Andrew Bialecki: Is Klaviyo the Most Under-Priced Public Company? | E1170

1. 0:00 – 0:49

   Intro

   1. ABAndrew Bialecki0:00

      (instrumental music plays) In year one, we got to a couple thousand dollars in MRR. In year two, we got to a quarter of a million dollars in ARR. And then it wasn't until the end of year three that we got to a million dollars. We were, when we were building Klaviyo, venture firms had these kind of, you know, "We'll give you $20,000." And it's like, you know, no strings attached, no equity. We applied to two or three of these and not one accepted us.

   2. HSHarry Stebbings0:23

      Ready to go? (upbeat music plays) Andrew, I am so excited for this. You don't know this, but I'm like the biggest nerd on your business. Like, I think it is one of the most fascinating businesses in tech. So thank you so much for joining me today.

   3. ABAndrew Bialecki0:48

      Awesome.

2. 0:49 – 3:43

   Background

   1. ABAndrew Bialecki0:49

      Thanks for having me, Aaron.

   2. HSHarry Stebbings0:50

      I was thinking about how to make this show as different as possible. I think there's a lot of things in our early years which shape who we are today. What do you think was the most impactful thing in your early years that shaped you most that you maybe haven't shared before?

   3. ABAndrew Bialecki1:03

      I'll say two things. One is, I remember I grew up on a, you know, kind of in the suburbs and on a, kind of a small street. And it's interesting. I think a lot about my parents both worked, and I was allowed to just roam around the neighborhood. And, you know, all I remember is there, there were no cell phones, so it was just kind of be home at 5:00 or 6:00. And you just had, like, total freedom. I remember my parents both work, went to, you know, school, uh, or went to work early, so we just walked, you know. By the time we were six or seven, we just walked ourselves to school, and we'd just hang out before the bell rang. So I think that kind of independence and just go, go explore things and figure things out, um, was awesome. And it's actually interesting. I wonder if that's something that we're gonna be able to carry forward to, you know, our kids or if that's, like, you know, allowed anymore.

   4. HSHarry Stebbings1:45

      Do you know what's really interesting, is that Norway is one of the only countries in the world where you are allowed to climb trees as children. And they are also some of the happiest children in the world, who learn the fastest. And there is, I think, a strong correlation between that 'cause you fall, get hurt, and realize the errors of your climbing ways and learn.

   5. ABAndrew Bialecki2:04

      Yeah. Uh, we have the same thing. I'm used to, uh, you know, played, um, you know... Grew up in the northeastern part of the US, uh, in Boston. And, uh, we, you know, we played hockey during the, the, the winter. You know, my, a lot of my friends would freeze their backyards. And yeah, I mean, you, you know, you play somebody, you know, I don't know, you, you, w- wouldn't usually wear pads and stuff like that. And, uh, yeah, you just, I don't know, you figure things out, right? Lots of cuts and bruises and this kind of stuff and, yeah, they just figured it out.

   6. HSHarry Stebbings2:29

      I love that. What was the second element you mentioned there?

   7. ABAndrew Bialecki2:32

      It's funny, um, I was, I was really big into sports as a kid. Um, but I also had this, you know, dream when I was five or six that I wanted to be a meteorologist. Uh, so I remember I went to this, uh, this spelling bee with, you know, um, uh, you know, at probably, like, the high school or something like that. And I was really nervous because I wanted to meet the guy that was moderating it, and he was the, the weatherman for the local news, you know, for the local TV news station. And, uh, it was, I remember he wrote a, a note for me that was like, uh, you know, "Hey, I hope (laughs) your, your future is bright or sunny," or something, something funny like that. But I think the thing was, I just, I remember every few years, I had, like, a new passion, you know. So one was, you know, it was like, oh, I'm really into weather, and it was tracking hurricanes and stuff like that. And then, uh, I remember, uh, you know, I can't remember what movie it was, it came out, I think it was Outbreak, and there was like, it became this, oh, I'm really big into viruses and virology and biology, right? And then Jurassic Park came out, and now it's like, okay, it's all about, you know, dinosaurs. So I think this idea of just kind of bouncing around and letting your mind wander, um, I mean, that's definitely something that I've always enjoyed. But just having a lot of these passions and kind of going deep for a year or two, and then, I don't know, you can sometimes just put it on the shelf and maybe come

3. 3:43 – 7:46

   The Importance of Early Vision & Iteration in Startups

   1. ABAndrew Bialecki3:43

      back to it later.

   2. HSHarry Stebbings3:43

      I think it was the Collisons actually who said that, like, the single best founders, 99% of the time, tend to almost be obsessed about often quite esoteric things, be it, like, medieval castles in Scotland, you know, weird styles of chess maneuvers, or whatever that is. And actually, there's this high correlation between these kind of esoteric obsessions and high-quality founders. Uh, you said there about kind of the meandering mind, so to speak. We mentioned how, like, our prep beforehand. I heard that the Klaviyo business was not, uh, always what it is today. And what I mean by that is, I heard it was a database for analytics, and it's kind of taken a full, couple of iterations to get where we are. How do you think about the importance of, like, early vision, sticking to that vision, and what you start with not being what you are?

   3. ABAndrew Bialecki4:33

      When we started, uh, I, I w- we, my co-founder Ed and I, we wanted to build something that wasn't just kind of a feature or a small app. We wanted to dream big. And so I think we kind of had this North Star of, well, gosh, wouldn't it be really cool if you could take a person, you know, like the essence of you or me, and take, you know, kind of our, our surrogate. Now we talk about AI, it's like your agent. And what if you could hook that up to the internet? So, you know, instead of just, you know, the internet being, you know, these fiber optic network, you know, where we can pass around images or text or video, what if it's like you could pass around me? You know, I do think we're not far off from, you know, you and I could have this conversation, and, and it's actually neither of us that are here present. It's just, but it's us, right? It's, you know, whatever's going on in our, in our brains kind of, uh, hooked up. Um, so we knew that that's what we wanted to build. And then it was a little bit of a work backwards. You know, my co-founder Ed is very pragmatic on like, "Okay, Andrew, but, like, what's valuable to somebody today right here, right now?" It kind of pulls me out of the clouds. And, um, yeah. And so, I mean, we started out, and we said, "Okay, well, you know, if you're gonna, you know, gonna connect somebody to the internet, then you probably had better build some- something that represents their brain." And so that's where we had, came up with this concept of like, what's a database? And, you know, brains are good at both, like, deep intellectual thinking, analytical thinking, but also, like, fast, you know, record retrieval. So we, we need to build something that's good for that. But then, you know, after we built that, you know, we were just very iterative, and we said, "Okay, well, what is this useful for?" You know, it's kind of infrastructure. In the world of software, there's infrastructure and applications. So what application should sit on top of this? And we polled our customers, and a lot of them said, "Oh, well, I'm using this for marketing." So we said, "Okay, great. Well, that will be the first application, you know, that kind of sits on top." And, uh, that's how we got there. And that's, you know, it was kind of the bedrock. And now we think about, like, okay, great, well, what other applications could we build that sit on top of this, you know, kind of, uh, this, uh...... uh, multipurpose database, this kinda brain, so to speak, you know, for a business.

   4. HSHarry Stebbings6:27

      Were you passionate about marketing? We're often told, "Do what you love. Let your passions guide you."

   5. ABAndrew Bialecki6:33

      One, yes, because I- I- yes, I am, because I think communication is- it's so important. I mean, storytelling, we all know w- when, you know, a story's told well. And yeah, it can be something small of, "Hey, I have this product." It's like, how do you pitch it? I mean, there's an art to that. The product could be amazing, but if you don't have a use case or can't- can't show somebody how it's valuable, like, you can- people can be, uh, okay, well, they'll just turn you off. So one, we felt really passionate. It's like, there's so many people creating things. But sometimes, you'll create great products, but it's hard to tell that story right or get it to the right person at the right time, and we'd love to fix that. And that kinda leads to the second part, which was we kinda wanted to get into marketing because, you know, I'm a product builder, you know. And I honestly, I- we want the best products to win. And I remember people telling me, you know, at some of the companies I worked at, they're like, "Andrew, you know, you could build the best product, but the best product doesn't always win." And in some sense, we built Klaviyo to say, like, well, gosh darn it, like, we're gonna level the playing field. Let's build software such that everybody can be good at marketing, and now the best products can win. So there's a little bit of, hey, if we do this right, um, you know, uh, marketing as a, you know, as- as a thing, we kind of can level the playing field. Or folks that are great at, you know, building, you know, but maybe aren't great at marketing, like, we can help them level up, give them superpowers.

4. 7:46 – 12:55

   Challenges & Solutions Making Long-Tail SaaS Work

   1. ABAndrew Bialecki7:46

   2. HSHarry Stebbings7:46

      The trouble with that, making it democratized, making it available to everyone, wonderful, but VCs, let's be honest, hate low ACVs, high churn, uh, kind of traditionally lower retention rates, CACs are still pretty high. The mechanics of the SaaS business, don't work, baby, (laughs) and this is why venture investors don't like it. And you have a long tail, like a really long tail. What does it take to make a really long tail work with a lot of customers paying, you know, 5K ACVs?

