Entering a growing ecosystem with Postscript's Alex Beller
Entering a growing ecosystem with Postscript's Alex Beller
Alex Beller (00:02):
... this is marketing automation. And in marketing automation, there often aren't giant moats. You have to compete every day. You have to have a great product, you have to make it really sticky, and you have to have a great team who executes against goals. So we're placing bets, but we're not expecting any silver bullets.
Peep Laja (00:21):
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, Alex Beller, co-founder and president of Postscript, an SMS marketing platform for eCommerce companies currently in the mid 8 figure range of ARR. Postscript was only founded in 2018, and in just three years expanded to 220 team members serving over 7000 eCommerce merchants, all Shopify based. In this episode, we talk about how building on top of a thriving ecosystem can drive growth, and we learn why they remain focused on one very specific niche. Let's get into it.
Alex Beller (01:05):
I started Postscript with two co-founders Adam and Colin Turner who are brothers. It was a very classic like entrepreneurial moment. It wasn't through this genius market analysis or anything like that. We had a friend who ran a small business on Shopify, who was complaining to us that needed to didn't have a way to text his customers. So it was someone describing a very, very like specific problem. And we thought, okay, that's interesting. Maybe we can build something to solve that problem. We knew eCommerce really well. We were in eCommerce, but we weren't part of the Shopify ecosystem at all. We didn't know about their platform.
Alex Beller (01:42):
So the idea of launching a Shopify app, where there's like a builtin audience and builtin distribution through the app store and it being B2B with potentially recurring revenue and solving a very discrete specific problem, that was really interesting. So at the time we actually thought that Postscript was going to be a very small, but nice business. We were like, let's build this. This can be passive. Maybe we'll each make $3,000 a month. That would be a huge win. And we really had no idea about the size of the market or the potential product market fit, but it was all about solving a discreet problem that had builtin distribution.
Peep Laja (02:15):
And what was your insight that led to tying yourself to Shopify specifically?
Alex Beller (02:20):
That was a bet for us. There were a few different factors. One is that we were eCommerce people, we were running different brands and different eCommerce businesses, and we wished that we'd built it on top of Shopify. So even though this was 2018, this was before Shopify is what it is today, it was still public and doing very well and we were really in this problem of, we were running our businesses on a homegrown eCommerce solution. And it's hard for eCommerce businesses to have like full teams of developers. That doesn't really work in that business, especially competing with SaaS. So the idea of having a built out platform was attractive to us and so we were like, oh, this is interesting, Shopify's this SMB platform, it's growing every year. It has a huge customer base, and we're seeing successful businesses be built on top of their tech platform.
Alex Beller (03:10):
Before us folks like Klaviyo and Yotpo were doing really well and building real big businesses there. So clearly the market was large enough to support tech companies on top of the Shopify platform. And so that's what attracted us was like both the fact that we'd experienced the pain of being merchants, trying to build without it, and also watching others really build huge SaaS businesses on top of it, and in that ecosystem.
Peep Laja (03:35):
Build it and they will come? Hardly so. A study by CB Insights looked into why startups fail. The most common reason is go-to market strategy fail. Failing to find customers. It's not about the product, but reaching the market. You can be doing social posts and running ads. You can have an MVP and an SEO strategy. You can raise millions in seed money, but you can still fail because you don't have enough market traction. Only 4% of startups make it past the seed stage. What's more? Of the 4% startups that secure funding, only 70% go on to generate consistent revenue. This is what makes attaching yourself to a booming ecosystem an attractive strategy choice. Sure. You give away some independence and are at their whim to an extent, but the odds are in your favor. That ecosystem doesn't just benefit the tech company building on top of the Shopify platform. The relationship is symbiotic and a key mode for Shopify, Andrew Chen, partner at Andreessen Horowitz shared his thoughts on how Shopify benefits from piggy backers like postscript, when I interviewed him for a previous episode of How to Win.
