How Colin Nederkoorn doubled down on innovation to grow Customer.io
How Colin Nederkoorn doubled down on innovation to grow Customer.io
Colin Nederkoorn (00:03):
I think it's the hardest thing, as a CEO, or the owner of a company. In the back of your head there's always this little voice that's like, "Oh, what do they know that we don't?"
Peep Laja (00:15):
I'm Peep Laja. I don't do fluff. I don't do filler. I don't do emojis. At least not a lot. What I do is study winners in B2B, because I want to know how much is strategy, how much is luck, and how do they win? This week, Colin Nederkoorn, founder and CEO at Customer.io, an automated messaging platform for tech savvy marketers. There are hundreds of marketing automation and customer engagement tools around. How does Customer.io compete? How do they win? In this episode, we talk about advantages and risks of focusing on innovation.
Colin Nederkoorn (00:49):
For us, the pace of innovation is probably the most important thing in the company.
Peep Laja (00:55):
We'll learn about the challenges of building a culture of excellence within a remote company.
Colin Nederkoorn (00:59):
I think the type of culture of is really hard to replicate in a distributed team unless you've done it very deliberately from the beginning.
Peep Laja (01:08):
We hear about the power of having a strong vision.
Colin Nederkoorn (01:11):
So it's much easier for us, as a new company, to say that's the future, and we're just going to bet on that on day one.
Peep Laja (01:16):
Let's get into it. Colin, tell me, did you guys break into the category you're in? And how has that changed over the years? What were you doing back then versus now?
Colin Nederkoorn (01:31):
We started in 2012. We were an email marketing platform that plugged into web and mobile apps when nobody else was doing that. We were asking for this big behavior change from marketers. Rather than saying, "Here's a form, go put it on your website," we said, "Integrate, and send us all your data. And whatever you're sending to your analytics tool, send that to us too, because you never know what data you're going to want to use to trigger a message." That was a big differentiator in the very early days.
Colin Nederkoorn (02:04):
The other thing that we did, and we promised on day one, is that we'd send messages when people didn't do something. And so we'd have some customers sending us half a million API requests a day, and we needed to receive and process every single one of those in order to confidently know that someone didn't do something. A lot of, even analytics tools at the time, they would sample the data to show you charts. We couldn't sample. We had to, with an extremely high degree of confidence, know we received all of your data, so that we could know to send the email when something didn't happen. That forced us, in the super early days, to get really good at processing a lot data, and really good at segmentation and triggering of messages. And if you look across the marketing space today, there's still only a handful of companies who can process data at the scale and reliability that we can.
Peep Laja (02:58):
Right, so when you entered then, you had a strong product based differentiation.
Peep Laja (03:03):
A few years ago, David Cancel, CEO of Drift, said, "Product based differentiation is going away. Act accordingly." Any innovation or product based differentiation is a transient preponderate. They will catch up and copy you. It's still a super worthwhile goal. You make the biggest advances in mind and market share when you're objectively better, or bring something new that people want. While you're milking your current competitive advantage, you need to be constantly cooking up your next product advantage to stay ahead of the competition. Very few can pull it off over a long period of time. It's very likely that in the future, you're mostly going to compete on brand. How would you run your business differently if the building blocks of your competitive advantage would be your brand strategy, positioning and messaging? How would you invest differently?
Colin Nederkoorn (03:56):
Naively, we didn't really know the space. We just knew that we were working at a tech company and we were trying to use SendGrid for transactional messages, we were trying to use MailChimp for marketing messages, and that didn't seem like the right way to do it when you have a web or a mobile app. The marketers didn't have control over the content of transactional messages, and they also struggled to send newsletters because their list was always out of date. And so by connecting and tightly coupling the marketing tool with the app, we're able to sync the user data across, so it's always up-to-date, always fresh.
Peep Laja (04:35):
So how has that changed over the years? And what is the game you're playing in the trying to win now?
