Latest / 1 to 100 / E34: Software Enabled Agencies with Taylor Holiday

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E34: Software Enabled Agencies with Taylor Holiday · 1 to 100

0:00
What's up gents? Sorry about that guys.
0:01
That was chaos. I apologize.
0:04
All good. How's it going?
0:06
Going well, you know, just you guys.
0:10
You guys are my favorite. Listen man, I really enjoy
0:13
listening to you guys, just working it out in the world.
0:16
We were talking about whether that's true or not.
0:18
I swear to God, and the reason is, and I don't mean this to be
0:21
like a slight at all, but every other podcast has a bunch of
0:24
people telling you why they know everything.
0:26
You guys are trying to figure it out and it like it actually
0:29
feels like you're working through shit in real time that I
0:31
can relate to. And so it feels like there's
0:34
like genuine figuring it out in this happening.
0:38
And listening to that is so much more interesting than people
0:40
tell me why XY and Z is the only way to do everything.
0:45
Well, that's good because I I I learned something new every time
0:48
we we record a podcast. So that's what it sounds like,
0:51
like you guys like it generally sounds like you guys like get on
0:53
and like you're like the guests too.
0:56
You're like interrogating and learning from and kind of
0:59
pushing on and seeing if you believe them.
1:01
And it's like, it just it, it feels like a, like a just much
1:05
more authentic interaction. Taylor, is that a framed PNL
1:09
behind you? Yeah, sort of, yes.
1:14
It's a for my, for my 40th birthday.
1:19
This is like, so the over the course of CTC, we built this
1:22
thing called the growth map that became this like amalgam of our
1:24
workflow that eventually became a piece of software.
1:27
But it started as a massive spreadsheet.
1:29
And it's sort of like a joke that it's like my life's work,
1:33
like here send you off on your iceberg with your spreadsheet.
1:35
So they they brought it. They printed it out and framed
1:38
it as a gift for my birthday. Speaking Speaking of of software
1:44
rising so. Are we recording?
1:47
Are we just in? Or is this is?
1:50
It no, no, this is it. Yeah.
1:52
What's, what is the, so I mean, CTC has always, in my view, at
1:58
least outside looking at is that CTC has always been like a
2:01
software enabled agency or has always been on trajectory to be
2:04
a software enabled agency. And so I, I guess like, as you
2:09
were saying that you're like, Hey, I went from spreadsheet to
2:12
software. What, what extreme do you think
2:15
you can get to like? What is the?
2:18
Where does that end? Yeah, it's a great question.
2:21
Not that far is the answer. We are not actually a software
2:26
company at all. And it's I think I've like, I
2:28
know very clearly like we are a service company that has a
2:32
software that we use in the service.
2:35
But one like for I'd say for we've been around 12 years.
2:39
For seven of the years we were not even sort of pretending to
2:42
be soft tech enabled like we were pureplay service.
2:45
But what I sort of discovered along the way as we got like big
2:48
enough is that at some point, like at the end nodes of the
2:52
delivery, the ideology just crumbles.
2:54
Like you can't actually operationalize consistent
2:58
delivery through every end node of the system well enough
3:00
without some sort of centralized mechanism to do it.
3:03
And so that's where I began. Like first I began as like
3:06
trying to just database the information as like task one,
3:10
like aggregate all the data across all the customers into a
3:13
centralized database. Like that was like task one.
3:16
Then it was like, OK, now could we build workflow on top of it?
3:21
And we had Lightspeed published this like venture forecasting
3:26
model like probably 15 years ago that was like a cohort specific
3:30
LTV forecasting template that we had sort of taken and built on
3:35
top of. And so we had like this database
3:39
that we had set up and then we were feeding it into Sheets.
3:42
Like we built this like retrieval mechanism directly
3:44
into Sheets to like save money on super metrics just because
3:47
everybody hates paying for software, you know, so, so we so
3:51
we built a mechanism to like deliver it directly into the
3:54
sheets to build these models. And so that became like the step
3:57
function that got us there. But for me, it was really like,
4:00
there's no way I can fulfill the promise of like CTC quality of
4:03
service through every endnote of the system if there's not a more
4:06
centralized workflow. Because you would open up like
4:09
individual customer instances and you would just see all sorts
4:13
of mayhem, like people doing all sorts of wild shit everywhere.
4:16
And so it really became about in order for this to like create
4:19
any sort of structure and scale, we have to figure out how to do
4:21
something better. And I think that's what software
4:23
is great at, and it has the potential to be at least.
4:26
And so I guess like if you were to just think from a business
4:29
model standpoint, so let's just use gross margin as a way to
4:34
describe like let's use net retention and gross margin as a
4:37
way to describe like one of the principal things that people
4:40
will use to differentiate between service and software
4:43
companies, right? And then there's a separate
4:45
issue of like, how does it feel to the customer and how do you
4:47
run the company? But let's just for for a second
4:50
talk about financials in in its extreme.
4:54
Do you think these things just basically collapse?
4:56
Like there's this effectively no difference between a software
5:00
enabled agency and a SAS company in terms of the gross margin and
5:04
NRR profiles of these two types of businesses?
5:06
Yeah, I think they're already a game.
5:08
Like it's an accounting charade like whether you call it
5:11
customer success in sales and marketing as like and you
5:14
exclude it from gross margin or in my world like those people
5:17
are just functionally inside of gross margin.
5:19
They are. That's like the labor profile.
5:21
And so in many ways, I think we're already pretty close to
5:24
that in terms of and that's in at least in the examples that I
5:26
used in in this sort of illustration for Sean's is that
5:29
I experienced them and like very much in a very similar fashion
5:33
to you would experience me how their accounting is structured.
5:35
I don't know what they put in the gross margin, what they
5:37
don't that's like, but my experience of it would be that
5:40
that is the case. Now, the one thing I'll say that
5:42
I actually think is still distinct from each other is
5:45
it's, I think that the NRR is going to be very similar.
