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How To Integrate Core Values Into a SaaS Business With David Hauser from Grasshopper

How To Integrate Core Values Into a SaaS Business With David Hauser from Grasshopper

What’s up, David? How’s it going, man? Good. How are you? Cool. I’m doing amazing. I’m here with David, serial
entrepreneur, investor, good dude. We’ve known each other
for over a decade. Yeah. I actually have the video. I think I shot it on a Flip Cam. Is this possible? Do you remember? I think it was like
a little desktop one, I think, like on a tripod
thing or something. Yeah, yeah. No, I definitely had a holster. This is, I want
to say 2007, 2008. You were kind enough– I think maybe a cold email. I don’t know. Do you remember
who introduced us? Or was it calling? I think it was a cold email. I remember we sat in the front
conference room at Grasshopper. Yeah. And we talked, yeah. So cold email. Founder, co-founder
of Grasshopper, Chargify, several other
SaaS companies, ideas. I just asked you about
incorporated businesses. You mentioned six or seven. I think it’s six in total that
we like put real time into. How many domains, though? So that’s the question. When you ask it, it’s
like, OK, how many businesses have you started? It’s like, how many domains
have you bought for ideas? Oh, way too many. Far too much money, and I
mean like hundreds of domains. Hundreds of domains. Hundreds, including ones that
we bought like premium domains, like stuff that was more
than $10,000 domains. Like single word, double
word, really good stuff. I asked him the other day– David’s now kicking off a new
company called, I’m assuming? Yep. Yep. And so [INAUDIBLE]
was like, dude, how many domains do you have? But today, we’re going to talk
about scaling SaaS companies, and you just got off
stage speaking at LTV Conf here in New York City. As you like– let’s go back. The origin story– you know,
people can Google online, listen to a bunch
of other interviews. I want to talk about the
marketing, the distribution channels, the growth. I mean, you know, there was– a
lot of people don’t know this. I was a customer, got
Vmail back in the day, and then there was the big
rebrand with the chocolate– The covered grass– the
chocolate-covered grasshoppers. Chocolate-covered grasshoppers
to the rebrand. But I mean even
before that, you guys did a lot of stuff
marketing-wise. What were those– when
I look at growth charts, they typically have step
functions of growth? They’re not direct linear. What were some of those for you
guys who got Vmail early days? Yeah. Yeah, so I mean we were always
just 100% marketing-focused. Like, the first software
was really garbage. I mean like legitimately
not good software. It was just bad product. Yeah. And all we did was market and
just brought customers in. Really? Yeah. That’s all we did. And how do you– when you have a
product that you’re embarrassed of, how do you
continue to resolve– I mean, because
that’s the thing is you know that it’s not
great, but it will– is it just like the vision
was going to be there? I think, first of all,
most customers don’t care. Like the way that you
look at the software is far more critical
than customers. Like, it did the function
it was supposed to. It didn’t do it perfectly. It didn’t look great. The design was horrible. So we had a great
branded beautiful website on the front end, and then the
back end was just horrible. But so for us,
that was a heart– that was like, oh, my god. I can’t believe this. Customers did not
care, and we knew that, because they continued to pay. So that’s all that mattered. And what year is
this, to give context? So this is now 14
years ago, so 2004. 2004. Roughly. And what were some of
the marketing channels that you guys deployed
in the early days? So I mean, in the
early days, this was Omniture, before AdWords. Before AdWords. Yeah. A lot of people watching
don’t know this stuff. I know. I feel so old when I say that. [INTERPOSING VOICES] And I mean clicks
were like cents. So there was a benefit
in starting then. We drove traffic for a
relatively low price, and there was no competition. People didn’t understand
what to do with this. They had no idea. That’s why today, I
tell people, always look for these new
channels that get ignored, or they’re brand new. What would be an
example of something that people might
look and do today? So I mean like I think
Reddit’s really interesting, like depending on
how you’re targeting. There’s interesting traffic
you can generate from Reddit. I think for us, we
looked at radio. This was a number of years ago. Today, I think
that’s started to– You guys were sixth
advertiser on Howard Stern. Super early. Now zip recruiters just
lighten that channel up. Yeah. But I mean they’re paying– they’re probably paying
different CPMs than you guys. Yeah. And so radio is definitely
not conventional for a tech startup. Now it’s becoming more at scale. Now. Now, but five years ago,
the only company who did it was Constant Contact. There was no one else who had
done national terrestrial radio from a SaaS company. Were they an inspiration
for you guys, being that they were
in Boston as well? It wasn’t even Boston. We just looked at
them as like they had the same target customer,
these super micro businesses. And maybe they’re
onto something. If they’re willing to spend
