This transcript has been condensed and edited for readability and clarity.
Seema Amble: Why don’t you start by laying the context of sort of the founding story of Pilot.
Waseem Daher: Sure, so the founding story of Pilot is interesting. It’s very, very intertwined with our whole journey because my co-founders of Pilot were all folks that I met at MIT in undergrad. We’d all studied computer science together and this is actually the third venture for the 3 of us. And one consistent theme across all 3 of the ventures we’ve been up to is they’ve been about solving deeper personal problems. So the first startup was technology that could apply software updates without rebooting. For Linux, this was a problem that my co-founder, Jeff, had in administering Linux systems while at MIT. Our second startup was a group chat tool, which was born out of pain we had communicating with our team in our first startup. And then Pilot, as you noted, we do accounting, we do tax prep, we do CFO services for high-growth startups. The reason we started it is because this was such a pain for us in our previous ventures, and we had deep conviction that the problem could be solved, could be solved better, that the future did not look like what happens today, and we felt we were the ones who could build it.
Seema: And do you want to just walk us through what you thought about as the MVP product and what you wanted to start off going to market with?
Waseem: So we had a very firm opinion up front to say, look, the state of accounting is slow and unreliable and tedious and incredibly manual. We are gonna build a better software tool that will sell to entrepreneurs, it will sell to accountants. And our perspective was no, we’re not gonna do that because I have never ever in my entire life heard a founder or a business owner say, “I can’t wait to buy accounting software.” What the founder says is, “I really need someone to solve this problem for me. I need someone who feels like they’re on my team, someone that has my back that can take care of this for me.” So as a result, we’re a kind of weird-shaped company, right? We’re a tech-enabled service. From our customer’s perspective, we’re an accounting firm, essentially. But of course, when I close my eyes and think about the company, I think of it as a tech company. So, the minimum viable product on day one was, well, you need to be able to do the bookkeeping for your customers. And the good news about that is, they want it done, they don’t really care how it gets done. And what you can do on day one is the same thing any accounting firm anywhere else in the world does, which is you can do the accounting by hand in QuickBooks, which is exactly what we did.
Seema: I feel like a lot of companies in your shoes, the service or the software being provided or sort of the product being provided seems seamless and fully tech-enabled to the customer. However, in the back end, as people like to say, there’s a lot of bubble gum and duct tape. So I’m curious, on exactly what you were offering to their initial set of customers and then what was going on in the background.
Waseem: Absolutely. So we started the company basically in January, 2017. And the first thing we did is we called up startup founders in our network. And the conversation went something like this. It was, “Hey, what are you doing for your accounting or bookkeeping in today? Oh, nothing. Well, what if we do it for you?” And the answer was like, “Okay.” And so what happened is, Jeff and I are literally in QuickBooks doing the books for these companies. And then Jessica is looking over our shoulders and observing like, “Wow, this piece is particularly slow, this piece is particularly error prone, let me write the first few lines of software that will help do the most obvious, most tedious work more accurately, more reliably.” And that’s just like such an iterative process. So when we do it again the following month, well, we run Jessica’s Python script, some stuff happens, the humans do the rest, so on and so forth. And over time, you know, the computer is doing more and more and more. And the account manager, in this case me, is doing hopefully more of the high value, more of the white glove, more of the hands-on experience.
Seema: And did your customers have any sense of what was going on in the background or did they care?
Waseem: Yeah, my perspective is what the customer wants is for it to be done well, and to be done right, and to be done by someone who can intelligently answer the questions. And I think the customer does not really care how that’s achieved. And if that’s achieved via, as it is at Pilot, you know, a bunch of software and a bunch of really talented people, great. If as it is in other firms, achieved by a giant team, you know, in some other geography, as long as the work is good, I don’t think the customer really cares.
Seema: So you, you started with your MVP there and how many folks were working on it?
Waseem: We were fortunate in that basically right out of the gate we were able to raise a pretty large seed round, because it was our third venture, because we had two exits prior, etc., etc. So the first two hires we made were two early engineers. So it was the 3 co-founders and then our 2 initial employees, both of whom were on the engineering side.
Seema: Would love to walk through a little bit around your first customer set, who you targeted, etc. So, you know, tell me about who you first wanted to put Pilot in the hands of and how you thought about your first customer set.