Andrew Chen (04:44):
I actually just spoke to the Shopify team earlier this week, actually about this exact topic. They absolutely have built a network and an ecosystem around their products because they have design agencies that want to implement Shopify. They have a whole series of plugins and developers that built all the plugins. And so people end up choosing Shopify, not just because of the features of the product, but really they choose it because of the ecosystem.
Peep Laja (05:11):
Was there any particular idea or bet around why would you win in this business?
Alex Beller (05:17):
So at the time there was only one player on the app store. There was many little tiny apps, SMSBump was there, which is now owned by Yotpo, but we didn't know what Attentive was, they weren't really around. Klaviyo was focused on email at the time. And so we came out and we wanted to build Klaviyo for SMS. They were like the dominant email platform and they'd really built a tool focused specifically on D2C eCommerce on the Shopify ecosystem, and we were going to do that with SMS. That was our inspiration. And we thought this is probably viable just given the fact that folks are doing it in email. And also we had this eCommerce experience where we knew that every single year mobile traffic was going up as a percentage of overall shopping traffic and at the same time, email engagement rates were plateauing.
Alex Beller (06:04):
So we thought to ourselves, okay, mobile, traffic's going up, email engagement has plateaued, at least in some of the eCommerce businesses we were involved in, maybe SMS is the future remarketing channel for mobile. And so those trends combined with like how fast Shopify was growing, that was the opportunity we saw. And at the time there was one other player, like I said, SMSBump, but we felt like there was room to build a tool that was much more advanced and polished and structured at the time. And the two of us pushed each other for a while, which was really good and competitive
Peep Laja (06:37):
Going from zero to 14 people, that means that you found initial success relatively easily or...
Alex Beller (06:43):
Yeah, we were very lucky in the sense. Before we launched, someone came and paid us $50 a month to use the tool. Someone just came and signed up before we even launched on the app store publicly. And that was exciting. And we'd really only been working on it for a couple of months when we launched on the app store and the first day was quiet, but the next day someone came and installed us and paid us money to use the app. It started very small, of course, but in our first month, I think we ended the month at $200 in recurring revenue and the next month was $2,000 in recurring revenue, and the next month was 4,000. And during that time, I got very excited and went to the co-founders, and all of us had applied to Y Combinator previously and been rejected, and so I said, Hey you guys, we should apply again, we're onto something.
Alex Beller (07:28):
And so we filled out a quick application. We were a day late. We applied past the deadline to YC, but I kept going in and updating our application with our new revenue numbers because they were going up every single week. And so we found fit pretty quickly. And even before we started YC after our first black Friday, our first November, which was three or four months after we launched, we ended November at like $18,000 in MRR. And we were like, oh man, this thing is real. We are very much onto something and even though there was tons of bugs in the software and it was a very stripped down, lots of functionality to add, we were still providing value enough to merchants that they were paying us hundreds of dollars a month and seeing good results.
Peep Laja (08:09):
So in the beginning it was a pure opportunity that this market is underserved, we can build a product that enables customers to do this, and that's how we're going to win. At some point, when your product, let's say, started to mature, you built out the main functionalities, typically when there's a lot of demand, more competition will come. So how did your product strategy evolve as you started to get more mature?
Alex Beller (08:34):
It continues to evolve. We are in a hyper-competitive market and it's very good for merchants because there's so much active development from really big established players. What's happening if you take a step back is that this is a new marketing channel opening up and that probably happens once a decade. I think that email was late 90s, Facebook 2000's, Instagram was 2010s, Tiktok's going on now. I'm generalizing, of course there were like other big channels in there. But it's not so often that a huge marketing channel opens up. And so it makes sense that as there's one opening up now with mobile messaging and SMS, there's a bit of a land grab going on. There's lots of venture flowing into it. There's like very big sophisticated players going after it and there's really strong product market fit, like eCommerce merchants see great results from SMS. So we have had to be extremely aggressive to stay ahead of the competition we face. Right. Folks like Attentive, folks like Klaviyo, very well capitalized and established players within eCommerce
Peep Laja (09:40):
The game in B2B. Get inside the very limited consideration set of category buyers. Contrary to popular belief, B2B buyers are not all rational beings. An all rational buyer would consider all the tools and alternative for the job compare their features, UX, integrations and prices before choosing the best possible option. But that's not how a real buyer operates. Research by Ehrenberg-Bass Institute showed that a lot of B2B buyers that need a new financial service, 47% went straight to their existing bank, and 75% of those who claim to shop around also end up with their existing bank. Most looked into only two brands.
