Podcast Summary
The SaaS pricing model's impact on software industry: SaaS pricing revolutionized software industry with recurring revenue and customer feedback, leading to success for companies like Netflix, Microsoft Office, Adobe, and Slack, and attracting significant investment.
The shift to Software as a Service (SaaS) pricing has revolutionized the software industry by providing companies with a recurring revenue model and a direct feedback loop with their customers. This model, which allows customers to pay a monthly subscription fee instead of a large upfront cost, has given companies a sharper edge by making them focus on continuously delivering value to their customers. The SaaS pricing model has led to the success of companies like Netflix, Microsoft Office, Adobe, and Slack, and has attracted significant investment from venture capital firms like Sequoia. David Shoe, the founder of Retool, became aware of this trend around 2014 and it influenced the creation of his company, which has since raised nearly $70 million in funding.
Subscription-based software models bring advantages for consumers and businesses: Subscription-based software models offer consumers risk reduction and informed decisions, while encouraging innovation for businesses. Retool's no-code approach allows faster development and reduces need for specialized engineering resources.
The shift to subscription-based software models, such as the one offered by Retool, brings advantages for both consumers and businesses. For consumers, the ability to try before they buy at a relatively low cost allows them to make informed decisions and reduces the risk of investing in software that may not meet their needs. For businesses, this model keeps them on their toes and encourages innovation, as they must continuously compete for customers and adapt to changing market conditions. Retool is a new approach to building software that offers a higher-level, Lego-like way of piecing together building blocks instead of writing code from scratch. This method is particularly appealing to those building internal tools, as it allows for faster development and reduces the need for specialized engineering resources. Initially, Retool's customer base consisted of developers and entrepreneurs who lacked the resources or expertise to hire developers. However, as the no-code movement has gained momentum, the company has faced resistance from developers who fear the limitations of no-code solutions and the potential loss of their jobs. Despite these concerns, Retool's approach has proven successful in enabling faster development and reducing the need for extensive coding expertise.
No code may not deliver complex business applications: Despite growing interest, no-code tools have limitations in creating complex apps, requiring actual coding eventually. SaaS companies offer predictability for investors through subscription revenue.
While there is growing interest from larger companies in low-code and no-code solutions for building software faster, these tools have limitations when it comes to creating complex business applications. The speaker, who sells exclusively to developers, believes that no code is unlikely to fully deliver meaningful applications due to the complexity involved and the eventual need for actual coding. He uses the example of a table in a no-code platform, which may not be able to handle large data sets or support certain features once the user hits a roadblock. SaaS companies, on the other hand, offer a level of predictability for investors due to their subscription revenue model and the absence of debt or equity dilution. The speaker also mentions his experience with a specific SaaS company, Pipe.com, which has gained popularity due to its marketplace for investors to buy a startup's subscription revenue.
Bridging the gap between no-code and code: Retool allows users to build 50-60% of their app using a drag-and-drop interface, but offers flexibility to write custom code for the rest
While no-code tools can help build a significant portion of an application, the need for customization often requires coding. Retool, a no-code platform, recognizes this and allows users to build 50-60% of their application using a drag-and-drop interface, but then provides the flexibility to write JavaScript or SQL for the remaining customizations. This approach sets Retool apart from other no-code players. David, the founder of Retool, shares that they initially targeted users who had previously used tools like Microsoft Access or FileMaker to build internal applications. These users were not developers but had a need for software solutions. Retool's success came from selling to other startups in their accelerator program, providing an eager audience for their product. For founders looking to enter the market, selling to a similar cohort can be an effective strategy.
Learning to sell to strangers for product validation: To gain a substantial and authentic product-market fit signal, founders must cold email potential customers, even those using competitors, and learn from rejection and negative feedback. Persistence and adaptability are key in industries and user bases resistant to change.
While it's important to secure early users for product validation, relying solely on friends and family or existing user bases for sales is not a sustainable business strategy. Instead, founders must learn to sell to strangers in order to gain a substantial and authentic product-market fit signal. This involves cold emailing potential customers, even those using competitors, and enduring rejection and negative feedback. The response rate may be low, but the valuable insights gained from these interactions can lead to crucial discoveries about sales, product market fit, and customer needs. Additionally, it's essential to recognize that some industries and user bases may be more resistant to change, so founders must be persistent and adaptable in their sales approach.