5:48
I think it could even, I think LTV to CAC is actually going to
5:51
be better in my business than in any software business.
5:53
That the, the, the challenge that sort of to be solved is
5:56
like the velocity that you can onboard new customers is still
6:00
the constraint that I think differentiates them somewhat.
6:04
But I think even that has is collapsing closer to each other
6:09
because it's still requires a lot like on the, the server
6:15
side, there's even a couple like.
6:17
So I'll give you an example of why I think there's a, there's a
6:19
big player in our space that everybody knows really, really
6:20
well that I'm working on a deal with that basically is like,
6:23
hey, we have hundreds of close lost deals due to you're too
6:27
small to support. Do you want to become our
6:32
preferred partner for this? And we'll integrate with you and
6:34
deliver it through you guys because you can charge them
6:37
enough money to make it work. And I'm like, Oh my gosh, like
6:40
this is just like the idea that your product has a good gross
6:44
margin, but you can't service a small customer because the
6:47
support is too much. It's like, that's not what then
6:49
like that doesn't make any sense.
6:50
Like the reason Slack is so ubiquitous is because whether
6:54
you're one person or 10 million people, they can on board you
6:57
and make margin on it. And so that's to me the example
7:00
of the illusion. When I watch all these
7:02
businesses have to go to the enterprise, it's like, well,
7:04
well, why? And, and it's in part because
7:06
there is their cost of delivery is actually much higher than the
7:10
underlying compute cost for the data or whatever I.
7:12
Actually think that's a really good point though, because I
7:14
mean, Zach, I think that's part of what makes what you all do
7:17
really compelling is that it's self-serve, right?
7:20
There's no, you can scale infinitely effectively like you
7:23
don't have those same constraints.
7:25
And that is where software still can have a massive advantage.
7:28
The problem is I think those are, I think those opportunities
7:30
are becoming harder. There's there's less people that
7:34
just want to sign up for software.
7:35
Either you don't want to pay much for it, or you're expecting
7:39
that you're going to have a high level of service typically for
7:41
that software. It was also the reason why
7:43
because we figured it was like the reason why we never had to
7:45
take any money. Like if I if at $1,000,000 ARR,
7:49
I had to hire 3 CSMS at $80,000 apiece, it wouldn't have worked.
7:54
You know it would be like spending more on CSM than like
7:58
engineering at the time right? But by the by the way, the the
8:02
crazy thing is that this is way more common than you would
8:04
expect. Do you guys know shop my like
8:07
another super fast growing like influencer whatever.
8:12
It's like the modern LTK. Basically they're like 4
8:14
developers and like 70 CS people.
8:17
Yeah, yeah, totally. And and and a lot of this is in
8:20
Zach. I think it is.
8:21
I've heard you talk a lot. You feel like really ruthlessly
8:24
committed to like product LED growth.
8:26
You're you don't want to interact with humans like you.
8:29
You don't even look like you want to talk right now.
8:31
You know, you're just chilling up there.
8:32
It's like, so I can see how that's like dispositionally like
8:35
consistent, but but your product people can create value for
8:39
themselves. And the problem with most of
8:41
these businesses is that the individual user cannot create
8:43
value for themselves. Like you can't sign up with
8:46
house and create value for yourself.
8:48
That's just not true. Like it just doesn't work
8:50
without some really smart yeah, Richard, like I think you
8:54
Vermont similar to me, like like it's very hard for an individual
8:57
user to be like, I just logged in and now I'm going to make
8:59
value for myself. It becomes really challenging.
9:02
And so without that, you need an intermediary to be the power
9:05
user that creates the value. So can I, I was going to say
9:09
your observation is really astute on the growth rate is the
9:15
bottleneck at some point on this model.
9:17
And actually you can see this play out in the two types of
9:21
companies that grow the fastest today.
9:24
One is the PLG company. So you take gamma, lovable,
9:28
whatever, OK, purely PLG, so there's no constraint on growth.
9:33
The other one is you raise infinite capital and so then you
9:38
literally plow the humans into the enterprise.
9:41
That's Sierra, Decagon, whatever what you know, and actually
9:46
there are only two ways to grow super fast and you want to know
9:50
what's even more interesting is that there are more of the
9:53
latter than the former. There are more companies growing
9:56
super fast by pouring infinite capital into hiring a ton of
10:00
people and doing this forward deployed thing in this like
10:06
software enabled agency style model that you're talking about.
10:09
Then in the PLG model, because it's just really hard to build a
10:12
product that good. Right, totally.
10:15
And I think about this like, so my biggest thing is like, so we
10:18
have a one year LTV to CAC on our customer base that's like a
10:21
12:50. It's like exorbitantly high, but
10:24
I don't have a deployment mechanism to actually take
10:27
advantage of it that fast. Now the, the argument that's
10:30
being made to me and I think is a good one is, is that approach,
10:33
could you not brute force at a cost of like a really expensive
10:36
employee. Let's say I can hire an outbound
10:38
sales executive with network for a quarter $1,000,000 a year with
10:42
upside to 400 grand, whatever they needed to deliver like 4
10:45
contracts to positively make that a great investment.
10:49
That's never how we've grown. So it's like a novel idea to
10:52
begin to explore because there is this like the root problem to
10:55
solve for me now is much more about what is the deployment of
10:58
additional resource that can increase scale faster.
11:02
And not that like our 50% annual growth rate is bad, but it's
11:05
like, is there actually a, a underutilization or or an
11:09
opportunity to go leverage more because of those dynamics?
11:13
And that's the hard part to solve.
11:14
It's not an immediately obvious that I can go like deploy
11:17
capital in position A and generate tons of net new
11:20
onboarding because it's still like a salesperson on a call
11:23
doing a presentation to get to a contract reviewed by legal edit
11:26
red lines like it's not a frictionless process to onboard
11:29
people into the into the service.
11:31
So look at this as like like creating value and then
11:34
capturing value, right? And so like as an agency, you
11:36
create a bunch of value for people.
