Kyle Racki - Baremetrics

Kyle Racki: Happy to be on the show Josh. Thanks for having me.

Josh Pigford: The way that I usually kick these things off is with the backstory, so your backstory, something about your upbringing I think in this case is really interesting, because it’s atypical, at least in my head, for most of the tech world. I’d like to hear your childhood and what that was like for you.

Kyle Racki: Yeah, for sure. It’s funny when you mention that it’s atypical, I was thinking about that today. I was reading a story about a startup that’s into their series B funding, and three college students, tech students, who got together, made a company, moved to San Francisco, raised money from notable investors. That’s almost what you normally think of, I guess, now, when you think about SaaS companies and startups.

Kyle Racki: But there’s a whole other side of companies, where they started in small towns, people from different walks of life. I’d say we probably fit into that category. I live in Halifax, Nova Scotia. Which, if people are wondering where that is, that’s in far eastern Canada. Not normally known as a startup Mecca, or a startup, a tech up or anything like that. Definitely have a scene that’s growing, but yeah, again, not normally what people think of when they think of startups.

Kyle Racki: So actually I started off as a graphic designer back in the early 2000’s. That’s how I got my start in print, and then learned web. Eventually I was working at an agency and decided I wanted to quit and become a freelancer when I was 24 years old. So I did that, and a guy that I met at one of the agencies was a guy 20 years older than me, Kevin, who was like a bit of a father figure to me, a little bit of mentor in terms of business and sales was really his background, where I was very green. I just knew about design, and that was kind of it.

Kyle Racki: So he coached me to go out on my own, but then after about eight months of being freelancer I was like, “You know, I kind of miss being around people and being able to collaborate.” So I invited Kevin to join with me, and we started an agency together, which we ran for about five years, doing a lot of web design and marketing stuff. That’s how we got our chops. We were building SaaS products for other people.

Kyle Racki: But then I remembered about this idea that I had, back in my freelance days, of proposal software. Because I was at agencies where we wrote proposals, and I, as a side project, fun little idea, I decided to wire-frame up this idea for online proposal software, which at the time wasn’t really a thing. Fast forward five years later, or actually 10 years later really, here we are. Proposify, it’s a proposal software. We’ve been doing it for about four years full-time, and have grown to just about over four million in annual recurring revenue. We have about 30 staffers. It’s crazy to see the transition, to where we were and where we are now.

Josh Pigford: Yeah. You’ve obviously, you mentioned four years, four millions in AR, got a few dozen people on the team. So if we go back even further, you as a kid, do you feel like being an entrepreneur was ever something that was on your radar. We’re talking you adolescent.

Kyle Racki: Yeah. I wasn’t like the kid that was the born salesman, or doing the lemonade stand, or anything like that. I was fairly introverted I think, kind of an artsy kid, into playing music, like playing guitar and drawing. I was the kid in class that could draw everybody, do caricatures. I think I got in trouble a few times for drawing some teacher in awkward situations.

Kyle Racki: That was kind of me. I wanted to get into digital art when I was in high school. That’s where I thought I was going, it was animation, or 3D modeling, or something like that. Kind of fell into graphic design. I didn’t know what it was until I really was in community college. When I think back, really, the paper route was probably my first real experience as an entrepreneur.

Kyle Racki: I’m kind of sad about the fact that newspapers and print has died, because I think paper routes are such a great experience for kids who are entrepreneurial, because it’s a whole different experience from just working a job, or working at McDonald’s, where you don’t have somebody standing over you. You’re responsible for billing customers, and getting payments, and making sure that customers are happy, and being able to go and sell new accounts if you want to. You’re rewarded based on your hustle. I like that about paper routes.

Kyle Racki: When I really think back, that was first experience as an entrepreneur. And then, moving forward into my twenties, I didn’t really realize until early to mid twenties, that I wanted to be my own boss. I didn’t come from an entrepreneurial family. They actually discouraged it for the most part.

Josh Pigford: Two thing I want to touch on there. I think the paper route thing, and you mentioned you kind of hate that this sort of, that … I think one of the reason of that, as an interesting entrepreneurial venture, is that it’s this physical product thing, where there’s a lot of different aspects to it, but you’re also trying to basically sell a product to someone. But it’s also low pressure, in that it’s just a newspaper. Nobody dies if your paper doesn’t get delivered or something screws up there, right?

