How to Win podcast with Peep Laja

Alejandro Rivas-Micoud:
Every little thing that you do in terms of your go-to-market strategy in a SaaS business does have a huge impact over the long term.

Peep Laja:
I'm Peep Laja. I don't do fluff, I don't do filler, I don't do emojis. What I do is study winners in B2B SaaS because I want to know how much is strategy, how much is luck, and how do they win. This week, Alejandro Rivas-Micoud, founder and CEO of Userlytics, a UX testing platform, founded in 2009. This episode, Alejandro breaks down six important lessons he's learned throughout his career. We discuss creating a strong culture, deciding when not to use VCs, and why people overestimate the impact of things in the short term and underestimate their value in the long term. Let's get into it.
So you said, to quote Peter Drucker, "Culture eats strategy for breakfast." What do you mean by that?

Alejandro Rivas-Micoud:
Well, at the end of the day, you may have a wonderful product vision, a wonderful product, a wonderful strategy, a wonderful positioning. But everything that you want to do has to be executed by one of two, or hopefully two of two, things, people and your digital assets user experience. People are going to execute well if you have a positive corporate culture. So we interview everybody we hire from intern up to senior executive, always with a view, I'm looking at them and I'm saying, "Is this person going to add to our corporate culture? Are they going to fit in or not?" And that's the most important thing for them. I hardly delve into their background, just a little bit, but I'm more interested in them as a person. How are they going to interact with the team? And it's day and night. I'm a real believer in that. The best thing a CEO can do is spend the majority of their time hiring people, mentoring people, and focusing on the corporate culture. If they do nothing else, that is the best investment of their time.

Peep Laja:
Culture is not foosball tables and perks, culture is something else. So what is your definition of culture and what kind of a culture would you want to foster?

Alejandro Rivas-Micoud:
So, we always tell new employees and potential new employees that working in a team and just positive vibes. We hire people occasionally that are rock stars, they're really good, but they don't work well with other people. Those people don't last in our company. They have to work well with other people. And proactivity, being able to, if you come up with a problem, come up with a solution and do it collaboratively. Don't impose things on other people. I always tell my executives and managers, "Ask your employees for the solution. They've got it. Don't impose a solution on them. Or if you have an idea, throw it out there, but ask for their input in a sincere way and be willing to completely trash the idea if it's trash." And I try to give examples of that. I come up with hair brain schemes all the time, and when somebody points out that, "The emperor has no clothes there, that's not going to work." I'm like, "Oh, you're right. Thank you for that." And so being humble and accepting of criticism of one's own work.

Peep Laja:
There are things that a CEO cannot delegate. One of those things is creating a company culture. The bigger the organizations gets, the more important culture becomes. Culture is easy when it's just a founder plus the inner circle. Once you get bigger, it gets so much harder, yet, is the effectiveness multiplier for all strategy and execution. But what does, "Culture eats strategy for breakfast," actually mean? Here's Country Financial's, Ben Kobulnicky to explain.

Ben Kobulnicky:
There's a famous quote allegedly attributed to Peter Drucker, that, "Culture eats strategy for breakfast," or something like that. It implies you can set whatever course for your business you want, but it will be your culture, what your people believe and how they behave, that determines what will get lived out in the work. Culture isn't inherently about workspaces and perks like comfy chairs and ping pong tables, it's about the habits that people have formed, how they make decisions and how they respond to challenges, pressure and discomfort, and what they believe is good or bad for success based on what's been incented, rewarded, reinforced, and possibly even punished in their workplace. Culture is what you have when the majority in your workforce act out the same set of beliefs, even if they're not the traits that are codified by your company. And for precisely that reason, culture can be a powerful force in an organization, for better or worse.

Peep Laja:
Your second lesson learned over the years is that user experience is the most important investment. Tell me about that.

Alejandro Rivas-Micoud:
Totally. There's just enumerable examples of companies that were in similar industries, similar things, similar value added. One of them came late to the game, maybe five or six years later than the rest, and yet took over the market. And the difference was just small changes in the user experience. If I had to advise an executive, and regardless of whether it's in the SaaS business or not, whether it's a startup, a scale-up, large Fortune 100 company, to do only one thing and nothing else in terms of investment, I would say, "It's not marketing, it's not sales, it's not product development, except in the aspect of the UX. Make the UX perfect." Steve Jobs, you can criticize him for many things, but he definitely focused so obsessively in terms of the user experience. And I think companies that do that are successful regardless of anything else they do.

Peep Laja:
Do you have a specific example of how you guys invested in your own UX and that had some sort of a positive economic impact?

