Reaching $20MM/year Building Hundreds of Products with Chad Pytel of thoughtbot

Courtland Allen 7s

What's up everyone? This is Courtland from IndieHackers.com and you're listening to the Indie Hackers podcast. On this show, I talk to the founders of profitable internet businesses and I try to get a sense of what it's like to be in their shoes. How did they get to where they are today? How do they make decisions both at their companies and in their personal lives, and what exactly makes their businesses tick?

And the goal here, as always, so that the rest of us can learn from their examples and go on to build our own successful internet businesses. Joining me today is Chad Pytel, the CEO of Thoughtbot. In addition to being an entrepreneur, Chad is a designer and a developer himself, which is appropriate because Thoughtbot is a design and development consultancy.

Chad started Thoughtbot in 2003 with a small team of five people, and today he's grown that into a team of a hundred people in six cities and they are on track to cross $20 million in annual revenue this year, which is insane. So Chad, I'm super excited to have you here. Got so much to talk about and thank you for coming on the show.

Chad Pytel 59s

Oh, thanks for having me. I appreciate it.

Courtland Allen 1m 1s

Tell us a little bit about how Thoughtbot works. I guess it's somewhat self-explanatory, you're a consultancy, but what do you guys do? Who are your customers and how do you make money?

Chad Pytel 1m 9s

We specialize in creating products that people love to use. And so, the majority of what we do is help people go from that first concept that either a brand new startup has, or a much larger company for wanting to do something new, and refining that concept, and then rapidly designing it, and developing it, and bringing it to market.

Almost everything we do launches the first version within 12 weeks, and we go on to iterate from there. For startups, that typically involves raising a larger funding round at that point and building a team of their own. We work alongside of that team, training them in how we work and what we've done, and then backing away when they're ready. For more established companies, that means typically means bringing it in house at that point, and doing the same thing

Courtland Allen 2m 0s

That's great. You guys specialize in building products that are actually good, products that people want to use, which is great cause we've got a ton of people listening in who have ideas and maybe don't and want to learn how to build products that people actually want to use.

You are, technically, I think, a first time founder because Thoughtbot is your first company, but you've been working on it for 15 years and during that time I can imagine that you have taken the hundreds of products from idea to launch, and that's a pretty cool perspective to have.

You have seen a lot more than most people, so you're not really a first-time founder. What are some of the bigger lessons that you think you've learned as a result of having such a broad perspective and seeing so many different products?

Chad Pytel 2m 38s

The biggest one is, it's really surprising how few people actually really talk to customers before they start building their product and figuring out what it really is. People spend a lot of time making mockups and wire frames and written documents that describe how it's going to work and what it's gonna do.

Courtland Allen 3m 3s

The fun part.

Chad Pytel 3m 3s

But they don't actually talk to people who would be their customers. We talk to a lot of people. When we first talk to them, we say, "This is all great, but have you heard this assumption you're making?" Or that this pain point -- where did you get that from? Who told you that? And it's often coming from them in their own mind rather than getting it validated by talking to real customers.

Courtland Allen 3m 32s

So when I think of a consultancy, I think of a company that's just going to build whatever I want, regardless of whether it's a good idea or not. How did you guys get to the point where you were actually advising people, "Hey, you need to talk to your customers and here's how to build a product that's going to work" versus "We're just going to be the hired guns and build whatever you want"?

Chad Pytel 3m 49s

Well, we've never wanted to do that as a designer and a developer myself, I'm not interested in working on things that aren't going to be successful. Life is too short to be working on things that aren't going to be successful. That's the approach that we've had from the beginning is to really try to make sure that we aren't just building whatever someone tells us to build.

That's why we've been an integrated design and development company from the start, because if we were just doing development and a lot of companies out there just do outsource development, you're not involved early enough in the decision-making process and in figuring out what the product is going to be in order to have the effect that you want.

And to be in as a conversation early enough. We believe inherently in integrated design and development teams, and that's reflected also in wanting to have a seat at the table as early as possible so that we don't get in a position of just building whatever someone tells us to build.

Courtland Allen 4m 52s

Got to tell you, man, I am a designer and a developer myself, and I built a lot of stuff that nobody ever used, and no one ever cared about. So, let's talk about the early days of Thoughtbot. Why did you start this company?

