SaaStr Podcasts for the Week with Jennifer Tejada, Ben Chestnut, and Jason Lemkin

Ep. 370: As organizations race to achieve relevance and a competitive edge in the digital era, automation is fueling the fight. Join PagerDuty’s CEO, Jennifer Tejada, as she discusses the need for agility and innovation and how automation is aiding adaptability and allowing enterprises to surge ahead.

 

This episode is sponsored by Linode.

 

SaaStr’s Founder’s Favorites Series features one of SaaStr’s best of the best sessions that you might have missed.

This episode is an excerpt from a session at SaaStr Summit: Enterprise. You can see the full video here, and read the podcast transcript below.

 

Ep. 371: It’s no secret that businesses today are struggling with an unpredictable economy. In this session, Mailchimp Co-founder and CEO Ben Chestnut will share the story of Mailchimp’s founding amidst—and despite—the dot-com bubble burst, and how the company navigated a number of inflection points in the first 10 years of its founding.

 

This episode is sponsored by Outgrow.

 

This episode is an excerpt from Jason and Ben’s session at SaaStr Annual @ Home. You can read the podcast transcript below.

 

If you would like to find out more about the show and the guests presented, you can follow us on Twitter here:

Jason Lemkin
SaaStr
Jennifer Tejada
Ben Chestnut

We’ve shared the transcript of episode 370 below. You can also jump down to the transcript of episode 371.

Transcript of Episode 370:

Jennifer Tejada:

But I thought today I would start off with a little bit of good news, and that good news is the fact that digital acceleration has truly become a reality. And with that, it’s a transition that we’ve seen take place over several decades. I’ve been in software since the ’90s and for over 20 years, nearly that entire time, we’ve been talking about digital transformation, developing strategies, architecting new technologies, and moving beyond digitization to rethinking our businesses, our products, and our services in a way that’s optimized for a digital world.

Jennifer Tejada:

With the advent of a global pandemic and the resulting recession, transformation efforts around the world and across industries, as you’ve all seen, have been thrust into high gear. And for some companies, this transformation is a requirement for survival, where for other companies, it enables them to exploit opportunities that are presented by the current environment. And this current environment that we’re in, marked by an ongoing global health crisis, by lockdowns, by remote work, social distancing and civil unrest and market volatility, it’s challenging in new ways that we as leaders have never experienced. Not the least of which, by being exhausting.

Jennifer Tejada:

This shift has come suddenly. It’s been extraordinarily fast and it’s been compulsory. It’s not like we had a choice, as opposed to more gradual like in earlier industrial revolutions. And it’ll be interesting to find out what sticks, which changes stick around and stand the test of time and which kind of return to the way they were when we find our new normal. Since the only real certainty is ongoing uncertainty, I found myself as a leader seeking inspiration. And I didn’t have to look very far. I looked to our customer base. Many of our customers are doing amazing things. They’ve helped us get through the stay at home and shelter in place orders and manage the fear and uncertainty of COVID, like Peloton. I don’t know about you, but all of my fitness is now happening in my home and within a six mile radius of my house.

Jennifer Tejada:

Slack, which has become an online collaboration lifesaver for many of us at work and also a social environment for us to engage with our peers. Netflix. My daughter is using Netflix Party all the time to feel that sense of watching a movie with her friends when she can’t be together with them. Shopify. We’ve seen tremendous results from their earnings recently because they are enabling the world to transition to e-commerce essentially overnight. Ocado, which is an online grocery deliverer in the UK which is getting food to people when you need it when you don’t really want to walk into a grocery store. And of course we know Amazon has been delivering all kinds of things from desks to working at home to common household supplies. My favorite though is Zipline. Zipline is a California drone-based delivery company that transports critical medical supplies like blood and vaccines in Rwanda and Ghana. And in April, it added COVID-19 test samples to its distribution.

Jennifer Tejada:

So it’s not all terrible bad news because Winston Churchill told us, “Never waste a good crisis.” And many of our enterprise customers at PagerDuty have delivered digital transformation programs that were supposed to take years in months. That is really happening in the marketplace. And it’s happening at companies that are 50 or 100 years old, where they’re having to find new ways to reach their customers with brands and services. Some of the examples that ready come to mind are remote work, contactless, curbside pickup, and cashless transactions, which we all experience as consumers. Some are less obvious like tele-health. This came from necessity. Teladoc, Cigna Virtual Care has been super helpful to my family. Maven Clinic.

Jennifer Tejada:

Or even manufacturing companies like Ford and Dyson transitioning their manufacturing lines to build much needed ventilators or Estee Lauder transitioning its cosmetic lines to build hand sanitizers when New York was really struggling to stop the spread of COVID. And finally we’ve seen social media play a role in organizing and catalyzing the global anti-racism movement. Much of this acceleration can be credited to this crisis, which while being chaotic, it’s actually the perfect forcing function for change. Prior to the pandemic, you had to plan and orchestrate and sell change. Often you needed consultants and boards and change management experts to be involved to help you convince your people that even if it wasn’t broken, they needed to fix it, to disrupt something that was working really well.