Alejandro Rivas-Micoud:
We see it all the time. When you're a company of any type, but especially a SaaS company, you've got this long list of roadmap items that you want to launch into the market. Like, "Ah, I'd like to have this, I'd like to have this feature." And you're getting feedback all the time from prospective clients or clients saying, "Oh, it'd be nice if you guys had this," or, "I would go with you guys if you had this other thing." Rarely do these prospects tell you, sometimes they do, but rarely do they tell you, "Oh, well, if your usability was a little bit better, then I would invest with you." So our mindset tends to drift towards new features, new capabilities, et cetera.
About two years ago, thanks to our head of product, he said, "Alejandro, stop right there." 'Cause I was just throwing out new features, new features. He said, "No, no, no. We need to focus for the next 18 months on making our existing capabilities easier to use. Better UX." And we've did that, and our net retention ratio went up by, I think, 30%. So massive leap in that period. And net retention ratio, at the end of the day, that's the be all end all for SaaS companies.

Peep Laja:
Your next lesson learned is working capital, turning to VCs should be the last resort. Why?

Alejandro Rivas-Micoud:
If somebody came to you and said, "Hey, I want to lend you money at a 200% annual interest rate," you would say, "Whoa, whoa, that's loan shark territory." But interestingly enough, many companies think the first port of call should be VCs or private equity when they're thinking about financing. Now, if you think about the implied cost of equity of a VC funding or private equity funding, it's roughly at least 100% per year. So I would argue that should be your last protocol. If that's it, that's fine, and there are other things that VCs or private equity bring to the table, but you should consider another source that is sitting right in front of you, which is your customers.
What if you said to yourself, "You know what? I've got a product with an 80%, 85% gross margin on the one hand, and on the other hand, to meet my expansion plans, I need X amount of new capital. So I'm going to come up with this new product, or transform all of my existing products, in terms of the pricing plan, such that I reduce my gross margin, but I get them to pay upfront for a year or longer." All of a sudden, from a working capital perspective, if you managed to pull that off, you've had a massive impact in terms of decreasing your funding needs, maybe eliminating them, and at a cost which is way below the implied cost of equity of a VC or private equity. And plus, there are other benefits like reducing churn and all kinds of other things. So I would argue that's the first place to look.
Now, maybe it's not possible, but if you can do that, if you think of an example, a supermarket gets paid in cash, but pays its suppliers on a 90 or even 180 day basis. So a supermarket is, in effect, a bank. It's gaining the benefit of that difference between accounts receivable and accounts payable. And how can I turn my business into something like that? Huge impact.

Peep Laja:
I gotta say, being your own VC is a nice luxury to have. This is the model I used to fund the Wynter. First, I built an agency, which was essentially $0 to start, took many years to build, of course, then I used the profits five years later to fund an e-learning business, also a cash cow. And now, I have two sources of revenue, both profitable companies, and I used these profits to fund a SaaS company. This is how I started Wynter. So the previous companies picked up the tab until Wynter was self-sustainable. Now, bootstrapping is not for everyone. It really depends on your business and the circumstances around it. Cloudinary bootstrapped to 100 million in revenue. Their CEO, Itai Lahan, says, "They got incredibly lucky," and lays out what makes bootstrapping so difficult.

Itai Lahan:
Let's talk about the early days. Let's talk about the later days. Early days, I think it's really improbable, later days, it's practically impossible. Early days, what do you need to do? You need to get to market. You need to build a product insanely cost efficiently, crazily cost... There's no money. Literally it's going to finance itself. I need the product out there and it's not enough, I also need the product market fit day one. The vast majority of start-ups will pivot the first year. It will redo everything that you're currently doing. You can't. No money, this is it. The product needs to finance itself. Product market fit at day one, which is crazy by itself. You need an incredibly efficient go-to market model. Right CAC, lifetime value, let's return on investment into... No, you can't. It needs to zero cost. You need to be out in market, you need to be selling right now. How do you do that? It's crazy.
And last thing, you need fast ROI on every return of investment, everything that you're doing, starting day one. You're building the next version, "Let's build the next version of our product." No, don't. Literally, it needs fast ROI. How do we even get there? So it is doable, very unlikely, but it is doable.

Peep Laja:
Your next lesson learned is when scaling be conservative.

Alejandro Rivas-Micoud:
The problem all of us as human beings face is that we tend to look at the future as a straight line. So we go into 2021, for example, and in many sectors, sales are exploding, the economy is red hot, valuations are exploding, et cetera. So based on that, we hire a bunch of people, and then all of a sudden, something happens. Maybe we didn't get along well with our chief of sales in a certain region in the world, we had to fire them, because we fired them, we had to get rid of a bunch of other people, and then all of a sudden, we find out that sales are going to be way below budget. But in the meantime, we've hired a bunch of other people on the development side to continue building up our product and now, all of a sudden, there's a mismatch in our budget. So be conservative when looking into the future.
It may surprise you on the upside, it may also surprise you on the downside. What's very improbable is that it's just going to be a straight line, penciling in from your current expectations. So keep that in mind. I would argue that it's easier to hire more people and resources than to fire, because firing has a hugely negative impact on the corporate culture, on how everybody feels, makes everybody feel afraid. Who's next? So better to be, even if it is difficult sometimes, conservative in hiring.

Peep Laja:
So you would rather delay hiring and play it safe, rather than having to risk firing people later?

