Harry Zhang with Kevin Hale on Building Lob to Automate the Offline World

Today we have Harry Zhang, co-founder of Lob. Lob makes APIs for companies to send letters and postcards. So, Kevin has a question for you.

"I'm trying to think back to when you guys applied to YC. You didn't have almost anything. Like, I would say it was fairly embarrassing."

"Yes, you could say that. I mean honestly we were scrambling weeks before the interview to try to come up with something that we thought was worthwhile for demoing. But I think the important thing when you're starting, you know, a company, and for us is thinking about the problem that you're working on. Versus like having a bunch of stuff. I think for us, like we had done sort of the due diligence beforehand; we talked to a lot of customers. We had a good sense for what the core problems are, but we didn't have like the exact product just yet."

"What was that MVP when you guys applied?"

"At the time, you know, I think back and it's pretty funny just thinking about this; we literally had an API that took whatever you put into it and spit it right out to you, and that was our MVP. We were secretly hoping it just mirrored the response back. Yeah, it just mirrored the response back and we were just sort of hoping that we wouldn't have to demo because honestly, we hadn't built a lot of product yet. We didn't know what we wanted to build. And you know we've always operated from the value of 'we want customers to pay us for something before we actually go and do it.'"

"What's interesting to me as someone who's focusing on design and interfaces at YC is that I kind of really love API companies because like I think a lot of people think of it as like, 'Oh, it has no sort of interface,' but to me, the interface is just documentation. It's like very pure. So I'm always interested in when I look at an API, a company is looking at, 'Oh what are they doing here to say this is how we want to build community around this because like what they're trying to build out is that this is something that people who build stuff want to use.' So what are the ways they're going to communicate that this will allow them to do something sort of cool or solve a problem, etc.? And I feel like you learn a lot about people's thought processes and also how good someone is as an engineer or programmer by like how thoughtful that documentation is. I think Stripe is a classic example of this."

"But for you guys, I remember it's like you had the basics down, but it was clear that you guys knew enough to be considered to anyone that would want to be using it, even if it was their first time ever writing any API call."

"Yeah, that's for me, right? I mean, I think documentation to this day is still like the number one thing and with Ink, we take a point in pride in making sure that our documentation is something that every single developer wants to use. And I see it as friction. Like when your core product is an API, you better have like the best documentation on the planet."

"So what was the insight you guys had early on that made you convinced that you wanted to follow this path?"

"Yeah, that's a good question. So I actually started from like the problem and it started from my time at Microsoft. So immediately I did not think I was gonna end up in a business that's focused on mail, nor did I think that a job at Microsoft at a company that's 100% tech-based. One of the main things I was gonna be working on was actually a direct mail campaign. So sort of like how we initially got started, the problem actually started from a place of complaining. I was driving back from a ski trip with my co-founder Lior, and I was complaining to him about this project that I was working on at Microsoft. Essentially, what we were doing is we had come up with the system for sending out these like very custom training materials and invites, like a webinar online. But for a number of different reasons, we weren't allowed to do that using email, and telesales was too expensive. So the thing I was doing was actually building a direct mail program that was one of the most effective things that we've done to date. Honestly, it was a little out of, you know, we didn't have any other options, but when it worked really well, I got a huge budget and was asked to sort of scale across a much bigger set of customers and different use cases and more products. I thought that was gonna be something that was easy, but it turned out to be the bane of my existence for like the following three months."

"In the early days, like for YC, what did the API do?"

"Oh yeah, the API just went into a database that, you know, literally I started off using my inkjet printer. We printed everything on my home printer out of my apartment. There hit a point where we were watching TV and stuffing. Like we had a assembly line of like letters that we were stuffing ourselves. At that point, we're like maybe we should go get a printer to help us with this problem."

"What makes you feel confident you could just go try to sell to a company or get someone to program against that even though it was like connected to your injector printer? Well like what gave you the confidence is like I'll go in here and sell someone on this fake magic?"

"Yeah, I guess for us it was more just like a belief that this was like a real problem for people. So when we told them about the problem that we're solving, it really resonated with the customers that we were talking to. I remember like our very first customer, this guy named William. Last use-case I'd expect for mail, he found us on our Hacker News launch and he sent me a note saying, 'Hey, I want to use your guys' lighter product and can we chat?' I said, 'Okay, well, you know, tell me a little bit more about your business.' And sixteen-year-old kid. Awesome. I looked him up, I was like very little information online, but he actually ran one of the largest Team Fortress 2 stores online. And if you don't know what Team Fortress 2 is, do you know what that is?"

