A few weeks back, I spoke to 5x entrepreneur and angel investor David Cancel for The Lean B2B Podcast. We talked about customer centricity, the commoditization of SaaS, growth, and various strategies to learn and iterate early business models.
You can watch the full interview below, or access it on iTunes or Spotify.
Etienne Garbugli: My guest today is David Cancel. David is the co-founder and CEO of Drift, the world’s first conversational marketing and sales platform. Before, David founded several technology companies, four of which Compete, Ghostery, Lookery, and Performable were acquired. Performable was acquired by HubSpot where he led product from scale up to IPO. David is also an investor and advisor in dozens of startups.
David, welcome to the podcast.
David Cancel: Thank you for having me. I’m excited to talk today.
Etienne Garbugli: Great. So maybe a bit of a question on a tangent. In a great interview that you gave to Patrick Campbell, you talked about the importance of focusing on a shift in behavior when starting a business, be it a buying process or messaging, what would you say was the starting point for Drift?
David Cancel: That’s a great question. It’s something I think a lot about now, but as like an early entrepreneur I never thought about enough. Right? One of my mistakes. So for us, the shift that we saw, we saw a couple of shifts. So, I’ll talk about the first two.
The most important one was that we saw us moving into the commodity phase of SaaS software.
And what I mean by that is that in any given category, now there’s hundreds, if not thousands of alternatives. And the rate at which those are being created, a new SaaS offerings is exploding, right? So accelerating. And what that means is it means on a macro sense that we’re moving from a world where us, the companies could control the sales process to all the power moving towards the end user, the buyer.
And so we saw like the rise of, you know, a buyer-centric world versus a company-centric world. And so we knew that we had to rethink everything there. And then when we saw another, another mega trend which was, messaging had finally hit a tipping point where we were all defaulting into messaging as the number one way we were communicating.
And because of that, we, yeah. Oh, we can finally use messaging for sales, not just support.
Etienne Garbugli: So, I went back in time to Web Archives, and I looked at early versions of the Drift messaging. So, how did you guys get from…
David Cancel: Oh my goodness. I’m nervous to hear that.
Etienne Garbugli: Well, how did you guys get from this initial vision to the first version that you guys launched in November, 2015, if I’m not mistaken.
David Cancel: Yeah, that’s exactly right. The short answer is that we iterated a ton with early customers, and Patrick Campbell was actually our first paying customer over at ProfitWell. And so we got a bunch of friends. Luckily, we had a bunch of friends that we did tap in companies and say, you know, work with us.
And we did something that I do often, which is to basically go off at the beginning of a product, find early customers. Most importantly, get them to pay me even before we’ve created anything. But the payment could be anything. It’s basically how much money they have in their pocket. I think, you know, people have paid us 20 bucks, five bucks, 10 bucks, whatever they have.
That’s an important step in it. And then we give them access to whatever the software becomes for life. You know, that’s the exchange. And then they help us build the product. It’s important to get some dollar amount from them, whatever. It doesn’t matter what the number is. Versus working with a beta partner and them never paying you, so they have to have that skin in the game. It’s super important. No matter how ridiculously small the amount is.
And so we started working with all of them that got us, and we iterated kind of in, some would call it stealth mode, but we weren’t really stealth. We just didn’t have any energy to actually publicize anything. And so we did that. And then we iterated, so the first version in November of 2015.
Etienne Garbugli: Okay. Okay. But there were products before, before that.
David Cancel: Oh yeah. So, yeah, that we killed, we killed that. We killed three different product versions. That were, you know, some that we spent a week on, some we spent a couple of months on, some we spent several months on, and we would just quickly kill them as we were testing with this initial set.
Etienne Garbugli: And what were the criteria that, that made you decide to kill those versions of the product? What made you decide that these were not that the right ones to build on?
David Cancel: Ah, that’s a good question because that’s one of the most difficult things to, to figure out as an entrepreneur because as entrepreneurs and product people and creators, we have a happy years, right?
We don’t want to kill our creations and our babies. And so we hear what we want to hear and for us is that we kept using this thing that I call the dollar test, which I kind of briefly described there with new people and trying to see if new people who would tell us who the, we would get feedback from new people, new customers.
