How Proposify Reached $8M ARR and Returned to Profitability After Near-Failure (Interview with CEO Kyle Racki)

Introduction and $8M ARR Context

Nathan Latka

00:00Kyle has built proposed by up to $8,000,000 in ARR. He's gonna dive into how he's done it, tactics that work, tactics that didn't over the next twenty minutes. Please tell me, welcome to the stage, Kyle Racky.

Kyle Racki

00:14>> Hey,

Kyle Sets the Stage: Raw and Vulnerable

Kyle Racki

00:20>> everyone. It's been so inspiring to hear all these great stories from founders who grew from 0 to a 100,000,000 in, you know, two years, five years, ten years. I'm gonna share a story that's a little bit different than maybe some other ones that we heard because I'm gonna be very raw and vulnerable and share a lot of my fuck ups. And hopefully, you'll if if you're before you know, if you're pre 8,000,000 revenue, you can avoid

Decline Begins: 2022 SaaS Market Shift

Kyle Racki

00:45>> some of these pitfalls, and I think some of these can still happen even when you're a little bit further along. So to to kinda set it off, I wanna start with a story about two years ago. It was the fall of twenty twenty two. I was in a state now for a couple of years where I was really checked out of my business. I was really bored. I was frustrated. Things weren't going terribly well. Our rate

01:07>> of growth had been declining year after year. And when the SaaS market changed around 2022 is when we actually started to decline for the first time really since we found product market fit. And I had been going through this M and A process where we hired an M and A banker and had strategics and PE firms lined up to to sell the company because I was just trying to offload it. I was trying to hit the

01:28>> escape hatch and get out while the while the getting was good. But everything kind of happened around the same time. The SaaS market kind of crashed in 2022. Investors and acquirers started getting nervous, and suddenly I had this, you know, what was this big list of potential acquirers all pull out, not get a single LOI from anyone. And it was at that moment where I I really didn't know what to do, and and I was in

Failed M&A Process and Board Moment

Kyle Racki

01:54>> front of my board when they asked me, like, Kyle, do you have the the stomach to keep going? I shed a tear for the first time in front of them and said, I don't you know, I think so. I don't know. But how did I get here? And that's really what I wanna share with people today is some mistakes you can recover from pretty quickly and other ones can you may not even feel the effects of

02:13>> them for a long time. How did we get here? So when Proposify got off the ground, it was around 2014. We started finding product market fit. We started to scale. Things were really fun. You know, it was a kind of a new and emerging space, proposal software, online proposals, interactive quotes, e signatures, that kind of thing. And we were one of the first, like, SMB players in the market who were doing what we were doing with

Early Days: Finding Product Market Fit in 2014

Kyle Racki

02:37>> these highly visual interactive proposals. And then, you know, people entered the space, PandaDoc, Quiller, and some other ones. But, you know, for a time, we were really leading in our category, and, you know, it was at that time growth really felt easy. We were selling to digital marketing agencies. We were very niche down in that, in that market and had a very strong PLG motion self serve trials that was going really well. So around 2018, my

03:06>> co founder and I closed our first round of actual major investment capital. We take 1,000,000 each in secondaries, put 3,000,000 on the balance sheet. It was it was a really fun time. And I think what we started to do was we made the mistake that I think a lot of founders have made once they raise money, which is they try to grow too quickly. They feel this real or perceived pressure to hire headcount and scale and

2018 Fundraise and the Headcount Trap

Kyle Racki

03:34>> build a sales team and go after the enterprise. And we completely fell into that trap. So, you know, we hired enough people that we were eventually around 100 people or so and for, you know, at the time, I think only a 5 or $6,000,000 business. We went after the mid market before we really were ready. We didn't even really know what they wanted, and I'm going to share what started to work there. But I think one

04:00>> of the biggest issues that we had was the speed at which we moved in the early days to build features and ship started to it started to slow down. We started to kind of buckle under the weight of technical debt and legacy that I didn't have an experienced engineering leader who really knew how to scale us past that.

