A Product Market Fit Show | Startup Podcast for Founders
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A Product Market Fit Show | Startup Podcast for Founders
Ex-Squarespace CEO on how to sell to SMBs, build tight feedback loops, & stay close to customers even after raising $200M+ | Dane Atkinson, Founder of Odeko
Dane was the CEO of Squarespace from 2007 to 2011. He grew the company from ~$2M in revenue to ~$15M. He's a multi-time founder with multiple exits. His current startup, Odeko, raised $227M.
He takes us through his long journey as a founder of multiple companies and shares the key startup lessons he's learned.
Why you should listen:
- Why 7-day trials led to higher conversion than 30-day trials at Squarespace
- Why you should talk to customers every single day.
- Why SMB usage doesn't always translate into revenue.
- Why you need to follow customer problems over business models and TAM.
Keywords
Squarespace, Odeko, product-market fit, PMF, blogging, freemium model, trial period, data analytics, startup,, customer relationships, business model, pivot, success factors, logistics, hiring, purpose
Timestamps:
(00:00:00) Intro
(0:00:0:37) Before Odeko
(00:06:54) Leaving Squarespace
(00:07:31) SumAll
(00:13:01) Conversion Rates with Free Trials
(00:16:10) The Start of Odeko
(00:20:05) Staying Close to Clients
(00:26:36) Realizing the New Model was Working
(00:31:47) Landing the First Few Customers
(00:37:00) Overhiring
(00:39:17) Finding Product Market Fit
(00:41:32) One Piece of Advice
This is another thing that’s also really dangerous for founders, and it comes back to the VC cycle. You so desperately want this to work. It has to work. You’ve told everyone it’s going to work. You told your wife it’s going to work. Your kids know you’re carrying around coffee bags, like it’s got to work. That desperation off and turns into it not working, but you’re just making it work.
Pablo:Welcome to the Product Market Fit Show, brought to you by Mistral, a seed-stage firm based in Canada. I’m Pablo. I’m a founder turned VC. My goal is to help early stage founders like you find product market fit. Dane, welcome to the show.
Dane:Hey, Pablo. Really happy to be here.
Pablo:Right now, you’re the CEO of Odeko Company that was started in 2019, and just last month, you raised a $50 million Series D. Before we get into that story, the Odeko story, I wanted to jump back, I guess at this point, nearly, what is that, 20 years or so when you were in 2007, you were the CEO of Squarespace, and Squarespace obviously a very well-known company. Today, it’s about a $6 billion business driving over $1 billion in top line sales. You joined a CEO in the really early days. The company was founded, if I’m not mistaken, in 2003. It was only a few years old doing about a few million revenue. Curious if you could go back to those days and just give us the inside story on how found out about Squarespace back then, and why you decided to join, just how that all played out.
Dane:Most of the things I’ve built, I’ve built as a founder. In this scenario, I was driving another company and stumbled into Squarespace through a friend and met the founder at the time and now CEO, Anthony Casalena, who had that brilliant gift of being both an engineer and a designer at the most extreme caliber in both, as well as solving the product market fit dilemma by just being the customer. He built the first version just to satisfy his need.
Pablo:Which was what, by the way? Today’s Squarespace used to make any type of website you want, but what was the key problem that he had that he was solving for?
Dane:The problem he had, and it was also similar when I joined up, was just blogging. Blogging at the time was incredibly hard thing to do. You had to stand up your own server. You had to do quite a bit of work, and that was only to share your ideas on things. He made it much easier system to get that done. You could already see the design of civic that’s lived on through the last decade in his tooling. I think the way he tells the story is he built this in his dorm room. Then one of his friends, who became a friend of both of us, Tristan, came in and was like, I’ll give you 20 bucks if I can build my own log on it. He was like, oh, all right, that sounds cool. I met him a number of years later. He had moved to New York in a dorm scenario with some friends and had a little office. I figured maybe we could pair up and try these be more meaningful. For a while, Sam and I sitting in a room trying to figure out how we could expand this to serve more people’s needs and navigate that journey, which <laugh> it’s fun as everybody out there knows.
Pablo:First of all, it’s pretty crazy because it reminds me – this company started in 2003. Another company called Shopify started in 2004 under a very, very similar situation where Toby, the CEO, just wanted to sell snowboards online, so he creates this company to do so. People start knocking on his door like, hey, I also want to sell things online. That became $100 billion success there’s something there.
Dane:There is, and there are many ways to go about finding your product guide. Being the customer yourself is one of the best, because especially if you can viscerally understand the desire and hold onto that as you grow, it’s fantastic. There are a couple of blind spots that get created. I remember sitting with Anthony, arguing over improving the core module versus adding a calendar, which would have taken hours versus days. I think you see one version of the world, but being truthful to that almost always leads to a good fit because you yourself are that fit. A lot of VCs, you not included a lot of investors are like, but the TAM is too small. You’re just focused on blogs, or you’re just focused on selling surfboards. That tends to not actually be an effective long-term strategy, because once you build something that works for a customer, as in with Squarespace, I think the big delta for us was we had these blogging components and we added a blank module, add a photo module, which allowed you to really expand the use case. Originally, it was like photo blocking. Before you knew it, people were building wedding sites, and their pet stores, and everything else on it because utility was so strong in the core that these extensions made a lot of sense for everybody.