11:37
And I know for like a while ago, I feel like you were investing
11:40
in a lot of brands. Is that or like you guys had
11:45
like a incubator for brands or something?
11:48
We we, we fell down that rabbit hole about 5-6 years ago and
11:51
then went through the same cycle as every other aggregator ever.
11:53
And we are down to 1 brand that completely disassociated,
11:56
separate customer base, no relationship between the service
11:59
and store business anymore. And now I'm like the biggest,
12:03
like run for your life. Don't ever do that person in
12:06
the. World so not efficient at
12:07
capturing value that was created.
12:11
Well, not through the mechanism of trying to take the capital
12:14
out of a profitable cash flowing business and then deploying it
12:17
into a cash intensive terrible business model.
12:19
No, that was a bad use of bad use of funds and we don't do
12:23
that anymore. I actually, for what it's worth,
12:25
Taylor, I, I think you had a couple of podcast things you
12:29
did. Maybe it was Andrew, but you
12:32
were talking about that specifically.
12:33
And I actually really thought that was interesting how there's
12:37
a site you were talking about the idea that agency isn't a
12:39
good business and how it actually is a good business if
12:41
you invest in it properly. This is my biggest thing is like
12:45
this is this is what I'm trying to keep people from doing is
12:47
like, and look, we're the second class citizens of the world or
12:49
third class citizens. I'm fine with that.
12:51
Like I recognize that the brand guys are the coolest and then
12:54
the software guys are the second coolest.
12:55
And depending on the time of year, maybe you guys flip them
12:57
and become the coolest. We're never the coolest.
12:58
It's always the lowliest form of, of business, but I think it
13:03
is actually, I would make the case that it's the best business
13:05
model of all of them. And so I think I'm trying to
13:07
advocate or bring awareness to the reality that the, the, the
13:10
general trope is that there's like down, there's not the
13:12
upside that there's not the like M and a potential and activity
13:15
in this space. And that's just also
13:16
fundamentally untrue. It's just, it's just not
13:18
discussed or people aren't aware of it.
13:20
And so they, they, they build these businesses and they feel
13:23
like they're only opportunity to create like meaningful wealth or
13:26
liquidity is to go launch a brand or to go build a tool or
13:28
whatever it might be. And I just think that those
13:31
outcomes, especially in this moment in time are probably
13:33
substantially. OK.
13:34
I'm going to ask a very provocative question and I
13:36
intend this as like a learning question.
13:39
Do you think it's just because? The.
13:42
Types of people who have built agencies have not been of high
13:45
enough quality to build a good agency versus the types of
13:48
people that software. It's just like because the prize
13:52
was bigger, you attract different types of people and
13:55
then you create this feedback. I think I think that is that is
13:58
a big piece of it is that it's sort of the old joke that like
14:00
we're all in E com because we weren't smart enough to be in
14:02
finance, right? Like that's sort of the like the
14:04
old joke, right? Like it's like if you were
14:06
really so good at data analysis, you'd be working at a hedge
14:09
fund, not doing media buying. I feel like that's like, so I
14:11
definitely think that that's part of this is that the upside
14:16
presentation culturally is an attraction to talent, right?
14:20
And so I think that some of that is definitely true that there's
14:24
sort of the self fulfilling loops that these things end up
14:26
in that hopefully I think I can do this and I already see it
14:29
happening. Like I think there's some people
14:30
in our space that right now are choosing service as this begins
14:34
to undo itself a little versus maybe another times they would
14:37
have gone other direction. But I absolutely believe that
14:39
talent flows pretty in a capitalist society, flows pretty
14:42
logically to the greatest opportunity.
14:45
Got it. So yeah, cuz then cuz then it
14:46
makes more sense to me because the reason why you would have
14:49
had on average bad outcomes quote, UN quote and service
14:53
industries is because they were not trying to drive a business
14:58
model that was sustainable. But you didn't have bad
15:00
outcomes. That's just bad PR.
15:01
Like there every one of my direct competitor set that I
15:04
grew up with has now sold their company multiple times for
15:07
hundreds of millions of dollars. Every one of them.
15:09
Like it's unbelievable how under storied the outcomes are in
15:14
e-commerce marketing services, power digital, W promote
15:18
tenuity, mute 6 metric digital. Every one of them have gone and
15:22
that was all the people we grew up with the same we we competed
15:25
with like the same 5 to 6 brands forever.
15:28
And every one of them have gone through at least two
15:30
acquisitions up the tranche of PE because the thing about the
15:34
marketing services space is that like there's actually a well
15:38
defined and clear acquisition class.
15:41
Whereas like in brands, it's actually really kind of unclear
15:43
who the end acquirer is for a brand like, but PE because
15:48
because this all has to do with the capacity for leverage,
15:50
right? Like these businesses, your cash
15:52
flow to EBITDA is so tight that you can like banks like like
15:54
lending into this kind of revenue, especially if the
15:57
contracts are secure. So it's like APE can come in,
16:00
they can understand how they can put leverage on the business.
16:02
They understand the next tranche that they have to get to for the
16:04
next PE business to acquire. And they just kind of move up
16:07
the chain and it all aggregates into the big 6 that are in that
16:11
marketing services space, the WPPS, the Densus, the etcetera.
16:14
Or you take a crack at trying to go public.
16:16
Like it's just like the track is clear versus for a brand, it's
16:19
very unclear actually in many cases who the end acquirer for
16:23
the Birdhouse company is like it's just like who who buys
16:25
this? I don't know.
16:27
No, I was just going to say similarly the acquisition track
16:30
as it were or the exit track for software is very clear and and
16:34
well publicized, which is I think your point.
16:36
It's like you're you're fed over and over again.
16:39
Here's what the track looks like, here's what you need to
16:42
do, and then you get this kind of big outcome and it's just
16:44
very well advertised. So that's right, yeah.
16:47
And, and I, I would, I, I don't know why it's unadvertised in
16:50
our space. I, I didn't learn really until
16:53
seven years in. I didn't understand what I was
16:55
trying to do or what the game was or who the players were
16:58
like. It just was like this.