this much money on radio, we have to look at it. Why is no one else doing it? Well, either they’re
stupid, or they found something
really interesting, and they found something
really interesting. Yeah, I remember sitting down
with Gayle in San Francisco. She was visiting. Her corp dev guy reached out. I almost ignored him. She’s like, oh,
our CEO’s in town. Would you like to meet with her? I was like, yes, please. I mean, most people
don’t know this, but I mean I believe they were
the first publicly traded SaaS company. I think so. Yeah. They were– I’m trying to think
if anyone was before them. But no, they built– They pioneered. They built this road
for a lot of people. Yeah. I would say her and
Salesforce, obviously. Salesforce more on
the enterprise side. 100%. Constant Contact,
to me, was really the only one who had stepped
downmarket from the enterprise and said, how do we really
do this for small businesses? I know Salesforce had
that marketing message, but it’s still like
that wasn’t the buyer. That wasn’t the person
who really paid them. Yeah. So it’s funny, because she–
you know, I’m asking her– obviously, I’m asking similar
questions like, how did you start? And what did you do/ How do you
manage your leadership team? And she explained
to me the difference between an SMB and a
VSB, and I’ve never h– she was the first I’ve
ever heard use that term, VSB. So when you say
micro businesses, I get what you’re saying,
because that was– she was like, no, this
is the independent hair salon that rents a booth
at somebody else’s spot. Our average customer had
like 2 and 1/2 employees– Super small –including himself. So they were part
of the 2 and 1/2? Yeah. Yeah, so when people
talk about churn, I mean we’re talking
just business failure rate as a churn driver that
you can’t do anything against. It was about 50% of churn
was from business failure. That’s– when you go after the
VSBs or the micro businesses, that’s what you
got to deal with. But obviously, the
product evolved, and you guys got acquired
for a reported $165 million. Some guy recently
asked you, what’s it like being worth hundreds
of millions of dollars? You laughed. I get it. But clearly, it was
an incredible outcome. But along that
journey, were there moments where you
finally figured out a next stage of growth, where
it started to feel inevitable, or was there always
this kind of, like, fear that somebody else
might figure this out? Or how did that–
like thinking back to the mental state
of that journey, were there things that
kept you up at night, or was it mostly just
trying to improve things? So I’d say there’s two things
that kept us up at night. One, with fast growth,
there’s lots of problems. But more importantly, lots
of problems are hidden. So as soon as you hit a plateau,
all the problems just appear. There is cultural problems. There’s issues with processes. There’s marketing issues. There’s all sorts of stuff. And when you’re growing
at doubling rates, it’s just all ignored. It’s like, ah, [INAUDIBLE]. And what were your growth
rates in the early days? We more than doubled
in the first year. Every year. Yeah. Yeah, somebody said recently,
if you grow by 50% every year, pretty much every
six months, you’re breaking most of your systems. Like things just
start falling apart. Onstage, you brought
up having a coach, and I believe you had two
coaches through that journey. What– I mean it’s now become
more part of the conversation, but dude, this is 2005,
2006 was not a normal thing. What did you see
in your business, or what did you feel
personally that made you decide that
you needed a coach to kind of support the growth? Yeah, so I went to a
lot of conferences, like this, like probably
less SaaS stuff, because it wasn’t as focused at the time. Yeah, were there SaaS folks? I mean that’s not really even
a word that existed back then. Yeah, so I mean it was– [INAUDIBLE] It was like business
conferences and maybe kind of like personal development
or entrepreneur development conferences. And I kept thinking
to myself, OK, like I come back with all of
these ideas, and I have a list. Like everyone goes
to conference– a list of 52 things. I’m going to do all of these. And then you do none of them. And I felt very frustrated
doing that again and again, so I finally said,
I’m going to pick one kind of system or
process and get a coach to help me actually
implement it. So the driving force was
actually implementing something from when one of these things. One thing, though,
one system or process. Yes. Yeah. And how did you go about
making that decision, or what was that process like? Well, the problem is
I’m pretty impulsive. Like, the process was– Love it, like most
entrepreneurs watching. I was sitting in the [INAUDIBLE]
like, I’m doing this tomorrow. Yeah. I emailed Verne, who was at
the conference, and said, who’s your best coach? Author of scaling up. Yeah. I said, give me your best coach. He’s at the conference. Oh, you’re at the conference,
where he’s talking about– OK. And I’m like, give– I want your best coach. I wanted him, and
he said no, but– I love it. You went to him. I went– have you
ever read What Got You Here Won’t Get You There? The commercial? Yeah. Yeah, so same thing. Email Marshall Goldsmith. Little did I know, I
remember he was kind of– he actually got on a
call, crazy enough. I wouldn’t even do that, but
