How Customer.io Grew from $1M ARR to Millions in ARR and 250 Employees Over 12 Years (Interview with CEO Colin Nederkoorn)

Introduction of Colin Nederkoorn

Nathan Latka

00:00It's my pleasure to introduce our next speaker, Colin Nederkorn. He's the founder and CEO of customer.io. So welcome, Colin.

Bike ride story and path to founding Customer.io

Colin Nederkoorn

00:15>> When I was in my mid twenties, I rode my bike from San Francisco to Boston. And it was about 4,000 miles and took fifty seven days of riding. And that was a great time to go through a transition and kind of figure out what I wanted to do next. And while I was riding, was applying for product management jobs. And I was expecting to move to San Francisco. I had like sold all my stuff, packed some

00:41>> boxes, and shipped them all off to San Francisco. And then I got a job in New York. And so I had to go to San Francisco, get these boxes, and then ship them back to New York. And in New York is where I met my I went from like one product management job to another product management job. And at that second one, I met my co founder and started customer.io. And twelve years later and it's been

01:07>> like beyond my wildest dreams in terms of how the company's done.

01:17>> And I've attended a bunch of talks like this where someone tries to share their lessons. And most of the time, I like listen. I'm like, yeah, I'll remember that. And then I make the mistake myself. And I sort of remember the talk and remember the lesson. I'm like, I sort of I think the best I can hope for is that you feel a sense of affinity or closeness with me when you make these same mistakes. And

01:41>> if you avoid them, great.

Talk overview: lessons from $1M to $10M ARR

Colin Nederkoorn

01:48>> So the period of time that I'm going to cover in this talk is from one to ten. I'll talk a little bit about the first million.

02:02>> But this is the period in the colored area that I'm going to talk most about and where we made these mistakes.

02:11>> And so over the next twenty minutes, I'll briefly touch on our founding story, talk about some of the decisions that we made and what I think we got right. And then when I talk about the mistakes, there's three categories of mistakes and then three mistakes in each category. And then I'll briefly touch on 10,000,000 plus, but actually just curious in the audience, how many folks here are below 1,000,000 in ARR?

02:44>> And then one to 10? Above 10? All right. Cool. So yeah, this is like targeted at the one to 10 folks, I guess on the earlier stage of one to 10. But hopefully there's some lessons in here for everyone.

Audience poll and target stage

Colin Nederkoorn

03:05>> So,

03:07>> in retrospect, it's probably no accident that I'm still working on this business after twelve years. And I think there's a bunch of decisions that we made in the early days when we were trying to figure out what type of company to start. And so we came up with this criteria. We wanted to build a SaaS business because everyone knows, especially in this group, SaaS businesses are awesome. And we wanted to sell to our peers. And we

03:34>> wanted it to be connected to a company's revenue so that if there was a downturn, people wouldn't turn it off. And so we focused on the product was originally focused on helping people get more customers from like free to paid. And we wanted it to be technically hard because that would keep it interesting.

03:57>> And so the original product emailed people based on what they did or didn't do in your application. And the technically hard part is to make sure you're confident enough in what people didn't do. Because if you look at analytics products, especially in this era, 2012 when we started, a lot of them are doing sampling. And you can't sample in order to send an email message that's like perfectly targeted.

04:25>> And so, we started, we our goal was to get five companies paying us $10 a month. And so we started in April 2012 with those five companies. And as I was preparing for this talk, one of those companies is still our customer today, and is like a 100 ks LTV plus. So it's like, it blew my mind that they're still around and still on this revenue chart. So fast forward two years and we get to a

Founding criteria: SaaS, peer market, revenue-connected

Colin Nederkoorn

04:59>> million in ARR. And basically, the story growing from one to 10 from the product point of view obviously, it got a little more refined, a little better. But we were still giving people the same fundamental value that we were going from zero to one. We added these things like sending a transactional newsletter or sorry, a transactional email, which is a little bit easier than a trigger based message. And then sending a newsletter which used the segmentation

05:29>> that we had built to send triggered messages except you're just sending it to the group all at once. And so we added those and, but really that fundamental thing that we did for companies was what helped us scale from one to 10. And there's also a ton of mistakes in here even though the revenue curve looks a little bit smooth. Tons of mistakes in here which is why you're at this talk.