Waseem: Yeah, so the interesting thing about the shape of the problem we’re tackling, accounting, or maybe I should say the back office generally, but if we limit ourselves to accounting, well, literally every business in the world has the problem, ranging from the tiny mom and pop operation to the pre-seed founder to the thousand person company to literally the Fortune 500. And so in a sense, like the TAM or the possible customer was everyone, and so obviously we needed to kind of scope that down considerably to have some hope of building something that had good appeal to an initial customer base we could serve well. And our initial target was technology startups, and in particular, early stage technology startups. And the reason for that is sort of threefold. One is we knew they had the problem, because they were us and we had the problem. The second is they have actually a quite hard version of the problem. And what I mean by that is the needs of the company when there are 2 people and it’s pre-revenue and they’re in the garage, and the needs of the 300 person startup with the VP of Finance and the controller and the full-time finance team are very different. And so if you can actually master the motion for the technology startup, what you know is that you can cover a wide range of scenarios. So intentionally we selected startup founders because we want to avoid over fitting on a particular size or shape or model of customer. And then the third and obviously like quite beneficial aspect of selecting technology startups is they were in network for us. We had good credibility there. It was just an easier on ramp to be able to attract and retain those initial customers.
Seema: How did you pick and choose among the potential startup customers you could be working with? Were there particular stage in terms of like series of funding, complexity of books, or how did you narrow that down further?
Waseem: We were pretty open-minded in the sense that I think we were in the process of discovering kind of where it best fit. And we found that there were sort of two paths. There was net new, like, okay, the company has just existed, they haven’t hired someone, they need a solution, like, we should plug in there. But the other, and it was a little bit maybe surprising that this was an option, is folks who were basically unhappy with their current providers. And the rate of sort of latent dissatisfaction here is actually pretty high. So we have a number of switchers as well. And I think that was an interesting insight in the early days because it actually has a lot to say about the motion with which you acquire companies, meaning if you have to be the first one in because you’re never gonna get ripped out and replaced, that’s very different than well every year potentially you can take a crack at winning the engagement depending on whether the customer is happy with what they’re doing or not doing. Like you’re probably not gonna rip out your payroll system or your corp card or your bank account, or your credit card processing system is just so onerous once those are in to remove them. But what we found is actually folks were very willing to switch from their existing accounting solution over to us in a way that frankly was a little bit surprising in the early days.
Seema: How did you think about that early messaging in the market?
Waseem: In the early days what we really positioned ourselves as like well, we are the tech enabled. We are the modern We’re the like forward thinking like for startups by startups option We really get what you’re about because we ourselves are a startup and like look at our founder startup track records like that was really sort of the narrative that we advanced in our customer base, which was accurate, by the way. And I think that’s what made it possible for them to trust us as a new company, which is like, okay, look, this is a seasoned team, they know what they’re doing, they’ve had this problem themselves, like, sure, I’ll give it a shot.
Seema: When you say sharing the message, what did that mean? I’m curious how much of it was just word of mouth.
Waseem: Extremely word of mouth driven and then we leaned very hard on our investors as well because that’s sort of a natural distribution channel for us which is like okay you have other companies in your portfolio, 100% of those companies have this problem, like can you make some interest for us? And then there’s also some natural like timing stuff like okay the end of the year happens like you have to think about taxes, there’s some times maybe that people are more in market than others and then we just ask our customers very regularly, look, if you’re happy with what we’re doing, are there other people you think we should talk to?
Seema: Did you have a formal referral program?
Waseem: For a long time, it was literally, I just would personally email you and I’d say, hey, Seema, I hope you’ve been having a good experience with Pilot, if you have any feedback from me, please let me know. Listen, if you’re happy, we’d love an intro to anyone else in your network who’s thinking about this. And then of course, eventually we introduced like our referral program that actually monetizes that in some way. But for longer than you would think, we were really kind of resting on the caliber just like that the experience was good. And in particular, the experience just felt a lot better than maybe what you were used to, you know, what you were used to getting from another provider.
Seema: On the investor side, anything that you did to nudge the investors, obviously like sitting in the investor side, we always wish we had the numbers faster and sooner, right? So there’s an aligned incentive, I would think, and that often drives the referrer to act faster. But I’m curious if there was anything you had to do on the investor side to nudge them to act.