he was kind of get on a call, and he goes– I asked him– I’m trying to act all like– this is after I
sold Spheric, and I wanted to really level up,
didn’t even have a company. And he goes, well, normally, I
work with Fortune 50 companies, and the fee structure is we work
together, I get them results, and they look at kind of that
impact, and write me a check. And it’s usually–
it’s significant. And I was like,
OK, we’re working in two different hemispheres
here, so I’m just going to– I’m going to thank you. He invited– it was funny. He invited me to a
conference just– he’s like, sounds like you’re motivated– your guy. Let’s hang out. But so I get the impulsiveness. Verne says no, and
then, you know? I said, just give me your
top coach and top trainer, because the things I
wanted to implement is I wanted to put
core values in place. I wanted to put in daily
meetings, and the beginnings of the rhythm– What year of business was this? 2004– 2008. Wow, so four years. Yeah. Four years of the business. Company must’ve been what? 25? We’re doing– we’re doing
probably four years in, $8 bucks. Yeah, 25 people-ish. Yeah. Yeah. Yeah. Yeah. That’s usually when
it starts to hurt. And you know, there
was big problems. And so we got– Les came in as a coach,
and part of the process, I wanted to start these
quarterly planning sessions. To me, that was the straight– Pretty core stuff today,
but I mean, in hindsight, would you have done it sooner? Yes. Yeah. So new companies now–
we do this immediately. If there’s three people on the
team, then we met in Boston, did our first quarterly
planning session. We’re doing the next one. It’s just part of the
infrastructure of doing that. And then worked with Les, felt
like you got what you needed from him, found another coach,
but this time, I think– because you shared the story– was somebody that
you wanted that built companies, that had been
there, and really less about SaaS, more about– Internal process, like, how do
we create a culture of success? How do we create a systematic
process, where we can hit goals again and again? Like, how do I create a machine? And that’s absent of SaaS. Like we had the experts and
built the expertise internally. We could do survival curves and
predictions and all this stuff. I wanted someone that
came in and said, here’s how you run a
company, and here’s how you do it at scale. This is something Elon
Musk talks about often is he gets excited
about the machine that builds the machine. And I think about that all
the time when I’m like, OK, how does this process play
out independent of people, and more about just does
this get better over time, does this get smarter? What’s fun for you is you’ve
now been able to iterate across a few other companies– Chargify, and many
other companies. What do you think are
those critical tools or strategies that should– and it’s always, like
accounting software. What should I use? Well, if you’re at
100 million, ASP. If you’re at zero,
a spreadsheet. What do you think is– because most of
the people watching are kind of the two million ARR. What are things that you feel
are like, OK, at this point, these are things you
need in your business? So I think the most
valuable ones for us were meeting rhythms, one. So daily, weekly,
monthly meetings. It gets rid a lot
of the junk, gets people focused
and communicating. When you say junk,
what do you mean? What would they be
seeing in a business. All the noise. Like let’s sit in a meeting
and talk about the BS metric for no reason. When you’re meeting every
week and all the metrics are on the wall– red, yellow, green– in
front of everyone’s face, there’s no reason to
have a meeting about it. Like you’ve talked about
it in that hour meeting. You’ve covered it. And in the monthly meeting,
you talk about digging deep into it. How do we change churn? How do we do this? And do the daily meetings,
as soon as you hit 10 people, communication goes to shit. And putting the
daily meetings in allowed us to scale up to
50 people with no issues. We didn’t have company wikis. There was no Slack. I personally hate Slack. Same. But that wasn’t
even an option then, so we couldn’t even
get in trouble with it. So our option was literally
the daily meeting, which is five minutes. What am I doing today? Where am I stuck? That’s it. That’s awesome. And every single
person in the company was in at least
one daily meeting. So you got meeting rhythms. You mentioned values. Are those kind of things
that are important for you at the two million plus? Yeah. At this stage, values, for sure. Even earlier than two million. Like in essence, before you
hire the first employee, values. And how do you implement
or integrate values into a company? Because I mean, it’s
one thing to have them on a poster on a wall, which
we all know is bullshit. But for you, how do
you integrate that? Where does it show up? Yeah. Everywhere. I mean, so the first is
recruiting and hiring. So every possible
employee coming in knows the values, has to
demonstrate in their life how they represent these values. How they did this
in their past job. Even if our value’s different
from that company, show me– What were examples
of your values? So Grasshopper was
go above and beyond. Always entrepreneurial. Radically passionate
in your team. And those came from the
founders, obviously, me and my partner. And you mentioned that people
