BusinessSaaS FoundersTechnologyUp the Startup Ladder: David Cancel, Drift Founder

Thomas Smale6 months ago2221123 min

Conversational marketing and sales software company Drift is changing what marketing to customers should look like. Founded on the principle that a company’s sales strategy is inseparable from customer feedback, Drift has become one of the biggest players in the growing B2B consumer chatbots space. Chatbots are everywhere, and Drift makes it their business to make sure they are operated in a smart way to drive new leads.

As a growing hub for SaaS, Boston is home to Drift, currently one of the most promising SaaS businesses in the country. Drift has raised $47 million in VC funding in its first three years and just recently announced another $60 million raised, led by Sequoia Capital. Chatbots, which were all the rage just a few years ago, appear to have somewhat hit the Gartner Hype Cycle’s Trough of Disillusionment. Companies building the technology set their sights a little too high, and so the intelligent assistants they were trying to create fell short of consumer expectations. While natural language processing is not yet advanced or accurate enough for true intelligent assistance, David Cancel knows how to use the technology for what consumers really need—conversational marketing. Drift’s chatbots allow sales and marketing teams to segment and target qualified leads, helping create a seamless communication experience across chat and email, and even automatically book sales calls with the aim of increasing conversions.

Cancel has founded five companies, four of which were successfully acquired. If you ask him what made this possible, he will credit his parents’ work ethic for most of what he has accomplished. Now, after several successful entrepreneurial ventures and serving as CPO at HubSpot, he has never looked back, and plans to take Drift all the way to an IPO.

What initially inspired you to found Drift?

I’ve been doing marketing software for a long time, and noticed an explosion in messaging. I suspected that there was a chance to redefine or resegment the way that we do sales and marketing. If you have a sales team inside of your company, there’s really no way to scale until you have a conversation. Modern marketing has worked really hard to prevent those conversations from happening and has put up roadblocks instead. I built customer-centered teams within companies, where the customer is really at the center. Then we built everything around them.

We did that first for selfish reasons, so that we get fewer things wrong, and then we noticed that it leads to better performance. I wrote a book about this, called HYPERGROWTH. I had that realization. You can think of Drift as an implementation of this, because it lets companies get back to getting closer to their customers, and actually having those conversations.

Was that your favorite part of starting a SaaS company?

My favorite part, being an engineer, was being close to the customer and actually seeing the impact of the product. As a creator, whether you’re an engineer or a writer, or designer, whatever you do, you live off of cause and effect. If something you build is good, you get an immediate reaction from people. When you get people saying, “that design really did something for me,” or “your product really solved the problem,” you know what you’ve created has been validated. Then, as you move towards being manager of a company—that is, the further you move away from making—the more removed you are from that process of cause and effect. That leaves you thinking at times, “I don’t know if I have had enough of an effect. I don’t know if we’re impacting customers. I don’t know.”

You can look at data, but you don’t feel that visceral reaction. I needed that on an operative scale, where you still get the feeling that you’re having an impact on the market and on your customer.

Having four private exits already, how did you know Drift was the one to take all the way to IPO?

I think everything is layers on top of one another. If I didn’t have the experience of trying to scale a company, I probably wouldn’t be working towards one day going public. I think what’s important, for me, is that now, in today’s world, you have access to all the world’s information. You know that these things are possible. I grew up in a time where I didn’t even know it was possible. I didn’t even know how to apply to go to a college outside of the city I was in.

The same goes for starting a company, or having the aspirations that we do now. I didn’t think that was possible. What happened, over time, is that I’ve continued to change my peer group. I think it’s true that you are the average of the five people around you. My peer group now is people who have brought companies public. That’s normal to me, so that’s now just in my thinking to say, “Oh, we can do that too.”

That’s one aspect. The other aspect is that I’ve never been part of a company that’s had as much momentum at such a right time in the market for what we’re doing. That inspires me.

What do you most emphasize in Drift’s company culture?

I think the one thing that we most emphasize is progression. One of our values is that we should all become learning machines. We should all have our own personal progression that we want to achieve. I think if we can have a culture of people that have this internal pull to progress, even outside of Drift—especially outside of Drift— they will pull Drift forward. We want those people who are intrinsically motivated, who have their own why, their own reason for progression. With some people, you have to help them discover that, because they might not know what it is. Some people know it, and they have the next 10 years of progression mapped out. Everyone is different. We have to meet them where they are.

That’s probably the most important thing from a culture standpoint and it comes from one of my virtual mentors, Charlie Munger, the business partner of Warren Buffett. He has this idea that I love. At 90-something years old, he’s seen people achieve great things throughout his life, who weren’t necessarily the smartest or the hardest working, but they went to bed every night a little bit smarter than when they woke up. Over the long haul, that made all the difference. That is the inspiration that I take, and I try to look for in everyone that comes here.

Moving into the nitty gritty of startups for a minute, what key performance indicators should SaaS startups absolutely focus on?

