Patrick Campbell, CEO ProfitWell
Building a company takes an extraordinary amount of effort, no matter your role, and neither life nor competitors hold punches for anyone. CEO and Founder of ProfitWell, Patrick Campbell knows this first hand.
Using his experience bootstrapping ProfitWell to $10M and beyond (while simultaneously undergoing some pretty big personal roadblocks), he talks us through essential frameworks to help you handle problems in the proper context, while also teaching some operational takeaways to keep you ahead of the increasingly competitive landscape.
Video, Sketchnote, Slides, & Transcript below
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27 - 29 September 2021, Online
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Get your Fall BoS Conference Ticket
27 - 29 September 2021, Online
BoS Conferences are the events professional CEOs and serious founders attend to learn how to build, run, and scale successful software companies.
First batch of speakers and sessions have been announced. Attendance is limited to 300 spots.
Patrick Campbell: How we all doing? Great, well this talk is going to be terrible. We’re going to talk about terrible feelings. We’re going to talk about terrible times, and also what to do to not be terrible in those terrible feelings in those terrible times. So yeah, I’m a very happy person. It’s going to be awesome and we’re going to tell three stories here on this axis of talking about terribleness, we’re going to have some tactical detours here just because I want to make sure that everyone gets something out of this and some of you are a little bit further in your careers of some of the lessons that we might be talking about you might already know. And then ultimately, there’s going to be a lot of really terrible jokes; you’re encouraged to laugh, you don’t have to laugh, I get the satisfaction out of the terrible jokes either way. So, it’s going to be great.
Can you guys hear me? Little soft? Very soft spoken; large man soft voice. How about now. Is this a little bit better?
Alright, I’ll get fired up as we go. So just like starting soft here a little bit of background on who in God’s name am I to come up here and talk about these things. So, I run a company called ProfitWell. I started my career in U.S. intelligence in D.C. doing econometrics and math and then I worked at Google basically building fun little models to use data and working at the NSA finding bad guys and gals and working at Google finding money. Interestingly enough same models, just different outcomes which is really really exciting. And then I jumped into the startup fray because I’m just a glutton for punishment. I started ProfitWell about seven years ago – a little bit of background on us we basically help subscription and SaaS companies with the hard parts of subscription growth; and what I mean by that is we have a couple of different tools that basically help with kind of the gnarly areas of trying to grow a business. We have an enterprise grade analytics product that is free that plugs into your billing system (Stripes or a BrainTree, whatever you’re using) and basically gives you free access to your MRR, your churn data segments, all that kind of fun stuff. At this point in time because it’s free and also is pretty good – at least in my opinion – we have about 20 to 25% of the entire subscription market using this product and then the way that we make money is we have a couple of different products that help with churn reduction, pricing, revenue recognition, a couple of other pieces.
That was a terrible sales pitch. It wasn’t meant to be a good sales pitch. The point is is that we’ve be in the fray for a while now and we kind of focus on the space that most of you in the room are in. Because it’s a free product, we measure our success a little bit differently. We’ve about $9 billion ARR under management. Basically, this is the ARR of all the fun companies that are using ProfitWell. This is what our revenue looks like across the mighty $10 million mark earlier this year. We are 85 folks based in Boston, Rosario Argentina, as well as a new office in Salt Lake City. We just opened three weeks ago. And have 78% gross margin. I share this mainly out of ego because everyone – everyone – thinks we’re a consulting company and it p*sses me off. And so just like ‘No, we’re a software company. We have software margins.’ And the cool thing we’ve had zero dollars in funding which is awesome.
I don’t know if that’s an accomplishment but thank you. It didn’t come without any costs though there’s obviously a lot of costs to building a company no matter if you’re funded or not funded. This is what my salary and my bank account looked like over the past number of years. Notice the smallness of the scale and I don’t have any kids I didn’t have a partner in crime in life and so it’s kind of like worked out. I now have one which is great and all fun and games. But the thing is I used to look like this. That’s me on the right just to clarify. And now I look like this. So yeah, a lot of time lot of effort. It’s been a little bit terrible, but terrible in a really really good way.
To kind of jump in here. The first story I want to talk about in the first concept they really really want to dig into is this whole concept of leverage. And the reason I want to talk about leverage is that when you’re in a business it doesn’t matter if you’re funded/not funded/heavily funded. Doesn’t matter if you’re in some special verticals/some nerdy vertical/some consumer product doesn’t really matter what it is you’re under just an immense amount of constraints. And so, your job as a CEO, as an executive, as a founder is to basically utilize those strengths to your advantage. Figure out what the most leverage is for the things that you’re trying to accomplish and then utilize those limited resources to kind of push the ball forward. And what’s really really interesting is that us as founders and executives especially you know if I look at the early couple of years versus the later a couple of years, we’re pretty terrible at determining and understanding leverage. There’s some of us who are better than others and this is not 100% of the time but this is something that a lot of us really really struggle with. And just to kind of like do a show of hands: who here has reacted way too quickly to a problem in our business?
That’s right. Yeah. And if you’re not raising your hand, you’re either a sociopath or you have gotten really really lucky and we should trade lives. That would be awesome.
And oftentimes the consequence of overreacting is that we get into this world where when we’re just one person it’s kind of okay because we can take that emotional stress on ourselves -we probably shouldn’t but we can. But as we continue to grow and as you get to dozens of people, hundreds of people etc. Often this becomes a huge huge problem when you overreact. You don’t think through actual leverage. And so what I want to do is I want to talk a little bit about some frameworks that we’ve learned on how to get the most out of your time your money and just the most leverage out there and provide you that framework to make sure that you have that that ability to go after solid leverage. And to back up just a second. What I really want to avoid or what I think we all need to really avoid is what I like to call the freak out cycle of executive emotion.
