went from almost $2 million in pipeline to nearly zero and it was silent from about early October until February of 2023.

45:10 (Nate Sanders) And so we had this time frame where we were starting to be able to put more of our focus on bin market again because you have to do something, you can't sit around for six months and not do anything. And so we saw customers closing mid market and then we saw Enterprise start to be able to pick up back again in the spring, and that's yielded some really interesting TCV opportunities for us. Moments like that have been a dime a dozen over the last three years where we've had a lot of different Black Swan events that have made this very difficult to be able to see through the glass clearly.

45:10 (Nate Sanders) And I think the fundamentals of just as a group thinking for ourselves, thinking about what's right for the business, and thinking about what
we know is true has been the only thing that has helped us navigate that. At the same time, I would say our ability to have switched priorities or change focus and do that in a nimble way, I don't think looking back was the wrong decision. There's nothing you can do as a founder that as long as you're focused on trying to make the right decision with the information you have as fast as you can.

45:47 (Nate Sanders) I just don't think that that ends up being a regretful paradigm or decision framework that you're going to look back on and not have fond
thoughts about. So yeah, we've changed focus priority many times, but only in light of the information that we had in front of us, and we're going to keep doing that.

46:39 (Omer Khan) All right, let's wrap up. I've got seven quick fire questions for you. You just try to answer them as quickly as you can. What's one of the best pieces of business advice you've received?

46:50 (Nate Sanders) The customer breaks the tie.

46:52 (Omer Khan) What book would you recommend to our audience and why?

46:55 (Nate Sanders) Thinking in Bets by Annie Duke. It's the best possible way to be able to learn how to make high-quality decisions.

47:01 (Omer Khan) Wasn't she the poker player?

47:03 (Nate Sanders) Yeah, she was a world champ poker player.

47:05 (Omer Khan) Yeah. I don't know much about poker, but that book's come up in my radar before. What's one attribute or characteristic in your mind of a successful founder?

47:13 (Nate Sanders) Resilience.

47:15 (Omer Khan) What's your favorite personal productivity tool or habit time chunking?

47:21 (Nate Sanders) Putting a task on my calendar rather than a task list.

47:24 (Omer Khan) What's a new or crazy business idea you'd love to pursue if you had the extra time?

47:29 (Nate Sanders) I'd love to be able to explore AI and genetics and therapeutics.

47:34 (Omer Khan) What's an interesting or fun fact about you that most people don't know?

47:39 (Nate Sanders) I'm a great cook, I love cooking.

47:43 (Omer Khan) And finally, what's one of your most important passions outside of your work?

47:46 (Nate Sanders) Family. I have two beautiful daughters and a wonderful wife and have had children since my early twenty s, and I'm just crazy about my

47:57 (Omer Khan) Wow, you started, young man.

47:59 (Nate Sanders) I did, yeah.

48:01 (Omer Khan) Awesome. So, Nate, thank you so much for joining me. I think we covered a lot here in terms of unpacking your story from the days at plural sight to where you've taken the business to today. If people want to find out more about Artifact, they can go to Artifact.

48:19 (Omer Khan) IO. And if folks want to get in touch with you, what's the best way for them to do that?

48:23 (Nate Sanders) You can just reach out to me over my email. So Nate at Artifact. IO, happy to chat with anybody. Thanks for the time.

48:29 (Nate Sanders) Thanks for having me on.

48:30 (Omer Khan) Yeah, it was my pleasure. Thank you. And I wish you and the team the best of success.

48:34 (Nate Sanders) Thanks. Bye.

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The Show Notes