Neil Patel

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Derek Steer is the cofounder and CEO of Mode, a new startup enabling data scientists to share and discover work. His company, Mode Analytics has raised over $83 million from 13 top-tier investors which include Valor Equity Partners, H.I.G. Growth Partners, Foundation Capital, and Switch Ventures, to name a few.

In this episode you will learn:

  • What it takes to raise money during a crisis
  • Derek’s top advice for new entrepreneurs
  • The one thing you can do to save a year in building your startup

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Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).

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About Derek Steer:

Derek Steer is the CEO of Mode, a new startup enabling data scientists to share and discover work. With Mode, analysts are more productive and connected, both publicly within the data community and privately within organizations.

Before co-founding Mode in 2013, Derek Steer was an early member of Yammer’s Analytics team. There, he built tools to identify strong leads and customers at risk of attrition within a pool of freemium users. Derek has also worked in antitrust economics and on the Monetization Analytics team at Facebook.

Connect with Derek Steer:

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have an interesting founder. I think that we’re going to learn a lot. He’s born and raised in San Francisco. Typically, people that you speak with have ended up in San Francisco somehow, but he’s one-of-a-kind that has been there since the beginning. So without further ado, let’s welcome our guest today. Derek Steer, welcome to the show.

Derek Steer: Hi, Alejandro. Thanks for having me. I’m excited.

Alejandro: So, how was life growing up in San Francisco?

Derek Steer: It’s the same as anywhere. If you’ve got a living room and a kitchen, that’s pretty much my whole life. Sometimes I take vacations to my backyard, but I would say all-in-all, it’s quite good. I’m an optimist. I think, probably, a lot of founders classify themselves as optimists. I’m generally happy to have my health and be able to work every day on something I’m excited about.

Alejandro: Absolutely, and growing up, you grew up in a family that was a bit more traditional. Not so much on the techie and ambitious or changing the world type of mindset, but how was life growing up? Your father is a lawyer, for example.

Derek Steer: Yeah. My dad is a first-generation American. He came from an immigrant family that had to flee Romania during WWII to avoid persecution. To him, economic stability was the thing, so he had always drilled into me like, “You’re going to become a lawyer, doctor, banker – some real traditional profession guaranteed to make a bunch of money and be financially stable because that was what he grew up without and wanted for me. The nudges from my parents and a lot of my education and friends were pushing me in that direction, and it was by accident that I fell into tech. Graduating from college, if you told me I was going to work in tech, I would have been surprised, and if you told me I was going to be a tech CEO, I probably would have laughed in your face.

Alejandro: Very cool. When you were in high school, you fell in love with economics. So what was it about economics that really captured you?

Derek Steer: It was the way of thinking about things in terms of scarcity and tradeoffs that really appealed to me. I happened to have a great economics teacher in high school. I went to Lowell High School in San Francisco, and my teacher, Jim Spellacy, was one of the writers for the APEA comp exams. He was a reasonably well-known teacher nationally, as much as you can be as a high school teacher. He was fantastic and made the difference for me and showed me that I am meant to do economics or something like it. So I went off to college. I went to Occidental College, where I majored in Econ, and then my first job after that was in economic consulting doing analysis for anti-trust cases and big mergers. I followed that thread for around 10-11 years.

Alejandro: What happened after college? What did you do?

Derek Steer: I worked at this consulting firm. We were primarily working on data from the biggest companies to understand whether their mergers or competitive activity was going to result in some ability to price unfairly. These were tech companies, CPG Firms – I can’t talk about most of the cases, unfortunately, because it’s all confidential, but I got to see and work with data from the companies that were most interesting to me, and I learned a bunch of things, including that a lot of these companies have bad data. I previously believed that the biggest companies in the world must be big because they’ve got all of it together. If you’re very successful, it means that you operated better than anyone else. I know now that not to be exactly right. But it was an interesting discovery at the time. Oh, I was going to say, like any consulting job, there is a traditional kind of analyst or a socio type of path where you do that for a few years. You go off to some kind of grad school, and then you come back. Or, maybe, you don’t come back. That was very much the path I saw myself on, where I thought I was going to go to business school and then do some different flavor of consulting or go into something adjacent. Instead, I took a break for half a year, rode my bike across the country, discovered myself – all that. It was something I had always wanted to do.