Realizing the need for a 'developer-first' approach: Understanding your target market's specific needs and preferences is essential for product-market fit. Adjusting your product or market focus can lead to success.
Product-market fit involves both the product and the market, and adjusting one or both can lead to success. Ten years ago, a company tried to email potential customers about their product, Final Maker, but received no responses and negative feedback. Despite this failure, the company realized that developers, regardless of company size, were similar in their needs. By pivoting their market focus to developers, they found success with their "developer-first" product, Retool. However, it's important to note that developers may not be anti-no-code, but rather anti-low-code in some cases. Developers' skepticism towards no-code tools often stems from a desire for customization and flexibility, which they feel they cannot achieve with these tools. Therefore, understanding the specific needs and preferences of your target market is crucial for product-market fit.
Drag-and-drop tools lack flexibility and power for complex business apps: While convenient, drag-and-drop tools lack the flexibility and power for complex business applications, making custom coding necessary for large companies handling significant revenue and expenses.
While drag-and-drop tools can be useful for initial application development, they lack the flexibility and power that coding provides, especially for complex business applications. The example given was trying to write a switch statement in JavaScript using a WYSIWYG editor versus writing it in code. The complexity and time required to replicate coding in a non-textual format outweigh the benefits. Additionally, for large companies handling significant revenue and expenses, the need for power and customization is crucial. Furthermore, the high cost of integrating multiple SaaS software products can be detrimental to a business's growth. Odoo, a fully customizable and integrated suite of software, aims to solve this issue by allowing businesses to build and scale their stack as they grow, while saving on costs by using open-source software and focusing on human capital. The call to action is to try Odoo for free with a $1,000 credit on the first implementation pack.
Bootstrapped companies can reach a billion-dollar market cap: Focus on product market fit and identify the right moment to scale up to reach a billion-dollar market cap
Even a bootstrapped company with a conservative approach to raising money and hiring can eventually reach a billion-dollar market cap by focusing on product market fit and identifying the right moment to scale up. Retool, for instance, started with minimal funding, burned very little of it, and only raised significant capital when they were certain of their goal to revolutionize software development. The decision to go big came when they realized the opportunity to change how software is built had not fundamentally changed in decades, and they could make a significant impact. Their initial small team and revenue were enough for a comfortable living, but their ultimate goal was not just to make a million dollars a year, but to transform the industry.
Discovering a larger opportunity and focusing on growth: Retool, initially a tool for building internal apps, expanded to meet diverse customer needs, focusing on sales, support, and maintaining engineering and product-driven focus for growth.
Retool, a company that started with the goal of building internal applications faster, discovered a much larger opportunity. Their platform was being used to build a diverse range of applications, from Olympic ad forecasting tools to ride-sharing services for kids. Realizing the potential to change how software itself is built, they raised a significant amount of capital. The question then became how to deploy that capital effectively in a profitable company. They decided to focus on building out teams in areas where customer demand was high, such as sales and support, while maintaining their engineering and product-driven focus. The company's rapid growth from a three-person team to a 50-person team in just two years highlighted the need for expansion. Despite being profitable, Retool recognized the importance of scaling to meet customer needs and maintain their market fit. The decision to be more engineering and product-driven rather than sales-driven was an interesting divide among Silicon Valley companies, reflecting each organization's unique priorities and strategies.
Gaining developer buy-in for a platform's success: For a platform like RCrowd to succeed, it must win over the developer community using a bottom-up approach, providing access to a strong network and early investment opportunities in promising private companies.
While sales are crucial for a company's growth, particularly in the case of larger clients, the key to success for a platform like RCrowd, which aims to become the go-to solution for developers, lies in gaining the buy-in of the developer community. This bottom-up approach is essential for the company's mission to revolutionize software building. Additionally, access to a strong network and early investment opportunities in promising private companies can significantly benefit investors. The discussion also touched upon the importance of immigration and the valuable contributions made by immigrants and their children to the business world.
The immigrant experience shapes the next generation's success and the importance of sales in understanding customers and product-market fit.: Immigrant experiences foster resilience and determination, leading to exceptional achievements. Sales is more than making a sale; it's about building relationships and delivering value to customers. Early investment in sales provides valuable insights into the market and customer needs.