Kyle Racki: Well, they get pissed though.

Josh Pigford: Certainly people get mad about the most mundane things. But to me the new version of that is, I think of, to me it’s almost, it’s easier these days, or there’s lots more tools at kids’ disposal to actually produce something. I think like here, we have a 3D printer, and electronic stuff, and these CNC machines and stuff. That if any of my kids think of some thing that they would want to make and sell, we have the means for them to produce it and then go out and sell it. It’s a little bit more high-tech version of that, but I still think … And even-

Kyle Racki: Right?

Josh Pigford: Sure.

Kyle Racki: Back in my day, in the nineties, kids were still shoveling driveways here in Canada, where we get snow. I know there’s a few places in the States where you do too. Shoveling driveways or moving lawns in the summertime. That’s saying, “Okay. What can I do that’s of value for somebody else, saves them time, that I can charge for?” Nowadays, it’s all online. It’s like kids can probably code websites, or produce YouTube videos, better than a lot of adults, so you can sell that service.

Josh Pigford: Absolutely. I think, to me that’s the kind of thing that I … To me it’s more interesting when a kid wants to go down that route, is not the like, “Let me go find a place I can go get a job.” How do I make my own source of income?

Kyle Racki: There’s a really good YouTube video. Well, it’s on YouTube. It’s actually, I think, a TED Talk by Cameron Herold on how to teach kids entrepreneurship. One of the thing that he talks about is that instead of giving his kids chores and saying, “If you clean your room, and do this and that, we’ll pay you at the end of the week,” because that’s teaching your kid to be an employee. He actually says, he encourages his kids to come to him with ideas for jobs, or things that they can sell him, and to actually negotiate on price, which is a better way to teach them entrepreneurship.

Josh Pigford: That’s really interesting. I’ll try that with my kids. The second thing that you mentioned there was that entrepreneurship wasn’t really encouraged, maybe even was sort of discouraged growing up. Why was that the case?

Kyle Racki: My parents were pretty blue collar. My dad was a maintenance worker at a nursing home. He fixed the things that were broken basically. My mother was a nurse. They just came from very humble backgrounds. Their parents were Cape Bretoners. Which, for those who don’t know, Cape Breton is a very rural island in Nova Scotia. It was the way they were brought up. That you go, you learn a trade, you get a job, somebody pays you. Owning a business, super risky, most likely to fail. Only crazy people do that. There’s no job security.

Kyle Racki: That was the environment that I grew up in. Even just taking graphic design, my parents were a little skeptical of, “You should really learn drafting, or architecture, or something that you can really get a job with. Not this painting and drawing, and all that kind of stuff.” It was just, my parents were very skeptical, even when I became a freelancer, going out on my own. Once they saw the results, that I could actually support my family, and pay my rent, and all that kind of stuff, they were a little bit more open to the idea. But yeah, initially it’s business equals scary.

Josh Pigford: For you, how did you push through the doing your own thing and ignoring … Because I think there’s different personalities. Like where people want to … Having the approval of the people around them. Not even necessarily their approval, but they look to people around them as a validator of if this is the right thing to do or not. Input from family is a really big deal to them.

Kyle Racki: It is. A lot of probably good entrepreneurs are being held back, I think, by their families, and their mothers, or their fathers, or siblings, saying, “Don’t do this. This is a bad idea.” Or they’re being held back by their friends, who don’t have the ambition, and they’re afraid of it.

Kyle Racki: I think people need to listen to themselves, and be in tune, and self-aware, of what they’re good at, and tune out those voices. But I think, for me, I was seeing people around me in … Because I was working in agencies as a designer, so I was seeing other designers leaving to go freelance, and they were doing fine. They could get clients. That was the initial gateway drug for entrepreneurship for me, and I think it can be for a lot of people, when they realize that if you’re good at something, if you can design, or code, or write, or do something. Again, it goes back to the mowing lawns and shoveling driveways.

Kyle Racki: If you can do something well, that other people value and will pay for, it’s actually a very low risk business. You don’t have to buy a ton of products or inventory. You don’t have to rent a space. You really just say, “Hey, do you want me to do this?” Negotiate a price, and do it. If you can’t be a freelancer, if you can’t make it as a freelancer, you probably can’t make it as an owner of a large business, or a product, or a service business. You can use freelance as a way to test out whether or not this is your thing. If it doesn’t work out, it’s low risk. You just go back to work for somebody.

