SPEAKER_00: This Week in Startups is brought to you by Tonal. Get a full-body workout with hundreds of moves and 200 pounds of resistance without ever leaving your house. Visit tonal.com to learn more and use promo code TWIST to get $100 off Tonal's smart accessories. That's T-O-N-A-L.com and use promo code TWIST. Walker Corporate Law, a boutique law firm specializing in the representation of entrepreneurs. Visit them at walkercorporatelaw.com. And NetSuite by Oracle, the business management software that handles every aspect of your business in an easy-to-use cloud platform. Get NetSuite's free guide, Seven Key Strategies to Grow Your Profits, when you go to netsuite.com slash TWIST.

David Friedberg: Anybody in the room use Reportive back in the day? Raise your hand if you use Reportive nice and high. So that's about 20%. Anybody in the room hear of a company called Superhuman? Raise your hand if you've heard of Superhuman. Wow, that's great. So 80%. So you're making progress. 20% knew about Reportive. 80% in the room know about Superhuman. And I was lucky enough to invest in your first company. And I have been telling people the story about the second company when you came to me. And you came over and we talked about the idea. And you said, hey, Jay, Jay Cowell, I want to take on Gmail. And I said, yum, yum, that's a big target. I said, how do you beat Gmail? How are you going to take on Google? Do you remember what you said? I don't remember. You said, I'm going to make it faster. And I said, okay, Raul, you're taking on Google with unlimited servers, the largest server array ever created in humanity, and an unlimited number of engineers. You're going to beat them on speed. And I said, okay, hit me with the business model. How are you going to beat Gmail free? Do you remember what you said?

SPEAKER_06: I remember this one. Yeah. Everyone's going to pay $30 a month.

David Friedberg: Yeah. And I said, let me get this straight.

SPEAKER_08: You're going to take on Gmail, make it faster than 10,000 engineers working on it at Google with a server farm that goes across the entire world, and you're going to charge a dollar

David Friedberg: a day for a free product. And you said, yep. And I said, I'm in. That's the kind of crazy odds I like, but like Han Solo, somehow this Millennium Falcon has worked. Where are we at? I mean, what's public in terms of where we're at? Everybody knows there's a big wait list. Everybody knows you do this really weird onboarding thing. Where are we at as a company? I know you raised this big round of funding. Do you release any numbers about the number of users or engagement, anything?

SPEAKER_06: Yeah. We don't release user numbers or engagement, but if you were to Google us, try and find numbers

SPEAKER_12: out about the business, you might find that we're maybe 35 people right now. We've raised north of $50 million worth of funding. We're on target to quadruple to quintuple this year. And it turns out people really want fast email.

SPEAKER_08: Amazing. And this talk has gotten rave reviews, and I've learned a lot from it.

David Friedberg: And just, it's been a great experience for me to be in two companies with you. Every time you speak and we talk or have dinner or just chat, I learn something new.

SPEAKER_08: And so it's just, it's been great to be along for the ride on your, watching your career. Because was reported of your first or second company?

SPEAKER_14: Oh, it was like company number seven. It was six failures beforehand.

David Friedberg: Six failures. So I got on the first double, and hopefully this is the grand slam of your career.

SPEAKER_16: Give it up for Rahul. Thank you.

SPEAKER_18: All right. Good morning, everybody. I'm Rahul.

SPEAKER_12: I'm the founder and CEO of Superhuman, where, as Jason so kindly introduced, we make the fastest email experience of all time. Our customers get through their inbox twice as fast as before, and many of them see inbox zero for the first time in years. And this is the story of how we built a product market fit engine. Now, as we all know, product market fit is the number one reasons why startups succeed.

SPEAKER_21: And the lack of product market fit is the number one reason why startups fail. But what really is product market fit? Well, Paul Graham, the founder of Y Combinator, would say product market fit is when you made something that people want. Sam Altman, who until recently was the president of Y Combinator, would say product market fit is when users love your product so much that they spontaneously tell other people to go and use it. But it is perhaps Mark Andreessen, arguably the best VC of all time, who came up with the phrase, product market fit, who has the most vivid and compelling definition. He says, you can almost always feel it when product market fit is not happening. Customers aren't quite getting value. Users aren't quite growing fast enough. Word of mouth is not spreading. And the press for you is a kind of blah. The sales cycle takes too damn long. But, on the other hand, you can almost always feel it when product market fit is happening. Customers are buying as fast as you can add servers. You're adding sales and support as fast as you can. Reporters are constantly calling you about your hot new thing. Investors are camping outside your house. And big piles of money are appearing in your checking account. It's a vivid definition. And one that I was staring at through tears in the summer of 2017. You see, it seemed so subjective, so unactionable. What do you do if, by this definition, you don't have product market fit? I began to wonder, can you measure product market fit? Because if you could, perhaps you could optimize, maybe even numerically, increase product market fit. And as it turns out, the answer is yes. You can measure product market fit. You can optimize it. But before I share how, let's wind the clock back nine years, 2010. I'd started this company, Reportive. We built the first Gmail plugin to scale to millions of users when people emailed you. You could see what they looked like, where they worked, their recent tweaks linked to their social profiles. We grew rapidly, and two years in, I sold this company to LinkedIn. And during those four years, I became very familiar with how professionals do their email. And I could see, bizarrely, Gmail becoming worse every single year, becoming more cluttered, consuming more memory, using more CPU, being the single biggest drain of power on your laptop, and still, for some reason, not working properly offline. And on top of this, people were taking plugins like our own, Reportive, but also Boomerang, Mixmax, Yesware, Clearbit, you name it, they had it, and adding those things to Gmail. Each plugin took those problems of clutter, of memory, of CPU, of power, of slowness, and of offline, and made each one of them dramatically worse. So, we decided, it's time for change. We imagined an email experience that's blazingly fast, where searches are instantaneous, where every interaction takes place in 100 milliseconds or less. An email experience where you never had to touch the mouse, where you could do anything from your keyboard and fly through your inbox. An email experience that just worked offline, so you could be productive from anywhere. An email experience that had the best Gmail plugins, natively integrated, and yet was still, somehow, subtle, minimal, and visually gorgeous. And so, in the summer of 2015, we set up our office. This was our fancy sign, and we started to write code. And in the summer of 2016, we were still writing code. And in the summer of 2017, we were still writing code. Now, I felt this intense, incredible pressure to launch, both from my team, but also from within myself. After all, my last company had started, scaled, and been acquired in less than two years. In less than two years. And here we all still were, and we had not yet launched. But no matter how deeply I felt this pressure, I knew a launch would go very badly. It wouldn't be the Marc Andreessen story. I did not believe we had product market fit. But I couldn't just say that to our team. These are hyper-ambitious, super-intelligent engineers. They poured their hearts and their minds into the product. So, I started my search for the holy grail, for a way to define product market fit, for a metric to measure product market fit, and for a methodology to systematically increase product market fit. I searched everywhere I could. I read everything I could find. I spoke with all the experts. And then I found this guy, Sean Ellis. Sean ran early growth at Dropbox, LogMeIn, Eventbrite. He even coined the term growth hacker. And as vivid and as compelling as Marc's definition is, it is still a lagging indicator. By the time investors are camping outside your house and big piles of money are spontaneously appearing in your bank account, guess what? You already have product market fit. What Sean found is a leading indicator. One that is benchmarked and predictive. Simply ask your users this. How would you feel if you could no longer use the product? And measure the percentage that answer, very disappointed. After benchmarking hundreds of startups, what Sean found is that the companies that struggled to grow almost always had less than 40% very disappointed. But the companies that grew the most easily almost always had more than 40% very disappointed. If more than 40% of your users would be very disappointed without your products, you have initial product market fit. This is that question put to 751 Slack users, of whom 51% said they would be very disappointed without Slack. 51% is greater than 40%. Therefore, Slack has product market fit. Now, you might be thinking, great, I don't need a fancy question to tell me that Slack has product market fit. And you would be right. The point of this example is to show you just how hard it is to beat this metric. This metric is more objective than a feeling. It predicts success better than net promoter score. This metric not only gives you a definition of product market fit and a way to measure product market fit, it gives you a way to create your very own product market fit engine.