And what this is. And we’ve all been through this. We know we’ve all been through this is all of a sudden something bad happens in the business and this probably happens like once a day if not once a week it doesn’t have to be like a giant bad thing that happens, it can be a really small thing like a support ticket didn’t go your way or you know some giant competitor comes in the market or you know your growth is just slowing, or not going as fast as you want it but there’s something that that’s bad that happens in the business. And not all the time, but probably a little bit too much of the time, we go this is important Like we don’t question if it’s important we go. This is extremely important. We need to solve this problem right now let’s drop everything right and that creates a little bit of what I like to call the reverberation of f*********ck. Where even if it’s a small problem, even if it’s one of those problems where it’s just like that support ticket that someone is handling properly, we go oh my god I need to solve this problem. The business is going to tank because so-and-so can’t answer this support ticket, and everything is going to be terrible.
So what we do is we jump in and maybe we’re like cool I’m going to take care of this customer I’m going to take care of this situation or you know the big competitor comes in the space we’re going to write some blog posts, we’re going to read you our product roadmap, we’re going to do all these different things and we just kind of throw the solution at the problem, we guess and check our way to success. And then sometimes that works. A lot of times it doesn’t. Sometimes we think it works and it actually didn’t. So, the cycle kind of goes through again. But we’ll throw another solution at the problem, throw another solution at the problem and as the solutions continue to go we start to freak out more and more and then eventually something will work Eventually something will work, we’re very very resilient people and we’re building a business and basically we’ll push something forward and we’ll brute force or we’ll be somewhat elegant or just somewhat lucky in actually solving the problem. The issue is not that this doesn’t work. The issue is is that when we solve that particular problem, if we overreact to solving these particular problems what ends up happening is, we actually cause other bad things to happen.So, on a personal level, you know, I am not known as the most patient person in the world – especially earlier in my career. And if something would happen, and something needed to get done I would go OMG this is important I’m the only one to solve this. Not out of ego, but just out of if I don’t solve it myself something bad is going to happen and I would jump in and handle that support ticket or jump in and overreact to something that happens and then all of a sudden maybe I didn’t handle the interpersonal communication with that person properly so now they’re not confident their job. Or maybe I went even worse and I just like screwed up that relationship and other scared of me or now they don’t want to talk to me about something but all of a sudden this cycle that continues to happen over and over again. This resonating?
Well here’s what I think we should do. And you probably know this but it’s one of those things that it’s really really good to understand how we should go after these things. Because what we should do is first just be like is this important? Like should we solve this problem? Most of the time it’s probably not, even if it is, we probably will not necessarily want to jump in necessarily. We’re still going to go through that little reverberation of f*ck… But what’s going to happen is is we’re going to be able to handle that emotion a little bit better. And we’re going to handle the situation a little bit better. And when we determine OK this is something important this is something that I’m supposed to solve. This isn’t something that I can just trust that team member because it’s in my responsibilities. Then what we need to do is think. Go through a framework. Decide what to do. And act. And all of you do this in your business, not 100% of the time, but you’re capable of this. But oftentimes what ends up happening is we forget this think in this framework piece, and what ends up happening is is we just get into this overreaction cycle or we’re just deciding and acting rather than implementing something monitoring adjusting it and realizing that there still may be negative implications here, but those extra realities are probably going to be diminished as we continue to kind of walk through the problem with a little bit better thought process than just kind of guessing and checking.
Problem, cause, solution
And so, one big kind of framework that I like to talk about and just actually give you something to kind of latch on to. I found this has really really good ROI in terms of the amount of time effort especially in those emotional moments. It’s something I like to call problem, cause, solution. It’s a modification of other frameworks that are out there. But basically, what it means is that when you have a problem you have to realize that you cannot solve a problem. If we talk about world hunger you can’t just go like let’s solve world hunger and just throw a bunch of solutions at that particular problem. What you need to do is you need to break down the causes of that particular problem. Which may be you know lack of irrigation, lack of you know aid getting to the right people, a whole host of different things. But when you actually break down the causes of a particular problem that’s where you can align your actual solutions to that problem and those causes in order to actually solve the problem that you’re trying to go after. And oftentimes when you use this framework and you can use this very very quickly when there’s you that support ticket it’s works really really well when you’re looking at big scary expensive problems but you can also identify not all causes are equal There’s some bigger causes that will actually solve the problem a lot better than going after like just throwing stuff up against the wall and basically thinking through hey let’s just throw something out there and see how it does.
So, here’s an example from ProfitWell as I mentioned we have a free subscription financial metrics product. This is what the first version looked like. You bet your ass that that is a piggy bank logo and you doubly bet your ass that when you scrolled over that piggy bank that little coin did drop into that piggy bank. This is what happens when Patrick designs a product by the way. So do not hire me for design ever. This is what it looks like now because I’m insecure about the previous picture.
We thought we were geniuses when we thought of this product. We were we were working on this product called Price Intelligently, which we still have, and what we found is we’re helping this company is about to IPO with their pricing collecting a bunch of data for them using our software to basically give them recommendations. And we discovered as this outside software vendor that they were calculating their MRR are completely incorrectly. So, think about it. CFO taking two to other companies public. This was his third company is about to take public his MRR are completely wrong. And so, we were like this is the ticket we’re going to be billionaires. It’s going to be awesome. Let’s get deposits on Ferrari’s right away. It’s going to be great. And so, all of a sudden we went to market and like we didn’t do a big launch because we didn’t know how to launch products and if we still know how to launch products or features and all of a sudden within like three weeks everyone was like ‘Have you heard of this company called baremetrics that launched in the market?”