Pablo:How do you become CEO? It’s not normal for somebody to just be like, hey, you come and join me as CEO. Did you try to invest or buy the company? Or did you tell him right off the bat, hey, I’d be better off leading this, you’ll make more money? How did happen?
Dane:He’s wickedly smart, so there was no hope of buying the company, although that was definitely on my mind at the time. It was actually interesting journey. I love founders. I love startups. I’ve spent my life trying to build tools, Squarespace, and help Shopify, and all these. These have been a facilitator of that. He looked like, in a lot of ways, a younger version of me. I felt like if I can’t get a big hug of this, I could definitely help on the journey and share some of my scars. It was interesting because it was just really him at the point. The final interview I had to become his CEO was his dad. He had coffee somewhere in the ‘20s. I remember it was the last second [unclear]. He was like, yeah, my dad says you’re all right, so let’s go for it. All right, cool.
Pablo:That’s awesome. You ran that company, what was like, 2 to 10 million, 2 to 15 million? Is that more or less when you were there?
Dane:Yeah, it was that early arc. I don’t remember exactly what he was doing at the time we joined up, but we’d raised 40 million bucks during my time and had gotten to, I think, a pretty meaningful product market fit. It was more than 10 million in a revenue standpoint. We found a number of inflections both in product and in the way we went to market. I think that we continue to extend the utility of the platform, and we found ways to educate customers. One of the things that we ran into at the time was it was hard for customers to believe that you could actually design a tool inside of a tool. That sounds obvious right now. But at the time, you always hired engineer. It was a long process. The fact that you could do it yourself was an educational sell, so we had to find long formats. Truth, this format was one of our keystones to success. We found podcasters, and that ability for someone to actually share their experience with it really helped people understand what it could do, and open the category.
Pablo:You’re there till about 2011. How do you leave and end up starting another company? How do you leave a rocket ship like Squarespace to then go do it again from scratch?
Dane:My North Star is trying to help small business. Anthony is an incredible operator. I think in our chapter together, he learned a ton. I think the business, when I left, had really found its self-sense. It was going to be, and what did I think become is the way to make beautiful things online and to tell your story in that stunning fashion. I want to roll the dice some more, so went into the next one. That is probably company seven or eight in the sequence, so I am very much akin to this startup. Start in a room with an idea. It’s not the idea you’re going to end up with, but it’s an idea and keep going.
Pablo:Tell me just a bit about that company, SumAll. What was the idea there?
Dane:We had seen this pretty demonstrative shift from the small business to start spending in digital from what was conventional advertising. It felt the time that Shopify was one of our earliest partners. Facebook and Google had a huge amount of data that they couldn’t get the attention to share with their customer. Actually, Toby and Harley, a bunch of those people were really early advocates as we put together a platform that let the user see and understand their data, but it didn’t work. The lesson I learned there, as hard as it was, and you do learn more from the ones that aren’t the rocket ships, but that struggled. We ended up with a half million small businesses, so we ended up with one of the larger platforms, but that data was very hard to action. We got swept aside in this, and I think definitely a topic we’re talking about, our customers just absolutely loved it. They would spend hours a day. They would print out the reports and share it with their team. I think it was like 15 times Google Analytics usage was our usage case, and we’re growing 20,000 customers a month, which having just come off Squarespace. It was a big number to get to early in your life. It didn’t correlate to people spending money. At the end of the day, we’re like, okay, now everyone’s using this. We want to start charging for deeper analytics or printed reports. What’s my data? Oh, am I going to pay for my data?
Pablo:Do you think this is because something like Google Analytics is free, so there’s that benchmark? Because if you’re getting value, presumably you would pay.
Dane:I think it hit home understanding your customer cohort. In selling to the enterprise, as an example, it’s easier for there to be a calculation of impact. How is this data actually guiding decisions? How are we able to make real value out of it? Then you can attach a fee to it. A small business, and I’m talking about this a lot, is characteristically struggles to make those calculations. Even medium-sized business because at the time, it’s hard to assess that impact and there’s a lot of [unclear] to it. I think you’re right in part because some of the services out there were free, and the data inside Shopify was, you could download it if you went through the hassle. Same thing for Facebook, same thing for that. What was really the value of creating utility in that data? We knew from the functional side that it was huge. We knew that they were driving their business – that they were guiding their decisions, that they were taking on our automations, which would create content for them. All these things had effect. It was a small business. It was really hard to cross that chasm. Having come from a pay model, which was Squarespace, I want to try a freemium model. There are a lot of lessons on that model where you’re getting the conversion from that to a paid system. It really is only 3% or 4% of your customers that will come over, which is tough.