SPEAKER_12: And as we shall see, it can even automatically generate your roadmap for you.

SPEAKER_28: Hey, everybody. I want to tell you about a new product I recently purchased and which is now partnering with us here on This Week in Startups.

SPEAKER_30: It's called Tonal. T-O-N-A-L. And this thing is amazing. It's a home gym. And you can see it here if you're watching the video. And what it does is it lets you set how much weight you want to do. And you get this nice, beautiful video. And you can do your workout on it. And it has all of this coaching AI that customizes the workout for your body, adjusting the resistance in real time. Now, I did this for the first time. And it is magical. I was doing curls, right? And the cannons are coming back. And I'm doing the curls. And you press a button on the side and it engages the weight. You press the button again, it turns the weight off. So your workout is much more efficient. I don't have time to go to the gym. So I put this in my house. It is so affordable. It is a no-brainer purchase for you. I want you to get $100 off Tonal Smart Accessories by going to tonal.com, T-O-N-A-L.com, and using the promo code TWIST. Go find out why Men's Health calls Tonal the smartest home gym you've ever seen. And I want you to try it risk-free for 30 days. I know why they are doing this risk-free because it is addicting and awesome. It's like the Tesla of weight equipment. If you want to get a toned body and add that muscle mass, this is the product for you. Your body will feel great and you're going to feel strong. You're going to lose weight all through tonal. Go to tonal.com and use the promo code TWIST to get that hundy from your boy, J-Cal.

SPEAKER_32: I love this product and you're going to love it too. Okay, let's get back to this amazing episode.

SPEAKER_25: So let's jump in.

SPEAKER_21: Step one is survey. Email these four questions to all of your users. Number one, how would you feel if you could no longer use the product? Number two, what type of person do you think would most benefit from this product? Number three, what is the main benefit of the product to you? And number four, how can we improve this product for you? Now, it's important that you wait until the users have had the chance to experience the core value proposition of your product. As Superhuman, we wait somewhere between two and three weeks and we wait for certain levels of activity before we send this email. Once you get the results, analyze the answers to question number one. These are the actual results from the summer of 2017 for Superhuman. And as you can see, we did not have product market fit. Only 22% of our users at that time would have been very disappointed without Superhuman. Now, this may seem sad, but I was actually excited because I could explain our situation to the team. And moreover, I had a cunning plan to increase this number. That brings us on to step two, which is to segment. Now, in this step, we want to understand who are the people who really love our product. I like to use the concept of the highest expectation customer, which is a concept I found from Julie Supan, Julie Ran Early Marketing, Dropbox, Airbnb, and many other great companies. The highest expectation customer is the highest expectation customer is the most discerning person within your target demographic. They enjoy your product for its greatest benefit. And most critically, others aspire to be like them because they consider them to be clever, judicious, or insightful. Let's take a look at two examples. Number one, the Dropbox HXC. The Dropbox HXC ultimately just wants to know that someone has their life when it comes to their backswork. They're technically savvy, and they're typically very trusting. I'm an example of the Dropbox HXC, and I'm sure many of us here are also. The Airbnb HXC doesn't simply want to travel, they want to travel like they belong. They want to experience Paris as if they really live there. Airbnb rose to its early success by catering to these tastemakers and these influencers. So how do we calculate our own HXC? Well, go back to the survey results, filter them down to just the people who said they'd be very disappointed without your product. Remember, these are the people who love it, and analyze their answers to question number two. What type of person do you think would most benefit from this product? And this is a very powerful question, because as it turns out, happy users will almost always describe themselves using the words that matter most to them. And you can then turn this into a rich and detailed description of your highest expectation customer. And with that, I'd like you to meet Nicole. Nicole is the superhuman HXC. She is an extremely hardworking professional. She may be an executive, a founder, or an investor. She works long hours, and often into the weekends. She considers herself very busy, wishes she had more time. She does feel she is productive, but she often struggles to find the time to become more productive. Now, she spends much of her workday in her inbox, of course, on a busy day. She may receive hundreds of emails, and on a very busy day, she may send as many as 80 emails. Now, it's a core part of her job to be responsive, because if she's not, it could block her team, it could damage her reputation, or it could cause missed opportunities. She gets to inbox zero every once in a while, let's say two or three times a week. And less frequently, she's going to have to declare email bankruptcy, because her inbox will sneak up upon her. Now, generally, she has a growth mindset. And this is the good news. She's open-minded and receptive to new ideas about new technology, but our main challenge is, like many, she has a fixed mindset about email. She's skeptical that a new email client could actually make her faster. Once you have this rich and detailed description of your highest expectation customer, go back to the survey results, and segment them out, and assign a persona to each one. You'll end up with something that looks like this. And this is the magical part. We're going to take the personas of the very disappointed segment and use that to narrow the market. In this simplified example, that means we're going to focus on founders, managers, executives, and business development. And we're going to deliberately ignore sales, success, engineering, and data science. And we just take those surveys out. And just with that little maneuver, we increase our very disappointed metric, our product market fit score, our measure of product market fit, from 22% to 32%. We're not quite at 40% yet, but that's a huge uplift for just a few minutes of work. Now, the next step is analyze. We want to understand two things. Why do people really love our product, and what holds people back from falling in love with our product? To understand why people really love our product, once again, we go back to the survey. Once again, we focus on the users who'd be very disappointed without it, except this time, we look at their answers to question three, which is, what is the main benefit of the product to you? Let's take a look at some example responses. For superhuman, processing email is much faster. I get through my inbox in half the time. The app is crazy fast. Keyboard shortcuts make me an actual superhuman. Faster responsiveness, navigation, so much faster than Gmail. It's more efficient with my time. I can get through my email more quickly. I can do everything from the keyboard, aesthetics, and a great set of keyboard shortcuts. Take all of these responses, remove the filler words, and then throw them into a word cloud. Print this out nice and big. Stick it up on your wall. And here you can see it as clear as day. People love superhuman for the speed, for the focus, and for the keyboard shortcuts. So, once we've got this, and we understand our main benefit, and it is speed, we go back to this chart. The very disappointed segment is now 32% because we increased it in the segmentation phase. How do we continue to increase it further? Well, first of all, and as painful as it is to say this, you should politely disregard the feedback from everyone in the not disappointed crowd. You see, they are so far from loving your product that no matter what you do, it doesn't matter what you build, they'll never fall in love with the product. And this can be difficult to do because they're often an extremely vocal minority. This tool gives you a quick filter to know whom to ignore. Well, that leaves the bottom segment, the somewhat disappointed crowd. Can we convert some of them into falling in love with our product? Absolutely, yes. But again, and I cannot stress this enough, do not just blindly act on their feedback and implement their requests. If you do, you'll end up with a muddied and an undisciplined product. And I can guarantee you, you won't be rapidly increasing the size of the very disappointed segment. So how do we know precisely whom to listen to? Well, once again, we segment. We take the main benefits that we calculated just previously, the main benefit of speed. In your case, the main benefit that the very disappointed users resonate with. And we use that to segment this slice into two parts. One part, the somewhat disappointed users for whom the main benefit did not resonate. And the second part, the segment for whom the main benefit did resonate. Now, once again, we politely disregard the set for whom the main benefit did not resonate. Because even if you built all their things, they still don't appreciate the point of your product. But it's the other set, the called out segment. For these people, we pay very special attention. And we build everything they ask for. Because if you do, you will turn someone who's on the fence into being a fanatical evangelist who is in love with your product. So how do we figure out what to build? We'll take specifically this set of people. And we're several levels in, so I'm just going to summarize once again. You take your survey. You analyze the very disappointed users. You use that to calculate the main benefit. You use the main benefit to segment the somewhat disappointed users. You then end up with this segment. And you analyze their answers, and their answers only, to question number four. How can we improve the product for you? Once again, get all of your answers. Throw it up in a word cloud. Stick it on your wall. And you'll end up with something like this. This is the actual word cloud from summer of 2017. Now, at the time, we didn't have a mobile app. So that's not particularly interesting these days. But it's the long tail that's more interesting and less obvious. We need to figure out better attachment handling. We need more integrations. It would be nicer if search were better. And so on into the long tail. These are the things which, if you build them, you'll convert that somewhat disappointed crowd into falling in love with your product. So now that we know what to build, it's step four of the product market fit engine. And that is implement. We're going to spend half our time doubling down on what the very disappointed users love. In the case of superhuman, that means more speed, more aesthetics, more keyboard shortcuts. And the other half of our time systematically overcoming the objections of the somewhat disappointed crowd,

