How Outbound (acquired by Zendesk) CEO Josh Weissburg grew to $360K revenue and 100 customers in 2017.

hello everybody my guest today is Josh Weisberg he's the founder and director of go to market at outbound a customer communication technology acquired by Zendesk in May 2017 he challenges businesses to rethink communication with customers by centering marketing sales and service teams on the human relationships they can build using this customer data Josh are you ready to take us to the top let's do this all right tell us about outbound we'll focus outbound first then acquisition and then more about strategy inside of Zendesk so when did you launch outbound and what does it do for folks yeah so we launched it in 2013 and my co-founder Dhruv and I basically realized we were both working at Getaround which has been like Airbnb for cars basically helps people do do car sharing and we needed a tool that was essentially a marketing automation tool so we would have these car owners who would get stuck in the funnel and they would take certain steps but not complete go all the way through and we looked at all the marketing automation tools on the market so like our exact target and Marketo and a lot of last generation tools and we just were not happy because they were based on email and they were based on lists and we wanted something that was based on the actions people take inside a product and they could communicate across channels and in 2013 not much of that existed the markets exploded for those tools now so it's a really interesting competitive space because I think a few of those oh man autopilot intercom does some of this lean plumb does it app boy does it yeah so there's lots of new new competitors in the space but but our core innovation was using events so we realized customers don't need to use lists as much anymore they need to use the actions people take inside a product could be a mobile product could be a website could be a server-side event but basically we wanted to use actions instead of lists to figure out what messages people should get and and that's the hardest thing for people I mean I come from the world where people brag about their list size the problem is when they send a blast out like 1% opens but these people that understand one how to track events in their app like air I just signed up I just bought a new investment here in Austin it's an Airbnb the onboarding air is incredible I mean they'll know when you stop part of the onboarding and email you the morning after and say what happened last night did we lose you you know and it's incredible so you out helps folks do that kind of stuff that's right that's right and that was the first phase was just understanding like people need to move from lists to to actions so that you're you're sending a message at the right time in the customer lifecycle and then when we've had events coming in we realized we can use those same events to figure out do these messages work yeah now let's what people do yeah let's yeah let's keep talking pre May 2017 so before any acquisition just to make your story easier there in terms of paint like business model this is this a typical SAS model yeah it was a SAS model I think when we started out we didn't quite know where's where are people gonna find the value so when you're figuring out pricing you're figuring out business it kind of where's the value coming from that's always an open question is what is the pricing unit what are we gonna where do people derive value from this product and I think you know we kind of felt around a little bit and a lot of other products we're using list size so we're using how many contacts do you have and for us our big innovation was it's messaged users so how many people are actually getting messages and it doesn't matter to us how many messages or what channels so we'll take the number of messages off the table we'll take your list size off the table it's just about how many people are you actually engaging with and what are they doing because of the messages so that was our subscription model that's great interesting and can you give me a general sense the size I mean are we talking people on average paying 10 bucks a month or a thousand a month or 100 per month yeah when we started off you know we wanted to make a self-service product which is actually one of the reasons we ended up at Zendesk is that they have that in their DNA too it's really hard to do so we have an epi integration and everybody of course wants to start off no sales people will just build it like Atlassian we don't need any salespeople and you know eventually we realize that the API integration is a big hurdle so you need to help people over that hurdle and at first it was cheap and so we were self-serve and then we realized over time we need to be more sales assistant and now we're actually trying to move it back towards self-service we're trying to lower the price point that's always been our dream is that we can get this product out there and we can give it to everyone yeah I'm at different levels of sophistication but we started off you know and you were paying I think when we started off with launch it was under 100 bucks a month for our first couple customers and now you know it's it's definitely risen to at least a few hundred dollars a month for most businesses that are using us and some of them are paying us much more than that so Holliday 300 ish on average yeah I mean it varies by varies by industry and varies by use case but yeah there's kind of a lot of growth stage companies who are probably paying somewhere around there and then more again of the back story here pre-acquisition did you bootstrap the company or raise and if you raised how much yeah so we raised 2.1 million in an initial seed round and then we did YC after they rejected us the first time but we got Gary tan on board and he was just terrific investor and kind of rallied around lots of people so his fund initialized he's a YC partner and and it brought us back into YC at that point and we're able to use those relationships to get our first kind of growth stage customers we got insta card and we got door - and some other customers using us and really like feed us those use cases and help us to grow in the right direction so to stay ahead of competitors in the space based on what growth stage companies needed and that became our vertical is what do growth teams need and we were the the lightest tool we were the most powerful event based tool we could do a/b testing