And we were like f*ck. They’d gotten the Hacker News crowd on their side which was awesome. Their design was really really good. They had all these features that we didn’t have and they just like we’re far far into the market as we were kind of puttering along here and it’s kind of look at the trajectory here. All of a sudden a company called ChartMogal launched a company called First Officer launch and then because we’re building on top of stripe which makes it relatively easy those are our initial integration like there are 34 other companies that launched most of them are gone now but there was just a ton of companies that came out and then over time we had other competition come into the space. InsightSquared, they went into the space; Stripe they’re in the space now and to kind of like kick us in the face a little bit – further you know Stripe actually invested in baremetrics about a half million dollars. So, we’re like great; our one integration partner basically invested into the competitor that’s ahead in the market. ChartMogal raised about four million, InsightSquared raised 50 million. And Stripe has you know an immense amount of money.
And to give you perspective like at the time I’m looking at this from my personal perspective. So, I cashed in my 401K my meagre 401K, I paid an immense amount of taxes on it and then basically, like I’m basically in this like reverberation. And so, what we did is we freaked out a little bit – like everyone does but then what we ended up doing as we took a step back. As we were going through the reverberation of f*ck and rather than acting, rather than building and a lot of this was just because we didn’t have as many resources and we didn’t have as much to just go out and react to. We broke it down and we built out a framework. And so, the problem for us was we didn’t know what was going on in the actual analytics market. So the first thing that we did is we went out, we wanted to cut some baseline data so we collected some NPI data from our competitors customers and then just a whole swath of other analytics and business intelligence tools out there. And any guesses at the time what the aggregate NPS of the market for analytics and business intelligence was?
Audience Member: 7
Audience Member: 6.2.
Patrick Campbell: Very specific over here. Any other guesses?
So, we’re like okay Are we arrogant enough to think we can do better? That was really the question: do we think we can do better? And so, we did a little bit more research because the problem was really this whole concept of this paid product that we could distribute and monetize and just brilliantly attack the market had just fallen to the wayside. So now all of us and the problem was this is going to be a lot harder inside our business. And so, we looked at the causes of how we could actually get better distribution and monetization of this product. And the first thing we looked at was there is a lack of willingness to pay in the analytics and business intelligence market.
This is why every BI tool every analytics tool under the sun. There’s some rare exceptions eventually go up market because no one wants to pay for analytics because they just don’t appreciate how much goes into actually creating analytics. And this is what the willingness to pay looked like for ProfitWell back then. Just to give you perspective. Low end here $50 a month high end here about $250 a month. And whenever you’re building a company or a product and you’re monetizing it this is like the worst thing you want to see. The reason is because you’re only a 5x lift between low end customer in the high end customer and if you’ve heard of negative churn, you’re basically don’t have enough velocity to offset those people who are going to churn because churn just a part of life.
And so really what you want is a little side tactical note if you want a 10 to 20x or more lift between your average low end customer and your average high end customer. And so, we didn’t see this here. As we continue to dig a little bit deeper what we found is we were collecting more and more data and trying to understand the cause here is all of a sudden that most of these products kind of exist on this spectrum or this continuum. Where there are data products (these are like your hard core like data warehouses dev ops tools to make data easier), there’s analytics products, then there’s insight products, and then all of a sudden there’s outcome based products. Because when you think about when you’re trying to solve a problem big small whatever it is what you end up doing is you’re like I need to get towards an outcome in order to understand that outcome I need to get data, analyse the data get some insights from the data then solve the problem And there are a bunch of different products that existed on the spectrum at the time but what we found is that if you’re on the left half of this particular line if you weren’t an infrastructure product willingness to pay was terrible, but if you’re on the right half the line actually willingness to pay was pretty good. Willingness to pay actually went up as you went across this continuum. And NPS went up as well and this stands to reason right if I help you lower your churn you can point to me helping you lower your churn. You’re willing to pay more you’re probably going to be more satisfied than if I just showed you a bunch of graphs.
And so this really really helped us kind of crystallize what was happening in the market and then the other thing that we found in studying our competitors as well as like non direct competitors is that there is massive accuracy issues in the market. We found out that as folks get bigger. The number one thing they start to care about is the accuracy of the numbers as they get smaller, they don’t really care because you know 5% off is in a lot of money And so as one of those things where we were like holy cow we keep hearing this qualitatively now some quantitative to back it up but then the other causes of the problem that we were going to have were things like we didn’t have name recognition. We actually had name confusion like that pricing consulting company What’s this product. It must not be great because it’s not pricing consulting. And then all of a sudden, we didn’t have a lot of money as I talked about and our product was way behind. It’s one of those things where we sat there, and it was like Wow we don’t have a full time designer. Patrick was the designer, which is terrible. We didn’t have enough engineers to kind of get more graphs which has a lot of our competitors are doing. And so we looked at basically Let’s shut this down And one of the alternatives that we came up with and it’s what we finally did become based on these causes was what we found and another cause here of like you know a positive cause was that basically we found that there’s a network effect with the data that we get that improves the algorithms for other products that we were basically going after. And so, we came up this model where it’s going to be free. Accuracy is going to be the number one thing. And we were going to commit to that vision, which meant by our estimate so we’re going to take 18 months of getting kicked in the teeth on a feature disparity in order to basically make sure that the numbers were dead accurate.
That’s what we did. And it worked out pretty well so far.
