October 24, 2016
DevGuild: Demand Gen – Acquisition & Channel Tactics
Join Garrett Scott, Leah Grosky, Jackie Davis as they discuss the strategies and tactics they’ve used to acquire millions of users and con...
In the latest episode of Caveat Founder, we hosted Sean Byrnes and Edith Harbaugh. Edith and Sean discuss the importance of directly asking for money when fundraising and ponder why most founders, including serial founders, often underestimate the difficulty of getting early customers. They also consider how companies that struggle and survive often develop a higher level of operational excellence than those that gain success quickly.
About the Guests
Sean Byrnes is co-founder and CEO of Outlier AI, a service that connects to analytics tools and surfaces meaningful insights. Prior to Outlier, Sean was founder and CTO of Flurry, an analytics services platform for mobile application developers.
Edith Harbaugh is co-founder of LaunchDarkly, a feature flagging service for managing the lifecycle of features through controlled rollouts. Edith is also a mentor at HMC Inq and has mentored in the past for Alchemist Accelerator.
Edith Harbaugh: Hey Sean.
Sean Byrnes: Hey Edith.
Edith: It's been about two years since the last time we recorded a Caveat Founder podcast.
Sean: And so it's been about two years since I learned something useful from you. Teach me something new Edith, teach me something new.
Edith: Well you're our advisor. I learn everything from you. That's the transfer of knowledge.
Sean: I think it's all the kind of value that goes both ways but it's great to be back two years later.
Edith: Yes so the funny thing's I have basically known Sean for a lifetime of my current company because we met in Alchemist where he was our coach and we entered Alchemist basically a month after he'd started.
Sean: Which is awesome and Edith met me before my current company Outlier even got started because I didn't even start the company until in that year that I met her so it was actually about six to nine months after I met you that I even started this company.
Sean: Do I look two years older or I look 10 years older?
Edith: You know Sean, you look ageless and timeless. Like a sheet of granite.
Sean: I'll take it, I'll take it.
Edith: I'm not even going toask about because I don't want to know the answer.
Sean: Edith, you run ultra marathons, I'm pretty sure the world couldn't wear you down if it tried.
Edith: I do feel older and wiser now. I'm not an advisor but I teach a class at Alchemist on fundraising and it's just everything I wish i had known.
Sean: And so what's the biggest thing that you wish you'd known those two years ago that you know now that you teach everybody about?
Edith: Well the most obvious one is
You've got to ask for money. I remember you had been our coach and you'd seen me tearing my hair out, stressed about fundraising and you never volunteered any money and finally I asked you and you immediately said "yes".
And I was kind of pissed off. I was like, "why, you saw how stressed I was, why didn't you offer money? And you're like, you need to learn how to ask."
Sean: That's always a philosophy. I feel like if you don't ask for money, very few people will volunteer money for you. And learning to ask is a hard but important lesson and you're right, it's amazing how many times founders would just talk to investors about what they're doing and leave the meeting never having asked. I guess they think people will volunteer to give you money freely. That's just not how the world works.
Edith: And the funny thing was I gave Patrick who you were also coaching that advice of "go ask them for money," and Patrick was like "I can't, I can't." And then finally like a month later, I was coincidentally lurking in a sofa nearby when I heard him ask and you were immediately like, "yeah, what took you so long?"
Sean: Yeah, I don't try to be one of those coaches that plays mind games with people but I feel like there's a point where you know to ask, you're ready to have that conversation.
Edith: And I think it's a good skill also for sales.
Sean: Oh, it's amazing how many founders will go through the whole sales process and they'll never actually ask for the deal.
Sean: Which is mind boggling how often that happens whereas when you've done this for a little while, the very first thing you're doing is asking for the deal and every time thereafter.
Edith: Well you ask for the deal, you qualify the person, you figure out if there's even a possible deal, like is there a fit here, do you have a budget?
Sean: Edith so two years ago, you were getting started with LaunchDarkly that now you are a Series A funded company, one of the best investors in Silicon Valley, one of the fastest-growing SaaS businesses out there. Things are different now, so what's the same though? What's the same today, even after all the progress you've made as it was two years ago when we last spoke?
Edith: So many things have changed. The same is I still have my co-founder John. I get more excited about what we're doing every day. It does get easier. The beginning, I think we've talked about this before, is so tough. You're kind of at a state right now where you're getting your first customers. Getting the first customers is so tough.
Sean: I will say that it always feels harder than you think it should. Whether or not it's as hard as it should be is a good question for future generations to look back on but again,
The first customer always is harder than the first 10, and the first 20. I don't know why it always is harder than you think, even after having done it before. I feel like even with the expectation set of knowing how hard it should be, you always never really consider how hard it's actually going to be.
And I think maybe it's because as founders, we're naive optimists, because we believe we can do these things and that's what lets us start these companies. And maybe that's why I systemically I always underestimate how hard things are because I always see how things can be done instead of the things that would bump up along the way but it really does amaze me in fundraising, in sales, in recruiting, these things always take three times longer than I think they'll take.
And even when I adjust my initial expectations, like, it's going to take three times longer, so I adjust my initial expectation by a 3X multiple, then it takes three times longer than that! It's some sort of a weird self-fulfilling prophecy going on.
Edith: So we just had our sales retro this morning. We do a monthly overview. And I think one thing that changes as you get further along is that you have figured out a lot, so we've figured out our lead pipeline, where we have a repeatable process of leads come in, we do this activity, this activity, this activity. In the beginning, you don't have any of that.
Sean: No it's true, in fact I just had lunch with another founder and he was mentioning that when he first started selling, which was around 2014 so about two years ago, three years ago, the problem was he didn't know what concerns were going through the minds of his customers. And so he'd sell the product and then he tried to proactively get ahead of them but he had no idea what they were thinking.