Alejandro: But, hold on, Derek. What do you mean everyone gets to do? Not a lot of people get to right a bike and go across the country. What was this about? Tell us more about this. This is quite unique.

Derek Steer: Sorry. It’s not like everyone gets to do it. I think in the consulting world, there’s this expectation that you move on to do something else after a while. For me, I did something that was a little non-traditional, which is, I took a break and went and rode my bike. I had been in love with cycling. There was a period of my life where I was riding 250 to 300 miles a week. It was all I wanted to do. For the longest time, I think any serious cyclist – I’m like many of the others. Every serious cyclist in the U.S. has that idea of biking across the country in the back of their heads. I figured, “I’m over this consulting job. If not now, when? Maybe, later on, I’m going to have a family. I should probably go and do it. So, I did it. I raised some money for World Bicycle Relief, which is a charity that provides bicycles to children in a number of countries in Africa, just to get them set up with basic transportation. It was partially for that, and partially just so I could go and cruise the back roads of the United States and see what there is to see.

Alejandro: For how long did you do that?

Derek Steer: It took about three months. I did it with one other guy – one of my childhood best friends. I was able to convince him to come with me, but it was just the two of us. We organized it ourselves. We went with support from anyone else. We brought all of our gear with us in trailers attached to our bicycles. We could do a whole podcast about that. The people we met on this trip – there’s something about traveling outside of a car that’s very different. A road trip in a car, you’re on the freeway, and you pass by all the interesting stuff. The cool things are all on the backroads. That was what we did. Whenever possible, we’re taking these roads that almost no one else was on, stopping for lunch in a trailer by the side of the road, meeting the locals. That’s something that I’m super happy to have done. I don’t think I’d be able to do it today with my family and my job.

Alejandro: Absolutely.

Derek Steer: But it was an experience of a lifetime, for sure.

Alejandro: For you, what did you discover about yourself?

Derek Steer: Ah, I’ve got to think about it for a moment – beyond just the enjoyment of doing it. I think the thing that I discovered about myself that I might not have come across otherwise is that it’s okay to do things outside of the path that my parents or my education had set forth for me. That probably was the biggest thing is that I went off and did this ride; I had a lot of fun; And then I came back and fell back into work in a way that probably worked out better than if I had just sat at home and applied for jobs. Through the rest of my career, I’ve taken a number of risks, and I’m fortunate that they’ve paid off. I’ve been able to at least figure out which risks are the right risks to take. Going on this trip was a risk for me, and seeing that result in something that was maybe better than if I hadn’t done it, plus, I got to have a lot of fun, that’s certainly, to some degree – whether I realized it at the time or not, has informed a number of my decisions later.

Alejandro: And a big one there, was heading into tech, and that started with Facebook.

Derek Steer: Yeah. I had kind of a funny path into Facebook, where, in 2010, I had just come back from this bike trip. One of my former colleagues from the consulting firm was at Facebook and said, “Derek, you’ve got to come check this place out. They’re doing such interesting stuff. It’s way ahead of any other company in terms of the analysis that they’re doing. They don’t have enough people. They need more smart, analytical people, so come join.” I thought I was going to go to business school, so I said to him, “Yeah, I’m interested. I’ll think about it, but what would make me feel best is if I were to come in as a consultant. I don’t know that I want to take a full-time job because I am intending to apply to business school.” In fact, I did apply to business school within my first month at Facebook. I came in as a contractor, working pretty much full-time, but with the intention of doing a short-term and then heading out. What I realized partway through was that “Business school probably is the wrong decision for me. Post-business school, what do I want to do? This Facebook job is pretty fun, and the people here are really smart. I’d probably just want to come back here or to a company like this. It seems like there is very little point in spending a couple hundred grand to go to school for two years, only to just wind up in the same place.”

