70. How entrepreneurs create value

 00:00 
Dom Hawes 
What if treating your marketing plan like an entrepreneurial venture could unlock growth and innovation? Like, what would you have to do? How do you have to change your approach if your marketing plan was the whole business plan? How would you allocate your assets if you were building for venture capital or private equity? Does that sound far fetched? Today we're joined by Andrew Davies, Chief Marketing Officer at Paddle. Andrew is a hugely successful entrepreneur in his own right, with extensive experience in both building and scaling companies. And I think his entrepreneurial mindset offers us all a fresh take on modern marketing. So don't go away. You're listening to Unicorny, and I'm your host, Dom Hawes.  

 
00:46 
Dom Hawes 
Now, you may not have operated directly under the microscope of VC or PE investment, and if that's the case, let me recall one of my favourite takeaways from tech marketing guru Geoffrey Moore's episode on this podcast, venture capital markets for power private equity markets for profit. You see, the two approaches are markedly different. One is all about territory capture. It's a race to scale or a race to tie up key relationships. It's a growth at all costs approach. It's high risk, but the rewards can be huge. That is, venture capital or VC, whereas private equity or PE, it's all about transforming equity value in a more linear fashion over a defined investment cycle. It's all about metrics and measurement and systems and playbooks. Of course, you don't have to and shouldn't choose necessarily, one approach or other. Think of your marketing business.  

 
01:43 
Dom Hawes 
Sorry, I mean plan. But you can see how I'm thinking. Think of your marketing plan with two levers, growing power and growing profit. To build power, you need to grow your brand, you need to grow your market share, you need to grow your awareness, and you need to grow your reputation. To build profit, you need to price to market, you need to package well. You need to take measured and considered action to grow accounts. Thinking this way just might challenge a traditional marketing approach. Moreover, talking power and profit plain English just what this podcast is advocating for more and more. Treating your marketing plan as a venture opens the door to a world where every marketing decision you make is a strategic move and every challenge is an opportunity.  

 
02:30 
Dom Hawes 
Reimagining your marketing this way means your plan must be compelling and must be responsive to real problems. Every action has to have an outcome. But here's the best bit. Not all of them come down to immediate return on investment. If you can rationalize the reason you're marketing for power and express it in a way that a VC would buy into. Your CFO and CEO are more likely to buy in, too. Anyhow, I'm getting ahead of myself. You are in for a treat, so buckle up your ears. Andrew is a machine. Let's go meet him. Andrew, welcome to Unicorny. You have a wonderfully higgly, piggly career that brings this project such fresh perspective. Let's start. Why don't you tell us your story?  

 
03:13 
Andrew Davies 
I ended up on the Deloitte scholarship program before university. So at college, I applied because I wanted to find some way of financing my university course and was one of 15 scholars in the UK who were accepted. And were basically treated like graduates for a year before went to university. And then Deloitte funded our university course. And I loved my time at Deloitte. I worked there for a whole year, and then every summer, a winter, from then on through university. But having had that one year experience with them, I went to university at Warwick with one goal, which was to start a business so that I could say no after university. And so I turned up at university looking for a co founder to try and start things. My academic success through those three years, very much on the back burner.  

 
03:53 
Andrew Davies 
And we tried stuff. We failed multiple times, but we did end up graduating with a business that meant we could say no to other offers, appease our fathers, and charge on into the world of entrepreneurship. And I'm really fortunate that first leap for me was when I had nothing to lose. We had dorm rooms, we had, you know, friends around us, infrastructure paid for time on our hands. And I have massive respect for people who make that leap later on in life when they've got dependents, when they've got all kinds of mortgages or rent they've got to pay. And I'm very grateful we did that early. And so, yeah, it was the start of my career was saying no to what was a very established career option, and just trying to see how many times I could fail and still get up.  

 
04:32 
Dom Hawes 
That's great. I mean, what a brilliant way to start. And, of course, many of the best, biggest businesses in the world start in colleges, particularly in the States. Tell me about that business that you founded.  

 
04:40 
Andrew Davies 
There were multiple that founded, floundered and failed over the course of that first couple of years, but the first one was a top end womenswear fashion label.  