"One of my favorite games."

"Perfect! So one of the things that people like to do is they buy digital items online, right? And that's like a regular thing because people don't want to go through all this time to like, you know, find like the right weapon or whatever that might look like. So he did one of the largest Team Fortress 2 stores online, and I was still super confused. I'm like, why are you talking to me? I just didn't know. But it turns out he had a problem, which was every single time people would buy his items online, he'd deliver it and give them like, you know, the item online, but he had no proof that he actually gave them the items. So what he had was a ridiculously high rate of fraud, which was people would charge back, and he would lose every single dispute because he couldn't show that he actually sent anything. So his solution to this problem was, 'I'm also just going to send him a letter in the mail with the code.' And that served that as proof. But he had to do that himself, and he hated that. Hmm, that's something that we would have never thought of out of the gate. But I think it goes to show, right, like you can always hang with his product, but not always."

"How did he find you?"

"So he found us online on Hacker News. A show HN type thing. That's great. You did a show HN! I think that's where I might still be around somewhere, but that's sort of how you found us, right? And we basically said we have an API for sending letters, and he was like, 'I have a problem, like can you guys help me with this?'"

"Then once you got past having 16-year-olds as clients, how did you get the first like really top-tier big client?"

"Yeah, I think, you know, for us, that top-tier client is a big insurance company that's currently in New York. I would say they're pretty tech-forward. I can't tell you the name of that company, but one of the things that's exciting that we found them was they had a problem, in that they didn't have compliance and security around their existing printers. So this isn't the midst of like me as a sales rep literally sending like hundreds and thousands of emails to potential companies that thought could be a fit, and this one got a response back. You know, from the CEO, he asked a few sort of qualifying questions and punted me to, you know, the guy who was actually in charge, who's now their VP of data. They had a problem that their printer, they didn't have confidence in their printing. You know what HIPAA was? They didn't know what a BA was, and they were essentially reevaluating the technology they were using to work for the print shop. And that's sort of where we entered, and ultimately that became one of our first major real customers, and they're still a client with us today."

"It's just a cold email you sent out?"

"It was just a cold email."

"How long would—here's a question—can you remember like what was in that cold email? Like was it super short? Was it super long? Was it personalized? Etc."

"It was definitely personalized. You know, I had a good idea of what type of mail that could be potentially sending, and it was a short crust email. Like, this is what we do, here's how we're different, and I think we can help you with your current problem in these three ways, right? I think the key things in a cold email you really want to hit on."

"Did you guys—"

"I was gonna say like where you clued in on the HIPAA or not?"

"I did not know I was having a problem at that company. We didn't know what HIPAA was, and this was sensitive information, but like we didn't know that they were looking."

"Okay, so we got a little—it was a little bit luck."

"Okay, they were looking. We didn't know about it. We knew that they were sort of within the space that we were looking for, but honestly in the early days, not everyone is gonna be able to find you. And what's important, especially in our business as like a B2B SaaS business, you gotta find the customers that believe in the method and the methodology and how you're building the product, not just what you serve today, but also the vision of what your product could become. And that's where we found a lot of alignment, you know, with this company because they understood exactly why building it as an API is valuable. They're super technology forward and while we didn't have every single capability, we could cover the majority of what they want, and they knew that we would be able to scale with them as well."

"And so once you got there, how did you start expanding that? Like the other top-tier clients? Because it's all just cold email. Like these are big contracts I imagine."

"Yeah, these are definitely big contracts. So, you know, today our contracts are everything from light, you know, on a small side for our main markets like 30,000 a year just to use LOB's API, and we sell contracts up to like millions a year as well, so there's a big range. But I think for us, there's a couple things. It's sort of a chicken-and-egg problem in that like you need a lighthouse customer to get other big customers. So giving them the first one is always the hardest, and that's a combination of hard work and really understanding like your problem space and what you're solving. Once you've done that and you've successfully done that for a customer, it's much easier to take that exact same story to a similar customer and help them realize that value. And you know, by that point, you should also understand sort of the language of the customer, you know, in their industry. What do they care about? What are the key problems that they have? And when you have that insight, it makes you much more credible as a potential vendor."