But the big point here is breaking down these problems. This was a really really big problem in our business. This was like a I could characterize as like a $10 million decision like what to do. Because we’re going to spend a lot of time and money investing in the product. But any of your small problems or your immediate problems. This is a model that you can use to break things down very very casually. I use this in my personal life as well. Jenny loves it. She doesn’t love it, but it works really well. Let’s just put it that way. And so, the vision basically became you know give away anything to the left side of the spectrum here for free. And on the right side that’s what we’re going to end up charging for. So a little bit of a tactical detour – when I say tactical detour, it’s related to what we’re talking about but it’s definitely super tactical for your business rather than you as a human – we’re going to talk about freemium for a second. Who here loves freemium? Yeah. Very hot/cold topic. Who here hates freemium? Yeah. There we go. Let’s talk about freemium for a second.
Tactical Detour – Freemium
So Freemium is one of those things where most of you in the room are going to have some sort of freemium product in the next 10 to 20 years if you want to kind of go for growth. If you’re okay with I call it boutique might want to call it a small business but if you’re OK kind of giving up some of the trade-offs that you get from not going freemium, you’ll still be fine. But the biggest reason that Freemium is becoming more and more back into vogue is because of the most overused slide in every marketing presentation known to man which is the martec landscape
So, this is I think this is an old version. This is about the 5000 different companies that literally are here to help you grow. Every single one of these companies has H1 on their Web site that’s like ‘we help you grow through X’. And in the 2014 version there was only like 400 companies on it. But the basic point here is that software is just you know exploding because it’s easier and easier quote unquote to build a product hard to build a great product still. But it’s one of those things where if everyone in this room wanted to start a brand new company by the end of the day we could spin up a server, spin up a web site, and start driving traffic to that Web site and yeah. Wouldn’t be a great product but at least a barrier to entry no longer exists. And what’s happened is what we’ve noticed is because of that retention is actually increasing in effectiveness when it comes to customers who converted from freemium.
So, we are looking here at some data and this is admittedly only about 150 companies. So there are some definite or definite issues with the data here but this top line you’re looking at are those customers who converted from freemium the middle line are those customers who converted from a free trial and the bottom line are customers who converted from a from a cold start and their retention over time. And the reason that at least for positing we’ve had some other data to kind of support this notion that this is happening is because you have so many different choices in the market right now. And what we’ve done in the past from a business perspective is we’ve put customers on our timeline when it comes to actually converting. So even if we have a free trial or having a sales conversation it’s Hey are you ready to convert? 14 days are up are you ready to convert? Let’s go let’s go let’s go. And that puts customers off. They have so many other options they get distracted. They don’t come back even if you have their e-m ail address and you’re hitting them up. Whereas freemium puts the onus on the customer to convert. And so they might sit there for six months, 12 months, 18 months not converting using some sort of freemium product and all of a sudden then they’re like oh yeah I need that solution or they start to consume more of whatever you’re providing and those customers tend to retain a lot better.
The other really really interesting about freemium is NPS or net promoter score tends to be much better for those customers who converted from freemium than free trial or cold start as well. Where you’re looking at the left here and this is about 350 companies; left hand side here as employees five years ago for convert from cold start free trial and freemium right hand side is about a year or two ago same particular graphs here. And what you’ll notice is that NPS overall is actually down. And this is just because software isn’t as magical as it once was used to be able to put a log in screen on a database and everything was amazing. Now it’s like you don’t have good design good support like people that want to talk to you even. But it’s one of those things we’re kind of respecting that timeline is super super important. It’s one of the things that supports a freemium is actually in your future. There are problems with freemium; there are idiosyncrasies that come with freemium. It’s not for everybody but it is one of those things where the data starting to support it. And if you want more information, we wrote a big book on freemium just go to profitwell.com/freemium to get an 80 page book on it. If you don’t want to download the form emails at the end so I can give you just the PDF.
Cool. Next, we got to talk about truth and truth is pretty interesting. Because truth is rarely black and white. Oftentimes we think truth is a super super binary thing. Especially when we’re dealing with issues that we don’t know what’s going on. But oftentimes what we find in companies like the truth of what works and what doesn’t or what you should do is anything but binary. And just for a show of hands here who here has overreacted emotionally to someone on their team before. This is the sociopath test. Or the paying attention test that’s maybe what it is. And I think that what’s really fascinating about this is that you’re moving so quickly inside a company and we talked about this a little bit in the leverage point that oftentimes what happens is that truth gets really really murky not because truth is necessarily not obvious or not helpful to see, but because we just become frankly batsh*t insane when we’re trying to like solve a particular problem. Might be just for a moment but it’s one of those things that are clouds of judgment a lot.
And so just as a little bit of experiment here I might ask you all to be guinea pigs, going to run a little experiment. It’s not sanctioned. So please don’t sue me. But what I’m going to ask you is I might show you a couple of prompts, and these are prompts that I have data on I am the source of the data. I did the work putting the data together and I want you to gauge your emotional reaction to each of these particular prompts. Cool? All So first data point.
Founders who sleep less than five hours a night grow slower (their company – not them as a human) than those who sleep seven to eight hours per night.
Most of you probably agree, most of you’re like I’ve read that sleep study. Arianna Huffington told me I should sleep more. Like most of us are like Yeah, this makes sense. Sleep’s important. So, I’m not going to show you the actual data output here because it’s probably all mostly in agreement. Next one.
Companies with institutional funding have higher churn rates than those who are bootstrapped.
Yeah. Bootstrapped crew! Here’s the data. You’re looking at here is a couple of pairs. So, these are companies in the far left here. These folks have funding up to 100k or funding up to and they’re up to 100k MMR in terms of their size. These are companies that have no funding of the same size. These are companies doing a half million MRR or up to half million funding, no funding. And then the same kind of thing going up to companies doing 10 million a month or more. And notice the funding they’re within the same inter quartile ranges but it is slightly higher and then diminishes a little bit as you get higher. Now some of your thinking on that makes sense like there’s some moral hazard with raising funding you spend more time on acquisition and you’re probably not getting the right type of customers who like churn rates would tend to be higher. But that’s the cost of growth Low churn earlier on Next up:
Founders with hobbies and who score high on a work/life balance have slower growing companies.