we could do cross channel and those growth marketers they became our bread-and-butter and really kind of directed our product for us what did your again pre-acquisition what did things like churn look like hmm I think you know it varied a lot I think the biggest lesson we learned around churn is is that you need to find that you need to find the persona who will stick with you and I think early on we had some customers who did churn who expected that list based tool and when we found the growth marketer who was ready to do the API instrumentation and who knew who was ready to kind of track all the events send them over to outbound and really invest in the tool churn lowered a lot like from white to white can you quantify that yeah I can't show the numbers now because we're part of a you know public company that's I'm saying can you do it before like what how many percentage points were able to get churned out when you made that change you know I would say we reduce churn probably we probably cut it in half Wow when we were able to get our persona right so before you know we had differently had apples and oranges we people who wanted to send email blasts we had people who wanted to send onboarding messages and then we had developers who were just looking to set up transactional messages and when we figured out okay what is the mix of people who can actually use this product and use it consistently then we at least cut it in half probably probably more than that and are you were you directly in line with kind of most healthy SAS companies I'm talking you know sub three percent monthly logo churn is that fair to say I think yeah by the time we dialed it in we were we were probably a bit better than that and you didn't have a ton of you know some of these companies that are doing you know 100 million an AR that I've had on they have really aggressive kind of upsell customer flows and their expansion revenues crazy but their price points are way higher I imagine that wasn't a big part of your playbook you were looking at spread not depth that's right and I think one of the things we realized is um if we give people a couple of really valuable use cases and we start to small we will grow those use cases over time if the product is good enough and you can see hey I can send emails I can send push notifications and every message that goes inside outbound I'm gonna be able to evaluate what people do because of that message that was a strong enough poll factor that it's like well we're sending some other messages in SendGrid let's put him in outbound we're sending some other messages you know with our in-house push provider let's put those in outbound and so so we were relying on that kind of poll rather than pushing a strong sales process and I think we'll continue to do that few more economics questions here before we move forward to kind of post acquisition days what did you like to keep kind of payback period to in those days when you're adding customers you know I think that was something we always were we're looking at and we're observing so what is our payback period you know what kind of how long does it take us to get the cash back in the door I guess what you mean but because we spent no money on marketing so we what we did is we built this tribe of 10 initial customers who really really loved the product and then we didn't spend money on on marketing it was a team size though how many folks were marketing and sales are onboarding we had a team of five total we built some total oh we built so much product with those five people that we were able to basically punch way above our weight and now as we develop the business if we hadn't ended up at Zendesk of course we would have had to invest in some of these things we would have needed to do marketing you do need to do that at some point but we were able to keep stay so close to the customer and build so much product that then you know we kind of had options around that so so payback period we never worried too much about that given where we were as a business because basically we were getting word-of-mouth yeah and yeah so even if you did spend you know a dollar or ten that you were getting it back instantly right because you didn't really have any spend yeah and you know we had we had core expenses and we were all stretched really thin Yankees had forever so you know we were one min Army's heading up different divisions each of us but and I should say we went through to get to those five people we probably went through at least ten people so it was this thing where we needed the right people in place to be able to run with that model but that's how we got profitable and that's how we that's how we ended up with with options and who is we like did you have one or two other co-founders yeah so my co-founder Dhruv yeah so Dhruv Mehta was worked with me and get around it was just him right nobody else that's right it was just the two of us and one was less five are included in the five included in the vibe so it was in truth and then three other three other books that's really really great and then again right up to before you sold what were able to go your customer base - how many folks yeah we had more than 100 companies using us of different sizes and we had pushed pretty hard upmarket in the year previous to to joining Zendesk so there was kind of a mix of growth stage and early stage companies that we'd had in the years previous and then we were able to grow and we did a pretty big re architect in 2016 and basically we got into that that very stressed stage where you sell up you know to customers that you're not you're wondering can I service these people I hope I could service these people they asked them a bunch of custom implementation Oh God and we had to redo the stack and we had to move out providers and do all those kinds of things but we were able to do that with the team we had and we got to the size where we were we were closing really like I would say almost Enterprise size customers with our stack and so we knew we had we were good at that point and again up to at building up to the acquisition what were you looking at in terms of growth rate year-over-year at that point um I'm not sure that I can share numbers for kind of what our what our growth rate was but it was definitely we went through kind of an acceleration period I think after YC so we did the class of 2015 winter 2015 and that really kicked it into higher gear where we were we probably drove doubled our growth rate after that