Jennifer Tejada:

There’s typically a very high internal cost to change, not to mention the external market risk and customer risk. And in this case, we’re now seeing an environment where your employees and your customers not only know they need to change, change is sometimes the only or the most immediate viable path. And in that case, this is actually a gift. I think of this crisis in some ways as a gift because change for us is now practically free. Relatively speaking, the ability to pivot your organization, the ability to move in a different direction, the ability to look at all those things as a leader you had on your bucket list that you wanted to do differently or experiment with, well, now you have that opportunity and the time is now to start ticking those things off your bucket list.

Jennifer Tejada:

The other thing that’s changing and evolving really fast is the role of the leader. We now have new stakeholders and new challenges. This crisis has accelerated the change in the CEO role permanently, broadening all of our responsibilities and our constituencies. It’s not enough to just make our customers happy or our employees happy. We have to think about all of the communities that we serve, our investors and the communities around us that need our help. We need to leverage our tech, our people, our position, our voices, our power, and that has become a central requirement in the CEO role. Trust has also become the most valuable currency. It takes years to build up trust with your customers and employees, and it can be destroyed in a heartbeat, in a minute. And that means that transparency, vulnerability, continuous engagement with our employees and our customers is now mission critical.

Jennifer Tejada:

And work is everywhere. It’s all the time. The lines between work and home have blurred. So who owns the wellbeing of our employees? We do. Who owns keeping them informed in a world of misinformation? We do. And our values have become increasingly more critical. You now have to go beyond explaining your values making sure everybody understands them. You have to lean into them and demonstrate with a high level of empathy that every decision you make, big or small, is values-led because your employees are looking to you. They are trusting you to keep them engaged in your mission. And as CEOs and leaders, sometimes that’s really challenging because we all need to provide a compelling future, a purpose to keep people who are dealing with things like isolation or their kids at home or the prospect of school not picking up in the fall, the stress of COVID and its impact on family members.

Jennifer Tejada:

We need to keep them engaged in the purpose and the mission so that they’re driven so that they can continue to find fulfillment and enjoyment in their work. And to do this, you’ve got to scale it through your managers. But management has changed. When I grew up in the world of management training, it was all about duty of care. First, do no harm and deliver the business results. Well, we have to now start with demonstrating personal care first. And this may not naturally come to all of your managers. It may not be first nature. That role of the manager is increasingly important, that frontline manager, not simply to direct priorities and direct work, but to model, to coach and most of all, to demonstrate care to your employees.

Jennifer Tejada:

I was speaking with Brad Smith, the chairman of Intuit, the other day, and he shared this simple process that they’ve executed at Intuit that I thought was really interesting. They’ve created a form and a flow for their managers to do check-ins. And instead of doing what we all naturally want to do, which is to check in on the project, check in on how the work’s going. Like is it going to be delivered on time, is it going to be on budget, will we ship it, will customers like it, will they understand it, start with the people first. How are you? How are you feeling about things? How’s your family? How’s everything going? This really resonated with me because one of PagerDuty’s values is people first. And this just feels like a great executable on that. They’re taking it one step further and they’re tracking it in Betterworks or Reflektive or one of their HR online systems. And I think that’s a really good way to help managers practice, but also hold them accountable to demonstrating that care for employees.

Jennifer Tejada:

The challenge is even the best management and training processes won’t always work. They won’t prevent burnout because when we’re working from home and we’re supported by this technology, there’s great technology that we’re using today which blurs the lines between work and family time. People are going to get burned out and you’re going to see that ebb and flow and going in cycles. So looking forward, we also need to innovate and automate policies around flexible working, childcare and lead to address some of these challenges. For example, at PagerDuty we’ve offered Newtonian days, spontaneous Fridays off to really enable employees to decompress and refresh and step away from the blue screen.

Jennifer Tejada:

We’ve also kicked off this concept of simple Wednesdays. Simple stands for stop internal meetings, plan lots of external ones. And the idea is that on Wednesdays, if we take meetings, they’re going to be external, customer-facing meetings. This has helped us to break up the meeting gridlock mid week and it’s also turned our collective focus forward and outward towards the market and our customers, which is where our priority lies. In addition of having an existing five months of parental leave, we extended emergency and caregiver leave and launched an online mental health platform called ginger.io for our employees. We also gave our employees an expense allowance for their work in home environments. And to support personal activism and anti-racism, we updated our 20-hour volunteer time off policy to include peaceful demonstration, self-education, and voting.

Jennifer Tejada:

I’m not suggesting this is perfect, that this is all inclusive or that you’re not doing a lot of this already, or frankly that you need to do all of this. But what I am suggesting is, we need to keep improving and experimenting and figure out how we create that purpose and that fulfillment for our employees while delivering on new needs for our customers. Sound easy? Not so much. One of the big questions is, how do we find the capacity as leaders, personally, and the capacity within our organizations and our teams to get some of this done.

