6 Lessons Elias Torres Learned (The Hard Way) When Building Drift

Elizabeth: Hey everyone. It's Elizabeth, the producer of The American Dream Podcast. We're doing something a little different on the show this week, because it's been a little over a year since we launched the podcast, which means it's also been a little over a year since Elias shared this story on the show. Since then, many of you have joined us. Thank you very much. We thought it might be time to share a little bit more of his story, which is why we're excited to release an exclusive talk between Elias and Foreign Ventures today. Foreign Ventures is an early stage fund program and community for B2B SaaS startups. In the talk Elias shares stories from the early days of Drift, how he and David got started, the storms they've weathered and are still weathering and some of the biggest lessons he's learned. Hope you enjoy it.

Elias: You're about to present, I'm going to try to put myself in your shoes. You're about to present for a fundraising. You're revealing to the world what you've been thinking. I'll give you an example. We left HubSpot and we started working on Drift and we don't know exactly what we're going to do. We lived for about almost two years, you spent four months, we spend two years trying different ideas in our minds and trying to build prototypes, trying to figure out if we had fallen in love with what we were doing. It's a very difficult thing. What I'm trying to say to is I understand. To be able to give that one liner with your confidence and to say," This is what we do and this is what we solve," is nerve wracking because you have to show everybody that you believe in it. You have to prove to them that it's a good idea and it affects you as an individual to your core. It's everything: your reputation, your credit. Everything that affects an entrepreneur, it's all bottled in that one story. It's like," Is that really what you're working on?" I'm sure that's a lot of questions that are running through your mind, that you have fears. Is that what you're thinking? Is that big enough? Or you're crazy, or you're not going to be able to do that. That's too big of a problem. There's too many competitors in this space. The first thing that we launch, if you want to hear a struggle, was this thing called Annotate. Drift build a mobile app that literally, if you use an iPhone now, you know when you take a screenshot, you have the ability to scribble over it and then you send it forward. That didn't exist in iOS about four years ago. We built that. And we're building an app that we launched on the app store and everybody was like," Oh my God, this is so useful. You can annotate this and you can send it." Imagine I was trying to come up with a story that says why that was a billion dollar idea. A$ 10 billion idea. We launched it to the public. That was the struggle because everybody was like," That's what David and you are working on?" What are the lessons learned with that? It's about pride. It's about trying to be impressive. Trying to show all the time great things. Then sometimes you got to put out there and people are going to laugh at you. They're going to say," That's what you're building." And that can't stop you. So that was one of my early struggles there, launching annotate and charging$ 99 on the app store and showing people. I mean, we were doing crazy stuff. We were going and talking to people at Starbucks, showing the app, hoping for people to spread the word. We were monitoring the app usage on the store and figure out how many active users we were having every week and seeing how do we scale that to be a B2C company, and how are we going to scale that to be millions and millions in revenue. Wow, that was hard. Very hard for us. So you think that Drift was completely different. You would think right when we did the pivot, and you guys say,"Oh, look at Drift now. It's like a billion dollar idea." Well, guess what? When we decided to build Chat Drift, we go and release it. We kind of pivoted... which by the way, pivoting is a really good thing to do. There's nothing wrong. This is something, another warning. One of you in here, I guarantee you, will pivot from the one line idea that you have, the elevator pitch. What you end up doing, what you end up fundraising on, or what you end up actually settling after you fundraise might be different than what you're doing today. It's just the way of the business. Pivots are very important because it shows that you're learning. It shows that you're validating or invalidating hypothesis. You can't expect that you knew it all along that you had the right idea from the very beginning. Almost nothing ever really is like that perfect. No one has that perfect foresight to say," Oh, this is the problem, and this is the largest marketplace for it." You stumble upon it. You might be even doing micro pivots in your journey on a day- to- day basis. You might hear in a conversation, some ideas, some suggestion, that makes you think differently, or maybe puts you into a different segment, different buyer, different industry, different size of the industry, different geography. And that's enough to propel you into a pivot that could make or break your company. And so, that's something that we did when we were launching Annotate. When we launched it, we started realizing the struggle that was to communicate with our customers, with our users, and how to acquire new customers. We realized that was a bigger problem than the drawing. Eventually we saw things in the beta, in the iOS, where that was coming in and that we were going to get crushed. That's another thing that forces you to do a pivot. And so, we do a pivot and we have an offsite. By the way, that's an important thing. I used to hate offsite. I used to be like," What are these off sites?" You put sticky notes on the walls and you brainstorm and