SPEAKER_34: specifically the subset for whom the main benefit resonated.

SPEAKER_30: Walker Corporate Law. You've been there with me since the beginning. Thank you, Scott Walker. Walker Corporate Law is a boutique law firm that specializes in the representation of entrepreneurs and founders. And their lawyers have 10 to 20 years of experience. And there are no junior associates getting on-the-job training. They offer all kinds of great services that you would, you know, normally think about when you're starting a company. But they also do things like mergers and acquisitions, licensing agreements, and your privacy policy and your terms of service. You want to work with Scott Walker and his team at Walker Corporate Law because they encourage fixed fees. In other words, they tell you, hey, you want to do this? It's going to cost X. You want to do that? It's going to cost Y. And you don't have to get that sticker shock when you get your bill from your attorney at the end of the month. No, Scott Walker does not want to do all that billable hours nonsense and then get you some inefficient product. No, he wants to be efficient. He wants to get done quick and tight and do it right. So email my pal Scott Walker at Scott at Walker Corporate Law. Scott at Walker Corporate Law. Make sure you tell him Jason sent you. Or you can visit him at walkercorporatelaw.com. His number, 415-979-9998. 415-979-9998. How cool is that that he puts his phone number and his email right out there for you to email him at scottatwalkercorporatelaw.com.

SPEAKER_32: Thanks again, Scott, for supporting this week in startups. You're the longest running sponsor, I think, along with Squarespace. So I really appreciate that. Okay, let's get back to this amazing episode.

SPEAKER_21: Now you might wonder, why split our focus like this? Why not do all of one column or all of the other? And there's a very good reason for that. Let's say you only did all of doubling down on what users love. And a vision-driven team is likely to do this. Well then, by definition, you will not be increasing the size of the very disappointed crowd. And that is key to achieving product market fit. But let's say you did the opposite. Let's say you just only doubled down on the right-hand column, as a very data-driven team is likely to do.

SPEAKER_12: Well then, eventually, and it might happen quickly if you're onto something, a competitor will overtake you. They'll do all of that as well as the left-hand side.

SPEAKER_21: So therefore, the only rational choice is to start each planning cycle, each roadmapping exercise, assuming you're going to spend 50% of your time on one, 50% of your time on the other, and then tuning as you see fit. I promised the products market fit engine would automatically write your roadmap for you, and this is how it does that. Now, once you have your roadmap, once you're implementing things, we need to track. This framework will work. There are no silver bullets, and what that means is that as you're building, you have to track users over time. I recommend that you survey users weekly, monthly, quarterly, and then aggregate these metrics as you build your business. In Superhuman, in the summer of 2017, in that first quarter after segmentation, our score was 33%. A quarter later, it was 47%. A quarter later, it was 56%. And a quarter after that, it was 58%. 58% of our users would be very disappointed without our product, and we've been able to sustain that since then. The product market fit engine really does work, but you have to diligently apply it. It gives you a way to define product market fit. It gives you a metric to measure product market fit. It gives you a methodology to systematically increase product market fit, and it can even automatically generate your roadmap for you. So I hope this has inspired you to give this a go, and if you do, please let me know. So as you can tell, this is a little bit of a passion of mine, and I'd love to help anyone who tries this out. And if you'd like to get in touch with me, here's where you can find me.

SPEAKER_41: Thank you.

SPEAKER_44: Hey, Rahul. My name is Zach. I actually got superhuman this morning, so thank you.

SPEAKER_41: I got your email. Thank you.

SPEAKER_44: You're amazing. I've used it, cleared it. When you set out for this vision, and you knew that you were overtaking massive industry that had already been made, what kept your team motivated through months and months and years and years of producing a product?

SPEAKER_45: Because you advocate for putting a product out there, and it has to be incredible because you're taking on something so big. So I'm curious what you did to keep your team motivated throughout this time.

SPEAKER_47: So I'll say four things.

SPEAKER_12: Number one, have a very clear vision of what you want to build. And for us, it was very simple. We wanted to build the fastest email experience of all time. It's compelling. It's compelling even when you hear it. It's especially enticing to engineers.

SPEAKER_21: It's also very clear when you don't have the fastest email experience of all time. And so that gives you motivation to keep going, even if other things aren't necessarily working. Number two, use a metric like the product market fit score. It's a very, very hard metric to beat. You cannot game it. And again, it becomes very clear where you stand. But the flip side of that is it's very amenable to optimization. And so you can easily increase it over time. The third thing is add a trickle of users over time. So starting at around the end of 2016, for Superhuman, and this was the right set of users for us, we added between four to six users every single week. Not 46, four to six. And it was just a slow enough trickle that every eight weeks or so, we got a new read on this metric. And we got a ton of real feedback coming in all the time. And the last and final piece, and this may be a controversial point, but we are in Silicon Valley. Keep on raising money as you go. Hopefully, you've set out to build a billion dollar business. If that's the case, and the market's really there, it actually doesn't matter how much you raise in the region of 20, 50, 80 million dollars. Beyond that, you might want to check yourself. But by doing that, what you're able to do is to keep on manufacturing momentum. You can grow the team. You can build faster. You can extend runway. And you can create hope where maybe hope might be running out. So those would be the four things.

SPEAKER_50: Thank you.

SPEAKER_54: So the survey responses that you got back were really rich in detail. But I know from doing surveys in the past, you can get one-word answers. What percentage of people that gave that feedback were at that level? And did you have to go back and dig further to get that level of detail from others? And then would you assess the few that you got back that were really rich, represented the broader audience? Or was it just that specific segment?

SPEAKER_12: I think the level of detail you'll get depends on whether or not you charge for your product.

SPEAKER_21: So for those who don't know, we onboard our customers one-to-one. It's a half-an-hour video call. Everyone pays $30 a month. Our customers really, really want Superhuman to work for them. So I think we're lucky because people give us rich feedback all the time. I would say 70% of our survey responses are extremely detailed. And if you're not getting that level of feedback, try charging your users. I guarantee you, you'll get really great feedback.

