[00:00:00] Andrew Davies: I do… the way I would think about it more is where do we have degrees of very high conviction and have those changed in each phase? And where do we have PCs that we're trying to bet on and where have they changed over time? And so, you know, in the early days of Paddle, I think there was just a strong conviction that there was a market to go and win. And so everything was just about going, going, going. It wasn't about, necessarily, building for the future. It was just go, go, go. And so we have to be very careful, for example, on the type of seller we serve.

[00:00:39] Andrew Michael: This is Churn.FM, the podcast for subscription economy pros. Each week we hear how the world's fastest growing companies are tackling churn and using retention to fuel their growth.

[00:00:52] VO: How do you build a habit forming product? We crossed over that magic threshold to negative churn. You need to invest in customer success. It always comes down to retention and engagement. Completely bootstrapped, profitable and growing.

[00:01:05] Andrew Michael: Strategies, tactics, and ideas brought together to help your business thrive in the subscription economy. I'm your host, Andrew Michael, and here's today's episode.

[00:01:16] Andrew Michael: Hey, Andrew, welcome to the show.

[00:01:18] Andrew Davies: Thank you so much. Good to be here.

[00:01:20] Andrew Michael: It's great to have you. For the listeners, Andrew is the CMO of Paddle, the merchant of record for digital products. Prior to Paddle, Andrew was the co-founder of Idio, which was acquired by Episerver, where he then transitioned to the role of VP of Corporate Marketing at Optimizely. So my first question for you today is where in the world are you? You've been traveling a lot over the last couple of years and how do you keep up? Obviously, like I know where you are now, cause I can see you're in your back garden in the UK. But sort of ruined my first question and opening, but tell us what you've been up to lately. Obviously, wherever I see you, you're always on the go.

[00:01:52] Andrew Davies: When I joined Paddle, one of the things that really attracted me to the business was that we had a globally distributed customer base. We serve – you can go to pretty much any city in the world and there'll be some Paddle customers. That's part of our core proposition, helping people sell globally, particularly from small domestic markets. So I think travel has been really core to this role because I really believe that it's my role to get behind the website, to get behind the zoom call, and actually break bread with our customers, our partners, our prospects.

[00:02:17] Andrew Davies: So yeah, it's been a few years of heavy travel. Although what's really great now is that we have probably got four or five people. We're building a little speakers collective at Paddle, and we've got four or five people that are doing those travels too. And so although I'm still traveling just as much, there's more people from Paddle going to more places. So yeah, the last few months have included a couple of trips to the US, China, and India, Singapore. Our team has been to Tokyo, Istanbul. I'm heading off to Croatia next week. But yeah, right now I'm in sunny Ottery St. Mary in my backyard.

[00:02:45] Andrew Michael: Very nice. Yeah. And looks like a rare occasion that it's sunny in the UK. So don't blame me for enjoying that. Yeah, for us, like I'm obviously, I'm based out in Cyprus. I think we have sun as a luxury and like weekend we're at the beach. And I was actually quite shocked. So, I was saying to my wife because it was very quiet, but the weather was very good. And I think in Cyprus, if it's not 30 degrees out, people are on at the beach and like... So I think we're very, very close— different expectations.

[00:03:14] Andrew Michael: Nice. So we're chatting a little bit about today. Obviously, like we previously did an episode, regretfully, we weren't able to air the episode just due to the quality and the sound at the time. But we discussed a few different topics for today. And I think one that you mentioned, I think is really timely, at least for me to understand a little bit. And also I think it is quite an interesting topic. It's like, how do you think about growth in different phases, and how do you think about what's next, and how you position yourself in the messaging and things that goes into it?

[00:03:41] Andrew Michael: So, maybe before we dive into that, it would be great to get your perspective on like what is Paddle? Like if you had to describe Paddle today in a few words, like how would people and should they understand it? Obviously we've seen on the sites that we all need more, and more is merchant of record. But what does this really mean?

[00:03:58] Andrew Davies: So I was a software founder, as you said, before I became a CMO and I used to describe this set of problems called champagne problems. These problems only came about when you actually achieved some form of success. So you managed to close a great customer, and then suddenly there are the champagne problems of customer success and support ticketing, and all of those things you've got to solve. Or you go and get your first office and suddenly you've got to deal with leases and how you manage all of your water contracts and WiFi.

[00:04:27] Andrew Davies: And those are the champagne problems. The problems that no founder wakes up to go and try and solve, but they come as a necessary consequence of doing something right. And I really believe Paddle solves a huge number of champagne problems, back office infrastructure problems, when it comes to taking payments from around the world. This is a... we're living in a world where everyone is born global. Our businesses are born global, particularly if you have built a self-serve software, AI, SaaS, app, and you're instantly selling around the world from your website. And that's increasingly a mode that most people are taking.

