Margot Schmorak

CEO of Hostfully
Former VP of Strategy and Marketing at ServiceSource

How Building B2B Companies is Very, Very Different than B2C

Margot Schmorak: Hi everybody. Um, my name is Margo and my company's hopefully, um, this is actually not about Hostfully at all. Um, I wanted to congratulate you because if you're here, you're already building a B2B company and congratulations to you because that's a really smart move. Building B2B companies means that you're going to get more from your customers. It's gonna be easier to de-risked your company and you're going to be able to get to profitability faster. We didn't start there. So this is a little bit of myths presentation about our mistakes. Um, but I wanted to talk about this story, which is the little engine that could, and for those of you who have kids, maybe you've read this story before, this story is about a train that could not get over a mountain. And so it needs to help ask other trains for help. And the train that ends up winning or actually ends up helping is a small blue train.

Margot Schmorak: It's actually a girl train in 1930. Like, who would have guessed it's a female character that saves the day. But she actually takes this train over the mountain and she says this phrase, I think I can, I think I can. I think I can, which is wonderful for anyone to be saying. Your kids, yourself, your to spouse, anyone, anyone else in your life. Um, the story really emphasizes two things that I think are critical for any company building, which is optimism and hard work. Um, the optimism is the little trains thought that she could potentially do this. She's actually the smallest train that off that, that they ask for help, but she still can get through it. And the hard work is that it's hard work. She's got to go over a mountain. She's got to carry a bunch of cars behind her. And the story is all about how those things put together can make for winning and winning situation.

Margot Schmorak: And that's kind of how I feel where we are with Hostfully. Um, our story starts with, um, not earning thousands of customers or hundreds of customers or even $10 per customer per month, um, for our business. But zero, we started out with a consumer model for hopefully where we were selling nothing. Um, we had, uh, a free product. We were, uh, it was a digital guidebook platform that we were trying to get into the hands of airbnb hosts so that they could create a better experience for their guests. It was providing value to them and they were signing up and creating content on the platform, but we weren't making enough money out of it. And so what I want to go through today is how did we get from zero to 10 to hundreds to thousands of dollars with our customers and how you might be able to take some lessons from our experience to build your company.

Margot Schmorak: So, um, start out with some good news. Um, we went to the Airbnb host conference in 2015. It was in Paris and it was beautiful there. Um, and we talked to people and said, hey, hey, would you, um, would you be willing to use our product? And they said yes. 98% of them said yes. And they even said, yeah, I'd be willing to pay for it. So we got really excited. We built this product. Um, and the price point was zero. So, uh, we, we were going after a B to c bottle at the time. Um, the, the, the climate frankly for fundraising was quite a bit different in 2015 we still saw a lot of travel startups going down this free product route, uh, travel, trying to optimize the quality of your vacation at that time. I don't know if you remember, but you could like come to the Presidio and download an app and there'd be like something that would like to take your location and pop up notifications when you get to certain spots.

Margot Schmorak: And people in the travel industry were really enamored with this idea of localized, personalized travel experiences. Um, fast forward to today, all the startups are dead. So, um, that's what we were starting in and we thought, oh, this is a great idea. And we were excited to scale this product to millions of users. I'm riding off the backs of AIRBNB's growth. We were expecting to get commission revenues off of all the purchases that customers were making on our platform and we were going to grow through referrals and by reality. And we actually did a decent job of referrals. Um, within launch we had about 300 users actively using the product. It was within 60 days. So that's pretty cool. Um, but, uh, we had a problem, we had actually used several problems. One is that our business was just scaling too slowly, even though we had a great hook and we were providing value to the end customer and also the, um, airbnb hosts themselves.

Margot Schmorak: Um, we just couldn't grow fast enough in order to make the business meaningful and we needed to start to pay for growth. And that means paying a consultant, paying the social media platforms and other SEO advertising platforms. And that means we had to raise a lot of capital. Okay. So we got like hundreds of users paying nothing for a product and we're riding off the coattails of Airbnb a lot. At that time, a lot of people said, well, what does an Airbnb just do this? And, um, we had no money that he had raised. So that was really difficult. We, you know, unless you're like a multiple time founder and you can go and paint this huge vision about that happening, which is unlikely, uh, we were not gonna raise a lot of capital. Um, we started to try to charge small subscriptions to some of our customers to see if we could monetize that way, but still it was too small.

