Ep. 315: Harry Hurst is the Co-Founder & Co-CEO @ Pipe, the startup that gives you control of your cash flow by giving you access to the full annual value of your monthly subscriptions, upfront. This month they announced their $6M seed round led by David Saks @ Craft and joined by Fika, Weekend Fund, Naval Ravikant and WorkLife Ventures to name a few. Prior to Pipe, Harry co-founded Skurt raising over $11M in the process before being acquired by Fair.com. Harry has also angel invested in the likes of BreathePod and Try.com.
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In Today’s Episode We Discuss:
* How Harry made his way from the UK to founding one of Silicon Valley’s hottest SaaS startups with the founding of Pipe.
* How does Harry think about when is the right time for a startup to raise VC funding? How does Harry stress test the alignment between the founder and the VC? Alternatively, when is the right time for a founder to take non-dilutive capital from Pipe instead?
* Pipe’s lending model is so centered around churn prediction, what does their churn analysis look like at Pipe? How does Harry think about the right way to structure churn postmortems? Why does Harry believe investing in customer success is far more important than customer acquisition?
* How does Harry think about the importance of brand for enterprise startups today? Do you have to invest in it from Day 1? What mistakes does Harry see many founders make when it comes to investing in their early brand?
Ep. 316: The startup journey moves in waves—whether you’re ready or not. After finding funding and product/market fit, your next steps as a founder in the hypergrowth phase can determine the future of your company. Harry Stebbings of Stride.VC and Robert Vis of MessageBird will walk through lessons learned to survive hypergrowth and what will make a difference when it comes to scaling. Hear how to navigate fast growth and how to look ahead as you travel forward.
This episode is sponsored by TaxJar.
SaaStr’s Founder’s Favorites Series features one of SaaStr’s best of the best sessions that you might have missed.
This podcast is an excerpt from Robert’s session at SaaStr Europa 2019.
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Below, we’ve shared the transcript of Harry’s interview with Harry Hurst.
Harry Stebbings: We are back on the official SaaStr podcast with me, Harry Stebbings. And you can see all things behind the scenes from us here on the show at hstebbings1996 with two Bs on Instagram. It’d be great to see you there. I always love to hear your thoughts and feedback there. However, to the episode today, and my word, I have so much love for this guest. He’s an incredible founder, person and a very, very dear friend, and changing the way SaaS as an industry will work and be structured in the future. So with that, I’m thrilled to welcome a fellow Harry, Harry Hurst, co-founder and co-CEO at Pipe, the startup that gives you control of your cash flow by giving you access to the full annual value of your monthly subscriptions upfront. This month they announced their $6 million seed round led by David Saks at Craft and joined by Fika, Ryan Hoover at Weekend Fund, Naval Ravikant and WorkLife Ventures with Brianne Kimmel, just to name a few.
Harry Stebbings: Prior to Pipe, Harry cofounded Skurt, raising over $11 million in the process, before being acquired by fair.com. Harry’s also angel invested in the likes of BreathePod and try.com, if that wasn’t enough. And I do want to say a huge thank you to Jeff Morris Jr. for the fantastic intro. Mojitos on us for that, Jeff. I think we really owe you one for that one.
Harry Stebbings: But that’s quite enough for me, so now I’m delighted to hand over to a much better looking, much more intelligent, also called Harry, also British, Harry Hurst, co-founder and co-CEO at Pipe.
Harry Stebbings: Harry, my friend, it’s such a joy to have you on the show. I’ve been so looking forward to this one, so thank you so much for joining me today, my friend.
Harry Hurst: Thanks so much for having me, Harry. I’m actually really excited that my first ever podcast is with a fellow Harry.
Harry Stebbings: Indeed, what a name. And both British. But I do want to start today on you and a little bit of context on you. You started in the UK. And now how did you make your way to the West coast and now founding one of the hottest early stage SaaS companies in Pipe?