Crowds starting to turn on me.
Here’s the data. 400 companies – and this is not survey data. This is all growth data – dark green. These are companies with are led by founders who have hobbies, lighter Green these are companies that are led by founders who do not have hobbies. Data’s cleansed outliers are clean function filling analysis. I did this for the NSA. I’m a pretty good data analyst. And here’s the work life balance. Dark green. I did a little anthropological study where I asked them a number of questions around how they think about work/life balance. Then did a scoring like index. Dark green. The folks who scored high in the upper quartile of balance. Light green: the folks who scored low on work life balance. That’s their growth rate.
And this is the one where I might get chased off the stage.
Remote companies have considerably worse growth. And worse retention than co-located ones.
Now some of you want to murder me.
It’s like I came up here and was like ‘Trump forever’. Something like that.
Here’s the data. This is growth data. All of these companies are remote. There’s 2,000 of them and it’s relative to a set of companies that are co-located meaning they’re all in one office. You’ll notice the ARPU companies that are doing less than 200. So, these are companies. Excuse me. Companies that are selling products that are essentially less than 200 dollars. Growth is about 20% lower for those companies all the way down to 25% for those companies that are a little more enterprising. Again, same person. Doing the data analysis. You want to kill me or some of you want to kill me on this one. The sleep thing you were like. Sure. Yep. Patrick’s right.
And just to be clear before you want to murder me like there’s so many other trade-offs these last few slides Like this is from zero to 10 million ARR are as you get over 10 million Remote basically becomes you know non different than co-located companies obviously with the hobby thing like we didn’t put divorce rates in there or anything like that. There’s trade-offs. But the thing you’ve got to think about is that this might be true. What happens when I tell you data that supports your opinion, you’re like ‘Absolutely I am right, I am f*cking awesome, I know everything’. But when I tell you something that just puts a little pinprick just a little bit of like down in the thing that you believe so strongly because you read it on Twitter all of a sudden you want to murder me. And this is known as what’s called the backfire effect; which basically means and they’ve studied this is that when I give you data that that basically negates or goes against the things that you firmly believe, the same parts of the brain get triggered as if I was a bear attacking you not like a bear in terms of my look… we don’t like that joke?
Mark Littlewood: I do!
Patrick Campbell: There we go!
But like an actual physical bear just coming at you and trying to like take you out. Like the same part of the brain and I think that this is something that happens oftentimes because we are moving so quickly, we have so much anxiety over what’s going on inside our business. Early days/late days no matter what’s going on and what stage we’re at that we end up clouding our actual judgement instead of actually searching for the truth of what makes sense for us, or what makes sense for our business.
That’s really really important to get some introspection on. And what I’ve learned to kind of like harness this a little bit – because if you haven’t noticed I’m a pretty opinionated human being – is in order to pursue truth, you have to be open to being wrong. That’s a really really hard thing for founders/executive/CEOs to understand because we’re right all the time. And we’re not right all the time but we’re the one making decisions and some of those things turn out okay, so we assume we’re right into the thing that’s unlocked this for me in the past couple of years is something called the most charitable interpretation principle and what this basically means is that when someone comes to you and says ‘hey I think this is a better idea than what you’re doing’ or ‘hey have you seen this data that kind of goes against the thing that we’re thinking about’ or ’hey there’s just this problem like I think we should solve it this way’, rather than overreacting or rather than being like OMG you’re wrong and causing an overreaction on an emotional basis what you should do is you should assume the other person is competent, has good intentions, and just assume that they may be right.
It doesn’t mean that you have to agree with them but it allows you to start the conversation and figure out exactly what they mean and the perfect example of this for me is I’ve had many many discussions with people where they’ll be like they’ll say something and just won’t be clear I’ll just assume what they’re saying and then all of a sudden we get into an argument and by the end of the argument all of a sudden it’s like ‘Oh you meant this thing. Oh yeah, I totally agree with that. Let’s move on’ But now I’ve just been a little bit of an asshole and all of the sudden like I’ve hurt the relationship. Jenny is such a lucky woman that we hang out all the time right, no, but it’s one of those things that really really helps. And it’s given me like that extra second to be like I probably don’t understand what they’re saying. If I’m having an emotional reaction to what’s going on or probably a little bit more complicated than I think I should take a second actually have a conversation with them. Because you don’t want to be this little baby who’s freaking out or think that your co-workers are stupid because they’re not you hired them, you vetted them, and you believe that they should be focusing on something for a reason.
The other thing that really helps me here is this whole concept and this is a little bit like ironic given what we just talked about one of our values or principles that ProfitWell is be disagreeable. Think critically and this isn’t license to be an ass but it’s one of those things where it’s really really important to break down problems very similar to what we talked about already. But one of the easiest things that we do to help us not overreact is have a mindset of red teaming. And you’ll note this is. So, the security world uses a lot.
I learned a lot of this in the intel community and basically what it means is is that when there is a proposal there is another team – especially if the proposal is something that’s like really really important or really really big – who’s basically arguing the other side or is basically figuring out how the enemy or how the other person is going to react. So, in this particular scenario there’s some decision or direction that’s being proposed and then a red team is basically going through all the other scenarios on what’s going to actually happen. And what makes this really really powerful as it gets into a little bit of like pseudo game theory because you could sort of figure out OK this person is bringing me this idea they’re smart like let me think through this idea or they’re bringing me this idea actually inherently think it’s a good idea but let’s consider that it’s not a good idea and let’s figure out all the different scenarios that we need to think about. So that we’ve looked at the entire scope of the problem on a still passionate but like a less emotional basis to then make a decision and regroup and act so most charitable interpretation. Red teaming. Really really important.