SPEAKER_58: Hi.

SPEAKER_60: I have a question about you said everything you described is based on feedback from your customers. But what about competitors? For example, Gmail now rolls out new technology, AMP for email, that brings dynamic opportunities for chat inside email, for example. So how do you react on that? And what do you think about the technology in general?

SPEAKER_21: What do I think about that specific technology?

SPEAKER_60: And in general, what your main competitors do?

SPEAKER_21: Oh, I see. I spend next to no time worrying about competition. Competition very, very rarely kills startups. Startups normally kill themselves, right? They run out of money, or they build the wrong thing, or the co-founders fall out, or morale disappears. Those are the things you have to watch out for, not competition. But in terms of how I think about staying ahead or staying competitive, here's what works for us, and I think this works in any business, is focus on a specific type of user. Gmail has 1.5 billion users. The average Gmail user receives five emails a day. That's the average user, five emails a day, that they actually have to do anything with. And yet it is a one-size-fits-all product, a commodity product for over a billion people. Superhuman will be a billion-dollar company with just 300,000 subscribers. Why? Because 300,000 times $30 a month times $12 a year is a $100 million run rate. Now, the kind of product you build for 300,000 people is very different to the kind of product you build for 1.5 billion people. And I would argue you can always build that product, no matter what the incumbent is doing.

SPEAKER_63: Rahul, thank you so much.

SPEAKER_37: If you don't know your numbers, if you're not on top of your numbers, you don't know what's going on in your business. It's just a hodgepodge of a bunch of disparate systems, accounting, inventory, sales. You don't have any ground truth. You don't know what's going on with your business. It's a big, giant, inefficient mess. We know this is true. And you know what? If you don't know your numbers, that's going to hurt your bottom line. You're not going to be able to do forecasting. You might run out of money. You might miss opportunities. And that's where NetSuite by Oracle comes in. It's the business management software that helps you handle every single aspect of your growing business. In one easy-to-use cloud platform, NetSuite gives you visibility and control so that you can grow. And it will help you save time and money and remove all those crazy headaches that you're dealing with now.

SPEAKER_30: You're going to get all of your sales information, your finance, your accounting, orders, HR, instantly on your desktop or on your phone. That's why NetSuite is the world's number one cloud business system. So here's your call to action. Right now, NetSuite is offering you valuable insights with a free guide called The 7 Key Strategies to Grow Your, not your business, your profits. Even better. And you can get this guide right now. NetSuite.com slash twist. And here it is. I've been reading it. It's awesome. NetSuite.com slash twist. Go ahead and get it for free. Get that free guide. The 7 Key Strategies to Growing Your Profits. And, you know, some of them driving down costs. That's another way. Tax, regulation, compliance. You need to know about that. Selling more to your existing customers, a.k.a. land and expand. Finding new channels to reach your customers, new revenue streams. And, of course, unlocking global markets. So much good stuff in here. Go ahead and get it at NetSuite.com slash twist.

SPEAKER_67: Thanks to NetSuite for supporting independent media like this week in startups. Let's get back to this amazing episode.

SPEAKER_69: My next group of investors, I work with all three of them all the time.

SPEAKER_70: And Ben, Clara, and Jeff, come on up. And you're going to be in that order, I believe. Ben, Clara, Jeff, right? As the logos are. And we ask our founders, tell us how the meeting went.

SPEAKER_30: Feel free to give us feedback. We're not asking them to rat on the investors. We're just curious. We've had some of that, one of the top tier firms, we had three out of three founders report back to us, oh, the person who you introduced us to didn't come to the meeting. The other folks who were at the meeting were on their phone. And they didn't understand our product.

SPEAKER_70: We didn't feel heard. It's the opposite with Ben, Clara, and Jeff. Founders report back that these are the hardest working and most diligent investors in the industry. Let's give them a big round of applause for coming out today.

SPEAKER_69: Let's get right into it. Peak entitlement right now on both sides of the fence. I think we would all agree. Some founders are buying G650s before they're profitable

SPEAKER_70: and going just buck wild.

SPEAKER_75: One did that.

SPEAKER_70: What's that?

SPEAKER_75: I said one did that.

SPEAKER_69: One did that, correct. And then on the other side, we have some GPs, our contemporaries, whose Instagrams look like they work for Condé Nast Traveler as opposed to being at the office and doing actual work.

SPEAKER_30: Are we at peak entitlement in the industry? And how do we get back to what it felt like 10 years ago,

SPEAKER_76: which is everybody was working really hard and getting a lot of shit done? Who wants to start?

SPEAKER_77: So I think that the WeWork implosion is kind of the moment of reckoning that we needed.

SPEAKER_79: The problem is that there's way too much capital on the funding side that is chasing too few deals. And so that creates an imbalance. But I do believe that excess is being punished very publicly. And a lot of people are going to think twice about doing that again.

SPEAKER_70: Clara, what are your thoughts? You're, I think, the newest of the four of us in terms of investing.

SPEAKER_30: You started, wait, no, maybe you started eight years ago, nine years ago?

SPEAKER_84: Seven years ago.

SPEAKER_30: Seven years ago, okay. So you've only seen the upmarket as an investor. Did you get this sense that things were getting out of whack?

SPEAKER_86: So Julie, my co-founder, and I always joke that we're the working class VCs. At least we feel that way. But I definitely think as you go to talk to LPs, there's a sense that kind of enough is enough. And so at least some of the larger institutional funders that we talk to, the kind of folks who fund all of us, I think are starting to pay more attention to who they're backing, both in terms of just the way they treat founders, as well as just generally how the funds are structured and what kind of fees you're seeing. Certainly there are folks who get to do whatever they want, but we're getting questions, I think, that we wouldn't have gotten asked before. And actually, even I had an LP do a reference on another fund, and they called me, and they asked very specifically, have they had any Me Too moments, which is a question I'd never gotten before. And I've done references for other peer investors before, but I'd never gotten asked that question, which I thought was kind of indicative of a turn of how at least some of the larger LPs are thinking about the funds they want to back moving forward.

SPEAKER_70: Yeah, that's a great sign that the people who are funding the funders, it's a good sign, and it's regrettable that it's come to this, I guess, in both ways. But they are like the lagging indicator, right? Like we're on the front lines, they see our returns over 10 years, and they also see the behavior and what these fees and the entitlement kind of has brought.

SPEAKER_69: Ben, you've been in it for a while, you started your own fund, you reached and raised, congratulations on that. You previously worked with KOSLA, and I'm not sure before that.

SPEAKER_30: But what's your take on what we've seen in terms of these large funds, let's say GPs and how hard they're working, as well as on the entrepreneur side, people thinking they can just raise money as their business model?

SPEAKER_91: Well, I think if you take a look back at the previous downturns in 2008 and around the early 2000 era, I think what you saw was scarcity of entrepreneurs and then also scarcity of money, which then gave quality ideas the opportunity to really blossom. And the quality companies to really blossom. So the key question here, I think I agree with what Jeff said earlier, too, that there's so much money chasing very few companies. And I think the key question, I don't have an answer for you on this, and the question I'll pose is whether we have a new normal and whether this will be the case for the next decade.

SPEAKER_93: And maybe we'll revert or maybe we'll continue because it's been going like this for a while now in terms of too much money chasing too few companies, probably for at least the last five, six, seven years, right? And so I wonder whether it's the new normal.

