With questions around product-market fit, deciding when it’s time to scale, and keeping competitors at bay, the billion-dollar bullseye can often feel tiny to entrepreneurs.
Today, Jonathan Cronstedt sits down with me to explain how founders can throw darts that consistently hit the center of their target.
Jonathan is the former president of Kajabi, an e-learning software that he helped grow from $6M ARR to more than $100M in just five years.
In addition to a deep dive into product-market fit, you’ll hear Jonathan’s insights on accepting or rejecting outside capital, the reversal of fortunes in the tech industry, and handling existential crises as a founder.
Key Takeaways with Jonathan Cronstedt
Jonathan Cronstedt Inspiring Quotes
Adam Robinson: You mentioned to me in an email that one mistake that you saw is that many businesses spend way too much trying to scale before they have product-market fit but equally as many don’t go hard enough once they have it. This was just like a blanket observation that you had made. What are some examples of that? Like, I guess what I would hope that the listener would be able to take away from this answer is like maybe I’m spending too much before I have it or maybe I’m not spending enough. Like, if you’re in the middle of it, what are you looking for?
Jonathan Cronstedt: So, the question being is my observation is basically there are two ways to get this answer wrong. Answer number one is I don’t know that I have product-market fit and I’m trying to supplement surrogate or support a bad system, namely no product-market fit. Or on the flip side of that, I have product-market fit and I’m pursuing it like I may not or I’m allowing way too much room and way too much oxygen to get into the marketplace. And so, if you look at kind of the framework that I’m playing with from my book, this kind of comes out in what I’m calling the billion-dollar bullseye. And the billion-dollar bullseye is basically a bullseye, just like on a dart board that as you nail areas, your bull’s eye gets bigger because obviously, if the whole thing is a bullseye, it’s a hell of a lot easier to hit than just hitting the bullseye. So, as you look at life through this concentric circle lens, you have the first three that are going to be foundational. If you don’t nail these, the amplifiers, four of them that come following really aren’t going to help you.
So, if you think about the way that I view business and I’m going to be answering the question that we started with, it starts out with purpose in the middle, followed by profit, followed by product. Those are going to be your core three. If you don’t have those core three, there is no business. There’s no reason to dive into any of the other areas. And the four amplifiers you’re then going to have after product are going to be prestige, promotion, persuasion, and people. So, that’s going to be customer experience is kind of the prestige that’s created around interacting with your product. Promotion is going to be marketing. Persuasion is going to be sales. People are going to be the people that you hire to run all of these systems. So, you’re going to see those foundational elements come out in my answer but if you look at the way this goes wrong, if you don’t have product-market fit and you’re unaware of it, you’re going to be relying on these amplifiers to fix what is a fundamental issue. It’s almost like you have no profit and you believe you’re going to make up for it in volume or you have no foundation but you believe you’re going to make up for it in height and width in a building. It just doesn’t work.
If you have the greatest marketing in the world pointed at poor product-market fit, your acquisition economics are going to be terrible and you’re going to build a terrible business. And what we’re finding out right now, like Warren Buffett says, “When the tide goes out, you find out who is swimming naked,” we’re looking at technology companies that never had product-market fit. They had an exciting concept. They had a great pitch deck, and they had some charismatic leaders that were able to sell a vision that wasn’t steeped in educated product-market fit with empirical validation. It was a nice idea that was brought out with very fancy branding, very fancy marketing, a commitment to sales, whether there was product fit or not. And those models are just not going to make. Now, that’s a very common mistake, one that we see lots of examples of, lots of bodies on the side of the road of people that went down that road and didn’t make it. You know, the idea, the lack of product-market fit and the sexiness of the premise and the promise but not the product, got them through seed, maybe a Series A, maybe a Series B given the previous market but they never made it past that. They ran out of runway.
Let’s talk about the other group. And the other group is basically we have product-market fit but we’re not really executing with urgency or intensity. So, this is one where if you’re asking yourself, do I have product-market fit? And you know, JCron, it’s wonderful to know that this is the two ways I can screw this up but how do I know if I have it? The answer is very simple. If I ask you tomorrow, you are turning off all sales and marketing functions in your business, all organic content, all paid content, all salespeople, every aspect of either demand generation or acquisition through sales channels all goes away. What happens to your company? If your answer is it dies very, very quickly or dies within a very reasonable amount of time given your churn, you don’t have product-market fit because you basically are relying on promotion and persuasion to jam people into a funnel and you’re hoping to make it up in volume before it all comes undone. You don’t have product-market fit.
If your answer is, “Well, growth might slow but it’s going to keep going because there is this beneficial flywheel of promotion and persuasion that’s taking place in the conversations my users are having with other potential users or the results that they’re generating are so self-evident it’s moving forward on its own,” you have product-market fit. It’s almost as if the right answer is the company will continue to grow, maybe not as fast. That’s good. Great is the company is going to continue to grow and I can’t stop it from growing. I can’t turn off the inquiries. I can’t turn off the referrals. That’s your gold standard of product-market fit. So, let’s assume you either have good or gold standard product-market fit. Then the question is how much intensity are you bringing to the execution of that? Because here’s what happens. Congratulations. You have a product-market fit but you won’t have product-market fit alone forever. There are people that are also seeking product-market fit in your market. Unless you somehow chose a market that nobody’s discovered, which more than likely means there’s no money in it. Sorry.
But people are going to be watching you. People are going to be discovering you. People are going to be iterating on the features you’re bringing. The only advantage you have after product-market fit is speed of execution. So, if you look at Frank Slootman, CEO of Snowflake, arguably one of the pound-for-pound greatest CEOs ever in the tech industry who has now had multibillion-dollar successes not once, not twice, three times. This is a guy who has a business book called Amp It Up that is literally a handbook on raise your standards, raise your focus on intensity, raise your level of execution. That’s it. He didn’t talk about OKRs. He didn’t talk about MBOs. He didn’t talk about here’s how to measure it. Here’s how to check-in. It was literally how high are you holding your standards, how often are you executing to those standards, and how intensely are you carrying forward that message and effort? And so, if you think about it like if you’ve ever driven on the East Coast and you’re in traffic, East Coast is very different than West Coast. The West Coast people use their blinker, normally wait for there to be enough room. On the East Coast, if there is daylight between cars, somebody is going to be merging into those lanes.