Josh Pigford: Yeah. I think, to me that’s a really interesting part about entrepreneurship, is that it’s something you’ve been doing for long time, I’ve been doing it for 15 years. If you include me as a kid, I was that entrepreneurial kid. To me, entrepreneurs are rarely actually risk takers. In fact it’s almost, in my head entrepreneurship is really low risk, because at the end of the day, there’s no chance that me and my family are going to end up on the street homeless. Because if Baremetrics doesn’t work out and goes away, I have a skillset that I can use elsewhere. I can figure out how to make money.

Josh Pigford: That, to me, is like an entrepreneur is like somebody who can figure out how to make money in any given situation really. To me, there’s exponentially more job security in that, than someone who’s got this job that they’ve had for 10, 20, 30 years, and they’re just hoping that that company that they’re employed at doesn’t go away, because then they’re out of a job, and then they’re in a really bad spot.

Kyle Racki: Totally.

Josh Pigford: I think, to me, the thing, like our parents and things like that, to me there’s a big shift that’s happening right now, where our parents are … My dad had the same, basically worked at the same place for almost 30 years. That super typical of that generation, but now it’s almost, it’s very rare that somebody sticks around that long, more than even five years at the same place. To me it’s a healthier way to work. The idea of dedicating yourself to this one specific thing for decades, when there are so many other things that you could go and do. That’s a personality thing, but …

Kyle Racki: It is. It’s like investment, right? You don’t put all your eggs in one basket. You diversify, and that way if something falls through, you’ve got something else somewhere else. It’s a way of managing and mitigating your risk in the investment side. I think it’s the same from a career side. If you’ve got a number of skills, you’re really good at one thing but you can do a few other things, you can bounce around between a startup, and a agency, and a whatever.

Kyle Racki: Yeah, you have so much more control as an entrepreneur, and I mean, even as an employee, doing that model of being able to move around to different companies. But yeah, certainly as an entrepreneur, you’re in total control. Nobody can fire you, unless you raise a ton of money and you’ve got a board of directors who want to fire you. That can happen. But for the most part, you’re pretty immune to being fired. The worst thing that can happen is customers don’t pay you, and you have to lay people off until you’re the last one. That’s certainly a risk, but then you can always transition to another company.

Kyle Racki: My first company, the agency was what I consider a failure in terms of, it wasn’t working. We were in debt. We sometimes struggled to make payroll. We got to the point where we handed it off to somebody else to run, with a type of acquisition, but more or less sort of, “Hey, take the business and run with it.” But you have options, I guess is the point, right?

Josh Pigford: Yeah, absolutely. So you went to school. Did you go to school for graphic design?

Kyle Racki: I did, yeah. I went to the Nova Scotia community college.

Josh Pigford: That’s right. So you finish up there, and then freelance for a while, or that’s when you started the agency?

Kyle Racki: Yeah. I worked in companies for about four years. So I went to a publishing company, and then a couple ad agencies. Did a digital agency. This was early to mid 2000’s, when the web was still very young, and Flash was really big. So I learned how to code ActionScript on my vacation. I read a big O’Reilly book on ActionScript.

Kyle Racki: I was really just trying to make myself valuable to people, of like, “What do people want? What are they hiring for? It’s really hard to find Flash developers. Okay, I’m going to learn Flash.” That was what I did initially, and then it wasn’t until, yeah, I was at an agency, and I think 2007 that I started making the move to go freelance.

Josh Pigford: So you were working at different agencies, went freelance, and then started your own agency?

Kyle Racki: Yeah. I called my freelance business Headspace, which, not to be confused with the mediation app. That wasn’t around back then, but we called it Headspace. I invited Kevin to be my partner to start Headspace, and then we gradually started hiring people to … You know, designers, developers, project managers, that kind of thing. We were, I think, at our biggest maybe 10 to 12 people, just a small, little web design shop, here in Halifax.

Josh Pigford: What was the transition like? You mentioned the agency, you consider it a failure. So you hand that off to someone else, how was that transition from agency to Proposify?

