It is a massive massive massive hiring bench One thing this company will never struggle with is hiring great people I literally have a spreadsheet for every aspect of a company you could imagine 50 people deep with crazy talented people who have reached out and said we want to work on this one day There's so many people I want to hire There's so many people I want to hire It's stuff Hello and welcome to the episode 47 of the Metacast podcast
And I'm on up and today we have a special guest we are talking to Geoff Roberts who is a co-founder of Outseta It's a company that builds a platform that helps startups get started faster and we'll talk about the platform in a little bit but one of the primary topics we wanted to touch today is compensation philosophy and compensation mechanics too that Outseta employees because it is very unique and I've not heard of anything like that
I'm looking forward to this conversation Geoff, welcome to the show Thanks so much for having me excited to be here Can you give a brief intro of yourself and the company?
Yes, so my name is Geoff Roberts I've been working in SaaS startup specifically for the entirety of my career close to 15 years now and for the last seven years I've been working on Outseta Outseta is a bootstrap SaaS startup where we are building a platform to help you build bootstrap SaaS startups
Very meta, yes exactly it was born out of our own experience sort of scaling a previous SaaS business but we basically set out to build a platform that gives you all the tools to build either a SaaS or a membership business and I'll talk about the distinction in a minute but basically we looked at for example what Shopify had done for e-commerce and making it that much easier to launch an e-commerce business
We said all of these SaaS founders are spending a ton of time in the early days of their company stitching together stripe and hubs bought in Salesforce and Zendesk and Chartmobile and all these different tools
Why can't somebody deliver a package that gives them all the core tools required to get a SaaS business off the ground so that's what Outseta is
So what are the components or products that are part of the platform? So we basically said what are the common denominator features that every one of these companies almost unequivocally needs and its subscription billing, authentication, CRM, email marketing and help desk tools
Those are sort of the five pillars of the product and do you like integrate these different products or did you start out from scratch like building it out on your own?
Yeah, we started building it all on our own. In short the value of Outseta really comes from the fact that all of these products are part of the same platform and communicate with each other without needing to integrate with other tools
So it was a massive lift in terms of delivering an MVP. It's really building five software products instead of one but we had confidence that we could set out in that direction because every SaaS business or membership business that we looked at essentially needed all of these tools
And we said it's just going to take us time to build these tools to be good enough so to speak but that's what we did. So you mentioned in another podcast that because you decided to basically build these five things right and offer like an integrated platform versus the common thing that people do is like use, try, use HubSpot and try to figure out how do I like connect these two things?
Where's my user ID flowing and all that? It took you a long time to get off the ground. It did. It took us two years to even deliver what I would call the MVP product where we had basic functionality across those feature sets.
I'd say we honestly just mightily struggled in year three. We were trying to sell to technical audience who's very well versed in all these different tools and what we were selling just wasn't good enough to really be compelling. It wasn't really until about four years and that the business started to take off and grow.
So what was the size of the people working on it in those first three, four years? What is it now and what kept you going in those four years?
So it's through the first four years. There were the three co-founders and we hired a contract designer. So it was like three and a half people.
Today we are a team of six and then two part time contractors. So we're like a team of eight at this point. I would say it was really hard.
Three being three or four years in and having not made much progress. Also coincided like with me personally having two kids that were young, a pandemic occurred.
I had a set of point in the end of 2019 where outside I had paid me zero dollars. I had a lot of financial stress. We hadn't made much progress. I was kind of scratching my head and saying, do we continue with this thing or not?
And there were really kind of two reasons I chose to carry on, I guess. One was I knew I had the right co-founders on this project. I just think extremely highly of both my co-founders. We all have complimentary skills.
And I said, we've got the right team here. That made me feel good. Other than that, I would say I just really didn't want to flush three years of work down the drain.
I kind of looked at it like some cost. Yeah, it's going to be really hard to walk away and just say I spent three years on that thing and got nothing out of it.
And around this time, three or four years and the business started to show signs of life and take off. And once you start to see that progress, even though it comes slower than you typically want it to, it's much easier to stay motivated.
What was the composition of co-founders and their skills?
In short, one back end dev, one front end dev, and then I'm sort of a marketer. We felt like we had all the pieces to build the product and then take it to market.
We totally feel what you're talking about because Ilya and I and Jenny, three of us, Ilya and I are about one year into this.
But we definitely feel all the stresses that you're talking about. I can only imagine like four years of this.
So one of the common wisdom is try to go for like a early quick validation mechanism, right?
What did you do in that space? That must also factor into like your confidence in the product itself rather than knowing that you have the right co-founders, but there might be another like pivot to something else that you could build.
Yeah, a couple of things I think were important. The first one was we knew that what we were building was durable. And when I say durable, I mean it wasn't a market that was going to evaporate.
It wasn't Web 3 or something akin to that, not to pick on Web 3, but you get the idea. People were going to need billing systems. People were going to need CRM tools and email tools.
The market wasn't going to disappear on us. So we felt like it was just a matter of time until we built something good enough to be competitive.
Beyond that, the only part about set of that's unique is the fact that all these tools are delivered in a single platform. And we knew that that sort of flew in the face of conventional wisdom.
Most founders are used to picking the best in class tools and integrating them all together. But from sort of an intellectual perspective, we said, of course it would be better and a better solution if all these tools were part of the same platform.
And what I kept coming back to, and of course this is a huge undertaking to get there. But if all of the best in class tools were part of the same platform, there's no argument that that's a better solution.
It's a very tough solution to get to. It's going to take a lot of time to get there. But we just felt like this would be something different and better if we could build it. We just need to give ourselves the time to do so.
Honestly, it's a little bit of blind faith, but I think that we've even started realizing it today. I mean, it's not as not this runaway success by any means, but we have so many customers that use the platform and come back to us and say, now that I've seen this, I can't unsee this.
Like I can't believe everybody isn't doing this. And I think Shopify to be fair went through a very similar evolution. It started out as sort of this silly idea. And then people were like, everyone's trying to launch an e-commerce business. They all need this tool set. Why wouldn't we start with Shopify?
So those are kind of the parallels that gave us faith to continue working on this. But it definitely took a lot of stubbornness to continue.
From the bottom of my heart, that's inspired. That struggle and the way that you're talking about it. Can you tell us a little bit about there were other pressures on you during those first three, four years. And you and the other co-founders, what about your life stages, financial or family or social pressure, things like that? What kept you going through all that?