Jennifer Tejada:

Nicole Malachowski is a retired Air Force officer and the First Woman Thunderbird Pilot and I’ve had the great fortune of hosting her to speak with our leaders in many occasions. And one of the things that she talked about recently really struck with me. It’s the fact that when you’re in combat and it’s chaotic, your natural instinct is to play defense. But the winning playbook to surviving and winning in a combat environment is all about seizing your advantage. And I’ve heard people talk about seizing opportunity, but this nuance is a little different, right? Because again, most of us normal humans in a chaotic or situation where we feel attacked and uncomfortable, we’re going to shift to the back foot. We’re going to shift to defense.

Jennifer Tejada:

Nicole’s astute point is that you are unlikely to win playing defense because someone’s chasing you suddenly. First, you need to identify and name your advantage. That sounds pretty simple and straight forward, and it can be surprisingly hard to do because we all think we’re good at lots of things. We all think we have many benefits. What is your greatest advantage? Be intellectually honest. Maybe it’s not that list that was in your last pitch deck, but what you truly believe your customers in the market reflect back to you as your defensible advantage. How’s your product essential? Do you solve a current urgent problem? How do you point your advantage at your customer’s biggest challenges?

Jennifer Tejada:

Next, focus on turbo powering that advantage. This is the hard part because if your company is anything like mine, we have teams working on all kinds of initiatives that were super relevant in January and not so much now. But we have people that are wedded to those projects that feel a deep level of personal connection to that work. And on close examination, even though they deserve re-prioritization or maybe canceling, people will be resistant to that change. Your job is to as quickly as possible shift your resources to strengthening your advantage. So how do you free up your people so that they can focus on being creative, they can shift to that advantage, digging in deeper, building a stronger moat with that advantage, being innovative and yet finding the capacity and the time to do that despite all of the personal challenges I just mentioned and all of the business challenges that are in play.

Jennifer Tejada:

I’m positive that you need to automate or eliminate anything that can create capacity for the stuff that matters, that advantage that we talked about. And making space is literally and figuratively space for transformation. So like us, as you’re probably scenario planning your butts off to maximize growth and conserve cash in case this pandemic goes on for a while, which it looks like it will, how are you going to do more with less, particularly in a cash-constrained world, and how do you know which projects to stop and which projects to accelerate? How do you leverage your team to do that? Well, for us we have to start with elimination. We had to ruthlessly prioritize our team’s investments and activities.

Jennifer Tejada:

And I was somewhat helped because we used the V2MOM methodology, where you stack rank all of your key initiatives, you stack rank the projects that support them. So, you kind of have to challenge that stack ranking in order to keep something that’s low on the list in play, or you have to make a really good business case for reordering that stack rank. And that’s precisely what we did. It allowed us to reshuffle some things. It allowed us to stop some projects or back burner some projects. Some projects that I particularly was very interested in and committed to. We had to put on the back shelf when the world started to change.

Jennifer Tejada:

Then you’ve got to assess your progress and then you’ve got to reprioritize again. I think the thing that surprised me was that you’re constantly having to monitor this, check your progress, potentially reprioritize because the market and the environment we’re in is evolving faster than in any experience in my professional lifetime. And what I’ve learned is this is really a cycle of days and weeks, not months. In this environment, I think the frustrating thing is the annual planning cycles that we’ve built our businesses around don’t serve us. They’re static and unresponsible to the evolving situation in front of us and we need something more dynamic and more fluid. Canceling projects to promote your advantage will serve you in this environment. So while it may be hard, cross some things off the list.

Jennifer Tejada:

Now let’s turn to the role that automation can play in accelerating your strategy and your business and your customer outcomes. As a startup, we covered a lot of processes together really quickly out of necessity and we haven’t really had time or the wherewithal to go back to them and harden them for scaling. And those manual processes, they build up like plaque on your teeth. You can’t really see it until it’s bad. And by then you’ve got a mouth full of decay and your teeth falling out, this whole set of painful bigger problems that are now harder and more expensive to resolve. And that’s where automation comes in, whether you’re leveraging robotic process automation from UiPath and your finance teams or your HR teams, or you use SaaS apps like Pendo to find insights and track and learn your customer behavior in your product, or you use People.ait o understand the auto and automate the process of gaining insights on sales capacity and sales productivity.

Jennifer Tejada:

All of these types of automation can not only accelerate work and get rid of manual work, they can help you institutionally learn faster, get smarter and get better faster. And those are the outcomes that we’re looking for. Earlier this year, we redoubled our focus on our enterprise segment where we have a strong leadership position. Think of this as something we identified as an advantage. And to shift resources, we had to automate more and more of our SMB offering and make sure that we could refine our product to make sure self service journeys were more productive and frictionless. We made in-app purchases available for all of our customers, and we are the only mobile app that you can run an end-to-end incident and response on, which is really important when we’re talking about supporting distributed teams.