And now, two or three years in, he knows exactly the concerns that flash through their head. He pitches his product, then he's immediately heading off those concerns because he knows exactly what's going through and I think that's what happens over time, trial and error, you learn those things, your process gets refined. But the beginning, you don't know. Especially with the kind of products that we build here in technology.
They're new, they're things people haven't seen before. And so you show a new thing to somebody who's never seen it before, how do they evaluate it? What concerns did they have? They have no context on which to judge it so they just start rambling off things that are the first to mind.
After a while, you see enough customers, they get familiar enough you start to peel it back, and you build those processes. Or you don't, and I think frankly, the world is full of software companies that have failed because they never found that formula.
Edith: Well and I think that the sooner you start experimenting on that formula, the better. We tried to sell from day one. I remember I was out trying to get customers. And I think maybe it was good that I wasn't a very good coder at that point, because I wasn't tempted to code. I was just like, "okay, I'm not as good a coder as John. He's much better, I will go get customers."
Sean: Yeah, it's important to be able to lean into it. I think it is true. The second time around, one of the things I've done very differently with Outlier is try to avoid always falling back on my strengths. Because I think if you're really good at something like coding or you're really good at selling, you'll always fall back on that if things get hard. And so I know founders that are great sales people where the product is just not working and they still keep selling because that's what they know how to do.
Signing more contracts, signing more deals. And essentially trying to get out of your own mind and say "okay, what's the most important thing I can be doing, instead of the thing that I'm best at, or the thing that I enjoy the most?" It's tough but I think it's one of the things that you learn, at least the second time around, is so important.
Edith: Yeah, I remember Julian, who's always an accelerator. He's like, people fall back on their strengths, and you need to always be aware that you're not just climbing back into your cave and coding.
Sean: It's amazing how many software companies have no customers but amazingly complicated over-developed platforms for doing things.
Edith: Oh, I cringe! I was talking to a friend the other day. I asked somebody else how they were doing and he said, they're promising, which is VC code for not doing well.
Sean: To be perfectly clear, there's only two states of a company, there's promising and killing it. There's nothing in between.
Edith: Yeah, promising, killing it, or dead.
Sean: Okay, well there you go.
Edith: Yeah so I knew they were kind of struggling so I asked him how it was going and the CEO said, "well, we're really doubling down on the tech before we launch." And I was just like, "oh no. Don't launch, just start selling."
It's interesting how many startup companies have a launch, expecting that at the launch, everybody will come to you. Whereas the launch is really just part of a larger marketing strategy where, frankly, most people don't care. The press doesn't care. Most people don't care that there's a new product.
They care about what change that product results in and how you move the world across the board. And people launch and nothing happens and that's essentially the end of your marketing strategy. And then what do you do next? So I think having that scrappy mindset where you're like, I have to scratch and claw for every customer, is actually very healthy early on. Because it makes you value every single conversation that you have.
Edith: Oh yeah. I remember in our early days, you've seen our numbers from the beginning. I remember how depressed I would be. Because at the beginning we were adding a customer a month. And every one of those customers was like me fighting for them.
Sean: And me and everybody else listening is like, "wow, a customer a month, that sounds great!"
Edith: And John my co-founder would be so embarrassed by our numbers! Because you would always write us, great job. We're like, this is pathetic!
Sean: It's so easy to measure yourself by all the stories you read in the press about how great everybody's doing and so and so went from zero to $30 million in revenue in 18 months and you're like, "why am I not like that?" And the reality is, people win the lottery, it just won't be you and it won't be me. It does happen. The reality is, the rest of us, we wake up, we go to work every day, and we hustle to try to build something that scales.
It's funny though I will say, thinking back to our discussion two years ago, things that I didn't know then that I knew now, is interesting about this. One is, I think the first time around when I was starting Flurry, you have to pivot a lot as you're building a company and a lot of that is a result of, I think, mirages. Where it feels like something's working but it's really not.
It feels like it's working so you lean into it and then your foot just falls right through it and you're like, "okay." And so the other thing was working over here, but it's not. And there's a lot of false starts I think that happens in businesses where those mirages exist. The first time around, I didn't think about them that way. I thought that we're not doing it right, there's something wrong with us.
And the second time around, I think I have been well educated as to, even at Outlier we've had a few different mirages where something felt like it was working, it turned out it wasn't, and then we moved to something else. And even knowing everything I know and going into it eyes wide open,
There's no way to tell the difference between a mirage and something real until you push on it.
Edith: And you have to!
Sean: And you do! And you push on it, and a bunch of them won't work. And eventually something will click and that will work and you keep going with that and you do this over and over again and eventually you figure out all the things that work. But it's one of those things where you would think, the first time around, if I had more experience, if I knew what I was doing, I wasn't fall victim to those.
And now I just acknowledge it as part of the journey. Is that there's no way to sit down and chart out the path you need to take. You have to run into a bunch of walls, and that's the only way to solve the maze.
Edith: Yeah. I remember when we were training at our marketing funnels, I was like, well Sean, you're so experienced at business, basically tell us what to do.
Sean: At which point I started laughing hysterically.
Edith: Yes, pretty much! Because I'm like, well, Flurry was a big success. Just tell us the Flurry playbook and I can go execute it. And you told me something that I actually quote a lot to other people which is you said, " there's no silver bullet, and I'm not sitting here pressing the easy button that I'm hiding from you."
Sean: I love the easy button. I actually for a while wanted to get those easy buttons that Staples had and give them out to people and say, oh, you wanted the easy button, here it is! Because I think people think there is some easy button that everybody else has access to that they don't. But in reality it's just the hard work, it's putting the hours in, and it's listening. it's putting the hours in, and it's listening.