05:54>> So the mistakes that I want to talk about, the first category of mistakes are these things that don't make the beer taste better. If you haven't heard that quote before, it's from Jim Cook, who's the CEO and founder of

06:14>> Sam Adams, or the beer company behind Sam Adams. And basically the idea here is that you want to spend as little time as possible or as little effort as possible on the things that don't make the core customer experience better or the core thing that customers value better. And as much time and effort as possible making that, improving that. And so, easy way to remember it is focus your thing, focus your effort on things that make

06:41>> the beer taste better.

06:44>> And then people, people problems are always going to be there. So I'm going to cover three that we made in this stage. And then the other mistake that I made was thinking we could do it all ourselves and not looking outside of the business to get some help from other

First customers and reaching $1M ARR by 2014

Colin Nederkoorn

07:08>> So first up, things that don't make the beer taste better. This is a picture of a bridge. It's the Monsignor Langelois Bridge in Quebec. And we had our servers in a data center in Quebec. Because early on, we thought that it was more much more cost effective to be on bare metal, really beefy servers.

07:33>> And

07:36>> we put them in Quebec partly because, well, we thought like if you're a European company, maybe it's like okay to have your data in Canada if you're worried about it being in The US. And if you're in The US, you still have like good latency between The US and Canada. In any case, the reason I know about this bridge is the fiber got cut. And our very cost effective servers didn't have a fat enough pipe as

08:04>> backup, so they were totally inaccessible. And at this point, I think we had a few 100 customers, but all of the data that they were sending us was not making it to our servers. Fortunately, we were using AWS in front of these servers, so we were like queuing up the data. But I didn't expect to be having to think about physical infrastructure and learning about, you know, how long is it going to take to splice a

08:33>> bunch of fibers that got cut. I don't even know if it got cut above the bridge or below the bridge, but this stuff shouldn't be the things you're spending your time and energy on as a company just trying to get started. And so, you know, it took a while. We had a bunch of other issues at the data center which I won't cover today. But we ended up moving to Google Cloud eventually and realized that our

08:59>> customers don't care where we host. They care that it's super reliable and the servers stay up and running.

09:08>> And the next

Mistakes overview: things that don't make the beer taste better

Colin Nederkoorn

09:11>> thing we did that didn't make the beer taste better was picking this amazing distributed data store to use. And it was a closed source database. We had all these requirements we were trying to fill. And we ended up picking a database that was essentially like a single database, but you could throw as many servers as you wanted at it and it would just scale up. And this database company ended up getting acquired by Apple. They didn't

09:41>> renew our service contract. And so we encountered this issue where we were trying to scale up and the entire cluster fell over. And we couldn't, you know, it was really hard to get support because the company had been acquired. And I'm sitting there at about hour six of twelve, thinking about the letter I'm going to write to our customers. We have millions in ARR at this point and we have no path to recovery. We don't know

Database mistake: closed-source distributed store acquired by Apple

Colin Nederkoorn

10:11>> if this is going to come back. And I'm thinking about like, we're probably going to have to shut down the business and what am I going to say to them that we can no longer service them and we can't recover. And fortunately, I was like reaching out to people on LinkedIn and eventually got someone super experienced on the team that got acquired to help us recover. But it took us, because we were on this like really,

10:39>> I mean it was amazing tech, but because we were on this very special technology, it took ages to, we had to rewrite our entire backend in order to migrate off of it. And now all of our customers, every customer has like a MySQL database backing up their work. We don't need a distributed database to do our service. And it's way more reliable. And interestingly, when you have a distributed database, you actually have a single point of

11:05>> failure. And now, we don't have a single point of failure for any or every customer has a single point of failure with backups of course. But you can't like take out our entire customer database.

