Y Combinator Startup Podcast - #123 - Harry Zhang and Kevin Hale

Episode Date: April 24, 2019

Harry Zhang is the cofounder of Lob. Lob makes it possible for enterprises to programmatically send physical mail. They were in the Summer 2013 batch of YC.Kevin Hale is a Partner at YC.Harry is on Twitter @harryzhang and Kevin is @ilikevests.The YC podcast is hosted by Craig Cannon.***Topics00:00 - Intro00:31 - Harry's intro00:41 - What did Lob have when they applied to YC?2:01 - Documentation as an API company3:16 - Where did the insight to create Lob come from?4:26 - Lob's first version and first customer7:26 - Closing their first big customer then signing others12:31 - Did Harry always know Lob would be an API company?14:01 - How long did it take to work up to enterprise customers?15:31 - Pricing19:46 - Creating a product roadmap21:26 - Tradeoffs when building product22:21 - Competing for top engineers as an API company24:31 - Options vs RSUs28:01 - Sales mistakes32:21 - Building out features for enterprise clients34:16 - Why did Lob choose to not vertically integrate?39:31 - How has Harry had to change as a founder over the life of Lob?

Hey, how's it going? This is Craig Cannon, and you're listening to Y Combinators podcast. Today's episode is with Harry Zhang and Kevin Hale. Kevin is a partner at YC. Harry is the co-founder of Lobb. Lobb makes it possible for enterprises to programmatically send physical mail. They were in the summer 2013 batch of YC. You can try Lob at lob.com. Harry is on Twitter at Harry Zhang, and Kevin is at I Like Vests. All right, here we go. Today we have Harry Zhang, co-founder of Lobb, and Lobb makes APIs for companies to send letters and postcards.

So Kevin has a question for you. I'm trying to think back to when you guys applied to YC. You didn't have almost anything. Like, I would say it was fairly embarrassing in terms of what you guys had. I guess you could say that. I mean, honestly, we were scrambling weeks before the interview to try to come up with something that we thought was worthwhile for demo. But I think the important thing when you're starting, you know, a company and for

us is thinking about the problem that you're working on versus like having a bunch of stuff. And I think for us, like we had done sort of due diligence beforehand. We talked to a lot of customers. We had a good sense for what the core problems are, but we didn't have like the exact product just yet. What was that MVP when you guys applied to YC at the time? You know, I think back and it's pretty funny just thinking about this. We literally had an API that took whatever you put into it and spit it right out to you. And that's, that was our MVP. And we were secretly hoping. It just mirrored the response back. Yeah. It just mirro the response back. And we are just sort of hoping that we wouldn't have to demo because honestly, we hadn't built a lot of product yet.

We didn't know what we wanted to build. And, you know, we've always operated from the penalties. Like, we want customers to pay us for something before we actually go and do it. What's interesting to me, as someone who's focusing on design interfaces at YC, is that I kind of really love API companies because, like, I think a lot of people think of it as like, oh, it has no sort of interface. But to me, the interface is just documentation. It's like very pure. And so I'm always interested in when I look at an API company is looking at, oh, what are

they doing here to say this is how we want to build community around this? Because like what they're trying to build out is that this is something that people who build stuff want to use. And so what are the ways they're going to communicate? communicate that this will allow them to do something sort of cool or solve a problem, et cetera. And I feel like you learn a lot about people's thought processes and also how good someone is as an engineer or programmer by like how thoughtful that documentation is. I think Stripe is a classic example of this. But for you guys, I remember it's like you had the basics

down, but it was clear that you guys knew enough to be considered to anyone that would want to be using it, even if it was their first time ever writing any API call. Yeah, yeah. that's definitely right. I mean, I think documentation to this day is still like the number one thing. And I think we take a point in pride in making sure that our documentation is something that every single developers want to use. And I see it as friction. Like when your core product is an API, you better have like the best documentation on the planet. And so what was the insight you guys had early on that made you convince that you wanted to follow this path? Yeah, that's a good question. So it actually started from like the problem and it started from my time at Microsoft. So admittedly, I didn't, think I was going to end up in a business that's focused on mail, nor did I think that at a job at Microsoft at a company that's 100% tech base. One of the main things I was going to be working on was actually a direct mail campaign. So that's sort of like how we initially got started