Peep Laja (10:20):
Most buyers are satisficing. They don't have unlimited time or energy for comparison, so they settle for good enough. That's why category leaders, best known brands keep on winning. This is great news. If you are number one or two in a category, they have the most mindshare, they're in every consideration set and reap 75% of category monies on average. The law of double jeopardy is strong. What's the law of double jeopardy? Here's Andrew Ehrenberg, founder of the Ehrenberg-Bass Institute for Marketing Science explaining it.
Andrew Ehrenberg (10:51):
Double jeopardy means that a small brand is always punished twice. On the one hand, it has fewer buyers, on the other hand, these few buyers actually buy it a bit less. Knowing this near universal pattern helps to assess new brands and existing ones, and also how you can or can't sell more.
Peep Laja (11:09):
If you are numbered 23 in your category, that's a hard life. You have less buyers, less loyalty, less word-of-mouth. You need to do 10 times better marketing, and even then you only get a fraction of the results the top dogs get. MailChimp can turn off all marketing for two years and still rake it in. The market and customer momentum are huge. For instance, in the category of heatmaps for small businesses, Hotjar is likely in most people's consideration sets. If you're a new entrant to this already competitive market, what do you do? If you have ultra deep pockets, you can spend enough to raise awareness that you exist and get inside people's consideration sets like Monday did, or you can just incrementally increase the number of considerations sets you're in by doing more, better creative brand advertising.
Peep Laja (11:58):
If the market is full of well resourced competitors and so excess share of voice is not doable, you either need to find different consideration that you can fit in through positioning or create a brand new consideration set. And you can create a new consideration set by either creating a new job to be done, like a new different use case, or you go for a new, different target segment, one that's ideally underserved or even non-consumption market, or you reimagine parts of the existing market like doing category creation. To use the heatmaps market example, a different jobs to be done could be heatmaps for mobile, just like UXCam is doing or targeting a different market like enterprise, which is what Contentsquare is doing. Reimagining the market of heatmaps could result in focusing on a different aspect of UX, kind of like what [Winter 00:12:49] is doing, or attaching yourself to a totally new narrative, take for instance Drift and conversational commerce, avoiding comparison with what came before.
Alex Beller (12:59):
We have focused, has been one tenet of our product strategy that has stayed true. You'll notice we don't do email, unlike those other players. We don't work across lots of different platforms or use cases like those other players. We focus on Shopify. We focus on direct to consumer eCommerce and we focus purely on SMS. And so underneath that focus comes all kinds of little product advantages and specialty that compounds both within the product, but also within our team and our knowledge set, which, because this is a new channel has been really, really valuable for merchants because they don't know how to work it. I have nothing but respect for both Attentive and Klaviyo. A merchant can stay on Klaviyo and do SMS marketing. Right. Do totally solid work. But the support they're going to get from the org, Klaviyo's org knows all about email and so Postscript can come in and like our org knows so much more and then our product has all these little advantages that come from focusing on it. That's really been how we've gone about competing, is through focus.
Peep Laja (13:58):
Strategic choices are about trade offs, more of one thing, necessitates less of another. Don't be like the top five in your category, double down on a particular segment of the market and create a new job to be done, use case where you can dominate. You can't meet all the needs of all the customers. Trying to do so is a waste of time. Everyone's in a saturated market, so unless you have managed to get really big in a category when it was just forming, build for a specific audience. That's a great way to differentiate. So to play the devil's advocate, in technology, if you want to throw money at trying to replicate another tool, it's doable, other players can, even new players can come and just build what you've built so far. What else are you banking on knowing that feature based differentiation is going to be increasingly difficult?