Margot Schmorak: So we sort of dead in the water. Um, which was really sad. Um, my co-funder David, who's not here, it was his idea to start this company because he was an airbnb host. And, um, he was really passionate about this idea and we started to realize like, even though this idea had a lot of energy behind it, it was just, was not going anywhere. So we went to Hawaii. Um, I'm not joking. Actually. We, we went to Hawaii, we joined an accelerator called Blue Startups. And Blue Startups is located in Oahu, um, we spent a lot of time at Blue Startups figuring out what we wanted to do. So at the time we were charging like a handful of customers, some subscriptions. Um, let's see, I think we had like one to 2000 in monthly recurring revenue from those subscriptions. And we had a lot of freemium users and we got, um, encouragement from our coach at Blue Startups.

Margot Schmorak: Her name is Chenoa Farnsworth to go up market. And she saw a lot of opportunity for property managers to be using our solution. So we started talking to property managers and asking them the question, what is impossible to do today around this product that you would like to do? And we made a laundry list. We were like, okay, um, here, here, here we go, here's our list. So a laundry list. Um, well, I want an admin dashboard. Want a way to make sure that all my guests have a great experience, but do it in a scalable way. So I wanna have it. Um, be administrated by my staff and have one click of a button, make multiple changes across the system. I want to be able to edit all those different recommendations I'm giving to my travelers. I want to be able to search within our admin tool.

Margot Schmorak: I want to be able to distribute across hundreds of guidebooks and hundreds of properties all at once. I want to be able to provision guidebooks differently depending on the person who's looking at them. So the traveler has a certain experience with the product and then the administrator has a certain experience with the product. Maybe there's even an in-between user there. I want to have scalable print options so that I can print the content in this guidebook. Um, better. I want to be able to re-market to the customers who come and stay with me. I want to have like white labeling. So these were all, um, this, this is just the start of a list of features that we use to, to actually build the product. And so we built that product. Um, and uh, we also in doing so had to change substantially a number of things within our operational model.

Margot Schmorak: Um, this is stuff where I actually want to spend a little time focusing on because this is if you are a founder of what you should be thinking about in terms of building your company. This is like when we become too B2B and at the interesting part for you. So first of all, we had to think about our sales process. We had to build a sales process. We had no sales process at that time. So it was like, do we have a phone call? Do we not? Is it a video call? What kind of slides are we showing to the customer at that time? What is the, do we send them a proposal, right? Um, during the call, what does the proposal look like? Um, what is the pricing and the proposal? What are our main value propositions? That was all had to be engineered at that point.

Margot Schmorak: We also started to look at pricing models. We had to figure out how we were going to be able to do value based pricing, which means that as the customer's value increases on the platform, how does our price point go up? Um, so we did a lot of engineering around our pricing model. We, um, had to develop a customer support model. What happens when things break or people don't know how to use the product. We had to figure out how to onboard customers and we also had to do training and documentation. And so this, this is like the list. If you're building a B2B startup and you haven't gotten started yet actually engaging the customers, this is the list of things that you should be focused on. Um, the byproduct of this whole experience though that I actually think is a differentiator for our company is that we came out of this with a leading brand, um, a leading brand because one, our software kind of has an intuitive consumer friendly feel to it. And two, because we were very thoughtful about this, oops, how do I go back?

Margot Schmorak: We were really thoughtful about this checklist. And so when customers talk to us today, um, they, they feel that the host flea brand is, it's kind, it's supportive. It is. Um, it's there when you need it. It's not pushy. We do not, um, overly sell into our customer base. Something like Kristy was saying, I actually, our customers actually complained that they don't feel that they hear from us enough about the new features and functionality that we're developing. Um, they, they would like to see, um, how we can help them more. So, um, I know Christie talked a little bit about like the harassment that a customer can feel when a, um, uh, another, uh, company's trying to sell to you and you don't want the product that they're buying. I would say our customers have actually complained about the opposite, that they like working with us so much.

Margot Schmorak: They want to see more from us. They want to see how we can help them more. So then that's really what a great brand is about. And I chose this image because, um, we're, we are kind of a huggy team. Like we, we've met our co a lot of our customers at industry conferences and we're very friendly and warm with them. Um, and even when things are not going wrong, like they're not paying invoices, our product is sucking up things that are breaking. There's still a lot of really positive rapport between us and our customers. And I think it's been a really big differentiator for us in, in our industry. Okay. So that tells you the story of how we got from here to here. This used to animate, but I had to switch the slides around at the last minute. Um, and, but the next step is, is how we got from here to here.