Yeah, a really interesting part of our journey specifically is the three co-founders all have pretty different life circumstances ranging from myself. I'm the youngest and at least financially secure to one of my other co-founders, his name is Dimitri. He's had a huge success previously.
So even though we were in the same business, how it feels for each of us is very different. Dimitri is not sitting there with a lot of financial stress on his plate or any financial stress on his plate.
I'm sitting there like pulling my hair out because I've got bills that need to be paid and no income coming in and I'm juggling, consulting jobs and all that kind of stuff to make this work.
And I think that's something people don't talk about enough amongst founding teams. Oftentimes the experience even being on the same team is quite different.
So for me, I've always been the person in the business sort of driving the company with urgency or pushing us to go faster. And even that is at odds with how we want to build the business in a lot of ways.
I think one of the things that I learned through the experience of our early years that I will take to whatever projects come next, outside at the end of the day is a venture track idea.
It is too large of an idea to bootstrap. And in retrospect, would I bootstrap it again? No. I would look for a much, much smaller idea if bootstraping was the objective and staying small and independent and all those sorts of things.
Now, I'm the first person to tell you that I'm in a massively beneficial situation now having endured that pain, having chosen to bootstrap the business to this point.
But it took seven years to get where we are today. And most people don't work on any project for seven years. So that's probably been the single biggest learning for me is you can talk about how you want to build a company and whatnot.
But it needs to be compatible with how you want to fund the company and those sorts of things as well. So now seven years in, where are you at? Who's using it?
We're in a place where still is obviously a small team. But as I said, that is by design, like part of what we want to do is actually keep the team as small as possible.
That just comes back to having gone through a venture fund track company previously, we looked at outside of our previous experience and said we have way more fun when we were 20 people than when we were 200.
So sort of a pie in the sky motivator for me. I want to see if we can build a $10 million a year company with 20 employees. That's kind of the end game for me.
And it's not that I don't want to have more success than that. I would just look up at that point and say this has been a huge success. And I'm very happy that we got here in the context of this small team.
So that's something in the back of my mind. Today, I mean, we're profitable. We're small team. We control our own destiny. So we have some stability and a sense of those things.
But certainly we're like every other business trying to grow as much and as fast as possible within the constraints of being bootstraps.
We're sort of in the middle of our journey. When we set out, we really said we're going to devote 15 years to this thing and we meant it. We're seven years in now.
My mindset is very much like no matter what I'm going to do this for the next eight years. And I'm going to look up at that point, see where we're at.
And I'm pretty confident at this point. We're going to be in a good spot in terms of like our customers and who uses outside of today.
There's no sexy answer to this question because we sell to startups in short. Basically, we looked at not only a need for a product like outseta.
But we also looked at companies like HubSpot that have a lot of similarities to outseta in the sense that they offer now payments, CRM, email, help desk tools.
And the reality is a HubSpot won't tell you this, but they want to take a $10 million a year business and make it $100 million a year business.
And they venture backs HubSpot heavily. Yes, very, very heavily venture backed. And we basically said, there's this lower end of the market.
These startups that frankly isn't worth HubSpot's time. Let's go dominate that end of the market. We want to be the de facto choice if you are just starting out.
That requires that we have a high number of customers that are mostly businesses that you've never heard of.
But the fun part of my job every day is I see a lot of companies that started with outseta two, three years ago that have been toiling and working really hard.
And I've had countless conversations with their stressed out founders. And then they break through.
And we get to see that every single day within the context of our business, which is really fun.
So a large number of startups fail. You almost have like a leaky bucket. I mean, I see you would write because you know some of those startups.
There's attrition not because of outseta, but just because they fail as a business right. Can you share any statistics that you're observing in terms of actual business failures?
I would start just by saying upfront, if you were a VC looking at outseta's business model, it would make you want to puke.
It's like everything you don't look for. We sell low price point products to a market of buyers that fail it or ridiculously high rate.
We've got a lot of things working against us. And we knew that going in and we said we need to take these factors and figure out how to still have a viable business model and still how to grow a viable business.
And there's been a few things that have been really key in doing that.
The first one is just acknowledging a huge percentage of our customers fail. There's no way around that it has nothing to do with outseta.
They're just startups and they don't get enough traction and they churn. We have to account for that in our business. We have high churn. If you look at our churn just as a metric in aggregate.
But the flip side of that is any company that gets to even like $500 MRR. The churn rate is close to zero.
At that point their entire business runs on outseta. They've got this recurring revenue stream that's predicting and they don't want to get rid of it. It's really like almost zero for companies that start to do any sort of revenue.
So the name of the game is how do we find these companies that start out on outseta and have any measure of success.
That is really what we're ultimately focused on. And even our revenue model. We basically earn or take a 1% fee on any successfully process payment through our platform.
Aligns are interests with our customers. So we're very much motivated to help them grow anyway possible because it's really only when they grow that we grow.
So that's probably the biggest thing is just recognizing that the secondarily because we are a low price point product. We need to make some sacrifices in the context of our own business in order to be viable.
So this is part of where all of our organizational design comes from which we'll talk about in a minute.
But we don't have a sales team. We do zero sales. It's 100% self-serve. If you come to the website, you try all the product. If you like it, you'll on board and use it.
And that's it. And we don't have any dedicated customer service or customer success function either everybody in the company contributes to answering support tickets and doing customer service and whatnot.
And those things might not sound like that big of a deal. But I mean, we've got three engineers that have 25 years of experience each answering support tickets every day.
And you could argue that's a waste of time and a waste of talent. And in many ways it is. It's certainly not cost effective if you look at it through the lens of what these people could be doing.
But these are the types of things we've had to bake into our business to make it viable given the market we serve in the price point that we're at.
So three episodes ago we had Dave Thomas who is one of the authors of Agile manifesto and the pragmatic programmer book on our podcast.
And he said he really stressed out the importance of feedback loops. And actually, I think by having an engineer responding to support tickets, you really shorten the feedback loop.
You no longer have to convince this engineer that there is a problem somewhere right because the customers are much more convincing.
So in some way, you could argue that it takes away from maybe like deep coding process. But the same time it probably shortens the feedback cycle and the product definition cycle to 100%.