getting hired only fill those– like they don’t
talk to a manager until they’ve filled those
out in an application, explain how– Yeah, document or whatever. Demonstrate how these
show up in your life. Yeah. I want to see a story, like
in my home life, my kid, this happened, and I
went above and beyond because my kid’s friend, this– I want a story of
how you demonstrated this value, like something
that shows you at your core. Asking questions like
that, you can’t fake. So recruiting– Unless they’re a horrible person
they’re making up stories, like not just you were– It’s like you have kids? Not really. I thought it sounded good. Yeah, it sounded
really good as a story. Maybe not so much– yeah. So recruiting, firing. So it’s so much easier
to say to someone, you know what, there’s
clearly not a fit here, and it’s just like a parent. You don’t even have to say it. It’s uncomfortable because
the values are there, they’re in everything you
do, and you’re like yeah, this just doesn’t fit. And they’re like, I know. And you just move on. That’s the best. When they come to the
same outcome you come to, and it’s amicable,
and it’s like yeah, we’re probably not
going to make it. We put the values in place
and certain people quit. And it was the people we
wanted to get rid of anyway. But they’re like yeah,
they’re looking at the paper. I had a client, man. 30%, like they
implemented this, and 30%. They realize, after going
through the exercise, that 30% of their team
didn’t embody those values. And I think half quit,
and then half there was a transition plan
within six months. I think I heard
somebody say, values is about hiring and
firing against them. That’s what they exist for is
almost like the people filter. And also in regards to making
decisions in your absence. Because that’s like,
again, the machine that builds the machine. For me it’s so fun to think–
like I’m a software guy. So I’m thinking– I’m
so nerdy, I think about object models and polymorphism. And like stupid shit. They’re like how does
this apply to business? But if you design the
interface of how people should be making decisions
in your absence, that’s where scale
comes into play. Because as a
founder, I’m assuming that’s that 25 people, that’s
where you feel frustrated is that decisions are being
made that you can’t possibly know that are just not aligned
with how you would make them. So I look all the
way to the edge. So customer service, right? They’re usually the furthest
from the executive team, and the ones that touch
the customer the most. Woo, that’s good. Which is really scary. So I wanted my
customer service team to be able to make decisions
in real time on the phone and solve problems. And if they’re
doing that, they’re doing things like
refunds and credit. And someone says, I
printed business cards and you messed up, what
do I want them to do? So in all of those instances,
when they selected a refund, they had to put which core value
or core promise it related to. And one of them was
being entrepreneurially generous was one of the core
promises to our customers. So in cases, we refunded more
than they’ve ever paid us. And I’m OK with that when the
rep puts in why they did it, and they put in a thing like,
we just really messed up. The customer’s struggling. They just started. We had to refund
their whole printing cost for their business cards. And your whole thing was
is just being thoughtful. It’s cool that you
prompt it, because you know at least they stop,
they thought about it, they gave you an answer. How many employees did you have
when Citrix acquired you guys? We had about 42, but that didn’t
count our customer service team– You had great revenue per– –which was outside
of our core office. OK. So when you factor that in, we
had probably about 60 people or so. That’s still a small
team for the kind of revenues you guys are at. One of my favorite questions. Who did you have to become
to run that company? It’s a good question, right. Yeah. Because I think that’s
entrepreneurship is who do I need to become. Yeah. I’ve changed over those
years so many times. Some of them was
a real struggle. At one point I had probably
about 15 plus people reporting to me. I am not a good manager. I’m not a good people manager. My DiSC profile
is high D, low i. And under pressure,
it’s like negative i. So I’m going to run you
over and be a dick about it. So that’s not a
good people manager, and I had 15 people
reporting to me. So that was challenging. Over time I had to learn
how to give up control to an executive team that
is far smarter than I am, which is what you want. But emotionally that’s a
struggle and that’s hard to do. And that’s how I drove
down my hours worked to like 10 hours a week,
because the executive team was an amazing executive
team running the company. And at the sale, I left. Citrix is like, we’re
going to pay you extra because we don’t want to give
you a title and a high salary to sit here and do nothing. The company’s going to run. So I think there’s a lot
of variation over time. And if you go all the way
back to the beginning, I did customer service. I’m clearly not good at it
for the reasons previously mentioned. But I did that,
and I’m glad I did. I learned inside and out
what customers care about. What are the
challenges, why they don’t like the software, why