Pablo:That’s the hard part is where do you draw the line? You need to let them in. You need to let them get actual value from your product, but you can’t let them get so much value that it’s never worth converting. I find that’s always the big place where at the early stages, founders are struggling with. What’s that line? What’s the feature that – Slack is one that everybody understands, and I find it’s such an obvious one, as the history. At some point, you hit a message cap or you can’t see your history or whatever. If you’re a serious user, you’re going to pay for that. If you’re not, you’re going to still get the value. It’s just that perfect word. Just works out the nature of the product lets that happen. But that’s not that simple in many other freemium cases where you look at your features side by side and you’re like, if I cut it here, no one’s going to use it. If I cut it here, no one’s going to pay. It’s a delicate balance.
Dane:It’s hard now to actually say ego plays an even bigger part of that, because one of the nice thing – one of the challenges in building capitalized businesses is that you really want to live into the promise you had with your investors and your team, and getting usage on freemium feels like you’re winning. Now, I’ve got actions. People are looking in analytics. They’re printing reports. You’re doing things and everyone gets excited. Your board writes your bigger checks, like everybody’s leaning in, but you’re lying to yourself because you haven’t closed that loop. A lesson that I learned from Squarespace, and I probably shouldn’t get much closer to my heart, was we originally had, or during the cycle time, a 30-day trial. You build your site and everything else, and we quickly discovered that the length the trial actually was inverse effective. The shorter we made the trial, the more customers converted. The corollary to it, successful conversion was actually number of modules. In this case, at the time I was there, how many different components to the site? What was your investment as a buyer that I made into the product would be a better threshold for conversion than anything else. We started engineer. How do we get people to upload content? How do you get people to really feel attached to it? When you get, which my next chapter, my ego or just a successive hat through life got in the way, I’m like, people are fully engaged. It’s going to be a obvious conversion. I think that something to keep in mind is when you’re building these things, you really need to pressure test what is the future you will pay for. I think that that rope is almost always better, tighter. People do give way too much. Very quickly, when folks to the platform, and they get their thesis or the vision behind the company, they’ll decide, okay, I want to go in or I want to go out. Making them have a year and a half free and then the third mail button costs money. It’s incredibly hard. Because also the psychology is now this platform’s free. Slack was brilliant because their strategy was less about the threshold was not good in market muscle. They really found a way to get infection inside of corporate buyers through consumers.
Pablo:Tell me more, actually, just on that Squarespace one, because I found that interesting. Why would letting somebody have a 30-day trial versus a 15-day trial actually lower conversions?
Dane:It’s interesting because we had the same thing in Shopify. Not we, but as part of that environment. They had found that much like we had five modules, when you had a customer make $25 off their website or something like that, then they would really feel fine paying the fee and going forward. Same thing for SumAll, we found out [unclear], five different businesses that we hit a critical value that they would even pay for it because it just hit that space. I think it’s very, very hard if you’re trying to make a trial based off time to know where that psychological point is. In 30 days, in a lot of ways, someone would get all excited. I’m going to sell scarves online. They would work on it for three or four days, and then life would get in the way. Then a month later, they get an email being like, hey, your website’s up for payment. They’re like, oh, I’m going to go back to it in three months when I get a better break. But that first seven days, you’re like, oh, is it working? I can see it. I can visualize it. Actually, your mental attitude was the investment I’m making versus the time I’ve spent is high. Vastly, I can pay now because I can extrapolate a future. Customers who did pay obviously would end up feeling the commitment and that payment as a reinforcement of their energy, and usually more energy in a gift to be more successful. It became 14 days, and 20 days, and 30 days. There’s definitely customers who would continue to invest in that period. But a lot of people just got and they’re like, this is going to always be here mentality and wouldn’t convert. Statistically, and again, this is a while ago and a lot of things have changed in the world, but a couple companies that I help advise now set a similar pattern. You actually will see a spike in decline. It’s a long tail, too. A lot of those customers that wouldn’t buy in 30 days would buy in three months because they come back and be like, oh, I want to do it. Exactly what that threshold is, it’s difficult. Even as an operator, as a business, one of the things that makes a shorter trial really helpful is when you’re trying to test what is driving conversion. If you think your cycle time is 30 days, your iterations are also in 30 days. Let’s promote -- in myday, we launched a WordPress importer. Sounds insane now, but you would move your WordPress content into Squarespace. Did that work? Because you couldn’t tell for 30 days because people would just wait out the trial. You’re like, oh, we have to wait to see if that one would work before we introduce a new feature. Having a short trial window and you could just try things and try [unclear].
Pablo:It’s a tighter feedback loop, and it makes sense. You’re almost like leveraging momentum. When somebody signs up, that’s when their peak interest. Make it frictionless for them to get some value. Once they get some value, then get them to pay. Then like you said, now they’ve committed so they’re going to deploy more time into it and you get the positive flywheel spinning.