17:00
And part of that was because I was, I was romantically attached
17:02
to the idea of brands too. Like I, I started on the brand
17:05
side. It's definitely sexy.
17:07
Like I get the, the appeal of seeing your product being used
17:10
by people all over the world and like that it's, it's real.
17:13
Like I understand that. And so I was definitely caught
17:15
in that and didn't take the time to understand like, OK, well,
17:17
what is the actual end goal of the business I'm running?
17:19
Like how do I actually turn this into money?
17:22
Like, and I don't think I spent many years as a young person
17:25
really pursuing understanding that.
17:27
I think the difference, and I wonder what you think about
17:29
this, Taylor having run all of the businesses all of these
17:33
different times. I mean, I guess SAS is a
17:35
component of common thorough collective, but I wonder if the
17:39
difference here is a dependency on labor for service delivery.
17:42
Stuart Revo could probably turn off CSMS, or at least have the
17:46
freedom to never to decide and never do that.
17:49
See, I don't believe that though.
17:50
I don't, I don't think he could. I mean, I think that they're for
17:53
a reason. They improve outcomes, but I
17:54
don't think they're fundamental to the business.
17:57
I don't think people would get value.
17:58
Dude, you're not going to be able, yeah, you're not going to
18:00
be able to use Revo if it weren't for all those people.
18:01
That's what he was trying to tell us is that like it's just
18:04
hard to use because it's like a loyalty platform is it's like
18:09
one of those things that there's a lot of non intuitive stuff
18:12
that goes into the setup, which is what all those people are
18:17
there for, to make sure that you can like you, by the way, same
18:20
problem for us. I'm not saying it to be
18:22
critical. I'm just saying that there's a
18:25
lot of hard software. Salesforce is the epitome of
18:30
that, by the way, right? Salesforce like nobody can
18:32
understand how to use it if they don't have like humans helping
18:35
them use. This well, like, let's let's
18:37
talk about even Shopify or Clavia, like the alternative
18:40
path that most of these software companies take is they they they
18:43
enlist this class of like added on service provider as the
18:48
intermediary for the value creation, right.
18:51
And so, like you think about all the web development agencies
18:53
that are platform attached to Shopify and they like invest in
18:57
building them up. You guys are awesome.
18:58
You're so important. Let's throw events and bring you
19:00
in and connect the dots to where there still needs to be this
19:04
class of user that makes the thing really, really valuable.
19:09
And so for something like Revo or like even all of us, like we,
19:12
we try this all the time, like these agency partnerships or
19:14
these different ways in which you try to get people who you
19:17
know, understand how to use the product represent that interest
19:21
for you in ways that allow you to sort of bulk sell licenses
19:25
and put them on this very common practice that even if it's not
19:30
CSMS, then it tends to be that layer that gets built on top of
19:33
it too. I do think so when in software.
19:36
So in the context of Revo, for example, if he were to let go of
19:40
all of those CSMS, the customers that are set up and running, you
19:44
will retain them for a period of time.
19:45
And I don't know what that looks like, right?
19:47
I don't know how much complexity is there.
19:48
But I do think that is something that is different from a service
19:51
business. And that if the expectation is
19:53
that I'm going to have the software work on my store or
19:58
whatever that is, as long as it's functioning the way you
20:00
expect, you will continue to pay for that for a long period of
20:02
time. Sorry, I'm just gonna just just
20:06
let's take the other side of that.
20:07
That is for sure not true about Salesforce.
20:10
I don't know about Revo because we don't we're not a customer of
20:12
Revo. But I can't like the number of
20:15
pieces of software I as a SaaS company use that if like the
20:19
person who manages the thing were to disappear.
20:23
Now I'm just like what the F do I do is very large.
20:28
It's. My as.
20:29
Well, it's it's it's rippling. OK, I'm like, what the F do I do
20:33
if my like HR person goes away? It's Salesforce.
20:36
What the F do I do if my like Rev OPS person goes away?
20:40
Hotspot like all of yeah. So I, I think I think like the
20:45
argument there is like, yeah, people still subscribe to AOL
20:47
dial up, but like, is that an evidence that that business
20:50
model is like effective? Like, I don't know, Like I do
20:52
agree that you would get some residual exhaust that would last
20:54
longer, but I think the end result would sort of be the same
20:57
is that the thing would just die eventually, but that's OK.
21:01
Service business in that context.
21:03
What's that? It's a slower death than a than
21:06
a service offered in that context.
21:08
The service. I'll get, yeah, I'll, I'll
21:09
concede a slower death. You know they're, they're not
21:13
going to pay you. Yeah, yeah, for sure.
21:16
Yeah. But no doubt I I will concede
21:18
that it has the potential for slower death argument, yes.
21:24
Yeah, I I think this this might be the big difference, right?
21:26
Is service a core part of the offering and the business just
21:30
doesn't work without it, right. Slack, that's not the case,
21:34
right? Shopify, that's not the case.
21:35
I mean, I think there's some incredible stores that are built
21:37
on like a dorm theme. I think baseball lifestyle One O
21:40
1 might be they're just looking at them on a dorm theme.
21:43
So even though there are like people who are providing value,
21:46
they're building apps, they're building themes.
21:48
The building Shopify stores it's a separate service that's built
21:53
on top of a software that works without people.
21:56
Right. And that's why it gets further
21:57
like because the interesting thing I see is this like
22:00
bifurcation between everybody, sort of like moving to the
22:03
enterprise. And to me, it's just like it's a
22:06
fundamental movement away from the customer base.
22:09
Like the volume of customers are all not there.
22:13
And I even think the idea of like enterprise e-commerce is
22:15
like sort of a myth. I don't even think it's real.
22:17
Like there's enterprise retail, but there's not actually
22:19
enterprise D2C. Like depending on where you
22:21
would draw the line on that, like it's not a real thing.