[00:04:59] Andrew Davies: Now that should be easy, and yet it's insanely complicated when it comes to all of the tax legislations globally. You come down to the currencies in different places, the different payment methods people are used to using, fraud profiles in different regions. Everything becomes complex from day one. Those are big company problems that you've got to solve from day one. So Paddle serves more companies, medium-sized companies, and some massive global businesses by helping them in a really frictionless, seamless way. Take their payments from all over the world in a way that helps them save money, helps them lower risk and helps them grow faster. That's what we do.

[00:05:31] Andrew Michael: Nice. I love the phrasing of champagne problems. It is definitely – it resonates quite a lot. And actually, it's one of those first things, I think, when we started the first business. The last thing in your mind is thinking about the complexities of global payments and taking tax in different regions. And I think even for myself as well, previous startup, like we started to do quite decently and then going to our accountants locally here. They were like, we don't know how to do this. And they needed to actually do their own research and figure it out.

[00:05:59] Andrew Michael: And like, I think so definitely a Paddle solves a lot of these interesting challenges at good points in time for companies. But nonetheless, they are frustrating and they need to be resolved.

[00:06:10] Andrew Davies: But they do. And one of the things that I find increasingly interesting is how much there is this fork in the road where people often by default build their own payment stack, you know, ends up coming a piecemeal payment stack on top of a payment service provider. Not because that's something they've chosen to do, but because they're solving today's problem, not thinking about tomorrow, next week and the week after. So there's this fork in the road that's totally subconscious, where you just throw out the checkout and then next week you have a problem, next year you have a problem, five years time you have a big problem.

[00:06:39] Andrew Davies: And so one of the things we're trying to do, and you mentioned that phrase, the world needs more. It's one of our brand messages that we're trying to reduce the complexity of what we're talking about. Say, well, really there is this fork in the road and you can choose a complex way where you own everything, you've got to maintain everything, you've got to pay for everything, you've got to build everything. Or there's another option where you can actually gain loads of things, loads of business benefits in terms of revenue, in terms of reduced costs, reduced risk. And so, yeah, I think making that decision point conscious rather than subconscious is a key thing we're trying to do right now.

[00:07:11] Andrew Michael: Yeah. And I absolutely – I think I remember as well, early days at Hotjar, we actually went down the path of building our own billing infrastructure to start. And I was really [inaudible] at that point, I was like, we need to cut this because we were just chewing up resources like every week, two weeks. So there was something happening and needed to be fixed. And I think these are one of those things like build versus buy. Like if it's not your core competency and like you're not building billing infrastructure for your customers, like it's not one of those things you want to be wasting time with trying to figure out.

[00:07:39] Andrew Michael: And as you say, I think you get a lot of these things out of the box and end up saving you money as well on the other end. So like, you may see it as an additional upfront costs, but then there's all the additional benefits that help reduce churn or help reduce like costs from an accounts perspective. And they pay for themselves, I think, eventually. Nice. So obviously, more is not where Paddle was, like even two years ago. This has been a reinvention from the start. I think you've been there during that period as well. And you're probably thinking about what's next.

[00:08:07] Andrew Michael: So like, maybe you could talk us through these phases. Like maybe when you first arrived at Paddle, what was the status quo then? How did you start thinking about what the future was going to look like? How did you start preparing the team? And we'll take it in phases. Let's go from the first points and take you back in time a bit.

[00:08:23] Andrew Davies: So I'll dive into all of that. I think one thing that's really helpful to me as a frame of reference is Notion Capital, every year, do this Cloud 100 Report and they look at people who've got to a hundred million revenue or a billion dollar outcome across Europe. And they describe the stages of a business as being so discreet, it's almost like building a new company at those pivot points.

[00:08:45] Andrew Davies: And I think often, you know, as operators in businesses, things happen gradually because we're in it every single day. But when you step back from it to realize that actually there's some pretty pivotal things that have happened, you can usually divide your company history up into a few key phases. And those phases often look very different from a market message team activity type perspective. And you know, we can dive into a bit of that in other companies too, if it's helpful. But if we look at Paddle, you know, I don't know intimately, the first few phases of Paddle.

[00:09:17] Andrew Davies: I know the founders as well. And so they talked to me about it, but I wasn't experiencing those I was, as you say, building my own business. And then at Optimizely as we acquired a bunch of businesses and built that. And so I walked in the door in 2021. Really, the business has grown dramatically through COVID, lots of COVID tailwinds. And Christian and Harrison founded this business nine years prior, and had grown this really interesting company.

[00:09:44] Andrew Davies: But even though I was in the same portfolio of the same VC with them, so I had a series A-investor, the series A-investor in my company. I knew these guys were smart and young. I knew what they were doing was killing it and growing fast. And I didn't really understand it. I didn't know what it was doing. It was kind of a thing over there that was too smart for me. And so walking in the door, I was invited in to come and do a bit of a demand chain audit and look under the hood of their marketing function.

[00:10:10] Andrew Davies: And what I saw was absolutely a business that had very strong unit economics that had grown very far through COVID, that had a really nice culture, that had massive ambition. And hadn't really built a marketing practice, hadn't really invested in that side of things much. And so those that were in the team were really, really good people in the biggest jobs of their lives and doing very well.