04:21>> But I'll get there. I'll get back there in a second. What I want to share here is, you know, what started to work for us as we moved up market because we had the problem that a lot of companies have. I think we talked, you know, heard Adam Robinson earlier say talking about the 10 churn. You know, we didn't have churn that was that bad, but as with all self serve, you know, small businesses, free trial

04:42>> motion, churn starts to eat away at your growth overall, right? Even if you're at a two or 3%, you really want to get that down low, but it's tough when they're small businesses and it's a low price point. So when we started to experiment with building a sales team and having going after larger businesses, we I made also the mistake of basically just like hire a team and a VP of sales to figure it out instead

Moving Up-Market: What Started to Work

Kyle Racki

05:05>> of trying to learn that myself and try to sell deals myself. But after a few false starts, what started to work for us is, you know, we realized that the product had to change significantly. So larger businesses were mostly interested in like, how does it integrate with Salesforce and do you have SSO and what's your security policy? We we had to check a lot of boxes in order to win deals, and it took us a while

05:30>> to get there. The other big thing was our positioning. You know, we heard, Eric talk about that in terms of Pendo, like how they'd position against competitors, And what we realized was that the customers who bought Proposify to send beautiful proposals and get faster sign off, that messaging didn't really resonate with the mid market because they're like, we have cool PowerPoint decks, like we know how to send proposals. What they really wanted was control. Right? Sales

05:56>> reps using the wrong materials, sending out proposals with mistakes, the management team not really having any visibility into what's going out the door and getting in prospects'hands, that's what they were buying. And so once we shifted our positioning to that, sales became a lot easier. And then the the third really big thing was pricing. So we did, again, the classic startup mistake of like, put everything on the enterprise plan, give it all away. And so

06:20>> we were just capping our ability to sell larger deals. Once we were, you know, moved to a per seat price, that also became easier and we went from, you know, being able to sell at most a $3,000 a year ACV contract up to now where we have a couple in the 6 figure range, but average would be more ten, twenty, 30 k deals. So that started to help us. And when you look at this graph, what

06:43>> you notice is this is the black lines, the total ARR growth of the company. The orange was the small self-service segment, which grew and was, you know, the majority of the revenue for a long time, but then that started to decline and the, you know, the other graph ended up being like stuff that came through the sales team. The mid market deals started to almost reach the same amount in terms of ratio of revenue.

Repositioning and Pricing Changes

Kyle Racki

07:10>> But you know, what was happening was because we raised, we didn't raise a massive amount, but we raised enough and we deployed it too quickly. We were at a point where we were just burning a lot of cash, but still not growing fast enough. We weren't moving quick enough from a product perspective and there was just friction between every department, like sales was pissed that engineering wasn't delivering things faster and customer success were frustrated with products.

07:35>> There was a lot of internal friction happening.

07:40>> As I mentioned, our growth was pretty good during the early days, but really we noticed the rate of growth started to decline and we got to the point where because we weren't moving fast enough on product to stay competitive, you know, Nathan said just before this, it's a competitive space contracts. We didn't feel the effects of it right away, but we were starting to feel this this compounding of really not changing our product a whole lot.

08:10>> You know, we were sort of in this game of like whack a mole where, you know, you we were just in maintenance mode. The engineers were just keeping the lights on, but we weren't innovating anymore. There was no quick way to fix this for for a number of reasons.

Burn Rate and Organizational Debt

Kyle Racki

08:24>> It felt like the more people we added to the company, the slower we got, and I think we were acting a lot more like a big company than we actually were. Right? We had too many layers of management. We had managers with like one or two reports. Like, we we were just buckling under the weight for how small we still were. And so this is the burn chart where you see in 2021, we raised our that

08:47>> was the last time we raised a round of investment and we were just like, okay, let's let's add more people to the company because that's how we're going to move faster. And you can see at one point, we were actually burning 400 k a month, which, you know, it depends on your size. Right? That might not seem a lot if you're a 100,000,000 ARR, but if you're under 10,000,000, that's a lot of money to be burning.

09:06>> You know, the other thing that happened here with with growing headcount too quickly was really like the organizational debt. We talk about technical debt, but organizational debt, cultural debt starts to build when you're not winning and there's all of this misalignment between departments. And what we realized was like our values weren't really serving us anymore. The values that worked in the beginning were, you know, people were reluctant to have tough conversations. People didn't like to hear

09:32>> the word performance or accountability. Right? It was kind of an overly positive culture where people got used to losing. Right? And so we wanted to fix that.