Jennifer Tejada:

Another example we’ve seen plenty of in our customer world is this expedition of cloud migration. And in particular, we’re seeing this in retail and e-commerce and traditional consumer businesses where bricks and mortar brands have been forced to shift to 100% e-commerce overnight. And I remember seeing Andy Jassy speak about this at Reinvent, the idea of kind of cleaning out the garage and starting fresh as opposed to just digitizing the processes that were available today. So, we’re now seeing customers that are reinventing, reinvigorating the customer journey, leveraging the cloud as an automation platform for that. And all of you are very fortunate, many of you are cloud native companies. And so I think there is an opportunity and potentially an advantage here.

Jennifer Tejada:

This may sound kind of primitive when we talk about customers making that shift now, because you were born that way, but the biggest brands in the world didn’t start here; and underestimating those brands, do that at your peril because many of them have some of the best marketing, product and business operators in the planet and they have now gone Mach 5 into learning how to leverage the cloud to their advantage and they may be coming after some of you. So, the other thing to think about is your advantage of being a cloud-based company, that competitive lead or gap may be getting smaller for you and you’re really going to have to innovate on behalf of your customer in other ways.

Jennifer Tejada:

If you’re not already, you’re also going to need to retrain yourself and your teams to take a more agile approach to planning and capital allocation. Think about doing it on a rolling quarterly basis if not a monthly basis, so you can find opportunities for automation really quickly. You can pivot when you see a project that you’re investing in right now is not going to pay off for too long of a term. And at the same time, you can weigh up some of the long-term initiatives that are going to be really important for the future that are going to ensure that you can not only survive but thrive and come out of this environment much, much stronger.

*****

Transcript of Episode 371:

Jason Lemkin:

This is very exciting to me. Ben, thank you so much for coming and joining thousands of us in cyberspace here.

Ben Chestnut:

It’s about time you invited me.

Jason Lemkin:

Yeah. I’ve been asking Ben over Twitter for years to come and I think his kids got older, they had sports and spring break and it’s hard to lure someone from Atlanta sometimes, although you never know. Every once in a while someone has to have a meeting in the Bay Area or Paris and they’ll come but I’m super excited-

Ben Chestnut:

[crosstalk 00:02:10] finally aligned and I can be here with you and your audience.

Jason Lemkin:

What’s your gut on all the office stuff? Where will we be … has MailChimp gone, made any formal decisions and where will you be at the end of next year in an office? Have you figured that out?

Ben Chestnut:

I really like what Patrick Collison said recently on Twitter. I think when things do get back to normal and they will, six months after that, you’ll look back and things will look like nothing ever happened. Maybe that’s just faith, blind faith that it’ll get back to normal. I have family that was stationed in China for work and they said it got back to normal.

Jason Lemkin:

It’s definitely back normal. Even in Europe, like all the entrepreneurs I know in France, it’s like 90%, right?

Ben Chestnut:

Yeah.

Jason Lemkin:

All right, so no thinking of getting back to normal is sort of how you’re thinking as a leader, right, for all of this. It makes sense to me. I’m super excited. I think, I’ve been … I was trying to think last night whether I’m a 3X or 4X MailChimp customer but it’s fun to … there’s apps we use every day, right, but there’s not that many times you’ve been a three or 4X customer and it’s fun to see it and then MailChimp to me is so interesting for founders here because it took me by surprise how big it was.

Jason Lemkin:

Maybe it’s because you didn’t raise 11 rounds of venture capital, which we’ll touch into and bang your chest on TechCrunch every week with another huge round or maybe it’s because I wasn’t a marketer by training, right and I just grabbed an app here or there. MailChimp, several times I think took all of a surprise and it’s kind of a hero company because of that. So, I want to do … like I want to go back in time a little bit to the very, very beginning but to me, the most fun … I want to jump around time, if it’s okay and talk about breakout, right?

Jason Lemkin:

So, MailChimp is … I don’t know whether you’ve announced your numbers, you don’t have to comment but around a billion ARR on either side, it’s a lot of ARRs, whatever it is, it’s very large but it’s a category nominally with a lot of vendors, right? A lot of vendors, tiny, minute, they probably pop up every hour. There’s someone with some specialized … at least on email and we’ll talk about getting bigger and into micro animation. So, what was like the 10X feature … whenever it was, a million in revenue, two million, what let MailChimp break out for real from the competition?

Ben Chestnut:

It had to be freemium. It was 10 years in, 2010, 2009-ish when we launched our freemium plan, everything took off. It was this rocket ride right after that. I mean we went from, I don’t know, tens of thousands of users to a million in the first year and then it doubled and doubled and doubled after that. It’s been a crazy rocket ride from there.

Jason Lemkin:

So, that’s interesting so before you went freemium, which was like 2009-ish, is that right? Let’s talk about that-

Ben Chestnut:

Yeah, we didn’t have a free plan. We didn’t have a free trial before that. You had to pay.

Jason Lemkin:

You were nominally founded in 2001, right?

Ben Chestnut:

Yes.