[00:10:33] Andrew Davies: But everything was happening in parallel. So we were focusing on something and then moving on, and focusing on something else and moving on, and focusing on something else. And coming from the seat of Optimizely, firstly, I felt there was a massive need to just up the volume and the intensity of what we would do. That was what was happening on the marketing side.

[00:10:48] Andrew Davies: On the overall company strategy side, we had two things, three things I'd point to. Firstly, Christian, our founder, was the CEO, and he'd been in that tenure. He's incredibly smart, incredibly intelligent, and had been building that business from day one in his bedroom. And he was just starting to build our leadership team. So Jimmy, who's now our CEO, had been brought in as the COO, and he was starting to build out that leadership function. I was one of the first people he hired in.

[00:11:12] Andrew Davies: Secondly, if we think about our kind of platform, we had a business that was built on something that had been put together over the last nine years and was a bit of a monolith. It was very hard to innovate on. And there was a project underway to rebuild, to re-platform the entire thing. And thirdly, there was a belief in the business that we should go into upmarket B2B rather than our home kind of territory, which was prosumer, consumer, SMB SaaS that was selling globally.

[00:11:40] Andrew Davies: Of those three things, the next couple of years was then massively impacted for the positive by then acquiring ProfitWell, which brought in a couple of new leaders, brought in a couple of new products. And so the next few years, we had to A, replatform the core architecture. And we did that successfully. And now an increasing volume of our business is on a completely new platform that's really innovating fast. We're shipping on that every single week.

[00:12:03] Andrew Davies: Secondly, we've now got a full leadership team. Christian's now a board advisor, Jimmy's the CEO, and we've got a fully new C-suite to go to that next stage. And then, as we think about that upmarket B2B kind of run, what we saw there was actually we could open lots of opportunities, and we couldn't close many of them. There wasn't good enough product market fit. And so, actually, we've been having to innovate a lot on our product market fit in our core home market. And then we can talk about the app space that's opening up to us as well. And so we really have strong conviction over serving prosumer, consumer, and SMB SaaS, rather than trying to go up market into people who've got lots of sales teams who needed more of an invoicing product.

[00:12:41] Andrew Davies: So there was this phase, and to answer your question, you know, this phase of probably three years of just building fundamentals, leadership, the platform, who is our market. And I really feel that maybe sometime a year ago, we then started turning the corner, hitting our stride, and now we've got a stretch for something.

[00:13:00] Andrew Michael: [inaudible] more. Interesting. And so going back to sort of when you joined, then at that point. Like as you mentioned, you came in, you just sort of like a look under the hood. You saw what was happening, good economics, but just wanted to do more of everything from a marketing perspective. Like what led you to that conclusion? And then how did you go about building that function out? Like what was the steps that you took there?

[00:13:22] Andrew Davies: So, I'm very much of the belief that if the market, if your target market is from you regularly with things that are interesting, useful, helpful, surprising, sometimes shocking, funny, you have to build a cadence of just lightning strikes into your market. And that's one really good way of building a brand, of building awareness and affinity towards what you're doing. And so I just felt that Paddle, I still feel like we're a best-kept secret, but back then, we really were a best-kept secret. Like, very few people knew about us. They were already going through this kind of rebrand of the business to make the look and feel on the kind of the color palette and the website and stuff look much more robust. But we just weren't known enough.

[00:14:08] Andrew Davies: And, you can go into all the studies of, you know, mental availability, physical availability, and how if you got both of those, you've got a chance to then go and grow a sustainable business off the back of it. But we weren't mentally available. Like, you could buy us from anywhere, but very few people knew about us. That fork in the road we described at the top, so many people were defaulting to just go and build their own stacks. They didn't realize there was another option. And so one of my thoughts was we've just got to get motion out there.

[00:14:32] Andrew Davies: We've got to launch things, launch campaigns, launch media. We've got to be everywhere where our market is. We've to start traveling to those events. So those were two key principles. We've just got to do more. We've got to let the market feel that lightning strike. We've got to travel lots. And I remember when one of our VCs pulled Christian aside, this was several years ago now. He said, every time you guys make an announcement, LinkedIn is useless to me for 24 hours. Cause all I see is people posting with yellow about what's happened. He was probably in the network, but, you know, [crosstalk]. Yeah, we've managed to tick a box there because now people see us when we launch. So those were two key things I tried to build.

[00:15:08] Andrew Michael: And you obviously made a big bet into content. I think like Paddle’s, at least from my knowledge, got one of like the best, I'd say like content engines. I think also probably like the Price Intelligently acquisition, ProfitWell. Like, there was part of the motivation there, I think was some of that they had built on their end. Why that specific pillar? Why did you decide to double down on content?

[00:15:33] Andrew Davies: I mean, we'd have to define what content is for me to answer that question usefully. But I believe content is the way of building customer relationships on mass. You've got to choose what kind of content you want to build, right? Unless you're going to build your entire business just on page. And even if you are, then probably content is still going to make a big difference there. For me, there were a couple of thoughts.