COO Joins and January 2022 Layoffs

Kyle Racki

09:45>> Finally, in 2022, so, you know, around this time, actually in 2021, I brought on a COO and CFO, Kathy, who's who's really amazing, and she kind of looked at what we were doing. We had this huge burn rate. She looked at the growth and she's like, you're running off a cliff. Like, you're gonna be dead in nine months if you don't change something. Had to make one of the toughest calls, but also one of the easiest

10:08>> and most logical calls, which was we had to reduce head count quite substantially. So January 2022 is when I had to cut a quarter of our staff and announce that. And obviously this helped us, you know, longer term just be able to survive and keep cash in the company. But what it also started to do was serve as an organizational shift, if you will. You know, we obviously had less people, so we had to do more

10:35>> with less, but it also meant that people who didn't wanna who weren't on board with that approach, we're gonna move on and we weren't gonna backfill them. And managers moved on. We, you know, we didn't we weren't quick to fill seats because we knew that we wanted to get to break even cash flow and eventually profitability, but we we had to fix a lot in the company first. So we introduced new values. You know, that's easy

11:01>> to say on paper, very hard in practice to model them and actually change behavior within an organization, but we started to get back to our scrappiness that we had at the beginning. Now fixing the product was still very difficult and we still had a lot of technical debt. And really our engineers had gotten into this state where, you know, it was so hard to change things in the product that, you know, you'd spin your wheels for

11:25>> a few cycles, come out with not really a working solution, and just move on to the next thing because you did like, I don't want to invest any more in this. So we had to get out of that.

11:35>> But this is where we get to the point where I started at the beginning, which was at this point, I was so checked out, you know, and I was so demoralized that I just started to kind of, you know, get interested in other things and I didn't really have my head in the business as much.

11:51>> And then, you know, when it when all the doors closed, so when I tried to sell my company and nobody would buy it, and basically I was trying to hit the escape hatch, I got to this point where, you know, there was no other doors to to go through. There was one only one door in front of me, which was like, you've got to fix the business. This is the only path in front of you. And

12:09>> I think in hindsight, that was probably the best thing that ever happened to me because what it did was it reinvigorated me. And, you know, I think a lot of founders who wanna sell their business, you know, they think about what they'll do with that capital in the future. Like, I'm gonna buy a bunch of other businesses and help them improve and help them push through growth challenges. And I just thought, how could I do that

Returning to Profitability in 2023

Kyle Racki

12:30>> for somebody else if I can't even do it for my own business? Right? Like, do I actually develop those skills and get that experience? So I started to become grateful for the challenges. And I thought what better place is there to work fixing an 8,000,000 ARR business rather than starting over from scratch or starting with a much smaller business. So only this week we've been talking about founder mode. I know we weren't calling it that before

12:56>> this week, but that's essentially what I started to do is I started to get my hands dirty again. My VP of product quit. My VP of marketing quit. I didn't replace them. I just got in and started running product and marketing again, just like in the early days. So I was just starting to get my mojo back. And then in 2023, we went from burning millions to actually being profitable. Mind you, not by very much, about

13:19>> 58 ks in profit, but still not burning, which was a good place to be. We didn't have to raise more money. We knew that we at least survive indefinitely if we had to.

13:33>> Now we had to fix the cultural debt. So I talked about we formed new core values. We started to, you know, make radical candor and actual value. Like, we have to have tough conversations. We have to be able to challenge each other. We We had to build the plane while flying it, right? So we engineers want to model the perfect solution that takes two years to build. No, we had to figure out the shortest path to

Fixing Engineering: Hiring the Right Leader

Kyle Racki

13:54>> value. We had to start experimenting more. So we started to try to create a more nimble culture, but my you know, the problem was I still didn't really have the right engineering leader because I had had my early CTO who was just a good developer and hadn't managed anyone before who kinda got us to this place, but then I swung too far on the other direction and hired an engineering leader who was much more of a

14:17>> middle manager and really didn't know how to get in there and affect change. And I also let those people stay way too long at the company. Right? Like, when I knew it wasn't working out, I kind of avoided making that hard call. But I did know we had one developer who had come in and he was really different than everyone else. He's from Quebec. His name's Matthew. And he was just able to like we were losing

14:43>> deals because we didn't have single sign on. And every you'd go into Jira and you'd find this ticket a mile long with all these comments of like, it's so hard and we can't do it and there's too much technical debt. And he just comes in and like in a week, he's just like, here's your working proof of concept. It works. We're like, how'd you do that? He was like, I just got it done. So he started