Dane:That’s gyms, right? It’s the whole thing. Building habits takes energy, and you have to think about where you want to catch in that cycle. Different businesses obviously have different cycle times, but I would say most of those folks out there in the early stage, especially as you want that iterations to be tight, don’t get long trials If you can avoid it. Try to make that as quickly as you can, because also you’ll also see if you actually have something you’ll pay for it.
Pablo:Let’s jump now to Odeko, your current startup. In a sense, you stayed in this SMB world. I get that existing theme. You’re going from data analytics to coffee shops. Bridge that gap for me. How do you end up there?
Dane:Actually, I took back. We sold SumAll, and then we took part of the tech stack team. We had this great partnership with Square and Toast, and those folks, and we started out as geeks. Could we use that data that had usually been invisible inside the industry of brick and mortar because they have less technology, surprisingly, than a lot of other sellers or categories and do something productive with it? We built this, and here’s a great idea. Failed product market fit. We built a predictive model. It used to be called machine learning loops. Now, it’s called AI because it’s sexier. But it was very effective at understanding the future sales that we go to a coffee shop, [unclear] being the early customers of ours, and say like, we know what you’ll sell in a week. We can reshape your ordering behavior, and your staffing, and everything else to utilize that forecast. They loved the idea. They used it. It saved them waste. It made their business better, but it was a fraction of the problem. As we sat there with our customers, the vendors wouldn’t deliver after we put the order in for them to deliver. Or they would come in the middle of business, or they would have reconciliation problems and tons of invoices, or they would steal money. We were shocked because we were tracking the data, how systematic a lot of the industry had to be like, oh, these property bags are $18, and then two months, they’re $23. Who’s checking the invoice? It went to $23 and it was obviously intentional because it happened to all of our customers. It seemed that would be useful in of itself, but the real problem was that they needed infrastructure. Having had the experience of getting excited about software was able to break the VC pressure loop. It wasn’t easy. It was super duper hard, because again as a founder, you come to this thing often with either an idea that you’re fascinated by and you think the idea is it, or you’ve made a promise to your investors that you’re going to deliver on the solution. We had sold some of our most amazing investors on the idea that we were going to bring AI to an ancient industry and make them more efficient. Those would be a pure SaaS, gross margins in the 80 percentile. Everyone loves it.
Pablo:Just for background here, you raised a $6 million pre-seed, I assume, at idea stage, just giving your background, and that was kind of the pitch you delivered.
Dane:Totally. We were very lucky. The quality of folks, and then they bet on my gray hair, the eighth kind and a lot of machine that I am. That was the vision, and we’d gotten some really good test data that that was having an impact. But it was having an impact that the customers didn’t care about. An evolution I’ve had along this journey was it is much easier to think of a customer, at least for me. Obviously, there’s lots of different ways you go about product. I have a friend who only can do things on spreadsheets and that’s how they figure out the product market fit. For me, if you pick the customer you care about, it makes it easier to look at the problem that you’re solving is successful or not successful without that ownership. When you come into the startup and you’re like, my idea is I’m going to make hats red, you’re screwed. My idea is like, people are getting wet. I need to solve it. You’ll find a way to expand to what actually works. I love the idea and I’ve owned coffee shops. Those people are such amazing humans try to make their neighborhoods better. They’re basically the founders that you guys deal with on a much smaller scale there. They’re trying to make a better world and no one’s helping them. When we were sitting in a coffee shop in a birch down in Spruce Street, and a vendor walked in with a giant new boat and disrupted everything, or we’re sitting at a coffee shop of Joe’s and the barista is like, I got to go. I love talking about the AI, but we’re out of milk. The milk guy didn’t show up and I’m going to run to the deli. I’ll be back in 20. We keep on talking. It’s like, okay, this clearly is a bigger problem than the hat we’re trying to invent for you. You need a raincoat and an umbrella. You need the whole thing.
Pablo:Was that by design that you’re in these coffee shops, by the way? Were you just there watching or you happened to be there on something else and you saw these things happen?
Dane:Again, there’s a lot of different methodologies out there. For me, and this is something that I’ve done through all the companies, Squarespace included. We had customers that we were friends with and we answered tickets. I answered thousands of tickets. There are tens of thousands tickets from his time there. You want to stay very close? I have a rule that I have to have coffee and a coffee shop every day and I’m going to talk to a customer every day. Even now, [unclear].
Pablo:Every day, wow.
Dane:Every day. This industry’s super easy. It’s not as hard.
Pablo:It’s true, but it’s still I would have thought every week, you know what I mean, like you sell, but no, every day, okay.