"Right. How much time do you guys spend researching before you like—we chat to, let's say you have one company you're like, 'I really want to have their business.' What's the prep work that you start doing? Who do you start contacting? How long does it sort of take?"

"Yeah, I mean there's a fair amount of prep work. So, you know for us it starts from just mapping out the organization, right? Drawing a blueprint of like who are the key stakeholders in the organizations, especially for larger companies. Decisions aren't made by just one individual; they're made by different folks, and each different person may have a slightly different motivation. We have worked with our sales reps to figure out what is that motivation for each of those individuals who are so they're the key contacts, and what's the message that's going to resonate with them? So we'll typically start by having cold outreach to these folks. We'll also sort of combine it with a lot of our marketing tactics in that like they're gonna start seeing Lob pop up everywhere, right? And ideally, you know, if they're not responsive to email, we'll also look at what conferences they're gonna be attending, so we can actually find these folks in person. So really, it's sort of like a multi-pronged approach. It's pretty rare and you shouldn't have expectation just like, 'I, you know, I send like, you know, ten emails, I'm gonna get like eight responses back.' That's not gonna happen. It's a grind, but that's part of your job is to like work your way through that and figure out like who are the accounts that are gonna work. And over time you're gonna get more and more accurate about understanding motivation, what resonates with people, and like what people care about. And you may find that like the person you thought was the person who's gonna make the decision might actually be someone totally different."

"Did you always know that this was going to be an enterprise company? That this would be what you'd focus on? Or was there like—?"

"A lot of people will start an API coming in with like, 'Anybody could use this, anybody should,' and so like how did you know where to focus? And actually I'm kind of interested is like what is this wit? And I imagine most of it is enterprise usage, but how much is also SMB? How much is like consumers using it?"

"Yeah, absolutely. So I'd say roughly about, you know, 15% or so of our business is still self-service customers today, so it's a meaningful share of our revenue. And that fluctuates based on how much our big customers do, but like there's a healthy self-service segment of folks that utilize our API, and that's where we started. So for us, like, you know how we ended up focusing at Enterprise is really sort of an evaluation of like our market. And it turns out like the market that we're in today, the top, you know, 20 players send such an enormous amount of mail that if you really want to capture the entire market, you have to focus on how you're gonna win those top couple folks. And what we realized is one of the things that's really nice about an API is that like you can essentially give those same capabilities to people who aren't executing a tech type of volume. So in fact, it's a focus for our business to service enterprise customers, but we know a lot of the features and functionality that these guys have or are looking for are also things that smaller customers want but don't have access to because operating at that scale capacity you set an API enables them to get access to that."

"So you guys like graduated up to enterprise?"

"That's right."

"How long did that take?"

"We're still working on it now, even today. So really, it's been a six-year journey for us. I would say we signed our first few true like enterprise accounts, you know, just two years ago. So it took us almost four years."

"Yeah, so there's a while. So one thing a lot of startups don't get right is pricing. So when you guys were working your way up to enterprise, by the time you got that first big client, did you feel like you had your pricing locked down? Because if that was wrong, it could have multiplied in a bad way quickly."