Harry Hurst: Yeah, so it’s actually a 14 year long journey, and it starts when my grandma moved to San Diego when I was 10 years old. And I absolutely fell in love with California. Just knew I wanted to end up here. And growing up in the UK, I actually watched a lot of Dragon’s Den, which for the US listeners is the UK version of Shark Tank. And there was always this common theme of eventually expanding out and conquering the US. So I always thought to myself, if that’s where you need to end up, why not just start where you mean to end up? The catalyst for my entrepreneurial spirit actually comes from my dad. He was a market trader back in the UK. And when I was young, I used to travel the country with him setting up his market store to sell clothes.
Harry Hurst: And that really taught me how to sell in the purest form. The entrepreneur in me, though, wanted to make more money than I could make on the market. So at about 13, I set up an eBay business, and we actually used PayPal obviously to process all of the payments. And I guess this was somewhat foreshadowing because I’m now backed by David Saks who is the founding team there. So indirectly, he’s actually had an impact on my life from a very young age. So as most immigrants who are listening to the podcast probably know, one of the biggest challenges to actually getting out to the US is immigration itself. So I had to take a step back throughout my teens and early 20s because I knew it was going to take a bit of time to get out here. So I needed to figure out how I was going to make money and fund my life.
Harry Hurst: So throughout my teens and early 20s, I built companies ranging from fashion distribution, all the way to headhunting and recruitment. And whilst those weren’t really scalable businesses that I was super passionate about, they did enable me to refine my skills and learn how to sell. So fast forward to 2014, I was in LA and finalizing my visa application. I met my now cofounder, Josh, rather serendipitously, pitched him the idea for what became Skurt, and just a few months later we were actually starting that company out of a one bedroom apartment in a little town called Dana Point, just South of Los Angeles. Skurt was a fleet management logistics and mobility company. I think the easiest way to describe it is think Postmates, but instead of having a burger delivered to your door in 30 minutes, you’d actually have a rental car delivered to your door in 30 minutes and then picked up as soon as you’re finished with it.
Harry Hurst: So we grew that company to about 120 people before we were eventually acquired in 2018 by a company called Fair.com, also based in LA. Josh and I both went to work at Fair, along with our entire team, until eventually about a year and a half in, Josh and I both decided to leave, go for round two with Pipe in late 2019. So just a couple of weeks into Pipe, I was fortunate enough to be introduced to David Saks through a good friend of mine. Our team met with David just a few days after our initial conversation in San Francisco. And to David’s credit, he had so much conviction about what we were doing that he actually gave us a term sheet in the first meeting. Quite honestly, it was like something out of a movie for Josh and I. So we closed the deal within about 24 hours with David, and from there we were off to the races.
Harry Stebbings: Man, I love that in terms of the first meeting term sheet, and that’s awesome to hear. I am really interested though, because you said about your experience there with Skurt, and often we hear about kind of the benefits of serial entrepreneurship. From your perspective, what gets easier the second time around?
Harry Hurst: So I think subsequent times around, fundraising is infinitely easier. Not only is your network significantly stronger, but I think it’s a huge box tick for investors being a repeat founder, especially if you’re building it with the same founding team as we are here.
Harry Stebbings: No, absolutely. I totally agree. Especially when there’s kind of that continuity on the team. I do want to ask, though, on the flip side, is there anything that gets harder the second or third time around?
Harry Hurst: So I actually think building a venture scale company is possibly one of the hardest things that you can choose to do as a career, all be it is one of the most rewarding. So I’d say it’s still pretty hard, but if it was easy, then I guess there’d be more competition, right?
Harry Stebbings: No, absolutely, there would. But speaking of kind of more competition and changing players in the market, I do want to start today on the ecosystem itself. Because when we chatted before, you said to me the democratization of enterprise spawns an entirely new ecosystem of entrepreneurs. How can I not dig into this? What did you mean by this? What has changed? And what are the drivers?
Harry Hurst: Yeah, so what I meant here is that as what would have historically been considered enterprise grade software becomes accessible to anyone with a laptop or phone at home. We see a new breed of scrappy entrepreneurs building the framework for an entirely new class of startup, ones that don’t require tons of capital to get off the ground and most interestingly are founded by previously underrepresented founders outside of the Valley, for example, who have the talent but didn’t previously have the means or access to the tools required. This is actually one of the most exciting developments for me in SaaS. And I think the SMB mid-market sector is actually what’s fueling this tremendous growth we’re seeing year over year. And I think that’s by virtue of this flywheel effect, that is more accessible enterprise grade software enables more enterprise grade software to be created.