Potential customers, I should say. And, we would always get them when they indicated interest to try to pay us. And we kept seeing that with various versions that basically people didn’t care enough to even part with 20 bucks that was in their wallet. And then we knew we were not onto something.
But you know, everyone is default to be nice and they’re willing to waste and an insane amount of time, you know, thousands of dollars of bare time. Uh, you know, meeting with you and giving you feedback, but they’re not willing to part with 20 bucks. There’s something there’s a psychological thing there that happens.
And so to us, that’s the shortcut path to understand if we’re on to something or not.
Etienne Garbugli: So in a way, the exchange of money was the acid test to figure out if these different products were cutting it for you.
David Cancel: Yeah. It’s remarkable because if you spend time creating things, it is remarkable how many strangers and friends will spend thousands, and thousands and thousands of dollars of their own time and energy just saying nice things to you and giving you feedback and trying to help because they’re genuinely trying to help and not offend you. Uh, but they, you know, they even know, they, they know that they’re not interested in the product, that they wouldn’t buy, that they wouldn’t use it.
And so we found accidentally this path to short cutting this, of just going straight towards, you know. Getting some dollar amount from them. And when I’ve described this to other entrepreneurs, and I’ve seen other entrepreneurs use this, they, they get too wound up on, well, I don’t want to give away too much value and I don’t want to give this.
And what about if it’s worth this much? And like they try to optimize too much on what the price is. And for us it’s just very simple. It’s any exchange. If they have $5 in their pocket, I will take the $5 and I will give them lifetime access to that software.
Etienne Garbugli: So you’re not looking at a certain threshold in terms of being able to figure out the business model at that stage.
David Cancel: Not at that stage. Later, we start to do that. We start to refine the pricing, but once we’ve hit a critical mass and critical masses, you know, different for everyone. For us, it’s defined by how big we think the market is. And some, you know, do we have hundreds, thousands of customers?
Again, it depends on your business, but once we feel like we have a critical mass of early evangelists.
Then, and only then do we start to price test, but we never go back and try to extract more money from those early customers or raise their prices. We always honor that forever. And, instead we only apply those price increases or changes to new customers.
Etienne Garbugli: Okay. At that stage and beyond, how did you go about identifying the gaps in your knowledge around the business or the product strategy?
David Cancel: How do we find the gaps?
Etienne Garbugli: Yeah. Like what you need to learn or what you need to get insights in.
David Cancel: Yeah. We set like very small increment. We have grandiose and insane, um, you know, high level visions of what we want to do. So big dreams. But then we set very small, almost laughable tactical goals.
And, we, we optimize for them to be super, super quick experiments. So we’ll always have a goal of all we’re trying to figure out this day or this week is like, how do we increase this amount of usage or people to get from A to B, or people to pay when they’re not paying, or for people to sign up.
You know, we always have like some goal, but it’s basically. All of those goals sum up to one thing in the early days at the beginning, which is how do we get, as Kevin Kelly would say, your first thousand true fans. How do we get a thousand people in the world to care about this? Even if they’re paying us nothing or very little depends on your product.
For us, it’s always they’re paying us something, but like it doesn’t matter what they’re paying us, but can we get a thousand people in the world to care about this thing? And what’s standing and today, what is the biggest blocker from getting those thousand people? We’ll work on that.
And then tomorrow we’ll work on the next thing on that list. And you know, so forth.
Etienne Garbugli: And that is a company-wide or is it specific to the product, particularly.
David Cancel: You know, in the early days it’s, uh, it’s company-wide because it’s, we’re all doing everything together, right? There’s no functional distinction really in early days, and then later once we’re like at our stage and we’re doing this kind of stuff, there is functional separation, but we’re all working on different parts of the same goal.
So we have the same shared high level goal as a company or as a team or as a sub-unit, and then we’re all divvying up what we can do to align to that goal. That’s our point of alignment.
Etienne Garbugli: Okay. Okay. You’ve been a really big proponent of customer centricity. You wrote about this, you wrote books, you read a lot of posts, which is great. Do you think it’s possible to get there without a customer centric approach?
David Cancel: Uh, Abs… 100%. It happens every single day. Most companies in the world are not customer centric. Um, and I think most successful companies that we would model today, or that we would look at today, are not consumer centric.
