The Exchanges

Q No, I'm sure that didn't go down well. But kind of touching on this approach, and kind of the, the meta thesis behind it, you recently posted on Twitter, most Bay Area millennials have never seen market corrections. One bin, one to go. So tell me about this, and what did you learn, firstly, from your prior market correction?

A Yeah, so I'm 39 now, so I'm old enough to have been through the dot-com boom and bust in the late nineties and early 2000. I was coming out of school in 99, so I, I hit at a great time, and then watched the company go from 10,000 people to zero, because they spent themselves into the ground, and their customers were all equally on shaky financial conditions, and then as we grew our consulting business, and then 2008 and nine saw the real estate market correction, and I think this idea today that VC money is just always around the corner, and if you need more money, you just go and ask for it. It's a dangerous assumption to make, and we've already seen companies that have raised tens of millions of dollars just disappear overnight because they thought this never-ending supply of money would just be available to them, and that's, that's something that's hard to shake if that's the only thing you've ever seen.

AI assessment note: “It's a dangerous assumption to make”

Q and just sitting down and talking with partners. VCs are always asked, what do you look for in the founders you back? What do you look for? I'm intrigued. When you sat down with the VCs that you did, what was it that gave you those seeds of hope that you'd really like to work with them, and what made you ultimately decide to work with those that you did?

A Yeah, I mean, we raised the, the ten million dollar round with Emergence as the lead, and specifically Santi as the partner, and I think A big part of that for us was, was just having extended conversations with him. Santi in particular had run a business. He had actually bootstrapped a business and I don't think that's necessary or certainly not necessarily to be a successful VC, but it does give you a certain knowledge of how to operate a business, how to run a P&L, how to get revenue from the top to the bottom of the P&L when you really need to. And so that was a big part of what we were interested in. Plus he's, he's seen these kinds of businesses before. They've got great investments in this top-down sale. I mean, we were really particular. We actually, we were focused on not only just heavy enterprise SaaS, but also the top-down sale, and then not a sales product for a sales team, and then not a technical product for a technical customer. I think those sales motions are different. So we were fairly specific in what we were looking for, and we're really happy to work with them.

AI assessment note: “Santi in particular had run a business. He had actually bootstrapped a business”

Q that to prior conversations, very much one theme that you've said to me before that comes across Is your kind of slow and steady approach to the journey. Now, I want to ask, does this go contra to the more traditional thesis of kind of VC and SaaS businesses in terms of plowing money in, hiring big sales teams, and really testing and iterating growth as fast as you can?

A Oh, yeah, definitely. I mean, I think now there's a lot of talk about how startups can grow efficiently, but when we were coming out of YC in That really wasn't the sort of dominating mindset. Yeah. We actually, we got some advice and it was very good advice from a well-respected VC. And they said, look, take the money that you have raised, go hire four interns and hit the phones. And if the product sells, then great, you know, you've got something. And if it doesn't, then you shut it down and move on. And it was great advice, but we were right not to follow it. We knew we had something and we knew we just needed to get to the right product market fit. We knew we needed to get to the right sort of milestones in terms of customers and feature set, and so we took our time. We spent 18 months to get it right, but once we saw that it was working, we took another six months before we hired our first employee, and it was definitely different. Most of our YC batchmates were not following that process.

AI assessment note: “Oh, yeah, definitely. I mean, I think now there's a lot of talk”

Q and just sitting down and talking with partners. VCs are always asked, what do you look for in the founders you back? What do you look for? I'm intrigued. When you sat down with the VCs that you did, what was it that gave you those seeds of hope that you'd really like to work with them, and what made you ultimately decide to work with those that you did?