Harry Stebbings: Okay, so with the spawning of this new entrepreneur and this new generation of enterprise software creation, I do have to ask, enterprise software and SaaS itself is probably one of the hottest funding markets available today. So question for you. When does it make sense to take VC funding?
Harry Hurst: Great question. So assuming you do have access to this abundance of VC funding that’s available at the seed stage, which typically is the most speculative stage of a company’s existence, I think it can make ton of sense to take on some dilution with the right partner and then use that capital to figure out product market fit together. I really do want to put emphasis, though, on finding the right partner here. You want someone who has subject matter expertise that they can lend to you when you need it, but at the same time they believe in you enough to let you experiment and figure out yourself for the most part.
Harry Stebbings: Okay. So on the flip side then, when does it make sense to grow without dilutive capital using Pipe, for instance?
Harry Hurst: So this is actually my favorite part because I get to talk about Pipe. So our thesis at Pipe is that once you found that product market fit that we were talking about, which we typically see it late seed, series A, depending on the company, you have that rinse and repeatable growth where you invest a dollar into acquisition, you know you’re going to get a $1.50-$2 back. Equity financing tends to be abundant for these types of companies, but it’s not necessarily the most efficient way to finance that growth. So at this stage, these companies have these amazingly predictable monthly recurring revenues. But the issue for them is that they don’t actually have access to the cash flows to invest into growth. So these companies typically bridge that gap with equity financing, which seems easy at the time. But in the long run, what we see as founders owning low single digit percentages of their companies, they’ve put their blood, sweat and tears into building them, and that just doesn’t seem fair.
Harry Hurst: So with Pipe, we allow these companies to access that cash flow, and they do that by integrating their subscription and billing management systems with our dashboard, along with their bank account. So we can give them a facility within ours that enables them to instantly sell their monthly recurring receivables to us. And in return, we advance them a full year of those cash flows against those receivables, less a small fee. And that fee significantly less than the discount that they typically offer customers directly for annual prepayment, which you’ll see from their websites. If you toggle between monthly and annual, it’s 20 to as high as 30% in some cases. In terms of facility size, I mean it really ranges. It starts from tens of thousands of dollars a month all the way up to millions per month. It really depends on the health and the stage of the company. But really our target customer is any B2B SaaS company of all shapes and size. As long as they have mature cohorts that show predictable monthly recurring revenues, they should consider using Pipe to fuel their growth.
Harry Hurst: There’s an alternative to that, diluted equity financing. Perhaps it’d be helpful just to sort of break down a representative example with numbers so people can get a real sense for just how impactful this can be for a company. So let’s say we have a SaaS company that’s generating say 10K in net new MRR every month, and the majority of that net new MRR is being paid monthly by their customers. For this example, let’s say that they’re burning 100K a month. So that 10K and that new MRR doesn’t go very far to offset that burden. So they typically need to raise equity financing to bridge that gap. With Pipe, they could get access to up to 120K, which is 10K in net new MRR times 12, which is the annual recurring revenues for those customers. And they can do just by piping those net new subscriptions, and then all of a sudden with that 120K versus the 100K burn, they’re cash flow positive and they can invest into growth. And then it’s just a case of rinse and repeat. It’s really game changing.
Harry Stebbings: I mean I absolutely love it and it is game changing, but it’s also so reliant on your ability to accurately predict churn. I have to ask, Harry, how do you think about churn prediction internally and what that looks like for you?
Harry Hurst: Yeah, definitely. And that’s one of the key factors that we actually take into account in our underwriting through the continual integrations that we have with our customers. For us, it’s pretty much a data science play. We’re making sure that based on all of the historical cohort to the customers, that there’s enough data there to show us the retention that’s out to as close to 100% on both the logo and a dollar basis as possible. And what it comes down to is that the better these metrics look, the healthier the underlying business is and the more confidence we have in financing on a go forward basis.
Harry Stebbings: I’m sure it’s not easy though, man. I mean, what are the challenges?