 
04:48 
Dom Hawes 
Wow.  

 
04:48 
Andrew Davies 
So thesis of that business was, let's start in what we consider to be the hardest industry possible, because then everything else will be easy. And so two, you know, straight 18 year old roles with no idea about fashion. You can see me today, thought, why not? And so it was actually a crowdsourced fashion business before crowdsourcing was a thing. So we contacted all of the top students from Birmingham Institute and central St Martins and all of the top fashion colleges and said, if you submit designs to our brief, then we'll choose the best ones, we'll pay for them to be manufactured into samples, we'll go and sell them and you'll get a royalty based on everything we sell. So that was the concept. We ran it for two seasons before it ended up in court and we moved on to the next one.  

 
05:24 
Dom Hawes 
Wow. But Ideo was the one where you got real traction.  

 
05:26 
Andrew Davies 
Yes. So by the time we finished university, were running a social media development firm that was doing Facebook apps. The first ever Facebook app for number ten Downing Street, Twitter apps for ITV. So you could see the sentiment around the football game. You're watching some really interesting projects, but it was an agency business and I could see that it wasn't going to scale in the way I really dreamed. And so I actually went and started with another co founder, a business which, yes, was ideo. Initially it was ideomag. It was a personalized music magazine to start with. But after several years of experimentation, we realized that the personalization algorithms behind what we built, that my co founder developed, was actually much more interesting than the flashy front end of the music proposition.  

 
06:03 
Andrew Davies 
And so we used all of the back office tech we'd built, expanded it to multiple different topic areas, and then relaunched as a multi tenant SaaS company where were providing personalization and content personalization for initially a whole range of companies. We talk about our ideal customer profile that emerged over many years. Eventually we had Salesforce and IBM and intel and JPMorgan as our customers before we sold.  

 
06:25 
Dom Hawes 
Wow. And when was this idea? When were you on the scale up?  

 
06:28 
Andrew Davies 
So we first raised money in 2013, but there were several years before that of faffing around for this music project. Bootstrapping, and very much bootstrapping. Getting ad revenue in order to cover myself and my co founder and one developer. That was a very long period of time and we definitely tried too long in an idea that was never going to work. But at least I retrospectively give us credit for staying true and surviving through that period. Once we then changed the approach, changed who were selling to and what were selling them, then suddenly it became interesting and we raised money from notion capital. After we'd initially started working with Diageo and Unilever, clients and they saw that initial traction and backed us to try and build something.  

 
07:08 
Dom Hawes 
So one of the things I love about being in this studio with an entrepreneur, particularly for our audience, is, and it's coming out, is oozing out of you already, is how not just how open you are, but how essential experimentation is in your approach. And I think quite often in large corporations, you end up following a path, building a furrow, and then feeling like you have to follow it. In a lot of businesses, mine included, actually, if you experiment with stuff and you say, actually, you know what, that hasn't worked, we're going to do something else. People then attach a moniker to you. Oh, they change their mind all the time. But that concept of experimentation, I think is so important, and we're going to have a look at that in the second part of this episode when we look at thesis driven marketing.  

 
07:44 
Dom Hawes 
I'm excited about that. But there were some other challenges specifically then. So Ideo was bought by optimizely, so.  

 
07:50 
Andrew Davies 
Technically it was bought by insight Venture Partners and put into the largest portfolio company they've had, which was episerver. So swedish backed CMS, were the flashy personalization and analytics piece that they put into it, and were the first company on a roll up. And we then with those backers, went and bought four or five other businesses over the next 18 months. And those included product information management tools included optimizely included welcome, which was a content platform. And that business scaled from 400 people to 1500 people in pretty much 1819 months. It was incredible through Covid, and you.  

 
08:22 
Dom Hawes 
Were CMO at that stage.  