with the problem and actually started from a place of complaining. I was driving back from a ski trip with my co-founder Leor and I was complaining to him about this project that I was working on at Microsoft. And essentially what we were doing is we had come up with a system for sending out these like very custom training materials and an invite to like a webinar online. But for a number of different reasons, we weren't allowed to do that using email and telesales was too expensive. So the thing I was doing was actually building a direct mail program. That was one of the most effective things that we'd done to date. And honestly, it was a little out of, you know, we didn't have any other options. But when it worked really well, I got a huge budget and was asked to sort of scale across a much

bigger set of customers in different use cases and more products. And I thought that was going to be something that was easy, but it turned out to be the bane of my existence for like the following three months. In the early days, like for YC, what did the API do? Oh, yeah. The API just went into a database that, you know, literally I started off using my inkjet printer. You know, we printed everything on my home printer out of my apartment. They hit a point where we were watching TV and stuffing, like we had an assembly line of like letters that we were stuffing ourselves. And sort of at that point, we're like, maybe we should go get a printer to help us with this problem. What made you feel confident that you could just go try to sell to a company or get someone to program against that, even though it was like connected to like your inject printer?

What gave you the confidence was like, oh, I'll go in here and sell someone on this fake magic? Yeah, that's, I guess like for us, it was more just like a belief that this was like a real problem for people. So when we told them about the problem that we're solving, it really resonated with the customers that we were talking to. And I remember, like, our very first customer. It's this guy's named William Way. Last use case I'd expect for mail. He found us on our Hacker News launch. And he sent me a note saying, hey, like, I want to use your guys' letter product.

Can we chat? I said, okay, William, like tell me a little bit more about your business. And 16-year-old kid, awesome. I looked them up. on it's like very little information online. But he actually ran one of the largest Team Fortress 2 stores online. And if you don't know what Team Fortress 2 is, do you know what that is? One of my favorite games.

Perfect. So one of the things that people like to do is they buy digital items online, right? And that's like a regular thing because people don't want to go through all this time to like, you know, find like the right weapon or whatever that might look like. So he had one of the largest Team Fortress 2 is online. And I was still super confused. I'm like, why are you talking to me? I just didn't know. But it turns out he had a problem.

which was every single time people would buy his items online, he'd deliver it. And he'd give him like the item online, but he had no proof that he actually gave them a digital item. So what he had was a ridiculously high rate of fraud, which is people would charge back and he will lose every single dispute because he couldn't show that he actually sent anything. So his solution to this problem was, I'm also just going to send him a letter in the mail with a coat. And that served at his proof. But he had to do that himself and he hated that. that's something that we would have never thought of out of the gate. But I think it goes to show, right? Like, you can always think you have a way of these product, but not always. How do you find you? So he found us like online on hack or news. That was like the original. So you did like a show HN type thing?

That's right. Yeah, we did a show HN. I think that thread might still be around somewhere. But that's sort of how you found us, right? And we basically said we have an API for sending letters. And he was like, I have a problem. Like, can you guys help me with this? And then once you got past having 16-year-olds as clients, how did you get the first, like, really top-tier big client?

Yeah, I think, you know, for us, that top-tier clients, it's a big insurance company that's currently in New York. I would say they're pretty tech forward. I can't tell you the name of that company. But one of the things that's exciting that we found them was they had a problem in that they didn't have compliance and security around their assisting printers. So this is in the midst of like me as a sales rep, literally sending like hundreds and thousands of emails to potential companies that I thought could be a fit. And this one got a response back, you know, from the CEO. He asked a few sort of qualifying questions and punded me to, you know, the guy who's actually in charge. He's now their VP of data. And they had a problem that their printer, they didn't have confidence that they're printing knew what like HIPAA was. They didn't know what a BA was.

and they were essentially re-evaluating the technology they were using to work for print shop. And that's sort of where we entered. And ultimately, that became one of our first major, like, real customers. And they're still a client with us today. It's just a cold email you sent out? It was just a cold email. How long? Here's the question.

Can you remember, like, was it not cold email? Like, was it super short? Was it super long? Did you, was it personalized, et cetera? It was definitely personalized. You know, I had a good idea of what type of mail that could be deported. potentially sending. And it was a short, Chris email. Like, this is what we do. Here's how we're different. And I think we can help you if your current problem in these three ways, right? I think the

key things in a cold email, you really want to hit on like, did you know that they were having that problem? I was going to say, like, were you clued in on the HIPAA part? I did not, I did not know that they were having a problem at that company. I did, we didn't know what like HIPAA was and this was sensitive information, but like we didn't know that that they were looking, right? So we got a little, it was a little bit luck. Okay. They were looking. We didn't know about it. We knew that they were sort of within the space that we're looking for. But honestly, in the early days, not everyone's going to be able to find you.