they love this piece of it. I learned all that. And that’s on the skill side
and just knowing thyself. What about on the
emotional fortitude or being able to deal with the
swings, as comes with things? Yeah. Like the entrepreneur
roller coaster, right? Totally. I mean, you guys
created the video on it. Yeah. I think it’s challenging. The good thing for me is
I’ve never experienced the depression piece of it. I don’t know why. I can’t explain that. I understand how challenging
that is and it’s a real thing, so I don’t appreciate
when people discount it. But for me, that has
not been an issue. But I understand those
low points to the point where you’re like, should
I be doing this business? I think when you start
to question that, those are the times when you have to
have a core purpose that you really believe in. And you say, you know
what, right now– like we had a big outage. Every customer’s upset. There’s people calling
and screaming, I hate you, you ruined my business. Like I want all my money
back I’ve ever paid you. This is really bad. Yeah. Phone numbers is
core to a business. It’s like internet connectivity. And people are like not happy. And at that point
you’re like, oh, my god. This is not good. I could go out of
business not good. But you step back and
you say, our core purpose empowering entrepreneurs
and exceed, I’m like look, we need to get this back online
because this is what we do. The people we help are these
people that are complaining. The reason they’re complaining
is because it’s their business. It’s their life. And the reason they
care that much is why we should care that much. So there’s two things I’d
love to double click on. The first is the core purpose. Because I do feel for
a lot of entrepreneurs, they start this journey, and
it’s about solving a problem. But then eventually, the
problem’s kind of been solved, and that’s where a lot of people
decide to start something new or bounce. But when you stick with
something– and you were there right till the end. What did that shift to? Like for David, what did
that purpose shift to? Is it less about solving phone– You know what I mean? And it sounds like it
was more entrepreneurial. But were there
phases of how you had to reset that purpose for
yourself and the business? Or how did that– No. So when we started
the business, we wanted to build an environment
that we loved being in and we just loved going
to every day and working. So that was our
internal purpose. Pretty early on we
figured out that we loved working with, at the time,
we deemed small businesses. We then moved that
term to entrepreneurs, because I think it filters out
the mom and pop dry cleaner. Not that that’s not a business. It’s a different mindset. Yeah. So we filtered it
out to entrepreneurs. And what we realized we loved
doing was helping those people. So the wording changed
over time, but internally and externally, we were doing
the same thing the entire time. So I don’t think purpose
changes that much. The wording, I think, changes
because you refine it over time, and you figure out
the right way to say it, and the right term to
use, and things like that. Now, you guys didn’t raise
any money, I believe. And I think the report was that
you own 90% of the business, or you and your co-founder own
90% of the business on exit. Again, $165 million. So pretty awesome. You’ve built some
other companies. Chargify raise money? We were just a half million
dollars from Mark Cuban, just because we needed
the stamp of approval of– I took his money. He’s a good dude. I remember I almost kicked– Well, I didn’t kick
him out the round. We were oversubscribed, and
one of my lead investors, Steve at Baseline. Amazing investor. Steve is literally like a gift
to entrepreneurs in the valley. And I was like, hey,
we’re oversubscribed, we’re restructuring
the cap table. And I think I might bound Mark. He goes, see these
four other people? Bounce them first. I was like, yeah, you’re right. There’s some– Mark’s a great guy. I would– He replied to every email. Amazing. Nobody else did. Amazing. Every investor email
update, he always replied with
thoughtful questions. And I found even if he
didn’t have a deep thought, he replied and– You knew he read it. –it was him. Yeah. Like it’s not like an
assistant of assistant. And he gets far more
emails than I do. And our investment was so
tiny, like this means nothing. And he replies. And most of the time, useful. That’s better than
98% of people. Oh, he is a very unique
individual for that factor alone. Yeah. I feel like when I think of
Mark, he’s just cranking– He used to have a flip thing
phone and the keyboard, and he’s just
cranking out– there’s shortcuts and all that stuff. So now that you started
other companies, what is your
thoughts to funding? Because I know
that’s something I’ve reached out to
you recently, as I look at making more investments
and kind of thinking differently about markets. What are your thoughts
on capitalizing companies to get escape velocity,
especially if marketing channels, pennies, clicks. Not anymore. What are your thoughts
on capital funding? Yeah. It’s a hard place,
because as an investor, I have one set of
thoughts, and as a founder I have a different set. I think in some
places they converge, but in some places they diverge. I think that if I’m looking
at SaaS companies today, there is no reason to