Chad Pytel 5m 5s

The reality is, I've been freelancing web design and development since 1995. Full disclosure, I was in high school then. So I got really early on with the web. It was a pretty exciting time and I got a lot of opportunity to do some pretty cool things early on. This was when most companies were building their first website. So I went to school and decided to go for CS and graduated in 2002, and so I went into school thinking it's the height of the ".com" bubble.

We're going into CS, I'm going to have an amazing job. I'm going to move to San Francisco and get an amazing job, work at pets.com or something like that, but what happened while we were in school was September 11th happened. Huge impact on the economy, but before that, the ".com" bubble burst. And so went into school thinking I was going to have no problem finding a job and like me, a lot of my peers, we graduated and into a very different scenario.

I fell back on the freelancing that I had done and one of the people that I'd worked with previously said, “I know this person, we're working on something new. He's a little out there but maybe you should go talk to him.” I met with him and he was an attorney and he had, he explained he had fought insurance companies and won, and so he was creating new medical billing software, online software to do medical billing to help doctors get paid.

That personally is an issue that I care a lot about. He convinced me to join the team and we needed to build a team. So I hired a few of the friends that I had graduated college with who were all looking for work and who I'd worked with before, and we got started. What we found pretty quickly was that it wasn't what it seemed. The biggest trigger was ultimately we found out that he had a personality disorder.

And so, the investment that he said that he had, what we were doing wasn't really there in the way that we thought it was. We stopped getting paid after about six months because the money wasn't actually there. And then things started to crumble pretty quickly from that. But we all loved working together. But having been through that sort of process, we were regularly working 70 or 80 hours a week.

My normal schedule was to come in in the morning at about 6:30 in the morning and leave at 10 or 11 at night. I was really burnt out after having worked so hard for something that was a fairly toxic environment that just evaporated overnight. So I didn't feel like going and doing job interviews and that kind of thing. We all liked working together.

I fell back again on that freelance web design and development that I had done previously and said, "We like working together. Maybe I can make some phone calls and get some clients." And we thought up a name, and that was Thoughtbot, and that's how we got started. We were five friends who went to school together, who worked together for the first six months out of school, and out of the ashes of that, we created Thoughtbot.

Courtland Allen 8m 27s

It would have been easy for you to just go get another job elsewhere. I think that's a decision that most people would have made. What do you think it is about you that gave you the idea, your coworkers' idea, to start something on your own and take that kind of a risk?

Chad Pytel 8m 40s

It's a really good question. I do know that the first thing was just that feeling of, "I don't want to go to a job interview and have to talk about what I spent the last eight months doing". I was just burnt out and didn't want to talk about it. And so that was definitely a motivator. And because I had done a lot of freelancing before, that seemed like the easier path.

And then coupled with wanting to continue to work together, I think you put those three things together and we said, "Well, we've got nothing to lose. Let's give it a shot." And so, I just picked up the phone and started to make some phone calls. I think if we hadn't gotten anything from those original phone calls, we probably would have said, "Yeah, okay, it's not working." But, we did, we got some first clients and that kept the momentum up to keep things going, even in that uncertainty or that risk.

Courtland Allen 9m 8s

These are things that I hear from a lot of entrepreneurs. Number one, a total lack of desire to go interview somewhere else, albeit for probably different reasons than you had. The desire to work with particular people or on particular things that you really want to work on or work with. Also having a really strong fall back. Knowing that even if things don't work out, you can just go get a job.

You had freelanced before and you knew you could make it work. Just makes it much easier to take that leap. This is 2003. Has the process, in your mind, changed of what it might look like today for somebody who wants to get started with a consulting shop? And how did you guys actually go about making those phone calls and getting your first customers?

Chad Pytel 10m 23s

In terms of starting a web and mobile design and development company, it's very different now than it was then. So 2003 is before Facebook came out. Web applications were not something that everyone used or was aware of. It was a long time ago. Mobile didn't exist in its current form at all, and it wouldn't be another four years until it did.

So, the ecosystem of technology and what we were doing at the time was very different. The funny thing is, now it's more like it was then, and I'll tell you why. When we started, there was no clear winner up for technology. There were lots of different options. You could use PHP or Pearl or Java. You could choose lots of different things and there was no particular reason why you might choose one of them over the other. So we got started in that environment and we did lots of different things for lots of different people.