Margot Schmorak: And this is really the important thing. If you're going to raise seed, this is where you want to get to at the B2B company. Um, when I, when we started, um, when we were here, I remember thinking to myself, Oh, I wish I was like one of those big marketing tech companies that would close like hundreds of thousand dollars deals or, um, you know, and be able to get like five customers on board, get to a million MRR and then go raise seed. Um, but, uh, now in hindsight, actually am really excited about where we are because we have a number of smaller customers that are paying us hundreds or thousands of dollars. And our MRR growth has been slow and steady, but very healthy. Um, we are not seeing a lot of churn and so our business has, is very de-risked at this point. We actually had a cashflow positive month in August. And so we're feeling really good about that.

Margot Schmorak: So let's talk about the second half of the story. Okay. So we took a hard look at what we were doing for our customers, which were these digital guidebooks. And, um, if you think about running any small business, you want to do two things, you want to grow the top line revenue, you want to reduce costs and you want to make your customers happy. Pretty simple, right? The category that we were in was really making customers happy, maybe a little bit of saving money, but mostly making customers happy. And that is just not the most urgent pain point that our customers had. And so we took a hard look at ourselves and we said, we have to change what we're doing otherwise this company's never gonna grow in the way we want it to. And so we started asking ourselves some questions or asking our customers some questions like, what is the hardest area of your business today as nothing to do with our product, but what, what did you, what do you find it most painful to do to today?

Margot Schmorak: What would you like to make easier? Also, if you could make wave a magic wand and fix something in your business, what would it be? And it kept leading us down the same path, which was, I hate my property management software. I don't like using it. It doesn't work and I don't feel like it helps me get the most out of I can out of my business, same answer over and over again. We'd win. Or if you'd like a hundred customers and we got that 85 times. So, um, this is where the story gets a little bit interesting because the property management software, oops, property management software is not at this price point or this price point. It's, it's here. So it starts to get us into an interesting, more interesting story in terms of how much money we can make for each customer. At the same time, we also wanted to take a step back and make sure that we were in an industry that was large enough and healthy enough to sustain the kind of growth that we wanted to see.

Margot Schmorak: And we knew this industry was big, but we also wanted to take another hard look at it and make sure that there was opportunity there. So the vacation rental industry is $100 billion industry and it's growing to $285 billion by 2025. Even if you discount this by half, it looks great, right? So you're like, okay, big industry at the same time. Um, this is something that very few people know. AIRBNB has a small part of this industry. In 2014, they had only 4%. Um, they were actually second homeaway and let's say today they've doubled their market share. They still only have 8%. So it's a huge industry, a ton of it's offline. Um, and there's, it's, it's, it's, uh, there's a lot of different players in it, small and big. But the thing that airbnb has done in our industry that's changed the game is they've increased consumer sensitivity to pricing and booking speeds.

Margot Schmorak: So just like Christie (editor: Christie Pitts) was talking about earlier, we expect to book vacation rentals. Like we book hotels, but 10 years ago that was different. We were willing to send in a fax or make a phone call, right? So this is changed. The dynamics in the industry, enforce everybody to get online and get their shit together. Um, so this is all great news for our startup. And we said, okay, this combined with, I hate my property management software. It leads us to some interesting conclusions. So we did a huge pivot. Um, we did something that's pretty unconventional. Uh, I have not heard of any other start doing this. We merged with another startup and, um, the emerge startup CEO, Stefan is here in the room with me today. So feel free to talk to either either of us about this. Um, we merged with a company that made great property management software and we had already been working with Stefan and his team for over a year when we did the merger.

Margot Schmorak: Um, and we merged for a bunch of reasons which I'll go through here. Um, but this was a way for us to instantly open up the aperture of our value proposition and, and help our customers do more, which is what they wanted from us to begin with. So, um, the first thing we got was an awesome team. Um, Stefan and his team were pretty much engineers, host fleas, management team was mostly business side people. We had engineers working for us too, but it was the, the, the leaders on the team were business side. So the combined, we had a really strong technical and business side team that we put together and we'd all, we'd also been working for um, with each other for a long time. So we, we knew that we could work together. The second thing we got was two offerings for each customer.