[00:15:55] Andrew Davies: Firstly, we sit on a huge amount of data. We serve 5,000 software businesses for our metrics products and other 19,000 software digital product businesses. So we've got data to tell a good story. And so one of the first things is we want to make sure things we do are data-backed. How can we help the audience with data?

[00:16:12] Andrew Davies: Secondly, that word help. There was this aspiration in the business to be the most helpful brand as we define the market then, the most helpful brand in SaaS. And we wanted to always show up, not trying to interrupt people, but we're trying to add value to their day. And then thirdly, you know, I strongly believe that, you know, the market kind of for boring e-books is extremely competitive. But if you can do something a bit interesting, and for me, you know, early days of video formats, episodic programming is interesting, how can you explore LinkedIn is interesting, how can you get influencers involved in content creation is interesting, you start to become in an area of a bit rarer air.

[00:16:50] Andrew Davies: And so that's very much what we were trying to do is make sure we were standing out from a lot of what B2B marketers were doing. And so, yeah, I think those are a couple of the theses behind it, but episodic is really important to us and doing something that's creative enough to break the scroll.

[00:17:05] Andrew Michael: Yeah, that's right. I think obviously when we met up, I was at SaaS stock the last time, just seeing like the full team that you had there organized, and like the content engine was like in full force. They're generating like on the spot. I think it was really powerful to see. The episodic nature, I think, is interesting. I think, like you said, like having that unique insight that you have this amazing data set that you can sit on that provides a lot of value to people and if you can generate like interesting content off the back of that, it is almost a no-brainer.

[00:17:31] Andrew Michael: Next question is like, do you publicly share ever any like data on revenue? Cause then my next line of question was going to be more around, like at what sort of stages were you at like when you joined in terms of revenue versus like the ProfitWell acquisition? Feel free to say no, but just trying to get a sort of like sense and understanding of like where the company was at when they decided to make this acquisition. Because that felt like it was also then the turning point in the road, as you said.

[00:17:55] Andrew Michael: So, like first one was like onboarding a few good leaders. Second step was like now starting to take some stride, having an acquisition, which is almost like a new product offering in its own, like the second – I think, like Jason Lemkin, I think, it is like typically like company should start thinking about what their second act is at around 10 million in ARR. I'm not sure like what Notion's playbook is for it, as you mentioned, but just keen to hear from your side, like roughly where you were at and what motivated it.

[00:18:22] Andrew Davies: So it was definitely much later than 10 million when we started thinking about that multi-product experience. And I think one of the things that we learned through that process, if you think about the ProfitWell acquisition, firstly, it really did help us on the brand side, particularly in the US, because Patrick Campbell and the team had built a really strong US brand. So it did help on that side. Their retained business has now been really much integrated into our core merchant of record. And that's a real value add for new customers, but also existing customers on improving their churn. Price Intelligently, we ended up divesting after a couple of years.

[00:18:54] Andrew Davies: And so that's now sitting in another business. But we learned a lot about pricing from that team. And then they've got a metrics product, which we still use its core part of our product. And we're now kind of working on how we fully integrate it and rebuild it in future. So I think the ProfitWell acquisition helped a lot on brand and helped a bit on the multi-product.

[00:19:14] Andrew Davies: But I do think, I do believe that it also got us to a point of conviction on what our home market was and what our core offering was. Because sometimes you have to experiment a bit and try stuff in order to get that conviction. It's hard to come up with conviction in a darkened room without trying a few options. And so one of the things we learned from the ProfitWell acquisition was that actually, Price Intelligently, their ICP was a bit different to ours. We thought there was much more overlap. There wasn't as much overlap as we thought there was. You know, with the prior to the upmarket – prior to the ProfitWell acquisition, that the upmarket B2B push, we learned that actually we should stick to our knitting, and the market we were serving right now was the one we should go after.

[00:19:52] Andrew Davies: So actually, kind of counterintuitively, I think some of our strongest convictions are a bunch of that experience is focus where we know we're really strong and find other pockets of market that look like that. And some people say strategy is a world of bundling or unbundling, right? And I think we're on the side of bundling. So whereas Stripe and others are unbundling, they give you lots of Lego bricks to go and build any solution you want to for any type of industry across horizontal. But every one of those bits you have to build yourself. You have to integrate yourself and costs every time you do that.

[00:20:21] Andrew Davies: I believe at Paddle, we want to add more and more into the bundle. So one of our reflections is actually, you know, this multi-product ideal. We are multi-product, but it's all contained in that bundle. not trying to run lots of complicated upsell and cross-sells. We just want people to pay one simple price, which is a take-rate model, so it's fully aligned with the customer and they get all the value off.

[00:20:41] Andrew Michael: Yeah, nice. Interesting as well that you learned those lessons like after acquisition and typically like acquisition, I think, you'd be thinking about these things ahead of time and you probably did and you thought like the motives are good but then just learned these lessons along the way and yeah, Not probably, you definitely did. Nice. And so, going back to the start, you mentioned sort of Notion had these like very deliberate stages. Like how well do you think you tracked them? Maybe you would want to share those quickly. Like if you can give a quick summary of those stages and how Paddle’s been tracking to them or not.