Alejandro Rivas-Micoud:
I would look at it and say, "What is the cost to us in terms of missed opportunity? The opportunity cost. If we delay hiring for three months or six months or nine months, or until this certain KPI is achieved." So maybe my head of sales comes to me, or my head of marketing comes to me, or the person in charge of software development, product, et cetera, come to me and say, "We need this, we need this."
"Okay, why do you need this?"
"Because of this."
"Okay, fine." So why don't we wait until we reach that milestone that you think we're going to reach, and once we've reached that, then we sit down and pull the trigger. So just trying to put in a little bit of buffers and decision points, even at the expense of going a little bit more slowly. It's easier to hit the gas than to hit the brakes, in my view, in a company perspective.

Peep Laja:
The old status game for entrepreneurs used to be, "I have over 100 employees, look at me." But you have to ask, "What's the average revenue per employee?" I think a lot of companies use number of employees as a proxy for the revenue, but it seems rude to talk about the money. A couple of years ago, companies bragged about the number of employees they had, but this is changing. Today, they brag about how few they have. The best companies, have high net revenues per employee. Companies can have it both ways. Building world class products with fewer people and focusing on culture. The best companies are obsessed with boosting the leverage whenever possible. So the measure to look at, is revenue per employee going up over time? If not, your business might not be as scalable as it seems.
Your fifth lesson learned is that people overestimate the impact of things in the short term, and underestimate their value in the long term.

Alejandro Rivas-Micoud:
Correct. It's taken off a quote of Bill Gates as applied to technology, but I believe it's very applicable to our go-to-market strategy in a SaaS business. And especially a SaaS business, probably applicable to many businesses, but you invest in things like content marketing, you invest in brand marketing, you invest in sales people, you invest in customer success people, you invest in product, et cetera. And it's just natural to expect these investments to yield a result faster than what they do. So always do a sanity check and say, "Wait a second. I looked at last year's metrics, I applied them here. Okay, let's just cut off some of my assumptions here and let's assume things are going to be..." And if you do that, hopefully you'll get closer to what, in reality, will happen over the next 12 months.
Conversely, every little thing that you do, in terms of your go-to-market strategy in a SaaS business, does have a huge impact over the long term if the business does have a good product market fit and if things are reasonable. So it just has a curve that goes along the bottom and then explodes. But the bottom could last a year or even two or three years before that explosion. So just be aware of that, I would say.

Peep Laja:
What are some things that you have invested in where you did not foresee the impact that it will have over the long haul?

Alejandro Rivas-Micoud:
A good example would be our experience with Userlytics. So in the initial years, we invested a ton in marketing, in sales and products, et cetera, and we didn't see the returns. And after a while, after three or four years, we had to restructure the business and that was painful. However, the seeds we planted, if you will, in the market, didn't disappear. They germinated and they grew, in percentage terms, at a high rate, in absolute terms, at a relatively small rate, until all of a sudden, in absolute terms, they exploded. And we bumped along at the bottom and then all of a sudden took off around the year 2015. So from 2009 to 2013, we invested arguably too much in the business, and then had to restructure from 2013 to 2015 and then the whole thing took off.

Peep Laja:
Now, looking back at Userlytics over the last 10 plus years, what were some strategy decisions you made that, in hindsight, you're so glad you made those decisions, but at the time, you weren't sure.

Alejandro Rivas-Micoud:
So, I think one is certainly our international orientation. So from the very beginning, we had the philosophy, "We're going to be everywhere in the world." And you can argue whether that's a good strategy or a bad strategy, because some will say, "No, you should've just focused on the US or just focused on English-speaking countries." But we felt differently and we're glad we did what we did. We have that element of differentiation now. That is one area where we're clearly superior to our peers. So that would be one area.
I think the other area, which, again, you can always argue about, which is, should a company be very good in one specific area, or should it try to be holistic and do a lot of things in a lot of different areas? We opted for the second one, to be a holistic solution that we weren't the best in, say card sorting or tree testing, but we did card sorting and tree testing, and moderated usability testing and unmoderated and mobile and desktop and this and that. And so other companies may find success by just doing one niche thing very well, we found success by doing a lot of things well and being a one-stop solution. So we're glad we took that approach.

Peep Laja:
So what are Alejandro's top three winning lessons? One, build a strong corporate culture.

Alejandro Rivas-Micoud:
I'm a real believer in that the best thing a CEO can do is spend the majority of their time hiring people, mentoring people, and focusing on the corporate culture.

Peep Laja:
Two, be cautious when hiring to grow.

Alejandro Rivas-Micoud:
Be conservative when looking into the future. It may surprise you on the upside, it may also surprise you on the downside.

Peep Laja:
Three, get your UX right.

Alejandro Rivas-Micoud:
I would say it's not marketing, it's not sales, it's not product development, except in the aspect of the UX. Make the UX perfect.

Peep Laja:
One last takeaway from Alejandro.

Alejandro Rivas-Micoud:
We found success by doing a lot of things well and being a one-stop solution. So we're glad we took that approach.

Peep Laja:
That's how you win. I'm Peep Laja. For more tips on how to win, follow me on LinkedIn or Twitter. Thanks for listening.