Alejandro: Absolutely. At Facebook, you were there for about eight months, but that got you into probably what has been one of the life-changing moments in your professional career: Yammer. Here, you had the opportunity to really see a company going from nothing to all these employees and being acquired by Microsoft. I’m sure that was quite a wild ride for you.
Derek Steer: Yeah. To be clear, Yammer was at nothing when I arrived. There was certainly a little bit of buzz and press about it. I was maybe the 150th employee.

Alejandro: Yeah, but I mean the acquisition was massive and incredible growth. You had the opportunity to experience all of that. How was that for you?

Derek Steer: When I look back, and when I’m really old, I’ll probably think of Yammer as the real turning point in my career for a couple of reasons. The first is that I had a lot of agency, way more than I had at any other job – first, the story of how I ended up there. Once I realized that business school wasn’t for me, I started thinking more broadly about what was, and one of the things that bugged me about Facebook, at the time, was that all of the internal work was done over email. Now, they have Facebook groups or workplaces – I think it’s evolved over time, but at that time, I was living in Outlook all day, which seemed like a total waste. I specifically sought out Yammer as the company that was applying the principles of open communication to work. I really believed in that, and I just happened to luck into working for a guy named Pete Fishman, who since then officiated my wedding; he’s an investor in Mode; I’m an investor in his new company, Mozart Data. We’ve become super close. I think if there is a consistent theme, even though my various career transitions have been kind of big tangential leaps from one another for the most part. Alejandro: In this case, after the acquisition, you had the opportunity to work with Microsoft as well, and it was a very important moment in time when you got together with your colleagues. During a brainstorming session, there was an idea that came up that basically changed everything for you.The consistent thing is that I’ve been able to find great mentors and great people to work with along the way. He was a big part of that transition to Yammer for me. He gave me a lot of autonomy and basically said, “Derek, you can go do the things that you think are valuable. Just don’t screw them up,” like they might actually be valuable. It taught me some of the most important skills that today I employ as a founder of figuring out what is valuable, prioritizing it, and then making sure that you get it done.

Derek Steer: Well, there wasn’t that there was one brainstorm per se. It’s just that we started to chat at lunch, which turned into chatting in the mornings and thinking about what it would be like to build a business around these tools. We just kept talking about it more and more every day. What I tell aspiring founders is, start a company that you’re obsessed with. That’s really the most important thing because if it’s just a job, you’re not going to make it. It’s hard. You face challenges at every single step. Once you overcome those challenges, the goals become higher and more challenges get introduced. For us, we really were totally obsessed. The reason that we started Mode was because we were obsessed with solving this particular problem of how analysts and data scientists collaborate amongst each other and with the rest of the business. I don’t think I will ever start another business unless I feel that exact same way where I wake up in the morning, and it’s the first thing I think about, and I go to bed at night thinking about that as well.

Alejandro: Interesting. Then, here you guys are in this company, now a big company, Microsoft, and how do you get it to the point where “Let’s give our notice. We’ve got to go on this.”?

Derek Steer: It was really just the amount of time that we were spending talking about it amongst ourselves in conference rooms instead of actually going out and doing our day jobs. There became a point where our day jobs just became completely unpalatable. And it’s not Microsoft’s fault. I think a lot of people assume, “Oh, you got acquired by Microsoft, and so you hated it, and you had to go.” No, it wasn’t that at all. It was more that we were just obsessed with this one particular thing and wanted to go do it.

Alejandro: Got it. What were some of the first steps that you took when you actually went at it, and you did it?

Derek Steer: One of the important things here was that we wanted to create legally a clean separation from Microsoft because they owned all of the internal tools that we had built. We couldn’t borrow any code from them, so we had to make sure that we were not doing any work ahead of time. We had to create a really clean separation between the two. So, we decided we were going to give notice. We all gave notice on the same day. There were three of us: myself and my colleagues, Benn Stancil and Josh Ferguson, who are the other two founders of Mode. As soon as we gave notice, we went to talk with David Sacks, Yammer CEO, to get his feedback on the business and also to see if he wanted to fund us. One of the great things about working at a company like Yammer that is successful is the connection to the venture community, and the ability to raise money is really, really, really strong. We were able to raise from our executives, David Sacks, and a number of other early Yammer executives, one of whom was David Obrand, Yammer’s Chief Customer Officer. After a few years and a couple of other jobs, he went to become a partner at Valor Equity Partners, where he did Mode’s Series C. The earliest investors have carried through all the way to present day, and David Obrand is really active in the company today.