Jason Lemkin:

We’ll talk about that. So, MailChimp wasn’t an overnight success story by any stretch of the definition. You launched … and the first two years before you went freemium, do you remember … it took you two years. Two years is a long time as a founder too, right? How big were you were … but you still managed to get to a couple million in revenue but you were not a differentiated tool at that point?

Ben Chestnut:

It didn’t feel like it. I was eating off the McDonald’s value meal, I was still eating ramen, that’s all I remember of those days-

Jason Lemkin:

Is that true, even two years in.

Ben Chestnut:

Yeah, like you said, I think my revenue is in the hundreds of thousands.

Jason Lemkin:

Okay, so freemium, which we have and … So, that is interesting because … and then, why did it work, were people … because freemium alone isn’t always a marketing strategy, is it? You have to have traffic. You have to have a denominator. You have to have people searching for you and finding you, so did you even know … and to me, MailChimp is interesting because I would think of it as lightly viral, right? If you’re on the free plan, you see the MailChimp at the bottom, if you take a look at the to field or whatever, you can see that it came where there’s URLs but it’s not Zoom viral, right? It’s not that real time. Why did freemium work besides that it worked? Did you even know?

Ben Chestnut:

Well, I think it was just perfect timing. I think there was a crisis going on. It was 2009, we were still reeling from the recession and people needed it badly. Small businesses badly needed help and there we were with the solution, a little bit like Zoom. A much smaller scale of Zoom, but we were there with the right tool at the right time.

Jason Lemkin:

What was, when you launched it, not to go too much in details, it’s interesting because it worked. It didn’t worked fast, it worked in 30 days or 60 days. The conversions happened, right? Your paid business went up, dramatically, quickly right?

Ben Chestnut:

There was immediate, yeah, server outages, people were running around like chickens with their heads cut off. I mean it was crazy. Yeah. I was at the time-

Jason Lemkin:

What did you do?

Ben Chestnut:

I was getting flashbacks from like the AOL dial-up issues where no one could dial in, everyone was complaining about that and I was like, “Oh my god. I’m AOL.” Nothing would stay alive it seemed like.

Jason Lemkin:

Man. Yeah and what was the first … if you remember, what was the first … I hate this word but what was the first choke or what was your first point where you had to convert to paid that actually worked? Did you test anything or what was that insight? When did you know when to throttle the free folks back when you first launched?

Ben Chestnut:

It’s a little bit weird with small businesses because sometimes with small businesses they need like five years to figure it out. You know how it is, it’s a grind. We never really found the one choke. What we found was that they just need lots of time to find their way and everything we tried just really didn’t seem to work. Sometimes they just needed to get to … 30% of small businesses die in two years, 50% die in five years. So, it’s like our sales pipeline, it needs to be five to 10 years. That’s the pipeline for small business, it felt like at the time.

Ben Chestnut:

So, all we really did was give them more time. That was really the only kind of choke point that we had to make people … they would shut down their business but they would keep their free MailChimp account alive. They’d get a job. They’d learned how business actually runs. They take that learning, quit, start their business up again and then-

Jason Lemkin:

With their list.

Ben Chestnut:

Yeah, yeah but it was really just … once their list grew to about 2000, that’s when they felt like it was less of like a forcing mechanism but more like a celebratory rite of passage, like if they could get their audience to 2000 and they had to start paying, they felt proud of that. We saw tweets of people saying, I’m finally a paid MailChimp customer. Yeah.

Jason Lemkin:

It’s interesting, I had an eye opening moment years ago when I first met with someone at SurveyMonkey when it was tiny and they said, “We don’t count churn when we lose a customer because they may come back in their next job with their next thing. We don’t actually count that. We don’t count that as churn. We wait some …” They waited a mammoth amount of time in the early days, probably not today as a public company. How do you think about that sort of churn because you didn’t really lose that customer, right? Even though the revenue paused. Do you have a nuanced view of churn at the very low end of the market?

Ben Chestnut:

At the very low end of the market, absolutely and a very nuanced view of ARPU as well. We kind of went lower ARPU because we want a larger denominator. We want more and more small users than we do very, very big users.

Jason Lemkin:

So, when you’re the CEO and you’re … I would imagine at this point, you’ve got a few dashboards at MailChimp. How do you think about the goals for those … because the smaller the customer usually the higher the churn, right? That’s the law, especially the very small businesses, right? The one person shops, it’s hard, right? What do you see on your dashboard in terms of churn and how do you incent the team or drive the team to do better in those tiny, tiny customers in terms of churn?

Ben Chestnut:

Well, what you do is you say what are the industries where … our small business customers are really tech savvy and they really push the limits of innovation inside of MailChimp and we didn’t say where the most revenue comes from, we said where do they push our limits because that’s what drives us, is innovating and then, we said, “Well, it’s eCommerce customers.” So, we really look at just a few slices of our audience and we say, what’s going to help them sell more? Those are small customers. They’re tiny but they can make millions of dollars after sending every email campaign.