Yeah, a couple of things in that regard. I mean, part of the reason we went with the model that we went with was we just looked at most tech companies and the honest truth of it is they hire junior level people and customer service.
And half of what those people do is just escalate tickets to engineers who can actually fix the problem. And we just said, let's just go right to the engineer who can fix the problem.
Shorten that feedback loop and beyond that, you know, you hear so much about, oh, we need to go out and interview customers and do research projects and those sorts of things.
We basically don't do that at outset, because our entire team is talking to customers all day long.
Like, I've never been in a company that so acutely understands the problems that our customers are having because we experience them alongside them every single day.
So definitely some benefits. And I think beyond getting the engineers connected to the problem, it's the customer experience itself.
This is in your slice of the business. I would say the experience that customers get when they have problems that is probably one of the most critical ones they could have because it's like authentication or billing or that sort of stuff.
And so we all know how bad customer experience is, especially as companies get bigger and bigger, right? And they're misaligned. Like the support organizations are misaligned from actually what the product or the engineering organizations are.
I think you're closing the feedback loop very quickly. And that's a great thing. Yeah. Absolutely.
I'm curious how you acquire customers because you said you don't have a sales team. What have you built to acquire customers?
I would say we have a very standard set of marketing or acquisition channels for a bootstrap business. The thing that we don't do is any sort of hand holding through the sales process.
We drive traffic to the website and the website and the onboard.
Pay that. What do you know?
We paid ads while running through the channels in a second, but the point is there's no hand holding. And I'm sure that some percentage of people that come to our website that could be converted by a sales rep and some hand holding fall off.
I'm sure that there's some inefficiency there. But again, it comes back to the business that we're in.
We just don't have the revenue. We don't have the ability to make the unit economics of our company work when hiring a sales force like that. So we have to deal with some of that inefficiency and try to make the onboarding experience and the product experience and all those things really, really good because that is a more scalable solution and adding a headcount to a sales team.
But in terms of our channels, the big one is definitely content marketing. We started creating content the same day. We started writing code realistically. It took about two years to kick in and feel the effect of that on the business in a major way.
But that is like 60, 70% of where our customers come from today. And the other caveat I would mention there is it is truly content marketing in the sense that people read our content and it resonates with them.
And it familiarizes them with our business much more so than SEO. Of course, SEO helps with discoverability. But we really don't write content for the sake of SEO. And I can talk about why that is in a minute. But content marketing is one.
We have an affiliate program. This is kind of how we have scaled the sales team, so to speak, have a very aggressive affiliate offer. If you refer anyone to our business, you can make a 25% commission permanently. So we have a small number of affiliates that have really kind of latched on to that. And if you do drive a business to outside of who become successful, you participate in that success in a pretty significant way on an ongoing basis forever.
So that's two. And the third one has really been integration partnerships. So something that out said doesn't do is give you the actual tools to deliver your software or your website or your community or whatever the actual product is.
We integrate with website builders, we integrate with development frameworks, etc. So there have been a few of those that have been really key relationships for us in particular stripe webflow and the community platform circle are really are three most important technology partners and we have listings on their websites and whatnot that drive us really relevant traffic.
Those are the three payments. I have like so many questions in this space, right? But I'll just start with one. We'll see where this goes. So the content marketing part, right? That's how we found you. And this is something that Ilya and I were also like thinking about quite a lot. Ilya is doing a lot of like good stuff on this.
Can you tell us a bit about what channels you use? How do you think about like what kind of content am I going to write about? You said that it actually resonates with people. So what kind of problems are you talking about in those people generally hate my answer to this question, but I'll give it to you.
I said we don't really write any content for the sake of SEO. Let me start there in that sort of back us into what our content strategy is.
Most people would look at something like outside and say you need to identify a keyword and write a bunch of content about that keyword and that's how people find your business and content becomes valuable.
That has been true in a lot of the other businesses I worked at. Without set of the challenges, we are in some of the most competitive software categories or verticals out there or a subscription billing system or a CRM or an email tool.
There's just no way we can focus on those keywords and actually rank highly for those keywords. It would take years of effort. We'd be spinning our wheels. It wouldn't be worthwhile.
So early on, I kind of recognized this and I said, you know what we're going to punt on generating content for sake of SEO largely.
What we've done instead is really lean into just writing about my own entrepreneurial experience and this is terrible advice for most businesses. I think a lot of founders start out doing this and are sort of surprised that it doesn't generate customers for them.
But in our case, our target audience is other founders. It's other people exactly like me. So me writing about my trials and tribulations is just relatable to them. If I learn something or if I'm struggling with something, I will write about it.
And there's other people like me that read that and say, oh, there was an insight here or I can commiserate with this or whatever it might be.
So that is really the entire basis of our content strategy at this point. I leaned into writing blog content specifically because I have a writing background.
I think that point doesn't matter too much. My advice to people with content marketing is always just pick the format that feels natural for you.
If you like podcasting podcast, if you like creating videos, create videos, if you like writing, right. So for me, writing has always been the format of choice. And then from there, I also don't have any content calendar.
I don't try to publish with any particular cadence. There are people that need that. And I think most people probably need that and benefit from that.
With me, I try not to create any content unless I'm really motivated and inspired to write on a particular topic. I wait until inspiration strikes or until we learn something or have something that we experience in the business that I want to share.
And then I go deep on it. And right now is a perfect example. If you look at our blog every single post on our blog is written by me.
I haven't published anything in like two or three months. And there's other times where I'll publish two or three articles in a week. And it's just kind of as I feel like I have something to share. I share it.
And I think that our audience feels that I've gotten a lot of that feedback. It's like you go dark for a long period of time and then you come out with some great stuff. And I think that that's okay. It's just different from the more regimented. Here's the list of topics we need to cover. So we're going to cover those topics approach.
How do people discover your content like where they publish? I mean, I see blog is a website, right? But like how do people discover it?
It starts out typically published on our blog and then it's mostly just shared. We have an email list, certainly we share our content with. And then it's mostly just shared on social Twitter and LinkedIn are really the main places that we share it.
So it's nothing particularly sexy like I don't have a huge following on social media by any means. Well, you just do this with consistency over time and everything gradually moves in the right direction.
I think the consistency is the key. I am a marketer people ask me all the time. What channel should I be using? Like do I need to grow a huge social audience?
So I need to do this to I need to do that. My perspective very, very strongly is you can make almost any channel work in the context of any business.