And here’s a not fun example from profitable. So how many of you work hard? Some of you are not raising your hand! Because you think it’s a trap don’t you. It’s not a trap. So, I work a lot. We kind of go after mid-market enterprise companies and so I’m unlike the conference circuit and all that kind of fun stuff. And so, I’m away from home a lot; on a relationship that can be really really tough. And so, it’s one of those things where like those moments when you’re able to be home, be present, and basically dedicate to your loved one or whatever it is. Those are really really important And so I was having a great weekend. It was a weekend that was amazing. Jenny and I were hanging out with the dog. Monday morning we got up really early. I love getting up early and just like hanging out. We walked the dog to the park. It was awesome. Had little cups of hot coffee. It was awesome Then what I did is what you should never do at 6.30am on a Monday morning. I looked at Twitter. And when I looked at Twitter. This is what I found. So, one of the CEOs of one of our competitors had tweeted:
How do you deal with an unethical competitor? And then some other fun stuff. Basically, said that we’re being unethical because we were doing fake reviews. And they shared some screenshots and basically what had happened is there was someone here who had put essentially the same. They were basically able to trace some reviews on both of us back to this like clearly fake LinkedIn profile. F*ck! And then as Twitter does especially like it’s called bootstrapped Twitter or like startup Twitter Amazon or other competitors SEO jumped in. Yeah. If you could see this email thread that we’re talking about low class unethical etc. It’s going to be a great morning. All because the reaction for most of us. F*ck these guys.
Right. Going to war. Competition. But then I think about it, I’m like, if this is true it’s kind of a dick thing. Like us doing fake reviews. If this is true and they were doing this I would be pissed. Like maybe I would handle a little bit differently. Like I would email them rather than like tweeting about it. Bit of a soft jab. But still like I wouldn’t be aggravated. Maybe sub-tweet.
And so, we have a larger problem the problem isn’t ‘hey they’ve gone public with this’ the problem is is that it might be a problem inside the company. And oftentimes when bad stuff happens especially like this, we’re just like screw those guys like we’re awesome. When in reality like this would be our screw up. So, we got a problem. The reviews look fake. There’s Twitter and public issues. We have relationships with these competitors. I’ve been I’ve e-mailed these guys I’ve been really nice them; I’ve bought them gifts have done all this stuff. I think you should be like nice your competitors even if they’re not nice back. There are perception issues It’s all public. So, we broke it down. What could be the causes?
Talk to the whole team interviewed all of the like like potentially high level suspects engineers who were really involved in marketing, so it wasn’t just the marketing folks basically talked to everyone in some capacity. Nothing came up and nothing like I was a little bit of like a prosecuting or defence attorney or however you want to look at it. I was trying to find the person, and nothing came up and I trust the team. So, then I was like ‘maybe it’s external’. We have some contractors like maybe someone did this and it was like OK let me talk to all the contractors, I trust the contractors. I was really really specific. And then I found, I think, who the culprit is I never got to the actual culprit. We had tried some affiliate work like two years ago. Those affiliates: Bad people. No, I’m just kidding. They’re not bad people. But like we think there was an affiliate we contacted them. We weren’t able to get on the phone with them and so they might not be the person who did this. But it was one of those things where we like this might be the case, but we didn’t get a definitive answer. So, these are some causes we don’t have like really really clear solutions. So, I went after and started solving the problem. Contacted G2/Capterra, they did an audit. We all lost positive and negative reviews in the entire category. Made it clear to the team that this is just unacceptable in case like I just wasn’t able to root out who actually did this. We didn’t tweet. This was something we just like we tweeted just very basic like Hey, like obviously this sucks we’re investigating we’re trying to figure it out and we handled anyone who asked us because there are some people who are concerned because you know I don’t want to associate with a company that does that. So, some people that came to us and were just like Hey what’s up and we handled those one on one. And then I wrote both the CEOs very very long e-mails just saying like hey if this stuff comes up, we all want to win this way. blah blah blah blah blah like I’m here and I address some of the things that they had said. But the point is is that it’s really really emotional. You’re being attacked these people are trying to compete with you but it’s one of those things if you look at it with a steady as a hardness steady as a mind as possible, you actually get to that truth and yeah you’re still going to have emotional tailspin. I was freaking out at 6:30. I was like how do we do what is going on. Morning was ruined, dog was freaking out. Was bad. As one of those things where we focus on the right thing. So, a little bit of a tactical detour.
Tactical Detour – Don’t focus on your competitors
It’s been in vogue recently to talk about like competitive marketing and things like this. So, when we talk about competitors a little bit, I think that. It’s kind of fascinating how people feel about competitive behaviour. So, some people they think it’s an ethical thing to be open about competing with a customer or a competitor. They think it’s unethical to talk about you know certain aspects of your better than them or they’re better than you at certain things. Other people they’re like down and dirty and it’s review spam and stuff like that. What’s interesting is that the data actually supports a little bit of both sides. But we’ve heard a lot of like don’t focus on your competitors but if you look at any company of any size, you’ll notice that competitive marketing is just a fact of life. And it’s mainly because of this.