When you have product-market fit, you are in traffic on the East Coast and if you leave daylight between the cars around you, somebody else is jumping into your lane and somebody else is going to be jumping on the waves that you’re making. They’re going to be jumping on the story that you’re telling. They’re going to be jumping on the product fit elements that you’re bringing. So, if you’re not executing with intensity, you’re going to look back and realize that when someone writes a book about your industry, you’re the footnote to somebody else’s champion story. You’re going to be the group that popularized the category or started the conversation or brought a new idea to market and paved the way for this industry. You will be the pioneers with arrows in the back while the settlers come in and flourish. And it will be because you missed out on the execution. The product-market fit is so unbelievably important because without it, you have no foundation. But if you have product-market fit and aren’t executing like an absolute machine, somebody else can come in, snag your product-market fit, outexecute you, you get eaten alive.
And I think it’s oftentimes we as entrepreneurs kind of I don’t know if it’s either celebratory or it’s either just cathartic to get to a place of rest that it’s like, “Oh, thank God we did it. I’ve got product-market fit. I’m just going to coast just for a little bit. Just for a little bit.” That’s when everybody else starts to creep in. Or maybe it’s, “Oh, my gosh, we did it. We cracked product-market fit. The business is just going to grow indefinitely.” That may be the case but it depends ultimately on your goal. If your goal after product-market fit is, “I want to be good enough, I want to make some money and I want to have a business that continues to grow,” you’re on the right path. You got your product-market fit nailed. The business will continue to grow. You might not be the market leader. You might not be the star in the market. You might be the cash cow in the market. That’s okay. But if you’re trying to be the star, if you’re trying to be the category designer, if you are trying to lead your market, product-market fit is the beginning of the execution battle, not the middle, not the end, not the celebratory moment. It’s just a signpost along the way that indicates you’re on your path. And now it’s time to really put your foot in the gas and go.
Adam Robinson: Yeah. Love that.
Jonathan Cronstedt: Quite frankly, we saw this at Kajabi, like it was an element of we… And there is an element here that I do want to, in fairness, an intellectual integrity, there is a foundational element of market maturation that if you have found product-market fit but let’s say you found product-market fit in a highly technical category, like let’s say there’s OpenAI’s platform and ChatGPT as miraculous as it is but it was only accessible if you were a developer that were able to work with the code base to query it. That would be product-market fit but it would not have market maturity to allow you to execute with that level of intensity because the market was not yet ready for that. But what you watched happen is OpenAI built this technology. They had product-market fit and they knew it. And then when market maturity came into play, you watched them take off like a rocket ship and reach a million active users faster than anybody. I think they did it like a week or like something obscenely crazy. That’s where you see product-market fit execution meet market maturity. So, market maturity is the only aspect that I don’t believe is entirely within our control because educating a market is kind of like trying to boil an ocean that you can do it but you better make sure you’ve got enough resources and enough time to bet into it for as long as that will take.
So, those would be kind of the caveats but that’s really how I view what happens if you celebrate too early, spike the ball at the two-yard line and never end up scoring because you got product-market fit and thought you were done, and then somebody comes in and just outexecutes you.
Adam Robinson: Love that. I mean, Frank Slootman is just like the first time I read that LinkedIn post, Amp It Up, I felt something inside. I’m like, “Man, this is who I want to be as a leader.” And I love that he’s like show up at a place, like turn it up. People will vote with their feet. The right people will be energized by turning it up. And like the first time I read it, I looked at my team and I’m like, “I don’t know.” Now, I’m doing it. Everybody who is on board is like, “F*ck, yeah.” They’re like, “How do we go harder?” Right?
Jonathan Cronstedt: It’s so true.
Adam Robinson: This is not about like, “Oh, my vacation time,” this, that, and the other. They’re like, “How do we crush it harder? Like, how do I give more to this?”
Jonathan Cronstedt: And that’s where I see us in the inflection point of evolution in the technology world is we’re in this cycle where tough times make strong people, strong people make good times, good times make weak people, and weak people make tough times. In my opinion, we are right now on the precipice of weak people creating tough times which are going to create strong people. And you can swap people for companies or whatever word you feel more comfortable with but the reality of it is we have kind of come out of a season that looked very similar to the 2000s that in the 2000s, if you… Sorry. In late 90s, if you had a dot-com domain and a pitch deck, somebody was giving you a check that the idea was so hot, so promising, nobody could not get money. And in the season, we’re coming out of, you saw companies raising it 25 times, 50 times, 100 times forward-looking revenue with no profit, with no business model, with no sense of anything other than we have cheap financing available and it’s going to be available endlessly.
And you’re now going to see this contagion effect where the private market vintages that went into those markets, they’re going to have a tough time pulling those out in most cases. So, now they’re going to pull back more and be more conservative with what they raise next, which is going to constrain the companies that are both needing constraining but also the companies that, quite frankly, deserve the funding and are growing really well. Both are going to be constrained equally. And so, you have this cycle that is going to take out a lot of the weak ideas, a lot of the weak companies, and a lot of the companies that have employee bases that have really been lulled into this false sense of tech utopia that was never the business. And if you’ve ever seen the video of the woman walking around Twitter about her average workday as a Twitter employee, at no point does she do any work. She gets in. She drops her dry cleaning off. She goes to the company espresso bar, then heads to the rooftop for some meditation or de-stressing from the challenge of dropping her dry cleaning off to then get a smoothie, to then get a lunch, to then play some ping pong, to then meet up with friends for a Twitter happy hour, to then head home and start over the next day.