If you just dedicate yourself to doing it consistently, there are some exceptions. Sure. Like if your audiences completely not on Twitter, of course, you don't want to just post into the Twitter atmosphere for years on end.
But if you get some basic sense of where your audience is and you devote time to it consistently over the course of years, it will pay off. You can make any channel work.
Yeah, it's so funny you mentioned that Twitter atmosphere because it is very thin atmosphere right now.
Yes, absolutely.
We've got nothing so we stopped posting there anyway.
One thing I wanted to add is the sort of regimented content marketing calendar. What starts to happen is your posts start to become more salesy and less of experiences and things that I would relate to.
And I think you're basically on this path and you're starting to see success with this also right like I noticed nowadays that when we have chats within ourselves within Metacast and a few days later a post would come out with like something that we talked about.
Yeah, that was a great topic to pick on and like actually share with the world right how are you I'll take a question for you. How are you deciding what to post about and what's your mechanism for like collecting these topics as you go through.
I think we talked about this on the podcast before we actually had somebody on the podcast who is like very particular about optimizing for like how do I make sure that these gets shared and all that right like for my reality.
I try doing that and I just burned out in a couple of weeks. I'm like it just doesn't work and I really like how David Honeymark Hansen from base camp he called most content marketing content marketing bullshit people optimize for like keyword only optimized for virality and all that so it's not sincere.
And what I ended up doing is more like whenever we have a podcast like this podcast somebody else will edit it but then when I'll listen through it I'll pick a bunch of small videos that I can produce out of this maybe usually it's around five or so which will go in TikTok and Instagram and YouTube short and some of them will go in LinkedIn.
But then I also take those topics and write them up as text for LinkedIn because LinkedIn I think videos on work as well text works better all like we have a discussion within the company and then I would just like pre-purpose our discussions in the post and then sometimes I would have an inspiration I could write five posts in a day but then I wouldn't post them at the same day I would like schedule them and then it looks like I'm posting every day but actually don't.
And what you are saying it really resonated with me because forcing yourself to write is really difficult when you want to write something like inspirational that people will kind of latch on which will eventually serve the purpose of maybe getting viral or getting your clients right.
My latest viral post the post went viral on LinkedIn I wrote it in 10 minutes it was just a flash of inspiration and I just sent it out there and like bang I just like who would have thought.
Anyway it was a long answer yeah.
No thank you yeah one more thing and I think we need to like move on to the whole compensation part of it which is really exciting for outset but before that one more question I had about the whole marketing aspect.
How do you go about like you said you have big integrations with big players like Stripe, Webflow, all that. How do you go about setting those up are these like third party marketing platforms that they already have that you integrated with or did you do any custom engagements with any of these if so how do you approach them yeah.
So this is another question where I think my answer is mostly maddening but it's the truth so to use outset you need to use Stripe so that one was sort of a no brainer.
And what outset it is in a lot of ways is tech stack that Stripe might build if Stripe only focused on SAS.
You hear all these people that are in the SAS world expressing their frustrations that Stripe doesn't do X, Y and Z. We basically said let's just build a platform that does the things that Stripe doesn't do specific for a SAS business.
So we started there and at that point in time this is back in 2016 2017.
Stripe had sort of the infancy of a partner program we reached out we were one of their relatively early partners at that point the partner program was actually paid a play it was like $250 a year or something.
And certainly they looked it out set of they wanted to make sure it was a good complimentary product and it was well built and all that kind of stuff.
But that the actual integration and like the listing on their site came together in a few days it was not something that was terribly involved.
Webflow was even more ridiculous and even easier. I literally emailed their support email address this is in probably 2019 and said hey I'm a founder of a software company called outset we offer authentication and payments which I know Webflow does not.
A lot of our users are building sites on Webflow that they're then monetizing without set up and allowing people to sort of log into the site via outseta.
Would you mind giving us a listing alongside these other complimentary technologies that you already have listed on this particular page on your website.
I got a response back like 30 minutes later from one of their higher level support engineers that was like we took a look at outseta looks great your listing is live.
Immediately we started getting a significant amount of business from that but it was like zero effort it was literally a support email that started it and circle this community platform almost the exact same story in that case I did go to the founders and I explained what we had built and people could sort of monetize a circle community using these tools.
But I think the key theme here is I was reaching out with something highly highly relevant to Webflow and circle they did not offer payments tools and they had users that wanted to monetize their websites or their communities.
So just the relevance of the offer is what made these relationships come to fruition very quickly from there we still have a listing on all three sites there's some work that comes with just making sure those listings are up to date and have good screen shots and explain what we do.
Clearly in those sorts of things and we've taken it a step further I mean we're certainly leaning into these integrations we produce tutorials on how to integrate Webflow without set a circle without set a different development frameworks without set up.
The point is none of these took a lot of time to develop those relationships and those integrations it was more we've built something that so closely aligns with what you've done and we're filling a gap that it's almost like a no brainer.
Can you come up with a name at the outset of the business?
We bet oh man we batted around a lot of company names and let's just say my other two co-founders are engineers and their ideas were not great.
I think this will be for a great real.
I don't know that outset is great either but we wanted something that sort of spoke to the beginning of something so the word outset is where that came from and then we were like how do we make this sound techie let's just throw an A on the end and the domains available and that's literally all that there was to it.
Yeah could have also been like outsider with the bid and R. Yeah it's probably because it was seven years ago today it might have been outset dot AI.
Yeah exactly.
Cool so the reason why I reached out to you in the first place Jeff is I think somebody reposted your post linkedin because we were not connected previously and the post was I think it was like carousel with your compensation philosophy.
How everybody gets the same fixed amount or you can choose cash equity. I'll let you explain it in a moment but I was reading this and I'm like wow I've never heard of anything like this got the talk to this guy and that's how I reached out.
So yeah could they tell us how the compensation works in outset.
So we have both a very weird compensation model and a very strange sort of organizational design and the two things build on top of each other but I'll start with sort of the three concepts that everyone here is sort of gravitates.
The first one is anyone that we hired outside I can choose to work anywhere from one to five days per week so how involved do you want to be in the company is up to you the second is.
Anybody in the company can choose to work anywhere from one to five days per week earning equity in the business and they earn equity in the business on the exact same terms as our founders and on the exact same terms as all of the other employees so there's no classes of stock or anything like that everybody earns equity at the same rate on the exact same terms.