15:04>> unlocking things within the product. And eventually I was like, Matt, who trained you? Who was your boss before? He goes, oh, you should talk to him. His name's Marc, Marc Lecon. He's also a French guy from Quebec. And he had worked like MindGeek and like worked at scale before, but also worked at startups. And I had a couple conversations with him and I quickly knew that like, oh, that was the missing piece. I just didn't have

15:27>> the right engineering leader. So I brought Mark in, said goodbye to my old VP, and he's only been at the company a year, and it's had a transformative effect. So, you know, one of the things that he did was he he brought this, you know, mentality of shortest path to value. Right? It's like it's become his catchphrase. He's got a little Slack icon for it. It's really just helping the developers go like, okay. What is the

15:53>> shortest path to solve the customer problem? And then we can go and figure out how to add to it and make it more secure and scalable and all that kind of stuff. Very easy to say, very difficult to change and coach that mindset within your whole engineering department. The other thing he brought was a technical vision. So engineers were always complaining. We can't change the product because there's too much technical debt. There's too much legacy. He

16:14>> was able to say, okay, here's what we're gonna do. We're gonna break certain things out into microservices. We're not gonna get too We're not going to add too much complexity. We're going to use event driven architecture. Like he actually knew what scale looked like, and he was able to find opportunities as we rebuilt our product to bring that new engineering mindset, but also technical architecture to the product. Knew that we weren't going to just stop building

Shortest Path to Value and Technical Vision

Kyle Racki

16:39>> features and just start addressing technical debt. Knew that we had to continue to ship value to customers. So it wasn't overnight. It wasn't like everything changed, but very quickly we started to make progress. We started to ship faster and we started to notice the improvement. And so just about a month ago, we launched the version three beta of our product, which has completely rebuilt the front end from the ground up. And it addresses a lot of

17:04>> long standing issues we've had about product stability and ease of use. Now, I would love to say we're completely out of the woods and we're skyrocketing to 100,000,000. We're not quite there yet. In fact, the last two years have been 2023, we declined a bit. We've been flat this year. But I am confident that we have I have a bigger vision now than I had about five years ago that I believe could take us to a

17:31>> 100,000,000 if we can execute it, and I feel like we've got the right team and the right leader to be able to do so.

17:37>> So I know I've only got a couple of minutes left. I just want to share a couple takeaways because I know my story wasn't like how we grew to 100,000,000 in five years. It was much more of that long slog of building a SaaS company and being sort of bootstrapped and sort of funded. But really, of my biggest unlocks was solving for your biggest constraint. Like how often do you know what really is holding you back

18:03>> from growth and it just feels like it's too difficult or it's too hard to fix? So we tend to go to other things, and we go to things that feel easier and feel productive instead of staring into the abyss directly, you know, and attacking the biggest problem that's that's holding us back. And if we're in SaaS, you know, you hear people say, oh, product is, you know, it's so easy to build product now. AI can write

Key Takeaways for Founders

Kyle Racki

18:25>> your product. It's all about sales and marketing. I don't believe that for a second. I believe that if you're in the SaaS business, you're in the product business. You know, you can't out market or out sell a weak or a mediocre product, especially when you're in a competitive market where other competitors are innovating at a fast rate. And, you know, leaders are your leverage, right? Like, if you're not if your department isn't functioning,

18:50>> oftentimes we hold on to people too long or we hold on to leaders and think, maybe in another quarter, they'll have figured it out. And, you know, I've just learned this lesson. I have the scars to show it time and again is that you know when it's the right leader because within ninety days, something will change. They will pick broken glass off the floor. Right? You know, some changes are more systemic and take longer to action,

19:12>> but a great leader is gonna make is gonna do something within the first ninety days that show you that they're the right leader for where you're at in the business. And then finally, you know, as we know, SaaS is a marathon and not a sprint. And when we look at these founders who grew to a 100,000,000 ARR, a lot of times there was five years of zero, you know, revenue or sub 5,000,000 in revenue. And so

Building for the Long Term

Kyle Racki

19:32>> that's what I'm embracing now is I'm not trying to fast exit. I'm not trying to get to a certain revenue mark and flip the company. I'm really building for the longer term. And if you as the CEO aren't the biggest cheerleader in the business, if you're not the most passionate, your team will feel that too. And I realized that when I wasn't passionate, I was letting the whole company down, and I was expecting somebody else to

19:56>> figure out instead of taking the reins myself. And I think you have to do whatever it takes to get your head back in the game like I did. So I wanna thank you guys. I hope you got something valuable from that, and love to chat with you.