The immigrant experience and the struggles faced by those who move to a new country can foster resilience and determination in their children, leading to exceptional achievements and contributions to society. This was highlighted in the discussion about the speaker's own experiences and the importance of sales in understanding customers and finding product-market fit. Furthermore, the speaker emphasized the value of sales as a means of delivering value to customers and solving their problems. This perspective challenges the outdated notion that sales is merely about making a sale at any cost. Instead, it's about building relationships and collaborating with customers to create solutions that meet their needs. Additionally, the discussion touched upon the importance of investing in sales early on, especially for SaaS companies, as it provides valuable insights into the market and customer needs. The speaker shared that they personally spent a significant amount of time on sales in the early days of their company, and this focus contributed to their deep understanding of their customers and their product-market fit. In summary, the discussion emphasized the importance of the immigrant experience in shaping the next generation's success and the role of sales in delivering value to customers and understanding the market.
Empowering businesses of all sizes with Retool: Retool helps businesses innovate and drive efficiency through software, serving large corporations and startups alike, offering flexibility to host applications on-premises or in the cloud, and being responsive to all customers to contribute to their product roadmap
Retool, a software development platform, aims to serve businesses of all sizes, from small startups to large corporations, to help them innovate and drive efficiency through software. The company's goal is not just to make a profit but to change the way developers build software. Retool currently has significant deployments with various large companies, including Warner Bros, NBC, Peloton, and banks. Their largest deployments have tens of thousands of people using the platform in an organization. The value Retool delivers to these organizations is substantial, as companies like Coca-Cola increasingly focus on software innovation to drive growth and efficiency. Retool offers flexibility, allowing users to host their applications on-premises or in the cloud. Most people choose the cloud version for convenience. Retool's approach is to be responsive to all customers, regardless of size, as the best ideas often come from smaller companies and contribute to their product roadmap.
Cloud-based solutions and no-code tools vs traditional coding: While cloud-based solutions and no-code tools offer efficiency for simple applications, complex use cases may still require traditional coding. Low-code solutions provide a middle ground, enabling faster development while maintaining flexibility.
While there is a trend towards cloud-based solutions and no-code tools like Amazon Honeycode, the value and applicability of these tools vary greatly depending on the specific use case. For complex applications, traditional coding may still be necessary. The serverless computing trend, which aimed to eliminate the need for managing servers, did not deliver significant value to customers and has seemingly died down. However, low-code solutions, which enable engineers to build applications more efficiently, continue to deliver substantial value to customers. As for the future of AI-generated applications, it remains to be seen if and when the technology will be advanced enough to build complex applications just by talking to an AI agent.
Retool's Vision: Streamline App Building with Efficiency and Customization: Retool simplifies app building with automated tasks and a customizable interface, aiming for a drag-and-drop future while recognizing the importance of unique app requirements.
Retool, a development platform, aims to make app building more efficient for developers by handling lower-level tasks like authentication and providing a higher-level interface for customization. Their long-term vision is to enable users to build apps with a drag-and-drop interface and even integrate voice commands. However, they recognize the limitations of such an interface and the importance of customization for unique app requirements. Regarding the company's future, they receive interest in going public but believe the pros of liquidity for employees and the current market conditions are outweighed by the cons of short-term focus and the immense growth potential and opportunities ahead.
Focusing on growth and innovation, not net worth or personal gain: Founder David's motivation is to change software building and be a pioneer, not for net worth or personal gain. Material possessions offer little difference in experience regardless of cost. Retool seeks former founders with sales and technical backgrounds for growth and innovation.
For a company, focusing on the potential for growth and the opportunity to innovate in a large market, rather than current net worth or personal gain, can lead to significant success. David, the founder of Retool, emphasized that his motivation has always been the potential to change how software is built and the possibility of being a pioneer in the industry, rather than his net worth or personal gain. He also shared that material possessions, such as expensive vacations or hamburgers, have little difference in experience regardless of the cost. Retool is specifically looking for former founders with sales experience and a technical background to join their team as they continue to grow and innovate. The Rising Stars of SaaS series, featuring interviews with various successful founders and investors, has been a great success and will continue in 2021.