And you’re like, “That’s not a job. There’s no value that’s been delivered. You are the problem.” And the fact that we have a generation of developers and a generation of product teams and a generation of salespeople and a generation of customer experience people that everything went so effortlessly, they’re now going to be looking for that everywhere. And to your point, Adam, and to Frank Slootman’s point, if you put that intensity and you put that expectation, people will vote with their feet. The people that really want to achieve something great are going to be so excited because they won’t have to deal with the girl that never shows up to the meeting because she’s too busy dropping off her dry cleaning, getting a smoothie, getting a coffee, and it could just as easily be a guy. It could just as easily be someone dressed up as their favorite plant. Whatever it is, those team members no A player ever wanted to work with, and fortunately now at the right company, they’re not going to have to.
Adam Robinson: Yeah. And I remember the first time I heard this about Amazon, I was working on Wall Street and it was impossible for me to get my head around. Jeff Bezos would tell people, “You don’t work at Amazon for the money. You’ll make way more money at other places,” which I think over time they probably had to change that a little bit. And he also had a thing, he’s like, “You work smart, you work hard, or you work long. You can’t pick two out of three at Amazon.”
Jonathan Cronstedt: Yeah. It was always the old one where it used to be like you pick two. At Amazon, you can pick three.
Adam Robinson: Yeah, right. And like just advertising that so forwardly, right? By no stretch of the imagination, it’s like I want the message to be for this, I’ve repeated this like five times, the John Dutton thing that you said because I think it so perfectly represents what everyone should be doing with their work in public effort. It’s like you’ve got to know what you’re getting into. Like, I want one of my videos to be like, “This is not chill.” Right? Don’t fool yourself. I go home at 5:30 every day but I am thinking about this constantly. So are they. That’s what we like about this, right? If you’re not, people, it’s not going to gel correctly.
Jonathan Cronstedt: I mean, in so many ways too, it should be a wake-up call and a rallying cry that if anyone is watching this video and you just can’t wait for 5 p.m. to roll around so you can bail out of the office, find something you care about because it’s just a sad existence. I mean, you have no idea how many days you’re going to have that you’re going to feel that same way. And I mean, it’s better to be broke and excited than it is to be mildly comfortable and terribly upset every single day. The trade is not even close.
Adam Robinson: Yeah. Did you ever read the Clayton Christensen book, How Will You Measure Your Life?
Jonathan Cronstedt: No, I haven’t. Is it a good one?
Adam Robinson: So, he’s got the great disruptive innovation theories. He’s a Mormon guy. He wrote this book about sort of what he perceived as a problem that corporate America was creating for people’s lives. And he’s like, “I went to Harvard Business School. Five-year reunion, everyone’s killing it. They’re all investment bankers or consultants. Their wives are hot, like everybody’s super happy. Ten years, 50% of the people are divorced. 20 years, the brightest student, Jeffrey Skilling, is in f*cking jail.” And he’s like, “What happened?” There’s a couple of very memorable things and I reread the book a couple of years ago, and I didn’t like it. I read it in a transitional phase the last time when I was like in between Wall Street and starting a tech company and at the time I was like very sort of effusive for this type of thing or whatever. I was seeking it or something like that. But two things were like very impactful about that book. One, he’s like, “This machine is making people accept very little incremental lifestyle benefits for horrible sacrifice. Horrible sacrifice.”
I mean, I did that investment banker job like that is not good. Like, I’m much more into people’s energy now than I was when I was working on Wall Street. I wouldn’t have identified it as that but like I started in investment banking and I moved to trading for this feeling that I had when I was on the trading floor. People actually looked like they enjoyed their lives. They kind of were into this gambling they were doing. The investment bank like you’d walk around this floor and I just saw like I was just out of college but I was like, “These people look f*cking miserable, all of them.” Like, the guys at the top two, the guys at the bottom two like, “I got to get out of here.” So, there was that concept and then there was this concept of like if you were to ask somebody what the top five most important things are in their life and put that on one side of the T chart, and then you put on the other side of the T chart what they spent most of their time doing, not only would you see it was totally misaligned. The time chart is actually what is important to that person. That was his assertion, at least.
Jonathan Cronstedt: He couldn’t be more right like in any of us, just with an ounce of reflection, it becomes so self-evident because a business cannot solve the problems that entitled team members want it to solve. Flat out can’t. Like, a business cannot do what a business is meant to do for whom it is meant to do it for and what those individuals expect from it if the business is also meant to solve everyone’s personal life issues at the same time. How in the world is a business meant to deliver transformational value for its customers if that business is also meant to be a political tool? And a political tool that satisfies every political agenda, not just one. And it has to also satisfy the fulfillment agenda that you need to be happy and you need to bring your whole person and you need to be able to get vegan food or you need to be able to get carnivore food or you need to be able to juice or you need to be able to do yoga.
Adam Robinson: It sounds exhausting.
Jonathan Cronstedt: It literally is. Like, how could a company possibly exist to achieve all of those goals in tandem? And the simple answer is it was never meant to. It was only meant to do what it’s meant to do and the rest of those things are up to you to figure out. And if you’re in a company where you’re looking for the company to do everything but the thing the company does, you’re at the wrong company. You need to find a company that you want to be part of what the company is meant to do. And that’s just plain and simple. That’s where it starts and stops for me.
Adam Robinson: So, we clearly see eye-to-eye on this John Dutton work-in-public thing. Do you think that you have to be – like video comes naturally to me. I’ve come up with this system where I can spend an hour typing out hooks, stories, three lessons, soft CTA, whatever, and I can just do 3 to 5-minute videos and bang them all out very quickly. Do you think there’s a type of leader who this just founder brand doesn’t work for? I guess my question is, it took me a while to get converted to this. Now, it seems very natural to me, and I’m getting so much back from it that I’m literally trying to figure out how to go harder. My LinkedIn guy is like, “We can’t do anything else.” I’m like, “Well, it needs to get better than the quality.” It’s just crazy what’s coming back from it. So, I’m picturing somebody listening to this thinking what I was thinking before I started doing it and thinking, “I can’t do it because I don’t look like he does or I am not as articulate as JCron. I don’t sound like that when I write a blog.”