   3. ABAndrew Bialecki8:20

      So I've always liked the, um, the kind of mantra that you can look at marketing as, you know, kinda scalable sales. So I mean, we've all talked to customers where you, you know, you give them your pitch, and you're like, oh man, I'm kinda repeating the same thing over and over again. And you think of like, okay, well what is marketing? Well, in some sense, marketing is like, yeah, look, it's- it's the template, it's the thing you put on your website, so hopefully people can learn about, you know, they kinda be sold on their own. So we think about like marketing as scalable sales. Well, a great product should be scalable marketing, 'cause instead of having to, you know, it's a little bit the sh- you know, show, don't tell, a great product will kinda sell itself, right, or it'll market itself. So that's what, when we started, we felt like that's what it's gotta do. It's gotta be so good that, you know, if you sign up for our product, if you start to use it, it's really obvious where the value is right away. It's easy to get there. It's almost, it doesn't need any marketing. It doesn't need somebody to sell it. Now, the reality is, is like, that's an asymptote, right? I mean, we obviously have marketing and we have sales, but the more you can do that, the more you make it easier for yourself. So Ed and I used to say, like, "Boy, by the time we talk to a customer, we actually, say, are actually, you know, working on them on, you know, a sales process, we want them to be so kind of in love with what we've built that we're, like- we're rolling downhill." And so for us, like with Klaviyo, one of the first things we did was once we, especially once we got into marketing, um, not only did we make it easy to get started, I think a lot of people have done it, like, how do you build a great UX? But we also just built, um, you know, attribution, like, we want, you know, 'cause a lot of people say, like, "Well, especially in enterprise software, well, what's the ROI of this product? Why should I buy it?" Um, and we just built that straight into our product, and we put it on the homepage. So when we would finally pitch folks, they'd be like, "Oh, yeah, that's right, I've actually already seen the ROI, I've done the calculation, and I'm ready to buy. This is like- this is so obvious." So I think there's a lot you can do with product to just, you know, try to take the things you typically think of as like live in marketing or live in sales, and how can you just pull all of that forward in a product? That lowers your CAC. I think that if you pick a product that's kind of a bedrock, you know, that- that helps reduce churn. Uh, and those two things, you know, I mean, ultimately, like, right, that's- those are the unit economics that matter.

   4. HSHarry Stebbings10:30

      So do you think VCs are wrong, essentially, to hate this segment, in terms of the long tail, low ACVs because of the higher churn and lo- and lower retention?

   5. ABAndrew Bialecki10:39

      I think it's- I think it's harder. The reason we got into- we started with SMBs, I- both my co-founder and I came from enterprise sales, and you know, we would sell to big, huge companies like Starbucks and Bank of America and Marriott, and we saw how long it took to get in there. So I think you just kind of have to pick your challenge. And for us, we just thought that would take a long time, yeah.

   6. HSHarry Stebbings11:01

      I mean, th- this- so obviously, I was going through your numbers earlier, and, uh, I'm- I'm looking at them now, and, uh, the really interesting thing I thought was also, like, the $50,000 ACV customers, this is maybe a couple of quarters ago, so forgive me for this. But it was up 80%, and I was like, "Holy shit, that's- that's incredible." But how do you think about serving two masters? You know, HubSpot has always catered to the SMB, for example, and then very much stays with that as its home. But when you've got the 50K ACVs growing as quickly as you do, and this incredible long tail, how do you serve two masters at the same time?

   7. ABAndrew Bialecki11:35

      We think about this a lot, and we're not perfect at it yet. Um, but I think you just have to think about it as almost two different customers, two different businesses. I think because Ed and I had been entrepreneurs, we knew what it was like to be just starting out. We knew what that felt like, how your every dollar matters, and you almost- you almost, like anything that I- takes up my time, but doesn't cost money, like, that- that sounds good, like, I'm willing to do it myself. Um, so, you know, so you're- you're really, it's, you know, so, you know, every, ev- every bit of, uh, you know, value matters. But then on the, we've also worked with, like...... big companies where we realize, "Oh my gosh. There's a process and they've got these security requirements, and scalability and reliability matters, and it's, the product's gonna take 12 months for them to execute." So they're trying to de-risk that, and they're just totally different. The funny part is, the technology isn't, you know, for us, I mean, it obviously just kinda scales. It's not really all that different, the product and technology. It's really just matching up with what are the things that matter most to those folks? I-I've always looked at it as like when you walk in a room to a customer, if you can, if you can ask them questions that show that you know who they are, that you're one of them, that's like the best, that's the best way to, you know, open up the conversation. And they're just very different. So we literally just, I mean, we look at them as two totally different types of customers, almost businesses, and then, you know, we're just lucky that we have a product that, you know, the fundamentals of, like, will work

5. 12:55 – 14:16

   Effective Product Marketing Across Diverse Channels

   1. ABAndrew Bialecki12:55

      for both.

   2. HSHarry Stebbings12:55

      How do you think about effective product marketing then? 'Cause I completely agree. I almost think it's much easier to think about it in those siloed different mindsets, but then when you think about, uh, you know, a billboard, for example-

   3. ABAndrew Bialecki13:06

      Right.

   4. HSHarry Stebbings13:06

      ... well, you gotta put one on it or, you know, an advert online whether it's, you know, uh, a Google Ad or an Instagram Ad, or whatever it is. You've gotta choose with each destination. How do you think about that?

   5. ABAndrew Bialecki13:18

      Where we ended up, we actually experimented with this a couple years ago. We had this concept of, well, Klaviyo as a brand would be for our, you know, um, for, you know, entrepreneurs, founders, you know, uh, businesses that were scaling up. And then we'd have a separate brand for our large enterprise businesses. Um, and we called that other brand Klaviyo One, and the concept was, well, hey, we're gonna have, we have this, you know, we have this great database. We've, have all these, like, applications, like, would be everything you need in one spot. Uh, but what we realized, I got some advice that it's like, you know, that's actually kinda confusing. It's easier to just have one brand for everybody and then, to your point of product marketing, you just have to make sure, you know, whether it's digital experiences or even the, you know, the events and the things that we do for customers, that you, you know, bifurcate those so that you've got a path for everybody. I think a lot of people are willing to, you know, they'll visit, say, your website, and as long as they can find their home quickly, like the thing, the place that speaks to them, uh,

6. 14:16 – 16:40

   Lessons on Pricing Increases & Customer Love

   1. ABAndrew Bialecki14:16

      then you're in good shape.

   2. HSHarry Stebbings14:17

      It's so funny. You mentioned that kind of finding your home, and you mentioned the love earlier. It's a very good word, love. Customers love you. A- a- and I mean this in the most respectful way, and I've, I've learned to be more honest than I have in, you know, prior years. Like, Klaviyo's brand generally, I think, is like dramatically underestimated and less known, and then you speak to this segment that you are just adored. But there was one thing that customers didn't love, which was pricing increases, and I just wanted to hear your thoughts on what were some lessons from that and how you think about how to do it the right way?

   3. ABAndrew Bialecki14:54

      Oh man, so uh, pricing is a hard, uh, topic. You know, it's, it's funny. We always thought about we're gonna build, you know, we're gonna build great products. We're gonna deliver awesome experience, and pricing, I mean, for the first five, six years, we're like, "Ah, it'll just kinda figure itself out." I think our tenets on pricing are a couple, is we- we, one, we try to align as much as possible pricing to the, you know, the value that we drive. That's why we, you know, we established this metric, Klaviyo Attributed Value, like, kind of revenue you get from the, you know, the marketing and messaging you do with Klaviyo, and trying to make it really clear to folks, like, that there's really good return on investment. Um, so that's one. I think, like, getting those pricing axes right. And then over time, you know, as we've added more features, more functionality, and we've increased that, you know, that revenue, um, you know, we've just really, uh, we did our first price increase, like basically since we, or first price change, uh, you know, uh, what was it? I guess last year, um, and that was like the first one in like 10 years. So I think what we learned from that was gosh, you have to kind of, you have to establish this trust with customers of like, well, here's how pricing's gonna work and how to think about it, that over the long run. And uh, it was great. I had a lot of conversations with customers who were like, "Hey look, you know, we're okay with this but we just wanna know, we want some certainty. Like, he- help us understand how, how you're gonna think about this going forward." And so that's something we've done a lot, um, with customers, with partners, you know, just educating them on how we think about the value we provide and then, um, you know, how we're gonna think about, you know, how they, how they can scale so they can understand their costs, you know, as they grow with us.

   4. HSHarry Stebbings16:29

      Got you. So be super clear about kind of pricing pathways for the future, and then also be super clear about what you drive, and then you can make a much more kind of evident case for why you price the way you do.