Margot Schmorak: So the merger ended up doubling the effectiveness of every go-to-market effort that we made. Every single lead that comes in, we've got not one thing to sell them but to, and it's not even one thing to sell them that may be tens or hundreds of dollars. It's actually two things that might be multiple, like tens of thousands of dollars together at the end of the day. So that really changed things. And then we also were addressing that one urgent problem that we heard from our customers over and over again, which was we want you to help us with our crappy property management software. And do more there. So we expanded the value prop overnight. Our investors were really excited and it was also a nice way to get some PR too. Um, so that is how we got from here to here. Um, I also wanted to just call out Acceleprise. Whitney Sales is going to be speaking from Acceleprise later. This is the second accelerator that we were in around this time. Um, and they are a fast focused accelerator. So for many of you that are in thinking about B2B growing a B2B company, I encourage you to check them out. Um, the managing director is Mark, Mike who works with the SaaStr Fund. And so having us be in excel a prize and be exposed to those types of investors and other types of companies was a great launchpad for our continued growth.

Margot Schmorak: Okay. So now we're at the part of the presentation that I think is actually useful to you and I wanted to spend a good amount of time. I've got 10 minutes left talking about this. Um, uh, this just side note, these are all pictures of my children. This is my five month old Eden. Um, and the first thing that I think is the most important thing as a startup founder is to be curious. And it's not to be curious because you have to be curious as to actually to be curious cause you love it. Like you should be doing this because you love it cause you're probably not going to make money like chances are, right. Um, so if you love learning and you love to be curious, go and be in a startup, it's a great place to be. You, you will always be learning.

Margot Schmorak: Um, you will find out that you do not know anything about lots of different areas of running a business. And, um, I wanted to go through some of the specific things that I've learned that have made this really fun for me. Um, the first thing is that we are total newcomers to this industry. I do not come from vacation rentals. Um, I, I do have a unit in my house that I've rented out a few times, but I really, um, I'm not, uh, I was not an expert on the industry. Now I am, I know this industry in and out. I'm always discovering more. I love learning from companies in industry, from investors in the industry, watching it grow. It's really fascinating. And at this point I feel like I am more of an expert than any Gartner researcher would ever be on, on this, on this industry.

Margot Schmorak: And that's been really fun. Um, I'm also a student and curious about our customers. These customers are people all around the world and different nationalities. They're hustlers, they're trying to make a good living and we are just trying to help them. So the more I can be curious about what their lives are like, what their needs are, how they run their business, what makes them really excited to make wake up in the morning? What are the challenges that they're facing the better at CEO that I can be. Um, the third thing is business model. So this is a little bit of an academic angle, but you should really be curious about business models. And you should understand why a SAS business model is de-risking your business. You should understand what it really means to go from an an ACV at average, um, the ACV from like 20,000 to 70,000.

Margot Schmorak: What does that typically mean for companies? Um, you should be, um, also really knowing what a commission revenue model should look like. You should know the benchmarks around all the different ways that you should be and can be earning money. Uh, this is something that we're continuing to explore, but you should be curious about that and you should always be asking questions there. Um, you should also be curious about and asking questions about operations. How can you do things in a more automated way? How should you not do things in an automated way? What things should require a personal conversation? What things require, just an email. Um, you should be always trying to fine tune your operations to help your team and make everybody feel good and safe. And I'll talk more about that later. But operations are something that, um, uh, is oftentimes overlooked.

Margot Schmorak: And fortunately we've, I have a great business partner, um, who is really passionate about building scalable operations and, and has put that into our company from day one. Um, the final thing is be curious about investors. It took me about a year to realize that I'm asking investors questions about their money, them, them raising money, their fund, their goals with the fund, how they did the last round. Why are they at that company and j in to begin with. Those are all totally reasonable questions to ask investors. It makes you look like a way smarter fundraiser when you ask them. Um, our one of our investors is super transparent with me around the LPs that are coming on board, where they're coming from, how much they're investing, why they're investing. Um, when the funds are going to come in, are they going to do follow on? And you should be curious about your investors and what categories they fall in turn into in terms of growth.