Alejandro: Very cool. That’s amazing because David Sacks is a super well-known angel investor. He’s done a lot of it, so it was like you were falling into the right place.

Derek Steer: Yeah. His portfolio is outstanding, but more than that, he’s well-connected, himself, and also able to tell people about the work that we’ve done from direct experience, which, I think, is the important part. The real value came in, not when David invested in Mode, but in the next round after that where, when we went out to meet other investors, it came with an introduction from David Sacks saying, “These folks built really valuable stuff at Yammer. I funded them right when they left the company to go and do their next thing. This is going to be a winner; trust me.” That advantage – I don’t know that there’s another way to replicate that other than going and working at a similarly successful company and getting to know the founders. The reference ability there is really huge, much more than if I were to just go out and pitch and say, “I’ve got Yammer on my resume.” The difference of having Yammer on my resume and having the CEO of Yammer directly invested in the company is big.

Alejandro: Well, absolutely, because early-stage fundraising and early-stage investing are all about social proof, and I think that this is a clear example of differences between an active investor and a passive investor, which is that signal into, that you can get from it.

Derek Steer: Yeah. I feel a little bit – maybe, guilty is the wrong word, but I’m certainly aware of the advantage that gave us. For the sake of the global economy and the future of Silicon Valley, I hope that we’re able to find other ways to fund emerging founders. There are lots of people with great ideas and the ability to execute who just aren’t a part of the system today, and it’s so much harder for them to get started. I love Y Combinator, at least in concept. I haven’t done it myself; I can’t speak to it in-depth, but any opportunity to take someone from the middle of the country or just outside the Silicon Valley boys club and insert them into it – maybe later in my career, I’ll get more directly involved in helping founders outside of these circles because by being in them, I’m acutely aware of how advantageous that is.

Alejandro: Oh, absolutely. Derek, for the folks that are listening to really get it, what ended up being the business model of Mode?

Derek Steer: Mode competes in a very interesting way, and our business model has to reflect that. It took us a while to figure this out. At its core, Mode is a workflow tool. Even in the data world, people get excited about data processing and technology. Mode is less like a database like Snowflake. The performance elements of it are less important than the workflow and the way in which people get things done, the way they share with one another. That’s the stuff that makes Mode really special. What we do is, we take the work that analysts and data scientists were doing in their Python Notebooks, their SQL Editors, and we bring that into the cloud, make it easily sharable, distributable, and reusable. It’s very similar to what Google Suite does, relative to Microsoft Word. They took interfaces that people understood already and put them in the cloud, added great permissions and sharing models to them, connected them well to each other, and in doing so, provided a lot of value. That’s the general principle behind how Mode provides value to analysts and data scientists. The idea is, “Let’s get you out of your desktop tools, working in the cloud.” Then what happens is that they start to share with everyone else in their company. Successful Mode deployment, depending on the size of your company, might have thousands of people. Our biggest customers are 5,000+ people using Mode with thousands daily active – really high engagement across a group that’s far beyond analysts and data scientists. The thing that’s challenging for us about that is that companies then start to view us in the same light as Tableau, Looker, and other traditional business intelligence tools. We’ve got to then compete for dollars and share of eyeballs with the business intelligence world, not just with other things that are aimed at analysts and data scientists. For that reason, the way that we’ve thought about going to market – it has evolved quite a bit over time, but it really is about landing among the analysts and data scientists regardless of what other competitive tools are in place. We just want to get in and get our foot in the door, expanding organically through product-led growth, and then develop relationships through a broader business, and expanding from there.

Alejandro: How do you make money there?