got it okay I mean so I mean we're talking like well at lower numbers like well I don't know if there are low numbers but you're not doing a hundred million a year but I mean you're able to weigh more than double year over a year pretty easily right yes yes definitely and and and you know one thing that I learned from YC is that if you can pick a the whole mantra is is kind of you can grow some metric that's very important to the business 10% week over week then you know you're having some success and so they would just kind of pick the metric and then they will rake you over the coals every week and say how are you doing on that metric and that's it that's a lesson we absorbed and we were able to kind of keep keep doing and saying okay what is it that we're growing yeah and that led to our to our acceleration and growth yeah I want you guys to really take that lesson home because the theme I see whether you're a entrepreneur just starting out or you know the guys you know what qualtrix about to go public they know the one metric that they've got to get these users to hit in the first seven days like using write to drive growth and if that things not growing you're cooked a lot of people that I've seen they don't they don't even know one they don't even what that metric is or if they do know Josh with that metric is they lose focus on it they want to do more stuff every week instead of improving incremental e on it mm-hmm yeah it gives you direction and helps you focus and then it makes you accountable so you look back and you know all these things that you're doing these there's a million things to do all the time when you're a small team and you're trying to build something and you just know am i contributing to this thing or not and it makes decisions easier now you said earlier we're gonna kind of back the napkin here and then move forward post Zendesk but hundred customers you said earlier maybe 300 ish per month I mean you were doing well north a 30 grand per month at this point right sir yeah we were yeah we were definitely about that and so why good remember we've gone upmarket and that you were kind of previous so so there's kind of a bimodal distribution there if you will where we had some smaller customers and then and then we kind of moved into the bigger customer space at that point I mean we can though say pretty active between thirty and a hundred is a fair statement right monthly yeah okay good why exit yeah so that's a it's a good question and one that we thought about a lot in 2016 so I think the first decision that Dhruv and I made together and and and I think was a was a crucial decision that I would urge every founder to think about is you have this kind of so so your investors are always telling you to grow and telling you okay you know spend that money down if you have venture backed and venture backing and they want signal on that money so that money needs to produce drastic results for them for the model to work and I think what's important from the entrepreneurs perspective is to understand you're not in a portfolio you're not a portfolio of 10 companies or 100 companies like a VC has you have your company and we what we decided in 2016 is first we need to get profitable so we're the kind of business that can get profitable and so we kind of figured out what customer mix do we need what's our sales cycle we dialed some of those things in on the b2b kind of understanding the dynamics of our business and what size customer do we need to close how long does it take to close them what are they doing with outbound how big a team do we need to serve that customer base that will get us profitable and getting there which we were able to do in 2016 just opened up so many options for us because we had the option to raise to grow organically or to potentially sell and so when Zendesk which I think has a terrific corporate development function which a lot of companies don't so you end up having a lot of corporate development meetings they don't go anywhere and Bluff like they have a great one and it's actually crap that's right yeah and and and I have to say Ben Barclay who we worked with here at Zen desk you know when he he was kind of poking around in our space and and the thing that immediately stood out to me was that here we were in this market that's super competitive it's a red ocean so I mentioned some of our competitors who were coming up doing mobile engagement there were marketing automation providers there's ton of email providers and and we had you know what we believe are real differentiators in the space but it's hard to cut through the noise there's so much noise in the marketing automation and tool stack space and at Zen desk what we realized is nobody was taking our technology and applying it to customer service and experience teams so those interactions are happening on a one-on-one level and people are writing tickets and then an agent responds to the ticket and there's this very manual process where most companies are still doing customer service customer support that way and what we realized is we built this technology if we paired it with Zendesk which has this huge suite of tools that it can do a really good job at having one-to-one interactions and you can elegantly switch back and forth between automation machine learning some of the things that we had developed and these chats and actual talk conversations and support tickets if you're able to switch in and out of those two different tool stacks elegantly there's a huge market to be created and I think when we saw the size of that market and we got into discussions with Zendesk about that it's really exciting to us now did you raise that 2.1 million on a safe or were there any like crazy liquidation preferences or anything it was it was a convertible note initially we kind of had a first tranche it was a convertible note and then after YC we did safes because that's just the way that YC kind of does every day don't have liquidation preferences in those right no they don't yeah yeah I mean I'm I mean part of why I'm asking this is I'm trying to understand you had to have created and credit to you and your team immense leverage from something because if and this is obviously a minimum right but if you were doing 30 grand a month that's 360 a year right but you raised 2.1 for that to be a decent exit for folks you've got to be selling for I mean like double or triple right what you raised so you're looking at well over 10x multiple you created serious leverage