I think that is the very reason that we exist as Drift and why we started the company, which is like, I think those days are over because all markets. The, basically the, the Internet has done one thing right over time and it’s finally compounded to this point and we’re finally at the point where it removes all friction out of markets, right?
It just goes in every market you look at friction is being removed, whether it’s an offline market or online market because of the internet and penetration and things that we can do now. And when that happens. In every given market, what happens is you move from a sea of monopolies or, or, um, you know, uh, a set of monopolies in those markets, you know, to it being open to everyone being able to compete in that market at a global, in a global way.
And when that happens is, uh, you have mass commoditization that’s happening every market, whether it’s direct to consumer, whether it’s B2B, whether it doesn’t matter what you are doing there, there are still monopolies left, but most of them are being toppled. And when that happens, the power we believe moves from the company to the customer because now you have thousands of alternatives on how to spend your money.
Where before maybe you had one or two, uh, and in that world, this. Insane. Um, view on customer centricity that we have, I think will become the, the norm. And, you know, this will take decades to play out, but will become the norm and will be the only way that you go to market. Uh, this idea that you will create stuff in isolation and not care about, uh, how the customer experiences it, which is not just the product, but every touch point, you know, along the way from your marketing to your sales, to your support, to your in-person kind of events to everything that you do is a customer touch point. It will matter.
These are not new ideas I should say. You know, people like Forrester and many others have been talking about the rise of customer centricity, customer centric businesses and the customer experience for 20 years, at least now. But the point is, we were at the point in the market where it didn’t matter because we didn’t have the mass commoditization effect happen yet.
And so we still had monopolies in our market. So it didn’t matter for you to adopt customer experience, kind of focus. Well, we’re past that. We’re in a different market now, and everyone that you would talk to would agree that we’re in a world of commoditization now. And so like now you have to compete on experience.
Etienne Garbugli: Well, if you look at a lot of data points that the team at ProfitWell has shared, there’s still that gap between what people they do. Do you feel like, like right now it’s still a competitive advantage if you are in that mindset where you’re customer centric, and how long do you think that position will stand?
David Cancel: I think it depends on the market that you’re in. The easier it is to compete in those markets, like digital products, like SaaS and software, I think we probably have, you know, a. At most max of five-year kind of advantage right now for companies to get in and really compete on customer centricity and, and the customer experience that comes out of that.
Maybe less, probably two to five I would say. Right? That gap is closing quickly. But then, uh, your harder markets, your offline markets, your markets where it’s more of a physical change that you have to, uh, conduct and not just digital. There, I think you probably have a good 10 year run, 10 year kind of advantage that you can have if you compete this way.
Etienne Garbugli: Okay. Okay. And at this stage, how do your recommend founders prioritize features or functionally groups, when they’re expanding their product?
David Cancel: Yeah. To me, you know, it comes down to our approach, which is this, um, which is the approach that we stumbled upon, you know, over a decade ago and started to build, first it started out as, uh, an engineering and development methodology.
Then it turned into kind of a product and design. And engineering methodology. And now it’s expanded to a company-wide methodology around this building things around the customer. And so we look at how we prioritize features and do all of that kind of stuff that you mentioned, uh, by. From the customer themselves. Right?
And that does not mean, again, that the customer gives you a list of features and you implement those features because it is your job to interpret and understand the customer. They don’t know what’s possible. They don’t know how to express features. They don’t know how to do roadmaps. I don’t believe in public roadmaps. Um, first thing. So I’ve never done those. Um, or I try hard to avoid them.
Uh, it has to do with how do we continue to solve for the customer problem over our problem. And that is a deeply, um, that’s, that’s more of a psychological kind of hurdle that we have to get through because we all have egos.
Uh, no matter how humble you think you are, we, uh, we all have egos. And so our egos get in the way every single day in the way that we make decisions, uh, around our companies, but specifically around product. And, you know, why did we design something like this? Because we wanted to be cool.
We wanted it to be clever. We wanted it to be different. We wanted it to look like, uh, no one else. What does that mean? That means that most of our customers probably have no experience with that pattern or that design. And then we’ll just might just end up frustrating that customer because we put, we prioritize our own ego and our own satisfaction and pride over the customer.
So most of our work that we do in this, in this has less to do with listening to the exact words that the customer tells us. And it has to do more with setting up internal guard rails. We call them, and systems to try to express, stamp out and extinguish our pride and ego from our decision-making process.