SPEAKER_69: And if you had to put a percentage on it being the new normal or reverting back to maybe a little more austerity, put a percentage on it, 60, 40, 70, 30?

SPEAKER_98: I have no idea on that one, but I would prefer the, I actually prefer the austere times because I think in those times, fair weather entrepreneurs don't start companies.

SPEAKER_91: Only those that are really, really, really devoted actually start companies during that period of time. And I think that there's lots of, and then therefore I think the fair weather capital also drops out of the market.

SPEAKER_93: And then you basically have people who are really serious about the craft that are focused on it.

SPEAKER_70: Jeff, you've been at this the longest, I think, of all of us. You've been a VC for how long?

SPEAKER_101: Fifteen and a half years as Uncork and then 19 and a half years.

SPEAKER_104: Total or an additional 19 and a half?

SPEAKER_105: No, no. Well, I'm not that old. I'm not like you're not that old. Almost 20 years total.

SPEAKER_103: 20 years total as an investor.

SPEAKER_30: Does this feel like the new normal, this amount of money being pushed into the system, IPOs being pushed out? Or do you think that we're going to find a balance between the two, austerity and like too little capital chasing a small number of deals as opposed to too much capital chasing too many deals?

SPEAKER_79: I have a hard time seeing how we can revert to the new normal or the old normal sort of quickly because of the length of the feedback loop, you know, in VC because it takes so long for investors to figure out that they backed the wrong GPs and gave too much money to people who didn't know what they were doing. I'm not saying that the thousand seed funds that followed, you know, us and first round and so on and so forth don't know what they're doing. They do. It's just that there's just too much money out there, right? And the problem is that you haven't seen sort of an increase a hundredfold in the number of good companies. It's actually shrunk. So that unbalance where people have to do deals and therefore pay up, I think if you were to plot the average pre-money valuation that we've been paying in the market for the past five years, it's basically going this way, right?

SPEAKER_103: What do you think average for the seed stage is now for a company that has a product in market and some traction?

SPEAKER_79: So for us, a few years ago, we were in the six, seven, eight pre-range and now when we actually hit single digits, we're pretty happy because I would say the average is probably like 12. So it's grown almost 50% in the past, you know, three, four years.

SPEAKER_111: That one's true.

SPEAKER_69: How does that impact your business, do you think? Does it matter that you pay 50% more now if the exits are bigger?

SPEAKER_113: Well, the average exit is the same.

SPEAKER_79: And so by definition, you're going to see a compression of performance where, just an example, back in 2008, I invested in SendGrid at below two pre-money valuation and the company exited for $3 billion, right? So there was a nice, you know, multiple.

SPEAKER_116: If you were investing in SendGrid today, you would probably invest at, you know, eight to 10 pre. So just think about the performance.

SPEAKER_69: It would be two-thirds less or less than half the returns. Clara, what do you think about valuations? What are you seeing out there? And is valuation important? And if so, how?

SPEAKER_86: It doesn't seem to be important to a lot of our peers, but it's certainly important to us. So we're very ownership stake sensitive. We're very valuation sensitive. So for us, we do a lot of pre-seed. So for pre-seed, we're seeing deals, and we try to stay sub-5. For seed, we try to stay sub-10. And it's a real mix, and we're not always successful. But for us, that's very important. And I'm always surprised when some of our peer investors aren't as rigorous about it. Certainly, like, if there's a really great deal and we really need to be flexible, we can. But we really, to the best of our ability, try not to.

SPEAKER_30: Ben, when you see founders coming in with very high valuations relative to their peers, what does it signal for you?

SPEAKER_69: When will you make that concession, and when will you walk away?

SPEAKER_91: Well, I think that's generally, it's dangerous. We've talked about this before. I categorize entrepreneurs into three major categories. The first category is category A, which is, I want a reasonable amount of money for a reasonable amount of dilution.

SPEAKER_93: I believe investors matter and can add value. That's category A. Category B is, I don't believe investors do anything for me. I want the highest amount of money, I want the most amount of money, the highest valuation, and I'm going to run my own business. Category C is a repeat entrepreneur like Max Levchin, who's raising his new, who's raising for his new company. So, our fund focuses on category A and C, because we don't have a comparative advantage in B. In terms of, you know, the number of shots on goal from a fund perspective, if the price is 50% higher, then therefore you have 50, you have one third as the number of shots on, you have two thirds shots on goal, right? You have a third fewer shots on goal.

SPEAKER_127: You get to take three swings of the bat versus two. And the reason that is important, if it's not obvious, is what?

SPEAKER_91: Is that, you know, if you typically look at, from an ownership perspective, from a seed stage, most seed stage funds focus roughly around 10% plus or minus.

SPEAKER_93: And when you think about the billion dollar exits, if it's a billion dollar company, and roughly, you know, you might have from 10% down to 5% from all the dilution, but you have 5% of a billion dollar company, you have $50 million. And so, for most seed funds are roughly within that range, the math plus or minus, it returns the fund. And so, when you have more shots on goal, you have more opportunities to return the fund and deliver the returns for your LPs.

SPEAKER_129: Now that you're running your own fund, how is it different than working at another fund?

SPEAKER_130: What have you learned in this, you know, I guess you're in your second year now?

SPEAKER_91: Well, one of the key things that's different is that, you know, as a sole GP, I can move a lot more quickly than any other partnership, because it's really just me that I decide.

SPEAKER_93: And it actually helps, it helps because we can move much more quickly with seed stage companies, and I think it's really important in seed stage to be able to move quickly, because great entrepreneurs are going to meet with five, six, seven, like, a great entrepreneur will meet with the four of us within two, like, within two days. And only one of us has to say yes. And there's probably, you know, another 10 that's lined up, like, right around the corner. And so I think moving more quickly is a real benefit, and that's actually been, you know, a real positive development for me.

SPEAKER_130: Great.

SPEAKER_69: When you look at founders, Clara, I'll go to you for this one, and they are pushing off revenue, and they say to you, Google, Facebook, you know, go right down the line of people who, you know, started monetizing in year three, four, five, didn't. I'm not going to have a revenue model right now. I'm not going to try to make money right now. I just want your money and raise more. When is that acceptable for you as an answer? When is it not acceptable, and what's your counsel to your own founders about this very issue of, I'll figure it out later when it comes to revenue?

SPEAKER_86: Oh, you asked me a tricky one. Look, oftentimes we get involved at the pre-seed where revenue is nothing or far off in the future, and so a lot of it is about understanding their plans for getting there. And sometimes they're going to have to have millions of users before they can make any kind of meaningful revenue, and that's okay if I can see a clear picture to where, you know, they need to be, and I understand what's going to have to go into it. But generally we like companies with a very clear plan, not a, like, someday maybe, possibly, we'll talk about thinking about doing it later, just because we haven't seen that work out very well.

SPEAKER_69: And Jeff, when you look historically at governance and when to focus on a business model, I'll put these in the category of taking the work seriously, maybe. When is the right time for a founder to get focused on their business model? When is the right time for a founder to get focused on solid governance? Let's even say just a two-person board meeting and, you know, just taking minutes and doing things properly.

SPEAKER_140: So I'll tackle the solid governance first.