And then what happened several years later in the industry, especially for us, we were the first consulting company in the world to switch to Ruby on Rails when it hit 1.0. What happened was, in the context of Rails hitting 1.0, Web 2.0 happened. Ajax, Asynchronous, websites using Java script became a thing. That was a thing that was invented at that time.

And what happened when that happened is Web 2.0 happened, and there was a strong consolidation around what technologies we were using, but also the communities in general were using in terms of prototype and then J-Query on the JavaScript side. And on the server side, there was a real point in time where most startups that were getting started were using Ruby on Rails or choosing Ruby and Rails.

We're now back to an environment where there isn't one clear technology choice for a lot of things. There's lots of different things. Node is very popular, but there are lots of other options out there for both front end and back end development. Even mobile development, which was consolidated for a little while, is more between React Native, and Objective C, and Swift, and Kotlin and Java. There are lots of different technology choices, even on the main two technology platforms.

We're back to an area where things are less consolidated. As someone getting started today, you really need to be careful that you don't become everything to everybody. You don't use every different thing for every different purpose because the problem, and this applies to non-consulting businesses as well, and this is why it's an important lesson for Thoughtbot and for lots of people, is when you're everything to everybody, you're nothing to everybody.

You don't stand for something. Customers don't know why they would work with you or why they would buy you if your clear job to be done, if your clear purpose is not laid out for customers to understand and appreciate and decide, "I want to buy that" and to seek it out and to say, "I need this product, I have this pain point and therefore I'm going to seek out a product or service that's going to solve it."

We're back to being in that ecosystem that's very diverse. It's really important for companies today, whether you're a product company in the general marketplace or you're a technology consulting company and design and development company, that you understand what it is you do and why you do it, and you clearly communicate that to customers. That was the biggest mistake that we made early on, is we didn't do that. Because when I picked up the phone and started making those first phone calls, I was desperate.

I would call someone I had built their website for previously and they would say, "Hey, great to hear from you again." I would say, "I'm back to doing websites and that kind of thing. Do you need help?" And they would say, "Well, we don't really need help with our website, but we need help with this computer that's giving us trouble. And you're a computer guy, right? Would you help with that?" And we were desperate.

So we said, "Yeah, okay, um, we can help with that." And we put in fancy name on it. We said, "Okay, we're going to be a full-service IT consulting company. We're going to be for small and medium size businesses. We'll do their website, we'll build software and internal systems, but we'll also sell computers and provide technical support. We'll do everything a small and medium size business needs."

Well, there was no reason why people would work with us at that point. There are way too many other full-service IT consulting companies, there are way too many other companies that they could call that would be a little bit more specialized than we were. A little bit more established, a little bit cheaper. All of these things, we were lost in the sea of competition. And this really, again, it applies to every kind of business, not just consulting.

Courtland Allen 16m 2s

It's funny to hear you talk about your experience as a consulting shop because they mirror my experiences as an individual developer. Probably the 90s was the decade where all sorts of people asked me if I could fix their computer. And I would say no. And then the early 2000s is when everybody wanted a website and I said no. And then late 2000s, everybody wanted a Rails app and I would tell my friends and family no.

It sounds like you guys weren't saying no, but eventually you learned how to. Another thing that stands out to me in your story is that you started with five co-founders. There were five of you who started Thoughtbot. That's a ton of people. I've had trouble finding alignment, working on businesses with just two of us. How did you guys make it work, or did you even make it work with five of you at the beginning?

Chad Pytel 16m 45s

Overall, we made it work because we enjoyed working with each other and we had worked together before. So that momentum carried itself forward in in the early days. And we fell into the grooves that we normally had. We had already normalized how we worked together. But the problems we faced, there were two big problems starting with five people in that scenario.

The first was on day one, we needed to support five people, yet we had no savings. We had all just worked for free because we weren't getting paid for a few months, where we kept being promised that we were going to get paid. And so starting on day one, needing to make enough money to support five people was our real challenge. And if we weren't young, right out of school with not a lot of obligations, that would have been really difficult to do.

It was difficult to do anyway, but it would have been even harder. So that was the first challenge is just financially supporting all of us, bootstrapping our work. And that was really difficult. And it didn't fully resolve itself until three of the original founders decided to leave. The other challenge that we had early on with starting with five people, is what I alluded to about falling into the norms.