somewhere and I'm trying to uncover what that leverage was and I think that's exactly right so I think what we realized there's different way I'm on give it give it to me what's the leverage so if you if you poke around Zen desks financials you can probably figure out exactly what the leverage is but but I think you know I I think what we were able to do is make a decision not to have not to raise a lot of money and try to and try to kind of claim a really high valuation but rather to build a lot of product and we were able to do that in a space where we could solve some difficult technical problems that could then the biggest lesson I think I took from this experience is that we had thought about pointing our infrastructure at the marketing landscape Zendesk came along and was so valuable that your value in an acquisition is what can this particular company do with your technology and how can they apply it to the hundred thousand existing Zendesk customer so there was a pro forma somewhere that said we are expecting about 10 percent of the 100000 to pay at least the $20 month price and boom boom boom saves us a year building it blah blah blah that's right that's right and by people by you for you know your product your technology they buy you for your distribution and we were product a lot of product it was getting married to really good distribution and Zendesk has a really kick-ass suite of products itself in a different space yeah and so putting those together just created so much leverage and I actually still believe you know synergies really hard to find actual synergy and I still believe that after being here for six months it's it's real it's it's there is it so handing I mean usually these usually these BD guys these corporate dev guys when they put that Proform wear together to sell it internally to the board and they say we expect this much over sell rate in this kind of ARPU increase in our current base with this kind of new tech coming in usually it's always an overestimation but are you guys I mean generally I mean is it panning out and you expected it to pan out yeah I think you know it's always frustratingly everybody wants it to be faster including us you know everybody wants to realize the value but I would say that the opportunity is at least as big as I believed it was when we closed and I would say it's more specific where it was it was it was fuzzy and it was off in the distance now it's really specific so I know why people are gonna buy after spending some time with end as customers now I know why they would buy a tool that can automate a lot of things which were done manually before and last question here before we wrap up with the famous five did you also create additional leverage by actually getting a term sheet from a VC so you had the option to raise if you wanted instead of exiting we were in discussion so remember at this point that we were profitable and so you can't can't kind of run you you know it's easy when you're talking to B C's or you're trying to get acquired to run out of time and that's really your worst time is your worst enemy if you're running out of money you're running out of time you had planning so B because we were able to to pair on bills and we were talking to investors and we were kind of exploring all the options and so that's what gave us the ability to kind of find a really good deal yeah all right Josh let's wrap up here with the famous five quick answers here number one what's your favorite business book ah yeah so I'm gonna give an off-the-beaten-path tribe by Sebastian Junger so this guy the thing I love about this book is that you it's all about how everybody needs belonging and connection underneath all the products and all the things that you think about building every day there's this deep human need for it and it's been in our DNA for hundreds of thousands of years and understanding that at a deep level has helped me build better products number two is there a CEO you really respect or you're following or studying I mean even Shannara of Patagonia this guy just doesn't give a about anything and he changes the world every day he constantly reinvents his business number three what's your favorite online tool besides your own I would say Trello because I go crazy if I don't have a receptacle for all my ideas and the noise in my head so it's just a place to put everything number four how many hours of sleep do you get every night I get eight hours of sleep except when it cuts into exercise and the reason what I realized is it's not about time it's about energy and I need to do things that give me energy so whether it's exercise or whether it's painting or whatever it is you need to find something that gives you energy back and it's okay I think to compromise a little bit of sleep to get that and what's your situation married single you have kiddos I'm married no kids yet no kids yet and how are you Josh I'm 36 last question take us back 16 years what he was your 20 year old self no so yeah so the biggest lesson that I would say I've learned in the last four or five years personally and what-what I wish I'd learned at 20 or before 20 is this idea of abundance mindset versus scarcity mindset so you know you can look at any situation and you can look at it's not just glass half-full glass half-empty but you can literally absorb and recognize the same facts and you can realize all the opportunity that is there in in that situation or you can look at all the things that are missing that are that are scarce in that situation and I read it an article by her name's Katya who wrote for the first round review first round capitals review and I read this blog post which just changed my whole thinking and I think that's been one of the biggest lessons for me there you guys have it from Josh outbound do and his co-founder founded the thing back in 2013 he's adopter this abundance mindset encourages you to do the same they stayed hyper efficient with just five people really focused on product instant payback period product marketing tied to a single utility metric it worked they grew to about a hundred customers 2.1 million dollars raised doing well north of 30 grand per month with healthy growth rate when they exited in May 2017 to Zendesk doubling what well north of doubling yo rear was super healthy economics again now building at Zendesk and trying to go back down the funnel to get mass audiences and mass folks using them on very specific teams Josh thank you for taking us to the top thank you needed