Dane:No, because a lot of the best companies out there you can see they drift. They get fascinated. We raised $100 plus million. You get it. There’s a whole different world that you get sucked into. If you drift too far away, it’s really hard to steer the North Star, which is at the scale, my primary job is to hold the vision for the company and try to make sure it still sees that future. But going back to sitting in a coffee shop, and I suggest our customer, everyone out there who’s starting to figure the product makes best friends of a number of their customers and gets a way to be really inside that experience in whatever visibility you have. Whether it’s watching the customers sparkle in the eye and sitting with them, or seeing how their metrics are playing out or something that’s being attached to that very important part of the process. We saw that our system wasn’t the solve, it was just part of a bigger picture, and then had to convince everybody that we’d gone down the wrong road.
Pablo:What was that like?
Dane:Horrible. It was rough, and I’m old. It’s not my first time. Actually, all the advice our investors gave at the time was totally true. Like they said, you’re going to screw your multiple, and yeah, sure as hell, screw their multiple. No doubt about it. We have trucks and drivers in 14 cities and <laugh> it’s bananas and it’s tough. They’re like, it’s going to be gnarly and all these things that I think were right. But from my perspective, and the company’s perspective, and even people in the company were like, I didn’t sign up to build software for a driver. I want to build AI predictive models. Even your internal culture was like, why are we swinging so far from this that it made sense?
Pablo:How many people were on the team more or less back then, like 10, 15?
Dane:No, probably like 30 at that time. I’ve taken like 15 chokes. Another benefit of being around the block is you can get a couple people that join in yet again. Actually, we made this adjustment during COVID, which is super fun, because our industry died simultaneously to figure out a big model. The way I actually got the model through was just did it quietly, didn’t make a big deal out of it. Told the board I was thinking this worked and I just went and got a truck and got a space with one of our customers. They gave me their keys and I started driving around. Then we got a lot of other people and a lot of our team actually helped. We used our office as a warehouse, and I think the team mentioned something. We carried like 10,000 gallons of Oatly up into our little office space because we’d run out at night.
Pablo:You decided to take over all of the supply logistics part of the back-end, let’s say, of running a coffee shop?
Dane:Yeah, because again, what we realized that coffee shops needed is that they wanted to be part of a franchise without being part of a franchise. That they needed to have the same support that the manager Dunkin’s has, or the manager at Starbucks has with the fact that they actually care about their customer. To do that, Dunkin’s not running to the deli for milk. They got a truck that comes by and loads them up. Again, the VCs try to protect us. They’re like, oh, just use the 3PL. Do anything to get. Don’t touch the truck.
Pablo:Hard assets, no, no, no.
Dane:Oh my God, you stay away. It’s going to be really crazy. Then we had to buy companies and all. All things that scare the investor community along the way. One of the things that’s tricky for a founder, and this gets very hard too, because in my last company, I just banged my head on the same wall. Knowing when to push hard and be persevere, and knowing when to switch is a delicate thing for our founders. But in this case, my guidance soul is, I knew when the coffee shop owner was walking to their store and they had a picture of their inventory, and they didn’t have to worry about an invoice stack sitting there, and they didn’t have to worry about doing deli runs, you could see the sparkle, which is my indicator.
Pablo:Did you validate for yourself the economics and how we might look like at scale? Or did you just put one foot in front of the other and say, this is what it takes to solve the problem, let’s see what happens?
Dane:I did, but that doesn’t work. The problem with unit mechanics is in small companies, you can make it say anything you want. Our really smart MBA team members very easily drove it to like, you’re going to need two drivers, and you’re going to need a bigger truck. They just took my scrappy napkin map, which is about the limit my brain power to get to. They made it look like there’s no way it’s ever going to work. I’m like, I just called the guy who makes paper in Canada and he’s going to sell it to me for 3 cents a cup, and the coffee shop’s paying 17 cents a cup. We should be able to offer to them for 12 and make a lot of money. Sure, but did you count it for the cash flow unit? It didn’t work. In some miles, it didn’t work. In some miles, it did. A lot of these things, you just have to do it. That’s one of the things that makes founders, I think, amazing. Same saying for the person who’s at coffee shop, there are many friends are told every single coffee shop owner, you’re never going to make it work. Why are you opening a coffee shop? It’s a horrible business. It’s never going to happen. Something in their heart just like, I just want to see if I could make the world better. Same thing here, I was like, I’m pretty sure this could work, so I’m going to take the risk. I’m going to buy a bunch of stuff. We’re going to carry it around the office. I’m going to drive it around at night, see if it does a difference. Having done this a long time, this was – and I also encourage companies now because historically, I think the delta for success was smaller. There was so little technology in the ecosystem that you could make someone’s life iteratively better. Now, the threshold is you have to be an epic solve, particularly a small business. You can’t walk into a small business. I’m going to save you 3% on your business. I don’t care. I don’t have time. What the hell are you doing? If you’re chain stuff that’s obviously different, but at small business levels you’re not, you have to change the outcome to change their lives. This was that for Odeko. We scale so quickly. It was a life-altering moment for our customers.