take funding before you have a million dollars of AR. Getting to that point today,
to me, is the minimum bar. That’s product-market fit. Like forget the MVP stuff
and all the other things. A million of AR says
people are willing to pay at some scale for your product. And getting to there
without funding gives you lots of optionality. The longer you go without
funding, optionality increases. So when you get
to 10 million, now debt financing and revenue-based
financing is far cheaper. These are things that most
people don’t even under– I think a lot of the market
doesn’t even realize exists. Like the [? later ?] capitals
and many others out there. I think they start at,
what, a million ARR– they’ll fund you on that. And do you think those
are viable options? You mentioned 10 million. Should they wait? It’s expensive. I would wait as long as I can. I really don’t love
revenue financing. Like it’s sucking the
lifeblood out of the company in real time. Compared to debt
financing where at least you get maybe the first year
of no payments or just interest only, and now you can kind
of push that out over time. And the larger you are, the
more power you have to do that. The revenue financing
is a reasonable option. It is very expensive
when you run the numbers, compared to equity financing. So you gain some power and
you give it up in returns. So how should founders– because
I work with a lot of one, two million AR
companies, and they’re at that stage where
they’re like, hey, that half million bucks looks
really appealing from an equity financing point of view. But there’s also
this debt stuff. How do you run the equation
in your mind to valuate those? To me, it should never be used
for anything except marketing. Because if I put
it into marketing, I can run the equation
and say, every dollar in equals this much out. My cost of capital
is x, and I know my return is greater than zero. If I put it into
staff and employees, there’s no way to
run any calculation. So I don’t want to be
taking bets with that money. I don’t want to be
taking product bets, like I’m going to change
something, I’m going to– a new market. We’re going to pivot, we’re
going to move up market, all that stuff. You’re like, no, this
is a channel investment, and you can run the
numbers on the RY. That’s interesting. How do you know when
you’re ready to sell? Hmm. I don’t think you’re ever
ready to sell, honestly. And the best time to sell is
when you don’t want to, right? Everyone says that. But it’s true, right? It is true. And for us, it was much
more about the numbers were astronomically
bigger than what we thought the current value
of the business today was. So it was a de-risking question. Taking 100% of our net worth
in a highly illiquid asset, and converting it into
a highly liquid asset. That’s just a life
de-risking question. And there’s some balance in
there where you’re like, look, I believe the value’s
here, and if someone’s paying me near the value,
I probably don’t do it. If they’re paying me
way over the value, now I’ve just de-risked my life. And so that became
more attractive to us. And then when you factor
in the cultural fit, which I think is critically
important in a sale, they wanted to keep
the brand, they wanted to keep the team,
the core values, the things that we built and cared about
they wanted to keep, and keep it part of Grasshopper. So when you factor those
two things in together, we kind of had to
sell at that point. And you had to sell
because you felt like a, the risk profile made sense. And then also they were going
to do right by your team. I mean, that is. It’s like, OK, well,
there’s exposure if we’re in the
market for another– Because a friend of my
Marco from Thumbtack had a really great way of
thinking about it where he said, I look at how many
years of perfect execution are they buying. And it was just like,
oh, that really– kind of like that equation. And if the number’s
big enough, then it makes sense, because maybe
not a perfect, but 80%. I know what it’s going
to be worth then, so are they buying
at that point. But you’d built this
business for so long, was there a part of
you, especially, I think, your first company,
for the most part, that felt like it was your baby. Was there any loss feel– I went through its fear. Like literally had
to see a therapist, walk around, like
anxiety attacks. And he’s like,
yeah, you’re having kind of like loss whatever. Did that come up post
exit or on your way to it? Yeah. There was so many
questions there. At post exit, for sure, there
was this emotional– like we left sale, day two we’re gone. Oh, wow. Just immediate. Email address changes. Little things that were very
emotional, like an email address you’ve had
for 10 years, you’re like oh, crap,
I’ve got to switch this in all these places. Then you’re thinking
about the emotional act. It starts to add up. So I think, yeah,
there was definitely an emotional aspect of it,
like losing your identity more importantly. I was the Grasshopper guy. That’s just who I was known as. Family, friends,
conferences, everything. And then you’re just not that. So I think that’s hard. So the way I look at, I
think differs from the– I look at, from an
acquisition standpoint, I have near perfect information. Because I have
all the internals, I have all the past history. The acquirer has