"Yeah, definitely. You know, we're always evaluating our pricing to make sure we have the right model. We actually made some like pretty big mistakes early on as it came to the price. I think like you guys have probably all heard of the typical mistakes, right? It's like, 'Hey, you know, didn't price high enough.' Like, you know, we didn’t start talking about pricing too late. For us, it's the structure of pricing we actually learned a lot about and was a big motivating factor in us changing our pricing model a couple years ago. So we started off thinking very much like a traditional male provider or even someone who sells like reserved. This isn't AWS—essentially, you could buy Lob and what you were buying is you'd buy, you know, hundred thousand letters over the course of a year; you pay for the hundred thousand letters; you can use it whenever you want. Super logical, very easy to understand and it worked for us for a while. But the problem we found was we went into larger customers; they don't look at—not every single budget is made equal. So when you were selling, you know, hundred thousand letters, they're gonna evaluate us against a hundred thousand letters from another drive mail provider. And, you know, our value is, you know, five cents of that letter is going to Lob, right? That's the value that we see in our technology. But the problem is when you're talking to customers who are used to pricing in a specific methodology, they're comparing us to like, 'Why are you five cents? Marks months of everybody else?' And they're starting to do the math like, 'How many more responses do I have to get? What's the higher conversion that I need to see a result?' But in reality, it's two different investments, right? They're making a technology investment in the technology that we're providing them, they're buying the mail piece. So one of the big changes that we made that was really successful in helping us shift the conversations to the right level of our customers was actually creating what we call a platform fee. So essentially now our customers pay us, you know, twenty-five, thirty thousand dollars a year to use Lob, and they get access to, you know, our de facto mail pricing, which is now competitive, if not lower than every single other offering. So now we can focus the conversation, it's like, how do you value Lob's technology? Is that worth twenty-five to thirty thousand? And setting up being a conversation about what is the cost of a mail piece and what's the conversion that we're looking for. I think it's important to differentiate and associate the value that customers see in your technology with what they pay for versus something that could be a commoditized, you know, product in the market today."

"Now, was that pricing model only an option given your maturity?"

"I think we could have started that model; the reality is we just didn’t know people were gonna think that way."

"What helped you shift to that?"

"Well we kept getting feedback from customers, right, and we could tell that the way that they were modeling us was they would be trying to figure examples to apples comparison. Yeah listen, it wasn't a big deal, apples comparison that is out there, right? And the part that was challenging just like they were totally okay if like paying with like another agency to help manage their mail since, right? But that's not pulling out of the same budget, and essentially part of what we offer is like we're doing that for them, but they were looking at our mail piece price and comparing it to another mail piece price. But in reality, it's the mail piece price plus whatever they're paying this other agency to manage it for them, but those are coming out to different budgets, right? So for us, we had this realization when we started talking to companies and they kept trying to sort of ask like, 'Oh well why is it more expensive?' When really the reason why it's more expensive is because we're doing more things for them, right? And that's very logical. But help them understand, you know, model that are used to we had to adapt to what they've already seen in the market."

"One of the things that's been interesting to me as a trend is that like software wanting to be a commodity and the value and price of it getting lower and lower. And then, you know, API companies like sit at the very bottom, their like fundamental, like infrastructure for services. And so, you know, this is probably related. But how do you think about that as a business? Like do you guys set out to be like, 'Okay, we're gonna look here to compete on price or on sort of a value?' And then how can value work in an infrastructure sort of commodities-like business?"

"Yeah, I think it's different for every single commodity, right? So, you know, while you might be able to compare like email or SMS, I think those are priced differently than, you know, Lob. For us, I think what we found is we wanted to be cost competitive, if not the best price to market for the actual cost of mail, which we see as a relatively commoditized product, right? You can go to any number of commercial printers and they can produce the mail for you. So, really what's different about buying software through Lob is that you're getting access to our entire API and all the associated offerings that come with our platform by sending email through Lob. So we want to differentiate like what is it that customers are paying. We want them to know that they're getting the best price in a market for something that they see as a commodity, which is the cost of the actual mail piece. But we want them to pay us the value that they saw in using our software to send mail. So that's sort of why we made this split and having a platform fee as well as like a per-piece price."

"How does that adjust your sort of product roadmap that like have these technology differences that makes you different from like just a printer who can say like, 'Hey, I can do that digital printing?'"

"Yeah, that's a good question. So I think for us it goes down to a conversation like how much are these like features worth to our customers, right? And I think over time we built different layers, like different sort of offerings like Nimblarka and enterprise offerings. We realized that customers would be willing to pay more for specific features."

"What are some examples?"

"So a good example of this is like, you know, HIPAA. One of the key considerations for companies in more regulated spaces is that they need to have a compliant offering. Now, like it's more expensive for us to have like a HIPAA compliant offering, but we also realize that one of the key considerations when companies are looking at, you know, printers is can they meet these requirements. So we actually charge more for those customers because it costs us more and also because there's less offerings that are able to do something like that programmatically, right? Now they're gonna manage their customer information in a secure fashion both in terms of how they transition the information to you and transferring it to you as well as like, you know, being stored in our system. And this is like, you know, people's names and addresses. This is very sensitive information for a lot of companies, and it's something that they value very highly. We had customers that would be like, 'We'll pay you if you guys can do X for us,' and that's when you really know you're onto a feature that's really important because they can actually quantify the value that that's worth to them, and it makes it easier for us to understand and prioritize our product roadmap because we know what customers are willing to pay for."