you do trust falls. It was too much Silicon Valley for me. I was like," That's crazy." But now I'm a big believer in them. To really take yourself out of that day- to- day, the same environment that you are. Ideally invite someone outside of your company to help you both facilitate or help you think differently. That prepares the plans so you're not stuck in the weeds organizing that. And so, we had a three- person offsite where we went with one of our advisors and we locked ourselves for almost two days. That's really where we made the pivot from Annotate, which was one of our last experiments, into Drift as you see today. From December to April, we launched Chat and we launched Drift. Kind of very similar to what you see today. Same target customer base, same problem, same need in the market. You think everybody was like," Yeah, this is awesome"? Do you think everybody got it when we launched that? It was just as, people are like," This is stupid." How many thousands of chat providers exist out there to do the same thing? Like what you said, you say it right. You say," Why are you going to make this better? Why are you going to make different? How are you going to solve this?" And so, we then have another hill to climb. Of being able to communicate, differentiate, find a niche, a wedge, and the market, a beachhead to start with, and to re- segment the market, ultimately to create a category. That's what everybody wants. Everybody wants to create a category. So you have to, as you are moving towards this investor's day, you have to tell a compelling story. You have to tell both how is it a big problem and how is it believable, that you can accomplish that. But then to make it believable, you have to pick that beachhead. And so, what is Drift's beachhead at the time? One is that we repurpose chat that was formally only known for support. We said that we we're going to make chat for sales. People were not doing that if you believe it or not. People was like," No, we tried." The CROs and the marketers would tell us," We tried that before. We do not have the manpower to manage chats and to do stuff with it. It's too much effort. It doesn't work. We don't want to use that." And so, that's what Drift four years ago encountered, and we had to change that. And so, our beachhead was B2B tech, marketers, SaaS. Pick one group of people, not every industry, and go make sure that we heard them and their challenges, and that we built the solution that no one else was paying attention to it. None of the chat companies were saying," What does the marketer needs in a chat solution on a web?" That was the beachhead. That was the niche that we found. You had to make a compelling story for something very big. We said," Always go and draw from the market." For example, from society, from the civilization. We went and showed the stats that said, how many people had shifted to text messaging. It's like, grandparents are now texting. They're online. Today now, another big shift in the market happened with COVID. Everybody's on Zoom. Before this, it was only, what is it, 10 million people were on Zoom? Now, it's how many? It's over 200. People did not know what Zoom was until a month ago. The same was with messaging. And so, those are the things that you tag along. You want to tag along mega trends that are happening in the world that will justify a massive outcome that you can then write upon. Because you alone, when you're starting a company this small, are not capable of creating that wave. And so, one of the things you're going to learn in startups is that you better go find your wave and you go right that way. And the timing has to be perfect. If your timing is not perfect, if you're too early, I don't know how many of you surf, but if you're too early, it passes you by. You don't even feel it. You saw it ahead of everybody else, but you're not riding it. If you're too late, you're going to get crushed. That's what happened. I think that for us, it was understanding that wave, the way it was messaging. Then, we repurposed, we found our beachhead, which was grab chat for sales, where nobody else was there before. We went and did that. Then we explained the huge market opportunity that we had. Because you can't go to the investors if you don't show something that is really, really big. And you have to be ambitious. If you are not speaking in believable terms of a huge opportunity, then not. And so, I think that's an area where category definition kicks. Is that the way that you win, in most cases to me, by changing the playing field. I changed the game to my advantage. So we win. I didn't want to be the best chat tool, just for sake of being the best chat tool. I don't know. WhatsApp is better. I don't know, Messenger. We couldn't compete with that. The amount of engineers back in Facebook Messengers is a whole another level. But none of those cared about messaging for sales. None of them care about B2B messaging for sale. Apple launched a chat and it was for business. It's still more for the consumer. It's not more for B2B. And so, those are the areas where you have to find, those are the ways that you can use to validate a beachhead. When we launched, we took it easy. Something that we do, I think it's, as we launch new products at Drift, we follow the same pattern, which is, first we have to find product market fit. We launch something. We have to launch it as soon as possible. You have to charge as soon as possible. If you launch something right now and you're going to go on stage and say like," Hey, look, I have these customers," and none of them are paying. It's not going to be good. You want to be able to go on stage and say you have a paying customer, even if they pay you very little. It's okay. The first customers at Drift, they were paying us 25 bucks a month. Now many customers paying us over$ 100,000 dollars a year. Look at