So that's the other thing that I think I learned between then and now is, we always talk about Product Market Fit. Product Market Fit is this thing Marc Andreessen coined about the point at which you know your business is working and it's just about scale. Now the problem is Product Market Fit is actually something you come about fairly late in the life of your company in the early stages, so to speak.
Because when you start, hopefully you've done some market validation, but in order to get to product market fit you have to build the product, find the customers, find the market, sell them the product, iterate on it a few times, and eventually, that can take years right? And so earlier on you try to do all sorts of other kinds of validation, but I've also realized that there's points along I call problem customer fit and problem market fit.
Do people want to pay for you to solve this problem, regardless of how you solve it? Will people actually pay you? It's shocking how many people are solving problems that nobody would pay them to solve!
Edith: Yeah, that's why I liked your advice to get used to asking for money. Because I worked on freemium products before and you have to have immense scale to successfully do a freemium product.
Sean: It's tough and even today a lot of the largest ones are struggling to make money, it's tough. But at the same time, part of why I think this is such an acute point for me is, how much when you're starting out, when you've chosen a problem like you did with feature flagging and I did with business analysis, how much can you qualify up front and how much do you need to learn the hard way?
How much can you learn from customer development, from prototyping, from MVP's, on your way to product market fit and how much do you really just have to try something and have it fail? And it's interesting because I think again, I kind of expected you could chart out more of it through deep customer development than is probably reasonably practical in any new space.
Sometimes you just have to screw up and learn. And I think that's the great challenge as a founder is, as you're progressing through your company and you keep over time learning these lessons, I meet a lot of founders where essentially they're asking me, "listen, I've been doing this for three or four years, I've tried a half dozen things." They're not asking me when they should give up, but really that's what they're trying to ask. They're trying to decide, when do I give up and when have I just not iterated it enough to find that out.
Edith: No right answer!
Sean: And that's the problem is there is no right answer. Imagine you're this founder, three or four years in. You've tried a lot of stuff, nothing's worked. And you look back and you're like, am I one pivot away from hitting AirBnB? Or am I going to look back and wonder why I wasted my time by not giving up at the point where I should have given up?
And it's hard because obviously the only person that can make that decision is the founder. In the history of Flurry there were multiple points where I think any reasonable person would have given up. The bank account was empty.
Edith: Clearly showing you're not reasonable then!
Sean: The reality is I'm not reasonable, I'm very irrationally stubborn, and so I'm probably never going to be the person who gives up on anything. But at the same time that also is not the optimal path you could choose. At some point, there probably is a point where a reasonable person would give up. But as a founder, a lot of times people do look in the mirror and say, what am I doing, am I crazy?
After that long of nothing's worked, is this really what I should be doing? Should I be doing something else? And there are those of us that are irrationally stubborn would never give up, and there's those people who never founded companies in the first place because it's too difficult. But in the middle I think a lot of people who are the first-time founders, they haven't been at that point and they haven't really done that self-assessment, and it's a hard question to look in the mirror and say, "should I be still working on this or going to do something else?"
Edith: Yeah, I give advice, I mentor other startups now and one thing I say about fundraising is a startup, unless you have customers, is kind of an expensive hobby.
Sean: Well you were telling me the story about an investor that asked you some questions about LaunchDarkly because they were trying to filter out the CEO's that treat their company was a hobby versus those that are actually trying to get business.
Edith: Yeah, it was funny!
Sean: It's an amazing story.
Edith: Yeah it was funny, I was talking to this investor and he's like, "do you know monthly how many employees you have, how much money you make, and how much you spend?" I was just like, "Yeah. You see our investor updates every month. How much money we have in the bank, how much money we spend." And I couldn't imagine not knowing that.
Sean: How do you not know how many employees you have? That's amazing isn't it?
Edith: I guess there's just some people, he said, that just treat it like it's their project.
Sean: I can believe that because I long have thought there's an inverse relationship between how frequently you appear at industry events and how well your company is doing.
Edith: Oh I get torn on this one because I go to a fair amount because I was acting, I realize now, as our dev evangelist, so I was on the road a lot going to events.
Sean: When I say industry events, I don't mean like selling to your scustomers. I mean like startup industry events.
Edith: Oh, no, those aren't our customers.
Sean: Well yeah exactly, but there's a lot of founders that make the social circles and go out at night and I do believe that the more of those inside baseball startup events you go to, probably the less well your business is performing overall. Because those of us that are focused in the business, we're going to the industry events. To be honest with you, I have always wanted to go to SaaStr.
I have never gone, because in all the years I've been working in the space, SaaS companies have never been a target customer of mine. And while I would love to spend money going to commiserate with other SaaS founders about what's hard and what's easy, the reality is I'd rather spend that money going to the conferences where my customers actually are going to be.
Edith: So I have a multi-faceted answer for you. I remember a really funny story I heard when we were starting out from another investor. He was talking about he got really pissed off at an investment he'd made in a company where he's like, I just want to be famous. They don't really need to care about a salary, they just want to go to the parties.
Sean: To be fair Edith, I also want to be famous which is why I'm here doing a podcast with you. So we all have a shared interest in being famous.
Edith: You are famous, I told you I was in Hong Kong and people were wearing Flurry shirts!
Sean: That's awesome!
Edith: I have a picture, I took a picture of you with a dude in a Flurry shirt.
Sean: It's like they give away those t-shirts after the world series.
Edith: I think some founders are motivated by, honestly, they want to be famous. Which by the way is not me, that's why I do a podcast. Some people want to be rich, and some actually just want to change the world.