 
08:23 
Andrew Davies 
So I was acquired in and myself and my co founder got really interesting jobs. So he was kind of running product strategy and I was kind of running central marketing, brand demand and digital all rolled up to me. And then we hired in a global CMO who came out of SAP, who I worked really closely with, and went through this process of integrating all of these assets and being involved with brand man and digital. Clearly it was a really fun period in the front as well as the back office of that business. End of 2021 decided it was probably time to move on. And I'd been doing some advisory work, and paddle was one of those advisory clients who I moved to join.  

 
08:54 
Dom Hawes 
We've talked on this podcast before about the challenges marketers face in m and a, not least because I think when you're doing a roll up and there's an overtly entrepreneurial approach or attitude, maybe it's slightly different, but in a corporate, often actually marketing gets told last, oh, by the way, closing, you need to do something about it. And given that you're managing not just customers but probably also responsible in a large part of a culture, how did you manage that super fast growth while you're scaling, bringing five different cultures and five different ideologies and m and a.  

 
09:22 
Andrew Davies 
I think is super interesting and from a marketing perspective, yes, is multifaceted. So let's just break out some of those facets. We've got the back office side. I was involved with two consecutive annual three to one marketo and Salesforce mergers. Is that on its own you can just need a big holiday afterwards. So back office wise, those data that the infrastructure of tooling is really complicated. Then if we take another step towards the strategy, you've got multiple icps, you've got these different ideal customers of all these different businesses you've bought. And so you've got to decide the priority of those icps which are now going to be important in the future, which of these acquired products are now going to merge technically, but also from a strategy and go forward perspective. So lots of challenges there.  

 
10:03 
Andrew Davies 
You've got the team aspects, the people aspects, all these people with pre existing norms and ways of working and tooling. They were using some on Google, some on Microsoft, some on Slack, some on teams. And that makes a whole bunch of other problems and the people problem is usually the biggest. And then finally you've got the brand implications and the go to market implications where you've got these loved logos and these loved ideals that were around all of these founder owned businesses that were growing in their own right. Now you've got to bring them together and try and re win the hearts and minds of each of those acquired entity customers. So yeah, there's a lot of complexity across those different things.  

 
10:35 
Dom Hawes 
It's a really interesting one. It feels sometimes to me natural when you've got two brands running that you're kind of hedging your bets exactly as you say, by running both at the same time. To me that you say make a decision early, what dictates which one you lean into?  

 
10:47 
Andrew Davies 
So I loved that process when we chose optimizely. So if we could back up a bit, my company ideo, that Ed and I founded, we knew were going to lose our name. We were the smallest business there. That was part of the acquisition discussions. The same with insight software and a couple of the others that happened when went and acquired optimizely. That was a business that was loved, particularly in America, had a very strong north american audience and recognition. It was known for innovation and part of thesis of the acquisition was bringing in an experimentation mindset into what was quite a stage content and commerce management platform in episerver. So myself and Kirsten ran that process to decide which name to use. Are we using Episerver, are we using optimizely? Or are we coming up with a completely new name?  

 
11:26 
Andrew Davies 
And we considered all those alternatives, we looked at all the data and we had an external party who helped us look at this and do some research. And really it came down to if we used EPA server. Firstly, there's two problems with that. Number one, epi is a medical term in the US. Servers are what we're trying to get people to migrate off. So there's lots of problems there. And it's north american awareness was very low and that was a big growth market for us, but huge developer fan base in Europe. When we came to optimizely, it was known for being innovative, it was known for experimentation, it was known for being forward thinking.  

 
11:56 
Andrew Davies 
And so we just felt that using the weight of EPA servers, very high retention, very sound unit economics, and also extremely good analyst relations, placed top right in all the major quadrants and waves. But to use that as our kind of core back office product, that's what we're adding things into. But to rebrand as optimizedly gave us all of these benefits of northern american market awareness, and particularly this positioning around experimentation. Being willing to try things and being willing to be bold.  

 
12:29 
Dom Hawes 
One of the things I first noticed talking to Andrew, and I'm sure you spotted it too, God is how word perfect he is. Now, I promise you, he's not reading off a script. And we haven't rehearsed this to death. And honestly, it hasn't been heavily edited either. A lot of what I'm asking him, and a lot of what he's saying is coming up naturally. Have you noticed there are no ums and ers? There's no hesitation. He gets straight to the point and he makes that point so well, I mean so eloquently. It's a great skill to have to be able to communicate so well. But I think it's also a symptom of his entrepreneurial approach to marketing and business. He places great importance on speed, fast decision making and fast execution. In his words, declare the direction early, then run really fast with it.  