The norms were good because we knew how we worked together and that kind of thing, but we made the mistake of not having honest conversations about what each of our roles were going to be and what each of our contributions to the business were going to be. And if I think back, in every instance where we had worked together before, I was in a leadership role and that's what everyone looked to me for.

And I went into Thoughtbot saying, "Yeah, I'm CEO, but we're a team and we're doing this together and we're all going to be equal partners, and I'm looking for you to be part of the leadership team of the company." And I think in retrospect, that wasn't their expectation. We never talked about it really before we got started. So, in retrospect, it was a mistake to go into it, and never having that conversation, and to say, "We're going to be, 'La, la, la, we're going to be equal partners.'"

That was naive of us. And it would've been a lot better had we just had an honest conversation. And it's possible that if we had had that we would have been more successful but ultimately maybe people would have stuck around. The original founders would have stuck around longer because the expectations were set.

And so when the three founders, we weren't very successful because we were doing everything for everybody, and we weren't very successful when the original founders, three of the original founders, decided that they were just going to go get jobs and move on. That was the first important turning point for the company, and it's when Thoughtbot really became Thoughtbot.

Courtland Allen 19m 46s

Yeah, I know a lot of therapists, and being in a co-founder relationship is, in a lot of ways, very similar to being in a romantic relationship. And rule of thumb number one is to communicate thing. When you don't do that, things tend to fall apart pretty quickly. Small problems turn into big, hairier problems down the road, so it's pretty crucial. I'm curious about the emotional impact of having three out of your five initial founders leave because that's a pretty easy point to just pack it up and call it quits yourself. What were you feeling when that happened?

Chad Pytel 20m 12s

It was a weird thing because I totally could have seen that we could have just walked away at that point. We weren't very successful. Our friends were just showing us we could walk away. We ended their involvement very amicably, but it wasn't expensive. We weren't successful, so it didn't need to be complicated or expensive, and everyone was very reasonable.

They showed us we could just go get jobs. I don't truly know, and I can't really chalk it up to anything other than there has to be some amount of grit and determination going on to have lasted 15 years so far, especially in this business with all of its ups and downs. And so I sort of point to that and say, "I think that I'm just stubborn." And instead of reacting to that situation and saying, "I guess we're just going to move on."

That led to a doubling down where we said, John and I, who are the two founders that decided to stick with it, that act of needing to consciously decide to stick with it. We consciously said, "This isn't worth doing if we're not successful and doing the kinds of things that we want to do in the way that we believe they should be done." And we literally took out a piece of paper and we wrote a list of the things related to design and development that we believed.

We said that we were going to start saying no to anything that didn't match that list. And being put in a position where we had nothing to lose because we weren't successful and being determined to do it really had a dramatic impact on our success. When we started saying no to people, it's not that we were actively turning down people that was important.

It was that the people who believed what we believed could then find us. One of the things on that list was test driven development, just for example. At the time, in 2005, test driven development was not a respected, established development practice. It was on the fringes, and there were some people who actively went against it and there were some people who believed in it.

And by saying that we believed in it, we became part of the niche of people that wanted to work that way. And so people, clients who understood what they wanted, and that they wanted that could then find us. And team members, it became easier to hire. We had people leaving their companies to come join us because they wanted to use Rails and they wanted to do test driven development and we were one of the only companies that would allow them to do that.

And so on both sides, customer and team size, being clear about what we believed and how we worked and what we wanted to do was essential to that turning point, when Thoughtbot became Thoughtbot.

Courtland Allen 23m 11s

It's crazy. You're talking about not trying to be everything to everyone. When you're in the dire straits that every early stage company is in when you're trying to just, I don't know, pay your bills next month, it can be hard to turn people down, but it has the effect of actually increasing your business and making it more clear what you want to do and also bringing you better customers. It's one of those counter intuitive things that it's difficult to pull the trigger on.

Chad Pytel 23m 35s

It's difficult. To bring it back to the question you asked in the beginning about the mistake I see a lot of people make when they're building a product, it's not talking to customers. But then when you start talking to customers, they're going to tell you lots of different things. And so another common mistake I see when we're working with people is that they will talk to one customer who tells them one thing and we'll be headed in that -- or will have talked to a lot of customers that tell us one thing.

But then they talk to another customer who's willing to pay them and they say something slightly different. And then that gets added to the list. It's like, "Oh we got to do this." And we're really focused on what the smallest possible thing is that we can build to bring it to market. And we will get to that thing eventually if it's actually important.