And what's important, especially in our business as like a B2B SaaS business is you got to find the customers that believe in the method and the methodology and how you're building the product, not just what you serve today, but also the vision of what your product could become. And that's where we found a lot of alignment with this company because they understood exactly why building it as an API is valuable. They're super technology forward. And while we didn't have every single capability they needed, we could cover the majority of what they wanted. And they knew that we'd be able to scale with them as well. And so once you got there, how did you start expanding that like the other top tier clients? Was it all just cold email? Like these are big contracts,

I imagine. Yeah. These are definitely big contracts. So, you know, today our contracts are everything from like, you know, on the small side for our mid markets, like 30,000 a year. just to use Lops API. And we sell contracts up to like millions of year as well. So there's a big range. But I think for us, there's a couple things. It's a sort of a chicken egg problem and that like you need a lighthouse customer to get other big customers.

So getting the first one is always the hardest. And that's a combination of just like combination of luck, hard work and really understanding like your problem space and what you're solving. Once you've done that and you've successfully done that for a customer, it's much easier take that exact same story to a similar customer and help them realize that value. And by that point, you should also understand sort of the language of the customer, you know, in their industry, what do they care about? What do they keep problems that they have? And when you have that insight, it makes you much more credible as a potential vendor. Like, how much time do you guys spend

researching before you, like, reach out to you? Let's say you have one company. You're like, I really want to have their business. What's the prep work that you start doing? Who do you start contacting? How long does it sort of take? Yeah. I mean, there's a fair amount of prepware. So, you know, for us, it's, it starts from just mapping out the organization, right? Drawing a blueprint of like, who are the key stakeholders in the organization, especially for larger companies. Decisions aren't made by just one individual. They're made by different folks and each different person may have a slightly different motivation. We have work with our sales reps to figure out what is that motivation for each of those individuals, who are

sort of the key contacts, and what's the message that's going to resonate with them. So we'll typically start by having Cole outreach these folks. We'll also sort of combine it with a lot of our marketing tactics and that like they're going to start seeing law pop up everywhere. Right. And ideally, you know, if they're not responsive to email, we'll also look at what conferences they're going to be attending. So we can actually find these folks in person. So really it's sort of like a multi-prone approach. It's pretty rare and you shouldn't have expectations. It's like I, you know, I send like, you know, 10 emails. I'm going to get like eight responses back. That's, that's not going to happen. It's a grind. But that's part of your job is to like work your work.

through that and figure out, like, who are the accounts that are going to work? And over time, you're going to get more and more accurate about understanding the motivation and what resonates with people and, like, what people care about. And you may find that, like, the person you thought was the person who's going to make decision might actually be someone totally different. Did you always know that this was going to be an enterprise company, that this would be what you'd focus on? Or was there, like, a lot of people will start an API company and like, anybody could use this? Anybody should. And so, like, how did you know? How did you know? where to focus. And actually, I'm kind of interested as like, what is this split in the AP? I imagine most of it is enterprise usage, but how much is also SMB? How much is like consumers using it? Yeah, yeah, absolutely. So I'd say roughly about, you know, 15% or so of our business is still self-service customers today. So it's a meaningful share of our revenue. And that flushes based on how much our big customers do. But like, there is a healthy self-service segment of folks that utilize our API. And that's where we started.

So for us, like, you know, how we ended up focusing on enterprise is really sort of evaluation of like our market. And it turns out like the market that we're in today, the top, you know, 20 players send such an enormous amount of mail that if you really want to capture the entire market, you have to focus on how you're going to win those top couple folks. And what we realize is one of the things that's really nice about an API is that like you can essentially give those same capabilities to people who aren't executing that type of volume. So in fact, it's a focus for our business to sign these enterprise customers, but we know a lot of the features and functionality that these guys have or are looking for are also things that small the customers want but don't have access to because they're not operating at that scale or capacity. And API enables them to get access to that. So you guys graduated up to enterprise. That's right. How long did that take?

We're still working at it now, even today. So really, it's been a six-year journey for us. I would say we signed our first few true like enterprise accounts, you know, just two years ago. So it took us almost four years to get. Yeah. So it was a while. So one thing a lot of startups don't get right is pricing. So when you guys are working your way up to enterprise, by the time you got that first big client,

did you feel like you had your pricing locked down? Because it like, if that was wrong, it could have multiplied in a bad way quickly. Yeah, definitely. You know, we're always evaluating our pricing to make sure we have the right model. We actually made some, like, pretty big mistakes early on as it came to price. And I think, like, you guys have probably all heard the typical mistakes, right? It's like, hey, you know, didn't price high enough. Like, you know, we started talking about pricing too late.

