Very True by Verissimo

Alex (00:00)
If a company has a 2 % profit margin and you can reduce their operating costs by just 2%, you've effectively doubled their profit. It is a mathematical certainty. So why, when you pitch this to them, do they completely ignore you? As a founder, you see the math, but companies with massive scale and low margins don't operate on math. They operate on culture, comfort, and risk avoidance.

Today we're talking about why selling efficiency to a high volume legacy business is a trap and the psychological form factor you need to use instead.

get this out of the way. I'm a seed stage VC. I've never personally built and sold enterprise software to a legacy corporation, but I have sat next to dozens of early stage founders who are banging their heads against the wall trying to do exactly that.

My job is pattern recognition. I have to see these cultural roadblocks, share the intel across my portfolio, and frankly, use it to refine my own picking algorithm to understand what teams can actually close deals in what markets. And while I don't sell software, I do sell. I spend a lot of my time selling fund products to limited partners. Selling to an LP is an exercise in pure psychology. You have to understand their specific motivations, their risk tolerance, and the gap between what they say they're interested in versus what

actually gets them to write a check. The overarching lesson is the same whether you're selling software to Ford or fund to an LP. You have to give people what they need in a form factor of what they want.

Startup founders look at legacy industries and see massive cost centers waiting to be optimized. Let's take for a great example, a tier two auto supplier or grocery chain. Their margins are tiny, often just two to 4%. The innovator looks at the 96 % or 98 % of revenue being spent on costs and thinks, I just need to make them 1 % more efficient. So they build a tool focused entirely on margin improvement.

Early in my career at Morgan Stanley and NEA, the culture was hyper analytical. Finding a 1 % optimization made you a hero. Math ruled everything. These are companies filled with hyper ambitious people. And even if they're big, whether in human scale or just AUM, the culture of the place was to drive efficiency and to drive sales and be super, super aggressive from top to bottom. When I briefly worked inside a 300,000 person corporation,

I saw the other reality firsthand. The embedded culture isn't about optimization. It's about survival, stability, and not rocking the boat. They grow by pushing volume, not by executing complex efficiency overhauls. What I always used to say is the goal when you work at these huge companies is just to not get fired. And one day you'll be the CEO. And that's very, very different than the hardcore kind of up or out mentality at much more ambitious operations.

I can record a whole other podcast and we can frankly have some great guests on that talk to the details and psychology at a corporate level behind why corporate bloat and really negative marginal utility of employees even happens and whether that will continue to happen in the age of AI. The reason this happens though is because of the perceived risk to the actual human buyer. If a VP buys your tool and it breaks a process, they get fired.

If it saves the company $50 million, they get a standard 3 % bonus. When the perception is high risk and low reward, people simply do not move. So how do you actually win? Stop leading with, I'll overhaul your cost structure. It sounds like a risk, change is the enemy. We need things that are understandable, that minimize risk while actually getting people excited. And it's really not an easy needle to thread. So.

The key is what people call the wedge and there's all this jargon and VC land and in companies But what your what the wedge really is is identifying the acute issue That's top of mind if their culture is obsessed with volume the pitch should be a tool that helps them achieve volume growth That's what they want. That's what they're comfortable with that is really the we'll call it the corporate emotional direction that everyone has pointed it

But you've got to architect that pitch so it simultaneously delivers that margin efficiency on the back end, which is really what they need and is going to drive profit and shareholder value in the long term. this sounds kind of obvious, but anytime you're in a meeting, you always listen to what the customer says, but you've really got to listen through what they're saying to suss out what they actually need.

In summary, math doesn't close deals. Understanding corporate risk and human psychology really does.

Hope this was interesting for everybody.

it's something that I've banged my head against the wall on that I've seen many, founders bang their heads against the wall on for years. And it's one of those moments where you just realize like, you got to go with the flow and get in the stream. And, and then you can start accomplishing what you really, really want. And at the end of the day, everyone's human. Everyone's optimizing for their own survival and whatever, you know, hits their.

They're dopamine receptors, but there's some big takeaways here. I hope this is interesting and remember to subscribe and most importantly, remember to stay true.