that, how crazy that is. That in three years, we went from 25 bucks to over$ 100,000 for a brand new contract. And so, that is something that very few companies can do that quickly. Either you start end or you start at the bottom and then you start at the bottom, you can't move up that high. But having a paying customer to start with is better than not having any. And so, you want that product market fit to be validated by paying customers. Then, but to get to paying what we did is, for example, it took us about three quarters to get to paying at Drift. The first quarter we focused on people signing up for Drift. All we cared about was people signing up, finding us, being able to sign up, just to have a process to sign up and want to sign up. We were so excited. I still remember, we were at Canal Park at the office across there at HP, and it was the first two or three websites that we went to their site and saw them installing Drift. It was unbelievable. And so, we set our goal to be, to have a thousand installs for the quarter. Then we surpassed that. We ended up doing over 2, 000 that quarter, which things that felt unbelievable. So my advice there is to focus. Focus on one thing, focus on one goal. It was like, all we cared about was signups. We didn't care about anything else. We didn't care what they did. It's just if they put their name on it and they sort of tried to put the widget on their website. That was more than enough. Go for it. Once we overcame that goal, then the next step was activation. Are they actually using your product? Get more people to use the product, even if they fell through on their onboarding. And so, we were focused on contacting every person that signed up. Why they didn't get it on their website? What stopped them? What was the roadblock? What was missing. And that was the second quarter. Then the third quarter is when we put the billing, but in just three quarters, we had 500 paying customers and we had reach about 300K in recurring revenue. We had a goal of about a million for the first three quarters, but that's the other thing is that you got to just set ambitious goals. The goal was, after experimenting for two years, we said, shoot, we got to go. We got to get people using the product. and we have to have enough value for us to charge them something. That was how we got the basics foundation of Drift. We have a problem. We committed, we launched it. We got people to use it, activate it, and then paid for it. Then it was a matter of expansion. How do we solve more problems for the customers? How do we generate more value for them that they're willing to pay us more? I would say I've experienced three downturns. I'll say one is me as a young person in Nicaragua, growing up in a communist country where I lived on their food rationing and very, very poor, very little resources. I mean, not what is it like poverty levels. Not like I wasn't on the street. But compared to... I mean, we lived in a barred home. We had limited amount of food that we would get by a communist Russian influenced government. I got dengue. So, this pandemic stuff, I experienced a lot of this stuff growing up. What I'm experiencing now is like, I'm in a much better situation now than when I was experiencing those issues there. Maybe they were not affecting the whole world, but they were affecting my whole country. So I would say that category is one. That whole group of experiences. The second was the 2000, Y2K and seeing the crash, and me, just recently graduated, being newly- wed, moved from Florida to the Northeast, more expensive cost of living. I was one foot on a startup, one foot at IBM, trying to juggle that and experiencing what I saw in the companies and not enough jobs out there, not enough companies hiring. So, that was my second. My third one was 2008, which was, I quit IBM after 10 years. Three kids at home. You've probably seeing them walk back and forth. I don't know. I got three kids now, they're teenagers now. But I have three kids ages, four, two, and one. I quit IBM and my spouse, my wife, is at home with us and I'm working from home. I'm every day in my bedroom with the desk, working with David on our first company called Lookery. As soon as I quit, two weeks later, the market crashes. We are 10 people in that company and we lay off five of them. Now I'm working on this company with five people, not a lot in funding, not a lot in revenue, and we have to buckle down and I work day and night out of this bedroom. This is the experience. And so, that was with David already. And so, we not only did that crash, but then we went and started Performable still during that recession, that depression, whichever one that is. In there, I learned of the value of being able to raise fundraising a downturn which is like, if you guys get money right now, you're going to be in a very privileged spot and then you're going to have an amazing opportunity. Don't waste it because you're not in a place of super abundance, where everybody can like compete against everybody and waste their money. By you getting that, that will give you an advantage that many other people just won't be able to even start. David is scrappy and frugal. But that's kind of like how we... We are both son of immigrants. Never been wasteful in our resources. So just think about it. We raise money, we have$ 3 million, but we don't know how long that lasts. We don't know how much revenue we get. In about about a year and nine months in the existence, we reach a million in ARR at Performable, which would put us on the map and made us very attractive to HubSpot for the acquisition. And so, I would say that, yeah, we were absolutely paying attention. There was every dollar of how to go for, every hire had to matter, everything was like, you know, where do we do an office? We were renting in Amesbury, Massachusetts which was a dollar per square