SPEAKER_79: I think you should start with solid governance from the get-go. I, you know, at seed stage, we suggest strongly to founders that they establish a board. Each of us sits on, you know, six to seven boards at seed stage, and we roll off between series and series B. So we're there for two to three years, and we sort of train the founders to have the good, you know, board hygiene that will be useful as they sort of grow up as a company. Not everyone agrees. There is a blanket no board at YC, and so none of our YC companies had a board before they were sort of at series A stage. It's too bad. They turned out okay, but we think it's important to do it, you know, from the get-go. So in terms of business model, I think there is understanding what creates the business model enablement, and there is actually establishing the business model. If you have a SaaS company, you should sort of start charging almost immediately. It could be not the ACV that you want to get to in, you know, once the company is at scale, but at least you should validate that there is a willingness to pay. But sometimes, as Clara said, you need, you know, hundreds of thousands or millions of users before you can deploy a typical sort of consumer business model. And that's okay as long as you've validated that there was some willingness to pay. We've only done, you know, a handful of those deals in the last few years because we really want to see sort of real businesses, and that's what we invest in.

SPEAKER_130: I want to ask the group a question. In your mind, think about your top ten investments in your entire life,

SPEAKER_69: across whatever funds you've done, or as an angel, or as an advisor even. And I want you to tell me, of those ten, and it will take a little time, did any of them have three revenue models, three ways of making money when they hit scale, and did any of them have three? And obviously, you know where I'm going to go with this, which is I'm going to go down to two. So did any of your big wins, like SendGrid, I guess is your biggest, they had one business model, right? They charge people for consumption.

SPEAKER_143: They had a couple of products, but they had one way of making money.

SPEAKER_130: One revenue, one way of making money. Does anybody have one with three? That's a no from Ben. Okay.

SPEAKER_69: Do you have a top ten investment with two revenue models, with two ways of making money, let's just say significantly, like over 10% each? Yeah. Yes. Okay. Which one?

SPEAKER_86: Well, I'll give you a more recent one that I think has grown really rapidly, which is why I think it's a good example. It's a company called Milk Stork. They're a breast milk shipping company.

SPEAKER_137: I remember. They presented here.

SPEAKER_86: They are awesome. So essentially, they sell both direct-to-consumer as well as to big companies as a health benefit for their business-traveling, breastfeeding moms. And they found it to be a very complimentary loop because selling into HR departments is actually quite complicated, but once you're in, it's pretty sticky. But they've had extremely compelling sort of direct-to-consumer testimonials from moms who maybe are Facebook moms, but they started using it because they had to go to weddings on the weekend. And then all of a sudden, they're going to their HR department and saying, like, why are you not writing this offer? Like, I went to New York last week for work. Like, you know, I submitted the receipt. You accepted it. Like, can't you just make this part of the regular policy? And in that way, it was very complimentary. And the two kind of drove each other because the more direct-to-consumer moms who were just using it, the more that they were asking for it from HR. And so it's been a very complimentary funnel.

SPEAKER_152: So the same product just sold to two different individuals. Correct. Two different channels. Yeah. Got it.

SPEAKER_156: Okay.

SPEAKER_114: Jeff, do you have one? Yeah, we've had Fitbit has, you know, for the longest time sold both hardware and subscriptions.

SPEAKER_144: More recently, we have Molecule, which is doing the same thing. Hardware plus subscriptions. Who is that? Who did the hardware? Molecule.

SPEAKER_69: Oh, yes. I have a Molecule. That is amazing. Thank you for your support. Yes. Yeah. They sell the filters on subscription and they sell the hardware. So arguably two different, it's probably the same business selling stuff to people,

SPEAKER_120: but subscription is different, I guess, than buying. Yeah.

SPEAKER_79: Yeah, I'll go with that. So, and I think the rest is pretty much, you know, different products, but one way of selling. So, SendGrid has multiple products, but they just sell one thing. Eventbrite has multiple sort of offerings, but, I mean, you could argue Eventbrite has selling tickets to the consumer and then selling software and services to event organizers. So, maybe two.

SPEAKER_69: Maybe a little transaction fee plus SaaS. That seems to be an example of dual business models or dual revenue streams. Ben, do you have any of that come to note? And I obviously bring this up because almost, let's do this candidly, how many people in

SPEAKER_08: the room are experimenting with two or more business models currently in their startup? Raise your hand. Don't be afraid.

SPEAKER_69: So, more than half of the people are at two or more. And so, we see this as being, at least at launch, one of the signals that a founder is going

SPEAKER_08: to fail is focusing on three or more business models. When people pitch us three or more business models, we're just like, that's not how this works.

SPEAKER_86: It's also, I will say, a lot of investors have self-identified in one camp or the other. Like, we're B2B or we're B2C. And so, the pool of investors who are willing to talk to you or are able to kind of wrap their brain around, if you have a dual model like a milk store, I think is much smaller.

SPEAKER_79: Yeah. Well, I would argue that if it's really early in the life of the company, having, you

SPEAKER_114: know, some tests around different business models to see what scales is fine. Year one, year two. Year one, year two, and having assumptions and trying to validate them is okay.

SPEAKER_79: At the end of the day, you know, to scale, you need to focus on something. And then, you know, diversifying and trying to go from pure hardware to hardware and subscriptions is something that you don't do immediately unless you're Peloton and you introduce, you know, the concept right at the get-go.

SPEAKER_168: Were you in Peloton?

SPEAKER_79: Unfortunately, no.

SPEAKER_168: It is the greatest product ever.

SPEAKER_70: Do you guys have Pelotons?

SPEAKER_169: I used it this morning.

SPEAKER_70: I didn't. You have the bike or the tread? I have the tread.

SPEAKER_169: I have the bike.

SPEAKER_69: It's so awesome.

SPEAKER_171: You guys will have to get Pivot when it comes out.

SPEAKER_69: I don't know what Pivot is. I have the Tonal, too, which is amazing.

SPEAKER_171: You'll love it.

SPEAKER_69: Okay. I'm in. Looking toward 2020, and let me start with growth. I'm sure you all know the rule of 72.

SPEAKER_08: Raise your hand if you know what the rule of 72 is. Okay. I'm going to make you define it. No.

SPEAKER_69: Nobody raised their hand. Rule of 72, if you want to know how quickly you're doubling, like you're doubling your money in the stock market, divide it by the time period. So you divide 72 by 10, you get 7.2. That's how many years it will take you to double your money. So for your startup, if you're growing 10% month over month in 7.2 months, that's 7.2 periods, you would, or if you're doing 10% week over week, 10 weeks, 10 months, 10 years to double. What is venture scale in terms of growth rate? When you look at a company and it's got X growth rate, you say, I have to read this deck and get this company into my office. If they had an average of X over the last three months of growth rate, or six months, what number would be a no-brainer take the meeting?

SPEAKER_114: At seed stage, I would say anything which is sort of double-digit without crazy spending.

SPEAKER_79: Because you can grow at any rate you want if you give sort of cash to people. That was sort of the issue in a number of e-commerce companies where they were selling things that cost 100 bucks for 50. Wow, it's easy when you do that.

SPEAKER_69: So assuming the unit economics are not gamed, what's the percentage? You said low double-digit, or just any double-digit.

SPEAKER_114: Yeah, any double-digit.

SPEAKER_130: Any double-digit, got it.

SPEAKER_93: That impressed Joe. Yeah, for me, I'm more focused around not just the past performance, but the future performance and how scalable it is. Got it. Because to Jeff's point, you can do all sorts of non-scalable things to get yourself to grow 2X, 3X over the last year. But if that doesn't continue, then there's not a lot of value in the system, right?

SPEAKER_69: So assuming it's sustainable, it's not gamed, you're not selling $100 bills for 50 bucks, what's the ballpark number that you look at and go?

SPEAKER_91: Yeah, at least 2X, preferably 3X or more.