Sean: Yeah, we talked about this actually two years ago. If you do this and you're going to be able to succeed through the ups and downs, it's because you believe in what you're doing, you love it. And I think that it's not enough to have one or the other. You can't just enjoy it because if you just enjoy it, you're kind of along for the ride. And you can't just passionately want to build what you want to build, because if you don't enjoy the process, it'll just wear on you.
You have to have both enjoyment and a mission to create to have enough to get over what are stressful extremes.
It's tough, the ups and downs. In the morning you're failing, in the afternoon you're taking over the world, and by the evening you're failing again. It's intense. And especially as a CEO founder, tell me if you agree with this. In a lot of ways it's the loneliest job.
Edith: That was to my point about the second reason. So I do go to some startup events. And it's not for customer development. Like last night I went to dinner with some other dev tool company CEO's. It was great! We got to hang out and talk shop which I love doing and there were other CEO's and we could talk about that.
Sean: Yeah no, it's important. I think if you're going to do this, it's important to have a group of CEO's that are kind of in the same cohort as you, at the same stages. Where it's all about commiseration. It's just about, there's people you need to be able to able to talk to that have common life experience.
There's a lot of problems you can't talk to your investors about, you can't talk to your other employees about, and sometimes you can't talk to your co-founder about because there are problems with your co-founder. Having a group of people you can rely on, it's a big part of overcoming the emotional journey of building these companies and something that I think a lot of people don't do enough of.
Edith: That's why I love going to events like that! I get to hang out with CEO's!
Sean: Yeah, and I do the same, I just don't go to events where I have to pay for that. One of the great things that happened the last two years, I feel like in 2014 or 2015 versus today, there's at least a wider acknowledgement of mental health as an issue among founders than there was back then. And hell, you go back 10 years, there was like no acknowledgement of mental health as a problem.
And I do think in a lot of cases that the stress levels that can exacerbate people's issues and things like depression and everything, these are real. And
The myth of the ideal, impenetrable founder is wearing away a bit where people realize we have to take care of ourselves.
Edith: Yeah, it struck with me that, I don't know if you knew this but one of Alchemist's early founders committed suicide.
Sean: Really? I didn't know that at all.
Edith: He had been held up when I was in as this awesome guy that raised $10 million and then I guess the pressure was just too much.
Sean: Wow. So everybody out there, take care of yourselves. Get help if you need it. It's a tough journey, you can't just do it yourself. And just sucking it up and soldiering on is definitely not the solution.
Edith: And thinking that raising $10 million is going to magically cure all your pressure.
Sean: It's amazing, so Edith, now that you've raised your Series A, tell us about how different it is than what you thought it was. Did you think that post-Series A everything would be unicorns and rainbows? Or how different a world is a Series A funded company than it was back when you were just a seed stage company?
Edith: A lot of things are easier. Something I wish I'd done much sooner, and this is advice that I give to other people, is to bring in a bus-ops person. And we were actually chatting about this the other day. I didn't have a bus-ops person. So I was literally doing all the invoices, running payroll, and that was just adding up. I look back and I was like, if I had had a bus-ops person in place, I could have maybe closed three more deals, run four more blog posts, or done something else rather than just suffering.
Sean: It's nice to have people.
Edith: Yeah! It's nice to have people, I remember spending like two days on the phone with our health care company once because something messed up. That wasn't the best use of my time in hindsight. Stuff that gets easier is you could start to specialize roles more. Like before, I was the business person. And now we have an actual bus-ops person and and a marketing team. Instead of just individual people glomming those roles together.
Sean: What about hiring and, I've always found things that get harder as you grow are hiring and team motivation.
Edith: I found hiring much easier, because we had more money and we had more things. Like before, there's gazillions of seed stage companies in the Bay Area, you're nothing really special if you're a seed stage company. And after we had our A, we had more, basically cache.
Sean: Sure. So that's great to hear. Maybe my time is dated. We haven't raised our Series A at Outlier yet. But what about in the motivation? Because then you have more people on your team. You can't just sit down with everybody one and one and really map to them, motivating a larger team, it gets harder, or would you disagree?
Edith: It gets different. So when we raised our A we were eight people. So we had a daily standup with the entire company. Because it was just the eight of us. And we just ran things a little bit different. So now that we're about 24ish, 25ish people, I say -ish because we have a contractor, we do weekly all hands. Which before would have been kind of silly when we were eight people, but now we have actual weekly all hands and we deliberately think about motivation.
Like we had a hack-a-thon a couple weeks ago. And actually I was really sad, one of our engineers was upset we were having a hack-a-thon. He said very pragmatically, "don't we have important things to work on?" It was like well, "yes, but if you can't take a day to have some fun at work, what's the point?"
Sean: That's interesting. Two years ago when we would have chatted, Outlier was two people, just me and my co-founder. Now we're 10 people which is interesting. And it's fun because I think that there's a point where when you're just two people, everything is hard. Because, to your point, you're doing everything. But there's also a point where I think you grow big enough that you spend more time on the architecture and the organization than on the doing.
And I actually enjoy this kind of stage a lot. Because I still show up every day, I still do things that are impactful for the business. But I don't feel like everything's falling on my shoulders, you're not trying to decide, should I spend today selling, fixing my health insurance, invoicing customers, yada yada yada. You have a lot more focus, you can feel more productive.
And so I feel like there is this point where I actually really enjoy a certain stage of the company. At the same time, I feel like the pressure is the highest. Because in early, I feel like when it's just you and your co-founder, there's very little pressure. In some ways, you're trying to make it work, but if it doesn't work, nobody blames you, you gave it a try. And once you're bigger you've made it to a certain point.