For us, it's the structure of pricing we actually learned a lot about and was a big motivating factor in us changing our pricing model a couple years ago. So we started off thinking very much like a traditional mail provider or even someone who sells like reserve instances in AWS. Essentially, you could buy like. And what you were buying is you would buy, you know, 100,000 letters over the course of year. You pay for the 100,000 letters. You can use it whenever you want. Super logical. Very easy to understand.

And it worked for us for a while. But the problem we found was we went into larger customers. They don't look at not every single budget is made equal. So when we're selling, you know, 100,000 letters, they're going to evaluate us against 100,000 letters from another direct mail provider. And, you know, our value is, you know, five cents of that letter is going to lob, right? That's the value that we see in our technology. But the problem is when you're talking to customers who are used to pricing in a specific methodology, they're comparing us to like, why are you five cents more expenses than everybody else?

And they're starting to do the math, like, how many more responses do I have to get? What's the higher conversion that I need to see a result? But in reality, it's two different investments, right? They're making a technology investment and a technology that we're providing them. And they're buying the mail piece. So one of the big changes that we made that was really successful in helping shift the conversations to the right level of our customers was actually creating what we call like a platform fee.

So essentially now our customers pay us, you know, $25, $30,000 a year to use law. And they get access to, you know, our de facto like mail pricing, which is now competitive, if not lower than every single other offering. So now we can focus the conversation. like, how do you value Lobb's technology? Is that worth $25,000 or $30,000? Instead of having a conversation about what is the cost of a mail piece and what's the conversion that we're looking for. I think it's important to differentiate and associate the value that customers see in your technology with what they pay for versus something that could be a commoditized,

you know, product in the market today. Now, was that pricing model only an option given your maturity? I think we could have started that model. The reality is we just we just didn't know. know people are going to think that way. So it's hard to get everything right. What helped you shift to that? Well, we kept getting feedback from customers, right? And we could tell that the way that they were modeling us was they would be trying to figure out. Because apples to apples comparison. Yeah, it wasn't the right. It wasn't an apples to apples comparison. That's exactly right. And the part that was challenging is like they were totally okay of like paying with like another agency to help manage their mail sense. Right. But that's not pulling out of the same budget and like essentially part of what we

offers, like, we're doing that for them. But they were looking at our mail piece price and comparing it to another mail piece price. But in reality, it's the mail piece price plus whatever they were paying this other agency to manage it for them. But those are coming at two different budgets, right? So for us, we had this realization when we started talking to companies. And they kept trying to sort of ask like, oh, well, why is it more expensive? When really the reason why it's more expensive is because we're doing more things for them, right? And that's real logical. But help them understand in a model that are used to, we had adapt to what they've already seen in the market. One of the things that's been interesting to me as a trend is that like software wanting to be a

commodity and the value and price of it getting lower and lower. And then, you know, API companies like sit at the very bottom of their like fundamental like infrastructure for services. And so, you know, this is probably related. But how do you think about that as a business? Like, do you guys set out to be like, okay, we're going to look here to compete on price or on sort of a value? And then how can value work in an infrastructure sort of commodity like business, like API? And I think it's different for every single commodity, right? So, you know, while you might be able to compare like email or SMS, I think those are priced differently than, you know, lob.

for us, I think what we found is we wanted to be cost competitive, if not the best price in the market, for the actual cost of mail, which we see as a relatively commoditized product. You can go to any number of commercial printers, and they can produce the mail for you. So really, like, what's different about buying software through lob is that you're getting access to our entire API and all the associated offerings that come with our platform by sending mail through Lob. So we want to differentiate, like, what is it that a customer is paying? We want them to know that they're getting the best price in a market for something that they see as a commodity, which is the cost of the actual mail piece. But we want them to pay us the value that they saw in using our software to send mail. So that's sort of why we made this split in having a platform fee as well as like a per piece price. How does that adjust your sort of product roadmap to like have these technology differences that makes you different from like just a printer who can say like,

hey, I can do that digital printing. Yeah, that's a good question. So I think for us, it goes down to a conversation on like how much are these like features worth to our customers, right? And I think over time we built different layers, like different sort of offerings like main market and enterprise offering. We realize that customers would be willing to pay more for specific features. What are some examples?