"Not just like, you know, hey, can they achieve a slightly higher conversion of HIPAA? Now we know that like they're gonna pay us an extra ten thousand, it's worth it, it's done because that's what they see."

"So what are the other trades that you've made in the context of like fulfilling the desires of these enterprise customers when you realize oh maybe they don't care about this? For example, like more vertical integration type stuff."

"Yeah, so I think some examples of this is like we realized that the execution component, like being able to track your mail and having sort of a platform offering being available through API, that was really important. Because a lot of companies, especially larger folks, they're working with agencies that have helped them with a lot of the, you know, segmentation to actual management of the campaign, the design of the mail pieces. You know, these are things that we've thought about building products around, make it easier for people to build beautiful mail pieces. But what we found is like most people already have that in enterprise. They're already ready to go. Their problems are not around, you know, the need for designing a better mail piece; they have a full-service creative agency that has like 16 different campaigns and have already thought that through. So they already have it, right?"

"So there's a good example for you. How many employees do you guys have at Lob? How big are you guys?"

"Yeah, we've been hiring a lot this year. So we're just shy of 70 right now."

"Just 70. And then don't take offense, but for an API company, I met it's difficult to recruit people here. And so like what do you guys have to do and what have you sort of figured out that helps you sort of like compete against everyone else out here in Yasco?"

"I mean, I can tell you mail is not exactly the most sexy thing in the world. Certainly not, you know. I love these non-sexy users, especially ones that make money. Yeah, and so to me it's like that's probably a good leg up. But I'm just wondering like for you guys if you're looking for that like top engineer to come on and make a difference, yeah, like how do you inspire them with the mission?"

"That's a good question. So a couple things that we think about. The first thing you need to do is understand the motivations for each individual that you're trying to hire. Everyone's gonna care about something—a lot sounds a lot like your sales."

"Yeah."

"But it's true, right? You have to realize like what is it that people want to join a company for and you need to identify the folks that are a good fit for where we're really strong. So for us, if you go and you ask like why some of the folks join Lob, I think the majority of folks would tell you it's around our culture, right? That and that's the reason that they got inspired to join. So the mission is certainly important, and I think we spend a lot of time talking not just about what we do today but like what it is, that we want to achieve. But ultimately, I think one of the key considerations is like what's it going to be like to actually work at Lob? How can I be happy there? And that's a huge motivating factor for a lot of people. So we spend a lot of time internally thinking about, you know, our culture. How do we sort of like find the right folks that map into the culture that we have? How do we sort of like give engineers and give potential candidates a sense for what your culture is like? And we do that through writing blogs; we do that through, you know, having people come on-site beforehand to get a sense of what it's like to be there. And we try to make sure that throughout sort of like our activities we're tying together our core values and giving people a good representation of what it's like to work at Lob."

"And so also part of this is the comp. And so before we start recording, you talked about options versus RSUs. Yeah, what's your opinion on that?"

"Yeah, so you know I think they're both good instruments. Do you mind helping for those people who might not? What is the difference between like an RSU and?"