And that’s why we look towards models like. Uh, whether it’s, uh, Warren Buffet and Charlie Munger, whether we look at Ray Dalio or whether we look at different people who make systematic-based decisions and how do they remove their own personal bias and their own personal egos out of that decision-making.
That’s where we spend all of our time thinking and looking at, which helps us then serve the customer.
Etienne Garbugli: Hmm. So that’s super interesting. So, can I ask like what are some of the process that you put in place to be able to really remove the ego from the decision-making?
David Cancel: Oh yeah. They’re, they’re, you know, painful.
I’d say them the most, uh, very painful even for, you know, all of us. That gets in the way, I think, um, forcing, creating guardrails about being intellectually honest around the metrics that we use, uh, the feedback that we get and, and therefore being able to push back on people when they’re presenting, when they’re making an argument for something, um, that is probably the most effective thing that we do, but also the hardest, because again, people do not want to tell other people bad news. They don’t want to seem offensive. They don’t want to seem mean. They don’t want to seem contrarian. So that kind of rigor, which we have to practice every day, that’s less around a form, less about a formula and more about a daily practice and ritual that we do and we hold ourselves accountable to, that’s the most effective.
On the most easy to replicate side of things. If you go to the other end of the spectrum, we do things like, uh, you know, how we prioritize, you know, the feedback that we do get from our customers. How do we, um, how do we convince. You know, a product team and engineering team, a marketing team to do something, we use the words of a customer always.
So we kind of, uh, put together feedback and ratings and reviews and comments, but we literally highlight the words of a customer. Right? Here’s feedback that we got from a customer, whether it was through chat or email, or they posted this on a third-party review site, or they did this on a call.
We constantly mine calls and videos and voice and all these kinds of different mediums to literally find the words of the customer and do that in mass. So at scale so that we can see the trends of what our customers are actually saying, which goes back to no surprise, conversational marketing and the stuff that we’re doing.
All of our customers are telling us. They have told us since the beginning of the time, the problem is that we did not, we did not have technologies and ways to actually capture and make sense of this information. Part of why we exist and what we’re doing is like, because now we can finally do that.
We can get in the middle of video voice calls, uh, obviously chats, obviously emails, and we could amass and start to make sense of what is the customer actually telling us versus what are we interpreting or what are we aggregating or what are we saying that they say no, literally, I want to see what they said.
And so that that is the most effective means that our, that we use in our team across product, sales, marketing, the executive team on how we make decisions. We actually amass the words of our customers. And then the sentiment that we see expressed because of that. We use something starting to rant on this for so long.
I could go on forever. So, you know, we used to use NPS, so Net Promoter Score, everyone listening to this probably knows what that is. We used to use then. And we use that in my last company, HubSpot as well. Uh, but the problem that we saw from that, from a product making decision, a standpoint was that it’s a very lagging indicator on the changes that you’re making today.
And the other problem that we saw with it is that the actual literal question, is not the question that people think it’s answering. So we, we kind of look at it, most of us and think like, Oh, this tells you how happy customers are, or like how much they love our product.
That’s not the question. The question is, how likely would you be to recommend this to a friend? And because that question is very different. Sometimes you get weird side effects, like you may be selling a product in a market like we were at HubSpot. We’re even at Drift where you may not know anybody else.
You may not be friends with anybody else who has your job. So you may score it low from a Net Promoter Score standpoint. Uh, even though you love the product, and we would see this happen where they would give a low score, but in the comments, they’d say, I love this product. I can’t live without it. This is the best thing ever. But yet they gave us a detractive score, and they’d say, the reason why, it’s like, Oh, I don’t know any other marketers I can recommend this to. Right?
So like very lagging and weird indicators. So instead of using NPS, we use another thing, which is called product-market fit score and, and you can, people can search for it.
And it’s, it was put together by, originally it was Sean Ellis, um, put this score together. And I had worked with him back in 2010, uh, and we used to work, use it a lot. And then, Rahul from a company called Superhuman. I’m an investor in Superhuman. He took it to the next level, and he use it as a systematic approach on different features.
And we use that internally. So we’ll ask our, our, our customers the product-market fit score’s question, which is simply, if we were to take this feature or this product away, you know, how, you know, how upset would you be? Would you be, you know, and there’s a range. There’s three different ways you’d be like, I’m not upset at all.