So a good example of this is like, you know, HIPAA. One of the key considerations for companies that are more regulated spaces that they need to have a HIPAA compliant offering. Now, like, it's more expensive for us to have like a HIPA compliant offering. But we also realize that one of the key considerations when companies are looking at, you know, printers is can they meet these requirements? So we actually charge more for those customers because it costs us more. And also because there's less offerings that are able to do something like that programmatically, right? That they're going to manage their customer information in a secure fashion, both in terms of how they're transitioning information to you and transferring it to you as well as like, you know, being stored in our system.

And this is like, you know, people's names and addresses. This is very sensitive information for a lot of companies and it's something that they value very highly. We had customers that will be like, we'll pay you if you guys can do X for us. And that's when you really know you're onto a feature that's really important because they can actually quantify the value that that's worth to them. And it makes it easier for us to understand and prioritize our product roadmap because we know what customers are willing to pay for. Not just like, you know, hey, can they achieve a slightly higher conversion of hip other? Now we know that like they're going to pay us an extra 10,000 and it's worth it to them because. that's what they see.

And so what are the other trades that you've made in the context of like fulfilling the desires of these enterprise customers when you realize, oh, maybe they don't care about this, for example, like more vertical integration type stuff? Yeah. So I think some examples of this is like we realize that the execution component, like being able to track your mail and having sort of the platform offering being available through API, that was really important because a lot of companies actually are, especially larger folks, they're working with agencies that help them with a lot of the, you know, segmentation,

the actual management of the campaign, the design of the mail pieces. You know, these are things that we've thought about building products around, make it easier for people to build beautiful mail pieces. But what we found is, like, most people already have that in enterprise. They're already ready to go. Their problems are not around, you know, the need for designing a better mail piece. They have a full service creative agency that has like 16 different campaigns and that has already thought that through.

So they already have it, right? So there's a good example for you. How many employees do you guys have at well? How big are you guys? Yeah, we've been hiring a lot this year. So we're just shy of 70 right now. Just shy 70. And then don't take offense.

But for an API company, I imagine it's difficult to recruit people here. And so, like, what do you guys have to do? And what have you sort of figured out that helps you sort of, like, compete against everyone else out here in San Francisco? I mean, I can tell you mail is not exactly. the most sexy thing in the world. Certainly not, you know, AI. But I love these non-sexy things, especially ones that make money.

Yeah. And so to me, it's like, that's probably a good leg up. But I'm just wondering, like, for you guys, if you're looking for that, like, top engineer to come on and make a difference. Yeah. Like, how do you inspire them with a mission like this? Good question. So a couple things that we think about.

The first thing you need to do is understand the motivations for each individual you're trying to hire. Everyone's going to care about something. Sounds a lot like your sales. Yeah. But it's true, right? You have to realize, like, what is it that people want to join a company for? And you need to identify the folks that are good fit for where we're really strong.

So for us, if you go and you ask, like, why some of the folks join law, I think the majority of folks would tell you it's around our culture, right? That's the reason that they got inspired to join. So the mission is certainly important. And I think we spent a lot of time. not just about what we do today, but like what is it that we want to achieve. But ultimately, I think one of the key consideration is like, what's it going to be like to actually work at a lot? How can, am I going to be happy there? And that's a huge motivating factor for a lot

of people. So we spend a lot of time internally thinking about, you know, our culture, how do we sort of like find the right folks that map into the culture that we have? How do we sort of like give engineers and give potential candidates a sense for what our culture is like? And we do that through writing blogs. We do that through, you know, having people come on site beforehand to get a sense of what it's like to be there. And we try to make sure that throughout sort of like our activities, we're tying together our core values and giving people a good representation of what it's like to work at law. And so also part of this is the comp. And so before we started recording, you talked about options versus RSUs. What's your opinion on that?

Yeah. So, you know, I think they're both good instruments. Do you mind helping for those people who might not know? What is the difference between like an RSU and an option? Absolutely. one of the things commonly misunderstood is like equity compensation at companies. So RSUs and options, they're both different forms of equity that company can offer you in a company. The main difference that we see, options essentially, you have to purchase. So there's a strike prices associated for options. So as an employee, you have to make a decision at some point in the company's lifecycle that you want to spend, you know, your own money to purchase shares at the company. And that's why you've essentially one option is it's the right to purchase.

