Building an SMB SaaS Business: Stitch Labs CEO Brandon Levey (Part 6)

Sramana Mitra: It was a monthly recurring revenue though, right? It was a SaaS product?

Brandon Levey: Correct. It was the same model basically. In January of 2013, we hired Josh who used to consult small businesses. In March, we hired our first customer support rep who’s now a product manager at Stitch. That’s when things started to change. I like to joke that we accidentally started selling Stitch because Josh really liked talking to people. He’d say, “Maybe we should try calling our customers and helping them get set up.” When we did that, they would convert two or three times better. They stick around better. We started doing more and more of this. That just started showing a lot more initial traction. That’s when we actually started growing the company.

We changed our pricing model. You also get a trial. We increased the prices but we also started providing a much better customer experience. It was the first time that we focused on the customer experience beyond the product itself. That was the fundamental difference at that time.

Prior to that, I had met a number of investors. One of them was Greg Sands of Costanoa. I really liked him. He’s a very nice guy from the Midwest. In the pitch meeting with him, he asked if he could bring his buddy Greg Waldorf. Since then, we’ve become friends with Greg Waldorf. He’s a phenomenal guy. He’s both an investor and a personal mentor at Stitch. Greg Sands had a lot of experience. Greg Waldorf was an investor and also CEO of Invoice2go. He’s been at a number of venture firms. He has a great balance of experience operationally and financially. We had multiple term sheets. Our top choice was the Gregs. We closed that in August.

Sramana Mitra: I have a question about your experiments with freemium. Generally, we prefer to do free trial as opposed to freemium. Is that something you agree with based on your experience and experiments?

Brandon Levey: I cannot say that I wholeheartedly agree with that because I think it’s very dependent on what your product is. For example, companies like Dropbox do very well with the freemium model.

Sramana Mitra: I wouldn’t say that because these are companies that are heavily venture funded and they’ve never become profitable. If you have so much money to acquire free customers through venture funding, that’s fine. If you’re trying to build a capital-efficient business, you just don’t have the luxury of acquiring that many free customers that don’t convert.

Brandon Levey: Maybe it’s true for Dropbox, but I can’t say 100% that the unit economics don’t make sense. The other component that is important to consider is even if the unit economics don’t make sense today or 10 years from now, maybe they’re the things that get you to 10 years from now. At that particular scale, you’re able to make the business work.

Sramana Mitra: You have to survive.

Brandon Levey: For Stitch though, a freemium model is not a good model.

Sramana Mitra: I agree with that. What happens next?

Brandon Levey: That takes us to end of July 2013. We had six people in the company. Ash was still with us as customer support. We kept plugging along at the product. We raised $3.5 million in our Series A. We hired eight people very quickly. Two of them didn’t work out. Then we hired a couple more later that year. By the end of 2013, we had 14 people in the business. We would hire one person every month or so for the next few months.

The key defining moment was February 2014. We started off 2014 very focused. Then, things started to get out of focus. I remember a conversation I had with Greg Waldorf just after we closed our Series A. He was telling me that of all the entrepreneurs that he mentors, if you ask them what went wrong after the first year, the response is always that they did too much. I felt our company was starting to do that. We had about 15 or 16 people and we weren’t just focusing.

The key reasons why we needed to focus is we had learned so much about commerce by then. We had learned so much more about our bigger vision of what we wanted to accomplish. We knew that this was not just small business. This was a massive opportunity. In general, business-focused SaaS model within commerce other than marketplaces and shopping cart, don’t have great solutions. We needed to build our new platform, which internally we named Trousers. At that date, we focused our efforts there. Pretty much, all our engineering efforts went into Trousers. We started working very long hours. For many of us, it was seven 12- to 16-hour days for two or three months.

We released Trousers in June. It was one of those situations where everything that can go wrong will go wrong. On Sunday morning, we expected a lot of bugs. We fixed a bunch of them. On Monday morning, we came to the office and our Internet was down. The ISP was down for four hours. That made it very challenging. We were releasing a platform where all new and existing customers were on it. That was rough. Also, we were on the wrong version of Google Apps. We sent a lot of customer support email for customers who didn’t receive them. We had hit our outbound sending limit, which we didn’t know about until Thursday of that week. Then we just dealt with a lot of bugs.

By the time we got to the middle of September of 2014, we finally started to clean a lot of things up. Don’t get me wrong. There is still a lot of work to do. That was when we started hitting our stride.

We made some great hires. We had to let a couple of people go. The fundamental difference between how we started 2014 and how we ended it is we went from a team of about 14 people that all had skills to a company of multiple departments. That was when we started building our sales and marketing team. We started building our engineering team and establishing a product team within the business.

This segment is part 6 in the series : Building an SMB SaaS Business: Stitch Labs CEO Brandon Levey
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