11:20>> And then, I'd say the last mistake we made super early on was at this time there was this proliferation of all these JavaScript MVC frameworks. And we decided to to bet on one. And in retrospect, the lessons I learned after we sort of gone through it was, well, we were on it before version one. And the difference between version zero point something and version one was so significant that we had to rewrite our application. That's not

11:54>> something you really want to be doing. In addition to that, when we hired folks, either they had to be experienced this technology or we had to train them up. So the onboarding time for new engineers was longer. And then even though it's gotten some decent adoption over the years, like it's still not it didn't take over the industry. So we're on this technology. It's still in our stack. But as our products gotten more mature, we tried

12:24>> to diversify away and pick other technologies that are kind of easier to get started, people are more familiar with. And

12:34>> yeah, think that like ultimately everything we imagine that like, oh, this will help us build a more responsive application. It'll feel more like a native app. Customers didn't care about that. Like they just wanted to use a CRUD app and for our servers to like do the hard work behind the scenes. They didn't care about the interface as much as we had expected. And so those are all the things that don't make the beer taste better.

13:02>> And these are my people mistakes. So I think that mistake here is not either one of these. Not you need scrappy people or you need like systems builders. It's that both are appropriate for a different stage of your business and a different part a different time in your business. So when you're just getting started and you need like your you know, you need to spin up your first sales contract, A scrappy doer is who you want.

JavaScript MVC framework bet and rewrite cost

Colin Nederkoorn

13:32>> That person will just get it done and figure it out. Or you're trying to get a new hire your first like hiring process figured out. That that person's great for that. And when it's time to scale up and that scrappy process starts breaking, they won't be able to tell you that. They're going to continue doing it that way and continue approaching the work that way. But the way you figure out that you're not doing it right

13:56>> anymore is you talk to people who are, whose businesses are a little bit ahead of you. And you talk to the people in those roles and then you realize all of the things that you're doing wrong. And then you have to replace that person with a systems builder. And that person, it's not, it doesn't make sense to hire the systems builder too early because they probably need a team around them to help them accomplish all the

14:22>> things. But like you can't scale by being scrappy because it just doesn't work. And everything breaks and people get frustrated. And so, you know, of these work. It just totally depends on where you are in the maturity of that part of your business.

14:41>> And then a mistake that we made for probably way too long, and I feel like I'm on the other side of not valuing sales. But in the early days, like we wanted to build a business like Mail Chimp that was all self-service. And people would send us emails and say, hey, I can I talk to someone? And I would get on the phone with them and they would ask me about the product. I would understand their

15:08>> business. I would help them understand if we were a good product for them and if we weren't, I'd sort of like send them somewhere else. And I didn't realize at the time but this was sales. And when we tried to ramp up this process, I created I hired people who were salaried and I called them onboarding specialists. And you know, were sort of order taking as people would like come in and want to buy and want

15:37>> talk to someone. And it took us many years to get from that and in many our incarnations to what we have now where we have a more traditional sales process with account execs and you know, have a Chief Revenue Officer. And our sales process is way more typical now. But it took me way too long to just get, you know, get to the understanding. And if you're there now trying to figure out how you're going to

16:06>> reinvent how people buy from you, stop. Like, just call it sales is my advice.

16:14>> And then the last thing, which is sort of not inside of your business, but we got bitten a little bit by this like not understanding the people outside of your business and your customers. One of the things that happened to us a lot is that as as our customers got bigger, either they they started small and they grew really quickly, or we acquired larger customers, they were more complex organizations. And we'd find that, especially the growing

16:46>> ones, they'd hire a VP of marketing and then rip out customer IO and want to replace it with something else. We didn't have any connection inside of the organization. And so this always caught us as by surprise. And I think what's what's on screen is maybe when Shopify canceled with us. So they were like our largest customer back in twenty thirteen, fourteen, and then canceled, I think this is in '15. And you know, I think like

People mistakes: scrappy doers vs. systems builders

Colin Nederkoorn

17:16>> after this happened a bunch of times where we kept losing our largest customer, we created customer success. And now the job of, one of the jobs of customer success is to have the pulse inside of the customer, inside of the customer's company to help us understand when things are not going quite right or when there's a risk of change and or risk of cancellation so that it gives us time to address the, whatever the issue is.