Colin Nederkoorn (04:40):
What we quickly realized was, and I think we knew this on day one, that email wasn't the end game. Really, our customers needed to communicate with their audience on lots of different channels, and so we started expanding into other channels. We started adding other types of messages. Our focus area today is really on tech savvy marketers. Over time, we've built a more and more flexible product that serves more knowledgeable expert people. We took the approach that rather than dumb down our product to meet the lowest common denominator customer, we'd rather educate up our customers, help them become better, more savvy marketers, and use a more sophisticated product like us to actually build the campaigns that they wanted to build and connect with the customers that they have in the way that they were trying to connect.
Peep Laja (05:32):
So, tech savvy marketers, those are your target audiences, is how you would say, that's how you differentiate, because the category that you're in, marketing automation, or now, customer engagement, there's a lot of players in there.
Colin Nederkoorn (05:47):
Yeah, a lot of players, and so the way we look across the market, down market, a lot of the players are very oversimplified. They do that dumbing down of the product that I described. And then if you look up, there's amazing capabilities that are only accessible with a really big enterprise-y contract. And so what we wanted to do was bring the functionality that you could only get by signing a contract with one of these enterprise solutions, we wanted to bring that to early to mid stage businesses, and have them really start on a tool that will help them grow rather than scale out of this kind of SMB, or almost like consumer-y oriented low end tool. We decided to build enterprise functionality, but charge the same way that the low end tools would charge, and make it a really great place for companies to grow.
Peep Laja (06:44):
So you're making, let's say, advanced level feature sets available, democratization play in a way, where are you investing here? So are you still doubling down on making the best possible product? Are you also trying to win on other arenas?
Colin Nederkoorn (06:58):
In the early days, we didn't have sales, we didn't have customer success, we didn't have any professional services. We didn't do all of the extra stuff. We put all of our energy into building product. And the business has grown since then, and we're still putting a lot of energy into product, but we've also built these other teams. Now when a customer comes in, especially at our higher end, so around $10,000 a year, a lot of times they don't have the resources on their team to do the initial implementation, and so we can sell them professional services, and a salesperson will help them complete that sale.
Peep Laja (07:36):
How much of your revenue, percentage wise, is from those services?
Colin Nederkoorn (07:41):
On a percentage basis, I think it must be like three, four percent, something like that.
Peep Laja (07:47):
More like an adoption play, and a retention play, rather than revenue?
Colin Nederkoorn (07:50):
Exactly, yeah. The whole purpose of having a services organization in our company is to accelerate customers getting to value inside the product. It's not to make money on services. It's a really important part of our organization and we've had some great successes by having services there, but we're not a services company. We're a globally distributed team, and we're trying to compete at the low end of the high end, that's one way to think of it. One of the ways we use that strength of being globally distributed is that we have customer success managers that are in the same time zones and countries as our customers are, without having to establish an office there. And that means that we can offer a great customer experience at a lower annual contract value than upstream competitors can. And so a lot of times, dollar for dollar, we're providing more service, a better customer experience, and more knowledgeable people to interact with than both up market and down market from us.
Peep Laja (08:57):
But wouldn't that be kind of easy to replicate? Because now everybody's remote first, and everybody can hire in the Philippines or Bulgaria and Bolivia.
Colin Nederkoorn (09:06):
I think it's actually pretty hard to run and build a distributed company. We are 80 something people now. There's definitely challenges along the way. It's, I think, making that transition late is really tricky. And the other mistake I see companies make is, especially when you're talking about technical support or the services side of things, even if they're part of your company, if you have a satellite office whose purposes is services, they often feel like second class people in your company. The way we've built a distributed and remote company is that, ideally everyone who's in the team, regardless of the country they're in, regardless of the role they're in, feels like they're part of the team. We're trying to remove any centers of gravity in the company that something like an office creates. If you're a company who's like, "Oh, well we'll just hire a bunch of people all over the world," you're not likely to be successful doing that. You won't create the type of culture of excellence that, I think, is really hard to replicate in a distributed team unless you've done it very deliberately from the beginning.