Alex Beller (14:51):
It's essential. I think we have like a very differentiated vision. When I talk about some of the competition we face, we believe that... And we watch them build marketing automation tooling. Right. Taking email marketing automation and eCommerce marketing automation and bringing SMS to that. And merchants are going to make money from that, and that's great, but we have a very different perspective long term. And that's what we're like very actively building and shipping software towards where we think that SMS is actually extremely different than email. SMS is a two-way channel fundamentally and consumers tolerance for it and receiving marketing messages is much, much lower than their tolerance is for an asynchronous channel like email. And so that creates interesting dynamics where like it's early days, open rates are really high, click rates are really high. So can you do the same thing you're doing on email and see results with SMS? Yes. Is that going to work a year from now or two years from now? No.
Alex Beller (15:48):
And so what we're building towards is we call the conversational commerce vision, but it's really about taking all of the eCommerce interactions that happen on site and bringing those natively in message. So people can do things today in Postscript like, yeah, they can get a marketing message, but they can also reply back and work with that brand's customer support team natively in message or maybe they're on a subscription, they can manage that subscription. They can reply, skip or reply, yes to an upsell and we will interconnect with their subscription management software and we'll manage that order for them. And so we're trying to build this conversational commerce vision that is actually very different than standard one to many marketing automation.
Alex Beller (16:32):
And as we ship software there, and as we see the early adopter brands move in that direction, the results are there. We have a customer, they're a great brand. They're doing very well. SMS generated more for them through Black Friday, Cyber Monday, weeks than email did and their SMS list is about one 10th the size of their email list. So we think by just like continue to focus on innovating with how consumers use the channel and giving brands tools to make it more personalized, more two-way over time that's how we're going to deviate. We believe eCommerce is unique and we are focusing on that, it's not really a small niche, it's a large one, but we're really focusing there and on like D2C, SMB through large merchants.
Peep Laja (17:17):
It makes a lot of sense to focus on a specific vertical. It's similar to niche, but bigger when you're focused on a specific vertical, you get more word-of-mouth. People know people in their industry, you can highlight specific use cases and build product to serve those use cases. Email marketing was already huge, established category, but Klaviyo focused on email marketing for eCommerce and managed to get massive today worth over $10 billion. Gorgeous did the same in support. Zendesk was already massive, but under serving eCommerce, that was their opening. To find such openings, look at any B category and see which verticals are the top three catering to and who is being largely ignored. In 2021 spring, there was a tech crunch article talking about your growth mentioning that you've grown to 67 employees or whatever. And today LinkedIn shows more than 220. So 2021 was a year of insane growth. So how did you manage to grow so fast?
Alex Beller (18:19):
I think it all comes down to like very, very strong product market fit. That fuels growth, and when you start to do more and you're in a place of strong product market fit, the market will often respond back to you. So there are of course tenets of how we operate that we've stayed true to. One of our values is being customer first, we obsess over it. Back when we started me or Colin or Adam would wake up in the middle of the night, if someone like chatted in to support needing help. And that same attitude is still true today. We bend over backwards and support. That has actually led to a huge amount of word-of-mouth growth. For us, our customers evangelize Postscript between the results and the support they get. So there are some tenets of our growth that are there.
Alex Beller (19:00):
Layering on our sales led motion this year was very successful. That kicked off a whole new wave of growth for us. But in terms of how we did it with headcount this year was a year of both like makeup hiring, looking back and leaning into growth hiring, looking forward. I think we were understaffed going into this year versus the size of our business. There's like two main things that I point to of how we made this hiring happen and did it in a way that the organization still feels cohesive and feels good. But the first is, we've been very aggressive with values and having a culture of authenticity from the start. We interview people for their fit with our values, and we will pass on a great functional hire who doesn't fit with the values of our organization. And that has stayed true this year, and that's helped everything stay on the rails, despite the rapid headcount growth.