Jonathan Cronstedt: Just to be clear, for everybody watching this video, feel free to let us know in the comments if you agree with Adam’s assertion that he’s the good-looking one and I’m the articulate one. I just want to point out that that just happened. That’s a little bit of a microaggression right there and so that just happened.
Adam Robinson: I apologize.
Jonathan Cronstedt: No. Don’t apologize. This is a great shot. I’ll take it. If I’m the articulate guy, that’s cool. But I think to your point, that’s what makes the founder brand so necessary is that we don’t need everyone to be you or to be me. We need everyone to be them. If you are the ultimate introvert with a face made for radio and the idea of talking extemporaneously just scares the sh*t out of you, my bet is you are probably one of the most cogent, effective written communicators on the planet because you have built over the term of your life the skill of written communication to either supplement for support how you like to interact with the world. And we’re now in a world where you don’t need to be embarrassed about being an introvert. You don’t need to worry that you communicate best in writing. You just now need to find the venues that that is best suited for. And I believe today Twitter combined with blogging and an email newsletter, you’ve got all of the amplification you need for that founder brand to be able to exist in that universe of just getting to write and edit to your heart’s content.
Now, is there a bit more of a production burden than just hopping on video talking about it, having someone transcribe it and put it everywhere? There totally is but it doesn’t mean you can’t do it. And if anything, there might be benefits to being better thought out, more methodical, and more precise in your communication because I don’t believe that we’re in a volume game anymore. And if we still are in a slight hangover of the content volume game, AI is going to kill that really, really, really quickly. The idea of I’m just going to produce a lot of undifferentiated mental masturbatory thought leader stuff that gets likes and tweets from everyone else that’s producing the same mental masturbatory stuff, that’s done because AI can build that themselves faster than we can. The noise, the junk food of the internet is gone and all it’s going to do is push independent thought and insight to a level of attention that we’ve never had before because we’re moving to a place where all of that junk food is going to be so prevalent and so produced, you’re now going to have the burden of getting it all out of the way so you don’t miss the signals, so you don’t miss the insights, so you don’t miss the actual information that will be lost in a sea of crap.
Adam Robinson: So, two things here. One, Santosh, the sweet 55-year-old Indian man who has completely changed my life in every way and is transitioning to our COO, last night at midnight, he was messing around with GPT-3 and he made a rap about Retention.com. And it’s amazing. It’s like it hammers on like it’s just incredible how good these things are. And two, I feel like this is something I don’t say enough given the trajectory of this thing I’ve been doing ever since it has become more of my words and less of Tommy’s words writing for me. This authenticity thing is like everything because I feel like a link that especially you can get these guys to write for you or writing for other people. They have a network of a bunch of accounts. They comment and like and stuff like that. But like when I am just commenting on my experience and explaining what I think is going to happen over the next month with what we’re doing or opining on, for instance, why I think Klaviyo and Shopify are going to destroy the companies upmarket when they go upmarket.
Jonathan Cronstedt: Which, by the way, absolutely agree with you and they 1 million percent will.
Adam Robinson: Destroy. Like destroy.
Jonathan Cronstedt: Which, by the way, for anyone watching, if you are an enterprise software company and you have relied on complexity in technical teams being necessary to operate your widget, whatever it may be, the moment that someone who has gone through the crucible of working with early-stage entrepreneurs and made a tool that’s capable of delivering an enterprise level with the ease of use that a solopreneur can understand and leverage, you’re f*cked entirely. I mean, it’s absolutely over.
Adam Robinson: Yeah. So, finishing that thought, I see the numbers and then I see the responses and I see people writing me DMs back on the type of content. It’s like there is just no question that the GPT-3 thing is a theme that’s amplifying it. But Tommy, the guy who helps me take my videos and make them LinkedIn text, he calls it LinkedIn gold. It’s like anything that is authentic or emotionally honest is the summary, right? LinkedIn will just take that and people they love it.
Jonathan Cronstedt: Well, I mean, it’s one of those things that everyone knows it but I just don’t think anyone’s often brave enough consistently enough to lean into it like none of us needs another morning routine post. None of us. Because the likelihood of anyone’s morning routine working for you, absolute zero chance. Like good news, Oprah wakes up whenever she wants. Somebody brings her coffee. She then does yoga. She then has a personal shopper come by. She then has lunch. She then checks email, maybe, or talks to whoever checks her email and she goes to bed. That post offers you absolutely zero insight whatsoever to your life for how to create success. Absolutely none. But I guarantee you it’ll be one of the most popular posts in the world because it gives that momentary dopamine hit. It gives you that perceived progress that you can go to bed at night saying, “I did something. I moved my life forward tangibly one step.” But it’s really junk food. It really is. It’s junk food for your brain.
Adam Robinson: Totally. Can we talk about when you went from bootstrap to wanting to scale? I was very uncomfortable doing it myself. I talked to you about it and it didn’t totally feel right to me because I just wanted more of a commitment than you were willing to give at that point in your life. Santosh was actually willing to do it and just having someone who has been there over and over again is like it’s the greatest feeling in the world. There’s nothing like someone telling you, “This is normal.” Did you have that voice when you did it?
Jonathan Cronstedt: You know, it was two different discussions, decidedly. Discussion number one was this can be a thing. If we don’t make it a thing, somebody else is going to. So, let’s make it a thing because the bottom line is it’s going to take within a standard deviation of work the same amount to make it a thing as to not make it a thing. It’s not that much like going from 40 hours to 50 hours, it’s not like going from 0 to 40. So, you’re in it already. The question is what’s your level of focus and intensity while you’re in it? So, the first step was that. It was, no, this is a thing that we are going to make it. We’re going to own it. We’re going to take that to the limits. When we decided to go from bootstrapped and bring on institutional capital, that for us was a very different discussion. That was much more about an intellectual group that we wanted to be surrounded by, much more so than the financial side of things. We were bootstrapped. We were very profitable. We were not limited in any way by the financial constraints of the company as far as what we wanted to take on or how we wanted to take it on. But what we were limited by was our own experience set in our own industry lens.