Peep Laja (10:14):
Totally. When we went to all remote, overnight, at CXL, it was like, "Well, we'll just transfer everything to Slack and Zoom, and it's business as usual. We've had remote people before." But then, it didn't fucking work, to an extent, but like many problems, many problems. It just, it seems easy, superficially, but it's not.
Colin Nederkoorn (10:35):
Yeah. I think a lot of things bubble under the surface, and what you learn is how to replicate the water cooler, how to make sure that people are talking when they need to talk, and you've got enough social stuff going on when the team is all remote.
Peep Laja (10:55):
As organizations grow in headcount, and as we're increasingly remote or distributed, new ways of management are needed. Managing by walking around is no longer an option, and the classic management approach of alignment, that employees should stick to the plan, doesn't really work in today's environment. The world is changing at a fast pace. Our ability to see around corners is limited, and organizations are constantly forced to adapt to new contexts. We presume predictability, but that's wishful thinking. If we can't predict the future, how can we tell our people what actions should one take? The plan we made nine months ago might already be based on false assumptions. The traditional strategy is about the world we would like to exist, not the one we really live in. We'd all like things to be stable, and linear, and certain, unless that's not the case.
Peep Laja (11:47):
The new management approach we need is coherence, and since the world is ever changing, and we're remote, and constantly adding new people, we also need to support the speed of decision making. We can't have executives be bottlenecks. The way forward is to democratize decision making across the whole organization, and empower accountable autonomy. The foundation of coherence is trust and transparency. For that, we need to set clear rules and guidelines for how decision making should happen.
Peep Laja (12:17):
Number one, boundaries, we define what not to do, what we're not about. Two, overall direction, everyone knows where we're going as an organization, our mission and ambition. And three, reliance on facts, actions should be taken based on evidence. Everyone needs to be able to access all the data and commit to using it.
Peep Laja (12:39):
Tell me more about competing on product. What is the moat there? So you have a cultural moat, it's hard to replicate, and you're building a product for advanced marketers, do you have an innovation advantage here? How are you thinking about this?
Colin Nederkoorn (12:54):
For us, the pace of innovation is probably the most important thing in the company, and pace of innovation can create a moat. Actually, taking a bit of a step back, in the space that we're in, processing and dealing with terabytes and terabytes of customer data is hard, and acting on that data to send emails, push notifications, SMS's, reliably, so that people are getting, there's a sort of cheesy phrase, right message at the right time. That's actually pretty hard when you're dealing with many customers, multi-tenant infrastructure, someone's going to start, essentially, accidentally DOS-ing your infrastructure as they're sending in data because they're having a really big day in their business. Things like that can affect how the system performs for other people, and so there is a moat around, technologically, how do you support thousands of customers all sending in this flood of data into the system at all times.
Colin Nederkoorn (13:57):
But then, what do you do with the data? How do you act on it? What are the options that people have for segmentation? What are the workflows that they can build? How can they use that data to automate things, both in their messaging and in their business? And for us, what we've realized is that people always want to do more with their customer data, and the data that they have in Customer.io, and it's really on us to figure out how to keep meeting the growing demands and needs of customers, and that's why pace of innovation is such a critical thing for us. And I think, over time, one of the trends in the market that we're seeing is that people are expecting more out of their tools, and the tools that do one thing mediocrely, in a mediocre way, I don't know if mediocrely, I don't think that's a word, in a mediocre way, they're going to lose. And so you really need to do more for your customers because they're expecting more out of all of their SAS products. We get continually pushed by our customers to do more.
Colin Nederkoorn (15:00):
I can give an example if you like. One of the changes in the market over the past few years is the growing prevalence of data warehouses. What we started to see was our most advanced customers were sending web hook data from Customer.io into their data warehouse and they were combining it with other data sources to try and analyze the performance of their messaging campaigns. We said, "Okay, well, we think we can do a better job than that. Why don't we just connect directly to the data warehouse?" And then we'll just sync the data for them. And so we built that first, had some customers running on that for a while, and then we just released a UI that lets them configure a bunch of different data warehouses themselves. That's like one tiny corner of our product, and there's so many things like that. I think people really view, especially a customer engagement platform, people view that as the center of their communication stack with their customers. They're just expecting you to connect with everyone, and do more with the data that's in your product.