22:25
And so that's another thing that I just like find funny is so
22:27
like, and even for me, like like I want to make it so that I can
22:33
deliver marginal value to the smallest possible customer.
22:36
Like that's my goal as a service business.
22:39
And which I think it's like, I like it because it's also
22:41
contrarian to all the competitors that are actually
22:43
good. Is that the other thing about
22:45
like competing like you brought up earlier, like smart people go
22:48
to X. It's like, to me that's like the
22:50
exact counter signal of where if you as a smart person want to
22:52
compete, like go where the dumb people are, go, not go where the
22:55
like super, super sharp people are.
22:56
You can create edge. It might not have the highest
22:59
upside potential, but if you can change the EV calculation by
23:02
getting to a much higher likelihood of success than like,
23:04
it could be the right bet. Why do you think I'm an E com
23:07
exactly? Right, exactly that's why I'm
23:11
like I want to compete against small agencies that I don't want
23:13
to compete against tenuity and W promote and new engine with
23:17
their like way more resources and smart people.
23:19
It's like no, no, if they can't make money on a $7,000,000
23:22
business, awesome, I will. And well, there's like 100 X the
23:25
number of them. Then there are the 70 million
23:28
ones you. Know what?
23:29
I think? It's really interesting in the
23:30
agency context as well. You brought up Tenuity.
23:32
I had an experience with Tenuity where the people who jumped on
23:36
the call lacked confidence, right?
23:38
They were just scared to be there.
23:42
In agency, you've got to get the people right.
23:45
If you get one of those, they can be very pretty.
23:48
They can be very charismatic when they're confident.
23:50
But if that happens, man, you can burn a huge amount of
23:53
business. Yeah, I, I think that is
23:57
definitely true that the, the individual employees have pretty
24:01
wide variable potential in the outcome.
24:03
I think all the time I'm trying to diminish how true that is
24:08
because that is a really hard problem to solve is to like make
24:11
every employee you have amazing. I don't know if you guys have
24:15
ever saw, I've never solved that one.
24:16
I've, you know, and like we, we, we've had a lot of really great
24:19
people. We've had a lot of mediocre
24:21
people. I've been good days, I've been
24:23
bad days. Like I so I don't, I, I hate if
24:27
that's the dependency because because I just, I don't know how
24:30
to win that game very well. Do the people at Common Thread
24:33
Collective currently contribute to like the hive mind of
24:36
information, the software in the background?
24:39
This is the really important cultural tenet, I think, is that
24:42
the way we sort of try to build it is this idea that we're all
24:44
building a thing and your job for however long you're here is
24:47
to come and put bricks in the wall.
24:48
Like, so we think about it as we're building a thing and you
24:51
want to be able to point to when you leave.
24:53
Oh, see that feature, see that process?
24:55
See that thing? That was me.
24:56
I was my brick in the wall. And so I think it is, it is
25:00
because the risk is that you on your own with an individual
25:03
customer, build a spreadsheet, solve a problem that gets
25:06
distributed to zero other people and the value is nothing.
25:10
And that is a real danger because people love to make
25:13
little things and trinkets and spreadsheets and little decks
25:16
and whatever. And you'll end up with this G
25:18
drive of Infinity documents that nobody's ever looked at.
25:21
So we have to fight really hard to, to adopt this.
25:23
Like we're building something together.
25:24
That's what we're here to do. And you want to be able to say
25:28
that you were at CGC for this year to this year and you
25:30
contributed to XY and Z and that's it.
25:32
That it becomes our story at the end of it.
25:34
So like we work really hard culturally to try and assess
25:38
that. It's also a big reason like when
25:40
we went through a big cultural shift, I, I, I remember feeling
25:43
a lot like, I would try and present this idea of like, what
25:47
do I have to give you? You should come and work at CTC
25:49
because I'm going to give you AB and C, all these benefits, this
25:51
payment, etcetera. And So what you get in those
25:54
cases, you get people that are looking for things they want to
25:56
receive versus if you switch that mindset to like, Hey, we
25:59
need your help. We actually need you.
26:01
We, we're not, we have, we, we have cool things to offer, but
26:04
really it's about what do you have to bring here?
26:06
And then you show up, you get builders, you get people who
26:08
want to contribute. And those people are hard.
26:11
They're actually they, they're difficult for a different reason
26:13
because they push and challenge and they like complain a lot
26:16
about broken things. But I would much rather have the
26:19
the employee who reports 700 bugs a day in the Slack channel
26:22
versus the person who never says anything and builds a workaround
26:25
in secret. Like it just never gets us
26:27
better. If that happens, you.
26:28
Know what I think it's interesting on the like building
26:31
trinkets and and the builders point of view is that you can
26:34
move from spreadsheet to software so quickly now and then
26:37
you completely bypass that issue of you being the only person who
26:41
knows how to set up the spreadsheet.
26:43
That's what I understand in the 1st place right?
26:45
And you can make it usable to for someone else.
26:49
Our basic, our MVP building. So we, we, we were lucky enough
26:52
to meet a guy his name, we call him the data chef.
26:56
He used to work at Nike and then he lives in the nether
26:59
Netherlands and he, he and his partner are like the best Excel
27:04
people I've ever met in my life. And same thing with sheets And
27:06
what like Elgin, one of them, I'm going to shout him out is in
27:09
the Excel World Championships in Vegas next month.
27:12
He's going to be in ACTC jumpsuit.
27:13
So it'll be cool to have that representation there.
27:16
But these like, so I'm saying like really, really amazing
27:18
people and to the point that like they're actually too good
27:21
because they can make sheets feel like software.
27:23
And so it actually like doesn't make you need to go and resolve
27:26
it. So we actually got so far in
27:29
just Sheets that it was like, holy cow, this is now a way
27:31
overboard in terms of how much we're processing through this.
27:34
But we can work through an MVP where like literally like every
27:37
product is developed in Sheets prior to being into the
27:40
software. And so like it becomes an MVP
27:42
type playground of a sandbox for development that can give
27:46
customers immediate value and you can get interaction with
27:49
prior to having to release more broadly.