So, every single day is a bootstrapped company. The great news is you’re the biggest you’ve ever been on Wednesday and you’ll be the biggest you’ve ever been on Thursday and you’ll be bigger still on Friday. But at the end of the day, you’re only going to see what you’ve seen at the level you’ve seen it at and you also have a bit of industry blindness, which is a good quality because it allows you to execute within your industry better than anybody because it’s where you live. But if you’re only in your industry, it also makes you very vulnerable to what’s going on in the periphery, and it also makes you vulnerable from the decisions that you’re using to guide and nurture this thing to its eventual conclusion. So, when we started talking to Spectrum Equity, it became very apparent that we needed to partner with someone that had kind of, to your point, been there, done that, got the t-shirt, and were going to be able to advise us on what that journey looked like.
Now, what for us was hugely transformational was that transition of the bootstrap mentality to the institutional growth mentality that when we were bootstrapped, every dollar we saved went to the bottom line and then just got divvied up. It was, hey, let’s not buy that because we can save the money and then we could have the money. That’s super cool. When you move into that institutional realm, it’s the dollars that are saved are saved so that they can be reallocated to the growth initiatives that are winning. So, it’s not save the money to have the money. It is save the money to invest the money and keep feeding that growth wheel. And had we not made that transition, we would have headed right into COVID with a bootstrap mentality that I don’t know what that future would have looked like. I know what it might have looked like. It might have looked like bootstrapped, oh my goodness, maybe playing a little bit scared, worlds uncertain. What’s everything going to look like? How do we do this? Maybe we would have been undercapitalized. We would have been underprepared for the hiring and the growth that COVID brought to our front door that had we not been prepared to serve that as the world decided that digital was a primary and not an afterthought, I don’t know that we would have been able to execute in those seasons as confidently if it was still just a bootstrapped growth approach.
So, that’s the alternate reality that if we live in a multiverse and I ever get to buy a ticket, boy, I want to watch what would have happened had we chosen that path just because I’d be curious. But I think that it’s something that you’ll know when it’s right because you’ll be asking yourself different questions and it’s far more a personal psychological journey than it ever is a financial one. Because ultimately, if it’s a financial one, you’ll find that, by the way, I evaluate businesses and this is my dysfunction. It’s nobody else’s. If you’re looking for institutional capital to fix your capital issues, you’ve got a fundamental flaw in your business, in my opinion. It means that you’re building something in a way that you’re either being lazy, you’re being dumb, or you’re being overly and unnecessarily ambitious for the season that you’re in if you need the money to fix your issue. That’s my opinion. And so, I think that if you’re looking at it and you find yourself saying, “Well, I’m profitable but I know this could be bigger and I know this could be faster, and I’m seeing there being a land grab developing of the people that are in my universe that I need to outexecute, that I need to outspend, that I need to make sure I am growing this real estate and keeping all of it versus giving some of it up based on my capabilities today.
When you’re asking yourself those questions, that may be the time where you say, “Maybe we do need some different minds around the table.” Now, I would say in our case, when we had those conversations for the first time, we were very fortunate that we had the latitude of financial flexibility to choose the qualities in that group that we wanted. That goes back to our tacos and tequila test where it was basically if we wouldn’t have tacos and tequila with these guys, even if we never did any business with them, it’s a non-starter. And that test for us truly saved us from some of the worst financial partners who will remain nameless that we could have chosen because there were people that literally didn’t even want to finish the lunch we were having with them, much less lock arms and go take on the world together. And thankfully, we chose the right partner that was thoroughly committed to the core values of the company that were uncovered in those interactions. But if we had a runway and we had a burn rate and we had a timeline that if we don’t get cash in the door, we got problems, we might have been forced to take on bad partners and then we would have just hated life.
We would have just been another totally hollowed-out growth company getting pencil whipped by a PE group and a spreadsheet and I don’t know that the vision would have ever been actualized. So, I would say that if you’re asking yourself those type of questions, institutional capital may be right for you. And if you’re using institutional capital as a way to amplify your intellectual capital or a way to amplify your business model, those are the reasons to do it. If you’re looking to it to fix your burn rate or you’re looking to it to fix your problems, I think it’s going to be a real painful learning experience that I don’t think is going to give you the outcome you’re looking for.
Adam Robinson: Yeah. I mean, don’t ever give money to someone who needs it, right?
Jonathan Cronstedt: Yeah. What is it? A bank of any kind is a group that’ll give you an umbrella when it’s sunny outside and they’ll ask for it back when it’s raining.
Adam Robinson: Right. Exactly.
Jonathan Cronstedt: So, it very much is one of those things. And I think also, too, there’s such a survivorship bias to the finance darlings. You don’t hear about the companies that blew up the financing. You hear about the round, the round the round, and then you hear nothing. You don’t hear about the round, the round, the round and they blew all the money and they went away and nobody knows what happened. It’s always round, round, round, “Oh my gosh, so cool,” and then you hear round, round, round. Amazing exit, totally crazy numbers. They won. You don’t hear about round, round, and they blew it all. It just is very, very rare. I think the only group that you hear about that from is, is WeWork. I mean, you have to fail so spectacularly for the world to find out about it that it’s just a different world. So, I think that were we to peel back the layer on the failed angels, the failed seed rounds, the failed venture capital groups, all of those areas, you would see a preponderance of bad ideas that should have never been given money. There was no profit. There was no business.
Adam Robinson: Totally. So, what ARR, what revenue level were you at when you had the Spectrum conversation?
Jonathan Cronstedt: So, we were, gosh.
Adam Robinson: Was this coming out of going for it? Was this at the bootstrap moment or was this later?
Jonathan Cronstedt: No. This was post the decision. This was probably about four years after the let’s build this moment.
Adam Robinson: Got it. It was like 100 million ARR, right?