Kyle Racki: It was difficult. We had read the 37signals book, Basecamp. What was it called? Rework. About how Basecamp, they’re really well-known for being a web design agency that built Basecamp and then transitioned into a SaaS company. I think everybody thinks that they can be Basecamp, but what they don’t realize is that it’s very difficult to have a service business and elegantly transition into a SaaS company that’s growing.

Josh Pigford: Because you have to stop doing the thing that’s bringing you money.

Kyle Racki: Exactly. You might take one developer on your team and say, “Hey, on Fridays code our SaaS product.” And the Friday rolls around, they had their head in 10 other projects that week. They just start getting going with it, now it’s end of day. Okay, next week, code a little bit more. You never get anything off the ground. And then, what a lot of people don’t realize, and what I had in mind was that, “We just launch this product and we start getting customers, and then we get revenue.” That’s how it works.

Kyle Racki: We actually had about 17 months between when we launched our MVP to when we started actually getting traction. It was 17 months of flatness, of getting people in the product, having them not convert, or having them sign up to one of our paid accounts and then cancel the next month. We had five to 10 customers flat-line for about 17 months, between while we were running the agency, to as we transitioned out of it and raised a little bit of money for Proposify. It was a hard transition, for sure. It was probably the most difficult one to two years that I’ve ever had.

Josh Pigford: How do … 17 months is a long time to have this thing, and either, I assume you’re trying to balance that with agency stuff. How did you not just decide, the agency stuff brings in more money than this, and this thing is not growing, so how do you keep that going? How do you push through all that?

Kyle Racki: I think it would have been more difficult if the agency was really successful and bringing us a lot of money, but it wasn’t. Because I was really bad at running an agency, and I didn’t know what I was doing. It was a struggle. I frankly hated doing it. I hated working with clients. I hated trying … I hated the sales process, of trying to get clients, keep them happy, and keep our projects in scope.

Kyle Racki: I just wasn’t really that good at running it, and so I would have rather, and Kevin was the same, we would rather bet it all on this SaaS product and go down with the ship, than to try to keep this agency afloat for the next five to 10 years. I think every agency has about a five years testing period, where you either realize you hate doing this, and you want to do something else, or this is your thing, and you do it forever, until you’re retired.

Kyle Racki: But for us it was like, “I’d rather go work for somebody else than try to run an agency.” So we basically, it was just a bit of faith in each other and on the product. We knew we were solving a difficult problem. We knew that people wanted this software to work, and we were able to get people interested and talking about it. I think that was the clue, that we’re on the right track, just the product isn’t good enough. We need more time. We need more resources to get a product that actually solves the problem for people.

Josh Pigford: Where did the shift happen, where you go from a year and a half of no growth, to the product itself started growing? What changed?

Kyle Racki: What changed was, initially when we launched the MVP we were running the agency. The best move we ever made was we hired a developer, and we were actually able to get some government funding for this. Like a grant program, where they cover a large portion of the person’s salary. We were able to get a developer, Jonathan, who’s now our CTO, to come into the agency and work 100% full-time on Proposify. That, if that didn’t happen, we wouldn’t be here today. That was an essential shift that needed to happen. I think Basecamp even did something similar, where DHH worked 100% on Basecamp. He wasn’t working on client work. That’s step one.

Kyle Racki: I was working a lot on customer development and product design, and trying to make sure we were building the right thing. I was doing that while running the agency, and Kevin was working on keeping the agency afloat. But once we figured out we wanted to sell this thing, get rid of it, and focus 100% on Proposify, that process was basically just trying to get rid of the agency and keep working on the startup.

Kyle Racki: It was around, I think, April of 2014 that all the stars finally aligned, after months of grueling robbing Peter to pay Paul. We finally closed a seed round for Proposify. It was like $270,000. Not a lot of money, but something to free us up to leave the agency. Three of us work full time on the product, and then start really trying to get a product out the door that solved people’s problems.

Kyle Racki: From the time we raised the money in April, it was probably May, June … It was probably another four months before we started to see our customer numbers double every month. Once we started getting into September, October, we went from 10 customers to 100. We were like, “Okay. I think we’re onto something.”