7. 16:40 – 21:24

   Choosing Bootstrapping Over Fundraising

   1. HSHarry Stebbings16:40

   2. ABAndrew Bialecki16:40

      Mm-hmm.

   3. HSHarry Stebbings16:40

      Good. Love that. That's tweetable. Um, a- uh, there's a very kind of interesting element of the business, which is like with this incredible love, great product, uh, amazing customer base, (laughs) you- you took the very strange decision not to raise venture money, which really makes my job completely obsolete. Um, why did you decide to bootstrap when the rest of your generation of entrepreneurs decided to fundraise instead?

   4. ABAndrew Bialecki17:06

      Well there, there's two answers to that. There's the one that sounds great, which is, uh, you know, in my family, a bunch of my aunts and uncles and, um, you know, my grandparents, uh, they were all, they were entrepreneurs. They ran small businesses. And I always felt like, well, they, from day one, you know, they had to make money. They had to be profitable. Ed was similar. And so for us, there was this streak of, you know, I think software, it's high margin, you know, if we're really good at building, if we get close to customers, you oughta be able to build a profitable business, you know, from the start. Uh, and obviously that gives you, you know, some more flexibility, some more control. So that was, that's kind of the lofty answer. The other answer was, uh, we were, when we were building Klaviyo, (laughs) uh, we had applied to all these venture firms, had these kind of, you know, "We'll give you, uh, $20,000," and it's like, you know, no strings attached, no equity, uh, you know, for the summer. And so we applied to a bunch of these when we were about six months in, and at the time, we had real users and customers who were like, "Oh, we'll be a layup." We applied to two or three of these, and not one accepted us. So I remember going to Ed and saying-Hey man, if we can can't get the, you know, $20,000, you know, check, wh- why do we believe that we're gonna be able to raise, you know, a half a million dollars or a million dollars?" Which is what a seed round was back then. So he said, "You know what? Like, let's just try to do this ourselves." Um, so I think it was a mix of those two things.

   5. HSHarry Stebbings18:25

      Do you think Klaviyo would have been successful if you had raised a five on 25 seed round, and would you have done things differently?

   6. ABAndrew Bialecki18:34

      I would like to think we wouldn't have done things differently. But I'll tell you the... And I- I... This is my rec- uh, advice to a lot of entrepreneurs, is don't take more capital than you need because the constraint, you know, breeds a lot of creativity. You know, my routine in the early days was I'd wake up, uh, I'd log into our, you know, our help desk, our support software. I'd answer customer questions for an hour or two, or sometimes a couple of hours if, you know, there was some- some real issue, and then I would get to coding. I always felt like that was a great pattern because if there was some painful problem with our product, some feature that was missing or some- some bug, I mean that was obviously the first thing I was gonna fix that day because it meant the next day I wouldn't have to spend all my time answering questions about it. And that viral loop of customers, to code, to back and forth was awesome. So there's things like that that you just learn how to do that I worry if, you know, if you- if you sort of- if you go too fast and you, say, bifurcate those roles and let's say that engineers never talk to customers, then all of a sudden you lose all that magic and it probably makes you less efficient. So yeah, I don't know, I'd like to think that we would have done it the same way. And we did once we actually raised some venture capital, but at that point we were just like, "Look, it's kind of just, it's a cushion in our bank account." Um, but yeah. My advice is always try to keep it, you know, raise as little as you need, um, you know, 'cause really good things will happen from that.

   7. HSHarry Stebbings19:54

      What part of the business do you think would have been better if you had had money earlier?

   8. ABAndrew Bialecki19:59

      We probably would have grew our product and engineering team faster. Uh, I mean, it was... I kind of enjoyed, uh, writing, you know, writing a lot of the code, building, you know, building and designing features, you know, in the early days. But I think if there was a point at which, you know, we knew what we needed to go do and, you know, rather than me just keep chipping away at it, uh, I remember when the first couple of, uh, you know, Klaviyos, especially on the, you know, product engineering side started, man, we did, we got a lot more done. Uh, so I would have done that sooner. I think a lot of people would have given us advice and I probably was, you know, too- too naive or didn't understand this part yet, of they would say like, "Hey, you could in- You know, there's a real there there. You have product market fit. You probably should invest more in sales and marketing." Um, and I think that probably could have gone a little faster too.

   9. HSHarry Stebbings20:45

      How quickly did you get to a million in ARR?

   10. ABAndrew Bialecki20:48

       For us, we started on January 1st of 2012. In year one, we got to a couple thousand dollars in MRR. So say maybe $20,000 in ARR. In year two, we got to a quarter of a million dollars in ARR, which is a huge jump, but we were still... You know, I think that was around the time where we felt like, okay, we could maybe hire, you know, uh, one or two people. And then it wasn't until the end of year three that we got to a million dollars. So that was 36 months where I think for 80% of it was just two of us. And then I think we then had the first couple, uh, you know, couple folks joined u- join

8. 21:24 – 23:04

   Challenging Growth Benchmarks in Venture Investing

   1. ABAndrew Bialecki21:24

      with us.

   2. HSHarry Stebbings21:24

      It's so weird that... You know, I- I'm friends with Daniel at UiPath, uh, and I had him on the show. And I mean, he was n- I mean, slower than you, so don't mind. He was nine years to 480K in ARR. Nine years. (laughs) Thank God he was in Romania, otherwise there's no way you could afford the cost base.

   3. ABAndrew Bialecki21:41

      Mm-hmm.

   4. HSHarry Stebbings21:41

      But I'm just going, again, I- I'm a venture investor for a living. I'm challenging our assumptions where it's like, hey, the best really hit 10 million ARR in 18 months. That's kind of the core benchmark of what really great is. And I just look back at some of the best businesses and I'm like, "Fuck, are we wrong completely?"

   5. ABAndrew Bialecki22:01

      If you know what you want to build and you've got a good plan, the capital is really helpful. You can go faster. But we've, uh, you know, and we- and we probably could have gone faster if we had invested more. But I think there's some real magic in taking your time to get the product market fit right, really, you know, build up that customer love we talked about because that really does compound and snowball. I think the most challenging part of, say, a software business, SaaS business, is if you rush too fast to try to force revenue growth, sales growth, but the product market fit isn't there, there's a lot of companies that have tried that and you just, you never really get it great. I mean, there's a couple that figure that out, but that's why I think a lot of these companies that, you know, end up, you know, building really, uh, really enduring and build great, you know, community and product market fit, it's because they took some time to get it right and then really believed in the laws of compounding that, yeah, hey, if I can really solve this well for one person, that's okay. I mean, there are thousands or millions of other customers, in our case businesses, out there that don't look all that different. And yeah, then we

9. 23:04 – 29:30

   Milestones in Funding & Revenue Growth

   1. ABAndrew Bialecki23:04

      can take it to them.

   2. HSHarry Stebbings23:04

      I totally agree with you. How much were you adding in revenue when you raised your first money?

   3. ABAndrew Bialecki23:09

      It's probably a little bit... Right around when we hit one million in ARR. And the reason we did it was, uh, we were y- self-funding, bootstrapping, uh, we were hiring folks and, you know, Ed and I, we used to look every, every week at our bank account and we'd literally just pull it up. You know, it's like, a little bit like looking at your checking account, but it was just for a business. And there was this big sawtooth pattern of, you know, we'd kind of bump up, you know, day by day over the course of the month, and then it would drop to almost zero when we paid our server bills and, you know, ran payroll. And so this big sawtooth pattern. And so we would literally forecast out when we could hire the next person based on how much we thought the business would grow, like, in the next month. So we- we'd tell people, it's like, "Hey, look, we'd really like to work together, but I actually need you to wait like six weeks because we just, we may not have the cash to fund this." That seemed like a really bad idea. So that's when we said, "You know, it'd be really nice if we had..." And the seed round at the time was maybe, you know, a million, maybe two million if it was bigger. And we said, "You know, if we raised the seed rounds, boy, then we wouldn't have to worry about this problem anymore." And, uh, yeah, that's- that's- that's the reason that we ended up raising it.

   4. HSHarry Stebbings24:17

      How much did you raise and what was the price?