"Yeah, absolutely. So one of the things commonly misunderstood is like equity compensation. So RSUs and options they're both different forms of equity that company can offer you in the company. The main difference that we see: options essentially you have to purchase, so there's a strike price associated for options. So as an employee, you have to make a decision at some point in the company's lifecycle that you want to spend, you know, your own money to purchase shares of the company. And that's why you have essentially one option; it's the right to purchase shares at this particular price point. But the reality is, you know, you're gonna pay some relatively significant amount of money potentially in order to acquire those shares. And we've heard like people taking out loans to do this, like there's companies designed to help people do this, so it's not an insignificant amount of money. RSUs are a little bit different. RSUs are actually a stock grant. So you know, there's actual value to RSUs that you're receiving and you're not paying for the right to the RSU; you're actually being granted that RSU. So for us, you know, at Lob we actually decided, and I think it's a little non-traditional that we built sort of like a unique RSU instrument that we think is sort of like the best of both worlds, right? And essentially the motivations where we want company to be people to be invested in a company in the long term. We want to design equity compensation that didn't feel like a risk to the employee. The whole entire reason why you want equity in a company is you want a share in the upside. You want to feel like you're a part owner of the company. But if you have to like spend an enormous amount of money without knowing what the outcome of the company is going to be in advance, which you can't predict, it puts you in this like weird scenario where you like you want to buy your shares but you're not sure if you wanted. And we felt like that was a really tough position to be in as a potential candidate. So we design RSUs in a way so that, you know, our employees actually get RSUs when you join Lob. So what that means is you don't have to make that consideration of like, you know, should I spend the money to buy my options? When should I exercise that? And there's obviously some differences there, right? Like I think the major difference is like when you get taxed. But we always looked at it as you don't get taxed in RSUs until there's actually a liquidity event. In this scenario because we don't physically—we don't actually grant you the RSUs until you there is a liquidity event. So therefore, you know, you out is at the time in which you receive money, right? RSUs. And I think, you know, what we found is that, you know, especially employees that understand equity compensation, that's something that's really attractive to them."

"And when we think about wanting people to be here for 30 years, we don't want people to stay for the wrong reasons of like, 'Oh, I don't have the money to exercise my options, I'm gonna stay.' I want them to stay because they enjoy the people that work with; they enjoy what we're working on; they are inspired thumbs up we have. But we still want to give them a share and actually being an owner in the company."

"Mmm, and how do you handle vesting? So sales team—"

"Vesting, especially do a one-year cliff and we essentially, you know, vest monthly thereafter. So it's the same as like an option in that sense. One thing we do, we also reserve retention grants for people's. So at our two and a half-year mark and every year thereafter, we continue to give people opportunity to gain additional equity in the company, and our thought is like the longer you stay at the company, the more equity you should be able to acquire. There shouldn't be a point where you ever stop earning equity in the company."

"Mmm, so what kind of mistakes did you guys make when it came to like closing your first like big sales?"

"Yeah, so I actually think there's a valuable lesson we learned during our early YC days in that like when you're selling your product, you're oftentimes selling something that you might not have just yet. But I also think it's really important you have to actually get alignment with your customer and be upfront about like what you do, what you can do today, what you might be able to do if you share and also agree on like a timeline of what that looks like, get it in writing, and have that sort of be part of the close of the deal. Where we weren't wrong, and I sort of laughed because we built what I thought was a freaking awesome product back in the day. We actually had a mugs API. This is in our like demo day slot—it's coffee mugs, yeah, coffee mugs. There's a point where we thought it was a brilliant idea to be able to print coffee mugs on demand through our API. We wanted to be able to print on anything. And how this happens? We had a customer who came to us and told us that they had this use case for coffee mugs, and it was like a big number—a really big number for us. And you know when you're small, every single, you know deal looks super valuable. And we're like, 'This is awesome! These are so cool.' We built this two coffee mugs, and we built the product. So we told the customer we can definitely do for you, you know, we'll have free choice. And we scrambled and we hustled super hard. We built a fully functioning mugs API product, but we didn't sign any paperwork with this customer. So we built this whole entire thing. We spent two weeks of valuable engineering time. We met two customer, Mr. Customer. We have the mugs API. Here's how you use it. And he was like, 'Awesome! Like we'll get right on it.' He went dark. He stopped responding. I was super disappointed. To this date, we sold two mugs. Mugs API—one of them went to another YC partner, actually Dalton. He was working on an app, and I convinced him that like he should definitely do mugs as well. And I think he put in like one order for it, and it worked. He's like, 'This was awesome!' We killed the product a little bit shortly after. But I think it was a really valuable lesson in that like you always want to be selling a little bit ahead of where you are. But you also want to align up the customer like what you actually haven't don't have. And that actually helped us close, you know, one of our biggest customers today in booking.com. So you know, essentially how this opportunity came about is they were already a customer of Lob using our address verification API and they had sort of this moment in time with GDPR where they started reevaluating all their vendors for print, and we sort of got roped into consideration. One of the key things that was really important to them was actually like having operations in Europe. They were familiar with our API in the US; they knew it worked really well, but like they're a global company. And of course like they want to know what our long-term plan is to support Europe and eventually Asia. So you know part of the negotiation as we were working through this big deal, its customers, that we need to align with them on a timeline and how we were gonna get Europe up and running for them. So for us that's originating, you know, letters and postcards and our other mail offerings in Europe, and that was sort of tricky. But I think we had learned some valuable lessons in that like we weren't gonna just go and build all of Europe and scramble for potentially months at a time, but we also weren't going to tell a customer something we didn't have either. So we were pretty upfront about them about what our capabilities look like, you know, the timeline of which you're going to roll, and we actually agreed to all these things at during our negotiation. So what it really helped is like our customer actually want to help us get things going faster, right? They're like, 'We want you guys to get up and running!' You're up, like, right now. And you know, we could actually ask for their help in building exactly what they want. And now it's sort of like a partnership rather than like, 'Hey, we've oversold something.' It's more about how can we work with our customer to achieve the results that we both want to get to. And I think that's really important, especially as you're talking about larger enterprise deals. You're not always gonna have everything, but really sort of structuring and not over selling it but also setting the right expectation of customers, it's difficult to navigate that sometimes but we found as a policy, it's better to be, you know, upfront honest about what you can and can't do. And actually, you know, if the customer really wants to work with you, they're gonna find a way to make it work with you, and that's the best position to be in."