shares at a particular price point. But the reality is, you know, you're going to pay some relatively significant amount of money potentially in order to acquire those shares. And we've heard people taking out loans to do this. Like there's companies designed to help people do this. So it's not an insignificant amount of money. RSUs are a little bit different. RSU is actually a stock grant. So, you know, there's actual value to the RSU that you're receiving and you're not paying for the right to the RSU. You're actually being granted that RSU. So for us, us, you know, at Lobb, we actually decided, and I think it's a little non-traditional, that we built sort of like a unique RSU instrument that we think is sort of like the best of both

worlds, right? And essentially the motivations where we want people to be invested in the company in the long term. We want to design equity compensation that didn't feel like a risk to the employee. The whole entire reason why you want equity in the company is you want a share in the upside. You want to feel like you're a part owner of the company. But if you have to like spend an enormous sum of money without knowing what the outcome of the company is going to be in advance, which you can't predict. That puts you in this weird scenario where you want to buy your shares, but you're not sure if you wanted. And we felt like that was a really tough position to be in as a potential candidate. So we design RSUs in a way so that our employees actually get RSUs

when you join law. So what that means is you don't have to make that consideration of like, you know, should I spend the money to buy my options? When should I exercise that? And there's obviously some differences there, right? Like I think the major difference is like when you get tax. But we always looked at it as, you know, you don't get tax in RSUs until there's actual a liquidity event in this scenario. Because we don't physically, we don't actually grant you the RSU until there is liquidity event. So therefore, you know, you owe taxes at the time of which you probably receive money from your RSUs. And I think, you know, what we found is that, you know, especially employees who understand equity compensation,

that's something that's really attractive to them. And when we think about wanting people be here for 30 years. We don't want people to stay for the wrong reasons of like, oh, well, I don't have the money to exercise my options. I'm going to stay. I want them to stay because they enjoy the people that work with. They enjoy what we're working on or inspire the problems that we have. But we still want to give them a share and actually being an owner in the company. And how do you handle vesting? So it's sort of still staying vesting. Essentially, you do a one year cliff and we essentially, you know, vest monthly thereafter. So it's the same as like an option in that sense. One thing we do, we also reserve like retention grants for people. So at our two and a half year

mark and every year thereafter, we continue to give people opportunity to gain additional equity in the company. And our thought is, like, the longer you stay at the company, the more equity you should be able to acquire. There shouldn't be a point where you ever stop earning equity in the company. So what kind of mistakes did you guys make when it came to like closing your first like big sales? Yeah. So I actually think there was a valuable lesson we learned during our early YC days. In that like when you're saying, you're saying, you're saying, you're saying, you're selling your product. You're oftentimes selling something that you might not have just yet. But I also think it's really important. You have to actually get alignment with your customer and be

upfront about like what you do, what you can do today, what you might be able to do in future. And also agree on like a timeline of what that looks like. Get it in writing and have that sort of be part of the close of the deal. Where we went wrong. And I sort of laughed because we built what I thought was a freaking awesome product back in the day. We actually had a Mug's API. This is in our like demo day slides. Like coffee mugs? Yeah, coffee mugs. There was a point where we thought, it was a brilliant idea to be able to print coffee mugs on demand through our API. We wanted to be able to print anything. And how this happens, we had a customer who came to us and told us that they had this use case for coffee mugs. And it was like a big number, a really big number for us. And, you know,

when you're small, every single, you know, deal looks super valuable. And we're like, this is awesome. It would be so cool to do coffee mugs. And we built the product. So we told the customer, we can definitely do it for you. You know, we'll have free twos. And we scrambled and we hustled super hard. We built a fully functioning Mugs API product. But we didn't sign any paperwork as customer.

So we built this whole entire thing. We spent two weeks of valuable engineering time. We met to customer. Mr. Customer, we have the Mugs API. Here's how you use it. And he was like, awesome. Like, we'll get right on it. He went dark.

He stopped responding. I was super disappointed. To this date, we sold two mugs. through a Mugs API. Two. One of them went to another YC partner, actually, Dalton. He was working at AppDenet, and I convinced him that he should definitely do mugs as well. And I think he put in like one order for it and it worked.

And he was like, this was awesome. We killed the product a little bit shortly after. But I think it was a really valuable lesson in that like you always want to be selling a little bit ahead of where you are. But you also want to align with the customer like what you actually have and don't have. And that actually helped us close, you know, one of our biggest customers to date in booking.com. So, you know, essentially how this opportunity came about is they were already a customer of law using our Azure verification API. And they had sort of this moment in time of GDPR where they started reevaluating all of their vendors for print. And we sort of got roped into consideration.