And granted, there's been some huge blowouts in the last year for billion-dollar companies that have kind of bottomed out, which I aspire to never experiencing in my entire life. But there's a point where you've gotten to a certain point, you've gotten a certain light. But in this middle ground, you've gotten far enough that people are looking and saying, "you should make something of this, you should get father, you should go take all this potential you've built and turn it into reality."
And in some ways it's an interesting intermediate point where it's a lot of fun but also the stress is extremely high. Because as your team gets bigger, there's more people to carry the burden. So you're kind of at this intermediate stage, you don't yet have a huge team that can all carry the burden, but at the same time, you have enough and the people that you need to produce something from it. If you were going to invest $1 million in something, let's hope it produces something, otherwise you could have just gone and buy a lottery ticket.
Edith: Or you know, a lot of guitars.
Sean: So I asked you before what was the same from two years ago to today.
Edith: I couldn't really come up with an answer because everything is different.
Sean: Which is fine, I mean that's usually the way it is. Companies get reinvented every few years because you have to if you're growing. Today you're due orders of magnitude more revenue than you needed back then, the team is multiples larger than it was back then. But what is the biggest difference between the company as it was? And I'm not going to let you take the easy answer of, it's bigger and we're making more money.
Edith: I have a lot more certainty about our path. And you've seen me, like before, it was always pretty open. Like we have some theories, we're testing some stuff. And to be honest, that didn't really work well when I was pitching investors.
Sean: Trust me, we've got this, it's all good, I just need your money, it's fine!
Edith: Because I was ready to say stuff like, "oh, we're going to test these theories." And I didn't say it the right way, which is something I learned. Now I've tested those theories, things are working. Like we know what our marketing channels are, we know how to do a sale, we know things. And that makes us have a lot more confidence. I told you we had our monthly sales meeting this morning and we were going around the room, we were looking at the deals and the flow and we were basically fine tuning a couple things. But it wasn't the way we were two years ago where we sell to individual developers or to team leads, what are we doing?
Sean: Yeah, I think that clarity is fulfilling in a lot of ways, if you find it obviously. There's lots of companies as I said before that don't find it, but once you find it, it feels really good.
Edith: It feels really good. I was going around the room with the sales team and we all basically said we feel ramped, we're pumped. Now we're just kind of tweaking some things. Like hey, maybe we should record a demo for this purpose instead of having it on call every time. But like they knew enough to know what to demo, and the demos were going well.
Sean: It works, and in some ways I think about it as survival as as competitive advantage. If you can survive those early days and find out what's working, it's very hard to execute well, frankly. Because even frankly a lot of the companies that are fairly large in Silicon Valley still don't execute very well. But execution as a core value, if you do it well, is a huge competitive advantage. And a lot of that survival in those early days builds that up for you.
So all of the failed sales pitches led to the few that worked, that led to the learning about how to sell it. Then the few messages you tried that didn't work led to the message that worked and that's what you start leaning into and all of a sudden after a while you've failed enough and survived enough that you have accumulated enough on top of this working to have an operational excellence plan to be able to move efficiently and that's what builds a great company.
I actually think sometimes that if success comes too easily at the beginning or if you raise a lot, and some companies raised hundreds of millions of dollars in their first round or first two rounds, it's really hard to have that operational excellence because the world has not forced you to suffer in the way that I think is required to get to it.
Not that I enjoy suffering, but it comes along with the deal.
Edith: Well you've done two startups, you must like it somewhat.
Sean: It's clearly a sign of mental illness, but I do think that there's an element of struggle which is important for building a scalable long-term functioning business. And to go back to the question is, how do you know at every given point if the struggle you're going through is necessary, or the struggle is of your own making?
Edith: I was a long-distance runner and I was used to, after every race, I would assess what went bad and what went well.
Sean: What went bad, I just ran 100 miles and I'm in pain. What went well, I didn't die. Okay good!
Edith: Well just stuff like, I would run out of water because I had packed the wrong size pack or this food's sort of making my stomach upset or it was 97 degrees and very hot or I'd not gotten enough sleep. And so I was used to failing. And I was used to course correcting and I was used to doing it. I had this mantra that's common in ultra running which is, I will find new ways to fail until I succeed.
Sean: There you go! And hopefully you'll live long enough that you've eliminated all the possible ways to fail.
Edith: That's the culture I try to encourage at the company. So today we had our monthly review, I was like okay, what did we do well, what did we do bad, this isn't a judgment but the things that we're doing well, let's keep doing. That things that we're not doing well, let's improve.
Sean: Perfect! Well so going back, if you were to speak to Edith of two years ago when we were sitting here speaking, what is the thing that you wish you'd done earlier, a person you wish you'd hired sooner?
Edith: Oh, bus-ops. I look back at how much time I spent on just stuff. I wish I'd done that sooner. What do you wish you had told younger Sean?
Sean: I don't know that there's a lot of things I could have done differently, because I think a lot of the lessons that I learned in building the Outlier business the last two years were things that I had to learn by doing. Because Outlier is a very new product in a new space, we're trying to automate the process of business analysis. Nobody even knew what that would look like when we were getting started, even two years ago when we were talking, I only had a general idea what it might look like.
Today, we know what it looks like but a lot of what it took to get there was trial and error and experimentation. And I think a lot of new things. If I was to talk to myself two years ago, I would again try to explain to myself that, as much as I thought I knew about how to think through the process, the reality was you just have to make a lot of mistakes. And you optimize for the rate of mistakes, the rate of learning, you don't optimize for the metrics of success in the early days until you have enough that's working ou feel like it's time to hit the gas and start measuring yourself by other metrics.