But it raises in importance because they're continually chasing what they think they need to do in order to get that first customer. And so you end up bouncing around between all the different people that you talk to. And so it's important to be judicious about not just hearing one person but hearing the multitude of voices and really driving to the core job-to-be-done of what your product or service actually does for people and staying true to that.

Courtland Allen 24m 55s

That's sage advice. Your customers are not going to be able to tell you exactly how to build your business. Talking to them is crucial, but you're the founder and you still have to be able to piece together all of those pieces of information and figure out what to do. So you and your remaining co-founder came up with this list of things that you guys were going to stick to.

I'm sure at the time you didn't imagine growing your consultancy to $20 million in revenue. Did you have to change your list a lot to get to this point that you're at today? And if not, what are some of the bigger things on your list that enabled you guys to grow so large and be so successful at what you do?

Chad Pytel 25m 27s

The list has changed a lot, the actual things on the list. But actually, it was a very conscious point at which they changed because the first list that we created was all very tactical, specific things, like Ruby on Rails, like test driven development, like sustainable pace. Those are practices or principles; they aren't values. After several years, we actually did a major revision of that list where we said, "What's important to us about test driven development that led us to choose that in the first place?"

That was very valuable to us as a company and as a team at the time. But it turns out it was also important to levering up the success of the company because test driven development is no longer special. It's no longer a differentiator. In that sense, we sort of won. And so if we continually just focused on that as a differentiator, it wouldn't be true and it wouldn't be something that we would miss out as designers and developers around the next thing that's new that we love to do, and that makes us fulfilled in our work and helps us build better products.

It was important to identify the core value that led us to do test driven development in the first place. And so that let us move on from that and say, "What's the next thing?" Or more importantly, "What do we believe as a company that customers will then come to or that we can communicate to customers?" And if we hadn't done that, we would have been left behind. And so the longevity and the growth that we've had is, was comes from that major revision that we did where we converted our practices into values.

Courtland Allen 27m 20s

I want to hear a little bit about this period in between you guys becoming two founders and you guys eventually switching over your values and heading, I don't know how to refer to it, maybe a growth spurt in the size of your company. Because I know that there was a period of time where you were significantly fewer than 100 employees and you were pretty happy with that.

Chad Pytel 27m 37s

From 2005 to 2012, we were no more than 20 people, and that was very intentional. We have very high standards for the kind of company we are, the kind of work we do. We don't have professional salespeople. We want to have relationships directly with the founders and the companies that we work with as designers and developers.

We have really strong beliefs about how companies work and wanting to not have a lot of corporate overhead and BS. And so we were very afraid around growing larger than that 20 person number and what it might do to the company. But in 2012, two things happened. We were coming up on our 10-year anniversary, and 10 years is a long time. And so psychologically it was this important milestone in my mind that we were coming up to.

I started to think about the impact that we had had on the world. And we had a global reputation and we had made major contributions to open source and those kinds of things. But what truly makes Thoughtbot special in my mind and the mind of the people who work here and work with us is the way that we work.

We believe we have a better way of working and we are trying to share that with as many people as possible. So when we were, when we were holding the company to 20 people, it was holding us back from achieving that full potential. I remember the day that someone stood up in a company meeting and said, "If we really believe we have a better place to work and a better place to work with, why are we not trying to bring that to more people?"

I realized I was holding us back from achieving that because I was afraid of what we might become. So that was the first aspect of that. The second aspect that triggered the growth was that we lost people. We were working all together in Boston. We went through a brief period of time where some of us were working remotely, but we weren't set up as a remote company.

We went through that period of time and then we moved back to Boston because it was mediocre because we weren't really set up to be remote. So we said, "You know what? We're just going to have a small team of people based in Boston." And we went through a year. We weren't that big. We were I think 17 people at the time. And we lost three people. And the only reason why they left was because they wanted to live somewhere else.

It had happened the year before, two in the year before that. And we reached the breaking point where we said, "We're losing people." When someone would ask to have a meeting with me and they would start the meeting being, "Thoughtbot is the best place I've ever worked and I don't want to leave, but..." I knew that "but" was coming. They had to, for life reasons, for desire to live somewhere else, that kind of thing.