foot. It was a 1, 500 square foot office. We would go buy computers together. I mean, we just kept everything very minimal. We bought a couple of desks at Ikea. I mean, it's very minimal because we didn't know how long that was going to last and how long it was going to take for the economy to turn. And so now back to today, the big thing that you have to deal with this is what kind of pivot you have to make as a company to be different. At that time, we felt that the problem that we were solving, it was pretty clear. We needed to do that. We were kind of inventing really online marketing. This was the days where at Performable, because there was no growth marketing, there was no nurture emails, there was no sequences. There was none of that stuff was easily doable. You had to cobble that stuff together and only very few people knew how to do that by hand. And so, we knew we were on the right path from a technology perspective. Now, if you're stuck in this, you have to understand, is what you're building a painkiller, a luxury, or a pain killer or a vitamin? You have to decide how do customers see you. When the economy hits the bottom, do they go and cut budget, would you get cut first? And so, that's the first thing. Where we are today is that we are validating something that I always wanted to, which is our product is more necessary now than ever because businesses don't have as much staff, they rely all on digital. People are coming to their website. They need to maximize every prospect, every person knocking on their door, on their website, to make sure that they connect them to help them find and realize the value that their product provides. And so, it's like, great. We have to be operationally excellent to make sure that we optimize in these times. Because no matter what, the persons are going to be tight. People are not just buying everything all the time. Only the most essential things. And so, that's where we are. We are validating that. We are very hopeful. We're very excited. And we know that the best companies are the ones that emerged from this. And so, you guys starting a company now is fantastic because the lessons you're going to have, the scrappiness, the financially- conservative skills, the focus on profitability as opposed to just growth, will create a great business that you want to make it unkillable. Unkillable means you get to 50, 100 people that pay for themselves, then you're unstoppable. Then you are always going to attract investors no matter what. You're always going to do that. If you build that kind of business, it's much better than building a business just on hype and momentum and marketing or brand or some partnership. Profitability is still the true way of building a business and that's really something that we've been focusing on. How far would we be from profitability if we focus on that? Cost saving, Amazon expenses, ability to scale more customers with the same amount of people: those are the kinds of things that we're thinking. And so, given that I've experienced this before, I'm hopeful. I think that I'm extremely privileged that I can be here at home working from here and still making a lot of progress in our company. I'm worried about the rest of society. Something I'm doing right now is that compared to the days where I couldn't afford food or I had three months of savings in 2008, one of the things that I've done right now, first time I'm saying this is, so far, I've already given March, April, and I'm going to do May, I'm donating a 100% of my salary to help the communities through nonprofits of Latinx communities that are struggling because they don't have the kind of jobs that I have now. And so, those are the things that I'm able to do now I'm in a better position. I'm worried about that in a certain extent, but I'm also worried about my company to survive this and to come out stronger than ever. Because the next part of our stage of our growth is to go towards an IPO. The more efficient that we are, the more successful, the more accurate are we defining the value that we provide to our customers, the better. You need to be able to get money without any revenue or with very little revenue. There's no other way. You know what I mean? It's like, unless you fund it yourself and need to. There are many ways to get money in that early stage. What I'm trying to say is that the context is you need to have some money to go towards that a million in revenue, because you need to have at least one salesperson, one engineer, one marketer, you and a co- founder in sales or something. Somebody has to help sell. And so, I think that the amount doesn't matter as much. What matters is that you're closing one, two, three customers. Because remember what I said, we had 500 customers at 25 bucks. If I did the math of how many it was going to take to get to a million, it's just hard. And so, what's easier is just to increase the value. And so, you can in recurring revenue. I think that everybody... the trick's thing, you can say, if you sold something for$ 10,000 a year, you can say," Look, if I had a better sales rep, I could sell that for 25." That's better than having to market a whole bunch of stuff. As long as you can show success with customers, as long as you can show that they're not turning, as long as you can show those things, you can extrapolate the rest and it's all going to be appropriate to your stage. If somebody's going to find a problem, if you made a 2 million in revenue, but they're all turning, it doesn't matter. It's like, I'd rather have less turn and less revenue than more revenue and higher turn. Thanks for listening to the American Dream Podcast. Make sure to hit Subscribe so you never miss when a new episode drops. If you like this episode, please leave a six- star review wherever you listen to your podcast. 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