bits and pieces. Would I pay what they’re paying? And if the answer’s
no, they’re overpaying. And if the answer’s
way overpaying– That’s a good way to look at it. –then I know that this
is a really great deal. I know what I would pay today. If the answer’s no,
you wouldn’t pay. And if it’s more than that,
you know it’s a great deal. Yeah. That’s a really good
way to look at it. Because you’re right, you
have near perfect information. They’re looking at data points. But back on that exit,
because I believe people start SaaS business. Yes, it’s sexy. But the truth is is it’s
an incredible model. It’s incredible,
predictable, revenue model, and that’s why
the valuations are some of the highest across
different asset classes. So one of the things
I teach is how to design some level
of perfect exit. Did you guys understand what
the value drivers were as you built for a potential acquirer? Or did it just happen? Was there strategy at
some point around it? Or you just kept the core
question you were solving is how to create the
best place to work at? I think the core
question that drove those factors is how do we
create a profitable business. Those things, and highly
efficient business. So profitable and
highly efficient. That’s why when you tell me the
amount of employees to revenue, I mean it was a high ratio. Yeah. So I think all of the things we
did to drive to those two goals is what acquirer likes. It just happens to be. We never thought about
it in that perspective, like an acquirer’s perspective. Essentially, it wasn’t
for the acquisition, it was just like we want
to build a great business. These are the value drivers
that we want to improve on. Turns out that they’re the same
that an acquirer wants, too. Now, during the acquisition
process, of course, now you start to
think about, OK, what does cross-sell
and up-sell look like? How do I– How to reduce [? turn. ?] –massage this number to look– What are the numbers
that are going to help us with valuation,
and we’ve got some time to kick them up a few notches. Did you guys work with an
outside broker to do the deal? Fair question. So Citrix came to us,
which is kind of odd. We did not run a process. We did use a firm to represent
us, more from a logistics standpoint. Like how do you
set up a deal room, and let’s manage the
process, and kind of remove the founders one level so
you don’t screw something up. You’re going to go there after
you give yourself a buffer. I ran all my processes because
I actually absolutely love that part of the business. But definitely had my
advisors in the corner. Now that you see a
lot of SaaS companies, what do you see changing from
there, the landscape of SaaS in regards to– I mean, it’s still a new market. It’s not like e-commerce or– I mean, I look at my
brother’s home building. As old as people are,
people lived in houses. SaaS numbers, there’s still
debates around even how to measure certain metrics. What do you see
as kind of things that are evolving that
you think are smart, that people are doing
sooner, either bootstrapped or funded, that
are not so obvious but that are coming
into the future? I think the most interesting
things are more enterprise things, and bringing enterprise
back it down into SaaS. Where the fear I have
with SaaS right now is this overload of things
for small businesses, things for tech companies, and
things for remote companies. And the reason that happens
is the people building them run those
type of companies, so they’re solving
their own problems. Like I get the issue, right? But that is just overloaded. Like the next time I see a
project management software pitch, I’m like, really? A, none of them work so
it doesn’t really matter. And there’s literally a billion. It’s just not interesting. But look at super old
industries, like dental. Who has ever thought
about a SaaS– there’s none, right? There are so many
industries like that that spend a lot of money,
and creating software is far easier because
they have no context. They’re using AOL
or Hotmail, right? They don’t care what it
looks like or how it– yeah. Yeah. So you’re saying,
and I’ve always said these non-sexy
would never be written about on TechCrunch industries. And I personally like
the ones that you can charge enough per month to
get to some meaningful level of revenue quickly. It’s tough to make them
work on $9 a month, some of these SaaS companies. That is super cool. And especially, if you want
to run a sales channel, like people calling
sales, you’ve got to be in the $300, $400,
$500, $600, $700 a month range. Now it’s probably going up,
as salaries have increased. But at $100– we
tried it at $100. It’s not possible. No, not possible. I want to give you a
chance talk about SuperFat. Totally non-SaaSy, but
e-commerce, and you guys are doing some smart things
with reoccurring models on it. What is it? Where’d it come from? Why’d you start it? Why go from SaaS to a business
with a bunch of inventory. Yeah, man, SuperFat. Look at this. You told me you’ve got
a box sent to my house, so I’m excited to get back to
Canada and taste this stuff. I’m going to definitely
eat this one. Yeah. So I think what’s been most
interesting for us is– What is it, first? It’s a nut butter product. Healthy fats. Yeah, healthy fats. Vegan, Keto, Paleo. All of the certifications. I built it with Mike and
[? CeMac ?] because– Oh, [? CeMac’s ?]