   5. ABAndrew Bialecki24:19

      Uh, we raised a million and a half dollars and we weren't super, you know-... uh, formulaic about it. Uh, we made a couple of, like, kinda silly mistakes. Um, I started out with going back to, um, you know, folks that I'd worked for, CEOs, CTOs, and asking them, it's like, "Hey, we've kinda built this business. Would you be interested in writing us a, you know, a, an angel check?" And they said, "Yeah, of course." And then I asked them, "Okay, well, and also, do you know, like, who are the good seed-stage VCs?" 'Cause it s- it was all, we hadn't spent any time, you know, meeting these folks. And, uh, they said, "Sure." So I got introduced to a couple of folks around Boston, um, and, uh, and from there, we thought like a million dollars sounded good, so we did a million dollars, and there was, like, a little bit from, uh, these angel investors. Uh, and then when we were figuring out the price, uh, I was gl- you know, thankfully, like, safes had come into existence, you know, maybe a year or two ago, so I was like, "Okay, we'll just use this, you know, this kind of new format." Um, and then what I'd heard was, hey, uh, you know, if you were raising a seed round, I don't know, like, you know, 10X ARR was kind of a lot if you had a, you know, if you'd ba- uh, you know, if you had a, if you had a, a little bit of r- traction. But we felt like because we were profitable, we were like, "Okay, well, we could double that." So, you know, I remember asking this, like, "Hey, look, I know 10X is the normal thing. Can we do 20X?" And, uh, again, we, it wasn't really scientific. And, um, yeah, I mean, this seed investor we were, we were working with, um, just said, "Yeah, sure. That sounds good." And, uh, that was it. Um, the silly mistake we made actually, which was, it didn't really matter much, but because we were profitable, we also said, "Okay, cool, so we'll negotiate the price. But, hey, we actually don't need the cash right now, so, you know, it's actually okay if, if you want, like, you can just send it to us in a few months." So we used to laugh about that, of like, we should've just, you know, waited another three months and we would've, I don't know, maybe doubled revenue and we could've raised it up, um, a higher cap. But I don't know, we've never tried to be perfect with fundraising. We've always felt like if you can find people that are value add, um, you know, that'll be helpful, like, as kind of advisors, as, as mentors, um, you know, those are, those are kinda like the best people to have on your cap table.

   6. HSHarry Stebbings26:24

      What was the big cash injection? Was it paying in Excel?

   7. ABAndrew Bialecki26:28

      No, the first big round for us was, um, with Summit Partners and then Excel, uh, the year after. But we raised that million and a half, and then, uh, probably about a year or two years later, we added five more from the same, uh, from the same investor. And then we went like a bunch of years where, uh, we probably scaled to about, I think it was around 50 million, 60 million in ARR, uh, before we raised our next rounds. And that's when we knew that was gonna be like, it was just gonna be a diff- I mean, we probably had 10X at that point. It was gonna be a different-

   8. HSHarry Stebbings27:00

      W-

   9. ABAndrew Bialecki27:01

      ... order of magnitude.

   10. HSHarry Stebbings27:01

       What was that round, then, when you were at 50 million in ARR?

   11. ABAndrew Bialecki27:05

       How was it priced?

   12. HSHarry Stebbings27:06

       Yeah. Well, what was the size in price?

   13. ABAndrew Bialecki27:08

       I think it was a little over 100 million is what we raised. Um, and, you know, again, 'cause we were profitable, I think there was a mix of, um, you know, there was primary capital and there was secondary to existing investors, and I think we actually ran our first tender then. I know that's gotten more popular, but like, I think we ran a tender for everybody too. But anyways, that was, uh, yeah, so that was around 100 million, and I think we sized it based on what we thought, you know, 'cause at the time, the, th- the kind of wisdom was like, "Hey, it has to be around 20% of the company." So I think that's kinda how we backed into the size. And the price, and I'll probably get this wrong, but I think it was, it was around, I think, around 800, 800 million. Um, and it, and it, you know, the logic was, I, we always had the same logic with fundraising. You know, it was kinda like, hey, look, if the m- whatever the, the kind of going market multiple was, because we were profitable, we'll be like a little bit ahead of that. Um, but we never really tried to push the price, you know, that much. So I probably got some of those numbers a little bit off, but that was like kinda the rough order of magnitude.

   14. HSHarry Stebbings28:11

       Can I ask, you mentioned that kind of a mixture of primary and secondary. Any big lessons for founders on the importance of secondary, for founders to take, for team members to take? Any advice that you think is important for them to know when they have that option at their disposal?

   15. ABAndrew Bialecki28:23

       We've always had the thesis that, like, I- if private companies, if there was more liquidity in the stock, we always felt like that was better. I mean, w- we weren't a public company, but if you just, the more often you could do that, if there was some cadence, that was, that was fine. That was, that was a very healthy thing. Um, so after we did that, I think that was our series B, I think we did run a couple of others. Some were coordinated around, like, um, uh, about fundraisings, and some, I think, were just we had cash on the balance sheet. And, uh, obviously, like, that was a great way that, you know, for folks that, you know, were really invested in Klaviyo, it's like, you know, for some of them, I mean, they grew up, you know, they grew up their careers at Klaviyo, and they were sort of like equity was a big part of, you know, their wealth creation. And it felt like to get, let folks do that along the way, I mean, I heard all sorts of great stories of folks, you know, paying off student loans, right? Putting a down payment on a, on a mortgage. Um, so that was great. I, I guess, m- my advice is don't, I would, I don't overthink the, oh my gosh, will people be demotivated? I think it's actually, it's a, it's a good, it's a positive thing, and then it actually set the way that when we went public, I think a lot of folks were like, "Well, yeah, now it just feels like when you're public, it's like, hey, it's kind of what we've been doing, but just now the stock's even a little

10. 29:30 – 37:16

    Turning Points: MailChimp & Shopify

    1. ABAndrew Bialecki29:30

       bit more liquid."

    2. HSHarry Stebbings29:30

       Are you ready for some tougher questions, Andrew? (laughs) I spoke to-

    3. ABAndrew Bialecki29:35

       Sure. (laughs)

    4. HSHarry Stebbings29:36

       ... I spoke to some brilliant friends and they, they gave me some insider tips, and they said a big needle mover for the company was when Mailchimp was kicked out of the Shopify ecosystem, and you'd kind of hung around the hoop long enough and were a good enough partner that when that happened, it was, like, the golden moment for you. Can you talk to me about that, hanging around the hoop, um, your lessons from kind of being around the hoop and being there when necessary?

    5. ABAndrew Bialecki30:05

       I think that event, you know, we ran some analytics on this, I think a f- you know, a while, while ago, and there was definitely, um, there was a bump, but I think, I think people were surprised at how much there was kind of already these big huge tailwinds, and that, you know, accelerated a little bit, um, but it wasn't the step change that a lot of people thought. Uh, my kind of learnings from that were, uh, you know.... twofold. Um, one, I th- I think we had kind of shown that in the world of, you know, data-driven marketing, um, and as- especially as it applies to retail, we had all these folks that loved us, and there were a lot of folks that weren't aware of us, they didn't know who we were yet, but when they found out what we did, it didn't take them a long time to figure out, "Oh, we've got a really great product." Um, and so, when that happened, you know, we just saw ... It was like, almost like a bump in awareness all of a sudden. People were like, "Oh my gosh, I have to find something else." Um, so there's this, you know, being ready, having a great product, you know, leading with that, and then, you know, you know, investing in marketing, or in this case, having the marketing kind of happen to you, uh, I think is a good strategy. Like, so make sure you sequence those things the right way. The other is, I've always felt with partnerships, uh, you know, partnerships are such a huge part of our business. Obviously we've got a great relationship with Shopify and with others. You know, I've always felt with partnerships, it's like a tug of war. I mean, and not in a competitive way, but like, you know, if you need two ... And to k- for a string to stay tight, my metaphor to our teams has always been, you need two people pulling on both ends of the rope. And that means that there has to be this kind of, you know, economic incentives that line up. Uh, there has to be good, like, the, you know, if you have products, they have to, like, work well together, customers care about that. In that case, you know, it felt like we had great alignment with Shopify because, you know, we were helping, you know, their customers drive more sales, uh, which was accretive to both, you know, our customers, to Klaviyo, and to Shopify, and that was, like, a great, you know, everybody wins situation. So I think with all partnerships, if you can set those, those kinds of things up, I mean, if it's a win-win win for all sides, like, that's the, that's the best of all worlds. And what you wanna avoid is things where I think sometimes, it's not even it's like a win-lose, there's a lot of partnerships where maybe it's really good for one side, but it's kind of a no op for the other side, or it's not really good for the customer. It just, it sort of ... It's not bad, it just doesn't really matter, and I think those are the kinds of partnerships you can spend a lot of time on that don't go anywhere. Um, so we've always tried to just, you know, find things where everybody's pulling, you know, to keep the rope tight, um, and if you can find those, those work best.

    6. HSHarry Stebbings32:40

       So the rope is tight, okay? I think Toby learnt, I think he said this publicly before that ... Maybe he hasn't, in which case I might have to edit it out and I'm screwed, (laughs) getting an angry email from Toby and the Collisons, but one of his big regrets was actually letting Stripe into the Shopify ecosystem and not being more dominant in controlling our relationship there. I think he answered that publicly. Um, my question to you is, they then buy a chunk of the business. Talk to me about that process, how you thought about that, whether you saw that as just kind of the pulling of the rope. How did that go down?

    7. ABAndrew Bialecki33:15

       I've always kind of ... M- and the analogy I've made is it's a, you know, a little bit like when you're, you know, dating, and then finally you kind of get ... You, you formalize it, right? You get, you know, you get married to some degree. It's, you know, not a perfect analogy but it's kind of like that.