Alex Beller (19:48):
The other is we made a very large investment in building an extremely strong in-house recruiting team. They're like full cycle recruiters. They're extremely good, and instead of leaning on agencies or external sources, we were like, no, we need to treat this like we would at go-to market function, like we would a sales function with strong leadership, a metric driven organization, but because they're internal and because they passed our recruiting and hiring process, they can also intuitively understand our values and the culture of authenticity and so they become very good evangelists for Postscript. So what I often hear when people join is that they have the best experience of their career interviewing here. And so that just all goes back to this big investment in building the in-house recruiting team and treating it with the same standards as we would engineering or sales or another key organization.
Peep Laja (20:45):
Talk to any founder and ask what's behind their success. They will always bring out people. You won't get far with a mediocre team. Top companies invest a lot in recruiting the top talent and cultivating that talent. But the truth is talent selection is hard and the consequences of the wrong hire are severe. How do you know you've made a good hire? This advice from Michael Seibel, partner at YC and co-founder of two startups, always comes to mind.
Michael Seibel (21:12):
I've never met a founder who says, oh, I'm not good at hiring great people. I always meet founders who say my team's the best, and not every team... Clearly, not every team is the best. If someone is not an essential employee within three months, that's often a great sign that you didn't make a good hiring decision, and that's hard to hear because it's a lot easier to give them more time to change responsibilities.
Peep Laja (21:36):
Does that mean that some hires are going to be A players and some are going to be B players? For sure. However, you have a lot of influence on this. My friend, an eCommerce legend, Ezra Firestone, has really wise things to say about this.
Ezra Firestone (21:50):
You as the company owner create every grade of player based on how clear of a job description you give them, how much access to education and resource to be successful you give them, how many events you send them to, how much attention you put on them, how much time you spend with them, teaching them what to do, how accountable you hold them, how empowered you make them feel. If you don't have a goal with somebody, Hey, I'm going to hire you and within two years, I want you to be the best social media manager in the world. Here's how we're going to get you there. You're going to read these six blogs, four hours a week, and you're going to take notes in your journal. They're going to populate into this Slack channel.
Ezra Firestone (22:24):
You're going to go through these three courses, one every three months. You're going to go to these events. You're going to meet with me for three hours a week and we're going to talk about what you learned and how we can apply it. You create the A player. There is no such thing as an A player. There's a person who is as good as the resource and support they receive from you, the person hiring them.
Peep Laja (22:42):
What bets along the way have not paid off?
Alex Beller (22:46):
We've certainly messed up all the time. We swung and missed on a bunch of senior level recruiting early on, which like set us back or really slowed us down. We also made some investments early in like marketing and acquisition plays before our org was ready to do them correctly. We were making investments and appearances in events. eCommerce has a giant established event circuit, merchants attend these events, it's like a promising, interesting acquisition channel. But in truth our org wasn't ready to service that, so it became just like a distraction of time and money. Until you're staffed up to make the most of that sort of opportunity and not take your eye off the ball, it becomes a huge distraction.
Alex Beller (23:27):
Another bet that I would say in retrospect, we were a little out over our skis on is I look back with regret that we didn't build the go-to market organization more aggressively sooner. We were really proud of our product led roots and we were really proud of that identity of being a self-served tool and in a market this competitive, that has this much opportunity, it's like a marketing channel opens up once a decade. You got to go for it. I wish we'd invested much more aggressively early on in building our sales led motion. That's more a missed opportunity than a bet, but I look back with regret that we didn't start going harder there a year earlier.
Peep Laja (24:05):
So when you say, go-to market team, do you mean sales specifically? So you have like SDRs and AEs and anything else?