Ben Chestnut:

They’re making hundreds of thousands or millions of dollars every time they hit send. We focus a little bit more on those and any technology that we get out of serving those sort of high-end, high-innovation, high-income customers, it trickles down to the small businesses.

Jason Lemkin:

It’s interesting that’s … I guess that’s obvious that … even back in 2009 when you converted, eCommerce was sort of your north star customer, was folks selling, and then MailChimp is almost like your ERP isn’t it? It’s certainly your marketing automation … but it’s almost more, right? Your list can be everything as a tiny vendor, right?

Ben Chestnut:

I can walk through at a restaurant and I can see someone … or at a coffee shop, they’re using MailChimp, they’re using it like a CRM. I see them with their database, the MailChimp audience screen up live. It’s less of the sending and it’s more of the analyzing the data of their customer base for sure.

Jason Lemkin:

Just one last question on this and let’s hit the next one. The step function of those going to freemium, two years, charging everybody, the second … again, give me your credit card, no chance for a small business to get to know you, to see if they want to fall in love, right? Freemium worked but what was the surprise and delight feature? People back then loved MailChimp, right? It wasn’t just the chimp and the cute ads, and I can’t remember because I didn’t know nothing about email, I just found MailChimp on a Google search which is probably our next slide I want to talk about. What was your surprise and delight? Why did they love you? Did you have a hero feature? What was that special product moment or feature?

Ben Chestnut:

I was a real stressed out entrepreneur in those early days and I was just constantly micromanaging everybody in the office like, we got to get this done. We got these goals. I have a Gantt chart of everything and I noticed nobody wanted to stay late. They just weren’t inspired but one day, people were staying late and I was like, “What are you doing?” They would hide their screens every time I looked. Then, later I found out what they were doing was they were planting Easter eggs and that’s what got engineers and techies inspired to actually work late and I said, “You know what, as long as we hit our goals, do all the Easter eggs you want.”

Ben Chestnut:

So, people start to infuse personality into the app. They started to build an app that they wanted to use and it turned out small business customers running a small business is dismal, I’ve learned over the years and they really need like a ray of sunshine, some sense of hope, some kind of humor in the app. So, I think that was sort of the … that was the thing that kind of was the key unlock for MailChimp in the early days, just personality.

Jason Lemkin:

Yeah, make it accessible, right? Make it fun and interesting.

Ben Chestnut:

Yeah. We’ve had … I’ve seen news headlines where we take down a billboard of Freddie and people complain. They said, “That was my only joy in life.” We’ve reduced the amount of Freddie in the app because people were saying it’s taking up too much space on mobile and everything and we’ve had … We get a deluge of complaints. I had one small business customer saying, “He was my only joy.”

Jason Lemkin:

That is a sign of something special. Yeah, and then this one … this is just one of your billboards. This is the one but MailChimp has always been bootstrapped which we can dig into but that especially means every dollar is scrutinized … in the beginning, at a force of necessity, for years and then it becomes part of your mentality and then, I remember, one day, I was driving up 101 in the Bay Area and I saw, I think that the one on the right. I’m colorblind, the yellow one, the classic one and I’m like MailChimp must be … like how can they afford these … I didn’t even know what billboards cost back then, right? I know today, they are cheap.

Ben Chestnut:

They’re expensive now.

Jason Lemkin:

Back in the day as a founder, I’m like, “Oh my god,” but still you were buying billboards and now I get it, it’s tech, you want to expand into tech, right? What did you learn about brand because all you had was that chimp on the 101 in the Bay Area and this display ad and brand advertising, it’s not intuitive to founders, right? It is non-intuitive, why did you do that relatively early and what were your learnings about how to build on your brand?

Ben Chestnut:

Well, that was always really cheap.

Jason Lemkin:

Yeah.

Ben Chestnut:

Always experimenting with different kinds of media. I was doing podcasts when they first came out, really just for affordable-

Jason Lemkin:

On an iPod.

Ben Chestnut:

Yeah, yeah.

Jason Lemkin:

Hence the name, yeah.

Ben Chestnut:

Billboards was just one of the things we always tinkered with. We have a culture of tinkering and experimentation at MailChimp. The thing about billboards and branding is … one thing is I always wanted something tangible with our brand. Everyone interacts digitally but you need something to feel. So, I always have like MailChimp toys, something that I want on your desk, that you can feel or see, that makes your brand real when you can see that in the real world, like you saw it in your car on highway 101. Then, with the billboards, I had a competitor. We would listen to their analyst calls every quarter and they said that they opened up a San Francisco office.

Ben Chestnut:

That was going to really stick to us because they could have a physical office right there in the heart of Silicon Valley and they would have everybody come to their office and I told my team, “You know what, why don’t you set up a billboard across the street from their office.” So, that was sort of-

Jason Lemkin:

That might have been the one I saw, right?