We started a company in 2005. You didn’t have to be as competitive markets because there just wasn’t as many competitors and the markets were so big. Now there’s markets where there’s only like 50,000 subscription companies in the world and there’s three products to be funded and all that kind of fun stuff just for subscription analytics. And so, what we found is that competitors have gone up; your competitors in your first year of business have risen pretty dramatically. If you started your company five or six years ago the number of competitors that you would have on day one averaged about three. If you started your business a couple of years ago the average number of competitors, you would have on day one is 10. And again, not all good competitors. It’s just that you know again software is easier to build. And so, what we’ve seen in the data though is that those folks who tend to have a competitive marketing strategy, tend to have lower CAC. And it’s highly correlated. But what you’re seeing here is that CAC is up over time across the board but essentially those who are doing a little bit more competitive marketing – especially in competitive markets – are seeing lower CAC because the theory is you’re helping them basically determine what option what they should have. Because everyone’s doing a bunch of research, they’re already looking at all three competitors. They’re just trying to do some research on what’s different and what’s not. And so, there’s a right way to do this is a wrong way to do this. I think drift actually has some really really good competitive marketing but it’s one of those things where the data does support that doing some sort of marketing strategy on a competitive basis actually is a good thing at least from the numbers perspective.
Now interestingly enough when we look at it from a product perspective using NPS which isn’t the perfect measurement of product. But what we found at least these just over 200 companies is that those individuals who have a competitive product strategy tend to have lower NPS and in some cases half the NPS as those individuals who don’t focus on their competitors or the overall measure of NPS in the market. And so, you’ve got to decide what’s right for you. I don’t think it’s an ethical manner, there’s obviously unethical ways to do this but it is one of those things where competitors are more and more important in your market than they have before. Not for all industries, not for all verticals but certainly for a lot of them now.
Cool. Let’s talk about fund one fear OK who here has felt like their company is going to work out before. Even for a moment. Rob looking at you bud! There it is.
We run into these problems Because we’re human. Things happen bad stuff happens and then we freak out. So, I’ve had a terrible founding career just to give you a little bit of perspective. When we’re going through this cycle, there’s a lot of different things that come at you that have that fear kind of creep into your heart and fear creep into your understanding of how you’re going to build your company. There’s stuff that’s external. Stuff from good places – who has had a family member go “Are you actually unemployed?” “Is everything okay?” Many family members do that. It’s from a good place. Bad place there’s just a bunch of crap crappy people that deal with you. Then there’s just acts of God that happened that mess up and just let that fear kind of get into your heart. For me you know this is what our subscription revenue looked like is what it actually looked like for the history of the company. It’s pretty bad and we had one time revenue here. That’s how we were able to survive there. But it was one of those things where it’s pretty painful because during this long swath I founded the company in the worst way possible. Like I know you may be found in your company in a bad way. I founded the company in a worse way. I almost guarantee you just terrible. Terrible. I’d part time co-founders. Was like a pretty bad thing. I mean some of you’re part time and you’re probably great but my part time co-founders. Had full time jobs and kids and all these other things I just made it really hard for them to actually help. And it gets worse.
My part time co-founders were vested. I was not. I know. It’s a long story. I’m going to go through it all. Both those part time co-founders who were vested had more shares than I did and could technically vote me out of the business or technically take the business away from me. Don’t worry it gets worse. Our lawyer was the sister in law of one of the part time co-founders. And we had very little alignment.
So again, most charitable interpretation. We were all first time founders and there’s a lot of trust and everything just seemed super logical. And would’ve been really easy for me and there were moments for us like f*ck these guys to tried to screw me over because it was not like we weren’t all friends. We weren’t all charitable, it was like a really really tough four years to basically undo a lot of this. Just getting a lawyer was a really really tough part not because I think anyone had like really bad intent but at the moment it was like ‘Well this is my sister in law let’s throw her some work’ and I’m like yes but I think you’re trying to screw me over whether that’s right or wrong. Like I still think it and there’s lawyers everywhere. So, like why can’t we just get another lawyer. But it was one of those things where that really really sucked. I broke up with someone I was dating for seven years so it’s not a divorce but it’s kind of like a divorce, now I’m not going to say the company cause the relationship to go down but the company definitely exposed the problems in relationship. To make matters worse she definitely worked at ProfitWell. So, that sucked. Honestly, it sucked more for her and I feel terrible like in hindsight I was like I’m not leaving.
That sucks. And that was really emotionally taxing. The reddest of ocean. I already mentioned this like it was like oh we have the space all to ourselves is going to be amazing and then it’s like oh there’s 36 other people who are geniuses too. And then you kick things all off a couple years in the company I got cancer. So yeah that’s dropping the hard C in the middle of a talk. And that sucked. It didn’t just suck for all the obvious reasons but the one thing they don’t tell you about getting cancer is how much like emotional stuff you have to deal with and it’s not just the like ‘I’m going to die’, it’s the everyone’s telling you I’m sorry and you have to go, ‘No it’s okay No it’s going to be fine. I’ll figure it out I’m strong. It’s all going to be fine’. But we’re in the middle of founding a company it’s bootstrapped you’re trying to grow and you got just like moving forward you get hit in the face and you’re like cool got to go to radiation every day. And I got to deal with all this other stuff it sucks. And it’s going to give me some context is actually the second time I had cancer I got sick first time at Google. If you have to get sick go work at Google. F*cking amazing. Like my boss is just like you on leave you just go like hang out and it’s like you’re still going to pay me? Yeah, we’ll pay you more.
All I kept working because I have psychological problems of trying to make everything good even though everything’s terrible and everything is great now but the second time it happened it was like I was like six months to remission official remission and it was just like another kick in the face. And then the second time it happened thankfully was caught early but now I’m going through radiation while like trying to build a company and it wasn’t the easiest time in the company’s trajectory and I’m dealing with all this stuff. And the reason I’m sharing you this is not because it’s like a contest, we all have our own lifetime movie, we probably all have multiple lifetime movies kid has problems at school, going through divorce, going through a breakup, like co-founders leaving, all this other stuff. But the thing you got to think about is what we’re trying to do is difficult. What we are trying to do is create something from nothing, and then trying not to lose that opportunity and take advantage of that opportunity. But life is still going to happen. And what ends up happening is that fear creeps into that heart as you continue to try to build that business. And what’s dangerous about that is that if you don’t have the right infrastructure – not only around you but internally in your mind – it opens you up to actually becoming a failure. It’s hard. But what I found is that this is our advice. When someone’s going through something tough. Well we end up doing as we go: “Have you tried meditation?” or “you should really work out. Should eat well. Super greens are awesome. Salads.” My personal favourite: “Do you journal?”.