Jonathan Cronstedt: So, initially, when I joined, we were at 6 million ARR and at that moment it was no longer lifestyle. Let’s build this thing to the moon. And so, you figure we probably 5X the company in the period of that time to partnering with Spectrum Equity. And then after Spectrum Equity, it was about another year and a half to partnering with Tiger Global, TPG, Meritech, and Tidemark. So, that’s kind of how that transitioned. But no, it was a full four years after it was like, “Okay. We’re going to double down on this growth machine.” And that was largely…
Adam Robinson: Well, finish your thought on that one.
Jonathan Cronstedt: Yeah. No, I was going to say it was largely brought about by the fact that we began going back to where we started today and talking about what happens when you leave daylight or when you leave too much oxygen in a room in a competitive environment, what happens? We began to see competitors popping up that really weren’t and should never have been competitors. Like we watched people that were customers of Kajabi that thought it was a great platform that thought it was a great industry that then went and built a complete and utter rip-off of Kajabi and started trolling on Twitter to get users, and that was the business strategy. But that happened because we allowed it to like we allowed our, I guess, let’s call it discovery of this industry but lack of expansion and defense moats to just open it up to, “Oh, wow. This is a thing. Maybe I should start a company here, too.” You know, you almost find, I mean, the way that I describe it and it’s not anything that insightful but it’s sort of the Toast effect that the founder of Toast was talking about to us, where it’s almost like you’ve arrived when people start niching out what you do the way that you niched it out.
So, Toast was point of sale and SaaS for restaurants. But then all of a sudden you saw, “Well, we’re like Toast but only for pizzerias or we’re like Toast but only for bagel shops.” And all of a sudden you see that you started a market, grew a market, and the market then expanded and everyone else was like, “Ooh, I’m going to do this.” It was almost like the Uberfication of things where Uber’s like, “Wait a second, this ride-sharing is a thing.” So, Lyft’s like, “Yeah, it might be, Let’s jump into that.” And then you had like Hey Jane, which was like it was Uber but only female drivers for female passengers. And then I don’t know how many other iterations of that effect were followed on but that’s kind of where you begin to see signal. And now maybe in all the examples I offered up, maybe the leaders of those companies said those niches are not significant enough for us to broaden our offering, to also suck up that market share. That might have been a conscious choice but were I a betting man, I would be betting that they left that oxygen, they left that daylight, and somebody chose to hop in and grab it.
And very similar to us it was, “Oh, yeah. Kajabi does all of these things.” Well, we do this one thing better than Kajabi. So, for example, there’s platforms out there that were only checkout platforms. It’s all they did. And it was an area that candidly for Kajabi, it’s something that I think if we were honest, has lagged in our ability to really execute masterfully in that area. And so, it left oxygen and there’s half a dozen checkout platforms I can name that they do this one thing and they’re still relying on Kajabi to do all of the other things. Because they do this one thing better, it’s like, “Okay, I’ll pop that guy in.”
Adam Robinson: Yeah. I’m going to say something I think you’re going to love. So, I mentioned Santosh a bunch. He’s like, “We need to be the six executives. We need to be meeting once every two months in person.” And then, like he gave this presentation at our first executive meeting. That was like one of the most inspiring things I’ve ever been a part of. And he said a few things that were just unbelievable to me, that I was just like, “F*ck, yes.” It’s sort of like reading Amp It Up, right? And by the way, I said this guy is like such a sweet, old, humble Indian man. Right? So, the thing that was like the most I was just like, “Oh, my God, yes.” He’s like talking about like the S-curve, you know, really that so much like banging your head against the wall for ten years or whatever. And then in tech, all of your success comes at once. It’s all vertical and like then your challenges find another S-curve so that when that flattens out, you’re going up again, right? Like that’s how the great companies are born. And then he’s like, “We were in this unbelievable position where we had six employees, 12 million ARR, no marketing spend, and like 700K per month cap free cash to do whatever the f*ck we wanted with, right?”
Jonathan Cronstedt: Is that the moment? The moment that happens, it’s like I have solved the world’s problems. Everything is fixed. It’s just like, oh my God.
Adam Robinson: Totally but it still wasn’t, the churn was bad because we hadn’t honed in on the ICP and we hadn’t fixed the featured set in the pricing to where it was like low churn. That’s why I was still like, “It’s not time to go yet.” And quite frankly, I was looking at Ross Paquette’s business who Diana Ross, my partner, used to work for, and this dude had basically gotten to 30 million eight years ago with a 70% total margin, and he owned all the equity. And he was distributing himself $20 million a year for ten years. And I was like, Well, that’s interesting. But like we said before, I know now Ross he’s kind of f*cking he wants a bigger thing, right? We all do. It’s like if you’re not on the vertical part of the S-curve, right?
Jonathan Cronstedt: If you think about that, that point, though, just touching on that, so for everyone listening, you are going to have a point that if you have product-market fit in a business that you own a significant or all of, you will have a moment of an existential crisis. And the existential crisis is, “Oh my gosh, I have the money that I hoped I would have. I have met my financial goals.” And then there will be a period of celebration that will likely lead to a period of questioning, that will likely lead to a period of rediscovery and bringing you back to the fact that the growth and fulfillment and being able to deliver value to the world is why you got started anyway and then you start that S-curve all over again. Just like Ross, just like you, just like me, all of us, no matter what happens, you know? And by the way, all of you listening to this, even though I told you that, you’re going to want to experience the existential crisis for yourself. I know. I want to as well because every time anyone told me about it, I’m like, “Oh, no, that won’t happen to me.”
Adam Robinson: Right. Totally.
Jonathan Cronstedt: Well, that happened today. So, if you don’t want to do it, I get it but just know it’s going to happen.
Adam Robinson: So, back to what Santosh is saying, he’s like, “So few businesses get to the position where money doesn’t matter.” And specifically, the money that they get from their business transactions with people has absolutely no impact on any part of their plans. And he’s like, “I just ran this so lean for so long that we were there.” We could add employees as fast as possible and not eat through the cash flow. I could sponsor every event in e-com, every newsletter in e-com, and hire employees until we couldn’t manage them and we still wouldn’t eat through the cash flow.” So, he’s like, and this is what really…
Jonathan Cronstedt: And then you’d do all of those things, trying to spend it, and then damn it, it grew again.