Ben Chestnut:

Thankfully my team saw that that was kind of a jerk move and so they said, “We like the idea of billboards. We won’t do that, we’re going to put them up and somebody put one up across from this building, I never heard of, called Moscone. I’d never heard of it at the time. They did it right before Apple’s Dub Dub DC and then right after that was Google IO and it just went viral. People took pictures of that mysterious monkey, posted it to this new thing called Instagram and it just kind of went viral from there. So, I mean, I guess the lesson is care about your brand. Try to get it physical not just digital only when you can afford it.

Ben Chestnut:

Always be tinkering and if you’re always tinkering then, when they really become available like CVS and all the people that do outdoor, once they saw us buy a couple, then they just went nuts that we’ve got all these other properties, how about the highway, how about this, how about … and then, it just kind of grew from there.

Jason Lemkin:

And then related to this like brand. Brand is really … it’s a funny thing, it creeps up on us as founders, doesn’t it? Because we kind of make fun of it in the early days. We think … At least we used to, we think that’s a Pepsi thing, a John Sculley thing. Brand is … The last thing you want to do in the early days is hire a marketer that just wants to work on your brand and then you realize they were right, like MailChimp has this brand and when does that work? How do you know when to invest in brand versus leads versus the other thing and how do you protect your brand today? Because it’s always at risk, right?

Jason Lemkin:

We’ll talk a little bit maybe more about doom that we talked about the other day, right? What have you learned about brand and when does it matter?

Ben Chestnut:

It matters always. It’s what … I was a designer at heart so brand meant a lot to me from the early get-go. I mean, I started wanting to build a global brand So, I might be the wrong person to ask about that.

Jason Lemkin:

Well, maybe you’re the right person.

Ben Chestnut:

I wanted a brand from day one. Yeah, maybe. The thing is like, it makes people loyal. It makes people love. I mean, I’ve always said, I don’t shoot for loyalty. I shoot for love. I don’t want people to just blindly use my product. I want them to use it out of its merits. You do want people to kind of just love that brand and it’s actually the most economical marketing to do because it goes viral that way. People tell their friends about it and that’s the cheapest marketing that you could pay for.

Jason Lemkin:

Yeah, for sure. So, this slide you guys put together, who am I seeing here? What’s going on in this slide?

Ben Chestnut:

That’s me and my co-founder. That’s my mother, she ran a hair salon in the kitchen. I couldn’t get an action shot of her actually doing her work. That’s just Thanksgiving, that’s just Thanksgiving. Over on the right, that’s my co-founder, Dan. He’s the tall one and that’s his father’s bakery. So, we both had entrepreneurial families and we both grew up in the kitchen, watching their businesses grow and then ultimately fail. That’s what drives us today, we really want to empower small businesses. That’s DNA of MailChimp so that they don’t fail like our parents did.

Jason Lemkin:

Yeah, I hear … and they failed while you’re … you saw them fail.

Ben Chestnut:

You see them and you can see that it’s not just a business that fails. It’s a person, it’s a family and the effects linger for generations.

Jason Lemkin:

Yeah. When we were chatting before this, I heard some of that linger in your thinking right? There is this … Conservatism is the wrong word but there’s this fear of doom that we chatted about, maybe attacks back to your childhood. It’s interesting that it inspired you to be an entrepreneur, right because these feelings linger with us, don’t they?

Ben Chestnut:

They really do and they also kind of tell you that doom and despair might be the norm. So, you just have to kind of be marching. Everyone is talking about 2020 is a dumpster fire and it really is and sometimes I asked people what if it’s always been a dumpster fire and we’re just now noticing it. Yeah, entrepreneurialism is about one setback after another, isn’t it?

Jason Lemkin:

Yeah, you told me when we were chatting before, which floored me a little bit, that even at MailChimp scale, you have doom thoughts. You worry that the company could fail, right? I feel like my SaaS learning is that after 10 million or so in revenue, you can go into a terminal decline, right, but it could take a decade, right? I mean, let’s look at Oracle and companies, like even if Oracle never releases a new product, we want it to be 2050 before those last Oracle servers are shut down in some data center but you have doom fear still today. Today, you still have doom fear.

Ben Chestnut:

Yeah, I tell somebody that I still feel this way, we could die tomorrow. We could die tomorrow and then somebody told me, “You know, you really can. Most likely, the plane will crash like this. The plane will just lie to a slow kind of embarrassing descent.” I just thought, that’s worse than crashing?

Jason Lemkin:

That’s worse.

Ben Chestnut:

Yeah, I do have that, that is the attitude that I think is necessary. I mean, isn’t their book about that Only The Paranoid Survive or something along those lines?

Jason Lemkin:

There is. What that means … like I think we all take away slightly different meaning from that title, right? That might have been more about competition killing you than doom, right?

Ben Chestnut:

Doom as well.