Waseem: Yeah, we had a bunch of investors in our seed round, like a bunch of quite prominent angels, folks that honestly I would have paid money to get advice from, so it was nice to get both money and advice. And we used to do a thing in our monthly updates, back then we did monthly investor updates, where we basically had a referral leaderboard. We’re like, thanks to these people for sending XYZ referrals this month. So we tried to gamify it a little bit, which I think for some of our investors definitely did light the fire under them a little bit.
Seema: A common question that comes up is, did you charge the early customers? I’m curious how you guys thought about pricing early on and how much time you spent on it and now reflecting on it, what you think about that.
Waseem: We absolutely charged on day one. I think it’s super important too, because it is the clearest signal that you are actually solving a real problem that folks have. And now admittedly, like we’ve 10x’d the ASP since then. And there’s a lot of course that we do now, that we didn’t previously do, but very clearly we did not pick the correct price point necessarily, or perhaps we didn’t have the brand that allowed us to command the price point we can command now, or we couldn’t deliver the work at the quality that we can deliver right now. I think it is important to charge. I think in the early, earliest days, the pitch was something like, look, people plus software working together, tech enabled, it’s gonna be faster and cheaper and better. And like, I think a big part of the narrative was, technology allows us to make this cheaper. And we’ve pivoted pretty hard away from that, because it’s actually not what the customer wants, particularly… in this kind of high trust scenario. Like folks are willing to pay more if it’s better. Like they care a lot more about it being better than they do about it being cheaper. And if you’re better and comparably priced, that’s actually, I would rather pick that option than the cheaper and less good option. Or maybe the like cute way I like to say this is, you know, people are not looking for the discount surgeon. This is an area where you’re willing to spend a little bit to make sure it’s right.
Seema: Does that mean, you know, you guys ended up, there were people who were not good fits as early customers?
Waseem: Yeah, one class of customer that we still turn away today and a lot of the sales process at the moment is really about making sure that we’re going to be able to do a good job for you. Like you come to us, you’re like, we need accounting. We know we need accounting. You seem good. Like, let’s do it. You’re actually willing to buy in some cases where we’re not a very good fit for you and it’s actually interesting and difficult to kind of train the team to say, well, no, even though you want to, and you’re, you know, you’re willing, you shouldn’t because we won’t serve you well. And in particular, the place is one example today. It’s like there’s a whole class of kind of very small business, like solopreneur type operations where realistically they do not have the budget for any external accounting firm. And now my hope is at some point, you know, we will have advanced enough on the technology side. We will be, we’ll have been able to drive down the prices sufficiently that we can feel the high quality offering for those customers. But today it’s a If that’s kind of the bucket you’re in, the reality is we’re just not a very good fit for you. And we tell you that.
Seema: If you don’t mind me asking, how do you tell folks that aren’t a good fit? Like thanks, but no thanks.
Waseem: Well, I mean, part of you’re able to do some of that via pricing, which is your price point is just there’s no intersection between your minimum price and the maximum price they want to pay. And the second is we’re very, we’re very blunt with customers who say, listen, we found that we work best for companies, you know, that spend at least 30 K a month or whatever it is, or that have revenue of a certain amount. And if your revenue is under that amount, you’re probably just like, you probably should not select us. Like our rule of thumb is basically you ought to be spending something like 1% of your total expenses on the accounting. And that kind of like passes the smell test too. Like to exaggerate it, if I were like, you should spend 10% of your expenses tracking that other 90%, like that feels wrong. Like it should not be the case that you’re spending a material amount of your money tracking the rest of the money. So we found that like one, 1.5%, like that’s good and healthy. If instead that number is 10% or 20% or whatever, it’s like, well, it’s just not a good decision for you as a business owner.
Seema: I’d love to talk a little bit about team, given that the team was really technical starting. How did you think about founder-led sales and how long you wanted to do that when you brought your first go-to-market hire in?
Waseem: I’m like the world’s biggest proponent of founder-led sales. I think it’s like the best thing ever. I still do a bunch of sales stuff myself personally now in year, whatever, six or seven of the company. I think people try to leave the founder led sales regime too early and I think it’s a big mistake. I was the pilot sales team for the first year. And then about a year, and basically like around September 2017, so you know, 9, 10 months of the company, we had about 60 customers, we were probably already doing about 250K of ARR, we made our first hire on the sales side, and I was still like quite, quite hands-on, quite directly involved, and then our second hire wasn’t until almost a year after that, it was until August 2018, we had 240 customers, we said, okay, fine, we now have built… enough of a scalable, repeatable process that it makes sense to try to build a professional team around this.