Pablo:When did you realize that that new model was working? How far did you have to take the trucks, and the warehouse, and all the hard asset side of it?
Dane:I think I knew it was going to work before anyone else. As everyone always jokes like us founders, me included, are in the rowboat ahead of everyone else’s in the fleet in the most dangerous position. I remember leaving our office and going to a train station, and I built a good relationship with our first core customers and I called up Jeremy from Birch. I’m like, I’ve got a really stupid idea. What if you gave me your keys and I just loaded your store at night with everything at once? He’s like, that would be amazing. It’s like, oh, that is an inflection. I have not [unclear] tomorrow. I’ll give you the keys now. I was like, yeah, sure, let’s do it next. That was the key. I think the way the model worked out with all of a sudden, once we drove around five vendors into one truck, so our efficiencies that we’d had in one of our models of like, yeah, actually the delivery cost goes down one-seventh because you’re just doing it in one drop. Your drop is getting better. Your density is getting better. That worked, and then the buying power thing, we had no estimation for. We had a few phone calls to vendors in the background, but all of a sudden we’re like, oh, we’re buying 100 million stuff. We’re getting it at the scale of a Starbucks. It allows us to have a healthy model and give back to a lot of the shops. It became pretty clear even at those first weeks that it was going to work. This is another thing that’s also really dangerous for founders, and it comes back to that VC cycle. You so desperately want this to work, and it has to work. You’ve told everyone it’s going to work. You told your wife it’s going to work. Your kids know you’re carrying around coffee bags. It’s got to work. That desperation often turns into it not working, but you’re just making it work. You’re just [ unclear ] the shit out of it. You’re convincing one customer, like force of nature. But when something really works, it actually just works. We went from 50 to 10,000 customers in two years. It just works. Same thing as Squarespace. This is a credit to the tech and the infrastructure. We all could have just gone to a beach, and that thing would have just kept on growing, and kept on printing out money. Same thing for SumAll, even though it didn’t make the money, the model worked, people would sign up all day long. You could take yourself as a founder out of the equation and see the numbers indicating that there is actually success there, then you really have got it. But it’s very easy to get stuck in a loop that requires very hard to scale components.
Pablo:On the Odeko side, one of the questions that comes to mind is, what are you doing so differently on the logistics side than others were? Because one of the things I’ve seen over the last few years, 2021 happened, all these, there’s just a lot of money in the system. There’s a lot of plays out there that had this mix of tech plus normal business, traditional business. A lot of times, it was like, look, we’re tech-enabled. We’re going to do it more efficiently. We’re going to do better. It turns out actually the businesses they were trying to replace were doing it quite well. It was just really hard to do it much better than that, and a lot of those models didn’t work. In your case, I assume you’re doing things more efficiently or just better. What is it that that you’ve really innovated on?
Dane:It’s actually a lot of different wins. We had a better model. Most of the industry is focused horizontally. We are focused vertically. They’re trying to service any food space with their delivery or their tech. We were very focused on one, which allowed for insane SKU concentration, simplicity of application that it fit them. Two, we were all geeks. Our drive wrap, we built from scratch, our warehouse tools from scratch. It means there is 99.5% delivery success rate, which in industry it sits in the 80s. Our tech made that work better. We also are not hassles as much as – that seems like a simple thing, but it’s actually a big thing. We’ve been able to combine operators have been building those small distributors of meaningful church for 20 years, and then, no, as you said, how to make it work? Making good money and running it, joined our family. We got people from Amazon and Pepsi who had done this at great scale. We have folks from Squarespace and [unclear] and other places who if they all listen to each other, and that’s not an easy thing and it’s something that we always did work on, but that combination of different skill sets allows you to not assume that the old businesses were idiots because they’re absolutely not. I can tell you how many idiotic things I’ve done. I filled trucks with milk, then it blown up on the highway. They’re like, you can’t do that. Milk weighs a lot. You can split your deliveries. There are so many things that you just need to experience for. We bought a business in Denver and customers are coming up at the door knocking on. I’m like, why are the customers at the door? It’s scary. Because they’re doing a craft beer, I’m like, oh, we need our marketplace to handle pickup at the warehouse. That’s a crazy idea to New York. That would be like, what are you doing? But the rest of the world has, so getting those feedback loops where everyone’s sharing, oh wow, the driver should be able to get rewarded and metrics for hitting things, and throw orders at each other and have fun. All those different pieces together make for actually a more effective solution for the customer and for us. We didn’t invent new Adam, or Graphene, or something. We just got a lot of different thinking, a better model, and then better tech at it.
Pablo:Walk me through landing the first 10, 20 customers, because one of the things that I’m thinking about is, you mentioned this before, these days you don’t want to go in and sell something that make you 3% better or 10% better. The flip side is when you sell those things, the barrier to try it out is pretty low. Sure, the value might not be that high, but it’s like, yeah, whatever, I’ll try it. In your case, you’re going in and being like, let me handle all your operations. <laugh> Forget about your distributors, forget about all your stuff. I’m going to take over. If it works, that sounds great, but that’s a big risk. How do you get those first few customers to jump all in with you? Or how did you structure it back then to maybe lower that barrier?