17:46>> Now this this team in our company is about 35 people who are who are CSMs today.

17:55>> And then the we we tried to do it alone a bunch. We tried to go alone. And in our first year towards the end of 2012, we almost ran out of money. And I tried to raise over the like November December period. And BC's gone holidays, like angels go on holidays, like everyone's on vacation from Thanksgiving to the New Year. And so it's like near impossible to get anything done then. I didn't I didn't realize this.

18:25>> And that experience of like this, the business being so new and almost dying made me not want to rely on investor money in order to stay alive. And so it was really important to me to be, to get to cash flow break even as soon as possible. I think that the mistake that we made here is we had a really complex product that required a lot of people. That I think the size of our team now,

18:53>> 250 people, it feels really comfortable to run the business now. But back when we were 10 people, everyone was burning out. Everyone's like exhausted all the time. Our product needs to be on, you know, up and running and performant 20 fourseven, three sixty five because we're mission critical for our customers'businesses. And basically like by when we didn't raise, so the chart that's up here is something that I came up with called the strap ratio, which

19:23>> is how much money have you raised total divided by where's the revenue. Like what's your ARR in your business. And I think that for me, super early on, it's not healthy to be below one when you're like trying to invest in building all of the stuff that you need in order to build a scalable business. It's fine. Like you want to be there later on because that's, it's not good to just raise a ton of money

19:51>> and then never make ARR that justifies the amount of money you raised. But early on, you can really hold your business back and stop yourself from scaling by not having the team and the resources around the company to do that.

20:08>> And then, I also didn't formalize a board until '27. I was like, I think like most first time CEOs, I had read these horror stories of VCs firing CEOs. And I was like, I don't want that to be me. And so I resisted the idea of having a boss. We did like party rounds of investment so that nobody had too much skin in the game. But by twenty seventeen, five years in, I really wanted a boss

20:33>> and I wanted someone else looking at the business from the vantage point that I was looking at it. And so we started doing this quarterly board meetings. It was hugely valuable. And I it's like my favorite thing now is to prepare for and go to our board meetings because I was deliberate about the board that we created and really enjoy the people that that I work with there. And then the the last thing which I didn't

21:00>> do soon enough was getting a peer network of CEOs around me. I think about two years ago I started meeting with this group and CEOs are all around the same size as us. And you know, we talk about our challenges together. We cheer for each other. It's like amazing. We get together a couple times a year. But I've known all these folks since before we had 1,000,000 in revenue. And we could have been doing it earlier,

Not valuing sales: onboarding specialists vs. account executives

Colin Nederkoorn

21:29>> but I didn't make that happen and I was sort of living in my own head for a really long time. And you know, I think it's great to meet other CEOs and stay connected with them. So I think I'm out of time. So this part, if you want to learn about all the mistakes we made here, you'll have to come to my talk, Mistakes from 10 to 100,000,000. But I can tell you like the

21:56>> one thing that you'll need to figure out when around about the time you get to 10,000,000 is what do you want from from the business? Because at about 10,000,000, you could sell unless you've taken a shit ton of money. If you're bootstrapped and you get to 10,000,000, incredible. You can sell the business and it can be life changing for you. But if you keep going and you keep building, there has to be some other reason. And

22:21>> for me, the reason is the opportunity to like make this a much bigger outcome for like everyone on the team. And I get I get to enjoy working with a really talented team of execs around me. And we're fortunate to have this like business that seems to keep scaling. And so that's the why for me and also making like a massive impact for our customers and on the industry. So that's my advice. Figure that out by

22:55>> the time you get to ten and it'll help you be clear on what's the outcome you want to drive for. So over the past twenty minutes, talked mostly about these mistakes that I made from one to 10. And

Losing Shopify and creating customer success

Colin Nederkoorn

23:13>> thanks.