Adam Robinson: Yeah. Well, this is what he’s saying. He’s like, “This puts you in the incredible position to where you can behave in a way where you absolutely destroy anyone who even tries to attempt to enter the market.” I’m like that sentence, like having this man just say that and it’s like I’ve never been around someone that ambitious but it’s like a different type of ambition. It is not greed. This is a guy who it’s so hard to describe, right? But it’s like this incredible like it’s a Mailchimp type of ambition. It’s like I’m going to set up my market presence in a way to where you can’t even enter. You could maybe get your business to 2 or 3 million ARR but there is no way for you to get past that because I will bid up every single channel and I will make it free for 90% of the market and I’m going to have a better brand than you, and I’m going to have better people than you, and I’m going to move faster than you, and I have no bugs in like all this. By the way, like somehow Klaviyo did this niche-down thing. They’re like, “Okay. For Shopify, we’re going to have the monopoly,” which I made a video on that too. I’m like, “How incredible is it that this company with a monopoly like Mailchimp was able to create another monopoly for who they were selling to?” But it’s this type of ambition, right? It’s like we have to be so good that people can’t even think about competing with us. They’re literally looking at it and they’re like, “No. We’ll just go somewhere else.”
Jonathan Cronstedt: Even the iteration beyond that is after you’ve gotten so big that you can destroy anybody that isn’t better than you, the next stage is if they were better than you, then you just buy them. Literally, the next moat of, “Well, if I can’t beat you, it’s probably because you’re doing something better. I better just buy you.” And that was Adobe and Figma. I mean. it was one of those Adobe had to buy Figma because Figma is net dollar retention. They would have eaten them eventually. So, it was like, “All right. We tried. We tried to kill you but we can’t. You figured something out. Good on you. Can we just buy you, please?” Then if you’re one of those entrepreneurs that’s in it for the money, you’re like, “Yeah. Totally. I’ll take the check. Let’s do this.” And then if you’re not in it for the money like an Elon Musk, you’re like, “No, screw off. I’m just going to change the world and keep dunking on you. And so, I mean, that’s the moment where you really find out why are you in it. But there’s no doubt about it, those iterations, and what I love about your story is that is being channeled and conveyed by somebody that you would probably never expect that energy to come from that you’re seeing someone that’s like, “No, live and let live,” and he’s like, “No, you don’t understand. This is a rare thing that we have found.” And so, rather than celebrate the rarity, we’re going to make sure that we protect it, that we scale it, that we make it even more strong in that category, that it is unassailable.
Adam Robinson: Yeah. And like, what I love about it is he’s such an empathetic guy as well. It’s like not that these qualities should be mutually exclusive but, in my mind, you’re a killer if you think like that. And in some ways, he is but in ways of dealing with employees and customers and the ecosystem, everything else, he’s like the gentlest human being in the world. It’s this incredible combination that it’s just such a great example for me to try to emulate.
Jonathan Cronstedt: Well, I hope everyone listening hears that because I think that you and I have both spent plenty of time and plenty of rooms of entrepreneurs where it feels like you can’t be empathetic and have high expectations that it’s almost like for you to be empathetic, you are required to dilute your expectations of the people that you hire because you’re empathetic, and that just simply isn’t the case. But you can absolutely be empathetic and ambitious. You can have both and you can navigate accordingly. You don’t have to be somebody that just tolerates whatever is brought to you in the name of being an empathetic leader. Definitely, nobody’s calling you to do that.
Adam Robinson: I want to bring up another example that I think perpetuates that’s going on for me right now today that I think perpetuates the story and this energy a little bit that I’m trying to describe. So, I feel like Santosh and I get along so well because we both believe that through giving more to everyone, it will energize our employees and the ecosystem and excite people to the maximum possible level. There’s this vendor in our space called Yotpo. They have 30,000 customers who f*cking hate them. Why? Because seven years in a row, they’ve raised prices by 100% and they’ve said, “F*ck you. My numbers are…” without even listening to the customers. It’s like I know the founders. They’re these rough Israeli guys and like that’s how they operate.
Jonathan Cronstedt: You don’t like? Go somewhere else.
Adam Robinson: Yeah, exactly. And they’re like, “Look, we still have 30,000 customers. F*ck you.”
Jonathan Cronstedt: Double price. We get 15,000. That’s fine. Same money.
Adam Robinson: And the ecosystem hates them, and now they have like their most charming guys literally trying to like schmooze these influencers into not talking sh*t. It’s like they’re trying to undo something that can’t be undone.
Jonathan Cronstedt: Well, can we ask you to stop telling the truth about us? That would be ideal.
Adam Robinson: Santosh is like he had this great idea in our second off-site. He’s like, “What if we made our company about accelerating the personal and professional growth of our employees before our customers?” So, examples of what that would look like. We will help you. The purpose of you working here, if you want to think about yourself as a product, your career is a widget. We are raising the value of that product and helping you get to maximize the value of your next job. Instead of giving you kegerator with Nitro, it’s like we’re giving you coaches and audibles. Everything governed around that, right? So, we hire this guy from Yotpo who’s like the darling of this ecosystem. He’s f*cking amazing. He gets here day one was February 1st. He’s like, “We need to cut affiliate commissions to one-year payout for 20%.” And then they pulled me out of this call. They’re like, “Laz wants to cut our commissions to one year. What do you think about this?” And they all know. I’m like, “Guys, okay, first of all, how many affiliate accounts do we have that have been created? 291. How many are we actually paying? 26.” Affiliate as an aside, I think it’s the greatest thing in the world and we don’t pay on 1/100 of the conversations these guys are having about us, right?