 
13:14 
Dom Hawes 
There's so much we can learn from this approach. It's not about rushing a decision or making a decision without being fully informed, but it's not about delaying that decision. And the distinction might seem fine, but it is important because too often brands linger around their choices. Now Andrew gave an example of when the brands he was working with merged and what they were going to call themselves going forwards and what their new entity was going to be all about. If you set your course early and you let everyone know what's going on and why, you build both power and momentum. But the opposite is true. If you delay, power is replaced by indecision. Momentum becomes stagnation, and customers and employees become confused. And then they become frustrated and then they become ex clients and ex employees.  

 
14:03 
Dom Hawes 
And I've seen this time and time again and im sure you have too. Eventually those sorts of companies come to a decision and the words were going to sunset that brand crawl out in a press release somewhere. Oh my God, pass me a bucket. And its the same with naming. Ive seen companies deliberate over the name of a product or even a rebrand for months and months and months. In some cases it goes on so long that the context for the name change goes altogether. And so the opportunity of course goes with it. The competition just keeps on selling. It's all about thinking what is inevitable and then moving quickly to that inevitability so you can get out to the other side and get going forwards again.  

 
14:43 
Dom Hawes 
Think about that, because I think that is probably one of, if not the most potent takeaways that we've had on this podcast. Look for the inevitable and then outpace it. Andrew's already made the perils of inaction clear, so let's learn from it. Let's get going again. Let's get right into his next entrepreneurial lesson because I want to hear how he goes about scaling a business internationally. Let's get back to the studio. And so today you're at paddle, amongst other things. But let's start with paddle. Tell me a little bit about Paddle's value prop and what it does.  

 
15:16 
Andrew Davies 
Paddle is the complete payments infrastructure for software companies. So if you're building a software business and you want to sell globally, so you've got a checkout on your site. And so it's probably a consumer prosumer or SMB type offering where people will pay with the credit card. Although we do invoicing too. There is a whole bunch of hidden blockers to your growth. And the way we think about it is we want to help you scale from zero to IPo and we want to remove these hidden barriers to scale. So let's talk about a few of those, one of them would be different currencies in different nations. It's very clear in our data that if you offer multiple currencies through your checkout, you'll grow faster payment methods.  

 
15:49 
Andrew Davies 
Different people around the world want to pay with different payment methods, but then it gets into other complicated back office topics that no entrepreneur sets out wanting to go and solve, like tax compliance. You've got to calculate and then remit the right tax for sales tax in every one of these different regions globally, building relationships with each tax authority. And that's the kind of complexity that we completely remove. So we deal with the fraud, all of the payments and invoicing, the billing and subscription management, and the sales tax compliance. So as a software entrepreneur based somewhere in the world, you can immediately sell compliantly at scale everywhere else in the world. So that's our core proposition. About three and a half thousand customers, about a billion dollars, transacts on behalf of valve customers every year.  

 
16:25 
Andrew Davies 
And then we also made an acquisition 18 months or so ago of a company called Profitwell that has a metrics product. So we see inside about 36 billion of ARR every year of other software companies that have attached their own billing platform to our free metrics product. And it has a pricing consulting business called price intelligently. So we see inside more pricing studies in the SaaS industry than anyone else. We'll come back to that. And a retention business that helps automatically remove churn.  

 
16:48 
Dom Hawes 
So that gives you unique insight into critical factors that SaaS businesses face as they scale.  

 
16:54 
Andrew Davies 
Yeah, I mean, it's one of the reasons I love this job is we're constantly seeing behind the scenes data that no one else has access to.  

 
17:00 
Dom Hawes 
Are you able to share any, I mean, without. We're going to do pricing and packaging later. But are there any other sort of non pricing or packaging issues that you're able to share with me?  