And it’s not that any of these things are bad, like of course these are super helpful things, but you have to think about that they treat the symptoms and they’re mildly preventative. Because at the end of the day these are the types of things that if you haven’t figured out and cleared your own internal sh*t and figured out where you need to be, anytime something bad happens – and there’s going to be something bad that happens – it just puts another like chink in the armour. Crack in the foundation of you building something great.
And so, would I encourage you to do is you’ve got to figure out your why and it’s different for everybody and how to figure that out. But it’s not money. It’s definitely not money. Because there are easier ways to make money than starting a company. But that why of what pushes you forward is so so important because it forms essentially the core of what you want and why you’re pushing things forward when you face that adversity and it doesn’t matter what the adversity is. And that’s kind of like that nice little nuclear reactor that sits inside you that pushes you forward when things happen and then the way that you kind of surround yourself with the right partners. This is a big thing and you need the right partners in the business. But when I found them. It started to make everything better because when I was having a bad day or something that was coming into kind of attack that core all of a sudden they were having hopefully a good day and I could kind of offset things right
Then finding the right team being; unapologetic about who should be in your team. So many times, I talk to founders or CEO friends and they’re just like this person on team and I do that too Because people are hard but it’s like why don’t you move them on. It doesn’t have to be a negative thing but if they’re just not right for your culture or if you’re trying to average out your culture and be like everybody then you’re nothing and you can’t push things forward. And then ultimately finding the right family and friends. I had the wrong friends. My friends, they would like me to liken a self-employed contractor and I was like No I’m trying to build something bigger. I want to build something bigger. And when you find the right friends and oftentimes you’re going to be a lot of people in this room who are going to end up being your friends for this this angle, that really helps protect that core even further and so the way to get there – it took me a lot of introspection. I’ve become a lot more emotional; versus the math days of ten years ago. But it takes a lot of introspection to understand your why. Once you start to figure it out, consume all the advice you can talk to everyone about this. Get vulnerable folks. And then I think one of the most important points is be just unapologetic about what you want and find people who are also unapologetic about what you want. And if you can find people who have disagreements with what you want and what they want even better, because it helps you entrench for what you want. That’s what helps you keep that core. That’s what helps you protect yourself against those cracks in that foundation.
So, the last tactical detour that helps with a lot of this stuff. As we’ve grown, we’ve found that writing and speaking to our team just more than we ever thought before is super super important. Your team craves information, they crave direction, they crave alignment. Doesn’t mean that you’re supposed to micromanage them, but it just means that talk about this stuff with them. This is who we are. If you don’t want to be here that’s okay Move on. We’ll find you another gig. It’s going to be fine. This is who we are. This is what we do. This is the direction we’re going. These are the snacks we get in the office. Like all that kind of fun stuff. It’s super super helpful for folks.
We basically follow this format. So, when we were putting together anything what are the principles of that thing that we’re talking about our customer profile that we’re going after. Our marketing plan et cetera. Create a narrative doc. This is like an essay. I know you haven’t written in a while, but essays are really really good for some people to kind of read things and consume things. There’ll be a presentation. We’ll also do some sort of media -podcast video something like that. And then basically get it out there and make sure that you can kind of test and iterate to make sure that most folks understand. We try to do weekly posts. So, this is like snack stuff, stuff like that. The bigger stuff will probably take multiple weeks to get it out there but it’s a good forcing function to make sure communicating with your team especially if you’re remote or there just isn’t as much like surface area for that communication.
The other thing we do, and this is a little morbid given the cancer conversation. ‘If I die’ docs so the you know the first time this is going to sound really morbid trust me everything’s OK I promise if I die doc. So the first time a cancer like it kind of really crystallizes helps you figure out what you want really crystallizes like what you need to do to make sure that you know if God forbid you do get hit by a bus or you know you pass away like you can figure out what to do. And then ultimately it just really really helps you crystallize like how to communicate. That’s what helped me in terms of a business capacity. So, we create a lot of what are called if I die docs what these are. And we use a notion for most of them now but even in like you know basically just creating command centres for every portion of the business. And this is just basic documentation. The more technical folks in the room you know obviously get this, but it’s one of those things where it’s super super critical to make sure that you can have all of that institutional memory because you know obviously people in your business aren’t going to be there forever. You want them to be there forever. You might not be in your business forever and I know it’s a scary thought. But you’re trying to build something that’s going to be sustainable. So, we do if I die docs everyone has one personally and then each team has one but as I’m going over a time here, big thing to keep in mind just to recap understand your leverage. That’s your job as an executive. See truth. That’s going to help you kind of control those emotional pieces and then ultimately understand that fear is going to creep in. So, set yourself up to basically protect yourself understand that fear so that it doesn’t get to that core. And be unapologetic about what you want, because at the end of the day you know if you’re in this room you probably face some adversity. But life’s pretty good, we’re not trying to figure out how we stop ditch digging we’re actually building something, and we have that that blessed position in this world that we can do that. So, make sure that you’re unapologetic about that and remember that you are your champion and you are your enemy. Know thyself and control, if you have any questions Patrick@profitable.com or if you want the slides.
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