We wanted to try to find a different way of growth and reconcile the fact that we were afraid of being bigger. We had done partial remote and we felt like it was mediocre. And so how could we reconcile all of those different things? And that was when we hit upon the idea of, "You know what? We know exactly what a four-person, eight-person, 20 person Thoughtbot looks like. It's great."

Instead of thinking about how can we possibly be 50 or a hundred people and not compromise, and instead of thinking about this hybrid remote team being mediocre, maybe we could replicate what we have with Thoughtbot to other cities. And the next time someone wants to move, say, "You know what, that's going to be great, but we've been through the partial remote thing. Let's not do that again. Let's build a studio around you when you move."

There's probably people and clients in that new city that want to work with Thoughtbot that haven't been able to do that before. And so we're going to bring it to them and we're going to grow geographically that way. And so the idea has been to try to have the best of both worlds where every day when you come to work as a designer and developer, you're working with one customer, you're working with a small team of people that you know and have worked with before and who you trust, and you're creating a product that people love to use, but that you're part of something bigger.

And that is the Thoughtbot overall, the movement, the impact, the hundreds of clients that we work with a year now to have that impact all over. And so you feel like you are part of something bigger without having to compromise on and actually in your day to day have the downsides of being part of something bigger. I think not everything's perfect, but I think we've struck that balance really well. And once we started down that path, we went from 20 people into 2012 to a hundred people now in 2019 and so the growth has been pretty dramatic pretty quickly for us.

Courtland Allen 33m 4s

That's so cool. You're basically taking these small teams and just copy-pasting them into other cities and other locations, and that's the way that you're scaling your business. That sounds really intriguing to me. If I wanted to build a bigger business, I think that would be the way I would want to do it.

What are some of the roadblocks that you've run into doing it that way? Because it sounds like in a lot of ways you were blazing a new trail. I haven't heard of that many other people doing things the way that you guys have.

Chad Pytel 33m 27s

The biggest roadblock we ran into was that the majority of the studios were started by someone who already worked at Thoughtbot and we don't have business development people, really. So, it was a designer or developer starting that studio. In my background as a designer developer, I was comfortable doing business development and I had a knack for it.

I took for granted how easy it would be for someone else. You know, at Thoughtbot we're great communicators, we like people, we're not the typical developers who go away in a dark room and don't want to talk to people. That's not who we are. And so we had the belief that we could open in a new city, that anybody who was a good fit for Thoughtbot would be able to do that.

We also had this archetype of what Thoughtbot was, which was led by one person, which was me. And so that led us to think that anyone at Thoughtbot could start a studio and that those studios could be successfully led and managed, and all the business development and that kind of thing happen by one person. And that didn't work.

But even worse, what happened was we were led astray because when we opened in a new city, we got a bunch of customers right away. What we thought was, "Oh, this is great, this is going to be super successful." What we didn't realize was that we were getting the low hanging fruit. After year one was great, year two was less great.

Year three in the new studios was terrible. What we then realized was we hadn't actually been doing the work of business development to build a sustainable pipeline of local work. We were only getting the people who were already our fans, who were already waiting to work with us when we moved into a new city.

What we also found was that the actual amount of work necessary to build a sustainable studio was more work than one person could reasonably do, particularly if they were just someone who randomly wanted to move to a new city and didn't necessarily understand or want or have the capacity to do everything that was required to actually build a successful, sustainable Thoughtbot studio.

We had to close a few studios once we realized that because we had lost a lot of money and we were really in danger of going out of business overall and we re-structured the expectations around the leadership of a studio. We now have three leaders in each studio, a design director, a development director, and a managing director.

That managing director is typically a designer or developer, but they're the one that's responsible for the business of the studio while the design director and development director lead the design and development teams respectively. That structure is working really well for us now, but it was a big change and we had to, like I said, shut down some studios, which was super difficult.

And we lost some people along the way in addition to shutting down those studios just because of the-- realizing the changes that we needed to make in order to get things to work more sustainably over the long term.

Courtland Allen 36m 48s

It sounds really difficult on one hand, but it also sounds really fun to try to figure out how to make this model work, to do trial and error, to teach people the things that you knew about opening up a new studio and building a sustainable business there. What do you enjoy the most about running Thoughtbot as the founder?

Chad Pytel 37m 5s

Working with the people here, and I think if you asked that question of anybody, like, "What do you enjoy most about being a designer?" Or "What do you enjoy most about being a developer at Thoughtbot?" It's working with the people here, and so I really like my role because I get to work with people all over the world doing interesting things and helping them bring Thoughtbot to more people.