"Mmm, are there other examples where you get a potentially incredibly high-value kind of like enterprise scale client and they want something that you don't do? Do you now like kind of fish around? See if anyone else is interested in the Mugs API before you follow through with it?"

"Yeah, definitely. So I think a common example of this is we’re always evaluating mail format. So what I mean by that is like, you know, you get different types of letters, all shapes and sizes. We don't support every single different mail offering today, but we have a list of like what company people have been asking for. And what we found is for us, it's a little bit of a chicken-and-egg problem. We don't want to start with like a really small volume customer because it makes it difficult for us operationally. But at the same time, it's like we also know that this is a product people are interested in; they want to see proof points. So what we found is, you know, we have a list of these mail formats that we’re constantly evaluating. When we talk to potential customers, we know here's a list that we would potentially be willing to consider, so they can agree on a commitment level of like what they’re gonna send, and you know, then we’re willing to entertain some of those areas. And that's actually helped we build some products in the past before, you know, we recently just launched— I think you know earlier this week—certified mail receipts. We knew that when we launched certified mail—this is for William Wang if you guys remember he needed certified mail—we launched certified mail, but he didn't need certified mail tracking because he didn't really care like when it received, he just cared that he had a proof point. Mmm, but we knew that that was something that we could potentially do. We chose not to do an early age because we didn’t have like customers that were willing to do that on mass. So you know we were able to—we got a few customers that were really interested in certified mail, but felt like when you were missing this one little thing in, you know, mail receipts, and we had that sort of like plan and we had thought about it. And finally, we had the right customer who come before willing to make that commitment level. We're already familiar with our product, we actually went and built it, and we just launched it this week. Congrats!”

"So the way that you pad works is like you guys provide this technology layer, and you connect to all like a network of all these printers?"

"That's correct. All around the world?"

"That's correct. So what I'm kind of curious about is like you've seen this trend as firstly as companies get larger and larger where they get more vertically integrated, well, they want to do every step of the process so they can own it in terms of quality but also like an R&D, etc. And I'm kind of curious: Do you feel like is that a thing that you guys will eventually do? Or if not, why not? So for example, it's just like basically you buy a printer or you like own some printing facilities and be like, 'Okay great, because like this whole like flexibility and mail format, etc. Like part of the reason that you have to be cautious about what you go into is because you have to go and spend time to find the right partners, booth out the integration and then sort of make it work. And so I'm just kind of curious about like, is there a point in the future where Lob like owns a giant printer?"

"Yeah, I mean we don't have that in the plan today is the short answer, right? Certainly if there's a huge need we'd consider it. But you know, the motivation for us is like we see mail as somewhat of a commoditized product. We also know that like it's a huge industry for a reason. There are hundreds of thousands of printers that are out there, but they all specialize in like slightly different things. So, you know, for us to be good at what we do, we can't try to do everything at once. It would actually be really difficult and super capital-intensive for us to buy all of the necessary hardware, and like what if our customers need to change? We want flexibility, and part of having sort of a network of folks enables us to have the flexibility."