And then the third bit is everybody can choose to work anywhere from one to five days per week for cash compensation if you choose to work for cash compensation everybody earns the same amount of money and it is standardized based on how many days you work so if you chose to work five days per week at outside for cash you make $210,000 per year if you choose to work one day a week it's $42,000 per year and it scales all the way up so one day is $42,000 two days is 84 three is $126,000.
So the concept here is it's basically a choose your own adventure compensation model where depending on who you are in your life circumstances the equity and the ability to earn equity as quickly as we allow you to might be more attractive or you might say I want to lean into making as much cash compensation as I can and I want to go that direction.
But beyond that we really think that the people that will thrive it outside are sort of entrepreneurial people themselves so that's why we wanted to allow people to work anywhere from one to five days per week we don't care that you have other projects we actually encourage employees to have other projects and if they want a day or two a week or three days a week to work on something else that's totally fine we want to give them the freedom to do that.
And we generally think the overarching idea here is let's get the best and most talented people that we can involved in this company and I'd rather have somebody great involved in this company on an ongoing basis one or two days per week then somebody lesser just kind of putting a butt in a seat for a full time role.
Would you be open to an arrangement where you have somebody who has a full time job to work for you let's say two hours every evening so it like comes up to like one day a week but spread over multiple days and evenings.
In the past we've had people work less than one day a week our design lead James started with us in a very very part time capacity it was like 20 hours a month we've kind of moved away from that at this point like the minimum level of commitment that we're looking for is a day per week.
And it doesn't have to be like I'm working Mondays for outside it can be that's eight hours and it's going to be spread throughout the course of the week but I wouldn't look for somebody that has a traditional full time job at this point I would look for somebody that's got side projects and other interests and just doesn't want to give us full time work but I think steering away from other full time employees like we don't want outside it to just be this thing that you're trying to squeeze in because you can make an extra $42,000 in your own.
$2,000 in your off hours like that that's not what the model is trying to incentivize so traditionally for like some roles let's say like marketing or sales or support one day a week is yeah that totally works right like I can devote this one day to outsider and then the other four days maybe I'm working on my own project or whatever for longer time like steam oriented projects like let's say typical software development projects.
How does it work like if somebody comes in says I want to do one day a week what kind of projects are they working on that is part of this model to so big part of what we're trying to do is I'm not having you touched on this yet but there's no bosses at outside of there's no hierarchy it's a flat organization and the concept is we hire the best people we can we let them come into the business and they basically focus on whatever they're interested in and where they have skills to best contribute to the
company so I'm not building the software because I don't know how to code I do the marketing stuff and vice versa but to your point there are certainly roles that we need more full time people for another roles that are easier to do part time so the example I would give you we have an employee today her name has been a dick day she works with us two days per week she's an engineer but she sort of focused on developer relations and she does some technical support she does a lot of our tutorials and technical documents and
technical documentation and stuff like that and even she's building some integrations right now but these tend to be smaller technical projects that she can work on more at her own pace we did not say benedict day you're here two days a week and we're going to make you
responsible for our core billing infrastructure like co founder gave who's working on this five days a week is responsible for those more core elements of the products honestly those conversations aren't difficult like if you're coming into
outside of two days a week you don't want to be on the hook for the most core aspects of our infrastructure and whatnot so we kind of let people gravitate based on their time commitment and based on their skillset to projects that make sense for them you said you have six full time employees do all of them work five days a week a couple of
them are four days a week at this point like our design lead James he started 20 hours a week with us he scaled up to four days a week but he had been like a freelance designer for most of his career and had an interest in just taking on other consulting projects to keep his skills sharp and whatnot so he does four days a week but
everybody kind of picks their own thing do you guys have on call for engineers on color rotations because you are a platform you are on critical path of other people software so like if something breaks
three a.m. or somebody's got to wake up and fix it yeah we don't have what I would call like formalized on call program what we do have is three engineers that are first of all very globally
distributed one is in Greece one is in Boston and one is in Los Angeles which works out really really nicely and they are all previous
CTOs that are very capable of troubleshooting whatever happens if we have downtime or whatever they can jump in and know how to resolve those issues and what to look for so they all have you know alerts and we have
error monitoring procedures and whatnot in place and because we're so geographically distributed if something does go hey wire there's almost always somebody awake to jump on the issue and wake the other people up if need be but I would say this this is something that was horribly stressful
for us in the earlier days now that we're a little bit of a bigger team and we can distribute that responsibility a little bit better it's been much easier
so I just want to stick to cash for a little bit so let's say if somebody works just for equity rate and all of a sudden they come in my circumstances changed I want to get 100% cash so all of a sudden you
might have a cash flow problem how do you account for that so this is all part of the organizational model too so for this to work in any capacity especially the no hierarchy bet everybody in the company needs to have access to all of the information about the business and that is the very key
part so if everybody today came and again it's not to me there's no CEO this is a group conversation if everybody raised their hand and said I just want to max out cash compensation we don't have the cash to pay everybody that today and everybody knows how much money we're
making and what our bank account balances and those sorts of things so at that point it becomes a group conversation and it's Jeff and Benedict A and James want a salary raise who are we going to prioritize and why part of those decisions are probably based on need part of them are
probably based on tenure but the whole objective here is in giving everybody the level of ownership in the company that we typically do
we're all motivated to act in the collective best interests of the company and I'm the first one to tell you this is worked really well and it hasn't been that difficult but we're also a small
team I'm the first one to tell you if do I think this scales to 200 or 2000 employees no not particularly well I think you need to introduce some hierarchy probably at that point but if our objective is to stay as a relatively small team I think there are huge benefits to
doing this way it's interesting because the whole structure is sort of based on interpersonal relationships yeah and it grows exponentially even if you go from six to 10 that will be a very different company in terms of like how you manage that
Yep without question can you talk a little bit about the equity percentage I think you mentioned somewhere that you have like if you
take the whole company does 100 days of work and what part of work did you do tell us like how do you calculate all this do I know before starting that I'm going to make this
percentage of equity in the next year if I work like two days a week yeah yeah so I'll try to simplify it as much as I can for the audio listeners here but the basic idea is all employees can elect to work however many days they want per week for equity so let's say all
time 100 days have been worked by all of our employees for equity there's a hundred days total that have been worked for equity all time as in not annually it's since the outset about set up since the beginning of the company exactly so let's say a hundred days