One of the key things that was really important to them was actually like having operations in Europe. They were familiar with our API in the U.S. They knew it worked really well. But they're a global company. And of course, they want to know what our long-term plan is to support Europe and eventually Asia. So, you know, part of the negotiation as we're working through this big deal, customers, is that we need to align with them on a timeline and how we were going to get Europe up and running for them. So for us, that's originating, you know, letters and postcards and our other mail offerings in Europe. And that was sort of tricky. But I think we had learned some valuable lessons in that like we weren't going to just go and build all of Europe and scramble for potentially months at a time. But we also weren't going to tell a customer something we didn't have either. So we were pretty upfront about them, about what our capabilities look like, you know, the timeline of which we're going to roll out. And we actually agreed to all these things during our negotiation. So what it really helped is like our customer actually actually wanted to help us get things going faster, right? They're like, we want you guys

get up and running Europe like right now. And, you know, we could actually ask for their help and building exactly what does it want. And now it's sort of like a partnership rather than like, hey, we've oversold something. It's more about how can we work with our customer to achieve the results that we both want to get to. And I think that's really important, especially as you're talking about larger enterprise deals, you're not always going to have everything, but really sort of structuring and not overselling it, but also setting the right expectation of customers.

It's difficult to navigate that sometimes. But we found as a policy, it's better to be, you know, upfront honest about what you can can't do. And actually, you know, if the customer really wants to work with you, they're going to find a way to make it work with you. And that's the best position to be in. Are there other examples where you get a potentially incredibly high value kind of like enterprise scale client and they want something that you don't do? Do you now like kind of fish around to see if anyone else is interested in the Mugs API before you follow through with it? Yeah, definitely. So like I think a common example of this is where I was evaluating mail format. So what I mean by that is like,

you get different types of letters to all shape and sizes. We don't support every single different mail offering today. But we have a list of like what company people have been asking for. And what we found is for us is a little bit of a chicken egg problem. We don't want to start with like a really small volume customer because it makes it difficult for us operationally. But same time, it's like we also know that this is a product people are interested in. They want to see proof points. So what we found is, you know, we have a list of these mail formers. types we're constantly evaluating. When we talk to potential customers, we know here's a list that we would potentially be willing to consider. So if they can agree on a commitment level of

what they're going to send and, you know, then we're willing to entertain some of those areas. And that's actually helped. We built some products in the path for it. You know, we recently just launched, I think, you know, earlier this week, certified mail receipts. We knew that when we launched certified mail, this is for William Way. If you guys remember, he needed a certified mail. We launched certified mail, but he didn't need certified mail tracking receipts because he didn't really care, like when it received, you just care that he had a proof point. But we knew that that was something that we could potentially do. We chose not to do in early days because we didn't have customers willing to do that en masse. So, you know, we were able to, we got a few customers that were

really interested in certified mail, but felt like when you were missing this one little thing in, you know, mail receipts. And we had that sort of like plan and we had thought about it. And finally, we had the right customer who come if we were willing to make that commitment level. We're already familiar of our product. We actually went and built it, and we just launched it that this week. Congrats. So the way the API works is, you guys provide this technology layer, and you connect to all the, like, a network of all these printers.

That's correct. All around the world? That's correct. So what I'm kind of curious about is, like, you've seen this trend, especially as companies get larger and larger, where they get more vertically integrated. Well, they all, like, want to do every step of the process so they can own it in terms of quality, but also, like, an R&D.

etc. And I'm kind of curious, do you feel like, is that a thing that you guys will eventually do? Or if not, why not? So, for example, it's just like basically you buy a printer or you like own some printing facilities and be like, okay, great. Because like this whole like flexibility and mail format, et cetera, like part of the reason that you have to be cautious about what you go into is because you have to go and spend time to find the right partners, build out the integration, and then sort of make it work. And so I'm just kind of curious about like, is there a point in the future where Lobb like owns like a giant printer. Yeah.

I mean, we don't have that in the plan today is the short answer, right? Certainly, if there's a huge need, we'd consider it. But, you know, the motivation for us is like we see mail as a somewhat commoditized product. We also know that like it's a huge industry for a reason. There are hundreds of thousands of printers that are out there, but they all specialize in like slightly different things. So, you know, for us to be good at what we do, we can't try to do everything at once. It would actually be really difficult and super capital intensive for us to buy all of the necessary hardware. And like, what if our customers need to change? We wanted that

flexibility and part of having sort of a network of folks enable us to have that flexibility. I remember in our very early days at Lob, we were still, this is pre-Lob or pre-YC application. one of the things we want to do is we sort of just want to get our own printer. We're like, hey, it'd be nice if we could just, like, do it ourselves. Like, why do we need to, like, rely on somebody else? It's just, like, another place for something to go wrong. Because you're looking at all these printers and probably, like, these guys are in the Stone Age. Like, we should be replacing them.