27:51
So that's kind of the workflow Jack, what you're describing.
27:53
Taylor, I'm curious. You're talking about the
27:55
bottleneck being basically acquiring new customers.
27:58
What like let's say you were able to quadruple the rate at
28:03
what you're bringing in new customers.
28:05
What does that look like in terms of servicing those
28:07
customers? Does that also mean you have to
28:09
quadruple the staff to enable that or?
28:12
We, we, we started the year at 71 FT ES, we'll end the year at
28:16
71 FT ES. We've grown 50%.
28:19
So it, it is, it is not. Now there's a contractor base
28:24
growth there that also that changes a little bit into a more
28:27
flex staffing model that does change the resourcing pool
28:30
slightly. So it's not completely devoid of
28:32
human requirement, but we're building leverage into the
28:35
system through technology, but it will require it.
28:39
And at some point it would flip where the critical path becomes
28:42
supply, not demand. There is a point at which that
28:45
would happen for sure. It's not where we're at today.
28:48
I think that there is more room that we could go further on the
28:51
demand side because we can flex the supply side a lot better
28:54
than we used to be able to. But yeah, at some point it would
28:56
definitely flip back and then we would have to dedicate more time
28:59
and attention to solve that problem, although we're trying
29:01
to do that all the time. But it there definitely is a
29:04
threshold where that would become prohibited.
29:06
When can we sign up for status? When is that going to?
29:09
Be a thing never never no, I'm really committed that I I don't
29:13
want to be a software business. I think you guys I think your
29:15
life is so much harder than mine.
29:18
I, I just, and it's funny because we, we for a while had
29:22
an offering. I still have like they may, they
29:25
may hear this. I probably have 35.
29:27
I think I have like $50,000 of MRR of non CTC customers that
29:32
just use that list like because at various points we had it open
29:35
to them to do so. And it was just like kind of
29:37
stuck with it. It's become part of their
29:38
workflow. Whatever.
29:40
Then we just kind of like are in our forecast and we're like,
29:43
yeah, they're all probably going to leave at some point, but we
29:45
don't know when. Try the no customer service,
29:47
nothing to your point of like the exhaust of like how long
29:50
they would last. That's a good, good proof case.
29:52
But I just, I don't, I don't want to try to sell at the price
29:57
I would have to try and sell at to make that work.
29:59
I just think it is so hard. I don't know if you guys saw
30:03
how, what is his name? The CRO at Rebo just did made a
30:06
LinkedIn post about this today. That's kind of like tied into
30:08
the Sean's thing. But just this like idea of how
30:11
ruthless software pricing is right now.
30:14
And I just think I'd benefit disproportionately from being
30:17
compared to a different part of their price.
30:18
Their cost. Act than you do and I think it's
30:21
just anchored. I I feel cheaper than
30:23
alternatives, not substantially more expensive and Salus I think
30:27
would be way more expensive to make it work and it wouldn't be
30:29
that good without somebody helping.
30:31
You know, I think it's, it's interesting, we had a customer,
30:33
a long time customer of ours that was spending 150 bucks a
30:37
month. And yesterday they slack
30:39
messaged us that they were moving to 4K and today they
30:42
slack messaged us that they're moving to 12 K and Zack hardly
30:46
has to know about it. They've just expanded and
30:50
expanded and expanded. They're using more products.
30:52
They're moving on to annual plans.
30:55
And and Zach doesn't need to know about it, right.
30:57
I wonder how much of this feeds back into if you have a great
31:03
business, it's sort of like a great relationship.
31:06
There are 99 problems that you just don't have to worry about
31:09
with a great businesses, a never ending list of problems you
31:12
never have to think about, right?
31:14
And sometimes, you know, for brands, for agency service
31:18
businesses, those can be incredibly challenging problems.
31:22
Right. I don't know.
31:23
I, I don't know if I buy that. I think every business is full
31:25
of problems every day. There's never been a point like
31:28
what my what's not actually corollary at all in my
31:31
experience of my business is the amount of problems relative to
31:35
this present success of the company.
31:36
Like every day feels like I have more problems than I could
31:39
handle. When we were winning.
31:41
It feels like that when we're losing, it feels like that.
31:43
So I don't know, like I maybe, maybe there are, maybe there's
31:48
ways in which that doesn't all make it to me at various points
31:50
or whatever, but I feel overwhelmed by the amount of
31:53
problems I have today and we're as good as we've ever been.
31:56
And so I don't know, I, that's just experientially.
31:58
I don't know that there's a business where you wake up one
32:00
day, you're like, this is just super simple.
32:03
Like the, the problems only accelerates like they literally
32:07
only accelerate and like the only thing you can do is like
32:11
detach yourself from like actually believing that they are
32:14
problems because they're not problems.
32:16
Like they're seemingly problems, you know, And so like I, I like
32:22
the easiest the business has ever been was when we had like
32:24
$1000 of MRR. So easy, you know how.
32:27
And I did everything, you know, like it was like that, that was
32:30
so easy. So yeah.
32:33
Yeah, I totally agree. It's just there's too many,
32:34
there's too many customers now to for there not to be Infinity
32:38
problems to pick up. I think the easiest example is
32:41
tariffs, right? A lot of businesses are
32:44
inoculated. They don't have to worry about
32:45
that. And in service, maybe it's
32:47
working with creatives and just the dynamics of people.
32:51
You know, I've met some people in E com and they have
32:54
businesses that are doing 1020 million a month.
32:57
They've never made a forecast. Sometimes they run out of stock
32:59
and they're like, we need to order more stock.
33:02
The tariffs come and they're like, this doesn't affect us,
33:05
right? I feel like sometimes, whether
33:07
it's lock or it's, you know, a really talented operator
33:11
business gets put on easy mode because you just have a really
33:14
great business. I just reject everything about
33:17
the person who told you that I think they're a liar.