[00:21:15] Andrew Davies: Yeah. So I think I'm trying to load an article from them now so I can repeat it faithfully, but maybe we should include it in the show notes. I can link it through so you can share it with the listeners. But I do think this does depend a bit on the market, the company building and the market you serve. Because often in the past, people have tracked these by employee count. And people will say, "Oh, you know, when you get to 50 people, when you get to 250 people, when you get to..." And we're currently, you know, just about [crosstalk] 300 paddlers.

[00:21:43] Andrew Davies: But we were 300 paddlers two years ago. We've gone through, you know, helping people graduate or people have been, you know, moving on to other roles and we've been hiring absolutely fantastic talent in return. So we feel we've really upgraded our talent pool, very significantly over the last two years, but we've got no extra people and yet our revenues are significantly beyond where we were. And so, you know, suddenly people doesn't feel like a very good indicator. If we come to revenue, then suddenly you've got companies like, you know, Lovable, who blow everyone else out of the water and there's no way that they've experienced five phases of growth over the last six months. It's been, you know, one or maybe two clusters of growth, the phases.

[00:22:24] Andrew Davies: And so, I do think this becomes a lot more messy than in the predictable SaaS kind of sales machine that we saw previously. I do – the way I would think about it more is where do we have degrees of very high conviction and have those changed in each phase and where do we have PCs that we're trying to bet on and where have they changed over time? And so, you know, in the early days of Paddle, I think there was just a strong conviction that there was a market to go and win. And so everything was just about going, going, going. It wasn't about, necessarily, building for the future. Again, you've got those problems of sometimes moving too fast and not thinking about the infrastructure and the operations, et cetera. It was just go, go, go.

[00:23:03] Andrew Davies: And so we have to be very careful, for example, on the type of seller we serve. Because we have a whole bunch of liability around the products they're serving and the ways they do business with their customers because of our merchant record model. And so we've to be very careful on our risk tolerance. And so, you know, there was this phase of go, go, go. And we had some fantastic early stage leaders in the business that helped drive that. Then there was this phase of, you know, an acquisition, huge amounts of complexity, multi-products, needing to launch a new platform. And I think we went through that process where we were actually probably much less, we had much less strong conviction over fewer elements of our business because so much was up for question.

[00:23:40] Andrew Davies: And now, I think we're merging into a third phase where we have very strong conviction on our market, very strong conviction on our product opportunity, strong conviction on the talent we need and how we're going to go and get it. And really there are less areas where we've got open hypotheses. AI would be one, where we're working through something there, the question of whether we should acqua-hire businesses as part of that product strategy would be another one and then some potential new markets might be a third.

[00:24:07] Andrew Davies: But really, we are more and more high conviction over the core elements of our business. And our strategies stayed the same for two years now, we've just been executing on it. And so now I think we are in that process of probably needing to make sure we ensure we devote enough time and budget to those new theses, those new pockets of innovation, but also that we just execute extremely strongly on the things that we know we know.

[00:24:30] Andrew Michael: Yeah. Nice. So in this process then, like when did the merchants of record come about and the positioning around that? And obviously, like you mentioned now, we'll touch on the new theses afterwards, but it's like through this phase you joined the last three years, like somewhere along the line, this came along. What was the work that went into behind that? How did – because I think like it's – correct me if I'm wrong, but I think it's Paddle’s the first one that started talking about this merchant of record and now it's slowly starting to become a thing. I might be wrong, but—

[00:25:03] Andrew Davies: Yeah, it's super interesting. This model has been around for probably two decades and there's some incumbents still around now who started in the very early days. And effectively it was kind of like a reseller model for physical software initially, right? And then software moved online but the same set of problems you were solving in terms of distribution, tax, taking payments, et cetera, were there. So Christian and Harrison, when they were building Paddle, they saw this as a model and went out and started using it.

[00:25:33] Andrew Davies: But certainly when I joined, there was real misgiving around using the phrase because no one knew what it was. No one in the market, maybe a couple of analysts did, maybe people who were selling software 15 years ago did, a few people around the world who were using the model did. But in the SaaS, in the growth software space, no one knew what it was. And so, I remember being in a whole bunch of sales conversations where we would actively not use the term until very late in the deal cycle, because we wouldn't want people to be scared by a model that really was fundamental to all the value we were delivering them, but wouldn't be something they'd heard of before.

[00:26:08] Andrew Davies: And so, once we'd got enough customer trust and intimacy, then we'd broach, "This is how we're able to do all this stuff. Any questions?" Because they had to understand it before we started partnering with them. And what's happened – really three things have happened over the last couple of years. Firstly, because of the good trading we've been doing, you know, every way of building a brand is one customer at a time, right? So because of winning and helping customers succeed, and because of some other market shifts, the merchant of record name has become more known. The most obvious of those will be Stripe buying Lemon Squeezy, a small MOR competitor. And so that helps shine a light on it. But people have become more aware.