    8. HSHarry Stebbings33:26

       Did Toby just call you up one day and say, "Hey, like, this is working. Like, let's make this happen and we wanna put in, you know, $100 million?"

    9. ABAndrew Bialecki33:34

       It was more gradual than that. I mean, we'd been working with, uh, you know, Toby, Harley, and the entire Shopify team really on, like, the product side for a long time, and, uh, you know, then started to be a little bit on the, the marketing side. Um, and, you know, I always felt like if you've got this really good, you know, partnership, um, you know, if you can, if you can figure out, like, the product side, the kind of go-to-market side, and then the financial side, if you can get all three of those things lined up, like, that's the best of all worlds. And, uh, you know, we knew they were adding a lot of value for us, um, in terms of just literally recommending Klaviyo to folks. You know, we felt like we'd built a great product but, like, hey, they may ... Again, we ... No ... People didn't know who we were yet, and they were saying, "Hey look, you know, you know, this, yeah, w- what works well, what integrates well with Shopify? Hey, you should go check out Klaviyo." Um, so we felt like there was this kind of consummation, but it was always ... I, it was, right, it was a very gradual thing, and it was, I think, you know, I think, I don't know, one day I remember it was some time during COVID, and we just said, like, "You know, if we're both in this for the long run, why don't we just make this more formal so that we all have, you know, skin in the game together?" And as another example of where like, I think it was just like a, it was a win-win win, right? It was, uh, you know, valuable to Shopify, valuable to us, and I think to our customers showed that, like, hey, these kinds of partnerships can work. Um, one of the fun parts with that is we then taken ... And actually one of the probably best, or there were a lot of great things that came out of that, but an interesting thing that happened was, uh, a lot of other, um, you know, partners that we had, you know, uh, both inside and outside of retail said, "Wow, we love the way that you've worked with Shopify. That clearly is working. It's c- it's, it's accretive to everybody. Can we replicate that?" I think partnerships are, they're kind of a, you know, they're a newer art form in software. Like, a lot of, you know, these SaaS, like, how do we work together? Are we complementary or are we, um, you know, are we, like, are we, are we on each other's turf? I think this kinda helps, uh, make it clearer that, like, no, there's a real, there's a real positive, like, you know, kind of symbiosis here, and we've actually started to take that to, you know, other verticals and other industries, um, and used a little bit of the template.

    10. HSHarry Stebbings35:42

        I totally see the alignments. You drive more value for their customers, their customers love it and love being on Shopify with that, you get lower CACs. Are there any misalignments?

    11. ABAndrew Bialecki35:52

        Not really. Like, I, like I said this, uh, one of the things, uh, you know, related to this, you know, hey, we have to be, you know, the, the rope has to be tight, we're both working on, you know, kind of, you know, keeping it taut, um-I think partnerships can go sideways when folks just aren't, uh, up front with each other. What are you gonna be great at? And it's actually okay if there's like a little bit of overlap, but the more you can kind of clarify that, the better. And I think, you know, I mean certainly with Shopify and, and others, I think we've just been very up front. Um, and it bleeds over a little into our ecosystem. Like we try to, you know, we have a lot of, uh, you know, folks that integrate into Klaviyo now, and we try to do the same thing of just be very clear about, "Hey these are things that we're not interested in, um, where we need help, um, and these are the things that we think are core competencies." And I think if you can just get all that on the table, things go a lot better.

    12. HSHarry Stebbings36:41

        I'll never forget when I had Toby on the show, and I think Harley said, "Oh, you'll have great fun. If an IP address was a human, it would be Toby."

    13. ABAndrew Bialecki36:49

        (laughs)

    14. HSHarry Stebbings36:49

        And I was like, "Oh, that's a, that's a great intro. Uh, I'll, I'll remember that one."

    15. ABAndrew Bialecki36:53

        It would be Toby, yeah.

    16. HSHarry Stebbings36:53

        Uh, listen, wi- with this like blossoming partnership, amazing growth, you have the ability to go public, and I mean thank fuck for entrepreneurs like you, Andrew, because as a venture investor, I was sitting there going, "God, who's gonna go out in this market?" (laughs) And then respectfully, it's like, "I will."

    17. ABAndrew Bialecki37:14

        (laughs)

    18. HSHarry Stebbings37:14

        (laughs) And I'm like, "Great."

11. 37:16 – 41:42

    Reasons Behind to Go Public

    1. HSHarry Stebbings37:16

       Why did you decide to go public when you did when, you know, seemingly it was a bad market?

    2. ABAndrew Bialecki37:21

       You know, we tried to take a very long view, uh, you know, I used to tell, uh, you know, our folks at Klaviyo, uh, and even external investors, I was like, 'cause people ask all the time, "When will you go public?" I said, "Look, you know, I know we'll get to 2030, you know, we'll have grown, we'll have built a great business, great products, we'll delight a lot of customers. I know we'll be a public company, but I probably won't really remember what year it was." So it'll be, it'll be, it, you know, so it won't be, it's not gonna be a long time, but it's gonna be somewhere in this like, you know, early 2020s. So we kinda, we did that and we're like, well we know it's gonna be at some point, and I've always had this belief that if you, if you know something's coming and it's gonna be a bunch of work, like you might as well just, you might as well just do it. Um, so a big part of it was, we were just ready. We knew we, uh, we knew we were in good shape as a business, and uh, and we did feel like there were, you know, we were, as we were working with, uh, larger businesses, larger customers, um, we knew there was some value in folks knowing that like, hey, we were in it for the long run. And uh, I think that's actually kind of played out. Like I've talked to a lot of folks now and they said, "Hey look, it's great to know, you know, that you guys are, I mean, you really are a, you're a profitable business."

    3. HSHarry Stebbings38:29

       Can you talk to me about building the buy book? In the process, you've gotta go out and you gotta sell to institutions. We mentioned selling and marketing earlier and storytelling. It's a different story you need to tell when you're building that buy book on going public. How was that process and what did you learn?

    4. ABAndrew Bialecki38:45

       I make the analogy that like, uh, so one, everybody talks about a road show, but the reality is is you meet everybody, you know, three or four times leading up to that. So it's, it's more like you're seeing people that you already know, so in some sense, the road show should feel, you know, if I think done well, um, it's a little anti-climactic hopefully. That's one part, is you're meeting folks. But then along the way, I've always subscribed to like you, you will get the investors that you deserve. Um, and so if you are clear about what you want to do, uh, with your business, and uh, you know, for us that's we're gonna be long-term oriented, we're focused on high growth but doing it efficiently, we're gonna be product led, we're gonna get close to customers, we have these ambitions around, you know, being the brain for a business and all these other thi- and all these other applications we wanna build. I think if you're clear about what you're, what you're gonna focus on, both in the short and long run, um, you'll find folks that, uh, you know, line up with that. And that's actually the best thing, 'cause what you d- y- you know, I've felt this with our private investors and public investors, you want everybody to know where you're aiming and there are no surprises. So anyways, that, I think that's how we thought about building up the book, and then, yeah, it's interesting. You get kind of to the, the finish line and, you know, there's, I mean, lots of great folks to work with, and I think there's, i- it feels, it always felt to me like, you do this thing where you raise a seed round and there's like lots of people involved, and then for us, you know, when we did our series A, B, C, it was all one investor. By the time you get to the road show, you're kind of back to like these party rounds where there's gonna be lots of people you're raising from, and uh, so that's, and it has kind of this weird, you know, back to the beginning feel of, you know, boy there's, you know, 20 or 30 folks that you're spending time with, um, you know, and just sharing what you're up to.

    5. HSHarry Stebbings40:31

       How did it feel when you IPO'd?

    6. ABAndrew Bialecki40:33

       I remember sitting with our, uh, general counsel the night before, um, and uh, you know, I, I told him. It's like, it, I think the, probably the best analogy is that it feels a lot like, uh, it feels a lot like a wedding, honestly. I mean, two things are true. Uh, you, the advice you get when w- when you get married is like, "There's gonna be a lot of people there. It's gonna go by fast. You're not gonna remember much of it. Like, it'll be fun, but actually it's just a lot of, it's a lot of, you know, pomp and circumstance." Um, so I remember feeling, it's like, boy, that's, that actually is pretty accurate. I think what was important for us was, we went to New York. We had a great ti- you know, we had a great time, ringing the bell, but then we wanted to get back to our office and, you know, I always felt like b- we were like, okay, we're gonna have one party. We don't really celebrate fund raisings, but this one's probably worth celebrating. We're gonna do it that night. That's the end of it, and then we're back to work tomorrow. And I remember going to bed that night, and I think the text message I got from my wife the next morning was, "Hey, before you go to work, just a reminder, just make sure you take out the trash." So, uh, you know, it was very much like, hey this is a fun day, but you know, you go back to, you go back to what you were doing. You know, it's kind of a fun moment to celebrate, but then you're, you're back at

12. 41:42 – 44:35

    CEO Shift: From Private to Public Company

    1. ABAndrew Bialecki41:42

       it.