33:19
And that's what I would say. Like I just, I, I, I don't know,
33:23
$10 million a month and you don't.
33:25
And it's all at work. Like there's just because the
33:27
thing about humans too, like in e-commerce businesses have lots
33:29
of people. Like when you get to 100 people,
33:32
you have a small city, which means you have addiction, which
33:34
means you have depression, which means you have every human
33:37
problem that could exist, exists inside of the confines of your
33:41
walls. And so unless you're going to
33:42
tell me that those things are like inconsequential to you and
33:44
don't matter, I would just say like, there's nobody who gathers
33:47
100 people together and doesn't face every a human challenge
33:50
that you could imagine. But there are people that just
33:53
ignore those things, right? And I'm not I but.
33:56
It's not. That's not the absence of
33:57
problems, that's the. No, I agree that's.
33:59
Like a different thing. I don't think that's the right
34:02
way to operate, but I do think there are people that just like
34:04
just basically, and maybe that's what you're saying, Jack, like
34:07
you could just kind of ignore problems and it's like you just
34:09
kind of ride the wave like it's maybe the business does fine,
34:12
but I don't know how much you're actually like doing your job in
34:15
that context. Or they're just like entirely
34:18
not a problem, right? Like I've met lean teams,
34:21
there's like 6 people and two of them are related.
34:24
So they got four extra people, right?
34:26
And everything is working. And when people experience
34:29
genuine pain because of the tariffs, they're like, oh, that
34:33
doesn't affect us. And I mean like in it just on
34:35
that individual problem basis, they don't have that problem,
34:39
right? Because they built their
34:40
business in a way that it that's not fragility, right?
34:43
Yeah, I think on any individual vector that could be true, but
34:47
but I just I, I reject the idea that it would be true across all
34:50
vectors like. I just think that that that they
34:52
have some problem somewhere. It depends on how closely you
34:56
are to redlining growth at any given time, like in terms of
35:01
like how much any sort of problem could have it like a
35:04
meaningful impact on like the outcome of your business, right.
35:07
So it's like, yeah, if someone has a family business that's
35:10
been running for a long time and most of the people they have
35:13
dinner with every night and there's not that many, like,
35:15
emotional issues, yeah, like, that's probably like easier.
35:19
But they're also just like, not optimizing for the most outcome
35:23
of that opportunity. So I don't know if it's an easy
35:26
business. They've just like they've put it
35:28
at a level to where you can see most of the threats and they're
35:34
not really venturing into different waters where there's
35:37
new threats. Yeah, I I think so if we start
35:40
talking about like breaking problems into like life
35:42
threatening problems like this, this is actually one of the
35:44
reasons why I think like if we go back to the sort of general
35:47
premise here around business model is that I think risk of
35:50
ruin is like an under appreciated attribute to assess
35:54
when starting a business. Like what is the actual
35:56
likelihood that you die? And I think in e-commerce, like
35:59
the risk is really, really, really, really high because
36:02
you're forced to make this really hard decision about
36:05
allocating capital well ahead of the revenue realization.
36:09
And it's really hard to forecast that demand accurately and well.
36:12
And the risk when you get it wrong is that you have a bunch
36:14
of product that nobody wants and you have no more money and you
36:17
owe somebody money and you die. Software I think has a different
36:21
inherent risk to it, which is that often the capitalization
36:24
requirements lead to a cap table that demands a strategy that
36:30
plays a very high risk game by the nature of their business
36:34
model inserted into yours. So and that meant not true if
36:38
you if you bootstrap Zach like you guys, like if you haven't
36:40
taken capital, that becomes an offset to that.
36:43
But the reason I think a service business is like if we were to
36:45
categorize them all by best business model as least likely
36:49
to die, I think I am by far and away the least likely business
36:52
to die because my cost, I can eliminate all of them.
36:55
If it was me tomorrow servicing 1 customer, we could make money
36:59
like and you can, there's no committed costs.
37:02
I have zero capital expenditures that extend beyond any period of
37:05
time like I think I have maybe as my slot contract goes through
37:09
June, I don't know. It's like what it, my, my actual
37:11
committed costs are so low. And then my, my free cash flow
37:15
to EBITDA and my, my cash conversion cycle relative to
37:18
that service is like so fast. And so I think those are all
37:21
just different attributes that do make the problems more acute
37:25
or more likely to kill you. But I again, I would even put
37:28
this business model if, if that's the criteria, then I
37:31
would say that I'm way less likely to face an issue that
37:33
could kill me than is somebody else.
37:37
Great point. What do you think about the box
37:39
you put it in? We were talking to somebody who
37:41
is starting a Shawn very ambitious kid and he was
37:47
positioning it as an agency when it was as much software as it is
37:51
agency. What do you think about how you
37:54
package the service and or yeah, I guess the service and what's
38:00
honest, right? As in not just leaving your
38:03
customer. Yeah.
38:05
I think the question is who are you marketing to with the
38:08
packaging, right. So like let's use Icon as an
38:11
example that this was packaged for the sake of fundraising
38:15
initially. That's you don't go into Silicon
38:18
Valley and trade and raise money from Peter Thiel saying you're
38:21
going to be a service business. Like that's not the presentation
38:24
that you use to package to sell to that crowd.
38:27
But if you're selling to an e-commerce business, well, it
38:29
appears it turns out that doing the opposite is true.
38:32
Like it's actually easier to package it as a service business
38:35
than it is a software to get the price that you want to do the
38:38
thing. So the packaging is, I think
38:40
that's a marketing question relative to the person you're
38:42
packaging it for. Now again, you guys are are
38:46
unique in that like you're just committed to being a thing.
38:49
So you're not really thinking about necessarily what is easier
38:52
or better. And at your price point, it
38:53
makes sense to me it's packaged that way.
38:55
But I think that the thing that's, that's becoming less
38:58
true, maybe I think a lot of that packaging was also about
39:01
trying to generate an end highest value outcome.