Derek Steer: We make money on a per-seat basis. The value comes back to us when – and that’s part of getting in. Getting in small, it’s affordable for companies to start with just a department or just an analyst or a data scientist because we’re charging them only for a few seats, and then as Mode starts to grow within the company and provide value – the value that people experience from Mode really does track pretty well with the number of people who are using it so that seat-based model is a good proxy for value.

Alejandro: Got it. In this case, obviously, this requires some money, so how much capital have you guys raised to date?

Derek Steer: About 83 million to date. We just did a 33 million dollar round led by HIG Growth.
Alejandro: Let’s talk about that because pitching in COVID – your first pitch was in March. I’m sure that was quite bumpy, to say the least.

Derek Steer: It was an interesting moment. I’ve thought about it a lot since then. We had just happened to budget in a way that dictated a fundraise about that time. So it wasn’t that we screwed up or anything; it was just really bad luck that COVID hit, and the economy started tanking right at the time when we needed to go raise money. So there was no choice. It was just we had to go do it and deal with it the way that it was going to happen. What I said to the exec team, and actually, we’re transparent with fundraising and that kind of thing. So I said to the whole company, “We should still be able to get a round done. I think I’m just going to have to talk to three times as many people as usual.” Where a typical funding round for us, we’ve had competitive rounds and usually have talked to maybe ten VCs and gotten one or two term sheets. Most of our rounds have been competitive. I figured that this time I would have to talk to 30 people, and we’ll get a term sheet out of it. It shook out to be roughly that, although, with the HIG folks, when we first started talking, it was a pretty direct path from there to a deal. It was clear from the beginning that they were really serious about Mode. I think in this environment, some investors were just spooked by the fact that the stock market was dropping 10 points a day. That seems like a big problem. In some cases, I would reach out, and people would say, “We’re just not even interested in anything at the moment unless you’re the greatest company to have ever existed; we’re probably not the right people to talk to because we’re turtling up and seeing how this shakes out.” I think even a month later, things have changed enough that those same firms became much more active, but it just happened that at the end of March and the beginning of April, people were the most freaked out. Once we got past those people, what we were doing was we were looking for folks who believed in our market and, in particular, in the analyst data scientist portion of it. To bet on Mode, what you really need to believe is that analysts and data scientists are a growing audience, both in number and in importance, and that those people will come to make decisions about how companies use data on behalf of a very big group of people in the company. That’s what we believe in it for is that group is going to be decisionmakers, and really important, they’re going to hold their own budget. You see this happening in a number of big companies already where data has moved to a strategic function out of IT, or it used to be like buried in IT. Now, data, for media companies, is a monetization strategy. For others, it’s something that is directly in lines of business. The data science team at Twitch, who was our first customer, lives under marketing. It’s totally different from the way the world was ten years ago. As far as fundraising is concerned, it’s not too hard to convince people that’s going to be the case. And that, I think, really is what it comes down to.

Alejandro: This is just one more problem that you encounter in your entrepreneurial journey, but I think one of the things that you guys had, and this is definitely an edge, is the access to data and being able to interpret and to understand and digest data in a way in which few people can because that’s the background that you guys had. But one question that I want to ask you here is, how do you guys go about using metrics to break down a given problem and use that data to guide you in making the right decisions?

Derek Steer: Yeah, this is a really interesting thing for us. We, as analysts and data scientist, the founding team of Mode is excellent at breaking problems down and finding the meaty kind of tricky questions, dissecting them into their parts, measuring all the pieces, and figuring out what we should do. I gave a talk Web Summit last year that you can find online – or maybe we can put it in the notes on the podcast – that is a ten-minute overview of how we applied analytical decision-making to becoming freemium and to pricing decisions. To go all the way back to what you were talking about at the beginning here, it really is the same skillset that I was honing in high school and economics of just logically breaking down a problem into its component parts and trying to solve it, thinking about things in terms of tradeoffs. The thing that we’re surprisingly immature at – though getting better – is what I think a lot of people think about when they say being data-driven, which is adhering to metrics on a dashboard. For our sales team, for example, a data-driven sales team is more like a metrics-driven sales team. It’s not necessarily one that uses data to make every decision; it’s one that reviews data about activity and drives the operations of the business based on that. That’s something that data science teams don’t really do. There’s not a good way to measure them – the number of questions answered, the number of lines of code written – these are not things that perfectly aligned to the values that those teams provide. What happens in most companies is, they just ignore it. They say, “We’ll decide if that team is performing well based on how we feel about them.” That’s how I had been managed in the past, so Mode’s founding team has had to develop this muscle, and we’ve done okay at it, but it’s definitely not the same as coming from a career in a field like sales or marketing where the metrics are super clear, and that’s just part of how you do things is that you think about the metrics of the business all the time and how you’re tracking for them.