ever have been worked for equity and I have worked ten of those I own ten percent of the company it's really that simplistic of a calculation what that does mean is our equity pool is not frozen it is a moving target
and the size of the pool continues to grow over time as people continue to work for equity in the company so your equity in the company is also not at this point at least frozen it is a moving target and if you stopped working for equity you would see
your ownership diminish if you accelerate the extent that you work for equity you'd see your ownership grow and that is certainly something that we look at as an employee retention mechanism we want people who want to work on this
thing long term and continue to grow their equity stake and whatnot that's the basic mechanics of how it works so like today I personally right now am working three days a week in the company for cash compensation so I'm paying myself
126 thousand dollars per year and I work two days a week for equity in the company and right now based on what all other employees are doing I'm sort of treading water in terms of equity I'm not like growing it really quickly but I'm not losing anything either
that's where we're at today but to your point if we bring new people into the company they get very excited about the fact that they can earn founder level equity very very quickly and then the question becomes okay how fast is my equity stake
actually going to grow and we do show them a projection that is like across the last six or seven years each year here's how many hours were worked for equity if you devote 50 days or whatever to working for equity next year
here's what we expect your ownership to look like and then it is a projection but it gives people a pretty good sense and the short answer is you can grow your equity stake ridiculously fast compared to a normal tech company
so I'll give you two examples just quickly one is this design lead James I've referenced a few times he started working out with us 20 hours a month so not 20 hours a week 20 hours a month and he did that for two or three years before he really kicked up his involvement without Sada
and over the course of those few years he built up an equity stake of about 4% in the company and a very very very very part time capacity you look at sea level employees at any tech company they don't own anywhere near 4%
they might have a percentage if they are lucky in most instances so that's an example of like a pretty significant equity stake built very slowly we have another engineer his name is Bernard Bernard is an engineer with 25 years of experience he could be a CTO pretty much anywhere
he wanted to and he had a win in his past as well where he came into the company and said I don't need to prioritize cash compensation at this point to the extent that many other people might need to I want to grow my equity stake
and over the course of 18 months or two years he worked primarily for equity and he built up about a 10% ownership stake in the company within a two-year period
and a lot of people look at that and people said to me point blank they're like you're giving this guy 10% of your company for two years of work that's ludicrous
and I understand where that sentiment comes from but the flip side of that is we got a super talented engineer that could make a $400,000 salary on the open market
easily working for us basically for free over the course of two years and how much further along is our product and our company as a result of that
we got a million dollars of work for nothing essentially there's a trade off there certainly but I tend to look at the business through the lens of you need to create something of value
and to create something of value you need great people I'd rather have great people invested in the success of this company rather than what you see so much with other founders who are like
I'm gonna hold on to every little bit of equity and try to use cheap contractors it's just a different mindset one is not right or wrong we're just kind of going with the model that we're excited about
yeah actually if I were listening so I want to get a glimpse of this I think it was episode 36 with Melissa Kwan who was using contractors and she didn't actually have a technical go founder for the first year I think
she didn't get far with like contractors with no technical expertise and all that one person like you're describing Bernhard right he could probably replace like four contractors
oh absolutely without question one related thing here is that there is a fear in founders that distributing equity too much can lead to downstream problems if you have an exit or if they sell that equity to somebody
like how does all this work a few things come to mind one is would most investors look at this structure and be psyched about it dancers know but we're not looking to raise money from investors so again it fits the type of business that we are trying to build
it doesn't preclude us from raising money at any point in the future there could also be a point in the future where we say we're not going to operate with this model and we are going to sort of freeze everybody's ownership at its
current levels and use a different model going forward and people can sell some of their equity to take some cash off the table if they want to if you were to take an investment you would probably have to convert to C Corp put everybody has equity on the
cap table and then that would be it but you would have to exchange your incorporation structure yeah most likely yes and again like that's one of the things with the structure that we have in place
this is not a decision that is made by me because I'm one of the co founders we literally have a structure where everybody in the company votes on these sorts of decisions and it is sort of akin to a democracy it's like most people in the company want to raise
funding or want to get acquired or whatever it might be that's something we put up to vote and a lot of people think that that's crazy to but it's just like this is the model that we're using because we're excited about it and a lot of other people are
excited about it as well that's really interesting so tell us how does the voting work if I have more equity do I have more votes or does everybody have the same people who have worked before do they have a same this if you type in
out set up operating agreement we've actually published the operating agreement that we use and it does give sort of more specific guard rails and what this looks like but the short answer is if you've been with the company for at least a year
determined all of you we use as your remember regardless of like number of days you've worked per week yep yep as a member your vote holds as much power is anybody else's we're all equal in that sense and if something came up like an acquisition
opportunity it's literally as simple as if two thirds of the people vote to do it we do it that's really like the current members of the company basically their current members yeah so that the equity comes into play not in terms of the decision making but then it would come into play in terms of when that acquisition occurs I would make more money than somebody
because my equity stake is larger than there so that's the value of the equity versus the decision making process yeah it's interesting actually if you were to grow very fast in the next year and you became like a 10 person company or even 15 person company
and two thirds of employees actually new employees and they have a minuscule amount of equity just because there hasn't been enough time for them to earn it right and then they can actually make a decision that
overrides the majority owners and it actually may not be the best for the company or it is it may not be the best at least for the founding members right who spent 10 years working on this because right now like you have six people and half are the original founders so at least like within your founder group you're in sync most likely
right but if it were to grow we would you think about this differently it is very possible that decisions could be made in the future that are not what I want or not in my best interest and I have to be okay with that I would say we've tried to structure things where we are creating win-wins for as many people as possible
and if we had a bunch of new employees that didn't have a big enough ownership stake so they didn't want this acquisition to go through that also says something that says that they liked the jobs that they have that they're being compensated well that the business is doing well we do share profits as well at this point nobody's making any profits we're just reinvesting them in the company but there's a profit sharing component to this the point of which is there would be something good there that people want to hold on to
and there's something to be said for that even if that might not be my personal choice we've sort of created a situation where there's two good options that's kind of how I view it
yeah I guess you will be able to build a culture where this doesn't happen but like I'm the parent and our team and I was thinking okay so if the company gets acquired by a bigger company the job will change