    2. HSHarry Stebbings41:42

       One is a wealth creation moment, being the IPO, and the other is a wealth destruction moment, being a wedding, but I appreciate the alignment. (laughs)

    3. ABAndrew Bialecki41:50

       (laughs)

    4. HSHarry Stebbings41:51

       But yes, absolutely. You're right. Um, can I ask you, how does your role change? Do you have to do different things when you're a public company CEO versus before and how do you think about that transition?

    5. ABAndrew Bialecki42:02

       I don't think a, uh, not a lot has changed for me. Um, I'll say the two things I think have been, you know, real positives, um, you know, just on a, on a day to day-... um, kind of operations basis. One, I think there's a lot of smart folks, uh, that have studied a lot of software companies that are public market investors that you just, you know, now they're ... Again, they're on your cap table so you get to, you spend time with them and, um, learn how they're thinking about things. I think that's, that's, that's interesting. The second is, I, you know, as a, as a private company, and especially a bootstrapped one, I think the great part about bootstrapping is you tend to do all these little habits that, like, really help make you successful. Like the staying close to customers, you know, being scrappy, being frugal. I think some bootstrap companies, uh, maybe because they don't have, you know, they haven't raised as much capital, sometimes they're not as rigorous on, you know, they're kind of successful in spite of some other things. You know, one of the things I've liked about being public is it just gives us an option of like, "Well, hey look, you know, there's this kind of quarterly check-in," and that's a thing that happens. And actually, that's a positive for, for businesses. Like you need to, you need to set some milestones and know where you're aiming.

    6. HSHarry Stebbings43:06

       Pre-going public, what were you successful in spite of?

    7. ABAndrew Bialecki43:10

       Oh man, there are so many things that were under-optimized. We did a lot of things right but, um, I mean ac- across the board. Like, we weren't super rigorous on maybe how we built software. I mean, it was obviously scalable and secure and all this kind of stuff, but in terms of building, you know, I don't know, long-term product visions or, you know, a lot of the way we ... I don't know. Some of the ways that, you know, some of our marketing programs were, we were just figuring it out at the time. I think great products really do, you know, they will, they will sell themselves. Customers will come to them so it, it can, it can hide a lot of things that you could be better at. Uh, I think what's been great though ... And the analogy I always use is, it's like imagine you're like a sprinter and imagine somebody, you know, is running 100 meter dash and they run it and they have terrible form, but their time's pretty good. Or imagine that they run it and their time's good but their form is great. Like, you'd rather be the person that has kind of, okay, their, their arm is kind of hanging out to the side and they could actually probably go faster. And I always felt like that was, you know ... Uh, I mean, we're constantly working on that stuff, but that's stuff that we've, you know, we had these opportunities that were right there. And I think as we, you know, in the run-up to becoming a public company, and it's something we obviously work on now, is, okay, how do we continue to get better and better and better form? Um, we're also just pretty tough on ourselves. (laughs)

13. 44:35 – 53:58

    Understanding Valuation Discrepancies in Growth & Scale

    1. ABAndrew Bialecki44:35

    2. HSHarry Stebbings44:35

       Can I be blunt? I speak to so many very, very smart people and everyone is aligned in thinking that you're dramatically underpriced. And they go, "I don't get it. The growth is there, the scale is there. I, I don't get it." And I'm looking at it too and I'm going, "I don't get it either." And, and I guess my question is like, how do you respond to that? There are not many freaking companies growing at 39% with your revenue and with your numbers. Can you help me, a naive person, understand why you are priced the way you are and why you see multiple compression when maybe others don't that have worse businesses?

    3. ABAndrew Bialecki45:15

       I don't know the answer to the stock market. Um, I'd probably be in a different line of work if I did. Um, I ... We've always looked at it, market cap, share price, all this kind of stuff will take care of itself. Companies fundamentally get valued on, you know, either revenue growth and then ultimately, you know, um, free cash flow or, um, profitability. And if you just keep growing those things, then you're in good shape. I think we think about, well, what, what makes us believe that that will be true long into the future? I think there are products that are core to a, a business. And it's either because for a particular function or for an area, they're kind of a tent pole. Um, or it's because hey, you know, your, your core to, you know, how a business drives growth. How, you know, for our customers, how they drive revenue. What I've always been excited about for us is, we're like right in the middle of both. Uh, when you're storing all the data for a business, you know, when you're kind of the center of how they think about marketing, and then if you can tie that back to actual results, like, customers are gonna be pretty happy with that. And then, ultimately over time, like, that's gonna lead to more customers, you know, revenue growth. And if we do that, I think ultimately, like, you build up a track record that, you know, folks, um, externally can see and, uh, everything kind of takes cares of itself.

    4. HSHarry Stebbings46:35

       When you think about the future and you think about expanding the free cash flow and you think about expanding on the efficiency and becoming better and better, what are you most excited for? Like, if we put forward the like, how does it 10X from here? How does it 10X from here, Andrew?

    5. ABAndrew Bialecki46:51

       Oh, there's so much ... I, I mean, there's two basic dimensions for us. One is, um, I think every consumer business should be running, building, growing on top of Klaviyo. We have this picture that we show from time to time that, you know, if you ... Um, Phil Knight when, um ... Has this great line in his book where he talks about seeing somebody wearing a pair of, you know, Reeboks or something and he just gets upset. And so, we talk about that a lot, that like, we kinda just get upset when we see other people using software that's not ours. Um, you know, not 'cause of ego so much, but just because we think we built such a great product and it's only gonna get better. So, I think there's, there's millions of businesses around the world, not just inside of retail e-commerce, all of, like, the consumer economy that would benefit from Klaviyo. And then on top of that, man, the pro- what we're helping them solve today, uh, you know, with marketing and messaging and storing data and understanding it, is great, but there's so much more that we can do. We think about that in two dimensions. There's so many other interfaces between a business and consumer, uh, that we can help, where we can make that a better, richer experience. And then also, you know, when it comes to machine learning or, you know, artificial intelligence, I think so much of soft- the software of the future, it's gonna, it's gonna be able to, you know, play itself. We think about software that is actually, you use it better because you don't have to be the user.I think that makes, you know, even what folks are doing with what we're doing, even on the marketing front, way more valuable. So when we think about, you know, all the people that we can help, uh, plus the other applications, plus the fact we can make them better at using each of those applications, that trifecta, I think there's, you know, at least a 10X, probably a lot more in there.

    6. HSHarry Stebbings48:40

       So when we think about kind of, uh, the introduction of AI as an exciting new enabling technology, which I think it is in this respect, um, do you agree with Sarah Tavel's perspective that we will see a future where you sell the work and not the tools? If you think about current technical tools now, Klaviyo being one of them, we sell tools that enable people to do the work. And she suggests that over time, you will just sell the work and you will pay for the output. Do you agree with that perception?

    7. ABAndrew Bialecki49:09

       I think that's generally the right direction. Um, I'm maybe a little skeptical of how fast, you know, we get there. Uh, but I do think if you fast forward, you know, 10, 20 years, I think there's a lot of processes where, yeah, hey, I just need the output. And by the way, I mean some of these we already do today. I mean, there's obviously parts of our personal lives or running a business where we can effectively automate that away and yeah, we're happy to pay somebody to do it. When I think about machine learning and artificial intelligence broadly, there's kind of three core principles that we have. Uh, the first is, you know, being a physics, physics background, I think the, the laws, um, or the algorithms that govern how the world works are discoverable. You know, when I think about the way that we as humans use software or try to, you know, execute very proc- processes, we can under- we can... We actually define those. We can codify those. So we can understand those. The second part is, I think for a lot of things that we as humans do, if you look at our algorithms once you've documented them-

    8. HSHarry Stebbings50:11

       Mm.

    9. ABAndrew Bialecki50:11

       ... they're actually like really naive and inefficient. And that's not anybody's fault, it's just, you know, a lot of these things we don't practice that much or maybe we've practiced a lot, but compared to what a machine could do, there's just a lot... There, you know, there's a lot of room for optimization. We also believe that if you look at a lot of the algorithms that we, we use, if you use data and obviously software to then try to understand, well, what would be an even better algorithm for that process? That- that- that's- that's very possible. So in- in, take it, in our case, in the world of marketing, uh, you know, I talk to a lot of marketers and we ask them, "Hey, how do you spend your incremental hour in the day? Like, how do you decide how to optimize your time? You know, if you're, if you're, if you're using expected value or something like that, like how do you decide what to work on next? Which project?" And a lot of them say, "Well, I've kind of got this, you know, notion of what I should be doing, but actually, I'd love some advice." We think that's something that's like ripe for machine learning and AI to just say, "Yeah, here's where you should aim." So we think we can discover these processes. We think, through data, we can build even better versions of that to say, "Hey, here's how you really should be doing it." And I think the third part is we think then that adds up to, you know, at least a 2X, right? 100% productivity boost. And in some cases, it might be infinite where the work just goes to zero. Um, and I think, you know, so that's kind of our strategy when it comes to AI and I think you, you know, then it's like is that... You know, e- ... And I think you can get to this world where, hey, if you can automate a lot of that way, you can literally just say, "Hey, here's the output I'll deliver for you." And somebody can say, "Great, I wanna spend, you know, zero time or very little time on it."