[00:26:47] Andrew Davies: And then secondly, we've become much more confident in our merchant and the record product. As I said, we replatform the entire thing two years ago and we feel much more confident that it is the future and it solves a bunch of problems. And then there've been a couple of other market shifts that have been happening. One has gone out of business. There've been a couple of acquired… potential acquisitions on the horizon. So because of those three things, we now feel much more confident to bring merchant of record from late stage, this is how it works, this is the nuts and bolts, the how, all the way to the front to make it a bit more of a why message.

[00:27:18] Andrew Davies: Because as I said at the beginning, this fork in the road we're trying to bring people to, helping them understand that there's two options there really lays up the future of business for us. Like if every founder, if every go-to-market leader in the world knew that there were two options to choose between, our company growth for the next 10 years will be sold. That'll be no issue whatsoever. That's one of the key inhibitors of our growth. And so, that's why we've brought it to the very front. We want to be proud about it. We are proud about it. We've got a product that we're proud of. So we want to talk about it more and more. Excuse the pun.

[00:2749] Andrew Michael: I mean, it's very interesting. I think from the perspective as well, like you hear about this idea of category creation and there's generally like a lot of pushback on it because like it takes a lot of money and awareness, And it's sort of like you're in a way, even though maybe it did exist, like it wasn't on mind for many people. It's something that like you realize what was powerful, but you weren't in the right position or the right time when you got started with it. So like you need to start like edging its way in. Like, was this strategic in terms of like, did you always have in mind that, "Okay, we were going to build a category around this and we were going to be the leaders in this category. And then, this was going to be the way," Or was it just something that naturally happened?

[00:28:28] Andrew Davies: No, I mean, they were open questions, you know, for me as well on whether MOR was the right thing to do. Like two years ago, I'd have probably disagreed that it was the right name for what we were doing, just because it felt archaic. It felt like it's time had passed. And what we've really found over the last year, particularly if you think about two things that are happening. Number one, all of the AI wrapper companies that are launching, They exhibit – they're kind of very, very strong ICP for us, because they're already building on a whole bunch of other back office tech. They don't mind building on other back office tech. They want to get to market extremely quickly. They want to have one vendor that solves all the problems for them. And so, you know, there's been a bunch of market move towards people being willing to have very low FTE counts versus the ARR outsourcing back office. And so that's been a key thing.

[00:29:11] Andrew Davies: Then the second thing is the app space, which has always operated like this because Apple has been their merchant of record. You know, Apple deals with all of these things. And if they start bringing volume outside the app store and processing on the web and building a web funnel, then suddenly they need another equivalent merchant of record so Paddle’s sitting there. So it's increased confidence. It's us realizing that actually this is becoming used by the market. But it's also those two key market shifts that have given us the confidence that actually we don't need to rebadge this thing. Let's just call it what some people know it's called and make that really famous.

[00:29:40] Andrew Michael: Yeah. And bring that up. Yeah. It's definitely interesting. I think the headwinds and points, I think like in recent episode with Sivan More, we were talking a little bit about, like, what are some of the key metrics I think companies will be optimizing towards in the future. And like my prediction, especially on the customer success side was like the revenue per full-time employee. I feel like in the past, it was like how many employees you had was like the badge of honor versus now it's like what your revenue is per employee and how far you can go with the least amount of people.

[00:30:07] Andrew Michael: And then in that world, like, as you say, like this merchant record, one product to do everything definitely wins. I think it's, I guess like from like us internally where we're at the moment, we're evaluating providers now to get like, what can we do with the least amount of resources to get us as far as we can? And there's definitely like this trend and movement in this space. So it feels like maybe this is another headwind that you're positioning yourselves in just like the COVID headwinds were back in the day.

[00:30:33] Andrew Davies: Yeah, 100%. We totally see it. Yeah. A tailwind, I guess you mean. Yeah. We totally see it as that. No, no, we totally see it as that. And there is a really interesting shift that's happening because maybe three, four years ago when funding was cheap, people wanted to go and own this stuff. They wanted to build the smart stack. They wanted to have control over everything. And you're right. That's just shifted completely. People just want to move fast and they want someone else to take care of the headache.

[00:30:59] Andrew Michael: Yeah. And I don't even know if that's true though, to be honest, like, cause I've also been thinking about this, like when thinking about building my own startup as well, again, it's like, "Oh,” you was going through these ebbs and flows. You're like, "Oh, everything's over. It's pointless." You can just ask what you want and you get it. And then, I go back, “Oh, no, but to built great software, it takes time, takes craft, iteration.” And then, I think there's definitely these two camps where it's like the smaller and more nimble teams are gonna be the ones that will be more willing just to maybe experiment with their own thing and whatever, because there's cost savings and stuff.