39:05
And I just think that the the reality of the market in our
39:08
space right now is that I don't know that there's too much
39:10
distinction and where those things are coming to in the
39:14
conclusion. Because really that's more a
39:16
question of the actual revenue quality and someone actually
39:19
looking at the financials and being able to model and predict
39:21
out the revenue than it is about whether you call it SAS or
39:24
service. Now this is a, this is one of
39:27
the things though, that I would really encourage service owners
39:29
to, to, to operators to think about.
39:31
There's this grand temptation and you even do this to Jeremiah
39:33
with, with your software, which is there's like this perceived
39:36
nobility and like month to month contracts.
39:38
It's like we're noble, we care about month to month contracts
39:41
because we're going to earn it every month.
39:43
And I just go, OK, but you don't get the value assigned to that
39:48
unless you have a very long history of definitively proving
39:51
that retention rate in that business type.
39:54
And when someone's going to pay for a contract, you going, I
39:58
promise they're going to like us next month doesn't feel as good
40:00
as they're contractually obligated to next month.
40:02
Those are just different things in terms of the perceived value
40:05
of each of those asset types, which is all.
40:07
Again, if you're trying to lend to a bank, banks love contracted
40:12
revenue with histories of paying on time, like that's like the
40:15
best quality revenue that you could walk in with, right?
40:18
So I just again, what, who are you?
40:20
What's the end tail of this? Who are you trying to sell the
40:22
thing to? And I would try and package
40:24
through that lens I guess. Yeah.
40:26
I also would say when it comes to like the the amount that you
40:30
can charge as a software business versus a service
40:33
business, it is extremely hard from what I've seen for a
40:36
software business to sell services.
40:40
I think it is far easier to just be a service business and sell
40:44
something that's at a much higher price and effectively add
40:48
software type capabilities into it.
40:51
What if you never call IT service?
40:52
What if you just what if you just like keep calling it
40:54
software and you try and sell it for a lot of money?
40:57
Like like let's see. Like I think the most
41:00
fascinating example right now, like at North Beam in house,
41:02
like I interact with them a lot. So they're really interesting to
41:04
me as a business model that I just like the idea that these
41:07
are SAS businesses in many ways I think is just pureplay
41:11
storytelling, but they sell their products for a lot of
41:15
money. So my question is like, like
41:18
does the packaging matter in those instances?
41:20
Does the customer perceive a business type?
41:22
Do they care? What are what are they buying in
41:24
those cases? I mean, you're still buying the
41:26
service, right? So I, I mean, I, I agree with
41:28
you. I think the other, the other
41:29
thing that's very challenging is to run a really effective
41:33
software business that is pure self-serve software.
41:39
Doing that at the same time as trying to run a service that I
41:42
think is really challenging because they're not the same
41:44
motions at all, right? Completely different.
41:46
I, I think, I think I would argue that in every case
41:49
someone's buying an outcome. The question is what's the cost
41:53
to deliver the outcome and then that just sets the price.
41:56
Then that probably determines the business model.
41:58
And so like when I think about incrementality testing, like you
42:01
need it, the cost to deliver the value is high like that.
42:04
You need smart people doing data analysis.
42:06
They're going to have to clean every individual data set
42:09
qualitatively. Like they're not going to be
42:10
able to just upload it. There's too much anomaly, too
42:13
much narrative that goes into it.
42:15
That's going to happen every time.
42:16
These are like super high level people that are expensive.
42:20
And so the cost to deliver the outcome is going to remain high
42:24
all the time. And so the question of like,
42:28
what kind of business is that is like where I just kind of go
42:31
like, I feel like we're just making this, this isn't real.
42:33
And if I was a buyer on the other side of any of these
42:35
things, that's what I would kind of look at is like, what's the
42:37
actual cost to deliver the outcome?
42:39
How do we scale that outcome? And then therefore, what is the
42:41
implied future multiple or discount against future
42:43
earnings? I'm willing to pay.
42:46
And so I think those are all just like the words are going to
42:48
mean less. I think in the future.
42:49
That's my Sean's thing is more. I don't think we're really going
42:51
to call it Sean's. I think it's just that these
42:53
things are kind of like blobbing together into a, into an asset.
42:58
Yeah, we'll see if we actually do call them Sean's or not.
43:00
But yeah, I even, it's funny. Like I think there is this real
43:03
moment though, and, and of arbitrage right now.
43:06
It's funny. Like you guys know Jacob, right,
43:08
who hung at CDC for a bit and he so he's often, you know, VC land
43:13
trying to do his thing. And I think he's he's playing
43:16
around. But he sent me a text the other
43:18
day because he and I used to argue about this a lot because
43:20
he would like his whole tension with being in the thing was
43:23
like, I need to go chase the massive upside.
43:25
Like I got to get out of here. I got to go to the land of milk
43:27
and honey out in, you know, San Francisco.
43:29
And he texted me the other day and he's like, I see it now.
43:33
He's like labor. The the agency service thing is
43:36
mispriced. It's mispriced.
43:37
People don't understand. I can charge someone hundreds of
43:40
thousands of dollars for thing. I can, I can build a tool for
43:42
like, I wouldn't be able to do that if I called it software
43:45
now. So I think that's true.
43:47
That's like a phasic thing. Like I don't think that's true
43:50
perpetually. I think eventually I think this
43:52
whole thing gets compressed all the way down, even through the
43:55
labor stack. And like, we're going to go
43:56
through it at some point as well.
43:58
But I just think right now it's lagging in terms of which part
44:02
of the stack is affected is that people still want to talk to
44:05
people because there's still a bunch of boomers running
44:06
businesses. But when as the youngsters
44:09
arise, they're going to care less about talking to the
44:11
people. So I think it comes for us all
44:13
eventually. But right now there's like sort
44:15
of an arbitrage relative to the perceived cost of Labor versus
44:18
software. I think we should call that rap
44:21
guys that was. Awesome.
44:23
Yeah, thanks Tails a lot. Good to see you all going on
44:26
here too man. Peace.