Alejandro: Absolutely. One of the things that I want to ask you, and this goes to the people that are following us today, is, what can you tell us about how big Mode is today?

Derek Steer: How big is Mode today?

Alejandro: Yeah. How many employees do you guys have or anything along the lines to get an understanding on the scope of Mode today?

Derek Steer: We’re 110 employees or so. We just did our Series D fundraise. In terms of customers, we are north of 500, I believe, is the official metric that we’ve got out there in the press, so the next big one will be 1,000. I think that covers the basics. In terms of how big we are, things that are important to me are a little different than those metrics. What matters to me is that analysts and data scientists have heard of us. We’ve got this tutorial that is probably the best brand builder for us that gets hundreds of thousands of unique visitors every month. That, to me, is one of the most important things, like, how many people are getting exposed to the Mode brand, who we are, what we do, and what kind of audience we are trying to reach?
Alejandro: One of the questions that I typically ask the guests that come on the show is if you had the opportunity to go back in time – maybe you’re able to go back to and participate in those discussions with your younger self and with other colleagues that you were chatting and brainstorming at Yammer with, and you’re able to put yourself inside of that conversation and give at least yourself, and share as well with others that are listening, one piece of advice before launching a business and why, especially, given now what you know having built Mode for all these years. What would that be?

Derek Steer: I already mentioned that being obsessed with the thing that you’re doing is really important. I think that is the most important thing, but may be tied with, make sure the thing you’re doing is valuable, at least to somebody, and if you’re going for venture scale, then make sure it’s something with a big enough market, or at least can grow that way. We did very little to understand the market when we first started the company. That’s a thing that I really wish we had done more of. We just sort of said, “Hey, we are the audience; we know what to build. Everyone else who says anything different is because they don’t know. But we know.” We thought we were smarter than everyone else. In some ways, you have to think that in order to start the business because most startups fail. You’ve got to believe that you’re in like the top 1% to even bother trying in the first place. I don’t think we explicitly said to ourselves, “We’re in the top 1%,” but by virtue of starting this business, that’s implied. What we should have done, I think, is to approach it with a little more humility from the start and really do better customer development, better market development. In the early days, when we would pitch investors, most of them said to us, “How many people write SQL?” You’re making a product for a technical audience? Why? That seems small.” Everyone else in the BI world is going after the non-technical people because there are so many more of them, and you’re saying there are enough of these technical people to go venture scale? That seems suspect. We didn’t have a good answer for them at the time. The answer now is: yes, it’s happening. You can see. There are so many proof points from the number of data scientists entering the market every year to other market-expanding things like Redshift, BigQuery, Snowflake, which have made it possible to do analysis and get a good ROI on building analytics or data science capabilities within an individual department at a company or in a very small startup. So these things have led to a clear market opportunity. But in the early days, we probably should have thought more carefully about what that opportunity was. I think it would have saved us a year in development.
Alejandro: I love it. So, Derek, for the folks that are listening, what is the best way for them to reach out and say hi?
Derek Steer: The best way to say hi to me – my email is: derek@modeanalytics.com. That’s the best way. I’m off and on at Twitter and everything else. Generally, if people have questions, I’m pretty open to chat, especially with aspiring founders. So, I’m happy to pass on learnings or answer questions whenever I can.

Alejandro: Amazing. Well, Derek, thank you so much for being on the DealMakers show today.

Derek Steer: Alejandro, thanks for having me. This was fun.

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