Harry Hurst: Yes, so it turns out that when you’re offering something as attractive as money, there’s a lot of demand for it, and a lot of that demand comes from super early stage businesses. And it makes it pretty tough to underwrite these businesses if you have to look at historical mature cohorts. Even though you may really believe in the product or the founders, and we come across tons of businesses where we think, wow, from an equity standpoint, this makes a ton of sense right now. And it’s those companies that are probably a better fit for equity at their stage. Or if they don’t want to take any sort of dilutive equity capital, perhaps they’re better off bootstrapping until they have the cohorts that are mature enough for us to actually underwrite and then we can get into business with them.
Harry Stebbings: No, absolutely. But also the way to prevent the dreaded C-word–being churn–is through customer success. And you said to me before, customer success matters more than customer acquisition. Hit me, Harry, why is this and what are the thoughts here for you?
Harry Hurst: Yeah, so this is actually something I feel really strongly about. And we make a concerted effort to be laser focused on this in our own business at Pipe. So under the assumption that you’ve actually acquired some initial customers, at that point, I firmly believe that customer success becomes more important than the actual acquisition process. So this is based on the fact that growth doesn’t just come from acquiring new logos. It comes from expansion revenue too. And this can be achieved without actually acquiring any new customers and for a much lower cost. When I think about the lowest CAC channel for any business, irrespective of industry, it’s word of mouth. And if you have customers that are successful with you, word of mouth spreads really fast, and customer acquisition becomes inherently easier. Your NPS is your best friend here. And I want to note here that it’s not that customer acquisition isn’t important in itself, it’s that customer acquisition doesn’t necessarily equal customer success. But on the other hand, customer success almost certainly does equal revenue growth and in turn, new customer acquisition via word of mouth.
Harry Stebbings: What about when you’ve explored all available budget that that particular customer has left to spend and there’s no more upsell available?
Harry Hurst: Oh yes, absolutely. If you feel like you’ve achieved the maximum value out of a customer, then the retention function of customer success kicks in, and you should be laser focused on preventing logo churn and keeping dollar retention as close to 100% as possible. For example, the customer continues to see value in previous upsells and doesn’t request to downgrade their plan.
Harry Stebbings: No, absolutely, in terms of the dollar retention. But going back to the promise of Pipe there, it’s fascinating because with Pipe you can always kind of securitize the asset that is a software contract. If you put your futuristic hat on, Harry, how do you think about this in the future? Will the kind of software contracts themselves be a standalone asset clause? And what are your thoughts here?
Harry Hurst: Oh definitely, definitely. So Robert Smith, CEO of Vista Equity Partners, actually spoke to this. And he said software contracts are better than first lien debt. And what he was referring to here is that nine times out of 10 companies will actually pay their software maintenance fees before they pay down their first lien debt. I mean let’s think about it for a second. The recourse for defaulting on first lien debt’s going to take a while to kick in, perhaps months before a bank actually forecloses. But if you don’t pay your server bill or your CRM subscription, that’s essentially your business shutting down overnight. So it was actually this insight that led us to the realization that in the longterm what we’re really building for institutional investors is a way for them to get exposure to these amazingly predictable recurring revenues of SaaS companies by effectively buying what looks a lot like a fixed income product. And the whole Pipe team are super excited about what that looks like and how that positively impacts the cloud services industry as a whole down the line.
Harry Stebbings: Speaking of kind of looking into the future there, you’ve been incredibly forward looking when it comes to branding for Pipe, being sure to get pipe.com, the great domain name, @pipe, a great Twitter handle. How do you think about the importance of investing in your company brand, especially in enterprise, and I guess where do you think so many go wrong when it comes to company brand?
Harry Hurst: Yes, so there’s an old adage, sales overnight, brand over time. And I think for some this can be true, but my view here is that if you have the resource to invest into brand early, do it. Because it can actually dramatically increase the efficiency of your sales cycle because if you think about it, a company that invests into their brand is basically saying we’re here for the long run, we’re building something big, meaningful, and we’re willing to put our dollars behind it in showing you the customer that we mean business. And I think this is especially true for companies like Pipe that are providing something so mission critical like a finance product that reshapes how companies are built. Because your customers are going to want to know that you’re going to be around before they actually invest into building their business around yours.