And so that expectation would have been the only thing that I would have done. I think honestly it's interesting, having done this twice, I can imagine founders who have started many companies over time and gotten to a certain level of success, not just started and thrown away. But I think at some point you must come up with some sort of mental framework for insuring you don't fall back into bad habits.
Because it's amazingly easy to do. To think you know what you're doing or to fall back on what's worked in previous jobs in previous companies. And sometimes I spend a lot of effort just making sure I don't do that, but at some point it can't always be that hard. I imagine if you do this enough you find some way to bypass that, although I have no idea what it is.
Edith: I think it's helpful to have past jobs to fall back on in terms of technique. Like I think that's actually what gives me an advantage. I was older when I started the company, I was in my 30's, but I'd worked at an enterprise sales company, I'd worked at a hardware company, I'd worked at all these different places where I had experience they could reuse.
Sean: I have something else I would have told myself. Actually Edith, I have a very good thing that I almost forgot.
Edith: This better be good because you're wagging your finger and excited.
Sean: I am super animated, as I always am about everything in the entire world. So when I was first starting Outlier, I had a daughter. And as we talked about it I think two years ago, being a parent and a founder, I was worried that it would actually impede my ability to be a good founder, to have a kid at home and not be able to work 12 hours a day, seven days a week. And I have found so far that actually I feel like it has actually improved my productivity and made me a better founder in a lot of ways. And that's true, most of our team at Outlier are parents.
Edith: Yeah, same.
Sean: And I've found that what happens is,
Because we all start working, we drop our kids off in the morning, and because we all have to go pick our kids up in the evening, every day has natural deadlines built in and so people are more productive.
We don't go to the office and play ping pong, we go to the office and we work. We have to work because if we don't go pick our kids up, nobody's going to go pick our kids up. But something I did not expect is, my son was born at the end of 2015, so after we'd done the podcast episode, and so his first year of life was 2016. It was really hard to be a founder with a newborn.
Edith: Oh yeah, my co-founder John, same. He had a newborn.
Sean: So hard. And the reason it's so hard is the sleep deprivation that goes along with a newborn makes it very hard to function effectively as a founder. And I managed to do it well, I have no idea how because it's all basically a blur. But somehow I got through it, but I didn't realize how big of a road block that was. And I think that because I was in such a good spot, at that point my daughter was two years old, it was really easy because she was sleeping well to balance having kids and having the company.
To have a newborn who is just learning to sleep and everything, that was a lot harder than I expected and I don't think I accounted for that very well. And then the other thing that happened last year was we had unfortunately a lot of the relatives in the general outlier family had a lot of health problems. My mom got sick, she ended up dying this year. And so what I found was that also really affects you.
Having your personal life jump up and slap you in the face a lot was something that I wasn't really prepared for going in, or I hadn't really thought about so much going in. During the course of Flurry, I had gotten divorced in the middle, a lot of things that happened, but I don't think I understood how those affected me as much at the time as I do now. Because I understood more about my productivity, more about what I could do effectively.
And to watch the birth of my son and then these unfortunately family events happening with not just me but other members of our team, it's really humbling to reset your expectations and the fact that you don't control your universe. And that these things will come in and they will cut you down and you need to survive them and move on. It's funny because now when I look at, we don't have a lot of competition in our space since it's so new.
But when I think about competition, you're tempted to say, look at their price point, look at their sales, look at all that stuff! And I do that, but part of me is also like, "I wonder what kind of challenges they're facing? Are their parents sick or do they have newborns at home, or what else is challenging them that you never see?" And I do that because it's a way of humanizing everyone else and not believing that your competition is perfect in every way, that you aren't perfect.
That your competition has solved everything that you haven't solved, that you're spending a half a day trying to set up desks for new people. Whereas your competent enough to be using that hour to sell to people, right? The reality is, everybody has life that gets in the way. And I've started thinking about that differently now to humanize everybody across the board so I don't hold it against myself when life comes up and interrupts what I'm doing.
So here we go Edith, this is important. You're now a Series A company. What is the funniest story that you have about LaunchDarkly, about what's happened over the past three, four years? How old is LaunchDarkly now?
Edith: Three years.
Sean: Three years, the last three years, what's the funniest story?
Edith: Oh, amongst those is, everybody loves our logo. So our logo is a rocket ship basically launching. Very creative. And how it happened was, this is funny because you were there for this. We got invited to go up and talk to a really important software company. And this was a big deal to us because at the time, we were getting basically one lead every month. So of course if you're going to go talk to somebody, you need business cards.
The issue was at this point, we didn't even have a logo. And you've got to have a logo on a business card. So it was kind of like a backwards of business cards, logo. And there's this website called Fiver where you can pay people $5 and we did a rush deal and paid $10.
Sean: Big spender.
Edith: Yeah. And John, my co-founder, I'm like okay, "what do you want the logo to look like?" He's just like, just no rocket ships. He's like, that's such a cliche, no rocket ships. And of course, since John and I have been friends since college, I'm like, of course it's going to have rocket ships. So we actually had them make three different logos so we could pick the one we like the best, and one came back with a rocket ship.
And it was the one we liked the best and we got business cards made. The first run were these incredibly cheap-looking ones from Kinko's I could get in a hurry because they could do them overnight. And the funniest thing after that is, people love our logo. People will be like, how much did you spend? Who designed this? And it's like, $5. And you think sometimes you over-optimize for things that you could just do very cheaply. Like I've seen people spend, even startups spend obscene amounts of money on the best logo.
Sean: And you start realizing that a lot more of what people think about something is the context in which they're viewing it and less about what it looks like. It's amazing. Like people like your logo a lot more when they know what you do and they like you. They don't really judge these things on the merit, that's true. That's funny, that's great, I love that, that's awesome. And also I love the logo.
Edith: Oh, thanks!