[00:31:29] Andrew Michael: On the upper end, enterprise companies, I don't think they want to be figuring things out as well. So, I think there's just different audiences and different products and different complexities where sometimes, you'll just prompt your way to what you need for your company. And other times you'll just be like, "There's no way I'm doing this. I'm just gonna buy a solution off the shelf." And I think finding which markets and which products and which solutions fit those away. I think like Paddle is one of those ones where I'd be hesitant and scared because I think, there's complexities, there's legal, there's – like thing. There's no way I'm gonna mess around with that versus like, oh, I need a no tap. I'm just gonna prompt myself and get myself a little no tap. And so, it's gonna be interesting to see like which categories get disrupted the most with vibe coding and with startup-stream to build their own things.

[00:32:09] Andrew Davies: No one wants to vibe code their own payment stack, right? That doesn't sound like a safe thing to do. It is interesting because it is a big company problem as well. I mean, recently we onboarded, service now in just a couple of days, you know, super fast. Moved a whole bunch of volume to us for one of their self-serve product offerings. And so, we're also getting those large businesses that want to do exactly the same thing and want it completely compliant. It's very interesting at both ends of the spectrum.

[00:32:32] Andrew Michael: They want [inaudible]. Nice. I'll ask you a couple of questions I ask every guest. What's one thing that you know today about churn and retention that you wish you knew when you got started with your career?

[00:32:41] Andrew Davies: What's the one thing I knew about churn and retention? Firstly, I think I need to learn a lot more about churn and retention. I find every time I look at our data, I learn new things. I think when I... If I put myself back in the shoe of being a software founder, 99.9% of my time was thinking about acquisition. And so, the biggest thing was not anything complicated. It was just that if we had baked thoughtful churn prevention strategies, thoughtful retention strategies into our business from day one, I believe we would have had a much shorter and more successful journey.

[00:33:13] Andrew Davies: And so for me, it was just that complete focus on acquisition which... You know, you need to have that to a certain extent to get off the ground. But we thought about retention way too late in our journey.

[00:33:24] Andrew Michael: Too late. Yeah. I think that's an interesting one because I've also gone backwards and forwards on this notion. It's like, in the beginning, I think there is a certain amount of churn that's acceptable and it's necessary. And it's sort of like the kindle that lets you light the fire that keeps things going. But then as you say as well, like a lot of startups end up like just realizing this way too late and a little bit more thought a little earlier could have saved a lot of companies from heartache.

[00:33:48] Andrew Michael: Cause I think it was one of those things that just gets masked by growth. Like if you're pouring fuel on the fire and you're constantly growing, you don't really notice and don't understand how big the problem actually is until that growth stalls. And then, everyone's like scratching their heads and saying, "Oh, shit. Like we're hitting the growth ceiling in a couple of months. Like what do we do?" Nice.

[00:34:05] Andrew Michael: Obviously, then, as well, you travel a lot, you get asked a lot of questions when it comes to growth and marketing and what's one question that you wish more people would ask you, but they don't?

[00:34:19] Andrew Davies: Wow. The question I wish everybody would be focused on is how do we get closer to our customers? So I end up doing a bunch of kind of advisory type calls with founders or go to market leaders from 5, 10, 15, 20 million ARR businesses. People who are early on in their journey. And the vast majority of them think they're focused on a target market. It's way too broad. And that comes down to not having enough time with that market, not having enough time speaking with that market. I love finding new ways of developing customer [inaudible].

[00:34:56] Andrew Davies: We've talked about flying to conferences is one way of doing it. It's not the only way. Sending my team is another way. Building really effective customer case studies and voice of customer programs is another one. Doing media like this is another. There's a huge number and we are constantly trying to work out other ways of bringing that customer insight into our business. But I think that question should be asked more by everybody. "How do I get closer?"

[00:35:19] Andrew Michael: Absolutely. And obviously you mentioned that you work with quite a few different founders and stuff at this stage. And I think one of the things like – there's always huge hesitation. I've always like – we work with different people and when it comes to getting people to focus on an ICP and narrowing in on a niche, there's always kickback. Almost everybody that first goes into the conversation is like, "No, we can't do that. We're going to miss out on the opportunity. The market's too big." What is your advice for when you start working with founders at this stage and how are you talking them through this to let them know it's okay. Things will be all right. You will still grow.

[00:35:52] Andrew Davies: I've never seen a company – and I've seen probably 15 or 20 businesses inside, you know, as I've been helping them on this journey, as well as the businesses I've been executive founding. I've never seen a business have a rigorous approach to narrowing their ICP where it hasn't paid off in their growth rate. I think we just don't realize what's in front of us and if you can double your close rate, you don't need to expand your target market. If you can improve the ACV, if you can improve retention, you don't need to expand your target market. So, you know, I think it is counterintuitive, but in all the situations I've seen by being more focused, it's led to more growth.