A Yeah, I mean, we raised the, the ten million dollar round with Emergence as the lead, and specifically Santi as the partner, and I think A big part of that for us was, was just having extended conversations with him. Santi in particular had run a business. He had actually bootstrapped a business and I don't think that's necessary or certainly not necessarily to be a successful VC, but it does give you a certain knowledge of how to operate a business, how to run a P&L, how to get revenue from the top to the bottom of the P&L when you really need to. And so that was a big part of what we were interested in. Plus he's, he's seen these kinds of businesses before. They've got great investments in this top-down sale. I mean, we were really particular. We actually, we were focused on not only just heavy enterprise SaaS, but also the top-down sale, and then not a sales product for a sales team, and then not a technical product for a technical customer. I think those sales motions are different. So we were fairly specific in what we were looking for, and we're really happy to work with them.

AI assessment note: “Santi in particular had run a business. He had actually bootstrapped a business”

Q that to prior conversations, very much one theme that you've said to me before that comes across Is your kind of slow and steady approach to the journey. Now, I want to ask, does this go contra to the more traditional thesis of kind of VC and SaaS businesses in terms of plowing money in, hiring big sales teams, and really testing and iterating growth as fast as you can?

A Oh, yeah, definitely. I mean, I think now there's a lot of talk about how startups can grow efficiently, but when we were coming out of YC in That really wasn't the sort of dominating mindset. Yeah. We actually, we got some advice and it was very good advice from a well-respected VC. And they said, look, take the money that you have raised, go hire four interns and hit the phones. And if the product sells, then great, you know, you've got something. And if it doesn't, then you shut it down and move on. And it was great advice, but we were right not to follow it. We knew we had something and we knew we just needed to get to the right product market fit. We knew we needed to get to the right sort of milestones in terms of customers and feature set, and so we took our time. We spent 18 months to get it right, but once we saw that it was working, we took another six months before we hired our first employee, and it was definitely different. Most of our YC batchmates were not following that process.

AI assessment note: “Oh, yeah, definitely.”

Q Can I ask, was it very, uh, challenging mentally for you to make that transition revenue-wise from a revenue services-based business to a kind of software-based business whereby you start from ground zero?

A Yeah, I think mentally we were all in. Our customers were not as enthusiastic. When we told them what we were doing, they said, well, fantastic. We will give you a, you know, a statement of work and a requirements document. And we said, well, no, no, this, this is software. So you log in and you start using it. And they said, no, but you're, you're the development team. And we said, well, yes. So we built this product. So that was, that was one big challenge. So we had to reset from these very large companies and fortune, 100 companies that were our customers into very small startups. And so that Presented a challenge for the first 18 months. We built software. It was just the two of us. We paid ourselves very little. So that was, that was not a fun period of time. We could grow a little bit. We could add customers, but never for the same reason. And there was always a temptation to sort of fall back to just, we can bill a few hours and not have to burn through our personal savings this month.

AI assessment note: “Yeah, I think mentally we were all in. Our customers were not as enthusiastic.”

Q Can I ask, was it very, uh, challenging mentally for you to make that transition revenue-wise from a revenue services-based business to a kind of software-based business whereby you start from ground zero?

A Yeah, I think mentally we were all in. Our customers were not as enthusiastic. When we told them what we were doing, they said, well, fantastic. We will give you a, you know, a statement of work and a requirements document. And we said, well, no, no, this, this is software. So you log in and you start using it. And they said, no, but you're, you're the development team. And we said, well, yes. So we built this product. So that was, that was one big challenge. So we had to reset from these very large companies and fortune, 100 companies that were our customers into very small startups. And so that Presented a challenge for the first 18 months. We built software. It was just the two of us. We paid ourselves very little. So that was, that was not a fun period of time. We could grow a little bit. We could add customers, but never for the same reason. And there was always a temptation to sort of fall back to just, we can bill a few hours and not have to burn through our personal savings this month.

AI assessment note: “Yeah, I think mentally we were all in. Our customers were not as enthusiastic.”

Q Can I ask, how did early VCs interact and respond to you when you presented this slightly extended period of kind of searching for the product market fit? How did they respond to that kind of extended period?