Sean: It's great.
Edith: We give away a lot of t-shirts, so thanks for wearing yours.
Sean: There you go, and my hoodie! In fact, I wanted to take a photo, my wife and I were both wearing our LaunchDarkly shirts at the same time completely by accident, essentially parading the brand around our local playgrounds.
Edith: Yeah, it's funny. We always have this ethos that we didn't have a lot of money because it was so hard to fundraise in the beginning. So our first money in was John and I's savings, and that was literally like our old boss's money. We would make sure that somebody wore a t-shirt before we gave them to them. They would ask, because some people just give away t-shirts and you end up with a bag full of them and it's just so wasteful.
Sean: Agreed. At some point, about half of the t-shirts in my closet, I think are from startup companies, roughly.
Edith: Yeah, it's a running joke.
Sean: Although, a funny story about that, as part of our launch of Outlier, we presented at the Boulder Business Intelligence Brain Test, the BBBT, which is the largest independent gathering of business intelligence analysts around, and they had a studio and they had mugs. But they wanted to make sure that you never had to be seen with a mug from one of your competitors.
We were there for four hours, and so they only collect mugs from failed companies. Basically, the failed company is not a competition. The problem is this means that you're essentially hanging out with all these companies that failed and have been there before. And the karma is a little bit weird about that.
Edith: So something I learned early on, I was product manager at an early startup before, and my then-boss, the founder, gave me good advice. He's like, "don't sell to other startups, and don't buy from other startups."
Sean: It's true, they go out of business real fast.
Edith: Yeah, so we were just using this company called Code Picnic, which we thought was very cool.
Sean: Is that a real company?
Edith: Not anymore, they completely disappeared!
Sean: Ouch, that's harsh.
Edith: So the running joke is that John using a product is the curse of doom to a startup.
Sean: Okay, you're not allowed to buy Outlier, ever. I'm not even going to give you a discount, not going to happen.
Edith: He was the testimonial on the front page of JUT.io. Went of business.
Sean: Ouch, okay.
Edith: So the joke is, John, if you have a testimonial from him.
Sean: I'll add a filter for his email address in our signup form, okay, I gotcha.
Edith: But yeah, I don't know if it's John in particular or just the high mortality rate of other startups.
Sean: It's true, in fact a lot of our customers for Outlier are not even based in the US. I think one of my key goals is diversification of businesses, because if you live through any macroeconomic cycle, which I think by the way, as I said last time, the most important characteristic of us as a founder is persistence. But somewhere down the list a few hundred notches, having lived through a macroeconomic cycle is such an important experience to have.
Because if you haven't, you start to not realize what it takes to prepare for a nuclear winter. And actually now is probably a bad time to use the nuclear winter pun because of North Korea so let me use a different one. To prepare for winter. (laughter) Because at some point if you're not prepared for it, they'll just run you over.
Edith: I was here in '99. I remember the dot com bust. I remember walking down 2nd street and counting how many new For Lease signs were up every day.
Sean: Yep, the dot com crash, the financial crisis of 2008. Having lived through a macroeconomic crisis, you understand the importance of revenue diversity, of working with stable business in various geographies. The number of startup companies where all their customers are based in the same city they are.
Edith: Or their YC friends.
Sean: It's tough because those businesses are the first ones to evaporate.
Edith: Oh yeah. That happened to my job in 2000. I was a consultant for other dot coms. When the dot com money dried up, so did my job.
Sean: The minute that happens, I think you learn a lot of lessons. Now at the same time, we talked about this two years ago actually, does that make you not as aggressive as you'd be if you were naive? There's a point where having not lived through that, maybe you're going to take risks that the rest of us wouldn't make because we've been burned in the past. And I've come out on the belief that, as a founder, you actually don't need more incentive to be reckless in your bet making. Because as a founder, by definition, you're self-selecting as a very reckless bet maker.
Having controls on how you go about it is actually quite important.
I do think that there are certain kinds of businesses like mobile apps like Snapchat where you have to be irrationally exuberant, to even start those companies. Because they all fail and if you get lucky, you win.
We started enterprise businesses and yes, statistically speaking, the more you've done this and the later you go into your career, the more likely you are to go after more predictable businesses like B2B sales instead of creating the next hot consumer brand. Which I don't think is by accident. I think we all want to take risks, we just learn about the kind of levers we can control and we start to lean on those a little bit more over time.
Edith: I didn't intend to start an enterprise business. I thought we were a fun, bottoms up freemium company. And I was like huh, we're not.
Sean: You learn those things by doing. Two years ago, I thought Outlier, one of our core markets would be smaller companies. Because in our customer involvement research we found that small businesses didn't have a lot of time to look through their data, so having something like Outlier which could analyze their data for them, would actually be a core market. And it turned out that was true.
The problem was once they started using it, they had no time to act on what we told them. And so that took maybe two months to figure that out. We were like, "okay, going after the bigger businesses now." This again is just trial and error. You find over time as you test these things that customers will tell you one thing, but until they're confronted with the reality, you never really know what's going to happen there. And so in a lot of these cases, you have to try it to find out what the real answer is.
Edith: Yeah, people never want to say that you're ugly, boring, or uninteresting.
Sean: They also map it. I'll tell you one of the interesting challenges of Outlier early on was, this idea of a system that automatically analyzes your business was so intriguing and so interesting, but so new, that people's expectations would take off. They were imagining what it could possibly do. It could get out of hand very quickly and we just weren't very good at expectation setting because you get so caught up in excitement about customers have for your product that it's hard to be like, "that's great but listen, that's actually not what we do today."