SPEAKER_69: Year over year, which would be something in the range of 6%, 7%, 8% a month, all the way up to, if you're tripling, 15% month over month.

SPEAKER_79: I mean, the gold standard is the triple, triple, triple, double, double, which is over 5 years. You triple for the first 3 years, and then you start doubling, because you can't sustain. Tripling's too hard. Tripling's too hard. So basically, that gets to scale, because you get to $17 million in revenue, or $100, you know, within 5 years.

SPEAKER_130: So you start in year 1 on $100K, then year 2, which would be the first year of doubling, so you get to $300,000, $900.

SPEAKER_79: Except that you started higher than that, because if it's $100,000, like you start a million, $3 million, $9 million, and then you start sort of really taking off.

SPEAKER_69: And that gets you on that nice glide path to $50 to $100 million, which means a billion dollar company. Clary, you were going to add?

SPEAKER_86: No, I was just going to say that, yes, but that means waiting for sort of year 1 to go by, or year 2 to go by, and at the pre-see, that's really hard to evaluate. At the same time, we've been seeing, I would say, especially companies coming out of accelerators, like all different ways to game this month-over-month growth, which is why we try to not put too much stock into it, just like what Ben was saying, just because there's, you know, so many ways to kind of fudge it, as well as this new thing, which is LOIs. Like, we've just seen so many, you know, like measuring their month-over-month growth rate based on LOIs and their future revenue, which drives me nuts. And so it's just really hard. Yeah, for sure.

SPEAKER_190: That is so lame. It is.

SPEAKER_191: A letter of intent means nothing. It's a letter of nothing.

SPEAKER_86: It's true. It's a letter of nothing. At the same time, when you're four months old, how do you measure your growth? You know, it's a tricky problem for entrepreneurs.

SPEAKER_69: Who came up with this FACACA advice to founders to get an L-O-N? Did you do this, Ben? Did you tell everybody to get a letter of nothing?

SPEAKER_194: That was definitely me.

SPEAKER_69: Definitely you. No, it's not. You're like, you know what Clara would really appreciate? It's a letter of nothing. Your product doesn't exist, and let's get some customer, who's a friend of yours from college, to give you a letter that says they'll spend nothing on your nothing.

SPEAKER_86: No, actually, Ben and I did a deal recently together, and this company had a different level of growth and had been around for a lot longer.

SPEAKER_136: And, you know, it's easier to measure when they've been around longer.

SPEAKER_198: Yeah. The other thing to note, though, is that it's not just revenue. There's revenue and there's margin.

SPEAKER_93: And so there's companies that will ship, like, if you say I have a million dollars in revenue, but if your margin is 98%, then that's 98% margin. If your margin is 3%, your net revenue or your margin is much, much lower.

SPEAKER_91: And so, and obviously this, everyone in the room says, yeah, obviously. But when we see the pitches, you see these numbers, like, you know, we have this revenue number and this revenue multiple growth, and then you ask the margin, the margin ends up being 10%.

SPEAKER_93: So then all of a sudden you cut, like, basically in my head, your revenue that you're actually taking, or your net profit, your gross profit, whatever you want to call it, net revenue, everybody calls it something slightly different, is an order of magnitude lower.

SPEAKER_202: So that actually matters a ton, at least to me, because the quality of the revenue actually matters.

SPEAKER_69: Let's talk about that quality of revenue. Jeff, when you're examining the revenue, how do you assess the quality of the revenue, and how do you train your new team members? Because now you're, I think, like me, going into my second decade, you're finishing your second decade. How do you train new investors to understand quality of revenue?

SPEAKER_79: Well, sort of Ben hinted on that. When we see a company at seed stage, we typically sort of have a bit of revenue. The unit economics aren't, you know, ideal, so the cost of acquisition of customers is too high, and the margins are too low. The cost of delivery of the services is too high. But what we need to understand is the trend and whether they will actually get to sustainable economics. So lower, you know, the CAG, higher margins, and so on and so forth. And so what we try and do is look at what's going to happen in the future in terms of the scale of the company and do sort of a back trend of, okay, from where we are to where we want to be, can this happen? Is it sort of feasible? And sometimes it is, and sometimes it isn't. And when we pass on companies that don't have quality of revenue is because typically the margins are too low, the margins are too low, the cost of delivery is too high, and the cost of user acquisition is too high.

SPEAKER_69: And this is easily solved, Clara. If a person were to lower, just going by the rule of 72 again, if they were to lower their customer acquisition cost 10% month over month or 5% month over month, eventually it's going to get to half the amount of spend. And if they raise their prices or provide the service more efficiently, either of those things, their margin could get much better. When you see a founder focused on that, of the founders you meet with, how many are focused on that formula of raising prices, increasing margin, lowering CAC at the stage we all invest in, which is, this is an early stage panel.

SPEAKER_86: Very few, and I would say generally entrepreneurs aren't thinking about the calculation. It's like, well, this number looks good, and this market size looks good, and this CAC seems, you know, where we are now, but where we think we can get to. Like, I think the good thing to know, and I think Jeff's anecdote illuminated this, which is that smart investors will do their own calculations. And so before we do any investment, like, we do our own market sizing. We sort of evaluate, okay, realistically, like, at this CAC that you're projecting, you know, is that even remotely possible? You know, how many customers is that going to take? Like, we do our own back-of-the-envelope calculations, and I think it's important to realize, like, just plucking a number out of thin air, while it might be good to kind of fill the deck, you know, that you know you need to make, you're going to have to have a thoughtful conversation about where those numbers come from at some point.

SPEAKER_91: Jason, I think that actually is, that strategy is good, but I would not recommend it at the seed stage, because I think at the seed stage it's very important to experiment, to experiment quite a bit.

SPEAKER_93: So, if it is a company that says, we tried all the channels, and if we actually spend more than our CAC, more than doubles, and so therefore we've now retreated to this level of spend that we think is the right level of spend, that gives us really good unit economics, and there's not competition out there that's grabbing the rest of the market, then I think it's a good strategy. But I think at the seed stage, it's quite important, actually, to always be testing the channels to see whether you can burst up, if you can burst up 10x within a short period of time, and then see whether you get the same level of customer acquisition costs.

SPEAKER_202: And if you do, and the quality of the customers is similar, then you have some good data that you should probably spend 10x as much on that channel.

SPEAKER_136: Can I give Ben a shout-out?

SPEAKER_86: Can I give you a shout-out? Shout-out, Ben. So, we co-invested, and there's this company that's doing a bunch of experiments right now. They were all prompted by Ben, and they're called the bling experiments. This is what they refer to them in their updates to us, and one of them is working extremely well right now, and they're just kind of freaking out about it, and they're just, you know, they swear by the bling experiments, and so there is something to, you know, you've got to try a few things early on. And another reason why, having a helpful investor early stage can kind of help you think outside of the box, because the, you know, hashtag bling experiments are very useful.

SPEAKER_79: What happens is that your cac is way higher than you want, and you can't actually raise your prices. You have to cut them, because the market has told you, well, I want you to sell for 20k, but actually I can only get 8k, and then you're upside down. That's reality.

SPEAKER_69: And this requires a relentless focus and drive on the part of the founder. It is not easy to spend three months testing Facebook and Instagram ads to only find out that it will never work, and that customers will not pay what you want, and you're upside down, and then say, okay, now I'm going to try doing leaflets on doors, or street teams, or some other model. And so to recap today, a reasonable valuation, unless you're Max Levchin.

SPEAKER_198: But still reasonable. But keep it reasonable, Max.