Seema: You waited to hire a go-to-market person.
Waseem: There are so many reasons for that. One is obviously it informs how you think about the product roadmap, there’s all sorts of feedback you get from tiny customers, helps you think about the messaging, because you’re the sales team, you’re the marketing team, you’re the customer success team. You need all of these inputs from the customer. And then also, if it doesn’t work and you’ve hired someone else to be the sales rep, When it doesn’t work, you don’t actually know whether it’s because something is off with the product or whatever, or maybe you hired the wrong sales rep, or maybe you gave the sales rep the wrong message. When you disintermediate yourself from that feedback, it just makes it harder to debug when things don’t work. And then also it makes it harder to improve because you’re not learning as rapidly. So I think folks, like founders should absolutely insert themselves into that stream of knowledge because that’s how you make the company stronger.
Seema: When you hired that first go-to-market person, any particular profile you looked for to kind of complement your background or were you open to different backgrounds.
Waseem: Yeah, so this was interesting because I had also done a bunch of the sales and marketing at our previous startups. So I felt like I knew how to do it, or I knew how to do it as well as a technical founder could. And so what I was really looking for was just a smart, talented generalist who wanted to get into sales. Because there was still a lot we were still learning about who we were selling to and how we were selling to them and kind of what they needed and exactly who we were gonna target. I think we were still kind of feeling like scrapier earlier. And so that first hire was the smart, talented generalist, this woman named Kate, who was awesome. And she and I just worked super, super closely together on all the deals from that point on. And it wasn’t until a year later, until that August 2018, when we hired our next rep.
Seema: Would love to just touch on advice or things you’ve done differently. And you’ve got the privileged position of having gone through this journey multiple times. Would love to hear any advice you have just in terms of what you might’ve done differently or what founders should be spending time on in the early days that maybe wasn’t obvious when you first went through it.
Waseem: Yeah, I think it’s not that this is not obvious, I think it is pretty obvious, but it’s uncomfortable, which is, look, you gotta go get customers. And the reason is because that’s the only thing that really validates whether you’re making something people will want, because ultimately, you’re in the business of, am I making something that people want that they’re willing to pay for? And the only way to determine that is to try and see by talking to people. whether in fact you have done something that they want that they’re willing to pay for. And so the piece of advice is, look, you have to just put yourself out there, and it’s awkward, and it’s uncomfortable, and people say no, and it hurts your feelings, and like, but it’s necessary.
Seema: Itsounds like the still the process of doing that cold outreach, whether it’s the computer club or account in Facebook groups, which we often see, or dental Facebook groups, which is often the way that people sell the dentist, surprisingly.
Waseem: The thing to remember is, in general, not always, but in general, people want to help you. Like, you’re a startup, people like startups, and saying “I’m a startup founder, we’re doing this new thing, I would really appreciate it if you could just spend 15 minutes talking to me.”
Seema: Anything you would just say, looking back, “don’t spend time on this in your initial customer development, it’s not a good use of time.”
Waseem: I think people can get very hung up on like having the thing be perfect, whatever the thing is. Like the product does not need to be perfect, the deck does not need to be perfect, the collateral does not need to be perfect. Like you just have to get things to good enough because the way that they’re going to get to perfect is by like interacting with the real world, not by your continuing to polish it like in your office. And so I think that’s probably just like, I think you got to put yourself out there earlier than you otherwise would and there’s a temptation, there’s an embarrassment that causes you not to do that, and I think it’s ultimately harmful.
Seema: Was there a way that you guys kept yourselves honest to make sure that you shipped and you got it out fast enough, or is it hard to do?
Waseem: It’s hard to do, and I think in the first company, we spent a year writing code before we talked to anyone, if I recall. I mean, this was 15 years ago at this point. So it’s very easy to fall into that trap. Well, oh, we really need this feature before we can whatever. And maybe you do need the feature before it’s a usable product that you can actually sell. But the first thing you’re going to do is not get the sale. The first thing you’re going to do is that market discovery. And you can do that. with nothing but like a little sketch on a napkin.
Seema: Well, thanks so much for joining me, it’s fascinating to hear the story.
Waseem: Thanks for having me.
a16z partner Seema Amble interviews founders and CEOs of fintech companies about how they acquired their initial customers and the hard lessons they learned along the way. The series explores how B2B fintech founders should think about targeting their first set of customers and how to engender trust in a new startup.