Yep. That's exactly right. So we called up an HP Indigo vendor. So if you guys don't know, HP Indigo's are, like, the commercial print standard. It's like the Ferrari and printers. There's a Ferrari. Yeah, it's like, this is what you want. Trust me.

So we figured this out. And honestly, we didn't know too much about like the print world at the time. So we called up the sales rep. I think the first time for him should have been like, it was weird that we were meeting in a Starbucks. We met this guy on Starbucks. We didn't have a company. We didn't have a product at time.

And we're like, we're just going to get this printer because like we can do it better. So we start asking him all of the right questions. Like, who like, what's like, you know, how are we going to do insert or like what are the different formatting options? Like, we cover everything. And this guy's feeling really good about this. We're like, yeah, this guy's really smart. He knows exactly how he's talking about.

We're definitely getting this. So, like, my co-founder loves negotiates. So, like, how much, like, would this cost? And he's sort of taken aback. He's, like, started immediately talking about, like, their leasing options. And in my head, I'm like, I don't want to lease this. I just want to buy it. Like, we're about to go get some money and we're going to raise capital.

We're going to go buy this and do it. So we sort of, like, you know, corner him a little bit. We're like, all right, like, how much are the cost? Like, offer us a better price if we just buy it right. And I think, I don't remember the exact number, but it was something like over a million dollars. And I sort of looked at Learre, I was like, dude, we're not doing that. It was like, no chance we're going to buy that printer. But I think, you know, thinking about where we are today, like, you know, maybe we do want to buy that printer.

But like, it immediately creates a ton of complexity in our business. Absolutely. And that's the thing I'm always curious about. It was like Amazon could have continued using 3PL services. But at some point, they realized, like, we need. to own and build our own warehouses to build up a certain efficiency. Like we have a vision for the future that requires us to own that technology. And so I'm just curious, like, you know, at what point do you guys start to be like,

you know what, we're being held back by our partners? Yeah. Yeah, that's a good question. So we haven't felt that way. And our partners have been like incredible partners. And honestly, they're experts at print. They know so much more. Down to like the color calibration that we should be using on all of our printers.

I think the places we'd be willing to think about it is if it could give us a competitive advantage. If we were able to offer something by owning the print infrastructure, that will give us the ability to do something nobody else can. But I think that's like complex for us, right? That would be like, hey, we have a, you know, we have a awesome hardware printing engineer who thought of a completely new way to do print. And we're going to go compete with like HP's imaging division. And we decided we can offer something that like nobody else has done. We can like do this new, you know,

method of printing a plastic. Oh, someone came on the market with like a brand new type of printer that can do offset printing like that dynamic. Yeah, if we could, yeah, someone could do offset printing using like digital methodology at a price point that was like not achievable in the past. I would be interested in talking to anybody who's starting that company, by the way. The Tesla printers. Right.

Cool. So you guys are now six years old. Six years coming up soon. How have you had to change as a founder and a manager over those years? Yeah, it's a good question. I think the first thing, and I'm still getting comfortable with it now, is understanding that your role as a founder is going to constantly keep changing. For some reason, the early days, you know, I was just like,

hey, I'll just like constantly be building cool product. Then I found a place where we needed somebody go do sales. So I led the sales team for a number of years. And then all of a sudden, we were doing okay. sales, but we didn't have any leads. So it started working on marketing. And I think what I found is that my role is going to continue to change. And that's something like you have to get comfortable with as like a founder is that your role is going to change. And that's okay because what that's essentially saying is that you guys have gotten good enough that you can hire somebody else to do that.

And I think that's, you know, the expectation everyone should have when you go into business that like you should be comfortable of every aspect. You know, I think a lot of people like think that they can just just build product forever, everyone should talk to customers. Everyone should be going and trying to do sales in the early days because if you as the founder company can't sell the product, nobody else is going to be able to either. Yeah, that's a great piece of advice. All right. Thanks, man.

Thanks for coming in. Yeah, absolutely. Thanks for the time, guys. Thanks, Harry. All right, thanks for listening. So as always, you can find the transcript and the video at blog. dot ycombinator.com. And if you have a second, it would be awesome to give us a rating and review wherever you

find your podcast. See you next time.