Like you want people to be excited about what you do, and now we're extraordinarily good at expectation setting because it's so important as part of the sales cycle to say "listen, the potential of what we're doing in a few years is going to be immense. But right now this is what it can do for you today and this is why you should buy this and that."
And that expectation setting is another one of those lessons where there's no way to know which way people's expectations will go. You could easily imagine that their expectations go the other way and be like, I don't think this will work, prove to me this would work. But once you do it, you start learning and you start adjusting and you figure out what works and you lean into that more and you just get that engine going.
Edith: So what's the funniest thing that's happened at Outlier?
Sean: We actually have a quote board of all the funny things that have happened. We want to save them for posterity. I will tell you, this is kind of an ongoing anecdote. In the early days when it was just Mike and I, we were working at his house, we got into his car to drive to lunch, and we're driving and a squirrel runs across the road. A while later, Mike goes, "man, that was almost a squirrel squish."
And I thought he was talking about some sort of term for startup stuff that I didn't know about, I was like, a squirrel squish, I need to pretend I've done this before. I should pretend like I know what that is. I'm like, oh yeah, that sales call was almost a squirrel squish! I'm going to go look that up on Urban Dictionary later. And later on, after talking about this for a while, he realized that I thought he was talking about something, he was like, "no no, I meant the actual squirrel, we almost squished a squirrel."
So from then on, we have a term, a squirrel squish, which we'll refer to something in the startup life cycle, we just haven't decided what it is yet. But we've agreed that at some point, something will happen and Mike will turn to me and say, "see, that was a squirrel squish." The story about our first investor update was a good one. So we raised our seed round in 2015, I can't remember if it was before or after we spoke last, but I've always been very cost-conscious.
Edith: Yes, notoriously so.
Sean: So we raised money but we weren't going to spend any of it so our first burn rate around then was like $200 a month so I sent out our first, I've always been very diligent. I think it's very important to educate your investors about how you're doing every month, to update them, the good and the bad. They can't help you if you don't tell them what's going on and frankly, they've invested in you, they have the right to know how you're doing.
Edith: And it's also good discipline. I do it for me.
Sean: Yeah, it's good to summarize what you're doing. And so we sent out the investor update and I always include the metrics and we burned $200 so our burn rate was $200 and one of our investors was very very concerned and he sent me this email back to ask about, "listen, I really believe in you but is this responsible? Do you think you're doing a good job? And I thought he was joking. Because $200 a month doesn't seem irresponsible to me."
So we go back and forth for a little while and then I realized that he thought there was a K, $200,000 a month. So I emailed him back one more time and I was like, there's no K in that. And he was like, oh. And apparently this was a hysterical thing across all of our investors. They were tricking each other being like, oh yeah, Outlier's burn rate's up to 200. They're like, $200,000 a month? They're like no, $200. And everybody's like, ah!
Edith: I'm always really careful in my updates to say K and M. Because I've screwed it up and I've gotten some very concerned emails a couple times.
Sean: And it's always good to have people mistaking you for spending more money than you're actually spending, but never good in the other direction.
Edith: So I'll say like, with an K and with an M. Well this is a funny personal story. So I gave a lot of talks on feature flagging so I go to a lot of conferences.
Sean: Really, why would that be?
Edith: I'm trying to educate the market.
Sean: It's as if you know a feature flagging company.
Edith: Well, so I was acting as our own dev advocate basically for a while, I was flying around to give all these talks. And while I was giving talks, talk to other people and see what they thought about the market. So I had flown to Sydney to give a talk on feature flagging. And I went to a conference happy hour type thing and I'm chatting with the guy next to me and I said, "I'm here to give a talk on feature flagging, what do you think about feature flagging?"
Because I'm trying to test, are people familiar with this concept. And he's like oh, feature flagging, "yeah! Did you know there's a company in Silicon Valley that does that? And I assume he's talking about one of our competitors or something, and he's like, yeah, there's this company called um, LaunchDarkly!"
And he pulls out his phone and he shows me my own website, and then he starts talking about LaunchDarkly's strategy. He's like, well they're attacking this market this way, I think they're doing this, I think they're doing this. And I'm just sitting there and I'm just like, this is funny.
Sean: And at which point, Edith pulled out her pen and autographed his phone and handed it back to him.
Edith: So I'm like, you know I could correct him, but this is funny and I'm getting a lot of free intel. So this went on for about 10 minutes and he's just telling me all about my company. And then finally he looks at me. I sat up front, I'm here to give a talk on feature flagging. And he looks at me and he's like, the CEO of LaunchDarkly is a female. You're a female, are you the CEO? And I'm like, yeah.
Sean: That's awesome.
Edith: And it was hilarious. And I saw the same guy a year later at the same conference and he was just like, " yeah, you should have told me earlier." And I was like, dude it was really funny!
Sean: And so Edith you've achieved what you said you could not achieve, is you've become famous!
Edith: No I was not famous at all! I was completely anonymous, that's why I loved it! If I'd said I'm the CEO of LaunchDarkly, we do feature flagging, he wouldn't have said all the stuff he just said.
Sean: This is important. If you're listening to this podcast and you see Edith on the street, you have to come up to her and tell her that she's a celebrity because otherwise she won't believe us.
Edith: Well it's what you said about Outlier that reminded me of the story. If you tell people this is your company, they're going to be very biased in what they say back because they don't want to hurt your feelings or they want to be excited. If they don't think it's your company, they'll tell you what they really think.
Sean: Yeah, it's true! So maybe that's the best lesson we can give everybody is try to avoid your own reality distortion bubble.
Edith: Yeah, just be incognito. Anyway, thanks Sean!
Sean: No thank you Edith! This has been great connecting, and two years from now we're going to come back, talk about the LaunchDarkly IPO party and exactly how big it's going to be.