Jason Lemkin:

It is. It’s funny that the Intel … When we were growing up, I thought hardware was the hard one and software was the easy one but it’s backwards. These hardware … look at phones, hardware phone … but the cycles are so fast, but MailChimp will last 30 years at this point, if you don’t totally screw it up, Ben. Software is harder than hardware, which doesn’t even still make sense to me. Hardware is ephemeral, right? Software if you do it right … look at the Decacorns, right? Look at these companies, if you do software right, it’ll last 40, 50 years and if I was running MailChimp … like I’m jealous. I don’t literally mean jealous but it’s up to you, right? It’s your job now to build a 50 plus year platform and we’re not going to have that AOL experience, right? If we do it right.

Ben Chestnut:

That’s right. It’s like S curves. The first S curve is like the fastest and the tallest and then, there’s like lots and lots of subsequent smaller harder S curves. I look at some of those software companies that have lasted over the years, and it’s like constant reinvention is what I see in their numbers, right?

Jason Lemkin:

Yeah. Which phase … I wanted to do a little bit more in the early stage if we had more time, but tell me about the phases of MailChimp because today, we’re sort of this … we’re even more than a marketing automation platform, right? MailChimp is like a marketing platform. We’ve got social and images and timing and AI and ML and all of these things, but MailChimp stayed email only for a long time, didn’t it? Are we in the second phase of MailChimp or the third? What did you learn? What were those evolutions and why did they take a while versus a year?

Ben Chestnut:

Well, I always felt like … I read Crossing The Chasm a long time ago by Geoffrey Moore and he said, a lot of people want to cross that chasm. It’s important to cross it but they cross it too soon. I said, “Oh, okay, I’ll just dwell a little bit longer.” I think that that’s kind of the advice, if you read between the lines, it’s like really master what you do. So, I took that seriously and I mastered email and then, it wasn’t until I started talking to customers out in the Midwest. What is it that MailChimp’s brand means to you? They told me it’s marketing. It’s not just email. Get out of email, expand. That was when I was inspired but I wasn’t like a strategic … like a genius strategic decision that I made, it was talking to customers.

Ben Chestnut:

They said, “Dear God, expand, sprinkle that Mailchimp magic on other marketing channels.” So, that’s kind of what took us so long. So, I tell my employees, we’re in Act Two of the business. Act One was great. It took us really far. It’s not going to be enough. We’ve got to evolve from here.

Jason Lemkin:

Yeah, so I didn’t … you’re not on Act Three, I didn’t miss one, right? Act One was email, nailing it. Probably lasted 15 years though, Act One, right? Some part … better part of 15 years, right? Depending on how you count, depending on when you start, right? A decade-

Ben Chestnut:

We’ll still be looking Act One for a long time, until Act Two, except what, 30 … at least 30% of our revenue is my philosophy and then really Act Two has taken a hold.

Jason Lemkin:

I want to ask about proportionality, right? How big those product extensions need to be. Do you think of that as just the same customer and maybe more revenue from the time or do you think of this as accessing different customers and that has to be big because MailChimp is already big, right? You can’t add something that adds 2% to your revenue because it doesn’t move the needle, does it?

Ben Chestnut:

Yeah, maybe not so much a different customer, maybe a little bit like the whole world is skewing more to eCommerce. In a sense it is more … a little bit of a different customer but the product is more sophisticated and it’s going to require different amounts of sales. We’re looking into that, how do we broaden a self-serve app that just quickly sells like one point solution called email, that’s kind of easy but when you start to sell multiple channels across the whole platform that’s going to take more assistance and hand holding. Yeah, it’s going to take an evolution more.

Jason Lemkin:

It will, right? I never talked to a sales rep but did MailChimp have any sales people today? Did you have any sales people two years ago?

Ben Chestnut:

Not two years ago, no. We have small little teams that dabble a little bit but we just hired a chief customer officer, starting in a couple of weeks so yeah, changes afoot.

Jason Lemkin:

Change or maybe … there maybe a few hundred sales reps at MailChimp next year. That’ll be an interesting journey right there, won’t it?

Ben Chestnut:

Everything changes.

Jason Lemkin:

Well, it’s cool. Well, Ben, this was incredible. Is there anything I missed that you wanted to hit or chat about at the very end?

Ben Chestnut:

No, I hope all the entrepreneurs out there see us and recognize, we are transitioning from Act One to Act Two so watch us.

Jason Lemkin:

I’m excited. Let’s continue the discussion about Act Two. I think this is one of the great case studies, right? MailChimp, learning the freemium, doing it bootstrapped and then taking, depending on how we count, 12 years to go to Act Two, right? Whether we start in 2007, 2009, 2001, it’s a slow roll to Act Two, right? It’s a slow roll to get to 10 billion in revenue.

Ben Chestnut:

I mean, you can characterize it as slow, you can characterize me like making lots of money-

Jason Lemkin:

Deliberate. Yeah, lots of money. Yeah, so I want to track the next 10 years for fun as a fan and as a case study, right? It’s going to be a fun case study to see how MailChimp evolves on these two vectors today. So, we will keep pestering you Ben to share your learnings over the next 10 years on phase two. So, thank you again for the time. This has been tremendous and thanks to everyone for tuning in.

 

Published on September 4, 2020

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