Josh Pigford: It’s interesting that that was your experience, where once you were able to have full-time focus on it, that that really … It took … Interesting correlation here, or a similar story, I think is like Nathan Barry at ConvertKit. He, same sort of deal, where for, I don’t know, maybe two years, it was flat. I mean, like 1,000 bucks a months kind of MRR. It was sitting there, and he’s focusing on writing books and producing content and stuff, and trying to make ConvertKit grow, but it was very on-the-side thing.

Josh Pigford: And then, as soon as he focused, he changed almost nothing with the products, but focused on it and figured out how to market it, and all of a sudden it exploded. I think a lot of times, especially entrepreneurs who are capable, have a lot of skills … Maybe not, they’re not amazing at any one of those given, any single given skill, but they’re able to do lots of things. It’s easy to do lots of things, and to diversify, but at the same time there’s nothing to be said of going 100% on something, to see its full potential.

Kyle Racki: Absolutely. I still talk … Even though we think that everybody knows this, everybody knows you should focus on one thing and do it really well, if you want to have any major success. I still talk to entrepreneurs every day, who don’t get it, or they just buck against this advice and they’re like, “No. You always hear you’ve got to focus. No, I want to be a musician, and I want to have my album blow up, and I want to do my freelance agency service thing, but I want to do my side-hustle, where I’ve got this cool social networking startup.” I don’t know how to get this through people’s heads, to be like, all three are going to be at 10, 20, 30% maybe, forever, until you decide to go on one thing. I don’t know. There’s still a lot of resistance to this idea of focus.

Josh Pigford: I think part of it is that when you focus hard on something, it’s like it’s putting everything in one basket, and it sort of acknowledges that, or it increases the possibility that you could dramatically fail at it. Whereas, if you spread yourself out, you can be like, “Well, this little thing didn’t work, but this other thing is still working.” You keep limping along, but if you put it all in one basket, it sets you up to actually go down in flames.

Kyle Racki: It’s a bit of shiny ball syndrome too, right?

Josh Pigford: Yeah.

Kyle Racki: There are people, and I think entrepreneurs are maybe a bit more inclined this way, to be very easily distracted and easily bored. When you get into the guts of trying to get a startup to take off, especially when you have put everything into it and it’s not working, you have to resist that tendency that we all to give it up, and be like, “This isn’t working,” or, “It’s too hard,” or, “It’s too boring, it’s tedious.” Whatever that voice in you that’s telling you to … It’s like that voice when you start running the first 10 minutes, or doing any sort of physical activity. Your voice is like, “No. Just sit down. Sit down, have a coffee.” You know what I mean? “Stop doing this painful thing, it’s not fun.” You just have to push through it.

Josh Pigford: Yeah, totally. Okay. So you guys, you finally start getting some growth and seeing it really take off. I presume relatively quickly Proposify starts doing better than the agency itself was doing. What was that like for you? To realize, “Hey, “I’m onto something that’s actually working.”

Kyle Racki: We had been out of the agency for close to a year by the time Proposify started really taking off. It felt great. it felt like we were validated, “Okay, maybe we’re not idiots. Maybe we can actually pull of a business and not struggle.” Still very early stage. It think in 2015 we had grown to … I can’t remember, I don’t have the numbers in front of me. But it think we were getting close to 100,000 MRR by the end of 2015. But we hadn’t raised any money yet, we were still just bootstrapping and funding, hiring new people based off of profit and revenue.

Kyle Racki: We resisted the urge to raise money, but yeah, it was pretty crazy how growth works. A lot of people think it’s linear, and you just start growing month over month, but in actual fact, growth gets easier the farther you are into it, until it doesn’t. There’s that S-curve you’ve probably seen. Where it’s like … What we did, it took us four years to get to one million ARR, it took us three years, or something like that. But then the next year we got to three. So in one year we tripled. It’s weird the way that works.

Josh Pigford: Yeah. So when you crossed, you say that the agency was at maybe around 10, 12 people, what was it like going … You’re managing a team that was twice that size. What sort of struggles or issues was it to balance a team that’s double the size of anything you had managed before?

Kyle Racki: There’s a world of difference between managing a team of 10 people, and managing a team of even 30, or 40, or 50, which is where we’re going in terms of how big we’re scaling by the end of the year. Learning a lot of new skills. A startup that in find product market fit, that sort of early stage, just hustle, get customers, is a totally different company than one that’s growing at a certain percentage point every month, and has a board of directors, and has a management team in place.