A Well, they all said no, so that was pretty easy. I mean, our prior business, so we're First time venture backed founders, but, but not first time founders. And so, you know, we didn't really know what we were doing. We applied to Y Combinator a bit just to go through the process of the application. And when they, they said, well, you're accepted for an interview. I said, well, fantastic. We get 10 minutes of free consulting from, from some of the best in the business. And so, you know, once we got through the program, we pitched one of the VCs that were sort of interested. They were outside the Bay area. So they were a little bit more okay with our mindset. And I literally had in the first iterations of the slide deck, That we would just slowly add customers one by one, and occasionally get large customers, and then we would start to grow. And that's not something that VCs want to see. So yeah, it did not work well.

AI assessment note: “Well, they all said no, so that was pretty easy.”

Q No, I'm sure that didn't go down well. But kind of touching on this approach, and kind of the, the meta thesis behind it, you recently posted on Twitter, most Bay Area millennials have never seen market corrections. One bin, one to go. So tell me about this, and what did you learn, firstly, from your prior market correction?

A Yeah, so I'm 39 now, so I'm old enough to have been through the dot-com boom and bust in the late nineties and early 2000. I was coming out of school in 99, so I, I hit at a great time, and then watched the company go from 10,000 people to zero, because they spent themselves into the ground, and their customers were all equally on shaky financial conditions, and then as we grew our consulting business, and then 2008 and nine saw the real estate market correction, and I think this idea today that VC money is just always around the corner, and if you need more money, you just go and ask for it. It's a dangerous assumption to make, and we've already seen companies that have raised tens of millions of dollars just disappear overnight because they thought this never-ending supply of money would just be available to them, and that's, that's something that's hard to shake if that's the only thing you've ever seen.

AI assessment note: “watched the company go from 10,000 people to zero, because they spent themselves into the ground”

Q Can I ask, how did early VCs interact and respond to you when you presented this slightly extended period of kind of searching for the product market fit? How did they respond to that kind of extended period?

A Well, they all said no, so that was pretty easy. I mean, our prior business, so we're First time venture backed founders, but, but not first time founders. And so, you know, we didn't really know what we were doing. We applied to Y Combinator a bit just to go through the process of the application. And when they, they said, well, you're accepted for an interview. I said, well, fantastic. We get 10 minutes of free consulting from, from some of the best in the business. And so, you know, once we got through the program, we pitched one of the VCs that were sort of interested. They were outside the Bay area. So they were a little bit more okay with our mindset. And I literally had in the first iterations of the slide deck, That we would just slowly add customers one by one, and occasionally get large customers, and then we would start to grow. And that's not something that VCs want to see. So yeah, it did not work well.

AI assessment note: “Well, they all said no, so that was pretty easy.”

Q So if we have a founder then that's decided on the slow and steady growth model, uh, I do have to ask what level of slow and steady is still enough for hope to be within the founding team that the journey has the legs to survive? Is there a kind of five percent, 10%, is there a growth rate where you'd say, Yes, there's still traction points to continue.

A Yeah, I think that depends on the stubbornness of the founder. I mean, I think the one thing that maybe I do better than most people is I'll just keep putting one foot in front of the other longer than anyone else. And so, yeah, and it really is in those, those early days, just a mental process to try to get through. And so the slow and steady, it's something you should do as long as you believe that what you have is going to work. So we, we would get customers and We would get them for different reasons though. So if we were not growing at all, that would have been problematic and we probably would have figured out something else, but we would get customers never for the same reasons. And it was never really the same process. But as we learned more and more, we started acquiring customers for the same reasons. And then the sales process became, you know, very similar from customer to customer. And so we always saw improvement. So I think rather than the sort of rate of growth, it's more about, are you improving it? As long as you're No matter how small, then I think, you know, the growth will come because with SaaS, especially if your churn, our gross churn was near zero. As long as you have that growth, then you know that something good is coming on the horizon, and then it's just stubbornness at that point.

AI assessment note: “rather than the sort of rate of growth, it's more about, are you improving”

Q But I do want to touch on the other element of that statement. You said, you know, one bin, one to go. What makes you suggest that there's an impending one coming soon?