In the early days, the thing that matters the most, really, is do people care? Or rather, are they indifferent? Is what you’re building, proposing, or selling, actually resonating with someone? A lot of people skip over this, but it’s the most important factor. There are usually two things that happen when you’re early out, and you are pitching someone. They tell you that they love it, and they like the idea, and they keep having meetings or discussions with you. Or they don’t get back to you, and they’re kind of indifferent about what you’re proposing to them. The curse for all startups, in that early stage, is indifference. It’s better that someone either says, “I freaking love this thing, I’m going to buy it right now, please take my money,” or that they say, “I hate this thing, and this is the dumbest thing I’ve ever heard of” because it means that you’re having an emotional connection with them. There’s something that’s resonating, even if it’s negative. I’ve found, over the years, that it’s easier to take someone from that negative feeling to become a fan, than it is to take someone who is indifferent and turn them into a fan.

That’s the very, very early stage. Once you’re getting to a point that you can get some customers, I would ask: “what’s the conversion rate from interest to giving me a dollar?”

The mistake that I see a lot of founders make here is that they spend too much time overthinking, optimizing, modeling, whatever, from a pricing and packaging standpoint. The test, at this stage, is whether the customer will give you anything. Will they give me $1? Will they give me $5? Will they give me $20? It doesn’t matter. If the market is big enough, it does
not matter what they give you. You’re trying to measure the conversion rate of interest to actually parting with the dollar. This is the true test. This is the first real test. What you want to measure is how good you can get that conversion rate. Once you get a good number of people with a strong conversion rate, now it’s time to optimize your go-to-market and your pricing. Then you can have some normal sales metrics. Eventually, you get into usage and churn, and all these other metrics, but that stuff is easy to track. When you’re in that
mode, those are luxury problems. The real problem, for most of the people that are in that early stage, is getting people to care, and getting them to show how much they care, in terms of dollars.

I can’t say I was expecting the most important KPI to be an intuitive, emotional response.

As people, we get fooled by wanting to chase these meaningless KPIs, that have no emotion, that have no customers attached to them, no safety attached to them. Of course, we all want to chase those, because those things can’t tell us that we’re wrong. We’ve chosen the KPI by definition, so we probably weeded out the possibility of us being wrong. Those distract us from focusing on the real problem. This is why I’m obsessed with this idea of centering the entire company around getting real-time feedback from that customer, and incorporating it. Sometimes you can do that in KPIs, and you can find those KPIs that work well there, but a lot of times, it has to be what we call qualitative feedback.

Was there was a tipping point for Drift?

There were a couple I think. The first one that we noticed was that dollar test. We have a number of customers, still, who we only charge maybe $1 a month. We had a couple that got lifetime access to Drift for $20, because they were the first three, four or five people to commit.

That was when we first started to see some people give us money. Then we went to find their friends and saw the same thing. This was the first tipping point: strangers. We were talking to strangers, and they were willing to show their commitment by buying Drift, even before we had most of the things that they needed—so we knew we were onto solving a real problem. You don’t need your product to be beautifully designed and have all the features. That’s all a misconception. If you solve a really big pain point, people are willing to put up with a little bit of ugly. The second tipping point came after we installed a built-in viral mechanism into our product, because every time the product was on someone’s website, it says Drift on it. Imagine you go to a website,
and every page you’re looking at, there’s a little thing in the bottom right that says Drift. We started to see strangers coming in, saying, “Drift is everywhere, I need to buy Drift.” Obviously we knew Drift was not everywhere, but Drift might be on two or three websites that they visit every day, so that has an impact. We saw that go viral, and we measure it internally. We saw a large percentage of our signups happening because of that viral mechanism.

Is there one mistake that most businesses make when converting a lead?

The most common thing, and this is where I ended up with this customer- driven approach, is that their pride is getting in the way. They’re not actually looking to the market, to the customers, to the world. They’re just obsessed with their idea, and they’re hitting a brick wall, because they don’t know why anyone doesn’t like their idea. That one’s pretty simple.

Did you at any point have any serious doubts, or feel like you wanted to give up?

No. That’s never happened to me. That is a good and a bad thing. It’s a good thing, in this context of being an entrepreneur. That’s an asset. In the rest of my life, it’s not always an asset, because I have a 100% obsessive personality. Whatever I’m in, I’m in 100%. I can’t be in 50%. It’s impossible for me. If you talk to my wife, she would tell you all the ways that this is not good. Nor can I talk to people who I’m not interested in talking to, not even a little bit. It’s not the best thing in the rest of life, but it is good in this one little niche.

Thomas Smale

Thomas is Editor in Chief at SaaS Mag and Founder of FE International, the leading M&A advisory firm for online businesses. He is a serial online business entrepreneur and expert. In his early 20s, he began building and selling small online companies. This turned into a full-time career when he founded FE International in 2010, growing the business with zero funds from ground up and consistently doubling annual revenue, as well as the average deal size. Thomas specializes in advising in the M&A of SaaS, e-commerce, affiliate and content businesses. He has consulted hundreds of internet entrepreneurs on exit strategy, growth and business development.

2 comments

  • Trixie

    July 17, 2018 at 12:12 am

    Thanks for the insights. It brings light into the dark!

    Reply

    • Emily Chisholm

      July 17, 2018 at 1:18 pm

      Glad you enjoyed the article!

      Reply

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