Alex Beller (24:13):
I mean SDRs, AEs, customer success managers, a more built out marketing team. We had one or two people in all those areas and those folks did great, but I think we were fundamentally not aggressive enough chasing the opportunity really across like full life cycle and building out distinct motions for distinct customer segments. We do have a healthy business dynamic, especially around NDR and expansion revenue, where accounts come in, maybe they've never used SMS, maybe they have used it before, but only on a small scale, that means they're going to start at a certain price point, but very quickly as their marketing list grows and as they lean into the channel more, their SMS spend is going to expand. So we're usage based SaaS. We charge based on how much people use the product, not a flat fee because that's how SMS messaging and the economics of it work. But what that means is that where we're different from traditional seat based SaaS is we have extremely high NDR and expansion revenues, so that can help fund some of the acquisition costs.
Peep Laja (25:18):
The key component of a successful go-to market strategy is picking pricing and packaging that is available. There are many questions here. How much to charge? How much are people willing to pay? How to determine my unit of value? How to design enough expansion revenue into the pricing model? If like Postscript, your pricing model is usage based, then you're in good company. Usage based pricing is on the minds of nearly every forward thinking SaaS company. It's clear why public companies with usage based price grew 38% faster than their peers. Here's Kyle Poyar, operating partner at OpenView with some insight on why companies should be thinking about usage based pricing.
Kyle Poyar (25:57):
A classic example is HubSpot, which is one of those non-developer centric companies that has started to monetize more and more based on customer usage. And for them, they used to just have fixed packages like a small, medium and large. And they realized their expansion was abysmal. They were at like a 75% net dollar retention, and they decided to add this additional layer to their pricing about contact based pricing, where as you generate more marketing contacts from all of the inbound marketing you're doing, you're going to pay more, and that's going to get HubSpot aligned with helping you generate more contacts and as you generate more contacts, you're going to be able to grow your business. And that's really aligned because your customers are trying to do the same thing that you want them to do and it doesn't feel like a tax or like you're penalizing them, and it's not necessarily just because your costs are structured in a certain way. It's actually based on the value that they're seeing and what they want to do.
Peep Laja (26:59):
You guys probably intend to be around five to 10 years from now as well. The competition is not getting any easier, so how are you thinking about moats and are you're building any?
Alex Beller (27:12):
There are interesting opportunities within messaging to become more integrated into merchant stacks and to power engagement across the full life cycle that we believe will present moat opportunities. However, I take all that with a grain of salt, because this is marketing automation. And in marketing automation there often aren't giant moats. You have to compete every day. You have to have a great product, you have to make it really sticky, and you have to have a great team who executes against goals. So we're placing bets, but we're not expecting any silver bullets.
Peep Laja (27:52):
So what are the three key strategies Postscript has placed their bets on? One, they're committed to topnotch customer service.
Alex Beller (28:00):
One of our values is being customer first; we obsess over it. We bend over backwards in support. That has actually led to a huge amount of word-of-mouth growth for us. Our customers evangelize Postscript between the results and the support they get.
Peep Laja (28:11):
Two, they hitched their wagon to a successful growing ecosystem.
Alex Beller (28:16):
Shopify's this SMB platform, it's growing every year, it has a huge customer base, and we're seeing successful businesses be built on top of their tech platform. So clearly the market was large enough to support tech companies on top of the Shopify platform.
Peep Laja (28:29):
Three, while competitors have expanded offerings, they've stayed committed to being the very best in their defined niche.
Alex Beller (28:36):
We have focused, has been one tenet of our product strategy that has stayed true. Notice, we don't do email unlike those other players. We don't work across the lots of different platforms or use cases like those other players. We focus on Shopify. We focus on direct consumer eCommerce, and we focus purely on SMS.
Peep Laja (28:54):
One last takeaway from Alex.
Alex Beller (28:56):
We think by just continuing to focus on innovating with how consumers use the channel and giving brands tools to make it more personalized, more two-way over time, that's how we're going to deviate.
Peep Laja (29:08):
And that's how you win.
Peep Laja (29:12):
I'm Peep Laja. For more tips on how to win, follow me on LinkedIn or Twitter. Thanks for listening.