SPEAKER_218: But they do.

SPEAKER_91: They do? Yeah, specifically, the repeat founders that are hugely successful, they still keep their valuations reasonable, because they understand there's another bar that they have to hit for the next round.

SPEAKER_08: So, unlike YC companies, keep the valuation reasonable. I said that, not you. I don't want to get you banned. I'm already banned.

SPEAKER_220: There's a lot of YC companies that actually...

SPEAKER_08: Are starting to. Yeah.

SPEAKER_70: Be reasonable.

SPEAKER_222: Yeah, I think it's bimodal, probably.

SPEAKER_70: It is, actually. I think that's probably correct. Have governance. Can't hurt.

SPEAKER_30: Focus on... Find to experiment with revenue models, but maybe pick one or two?

SPEAKER_223: Pick one in, you know, scale.

SPEAKER_30: Great, great idea to experiment with many different channels to get your unit economics right. But you don't have to have your unit economics perfect.

SPEAKER_69: You have to show that you're going to have a great process for getting them right. It's the process that matters. That's what we're looking for, isn't it?

SPEAKER_130: Is a founder who can have some sort of a plan. Yep. All right. This has been amazing. Give it up for Ben, Clara, and Jeff.

SPEAKER_08: Well done.

SPEAKER_228: Thank you, Jason. Thanks. All right. Good afternoon.

SPEAKER_230: So my name is Tim Thine, and I lead the sales and customer success team at Help Scout. If you haven't heard of Help Scout, we're a customer service software company used by a lot of startups and really established organizations who really care about their customer experience. Companies like Zapier, Figma, Superhuman, which is here this week, all use Help Scout for their customers. So I only have seven minutes today. If there's one thing I want you to take away today, it's that customer service is a pillar that is always going to be something that needs to remain a priority because it's what's going to fuel growth for your business over the long haul. It's going to keep customers happy. It's going to keep them growing and expanding with you, and it's going to help them become advocates that better serve your business and advocate on your behalf. So today, I want to talk about the three phases that I think founders go through as they think about customer service. Phase one is the early days, and I like to think of this as it's the phase of, like, bring it on, right? The more conversations, the better. You're getting product feedback. You're talking to customers, and it's a really enjoyable phase. Phase two is you start to scale, right? You started finding product market fit. This is the phase where it begins feeling a little burdensome, especially for the founder. You're stretched really thin. You're not sure it's adding a ton of value. And then as you start scaling the business, this is the phase where you're, oftentimes as the founder, you're like, enough. It's getting really expensive. You know, your volume's continuing to grow, and you're just not sure how much you want to invest in it. I'm here to tell you today to keep investing, and what I want to walk you through in a few minutes is just some of the foundational things that you should be thinking about. Any business, whether you're a technology company, manufacturing, logistics, you can build these foundational things as you grow your business. And if you do, as you go through each phase, it's going to be easier not to deprioritize customer service and make sure you're set up for success. So during phase one, I'm not going to talk to you about all the specific things you want to do. Again, I want to focus on those foundational items. The first thing you should be thinking of as you're starting your business is make sure that you have a centralized system in place for your customer service. There's a lot of tools in the market. Just pick one. Your team will thank you for having everything in one centralized location. You also want to make sure, though, that the system has some basic reporting in place. You want to understand what type of volume or request. Why are people contacting you? How happy are they with the service they have? Again, this is going to help you as you go into phase two. You also want to start documenting your frequently asked questions. Too many people wait to do this. You want to do this during phase one for two reasons. First, you want to make sure you're preparing for future hires. Second, you want to make sure you're setting it up so customers can help themselves. And lastly, you do want to make sure that everybody on your team has easy access to the system and they can see what the customers are saying so it's not just you who gets that feedback. During phase two, this is where you start hiring, right? Your priority starts looking at, like, how do you hire? How do you add stability? The things that build on phase one here are you want to make sure you start documenting saved replies. Make sure that your team has the same message that you want to portray to the business. Make sure you start building some basic automation, right? Efficiency is really important. You may have funding at this time. You may not. Make sure you're automating the things that can be automated. And at this stage, because you have that reporting in place from phase one, you want to start really making sure you understand the investment you're making. What impact is it having on your business? What impact is it having on your time? What impact is it having on your customers' experiences? Why it's so critical you get set up early? And then lastly, you're starting to document those questions. Make sure that people are reading them. Start understanding what's the growth. If people read them, does it reduce your volume, et cetera? All of this really sets you up for that scale phase. The scale phase looks a lot different for different businesses, depending on how fast you're growing. But again, if you do all those things right in phase one and phase two, you're going to be ready when phase three comes to really make sure you can deflect those conversations that maybe don't make sense to invest in. Make sure that people are really investing in reading your self-service documentation. Make sure you can start evaluating which channel is the best for different customer segments. The key here is don't leave anyone behind, right? It's easy to say, hey, we don't want to serve our smallest customers. The key is, over time, making sure you find the right channel and the right way to serve different customers. And lastly, this is where you really start investing in hiring and onboarding. So I stand up here today, and again, Help Scout is a customer service platform. Really, any tool will help you get the job done. It's better to have anything. Where we really try to shine is in three areas. We want to make sure that you have a beautifully designed experience for your customers and for your team, something that's easy to use, something that's easy to learn, and something that feels seamless for customers. No ticket numbers.

SPEAKER_241: Sorry about that.

SPEAKER_230: We want to make sure that you have one platform that's fully integrated. Your needs are going to change over time. Help Scout offers all the tools you'll need from your email, your ticketing, your live chat, your self-service, all in one platform. And lastly, we want to make sure that you have access to your data, right? We give you a lot of robust data, and we want to make sure that you can access it with ease. Lastly, the one thing I note here is when I talk about our customer TeamSnap, the one thing I note is I don't talk about all the features that they use. Really, the thing that makes TeamSnap stand out for us is their commitment to their customer, their commitment to excellence. They serve everyone from B to C to B to B, and they do that with Help Scout. And it's because they care about making sure it's beautiful and simple for them. So if I'm going to leave you with three things today, there's three things. First, we've worked with over 10,000 customers who've built out different customer service programs. Zainab and myself are here. We have a booth outside. If you have questions, if you want advice on how to approach this, or you have a challenge, come by and talk to us today. We're more than happy to help. Second, as a founder and as somebody who's starting a company, if you don't yet have a platform in place like we talked about for phase one, talk to us. We do have a 50% off for a year off the entire Help Scout platform, regardless of plan, available to all the attendees here today. And then lastly, if you are figuring out how you're going to go about this the next few years and you want advice, come talk to me. We've actually compiled a whole list of resources from training materials to best practices and examples that could help you through. And we have it tailored like what would be helpful for you at each different phase. We're happy to send you that after the event. Thank you.

SPEAKER_246: Thanks, Tim. Any questions for Tim?

SPEAKER_247: I'm curious, what is the most common mistake you see early stage companies make in terms of customer success?

SPEAKER_243: That's a good one. For founders, I would say it's two things. First, I don't think the founder gets out of the way fast enough.

SPEAKER_230: Founders will invest in BD and they will invest in sales, but they often don't invest in customer service early enough, right? And their time is valuable. They have the vision, so they stretch themselves too thin. On the flip side, I'll say the biggest mistake I see founders make once they do get out of the way is they step too far away and then they get away from the customer. So it's finding that right balance where you're staying involved and you're adding value and you're learning, but that you don't have to have it take up your entire day.

SPEAKER_246: Great. Thanks so much, Tim. Thanks so much, Tim.