Dane:I think there’s a split in that world. You need some customers that you are friends with, confidants with and can express things. You then need some customers who don’t know you at all, who you can sell without your personal input to see how they actually react. Those first set of customers are stupidly important. I heard one other podcasts, a founder saying that they just paid them money to use a product. We do very much the same. We have at every company. We’ve given advisor shares out for every company I’ve ever been for those first customers to be engaged. I literally walk their dogs and spend <crosstalk>.
Pablo:No way. Is that real?
Dane:Yes, and be there. Show that we care. If we won one of our first customers, we screwed up and didn’t put the order in for pastry. I went and cleaned out all the other bakeries, and then brought the pastry. Luckily, having to run into the owners, walking in with all the replacement pastries and like, okay, they really wanted to work. Those customers, I have them still as friends from the last five companies, and the friends I made here are really valuable and I hope to have going on. Then you have the customers right afterwards, which is like, just see if the solution sells itself, and it actually doesn’t auto sell. The way that I thought it would [unclear] could be like, it’s amazing. I’m going to get rid of everything. I’m just going to move on to this. I’m going to save money everywhere. No. Are you sure this works? Really? It would steal stuff. Something’s going to happen. There’s going to be a technology service fee for two grand that I get billed like six months later. They’re like, there’s got to be a gotcha. The customers would move over two vendors and watch us, and then they’d move over three vendors and watch us, and four vendors and watch us. They had a different behavior than I expected, but it still had that impact. It ended up selling itself. The thing that we thought would sell to was the technology on its own. Nope. You gave me an amazing portal, like don’t have to go through 300 invoices. Have it all consolidated here. No way you’re spending your money. But when you go and you’re like Oatly [ph] is cheaper, oh yeah, cool. Then when they’re using the technology, like, oh, it’s super easy and it works out great. I love the portal. Can you add this button to make the- they love it afterwards.
Pablo:Why do you think that is?
Dane:It’s unrealistic to expect someone who’s holding the whole world together with their own time and energy to figure out the returns, and if you’re telling the truth. So many people pitch small business, it’s absurd. They literally get piles of emails, and mails, and everything today being like, I’ll save you this, and you do that, and everyone thinks it’s all lies. I still have small businesses, and I think all those spams are lies. But when someone says, I can get rid of this bill from the IRS, okay. If you actually can, okay, I can make your Oatly cheaper, because it’s an instant return. No, there’s no long-term calculations, no inference that a large enterprise can actually spend the time to figure out small businesses can’t. I’m always encouraging when you develop your model to try to find out how it is. Replace them of existing cost or something very provable so the business doesn’t feel like they’re exposed in the risk, and that you’ve taken that on yourself.
Pablo:The other way I’ve heard this expressed is you want to meet customers where they are. The reality is if you think about the average coffee shop owner, are they thinking about putting all of their invoices in one system to see them all? Not really, but are they thinking about something they bought yesterday that they wished was 5% or 10% cheaper? Or are they thinking about switching vendors? Yeah, they are. When you speak that language, you’re right away talking about something that, like you said, clicks. It’s top of mind. It’s the language they already get. You can save me 10%, 20%, and it won’t affect quality. They have a no-brainer, let’s go. Then the other value is why they stay, but they see that later.
Dane:Yeah, 100%. A small business doesn’t know how to factor their time. They don’t want to calculate all that in. If you come at them with an extrapolated return, it’s unintelligible. You come at them getting rid of the problem they have in a way they can access because most people go into small business, particularly coffee shops and ice cream shops, and the customers we have because they want to make people’s lives richer. They want to make the community richer. They want to spend time with the customer, and their staff, and inventing the next ice cream or the next kind of thing. Don’t want to be worrying about their supply lines and their choices. To them, that’s all just muddle, and it’s an ugly muddle that I want to deal with. If it’s cheaper and I know I’m saving money, and now I’d take that five bucks I saved in that Oatly and I’d put it into my kids’ college fund, or I replace the light bulbs in the bathroom. I can instantly get return off that.
Pablo:Before we close here, I want to touch on one more story that you’d mentioned earlier, and maybe you can walk us through it. But my understanding is there’s a point at which you maybe overhired or just hired a lot of junior more interns and used them to fix a lot of different things that weren’t working all that well.
Dane:Potentially better now because the capital’s gotten much more constrictive, but it’s certainly a red flag as a technology company. What happened to me in this scenario was we were scaling, and this is even the AI chapter, and I walked by one of the conference rooms and there was like nine people in there all hammering away. They’d had to hire interns to fill in orders and get things clarified. That was, oh, shit balls. First, we’re burning money. We’re solving a problem with money. We’re literally duct taping the world over with money, which is very hard not to do when you have a lot of money as any kind of human being. Second, there’s something fundamentally wrong with a solution when you’re trying to make everything automated and successful and you default into this process. That means that you’re culturally.