Peep Laja (16:02):
So there's a strong moat for new entrants, so it's hard to come from zero and build something that you've built, there's a lot of engineering hours, knowhow, in there. What about the big guys in the category? People with deep pockets, strong engineering teams? So whatever innovative stuff you're doing, can't they replicate it? Have they copied you already?
Colin Nederkoorn (16:25):
There's definitely a bunch of big players with deep pockets. The one that I always like to think about, as an example here, and this is probably most helpful for other people starting a business. Like if you look at who's already there, and who their customers are. Take MailChimp, for example. When we looked at MailChimp and we said, "Well, how well does MailChimp serve web and mobile app companies?" And our conclusion was like, not very well. The needs are so specific, and they're such a small percentage of MailChimp's revenue, that they will never serve those companies. MailChimp is never going to shift their entire business to focus on that because it would mean jeopardizing their core.
Peep Laja (17:07):
Nathan Barry had a similar insight when I spoke to him about growing ConvertKit in episode two of How to Win.
Nathan Barry (17:12):
So what's interesting, you mentioned not playing the feature game, I think we can play it better than they can in our market. We can focus better, and so we can make something that is really compelling, and people can legitimately say like, "I'm able to do things in ConvertKit that I couldn't do in MailChimp." And other companies can say like, "Yeah, but, here's all these things that you do in our tool that you can't do in ConvertKit." And we can be like, "Great. Creators don't care about those, that's not the use case."
Peep Laja (17:41):
Back to Colin.
Colin Nederkoorn (17:43):
I think the same thing happens at the high end. If you look at traditional marketing automation, they were focused on form capture, and "Fill in this form and you can download this PDF." That's sort of how I think of traditional marketing automation, they're part of the high touch sales process, so you don't actually create an account. With a product, you download the PDF and then a salesperson starts following up with you. Then you talk to the salesperson a little bit, and then you buy the product, and then you get a login after you sign the contract. And we just thought that neither of those models were going to change on a dime and say, "You know, actually, this is the future, so we're going to bet everything on the future." So it's much easier for us as a new company to say, "Hey, this model of creating an account and engaging your audience who has an account with your web or mobile app, that's the future. We're just going to bet on that on day one."
Peep Laja (18:37):
Gotcha. How often are you looking at what the competitors are doing? Versus you just focus on your customers and what your advanced level users want from you?
Colin Nederkoorn (18:46):
I try not to. I think it's the hardest, as a CEO or the owner of a company. In the back of your head, there's always this little voice that's like, "Oh, what do they know that we don't?" There's a temptation to look at what competitors are doing. But to be honest, we really don't let it guide the decisions that we make. We try to have it be really driven by what our customers are telling us, and what we are seeing in the market as well. That's worked really well for us, and it's also led us to build things that we don't see anywhere else in the market, and to build capabilities that other people haven't built, that sort of helped build a technology moat. But it's also meant that, at times, we've done more than we needed to you. Right? So we've, like, over-engineered something. But I think as a guiding principle, you can't innovate if you're just copying other people.
Peep Laja (19:39):
That is true, because there is the downside that if you're only listening to the consumer, and building what the consumer wants, everybody in your category is solving for the same problems, and ends up building the same thing, it leads to more sameness. If you want to differentiate, you need to have a perspective they're doing that too, that maybe we want to invest elsewhere, or be better, at least offer a feature parody.
Colin Nederkoorn (20:01):
For sure. I can tell you, when we first started, there was a lot of comparison with Intercom, and we made a deliberate choice there. We had one hundredth the funding of Intercom, and so there's no way we could build for feature parody with them, it would've been a fool's errand for us to try to build a knockoff Intercom, and start doing like in-app chat or something like that. We've really stayed away from building features that make us look the same as others, because it's impossible to sell.