    10. HSHarry Stebbings51:47

        Do you think AI actually enables you to make more money from customers, though? Or just provide a better product? I think, you know, me and Jan- Jason Lamb can talk and debate a lot about whether your large enterprises, your Boxes, your Dropboxes, your, your, your Klavias of the world, will actually be able to extract more juice out of customers. Or, in a horrible terminology, apologies for that, uh, (laughs) uh, but, or just provide a better product but they pay the same, and it's just a kind of commoditized technology product that enables them to have a better product but pay the same.

    11. ABAndrew Bialecki52:17

        I think there, there's two fundamental forces, you know, kind of working in opposition. One is, uh, you know, I think all technology, it fundamentally makes things easier so there's like a, there's a deflationary element to it. And so there's this constantly you have to, you know, as, as, uh, you know, multiple people build the same tool set, right? Hey, that makes it, um, you know, that- that fundamentally should make it better for those customers. On the flip side, as you build better and better tools, better functionality, it's, it is increasingly valuable. So I think for us, like we're so far away from the total value that we can bring to our customers. And we know that it's so profitable for them. A lot of the conversations I have with folks are, you know, "Andrew, we're eager to see, you know, we're eager to see that next world and we'd be happy to pay for it, but just how long is it gonna take for it to exist?" So I think in our case, I think there's a lot more value there and, you know, if you index, you know, um, you know, pricing to- to that, I think there's a lot more there. Um, you know, with some, with some, we'll see for- with some software categories, I think they're not... You know, if you look at the way they're using AI and maybe specifically language models, it's more of this, it's kind of this productivity, you know, will help you, you know, click the buttons faster, like navigate, you know, the UI or maybe do it through natural language. I think that's like a nice-to-have, but if you can actually measure, you know, the lift, the increase in output, and then you can put a dollar sign on that, you know, that's something that customers really understand, and I think that's like another level of value beyond just the, you know, you can do your day job quicker.

14. 53:58 – 58:43

    Are We Underestimating Consumer Behavior?

    1. ABAndrew Bialecki53:58

    2. HSHarry Stebbings53:58

       You mentioned the de- ... Final one before we do a quick fire. I love this. You mentioned a deflationary element there kind of with the productivity gains. You know, Klaviyo outperformed HubSpot last quarter. I guess my question to you is like, is the economy less bad than people think? You know, are people missing something about the economy when you look at how consumers are actually buying, behaving, transacting?

    3. ABAndrew Bialecki54:19

       From what we've seen from our, uh, view of the consumer is I think people are being more, uh-... thoughtful about how they spend. But interestingly, and we, we shared this stat last, you know, last year, we're finding that more and more consumers are building deeper relationships and more loyal relationships with the businesses and organizations and brands that they love. So, there's this interesting thing going on where, while consumers may being more thoughtful about spending overall, they're tending to concentrate it in a, you know, in a handful of companies that they really love and I think that's, I think that's interesting. I think that's, that's, it's a little bit an interesting lens on the economy, is that if you're a business, it's really about how do you, uh, deliver great experiences to the customers that you have? And once you acquire somebody, how do you make sure you, you know, also go deep with them? I've always thought it's interesting, you know, uh, in, in the world of, uh, retail e-commerce, it's still even, even for digital, uh, for e-commerce online, there's still a very traditional retail mindset of, "Well, I drive traffic, it's not foot traffic, it's web traffic. I convert some fraction of it and that's, that's the basic funnel of my business." I think increasingly a lot of, a lot of those businesses are recognizing, well, that's actually, it actually can look almost pseudo-recurring, where I have customers, I know who they are, they come back. I'm building, you know, some cadence with them, actually makes my business more durable and more resilience. So that's, that's actually the, that's, that's the trend that we're really interested in obviously trying to accelerate.

    4. HSHarry Stebbings55:58

       I get nervous when I hear that. (laughs) Pseudo-recurring on consumer transactions on like consumer preferences and buying patterns. Oof. I, I don't know. Like, ServiceNow is a great business. You know why? 'Cause it's like three-year contracts. And even with shit products, (laughs) you can't leave. I've got Bill coming on the show so you might have to edit that out.

    5. ABAndrew Bialecki56:21

       (laughs)

    6. HSHarry Stebbings56:21

       (laughs) Otherwise, I'm screwed. But like, I, I totally, I just look at like Peloton as a really interesting example, where the customer love is off the charts, but actually their business is in the dumps. There's a hard thing there with the transaction being like, there's infrequent transactions. You buy a bike, you have the subscription model, but like...

    7. ABAndrew Bialecki56:42

       I've always felt in the, in the, in the, in the stack ranking of business models, you know, the, the best ones are, you know, transactional is obviously hard for the reason you're saying, 'cause it's, there's no commitment to the next purchase. Um, anything that's subscription or recurring is great 'cause there's kind of this auto on, uh, piece to it. But the really, the best model, and this is you have to have a really great product to do this, an even better model is something that's, I used to think of as like a utility, like, you know, like, you know, like water or electricity, like, of course I'm gonna buy that. Um, everybody started calling it consumption, so we can ca- call it that. And, yeah, it may fluctuate a little bit, but I've always felt like the best business models out there are, you have a product that's so good, you actually wanna reduce friction for people to use more of it, and you're willing to float a little bit with, uh, you know, the, the ups and downs of, you know, the, the con- the economy broadly. Um, so, but I get- I guess you're trading off the, do you want, are you willing to accept some variance for the upside and the downside versus just the straight predictability?

    8. HSHarry Stebbings57:40

       I think the best are when you have customers who are so in love with your product that they're willing to pay ahead for it. And what the paying ahead for it does is allows you so much flexibility. And I, I always think of Starbucks with this and the float that they have from their loyalty cards is probably one of the biggest secret weapons in the financial mechanics of that business. That is, that is true power.

    9. ABAndrew Bialecki58:02

       We've always felt like, uh, well, even if we're business in general is like we, one of the things we really pay attention to is, uh, I've never been as big a fan of LTV to CAC as a measure, 'cause I feel like it'd be too long term. You can, you can, you can have high upfront costs that sort of it takes you a really long time to earn back. Um, you know, when we were bootstrapping, we always thought about the cash cycle, like how, if we invest a dollar today, how long is it gonna take for it to come back? And I think it's the, it's the exact same, right? So, you know, describe Starbucks is, "Hey, every time, you know, especially in retail, gee, if I invest a dollar, how long does it take for me to pay back?" And obviously the best is like, yeah, folks will, you know, if they'll pay up front in software or, you know, um, load up, uh,

15. 58:43 – 1:00:43

    Cash Cycle Lessons

    1. ABAndrew Bialecki58:43

       dollars for later.

    2. HSHarry Stebbings58:44

       Andrew, what did you learn about that cash cycle? 'Cause I find it really hard to, to try and understand as an investor, because it's highly variable and year one is very different to year three when you have a brand and an ecosystem and maybe the cash cycle's quicker. What were your big lessons from that cash cycle and how it changed over time?

    3. ABAndrew Bialecki59:00

       For us, it was always about just understanding it and then trying to do what we can to minimize it. Um, you know, so I, I'll give you one example where, uh, that was really helpful to us. You know, when we, uh, started working with a lot of marketing agencies, and one of the things we found is, uh, just from a business perspective, it was actually, you know, not only could we help them grow their business in terms of offering services on top of Klaviyo, but when they'd refer business to us, that was a great model, uh, where we could, uh, we could pay them for referring business, but we shared in like, you know, the, the, but the cash cycle was very fast, 'cause it wasn't, you know, the same thing where you, you know, you pay a sales rep and you pay them all up front and you just have to amortize that out. In this case, we could sort of pay them as, you know, as a customer grew with us over a set period of time. So, there were all these things where we would look at what, um, you know, what were strategies, you know, for marketing or sales or some of these partner plays that would allow us to minimize that?

    4. HSHarry Stebbings1:00:02

       Mm-hmm.

    5. ABAndrew Bialecki1:00:02

       And that's part of, you know, when we thought about the capital required to grow Klaviyo, is if we could r- if we could keep that low, then we wouldn't, we could grow really quickly and wouldn't have these big capital needs in order to fuel that growth.

    6. HSHarry Stebbings1:00:15

       It's funny, I had Aaron Levie on the show recently, um, and he said that his big, uh, reflection or lesson was that you can be kind of strategic or intelligent around the cash mechanics of your business, which can really allow you a lot of levers in terms of not having to fundraise as much, not taking as much dilution, poor Aaron, and actually being able to have a much more kind of capital-efficient cash flow business in that respect through the mechanics of cash flow.