and they will probably not get much as a result of this acquisition because their equity portion is smaller but these founders really want the good of it because they want to get rich and so they do it out of spite I mean humans are humans just something that my paranoid brain immediately started to identify
it's not a structure for a founder that is a control freak I have a lot less control myself than your average founder be I would even go so far as to say the financial upside in our business as much as I'm saying and I truly believe it's about getting the right people on the team to build something
of value my upside is probably lower than I think it would be in the context of a startup where I tried to hold on to as much equity as possible that's okay with me it's not because I'm independently wealthy trust me I want
I want outside it to make me wealthy I want outside it to make me rich but I do think whether it's an acquisition or whatever the end thing is for outside out let's say we sold the company for a hundred million dollars I would be way more happy to see a bunch of our employees make two three million dollars than me make 98 million and everybody else make a hundred thousand that excites me more to be honest with you
that's actually a very good point I remember reading the book called no filter it's a book about the Instagram story so when Matt acquired Instagram the co-founder's Kevin system and I forgot the name of the other co-founder they got like filter rich hundreds of millions of dollars whereas their employees they got put on like the four-year
investing schedule they basically didn't make much from this yeah and it happens all the time it happens all the time the book really goes into details of how people really upset about this I mean I would be upset as a founder if this were to happen the part that I keep coming back to is our model is overtly fair so if I have worked 10% of all hours all
time for equity then whatever the sale price is times 10% is what I get and that's the same for every employee it's how much did you sacrifice your time and invest your time in this company without pay that's how much you're going to get
rewarded in the case of an acquisition you can argue that that's not a perfect model but it's pretty damn fair in my opinion I think what this model does is it attracts high caliber people to your team
and in a way you're growing the whole pie for everybody not just for the founders or typically what you tend to see in startups I think this model like you said it works well in a small setting where you have good
interpersonal like relationships you trust everybody and I think that goes into my next question do you interview like a traditional company what are the signals you're looking for
in like am I going to be able to trust this person to be a member essentially a partnership in the older businesses they used to call it partners everybody's going to be a partner after one year
because once somebody has an equity right even if you fire them they still a shareholder right so which is different from the employment relationship where you fire someone then they are gone
okay I think that's another point to jump in maybe a quick sidetrack here I do have that question you mentioned current members if I hold 10% equity in out set up but I no longer work for out set up or I haven't worked for one year
then I'm no longer a member the agreement that you said it will not allow me to vote on like company decisions or things like that is that right
that's right yeah if you leave you sacrifice the ability to vote on those sorts of decisions you would also see over time at least at this point your equity would start to decrease as other employees continue to work for equity you wouldn't lose it you still own it
it just would start to decrease over time so there's a little bit of protection in that itself and we also in the operating agreement have a clause where we don't want people to feel like they're a prisoner to their equity if they want to go do other things they should be able to go do other things
and this is admittedly a little bit wishy washy but if you want to leave we will allow you to leave and we will pay you out based on how much equity you hold in the company at that point in time and the model that we used today I'm not saying this is the best model ever but we basically value the company at two times annual revenue and then we would pay you out based on your ownership stake there so there is sort of an escape shoot if somebody wanted it
is that an option for the employee or are you going to pay out and take the equity back regardless of what they want to do it's an option for the employee it's up to them
okay so for people who are holding equity you don't have anybody because people don't leave such a beautiful arrangement I think but let's say hypothetically right like somebody had 10% or 5% of outsetta and they left and three years later you're making a decision to sell the company
there's a great acquisition offer or something like that right the current members are voting are there any kind of hurdles that this person can put forth they are in the cap table or something like that I guess or does your agreement basically say that you no longer have a say in the decision
yeah if they're no longer working at the company they don't have a say in the decision at that point okay yeah that makes it fair for everybody I think yeah
yeah all this sounds great right all this sounds like this hunky-dory organizational model but I do want to be clear with what I think is probably the biggest downside of this model or the thing that I do not like about this model so the overarching objective here is like you've heard and evolve say if you want to be rich you need to have ownership and something and that's what's driving this we're trying to say how do we give people an opportunity to have ownership that they typically would not get in other tech companies like that is our mode or one of the biggest motivators
for doing this but there is some bias in this in the sense that somebody like Bernard who I mentioned before that had some previous financial success is able to come into
outsider and because they don't need the cash to pay their day to day bills prioritize working for equity and a way that a more junior person might not be able to or someone just
just hasn't had that level of previous financial success I don't like that it's skewed towards giving people that don't need the money a greater opportunity to earn equity than somebody who does need the money and I think that's a fault of this model that there's not really a good way around but I do want to be clear that I don't like that about this model.
The flip side of that is like we've had a lot of people come to us and be like you solved compensation equity when it comes to issues of age or sex or whatever it might be and that's true it's like everyone's just getting paid the same so you can't say we're biased in those ways but we're sort of unfortunately
biased towards there's a bigger opportunity for people with more financial stability to take advantage of that equity arrangement.
That's generally true like everywhere in life so it's not something that you are unfairly by saying towards here is a scenario that I was just thinking about when you were describing this somebody who is let's say 20 years old who may leave on like a couple of thousand bucks a month so they may just like work straight for equity and they may be the most junior person the team delivering maybe like half as much as the more experienced one but the more experienced person may need the cash because they have the family and all that.
And then let's say at the event of an exit then basically all of the upside goes to people who are more able to take the risk and like somebody who either has financial stability or who doesn't need it because maybe they don't have any commitment and they were young and all that.
Very true. I mean the only thing we can sort of say to that is we paid the person pretty well that prioritized the cash compensation over that time.
They took the more immediate reward in the less risky path versus the equity arrangement. It's choose your own adventure so I feel like it's very fair even for these circumstances.
Something I've learned in this is nothing is perfect but I have a really hard time as I've looked at all these different models and considered different ways of doing things saying our system is anything but like as fair as possible.
I don't know that I've ever found anything as fair. It's still imperfect but it's very very fair.
Even though I'm maybe asking these challenging questions trying to poke holes that it might come out as that. I really love your model.
I think it does have those kind of edge cases. I think you should write a book about this.
I would love to at some point. As I said I think it's pretty easy because we are a small team but if outside it goes on to do the things that I want it to do and grow into that 20 person 10 million dollar company I promise you that book will be written.