Peep Laja (20:29):
So tell me about competing with marketing. So, A, how are you attracting those tech savvy advanced buyers that appreciate the feature set that you have to offer? How much of that is word of mouth and people talking to each other? And how much is that you are actively out marketing others to alert those customers?
Colin Nederkoorn (20:52):
Marketing is an area where we've definitely under invested, but I'd say by and large, what we hear from people who buy Customer.io is that someone told them about us. We invested really heavily in having a phenomenal customers team, so technical support, customer success, and just delivering these fantastic experiences for people who have bought Customer.io and trying to incentivize word of mouth. And that's worked pretty well for us.
Peep Laja (21:22):
If you look at some of the most innovative companies, it still seems to be true that you can't sustainably out compete the competition, eventually they'll catch up with feature parody. And then the options will be very similar and the customer is going to make the choice based on brand. Tesla was a category of one in electric cars. Now, there's a lot of electric cars. My bet is that in another year or two, Tesla's advantage will cease to exist. Lucid just announced a car with over a 500 mile range, more than any Tesla. Polestar, Rivian, other electric first brands are coming up. All the old school car companies are going electric. The principle is the same. Tesla will have to start competing on brand. Currently they're doing zero dollars in advertising, kind of like Google back in the old days, they didn't advertise either at first, and now they make TV commercials.
Speaker 4 (22:10):
Tell me something, I forgot.
Speaker 5 (22:12):
It's your mom's birthday.
Speaker 4 (22:14):
I forgot that.
Speaker 6 (22:15):
So, it's a phone?
Speaker 7 (22:17):
Well, it's a phone by Google.
Peep Laja (22:28):
I believe that a strong brand is your best, most sustainable, long-term asset. And in a world where everyone has the same features and capabilities, the brand is also your strongest moat. How are you thinking about building the brand? That brand is a moat?
Colin Nederkoorn (22:43):
Brand is really important to us. Part of the reason people join the team, join the company, is that we seem different than other companies. We've had the opportunity to go and raise a lot of money, but we've chosen not to do that. We've been profitable for the past 12 months. And I think one of the reasons we haven't raised a lot of money, I've seen it be bad for customers so many times, especially if you look at companies that get acquired by private equity. They go in, jack up the prices, they turn into sort of squeezing customer mode.
Colin Nederkoorn (23:16):
I think that one of the things that we don't do a great job of talking about now, but one of the ways that we want to attract like-minded people, is just by creating that feeling of trust that we're never going to screw you. We're doing everything we can to try to be a really great company to do business with for our customers. No matter how big we get, how successful we get, we're not going to screw you over, or sell the business, and then all of a sudden you've got to migrate away suddenly. All of these things, which you see happen, I never want to do to our customers, and so.
Peep Laja (23:48):
How are you actively signaling this? What are you specifically doing?
Colin Nederkoorn (23:53):
Yeah, I don't think we do a great job signaling this on the website to customers, but certainly the people on the team, they joined the company, and they work at this company because we're that type of company and not the other type.
Peep Laja (24:07):
There's an increasing trend with CEOs, or other executives, building a big personal brand, and putting themselves out there and then using their platform to tell the story of the customer, and then build brand affinity. HubSpot is really good at this, Drift.
David Cancel (24:24):
So my name is David Cancel. I'm a five time founder, two time CEO, and I'm CEO and co-founder of Drift.
Peep Laja (24:31):
Intercom is prolific writers on their blog, so what about you guys?
Colin Nederkoorn (24:38):
It's something that I debate a lot, internally. I don't want to be the company. One of my goals with building Customer.io is to build something that it lasts beyond me. And if I make it all about me, then I am the brand, the more visible I become, the less privacy I have. And so I really value privacy and anonymity, whether or not-
Peep Laja (25:01):
It's not like you're going to become Hollywood-level celebrity overnight.
Colin Nederkoorn (25:04):
Sure.