 
17:08 
Andrew Davies 
Yeah, absolutely. I mean, I've just mentioned a few there around. Our core proposition in terms of multiple currencies, multiple payment methods, the benefits of localization. In each of these areas, we seek two different strategies. In particularly the west coast, us, and then rest of world businesses, where if you've got a large domestic market, you tend to scale by starting out and then going up market, selling much bigger dollar basket size to much larger companies. Whereas if you're starting in Lithuania or you're starting in Serbia or wherever it might be, you're often selling outside of your home territory very early. So you grapple with all of those cross border implications much earlier, and you leave going up market until much later. So it's just a very different type of business. But, yeah, we see loads of data on how those businesses are performing.  

 
17:49 
Andrew Davies 
We track and we publish. Every month we publish a snapshot of an index that shows upgrade MRR, downgrade MRR, what's happening in terms of people's growth rates. And we've seen a few interesting things in 2024. The first is, for the first time ever in January, we started to see MRR growth being driven by reactivation MRR. So people who have previously canceled now coming back to the table and reactivating, which I think is really interesting, hopefully a bit of a economic bellwether.  

 
18:14 
Dom Hawes 
Please let those be green shoots, right?  

 
18:17 
Andrew Davies 
Indeed. And we've seen quite a few green shoots across both b, two b and b, two c. When we look at.  

 
18:20 
Dom Hawes 
Our core indexes, I've long thought, you know, the. The US market, the biggest, I might say monoculture, but it's a more monoculture than any other, almost any other developed market in the world. There's such an unfair advantage to businesses that start there because they've got language, because they've got culture, because they've got the ability to scale way beyond anything you do in the continent of Europe. And as you say here, you've got languages, culture, you've got. I've tried to sell across Europe when were part of the EU. It was a nightmare.  

 
18:46 
Andrew Davies 
Yeah. Simplifying that is exactly our reason for being. And there are other implications here as well. Capital access is another one. And one of them that isn't really talked about is that most software companies in the US selling abroad, they don't bother to think about taxes until much later. They're actually advised often to think of that as a tomorrow problem that they store up fines for in the future. That dings them on future valuations. Often we work with european software entrepreneurs who find that deeply unfair because they're actually charging a higher price for the same thing, because they're incorporating all the local sales tax. And so there is also a political shift happening now with tax authorities needing to gather more tax revenue.  

 
19:21 
Andrew Davies 
There's legislation just been passed called CSOP, around sharing of data of us firms selling into Europe with all the local tax authorities. So we do think that this is going to start leveling the playing field as people have to up their game.  

 
19:31 
Dom Hawes 
You're obviously scaling paddle at the same time you're in there as CMO. What are you doing to create value for paddle? Where's your activity focused?  

 
19:39 
Andrew Davies 
So there are three times when someone chooses to think about their payment infrastructure. The first is first dollar. Either they're a second time entrepreneur who's seen these problems before, or they're in a small domestic market and want to solve them from the beginning. The second time is when you hit about three, four, 5 million ARR and suddenly you start getting tax fine notifications from different territories, or you see slower growth rates in different territories. The third point is somewhere between 30 and 50 million ARR, where you're now being dinged on later stage valuation or exit because you've got these compliance problems built up in your stack. So those are three times that we engage. And most of our customer base are web based software companies, prosumer, consumer, small SMB businesses.  

 
20:16 
Andrew Davies 
But we are seeing a really interesting rise in app businesses wanting to monetize outside the app store. Okay, so gaming business, consumer, subscription businesses, and they want to get outside of the kind of the walled garden.  

 
20:27 
Dom Hawes 
I was going to say they're pretty hefty. The price tag on the price tag's hefty.  

 
20:30 
Andrew Davies 
But also there's very little tracking in your marketing. So going straight into an app store, there's not much ability to move people between different plans. And actually, retention is much harder because Apple have made it so easy to cancel a subscription. And so there's a whole bunch of reasons why people want to own those relationships outside of one of those walled gardens.  

 
20:47 
Dom Hawes 
There is a mechanism, though, for somebody to have an app on an app store. Apple tends to challenge people legally to that, though, don't they?  