Margot Schmorak: I have so much that I've learned about investors and VCs and how to get them comfortable with your business idea, but also get them comfortable with you as a steward of their money right there capital. Because venture capitalists are an ultimately on the line for, I'm raising money for their LPs. And so the more you can do to, to, to create a shared understanding between you and your investor, the better they're gonna feel really good about you and investing in your company. Um, the second thing is to see clearly when things are not going well. This is my four year old Aaron. Um, if you have ever had a four year old, you know, there's a lot of whining and complaining at four. Um, and so I like using this picture. But one thing I've realized that startups do and that is a mistake, is that when things are not going well and, and when, you know, when things are not working, they don't get to a moment quick enough to say, this is not going to work out.

Margot Schmorak: And I don't want to bash my optimism story because that's not what this is about. This is just about seeing it for what it is. So, um, the first thing is to be aware of the trap of your own idea. If you are solving for your own pain point, you could end up in a trap thinking that everybody thinks the way you do and likelihood is that they don't. So really watch out for the trap of your own idea. Do your customer research very carefully and thoughtfully. If you do that, you won't do, you won't fall into this trap. You also will end up inflating your market size if it's your own idea that you're solving. So just, just be careful of that. The second thing is to use data to inform your decisions. Um, one of the benefits that I think I had with David, my co founder is that I wasn't the user of our product.

Margot Schmorak: And so I was constantly pushing back on his assumptions around the, around usability. And so when we would get into an argument about stuff, we would just use data. We would interview customers, we would go out and look at market data and we would put our own kind of biases, biases aside, and just focus on the data. And that was really helpful. Um, the second thing is to build models. So if you see your growth and it's like going in a certain direction, just bottle it out. Say, well, what if we grew this way for five years? We're, where would we be? Or what if we spent this much money for five years? Where would we be? Um, you really should have a little like flexible financial model, which I actually just shared with Stefan and David yesterday, that you're always like sort of tweaking just to see what would happen.

Margot Schmorak: It's like, well, what if we cut our turn in half? Or what if we, what if we doubled our customer acquisition rate? Like what would that look like? You should, you should be playing around with that, um, to see where the business would go. And the final thing is perseverance. Um, going back to the original idea of this talk, which is the little train who says, I think I can, this is my son Ben. I'm working at this typing program and uh, you know, one of the things that, um, has helped me both in this company and also in my marriage, frankly, is that success is a foregone conclusion that sounds crazy in startup world, but I really think it's gotten me through, which is like, I don't know how we're going to get to where we're going to go, but I know it's going to be great.

Margot Schmorak: You have to be that person in your company to say that over and over and again and again to yourself and to your team. And I think if you build this, this idea and your team that success is a foregone conclusion, you can start to shape your, your, the decisions in front of you more clearly. If you are seeing the data and you're really honest with yourself about where you are. Um, it builds a lot of, um, goodwill and trust and it takes the fear out of the decision making. Like the previous speaker was talking about, right? The, the second that you can take fear out of the picture, you can make better decisions. You can be more mindful, you can, you can work with your team better. Um, so that's super important. And I would try and do that as much as you can.

Margot Schmorak: And maybe that's delusional, but hey, it's gotten us this far. So it's working. Um, the second thing is that team morale is super important. You should care and love for your love, your team, care for and love your team. Um, help them persevere. Your job is to support them and help them be the best they can be. Um, and so if something is not going well in your team, it should be your top priority. Um, and then the third thing is to build a lot of trust. And I can't say enough about trust and psychological safety. Um, I know people talk a lot about these in an academic way, but I think at the end of the day it is about, um, demonstrating through what you do. So like if you make a mistake or if you're feeling scared or nervous, like you just tell your team, um, and doing that, or you even tell your investors, you know, like doing that really opens up this conversation around, um, what people's fears are, what their misgivings are, and it can help them get to that success as a foregone conclusion kind of mentality. Um, so the host family story is to be continued. We're, we're doing great and we've, we've grown a lot. I hope to. Um, I hope that you all will hear an announcement about us in the next few months about our upcoming raise. Um, I can't share too many details, details about that, but I'm really happy to speak with anybody here about questions you might have. I have a couple of minutes left. Um, but thank you so much for your time and I, I hope this has been helpful for you.

Margot Schmorak: Any questions? Nope?

Margot Schmorak: All right. Thank you.

Keep me posted on Empower 2019.