A Well, I think there's just natural cycle to it, and that people operate about greed or fear. And when you see the stock market run up, when you see the valuation and the private markets run up, it's going to revert to the mean. So any, any major downturn, you know, that's going to come back. I think in the real estate downturn in 2008, nine, the financials crash, I had a number of my employees and even customers ask, do you think we're going to make it? And that was sort of a weird question because, well, if we don't make it, then that means we're all need to become farmers and hunters. So you're going to come back from a crash and you're going to come down from a From a bubble or from a peak.

AI assessment note: “I think there's just natural cycle to it, and that people operate about greed or fear.”

Q So if we have a founder then that's decided on the slow and steady growth model, uh, I do have to ask what level of slow and steady is still enough for hope to be within the founding team that the journey has the legs to survive? Is there a kind of five percent, 10%, is there a growth rate where you'd say, Yes, there's still traction points to continue.

A Yeah, I think that depends on the stubbornness of the founder. I mean, I think the one thing that maybe I do better than most people is I'll just keep putting one foot in front of the other longer than anyone else. And so, yeah, and it really is in those, those early days, just a mental process to try to get through. And so the slow and steady, it's something you should do as long as you believe that what you have is going to work. So we, we would get customers and We would get them for different reasons though. So if we were not growing at all, that would have been problematic and we probably would have figured out something else, but we would get customers never for the same reasons. And it was never really the same process. But as we learned more and more, we started acquiring customers for the same reasons. And then the sales process became, you know, very similar from customer to customer. And so we always saw improvement. So I think rather than the sort of rate of growth, it's more about, are you improving it? As long as you're No matter how small, then I think, you know, the growth will come because with SaaS, especially if your churn, our gross churn was near zero. As long as you have that growth, then you know that something good is coming on the horizon, and then it's just stubbornness at that point.

AI assessment note: “rather than the sort of rate of growth, it's more about, are you improving it?”

Q Can I ask, how do you view the burn rates of some of the emerging and rising companies in the bay today?

A You know, it's a challenge. I mean, for us, we were net zero burn for the first year and a half. Our personal burn rates were, were not net zero, but our company net burn was near zero. Once we raised money and found the fit, we actually dialed up our spend a bit. And then more recently we've, uh, we've added several people to the team, but we always keep an eye on what it would take to become profitable. And we know where that number is. I think one of the things that Jason Lemkin Promotes is always knowing your zero cash day. I think that's important, but I think it's also important to know, well, what's the day that you become profitable? And if you keep your eye on that, then you can dial up burn to really, I think, as high as you can at knowing where profitability hits.

AI assessment note: “You know, it's a challenge. I mean, for us, we were net zero”

Q Can I ask, how do you view the burn rates of some of the emerging and rising companies in the bay today?

A You know, it's a challenge. I mean, for us, we were net zero burn for the first year and a half. Our personal burn rates were, were not net zero, but our company net burn was near zero. Once we raised money and found the fit, we actually dialed up our spend a bit. And then more recently we've, uh, we've added several people to the team, but we always keep an eye on what it would take to become profitable. And we know where that number is. I think one of the things that Jason Lemkin Promotes is always knowing your zero cash day. I think that's important, but I think it's also important to know, well, what's the day that you become profitable? And if you keep your eye on that, then you can dial up burn to really, I think, as high as you can at knowing where profitability hits.

AI assessment note: “I mean, for us, we were net zero burn for the first year”

Q But I do want to touch on the other element of that statement. You said, you know, one bin, one to go. What makes you suggest that there's an impending one coming soon?

A Well, I think there's just natural cycle to it, and that people operate about greed or fear. And when you see the stock market run up, when you see the valuation and the private markets run up, it's going to revert to the mean. So any, any major downturn, you know, that's going to come back. I think in the real estate downturn in 2008, nine, the financials crash, I had a number of my employees and even customers ask, do you think we're going to make it? And that was sort of a weird question because, well, if we don't make it, then that means we're all need to become farmers and hunters. So you're going to come back from a crash and you're going to come down from a From a bubble or from a peak.

AI assessment note: “when you see the stock market run up... it's going to revert to the mean”