 
20:52 
Andrew Davies 
I think everything's changing. Our co founder was actually testifying in some of the lawsuits around this, around how it should be an open ecosystem where multiple payment methods could be used and you can choose between them. And so the tides are really shifting there. But beyond all of the changing tides right now, the fundamentals are still the same. If you are starting and scaling a software business and want to sell everywhere in the world, there will always be this complexity cross border. That's what we want to reduce.  

 
21:16 
Dom Hawes 
And that's an issue that our audience will be grappling with as marketers marketing internationally too. I think it's really interesting to look at things from a payment and legislative view. There's a lot more details probably, than a lot of our audience necessarily think about. And we deal with cultural issues often because they're thinking about communication, product marketing, I guess. But they are connected.  

 
21:35 
Andrew Davies 
They are. And then to your question on how we go to market and how I, as CMO, serve the marketing team in the organization. We have a sales team and we are doing outbound, but we also have a self serve business. And about 27 28% of our business now is done via the self serve. And these are often developer Personas in larger businesses or technical founders of smaller businesses who want to come in. They don't want to talk to sales, but they do want to get help with how they go live, how they go through KYC, KYB, do the risk checks so we can approve them. We have to be quite careful over that process and then go live with paddle. And so, yeah, we've got this sales assisted funnel. We've got this self serve funnel.  

 
22:09 
Andrew Davies 
There's the mess of managing the hybrid and people who go between them, and we do that in many, many geos around the world. So it's quite a complex go to.  

 
22:16 
Dom Hawes 
Market with lots of different customer journeys based on scale, geography, size, needs. And are you using technology to help you manage that? You could be using idiot.  

 
22:27 
Andrew Davies 
We could, yeah, we are using the things you'd normally expect in terms of Salesforce and HubSpot and gong, all the normal. And we're constantly experimenting with new things. And my belief is that we shouldn't be trusting the first generation attribution tools and believing everything that they say. And so we are investing across the board and looking really closely in deals that went all the way through and were won, deals that didn't go all the way through. People who give us feedback, we often ask for self reported attribution, where people heard about us. And it's really important to have a really open mind as to where people are coming from, because that can really get under the skin of what is driving growth, which often is word of mouth and is communities of interest and is developers telling developer friends.  

 
23:08 
Dom Hawes 
So, Unicornists, that is the end of part one with the impeccable Andrew Davies. And really, I think there are two big lessons for me taken out of today. One is speed, the need to move as fast as the decision will allow. What we used to call a sense of urgency when I was a soldier. And I think I'd probably go as far as to say it's better to move fast and get it slightly wrong than move like a snail and get it exactly right. Because even if you do hit the nail on the proverbial head, the horse may already have bolted. And we'll be breaking more metaphors in part two, so don't forget to tune in for that. Now, the second lesson was all about scale and the choice that defines your approach.  

 
23:49 
Dom Hawes 
If you are in a complex multicultural market, then how you scale horizontally across those markets, that's your priority. If you're in a monocultural market, then it's all about how you scale vertically. 1st 1st selling more to larger clients both work, but it's important to recognize which comes first. In part two, we're going to be looking at another two giant topics. First, we're going to tackle one of the most underused growth levers in marketing, pricing and packaging. These are some of the very first items on the agenda when private equity investors get involved in a company. Yet regular businesses, I think, seem to be missing a trick here. We're going to ask Andrew what you and I I can do about that. And then afterwards we are going to visit an old battle, brand marketing versus performance marketing. What's Andrew's solution?  

 
24:37 
Dom Hawes 
Which side does the entrepreneurial CMO take? I'm not necessarily sure there are brand new answers to this debate, but I guarantee you that his answer will surprise you. I think you're going to get a lot out of what he has to say. So keep your eyes peeled and your ears pinned back for the next installment. Or better yet, subscribe right now and it will just pop up in your feed like magic. You have been listening to Unicorny. I'm your host, Dom Hawes. Nichola Fairley is the series producer, Laura Taylor McAllister is the production assistant, Pete Allen is the editor and Peter Powell is our scriptwriter.