Pablo:Was this, by the way? Where were you in your journey? How many people? How much did you raise at this point?
Dane:Probably raised another 10 million at that point and we were still small, maybe 30-person, 40-person team. We came out of COVID with 15-person team because we didn’t know if the industry was going to be around. We started with 50 customers in 2020 and had 600 by the end of the year. It was mind-boggling. But at that point, actually we didn’t have interns. We’d used COVID to build technology and we saw our mistakes a year back when we were trying to do all your tech. I’ll say this for operators, like it’s very tough as a founder, you get this imposter thesis. Why am I here? That also affects the way you make decisions, and sometimes you get swayed by your team. I would encourage, whenever your instincts feel like something’s wrong, because sometimes that’s all you’re going to have is your instinct is that you not aggressively scream at people and all the rest, but you ask questions. You try to figure things out because those little nicks add up and they weigh you down as [unclear. You have to get on things as fast as you can as an operator.
Pablo:Let’s end it there. Let’s end it on the two questions that we always end on. The first one is, and this is for Odeko specifically, when did you know that you had true product market fit?
Dane:I think that empirically, you could see it in the growth data sales without a sales engine, sales without marketing, just sales because the product made sense, that an inflection rate was obvious. I visibly thought that we went to a coffee conference. I was wearing Odeko t-shirt and I don’t think I got around 10-feet before I got my first hug, making a difference to somebody. I have my Squarespace t-shirts and I’ll still get a like, oh, I made my site. It’s so cool. But when it’s someone that’s actually now making money in their business, it was, okay, this is not bad for the use of lifespan, but it’s different for everybody. I would say don’t use funding. Don’t use hiring. Don’t use your pretty box as your symptoms of success. <Laugh> Those are all number of employees, worst one possible. It really should be something where you can feel the impact.
Pablo:Number of employees, it’s funny. There’s vanity KPIs, and there’s vanity KPIs, and especially I remember as a first time founder being like, oh my God, we made this hire. We made that hire. <laugh> You’re not chasing the right things. But just to your point earlier, walking around that conference and having people hugging you, you have to be founder of experience feeling. But for me, the most rewarding feeling of being a founder is having an idea and seeing it transform into real life. Obviously, that idea changes, but there’s a point at which it was just an idea, and you know because you were involved and you were the leader of that. Then to see it actually happening in real life, that feeling is second and none.
Dane:Everyone listening, this is a first time in history that you can have an idea, and in a number of years, humanity has felt it across the globe in your community, on your street corner. The fact that it’s possible to invent and change world, it is the most addictive applause you could ever have. It’s almost unimaginable. Something in your head years later is a living thing making the world different for.
Pablo:The last question here is, and especially for you having done as many startups as you did, being part of so many journeys, what would be some of your most important, most common advice for early stage founders that are right now in the trenches, trying to find, let’s say product market fit?
Dane:There’s a lot to them and I keep a journal. But I’d say for the early stage founder, understanding their own why, why they’re there, who they’re trying to help, what they could see the world as, because that will help provide the fuel source, because It is a gnarly, as you know, it’s such a hard job. It teaches you so much. It offers so much reflection, opportunity to grow, but you need a source of fuel. The more you continuously connect to, I want to make that person’s life better. I want to make the planet better, or whatever it may be, actually more you will fuel yourself, and thus the people around you, and thus your customers. It can get lost. Or sometimes it’s not always bad, but I’ve known plenty of founders like, I want to be rich. It’s actually not the worst thing. There are plenty of rich people who want to be rich, and that’s how they got rich. But then just be honest with it, like, I’m here to – whatever it is. Try to find that center to yourself. It really does work in the long-term.
Pablo:Perfect. We’ll stop it there, Dane. Thanks so much for being on the show. It was an amazing episode.
Dane:Thanks, Pablo. I really enjoyed it, and thanks for doing these things. They help the world.
Pablo:If you listened to this episode and the show and you like it, I have a huge favor to ask for you. It’s actually a really small favor, but it has huge impact. But whichever app you’re listening to this episode on, take it out. Go to a product market fit show and leave a review, please. It’s going to help. It’s not just going to help me to be clear. It’s going to help other founders discover this show because the algorithms, whether it’s Spotify, whether it’s Apple, whether it’s any other podcast player, one of the big things they look at is frequency of reviews. It’s quantity of reviews. The reality is if all of you listening right now left reviews, we would have thousands of reviews. Please take literally a minute. Even if you’re just writing like, great podcast, or I love this podcast, whatever it is, just write a few words. Obviously the longer the better, the more detailed the better. But write anything, leave 5 stars, and you will be helping me, but most importantly, many other founders just like you discover the show. Thank you.