involved as well– Yeah. –your co-founder
from Grasshopper. That’s super cool. And Mike, who was
a Grasshopper, too. Awesome. Because I wanted a product
like this to consume. I changed my diet, I changed my
life, I stopped eating sugar. I got rid of all that. But I mean this is, from a
escape velocity point of view, founders not treating themselves
like a premium racehorse. You just wouldn’t. If you are literally the
driver of the business, looking at this stuff– I know you did yoga or
still do quite a bit, and just taking
care of yourself, how do you think that
impact would impact founders if they take care of their– I mean, I found my
productivity’s increased. Just changing my sleep has had
massive impacts on attitude, empathy, interacting
with other human beings, which you do all
day as a founder. I just got this
thing, that oora ring. The aura ring? Aura ring, yeah. Aura. And at first I resisted it. I had it for three months,
because I didn’t want it to tell me I was sleeping bad. Because every morning
I wake up and I’m like, I just had the best
sleep ever, regardless if I tossed and turned. And I’ve been busting out
some good sleep, so I’m happy. But I like that feedback. So you’re saying healthy– [INTERPOSING VOICES] Healthy fats. Nut butter-based product,
five flavors available online. So what’s been most interesting
to learn about, though, is we’ve started to apply
what we’ve learned and SaaS to e-commerce, and
people are like, why are you doing it that way? We’re like, well, because
we can make a lot of money doing it that way. What’s an example? So the way we run our
marketing channels, we run it like a SaaS
marketing channel– LTE, CAC. –where e-commerce– Yeah. Average order value. Oh, we look at all that stuff. Reorders. We look at all the things where
from an e-commerce perspective, the models are different. And then so we’re also
willing to scale aggressively, where other people are like,
we’re looking at payback. If I know my reorder
rate, I can– We’re willing to go
a few months, where they’re trying to do a 30-day. Yeah. Like they want to
essentially make their CAC on the first
order potentially, and you’re willing to say,
we’re cool going long on this. Yeah. Dude, that, to me, is I think
as channels get more expensive, the ones that understand
lifetime value and also how to
monetize that audience. So right now you guys
have how many SKUs? Five. Five. There’s a six, which
is a variety box, but there’s five core flavors. Yeah. And what do you guys
do for up sells? Anything? Do you guys– Is that
something coming? Yeah. So there’s two. One is three boxes,
you get free shipping. So that’s to push
average order value up. Yeah. The biggest kind
of post up-sale is our flow for buy
one variety box, which is most new customers. They buy the single
variety box on the website, and then how do we
nurture them over time. And we’re only a few months in,
so we’re starting this process. How do we nurture them
over time to buy their five favorite flavor– Once you know that they
have a favorite flavor. –once a month. Once every month, every month. Whatever Whatever the frequency is. And when you say nurture,
that’s the email campaign, the messaging. It’s amazing e-commerce
how much is email. It was surprising to me. At Grasshopper we used
email, but we were also in SaaS kind of scared to jos– [INTERPOSING VOICES] You hit the customer
and say, maybe I don’t need to pay for this. Like there’s stuff that happens. Are you doing things,
like very pers– Is there a personality
behind the brand? Yeah yeah. OK. It’s very fat forward. I mean, the name. Our core purpose is
empowering change with fat. So we’re very much on that
side of the education, where fat is good. And staying away from
the specific diet, like I eat a certain way. It doesn’t really matter, right? I ate vegan for six months. I did all sorts of things. You tested it out. Yeah. But the end of the day, I think
there’s a clear direction where consumer packaged goods
are starting to move, which is in general, increasing
fat and lowering refined carbohydrates. We can argue about– 100%. –other carbohydrates,
but refined carbohydrates, those are starting to trend
out, which I think is good. Yeah, the debate has
been settled there. Awesome. David Houser,
appreciate you, man. I appreciate it that. Thanks so much. Thanks. And then we’re done.

  • Episode 5 – Escape Velocity – David Hauser Founder of Grasshopper on the foundation of your SaaS business – Core Values – and how to integrate them.

  • Thank you so much! Another great video helping us to build the company … thanks a lot! Greetings from Germany

  • Great episode, as an ex grasshopper customer, it was doubly interesting. Took me a while to get to the podcast, but I'm in…..I hope you keep going.

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