And I’m like the juju we’re trying to create is like maximum excitement. What the ecosystem will feel if we bring on Laz and he does that is they’re going to say, “They hired someone from Yotpo. They’re going to start behaving like Yotpo.” That’s what Yotpo did to us. Absolutely not. Another example of trying to explain this to Laz, who we hired, is apparently at their executive offsite at Yotpo after I hired Laz, who’s like a top three producer in their company, they had a meeting to figure out how to not let a Laz thing ever happen again. When I hired Laz, I said, “You have a three-year vesting schedule. I’m going to make you over $10 Million, and I will make you 100 million at your next job because that’s what I’m going to set you up to do.” It’s just the opposite orientation. Like Yotpo Is trying to maximize enterprise value but through hoarding, whereas like we are trying to maximize enterprise value through giving, kind of community building-ish in a way but like I feel like this is part of these extremely high standards but empathetic. Part of it is this pull system we’re talking about. To me, it’s all in sort of a similar vein.
Jonathan Cronstedt: It’s old school thinking versus new school thinking. It is such a nuanced but rarely discussed differentiator in how companies think. And the way that I liken it is it’s like old school is screw you, our refund policy is 14 days. You reach down on day 15, f*ck off. New school is Viori. Happiness is promised. Return it whenever you want. Don’t care if you remove the tags. If you don’t like it, we don’t want you stuck with it. That’s new school. That’s old school.
When you look at the idea of, hey, we’re just going to screw over our affiliates, that’s old school because some accountant said, “Well, gosh, if we cut the pay out to one year, look at how much we recapture.” New school is asking, well, cookies are not a perfect science. How many conversations or pieces of earned or owned media are you in because somebody is talking about it, even though they might not get credit for that specific click? You can’t quantify it. That’s where you’re winning.
So, it’s very much this differentiator of old school is if you can’t measure it, you can’t manage it so only do things that you can measure. New school is I know what I’m doing, why I’m doing it, and who I’m doing it for, and I’m just going to keep solving for them and I know I’m going to win. And it proves out. It really does.
Adam Robinson: There’s this other part of it where it’s like whether you want to call it the spread of the idea or however you think about this, like that is a red flag. And regardless of whether it’s a major red flag, it’s still something that is going to cause someone to stop and think, that’s weird and that’s not good for me, whereas, like, I want to set up these systems. And another thing that I wrote down to ask you about was product channel fit because I think that we have it right now, my affiliate channel with these guys who have networking e-comm businesses. But what I want to set up are these systems, if you want to call it that, where you’re only doing things to accelerate this, whatever it is, that people talking, people– it’s like it has to be the best thing on there. You know what I mean? It’s like it’s so good that they couldn’t not talk about it, right? And like…
Jonathan Cronstedt: Well, at its foundational core, what you’re saying is, no matter what the engagement is, I want interests aligned that if we are making a decision as a company as it relates to our employees, are their interests and our interests aligned? Because if that wins, we will win. If we’re making a decision on affiliates, are their interests and our interests aligned? If they are, we’re all going to win. And I think that’s really the underlying principle of how can we make sure they are. So, it’s like on the surface, old school thinking, the idea of we’re going to grow our people is not a successful business model because then, it’s, well, how are you monetizing the dollars you’re investing in their coaching, or how are you going to benefit from them going on to bigger and better things and leaving your company because you equip them to do so and gave them the skills, yada, yada, yada. Very, very old school thinking.
New school thinking is, I know that if I endeavor to have the happiest employees on the planet that are fulfilled and excited about what they’re doing, they’re going to stay longer. I’m going to pay less recruiters, I’m going to have less attrition, I’m going to have less training costs. And the people that do graduate are going to tell everybody how amazing it is here. They’re going to tell everyone about the experience. And that brand lift is going to continue to proliferate because I’m not in this for an overnight thing. I’m in this for a decades long thing.
So, it is one of those elements where you’re ensuring that by aligning those interests, all of them continue to grow, whereas this transactional methodology is going to make sure that if you don’t absolutely maximize every transaction, you’re not going to win. And it’s one of those things too, that the old school methodology leaves no room for error, absolutely none. Like there is no goodwill, there is no love, there is no excitement. It is one of those areas where if you do not have a perfect business, this isn’t going to exist because no one’s going to like you.
Yotpo is a great example. I mean, they must have some unbelievable product market fit because that’s how they got to where they are because it’s literally like, we hate you and you’re still going to come back. We are telling you we hate you. We are telling you we don’t care about your success. We are telling you we care about nothing but our business. Unfortunately, for you, we are so good that you’re still here.
Adam Robinson: Yeah, it’s an interesting one. It’s just so different than how I view everything that, like…
Jonathan Cronstedt: It’s honest if you look at athletes, like you look at the athletes that are world class performers but are really sh*tty teammates. And I’m going to go ahead being a Chicago native and adequately disclaimed, I’m sure I’m going to get a whole lot of hate in your comments, but to me, LeBron James is an unbelievable athlete, absolutely spectacular. Nobody would take the skill away from him. I don’t think he is even in the same league as Michael Jordan because if you say both of them are equal as individual contributors, Jordan is 100x, the team builder and legacy creator that he built for every single person around him. If you look at where everyone that came up with Jordan went as a result of playing with him, to me, that is a far greater measure of success than just being a great individual contributor.
And that’s where when you look at a Yotpo’s view on things, they’re basically saying we’re a great individual contributor. We are so great that you can’t do without us. But guess what? You’re never going to be the company that everybody talks about unless it’s we hate you. Like, congratulations, you’re good, but you’re not going to have a team. No one’s going to go to Yotpo’s funeral. They’re just going to be so thrilled that they died and don’t have to deal with it anymore. I mean, it’s much more if you know that success is guaranteed, if you know that you’re going to win.
The question is, how do you want to play? Who do you want to bring along? How do you want to be remembered? All of the things that once you realize the scoreboard never satisfies because no matter how well you do, someone else did better. Then you have to ask yourself, “Well, if I know that I’m not winning on simply objective empirical comparison, what are all of the other areas that I want to win on because they matter to me?” And that’s really the difference, is it’s everyone has a scoreboard, but there are so many elements of how you get to that scoreboard that are massively differentiated.
Adam Robinson: Yep, love that.
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