Kyle Racki: The skills that got you that initial traction aren’t what’s going to help you scale up into a big company. This has been probably the most fun and most challenging part for me in the last year, is getting into that actual scale up, CEO stage, and learning those skills about how to manage properly. But I think one of the biggest things that’s helped is hiring a business coach, who’s basically challenged us and helped us point us in the right direction of how to gain those skills, and implementing … There’s a book called Traction, by Gino Wickman. That’s been really helpful, in terms of how to set goals, how to lead your management team doing weekly syncs, big rock planning. There’s so much around management that you could learn from that book.

Josh Pigford: Do you consider yourself more, or maybe enjoy more, the management side of things, or do you really enjoy the product side more?

Kyle Racki: I still am involved quite a bit on product, but not in terms of really the implementation, but working with our head of product to plan out features. Because my background as a design and a product person was … You don’t want to lose that, or you don’t want to be completely out of the loop on it, so I’m still quite involved in terms of figuring out, talking to customers, or reading customer tickets, and looking at the long term vision of what Proposify should be.

Kyle Racki: I still like having a little bit of a hand in that, and maybe working with designers on some, wire-framing some ideas, and working through the process a bit. But there’s that thing that me creatively interested, and then there’s the more CEO type management stuff, around planning board meetings, and planning quarterly goals, and all that stuff. I’m actually having with both of them now. Whereas, a year ago I was stuck. I actually felt like I had hit a plateau, and I didn’t know how to get the next stage. I didn’t even know what the next stage looked like.

Josh Pigford: Right. What do you attribute the success of Proposify to?

Kyle Racki: I think we understood the problem we were solving very deeply, because we had experienced it. I had experienced it all throughout my career, so did Kevin. We knew exactly who were talking to. We were talking to companies just like us, small web design agencies, digital marketing agencies, who all had the same problem. I think especially early on, where we focused, we said, “We’re helping small agencies close more deals and write proposals and spend less time on proposals.” Just nailing that value proposition, and nailing that pain point, has helped us get to where we’re at now. I think if we tried to go too broad with it, and tried to become like DocuSign, we wouldn’t be here.

Josh Pigford: It was sort of taking that same focus that it took early on to even make the thing grow, like keeping, again, going back to focusing on what you’re really good at, and putting all your eggs in one basket.

Kyle Racki: At least early on. We are broadening it now, as we’re getting into scale mode. We don’t want to be all things to all people, but that first couple of years, if people can really focus on one core customer base, and understand them intimately. One of my favorite quotes is by Nicholas Kuzmich, a marketing guy, who says that, “Great marketing isn’t when you understand your audience, it’s when your audience feels understood by you.”

Kyle Racki: So when the headlines, the ads you’re writing, signal to that buyer, “Man, it feels like they made this just for me. They understand me so well.” If you can get to that point, it becomes so easy to sell what you’re making.

Josh Pigford: Yeah. What’s the next year look like for you guys? It’s hard to even think probably a few months out a lot of times, but six or 12 months, what’s on the horizon for you guys?

Kyle Racki: We have just closed about two months ago on our first major round of investment. We had resisted it for a long time, but we found the right investor and the right deal that made sense for us. Now we have some capital in the company to really experiment with. So it’s an exciting time where we’re, like I said, scaling up the team, trying to hit a really aggressive number of 10 million ARR by the end of the year. That’s where our head’s at right now.

Kyle Racki: I think sometimes people look too far in the future, where it’s hard to predict where things will go, but at least for this year, and I think for most SaaS companies, if you’re not at 10 million ARR yet, then you don’t need to expand to another international market, or create a new product. You really just need to double down and focus on what got you here, to get that first 10 million, and then you’re a little bit more freed up I guess. You’re a little less vulnerable and you can now experiment with other ideas.

Josh Pigford: Yeah. Cool. How can people get in touch?

Kyle Racki: People can email me, kyle@proposify.com. People can check out the site and our blog and podcast, where we talk a lot about sales and agency stuff, but we also talk a little bit about product and entrepreneurship as well. People can check us out there. Yeah, we’re all over the social media channels, so people can just look up Proposify of Kyle Racki.

Josh Pigford: All right, right on. Thanks for hoping on the call Kyle.

Kyle Racki: Thanks for having me Josh. I had a lot of fun.