I’d be mildly upset. Well, I’d be devastated, and I’m paraphrasing, that’s not the exact words, but we use that every single day with different features and different things that we’re doing to get more of a real-time handle on how the things that we’re building are affecting our customers and whether they’re actually moving the needle for them or not.
So if you’re in product, if you’re listening, look up the product-market fit score. So PMF score, and look at how you could be using that as a more real-time measure versus a lagging indicator like NPS.
Etienne Garbugli: That’s very interesting. I spoke to Rahul, I think tree weeks ago and. Yeah, we talked about that specifically how they use that as a guidepost to always test against their progress, and I thought like your, what you were mentioning about money initially is kindof the same thinking a little bit where you have this exit criteria that helps you understand if you’re truly making progress.
David Cancel: Yeah. Every, all of these things are what, what’s, what’s interesting to me after all these companies on all these years that go by.
So is that how simple things are really how simple all of this stuff is like we already have the answers solid. I, I have this reoccurring, I don’t know if it’s a nightmare or dream, but I would this thought, I should say that, that my day, on my death bed, the thing that I will be thinking beyond all my family and experiences on this will be like that I always knew the answer, but it took me this long or answers, I should say this long too fricking to figure it out. Right, because the answers are pretty simple, but we overcomplicate everything.
And, uh, and so like, you know, guardrails and guard posts, guide posts like you just talked about, like that part of marketing score, we use the dollar test or whatever.
These are simple things that already exist. If you look at history and you look in other markets that are not your own markets, that people are doing very simple approaches. And common-sense approaches to doing all of this stuff, but we overcomplicate it because we always think everything’s different.
The world has changed. This is different. That’s different. It’s different. You know what? Humans have not evolved, so our decision-making processes are the same. Again, this is from a marketing and product standpoint and just management standpoint. Why I spend so much time rereading and rereading and reanalyzing.
All the different cognitive biases, all the books you can think about, human decision-making, all of those, you know, books that I’d never spend time thinking about in social psychology and triggers and how we make things. I spend all my time thinking about that because it is the human and it is the incentives and the systems and how we think that are always the same, that are never going to change.
Etienne Garbugli: Yeah. I think that’s one of the most powerful ideas in the book that David Gerhardt wrote and that I think you taught him and I was super interested in, in terms of how you guys are building marketing.
David Cancel: Just, it’s a very different approach. You starting, you invert, right, which is a Charlie Munger kind of concept that at least that he’s popularized and he didn’t invent, but like you always invert, you start from the other way around, which is like, you know, not start the traditional way that we think about marketing, but like let’s invert it and let’s start like how to make people, how do people make decisions based on the marketing that they see? Okay, let’s start with decision-making. How do people make decisions? And then we spent all of our time doing that and then finally focusing on copywriting and then finally focusing on marketing programs.
So it was like the other way around. And, and that leads to, I think, to better results if you can invert a problem.
Etienne Garbugli: But in that sense, if you guys started with money changing hands as the first guideposts initially, like how did that evolve afterwards? Did you guys set another benchmark or another way to track that progress?
David Cancel: Yeah, so yeah, we set a ton of them. We kept doing the dollar test, but in different ways. Right? We, we even do it today, you know, with new features or requests from new features, we try to associate monetary, uh, of monetary value or cost, I should say. To them when we talk to a customer of like, yeah, we could probably do that, or maybe we’ll do that, but it’ll probably cost this much. I’m like, would you pay this much? You know?
So we’re like, we are doing that from every conversation. What happens when you do that is most feature requests go away, miraculously, they disappear. And so it lightens your load of, and all the, the decisions that you need to make, if you start assigning value to them and you’re just being honest with them of like it is going to cost more and if you value it.
Uh, you know, you should be, you’re willing to pay for it. So, but people, again, that’s an uncomfortable conversation. We are trained, uh, society trains us not to have uncomfortable, to avoid uncomfortable conversations, I should say. And so like nobody wants to do those, but that’s the very simple, basic way that you can answer these things.
And so we, we would continue to do that test. Then we would, um, as we start to understand our buyers more, and you know, we start to develop personas and we start to like test those personas. We start to test different segments and market. We try to test different, go-to-market approaches. We’re always testing a new thing, but we’re refining who our audience is, who we speak to, what is the messages that resonate with them.