Harry Stebbings: Speaking of your kind of forward looking nature and preparedness around brand now, I guess a question for me is, from past experiences, what hasn’t worked well and have you changed the way you acted as a result?
Harry Hurst: Yeah, so at my last company, Skurt, we actually didn’t bring on a senior finance hire until after we’d raised over 10 million bucks and had several million in revenues. And in hindsight, this was a huge mistake. It held us back in fundraising meetings. More so internally, it prevented us from effectively planning our financial future. But this time around at Pipe, we actually have a finance rock star on our founding team. Shout out to Lucas. And just having him on board from day one, it’s allowed us to have the financial insights to actually be able to be in business with tier one investment banks right from the start, as well as having an incredibly strong grasp on the FP&A function within the business.
Harry Stebbings: For sure. No, I couldn’t be more aligned to you in terms of the centrality of brand and the trust that it imbues. I do want to move, though, into my favorite element, which is the quick fire round, Harry. So I say a short statement and you let me know your immediate thoughts in 60 seconds or less. So let’s start with the hardest role to hire for today and why you think that is.
Harry Hurst: Yeah, I’d definitely say your co-founder or co-founders. They’re in the trenches with you solving the toughest problems from day one, and they share the burden of running the overall company with you. I think you need to find the perfect balance of someone who can be a best friend but also provide the best accountability for you.
Harry Stebbings: Tell me a moment in your life that served as an inflection point and maybe changed the way you think.
Harry Hurst: Yeah, so watching Fair raise a lot of their equity capital post the Skurt acquisition and hyper-scale from 50 or so employees when we joined to about 900 when I eventually left, Scott did an incredible job of leading that team. But for me, I like the idea of being relatively lean and mean. Small things like coming into the office and not knowing everyone each week, it made me realize that I want to build a business that has huge operating leverage and can generate significant revenues per employee.
Harry Stebbings: Who’s the biggest mentor to you and what’s your takeaway from that relationship?
Harry Hurst: Yeah, so fun fact, I don’t actually have a mentor and I never really have. And my biggest takeaway from that is that I wish I did have one. There’s countless times where I’d love to have gotten a non-biased expert opinion. So I guess anyone out there who wants to mentor me, get in touch.
Harry Stebbings: What’s the hardest element of your role with Pipe today, Henry?
Harry Hurst: Definitely letting go. One of the keys to being a successful CEO, I think, is building a team of A players around you, but not only building the team, actually empowering them to get the job done. And I think in the early days, it can be really tough to let go of certain things, but you simply can’t do everything. And you have to trust the people around you to execute.
Harry Stebbings: I love this next one. What do you believe that most around you disbelieve?
Harry Hurst: That work life balance is super important. In principle, this is probably true. And I know from personal experience that mental health is a very real thing, but I guess I have perhaps a contrarian view that if you truly love your work, then having it encompass pretty much your whole life, at least for a period of time, isn’t such a bad thing, especially in the early days where execution is so key.
Harry Stebbings: Harry, what do you know now that you wish you’d known at the beginning?
Harry Hurst: So I wish at my last company, Skurt, I’d known the value of investing into really experienced operators early on rather than waiting until a later stage. Entrepreneurial experienced operators add so much value at the early stages of company building, and although they don’t come cheap, you definitely get 10X leverage if you find the right people. So the value is definitely there.
Harry Stebbings: Listen, Harry, as I said, I’ve wanted to do this one for a long time. I’m so excited for the future that you’re building with Pipe and I just can’t thank you enough for joining me today.
Harry Hurst: Thank you so much for having me, Harry. It’s been great.
Harry Stebbings: As I said at the beginning, such a special guy, really has been there for me. And if you’d like to see more from Harry, which you must do, then you can find him on Twitter @_HarryHurst. That’s @_HarryHurst, Twitter’s @pipe, and then also the site is pipe.com, the incredible domain name. If you’d like to see more from us, you can find us on Instagram @Hstebbings1996 with two Bs. It’s always great to see you there.
Harry Stebbings: As always, I so appreciate all your support and I can’t wait to bring you another fantastic episode next week.