    7. ABAndrew Bialecki1:00:41

       Mm-hmm.

    8. HSHarry Stebbings1:00:42

       Super

16. 1:00:43 – 1:08:57

    Quick-Fire Round

    1. HSHarry Stebbings1:00:43

       interesting. Uh, listen. I wanna do a quick fire. I could talk to you all day. So I, I say a short statement, you give me your immediate thoughts. Does that sound okay?

    2. ABAndrew Bialecki1:00:50

       Sounds all right.

    3. HSHarry Stebbings1:00:51

       Okay. So what have you changed your mind on in the last 12 months?

    4. ABAndrew Bialecki1:00:55

       You know, I, I used to be a believer for our, for our products that, uh ... I've always hated the term omni-channel 'cause it felt like everything matters all at once. Um, and so I used to unabashedly think that, hey, when it comes to marketing, there's only a couple of, uh, there's only a couple of mediums, uh, media types that matter. I've definitely changed how I think about that now. I mean, we, we added SMS as part of our product set, and now we're thinking adding a couple of, a bunch of other, um, uh, you know, formats and other ways that folks can, uh, use, uh, Klaviyo. I think in the future, you know, for consumers, there should be these multiple interfaces that people can touch and feel. And, uh, rather than I used to think there was l- a big power law, like there's only really like one or two that matter. But I th- I think that's, I think that's changing, um, you know, for a, for a lot of our businesses.

    5. HSHarry Stebbings1:01:50

       Okay. If you can add anyone to your board, who do you add and why them?

    6. ABAndrew Bialecki1:01:55

       Oh, I've got just tremendous respect for Microsoft as a business. Um, so, uh, you know, obviously you study great companies, and, you know, we talk about Klaviyo being this, you know, database and applications, and I've always thought about, you know, Windows and their applications. You know, so Bill Gates, uh ... Or there's a lot of great folks at Microsoft. I think folks that have saw that, you know, grow up from the '80s and '90s, man that'd be awesome.

    7. HSHarry Stebbings1:02:19

       When I say near-death experience with Klaviyo, what moment comes most viscerally to mind?

    8. ABAndrew Bialecki1:02:24

       So we didn't have any real near-death experiences, but I remember in year two we had our biggest customer left us, and it was right around the holidays. I remember it was right around Thanksgiving. And, uh, you know, it was, it was pretty crushing in the moment. You know, it was the kind of thing that's why co-founders are good. You kind of rally from it, and, uh, we eventually got them back. But I remember at the time that was like a 20% hit to our, you know, $20,000 (laughs) a month MRR, and it felt huge. Uh, but I think you learn from that like, you know, uh, if you just keep focusing on the right stuff, like eventually you get there.

    9. HSHarry Stebbings1:03:00

       Where do you feel you still need to improve as a leader?

    10. ABAndrew Bialecki1:03:03

        Oh, I spend a lot of time trying to be a better, uh, w- I use the word storytelling, but explaining, getting comfortable just explaining, uh, why we're all here, why it's worth working so hard, uh, and then how we're gonna get there. Uh, the number one question I get from folks, both internally and externally, is, "Can you just explain, tell me more about, you know, where you think we're going and what it's gonna take to get there?" Uh, I think telling that story through, you know, metaphor and through examples, uh, you know, tightening that up, um, work a, work a lot on that.

    11. HSHarry Stebbings1:03:41

        Why do you think Shopify won where so many others didn't? Your Woo c- like there's so many players in that market. Shopify rose and everyone else sank.

    12. ABAndrew Bialecki1:03:51

        I've always admired Shopify for two things. Uh, one, an extreme dedication to, uh, the craft of building great products and delivering really high-quality products. I think in the world of e-commerce, if you've ever tried to set up a website or an online business and it's just, you know, it's your Friday night project, it can feel like a lot. And so making that super simple makes a big difference, and I think that those gains extend not just to folks starting out, but actually folks in the enterprise want the same thing. And then the second is, uh, I've also always admired the way they build their ecosystem. They were unabashedly, hey, you know, every part of Shopify is gonna be extensible, so if you wanna develop against it, you can. And when we first started working with them, uh, it was just so easy to, you know, share what we'd built. Uh, I remember building a little connector and, and they just, and they, and they got it, um, right away. So I think if you take this, you know, ecosystem, ecosystems matter, they're gonna be part of our strategy, uh, I think we've seen a lot of great companies, you mentioned Microsoft, Salesforce, uh, Shopify. I mean, they've all had that as a core component that's allowed them to extend what's possible, um, without building it themselves.

    13. HSHarry Stebbings1:05:09

        How important is it for founders to have personal brands?

    14. ABAndrew Bialecki1:05:12

        I think it's something you can decide if you want or not. Um, it's never been a big priority for, you know, myself or my co-founder, Ed. I think where it's most interesting is if you feel ... We're, we, we really believe in paying it forward. I've worked with so many great people that have been mentors to me. I often think of your personal brand as you can share what you've learned and then people can decide what they like or don't like, and they can borrow from that. Um, so I think if you, if your goal is to, you know, pay it forward to others, that's a great reason to have it. And then there's probably certainly a halo effect of, you know, folks will say, "Oh, that's great. Well, I'd love to spend more time with that person, and, you know, hey, maybe we'll join forces." But I don't think it's, I don't think it's very important. I think it's often overemphasized by founders in terms of being successful. A lot of customers, that's not what matters to them. What matters to them is, you know, can you deliver great experience and a great product?

    15. HSHarry Stebbings1:06:05

        Does money make you happy? You know, when you IPO, when you build a business like Klaviyo, it, your financial situation changes. Does money make you happy?

    16. ABAndrew Bialecki1:06:14

        There's sort of a, a minimum amount, a threshold, after which, um, things k- you know, the wealth stops really mattering. One thing I've loved about, uh, my co-founder Ed and I is we've always found joy in, you know, kind of simple or, uh, I don't know, uh, non-extravagant things. So no, that's something that I, I think in, in my personal life, with our family, it bleeds over a little bit into Klaviyo, recognizing that like, look. People, the time you spend together, how, in, and how you do it, um...... uh, that's really what matters the most. In some sense, I think like the financial side, the best thing there is like if it allows you to spend more time with the people that you like spending time with, that's probably the best benefit.

    17. HSHarry Stebbings1:06:58

        It's funny, I sat down with a Russian friend of mine and I said, "How much money does it take to be happy?" He said, "Not as much as you think." I'm like, "Oh. Well, how much?" He goes, "Oh, you know, 400, 500 million." I'm like, "Oh. Oh, that's a little bit more than I thought." (laughs)

    18. ABAndrew Bialecki1:07:13

        (laughs)

    19. HSHarry Stebbings1:07:14

        Oh, okay. I'll- I'll go back to work tonight. Thank you so much, Igor.

    20. ABAndrew Bialecki1:07:19

        (laughs)

    21. HSHarry Stebbings1:07:19

        Um, okay, final one for you, Andrew. Uh, tell me, what question are you not asked that you think you should be asked more?

    22. ABAndrew Bialecki1:07:26

        It's how do you fall asleep at night? And which I, which I, by which I mean like, how do you turn it off? Um, you know, I've- I've asked this of a lot of my, um, uh, of other, you know, founders and mentors is when you get really excited about something, eventually you have to kinda put it on the table and go to bed.

    23. HSHarry Stebbings1:07:46

        Mm-hmm.

    24. ABAndrew Bialecki1:07:46

        And I think that's- that's tough. Um, so it's a little bit of how do you, you know, compartmentalize where you can have an off switch. At least for me, my (laughs) well, the actual answer is probably listening to some audiobooks or podcasts at night. But I think finding these like-

    25. HSHarry Stebbings1:08:03

        Did you suggest you go to sleep listening to 20VC? I'm deeply offended. (laughs)

    26. ABAndrew Bialecki1:08:07

        I think, well, I actually struggle, I struggle with, uh, many podcasts because you don't, I- I always worry I'm gonna miss something really good and then I'm not gonna listen to it in the morning. But yeah, it's that or I'm, I've always been a big fan of, uh, you know, getting outside. Uh, I do a lot of running, but whatever it is, exercising. It's like something that kind of forces your brain into a totally different direction. And maybe to tie it all the way back, like this being curious about other things. Yeah, I mean, I'll often unwind or fall asleep to, you know, learning about topics that, uh, you just have nothing to do with, uh, you know, what I'm working on day-to-day. Like, I've gotten very big into, um, I don't know, for whatever reason, European and even, you know, uh, British history through some, uh, through some podcasts. It's just a fun thing to learn about, but it's, you know, it's- it's totally takes my mind off of, you know, whatev- whatever the- the project du jour is.

Episode duration: 1:09:07