"I remember in our very early days at Lob, we were still—the this is pre-Lob or pre-YC application—one of the things we want to do is we sort of just want to get our own printer, like, 'Hey, it'd be nice if we could just like do it ourselves. Like why do we need like real fine somebody else? That's just like another place for something to go wrong.' Because you're looking at all these printers and probably like these guys are in the Stone Age, like we should be replacing them."

"Yep, that's exactly right. So we called up an HP Indigo vendor. So if you guys don't know, HP Indigo czar like the commercial print standard. Everyone you re-in printers—yeah, this is what you want, trust me. So we figured a satin, honestly we didn't know too much about like the print world at the time. So we called the sales rep. I think the first time for him should have been like, it was weird that meet, we're meeting in a Starbucks. We met this guy Starbucks. We didn't have a company to have a product at time. We're like, 'We're just saying get this printer, because like we can do it better.' So we start asking them all the right questions: like, 'Who—like what's like? You know how we're gonna do inserters? Like what are the different formatting options?' Like we cover everything, and this guy's feeling really good about this. We're like, 'Yeah, this guy's really smart. He knows exactly why we're definitely gonna get this.' So my co-founder Lior negotiates like so like how much like would this cost? And he’s sort of taken aback. He’s like start immediately talking about like their releasing options and in my head I'm like, 'I don't want to lease this. I just want to buy it. Like we're about to go get some money and we're gonna raise capital, we're gonna go buy this and do it.' So we sort of like, you know, corner him a little bit like, 'I like how much it cost? Like offer us a better price if we just buy outright.' And I think—I don't remember the exact number but it was something like over a million dollars. And I sort of looked at Lior, I was like, 'Dude, we're not doing that. Like no chance we're gonna buy that printer.' But I think you know thinking about where we are today like you know maybe we do want to buy that printer, but like there's it immediately creates a ton of complexity in our business."

"Absolutely. And that's the thing I'm just curious about, as I go Amazon could have continued using 3PL services, but at some point they realized like we need to own and build our own warehouses to build up a certain efficiency. Like we have a vision for the future that requires us to own that technology inside. And so I'm just curious like you know what at what point do you guys start to be like, 'Oh you know what, we’re being held back by our partners?'"

"Yeah, yeah. That's a good question. So we haven't felt that way and our partners have been like incredible partners. And honestly they're experts at print; they are—they know so much more than we did down to like the color calibration that we should be using on all of our printers. I think the places we want to think about it is if it could give us a competitive advantage. If we're able to offer something by owning the print infrastructure that will give us the ability to do something nobody else can. But I think that's like complex for us, right? That would be like, 'Hey, we have a—you know, we have an awesome hardware printing engineer who thought of a completely new way to do print, and we're gonna go compete with like HP's imaging division.' And we decided we can offer something that like nobody else has done. We can like do this new—oh someone came out on a marquee with like a brand new type of printer that can do offset printing like—"

"That like yeah if we could—"

"Yeah, someone could do offset printing using like digital methodology at a price point that was like not achievable to pass. I would be interested in talking to you. Anybody who's starting that company, by the way."

"The Tesla cool! So you guys are now six years old, six years coming up soon. How have you had to change as a founder and a manager over those years?"

"Yeah, that's a good question. I think the first thing—and I'm still getting comfortable that now—is understanding that like your role as a founder is gonna constantly keep changing. For some reason in the early days, you know, just like, 'Hey, I'll just like constantly be building cool product.' Then I found a place where we needed somebody to go do sales, so I led the sales team for a number of years. And then all of a sudden we were doing okay on sales but we didn't have any leads, so I started working on marketing. And I think what I found is that my roles then they continue to change and that's something like you have to get comfortable with as a founder is that your role is gonna change, and that's okay because what that's essentially saying is that you guys have gotten good enough that you can hire somebody else to do that. And I think that's a—you know, expectation everyone should have when you go into business that like you should be comfortable in every aspect. You know, I think a lot of people like think that they can just just build product forever. Everyone should talk to customers. Everyone should be going and trying to do sales in the early days because if you as a founder in a company can't sell the product, nobody else is gonna be able to either."

"Yeah, that's a great piece of advice. All right, thanks man. Thanks for coming in."

"Yeah, absolutely. Thanks for the time guys."

"Thanks, Harry."