And we just keep getting more and more focused. And this, this is. This happens every single day, but it also happens at the macro sense of like every year I look at what we’re doing as a company and it becomes, you know, one end, the vision and the breadth becomes way bigger. But from a tactical standpoint, it becomes more and more laser-focused every year and a, and I’m finding joy in getting good at things that I’ve never been good at.
Um, I’m not good at them, but I’m trying to get good at them, which is like operational excellence and becoming more and more focused and all these kinds of things, which is as an early. Early stage entrepreneur, serial offender, you know, you’re good at like bouncing around and not staying focused.
Um, and, and so I’m learning new things, which keeps me interested.
Etienne Garbugli: Okay. You were talking about like simplification. It sounds more and more simple or you feel it gets it. It’s simpler than people make it out to be like, maybe if you put it all together, like if an entrepreneur were to start a new business tomorrow, how would you recommend they go about doing that?
David Cancel: Uh, so the, the first thing that I always talk to entrepreneurs about is that to get rid of their ideas to. And we do this as a kind of our mantra getting, uh, as every person gets onboarded and comes to work at Drift, we say the first thing that I talk about when I do onboarding on the first day is like, look, our mentality and our mantra is that all of our ideas here are wrong, right?
And so I would say this to entrepreneurs. All of your ideas are wrong, that should be a mantra. Your ideas are never right. Your goal is to use the scientific process, a.k.a. the feedback loop to work with your market as quickly as possible and have as many iterations of that feedback loop as you possibly can over a month, a week, a year, whatever your timeframe is.
That’s where you want to optimize for as the learning loop, and you need to figure out how wrong your idea is. Is it 5% wrong, right, or off, or is it 100% off? It’s somewhere in between that spectrum. No one has ever had an idea that is 100% on the money and never needs to change and is 100% right from the get-go.
That’s never happened. That is fiction. Right? And so this is what I tell entrepreneurs, this is what I tell everyone at Drift when they join. That is make-believe. The creation process always follows the same path. Whether it’s, doesn’t matter what end of the spectrum you’re at. If you’re a scientist, the scientific process follows the same path, right?
The feedback loop. If you’re an artist, which is the other end of the spectrum that follows the same process, it’s a game of iteration and exploration and you know, stumbling onto things. It’s never, no one ever writes the first paragraph, and that’s the best-selling book. They iterate, they edit.
They go over and over and over again. Same thing in science, but for some reason we as entrepreneurs and as business people have been taught that we’re going to come up with magic ideas in the shower and those shot, those shower ideas are going to be, you know, so solve the world. That’s never ever happened.
I’ve met tens of thousands of entrepreneurs in my career. That has never ever happened one time. So we have to, we have to dispel this, uh, Hollywood fiction. This make-believe fiction that that happens. So you as an entrepreneur, you have to, this has to be your mantra everyday. Our ideas are wrong, our ideas are wrong.
How do I validate? How do I test? How do I iterate? How do I get as many bites as the apple before I run out of money or resources to test these things? And then as I test them and as they, as I learn them. How do I instill this in the second person, third person, the fourth, the hundredth person that joined the company.
So we never lose this and we build a culture and uh, and, and, uh, a machine around this thing every day. That would be the most important thing that I would, I would tell an entrepreneur because most entrepreneurs are exactly like I was. Full of ego, full of pride, right? And, and you have to be in some ways to like persevere through all the pain that you have to get through.
And, uh, and because of that, they can’t listen. They cannot receive feedback. And because they can’t, and when you can’t receive feedback, what inevitably happens is that you fail at whatever you’re trying to do. So if you want to optimize for avoiding failure, you have to optimize for listening.
Etienne Garbugli: That’s really interesting. Thanks for taking the time to join for the podcast. Where can people go to learn more about your work here at Drift and your different investments?
David Cancel: Yeah. So, um, I’m davidcancel.com so like cancel a check and I’m dcancel on every possible social media thing and Drift.com, D-R-I-F-T.com and thank you for taking time with me and most importantly to listen to all the crazy rants that I have because I have no shortage of them.
Etienne Garbugli: No, that was fascinating. Thank you very much for sharing all your insights and I really appreciate it.
David Cancel: Thank you.
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