But just circling quickly onto the hiring topic. You're absolutely right. For any of this to work we need to hire slowly and very deliberately.
I actually think that that's an advantage of this model. You could say that's not the case if a company truly went into hyper growth and needed to add a huge amount of head count relatively quickly.
We're fortunate I guess that we're not in that situation.
I do think the fact that it makes us hire slowly is actually to our advantage and the short answer is our co founding team knew each other previously and there was high degrees of trust and all that.
Beyond that we have and sort of the model that we've used going forward is well almost always start working with somebody on some sort of a contract based project first.
So Benedicta or DeVreal person is an example we needed somebody to create a demo on integrating outside of with react. I met her through Twitter had no personal relationship with her whatsoever.
She built that demo she did a bang up job. She happened to be in San Francisco like six months later when I was we had lunch like there was sort of this slow courtship over which time we get to familiarize ourselves with someone's working style and build some personal relationship and all those sorts of things ahead of time.
And then you know at that point you have a hopefully a level of conviction that this is somebody you do want on the team in a more meaningful capacity and yes you are giving them equity immediately but they're also starting at zero where is all the other employees have been working for equity for some time so they ramp up their involvement slowly and if we bring someone on to the team and they do a terrible job we can exit them just like we can and any other company and their ownership stake if anything was going to be a good example.
So before we wrap up I want to ask you a few quick questions about the mechanics of how all of this works. I don't think a traditional like C corp would support what you are doing in terms of like changing the cup table every month.
How is your company incorporated and what was your ledger of all of those stock earnings.
So the company structure is an LLC. We have an operating agreement again that you can look up that sort of codifies how we operate and what the rules are and all of that in very plain language so everybody can sort of understand the mechanics of how decisions will be made and all that kind of stuff.
And then from sort of just a tracking perspective it's literally a spreadsheet and it's everyone in the company's names how much they're working for cash how much they're working for equity how much they own at every given point in time we update it basically quarterly and like all send out a Slack message that's just like to the end of Q3 here's you know how much you own and here's how much everybody else owns and everybody looks at the spreadsheet and that's the mechanics of how we operate it and then each year when we do our tax.
As we sort of file updated tax documentation that reflects what anyone's ownership stake is at that particular point in time that is becoming admittedly increasingly difficult as we've been hiring more internationally.
It is difficult to issue equity in a US based LLC to international employees because the past three entities.
Yeah, it's actually not hard to issue the equity it's hard to handle the taxes for those people in their home countries and honestly like we're sort of learning a lot of this stuff as we go but general rule of thumb yes you have to work within the confines of however you structure your business but I do think that you have more flexibility in terms of these things then most people think you do.
It's not quite as rigid in most instances as you might suspect and that's certainly true if you're an LLC which is nice.
And also you mentioned there is no CEO I'm curious how that works let's say if I rest or to audit you who is the officer that's going to be talking on behalf of the company.
Yeah, we would talk about that internally and we would say who's the best person based on their skill set basically to talk to the auditors so to speak we have a sense of who that would be but it's not codified by a job title in any way.
Okay, interesting. So actually yeah, if you were to do like a C Corp you would actually have to appoint a CEO, a CFO and treasure what have you read like five different functions but it also gives you that flexibility because everybody is a partner.
That's right to my previous point I think even in the context of a C Corp if we had to abide by those rules and a point of CEO sure we could say this person's the CEO and they would be on the hook for having this conversation but that doesn't dictate that they can suddenly control every relationship like they can make every decision on behalf of the business that's just like we're calling them the figurehead CEO.
But we're still going to operate the way that we operate that's where I'm coming from saying like yes, there's these business structures and you need to fit into them from a legal perspective and a tax perspective and stuff like that but how you actually operate and what those titles mean can be totally whatever you want based on how you want to run the company.
I think the operating agreement part that it does sound like it's pretty flexible right even with the titles and all that ultimately you take a vote even if you have a CEO maybe the CEO is not the best person to talk to IRS in this case and you take a vote and decide somebody else is going to.
Okay, so last question we you know we ask all of our guests if you can recommend any good podcast to listen to or any book has something that people can learn from or get inspired from.
Yeah, the book that I would recommend is a book called reinventing organizations.
It's by a guy named Frederick Lalu and it has been the biggest inspiration for this model.
We read that book for me that book was very eye opening it's largely based on businesses in Europe and South America that are using an organizational design called self management which is basically the idea that there's no hierarchy and lays the foundation for some of the things that we folded on top of it.
It's not that you need to read that book and write out and say we're going to be a flat organization and embrace self management and all of that it is just eye opening in the sense that there's so little innovation in how we actually run companies today and you do have a lot more flexibility to innovate on that and for me that just kind of like seeing examples of other businesses that have done this and grown big companies very successfully that have hyper engaged employees.
That's what got me fired up that's what got my co founder Demetri and in particular fired up as well and that's very much the reason that we're working together beyond just this starter kit for building as sass membership business like we liked the idea and we certainly set out to find an idea that we thought we could work on long term.
But it was just as much this stuff that got us excited about working together when I think anyone that reads that book it definitely gets you thinking in a way that you probably weren't prior.
So the org is also your products.
Yes, absolutely.
And it's also your marketing in a big way.
So that's an interesting one I went back to sharing my entrepreneurial journey is an effective acquisition strategy for us.
I don't know that sharing the stuff on organizational design is to be honest with you.
I do a lot of it like I'm here on this podcast talking about it.
I haven't really seen it drive us customers in any tangible way.
We certainly hear from a lot of our users like wow this resonates with us.
It's so cool you're doing this but is it a customer acquisition play I don't think so.
It is a massive massive massive hiring advantage.
One thing this company will never struggle with is hiring great people. I literally have a spreadsheet for engineering for customer service for sales for marketing for every aspect of a company you could imagine.
50 people deep with crazy talented people who have reached out and said we want to work on this one day.
And at this point like I feel like the pressure is on me to go push this business forward and have this sort of financial success that allows us to hire these people.
There's so many people I want to hire. It's tough.
We are looking forward to inviting you again when you may be like double your size.
We'd be really interesting to see how that model scales.
Thanks for coming on the show today and looking forward to seeing you become a 10 person 20 million company.
20 person 10 million company. Which are the way it goes.
Thanks so much. It was fun. I appreciate you having me.
Yeah, it was awesome. Thank you.