[00:36:35] Andrew Michael: 100%. I think it's just one of those things as well as like, you can even show the facts still, but I think at the end of the day, it's like, until you actually see it and see the results, it's one of those things that because it feels counterintuitive, it's hard to believe and hard to understand. And it's great to hear more, more people talking about it now. At some point as well, like [inaudible] and myself, we actually did a course on it. We haven't moved forward now, but I think it's one of those biggest needle movers is like when you actually can lock into the ideal customer profile. It's like hearing your story as well at Paddle like realizing going up and down and eventually seeing, "Okay, this is who – we need to be focusing on this and we need to be building on." I think just the clarity you get from it. The focus you can get out of it is next to none as well. And it does have a huge, huge impact on the overall business.

[00:37:21] Andrew Michael: We're about to wrap up now. You mentioned there's like a third phase coming soon or next phase. What is this gonna look like? What's next on the cards for Paddle? How are you thinking about like positioning, messaging the company? What's going to be the next big act?

[00:37:36] Andrew Davies: I mean, we've trailed a little bit of it as we've been talking. But I really believe having built some really strong fundamentals in the business over the last couple of years, that now is our chance to be much more ambitious about how we can grow. And we constantly have this refrain in our leadership team. What's got us here won't get us there. And so, that goes across. Let's just think about a bunch of things. We've talked a little bit about market and thinking really constrained about who that market is in terms of feeling very confident that we know who they are. We can go win them. There's a bunch more work to be done there on acquiring new data sources and being ever more prescriptive over the type of businesses that we think are going be successful with Paddle and being much more focused there. We've talked about the message. The world needs more. Why settle for less?

[00:38:19] Andrew Davies: Having a more senior level stakeholder message that people can understand just in one click rather than having to rock the complexity of a product like ours. We've talked a bit about team and up-leveling talent to make sure we've got talent to have seen around the next corner of growth. So, in multiple functions right now, we're hiring for leaders who have gone further than where we are now or where we'll be next year. Make sure we've got some of that in. On our brand, I think we've done a great job on brand over the last few years.

[00:38:47] Andrew Davies: And that includes our product experience, our developer experience. But I do think self critically, I think it's become firstly, it's focused on our SMB audience. And I think we serve some bigger businesses now. And also, it's just because the speed of which we've been working on, it's become a bit fractioned. It's become a bit broken up, a bit discombobulated. I really want to up the level of all that making more consistent.

[00:39:10] Andrew Davies: And then, you know, the demand engine, we serve self-serve SMB. We serve enterprises working out that demand engine for the next level of scale. I think, where we've got to right now has been about taking our existing resources and applying them to the most valuable bit of the market right now. And where we now need to go is increasing our investment across those various different segments to make them all perform on their own under their own steam.

[00:39:31] Andrew Davies: And then, we've got AI coming along where, you know, coming along sounds like a sound like a boomer, don't I? You know, a whole bunch of our teams are actively using AI capabilities and we are building AI capabilities into our core product. But that changes the game on a few fronts. The talent we want to bring in, the expectations we have of velocity, the type of companies we serve, the type of pricing models, usage-based and consumption-based pricing that we've got to take account of. So those are some areas of what's got us here won't get us there that we're starting to think about. So as we go forwards through 25 and into 26, we've got a business that can continue growing at the [inaudible].

[00:40:08] Andrew Michael: Yeah. I love that phrase as well. It's something I use recently in a document growth diagnosis put together. I think definitely, as you mentioned, there's different phases, there's different stages and what works from one phase to the next is not gonna work from the next and onwards. I think, it's definitely something like, I suppose, well, at Hotjar, I think one of the things I think is also this changing of the guards happens every so often where you bring in these leadership teams and then they do a great job up until a certain point of a company and then it's time for the change.

[00:40:38] Andrew Michael: You start to see different people thrive in different environments and knowing and understanding like the strengths and weaknesses of the team is always, it's very interesting. Sounds like you've got a fun next couple of years ahead of you like to see this through now and see what the next phase is after that.

[00:40:52] Andrew Michael: Andrew, it's been an absolute pleasure chatting today. Is there any final thoughts you want to leave the listeners with before we wrap up?

[00:40:57] Andrew Davies: No, all good. Let me know if I can help in any way, reach out on LinkedIn, meet us at one of our many events we're going to and if we can take this offline into a face-to-face conversation, even better.

[00:41:07] Andrew Michael: Nice. And yeah. For the listeners, we'll make sure to leave everything we discussed today in the show notes so you can pick that up there. And thanks again for joining, Andrew. I wish you best of luck now going forward.

[00:41:15] Andrew Davies: Yes, thanks.

[00:41:23] Andrew Michael: And that's a wrap for the show today with me, Andrew Michael. I really hope you enjoyed it,and you were able to pull out something valuable for your business. To keep up to date with Churn.FM and be notified about new episodes, blog posts and more, subscribe to our mailing list by visiting churn.fm.

[00:41:43] Andrew Michael: Also, don't forget to subscribe to our show on iTunes, Google Play or wherever you listen to your podcasts. If you have any feedback, good or bad, I would love to hear from you and you can provide your blunt, direct feedback by sending it to andrew@churn.fm. Lastly, but most importantly, if you enjoyed this episode, please share it and leave a review as it really helps get the word out and grow the community. Thanks again for listening. See you again next week.

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