Peep Laja (25:05):
I think, in marketing, there are only two celebrities, there's like Gary V and Seth Godin, and then, nobody else, everybody's like a D level niche influencer. And you can certainly build your personal brand that is just an amplifier for the company, it's not that, it's not Colin.io you know.
Colin Nederkoorn (25:24):
That's the part that I'm comfortable with, and I'm exploring, but I'm also just sort of cautious about making it all about me and not about the company.
Peep Laja (25:35):
Personal brand is a massive asset, and you should cultivate it accordingly. When done well, a personal brand's halo shines a light on the business and will help it stand out and even differentiate. It works for are both small businesses and large. Yes, you can do without, but it definitely helps. I'm not sure we'd know about SparkToro without Rand Fishkin.
Rand Fishkin (25:54):
I drove the first 1000 signups to Winter using only my social media.
Peep Laja (25:59):
And you don't even need to be a founder, few knew Privy existed before Dave Gerhardt joined them. Remember, one, your brand isn't what you say it is, it's what they say it is. And two, you are what you repeatedly do. It's very difficult to build a brand that stands for more than one thing, people want to put you in a box. So it's best to start out in a box, be known for one thing, you can branch out later. Tim Ferriss used to be a niche guy when he first wrote that 4-Hour Workweek book.
Tim Ferriss (26:27):
Hello everyone. My name is Tim Ferriss, and I am author of the 4-Hour Workweek. You may have heard of it, it's been number one on the New York Times, Wall Street Journal, and Business Week best seller lists.
Peep Laja (26:39):
And Gary V used to be the wine guy.
Gary Vaynerchuk (26:41):
Hello everyone, and welcome to the first episode of Wine Library TV. I am Gary Vaynerchuk, Director of Operations here at Wine Library, and winelibrary.com, and I am very proud to launch what we think is the first video wine blog.
Peep Laja (26:54):
Now they're both mass market. And the main things, be visible, be consistent, have strong authentic opinions, ship regular content in whatever form. The more, the better, as long as you can maintain a level of quality. Write books, give conference talks, be active on social, have a podcast, repeat for many years. You'll need your personal brand five to 10 years from now.
Colin Nederkoorn (27:17):
We need to do a better job of telling our story. For a long time, to be honest, I felt like we were at version 0.1 of the product. I think we're like at version 0.9 now, of what we actually want the thing to be and what we're really proud to put out into the world. It takes a long time to build a mature and very feature full product. I don't like to be the type of person or company that is all bluster, but there's nothing there to back it up. Some CEOs do that really, really well. I would rather skew the other way, and have the marketing worse than the product in some ways, right? And then we can fix the marketing and level it up to the product. But if your marketing's up, really, I was going to say way up here, but I realize it's audio, not video, so if your marketing is like super amazing and your product is garbage, that's kind of a letdown. And I don't want to be that type of company, so we've always kind of undersold on the marketing.
Peep Laja (28:23):
Perfect. Thank you so much, Colin.
Colin Nederkoorn (28:25):
Cool. Thank you, Peep.
Peep Laja (28:29):
So, what are the three key strategic decisions that Customer.io made in order to grow and succeed? One, they doubled down on innovation.
Colin Nederkoorn (28:37):
For us, the pace of innovation is probably the most important thing in the company, and pace of innovation can create a moat.
Peep Laja (28:45):
Two, they focused on building a culture of excellence within a remote organization.
Colin Nederkoorn (28:49):
Ideally, everyone who's in the team, regardless of the country they're in, regardless of the role they're in, feels like they're part of the team. We're trying to remove any centers of gravity in the company that something like an office creates.
Peep Laja (29:03):
Three, strategies where to play and how to win. They carefully chose their focus so they wouldn't be up against industry giants who could crush them if they competed head on.
Colin Nederkoorn (29:12):
We had one hundredth the funding of Intercom, and so there's no way we could build for feature parody with them. We've really stayed away from building features that make us look the same as others, because it's impossible to sell.
Peep Laja (29:25):
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.