But more importantly, working with customers to bring their ideas to life. For the individual designer developer, we've achieved what we wanted to achieve when we started on this path of growth, which was they're part of something bigger than what they're having an impact for the product that they're working on. In a way, that doesn't feel like you are part of some big machine.

But I'm sitting in a position where I can see it all. And that's really exciting. The impact that we have and the size that we're at now, we work with companies that we would have never worked with before. We work with companies that are really big; Fortune 500, Fortune 50 companies who want to do something new and know that they want to get outside their walls to do it.

And so to be able to work with those brand new start-up founders, creating their first version of an idea at the same time as working with you know, Intel or Harry's or Etsy or Kickstarter, and to be able to help them do new things or to improve their product and to see all of that going on is really exciting to me.

Courtland Allen 38m 35s

I talk to a lot of founders, especially developers, who want to build, quote-unquote, "scalable SaaS business". They want to code something once and then have thousands of people pay for it, and you're building something that, while I won't say it's not scalable, it's definitely not scalable in the same way.

Like you said, you have to work with all these different clients. If you want to take on more projects, you've got to hire more people. Do you think people who are sort of obsessed with this idea of building something scalable are in the wrong? Are they missing something? What do you think is the difference between building something that you're doing and building something that's a little bit more scalable on the product side of things?

Chad Pytel 39m 10s

I definitely don't think that there's anything wrong with that, and I totally see the flip side. When I look at our revenue graphs of what the next two, three, four months look like, it looks scary. It looks terrible, but it always has for 15 years. That's the way it is.

You have to be very comfortable living in a world where you have the people and the processes in place to know that over the next one, two, three months, that is going to fill in, and then you're going to have to do it again. Whereas when you have a SAS business with recurring revenue, your graph looks very different.

Your numbers are smaller, but there's consistency to that. You can calculate lifetime value and all those kinds of things and you can see it happening. We can calculate lifetime value too, but when you look at the graph of ongoing revenue, it really drops off, and you have to be comfortable in an environment and you have to be comfortable always selling.

When we sell as a team, we're not just selling for growth. We're selling to not go out of business in four months because if we don't sell today, we have no revenue then. Particularly the kinds of projects we work on, which are building the first version of a product and then doing it within 12 weeks.

Most of our engagements last four to six months. And so you start looking out that long and we have very little revenue. So I don't envy-- rather, I should say, I do envy the benefits of that scalable SAS recurring revenue business.

At Thoughtbot, we have created some of our own of those out of the work that we've done and what we've learned and tools for ourselves, and it's been really exciting to run that kind of business and to focus on a different kind of growth and a different kind of sales. Having seen both sides of it, it's exciting and it's tiring to be on my side of it.

That's where grit and determination and being willing to stick with it is important for no matter what kind of business you have, because you're going to have different challenges for every kind of business that you have. And being able to work through them and not give up when they happen is critical to longevity.

Courtland Allen 41m 38s

So you mentioned that you guys have worked on your own scalable SaaS products, which I think is super fascinating because you have such a broad perspective of what other people are doing. You've gotten to launch so many things that you've probably learned a lot and transferred some of those learnings into your own products.

And yet, you're still a consultancy. You haven't decided to go full-time on any of those things, which must mean that there's some advantages to being a consultancy, some things that you really like about it. So what's the flip side of the coin? What do you like more about being a consultancy than running one of these more scalable product businesses?

Chad Pytel 42m 8s

I'll be honest with you, I think that if you actually look at it, if we had created a product when we were smaller that we worked on and then it became huge, we probably would have given up consulting. We love consulting and we're good at it, but had we gotten lucky with any of the products that we created, like really lucky, we wouldn't have necessarily given that up to still do consulting for the love of it.

That's the most honest answer I can give. There comes a point with a consulting company where you say, "Well, we've got a really successful business here. Why are we trying to create other ones? We love this, we're good at it, and we're successful. So let's instead focus on making that even better and more successful."

We can create products of our own that come out of our design and development work, but it's a different skillset. It's a different business to successfully grow a SaaS-based business. And so when some of our products got to that point where they would require significant investment or time and attention to continue to grow past the 10 to 25k and MRR, we decided to sell them or spend them out.

Courtland Allen 43m 30s

Walk me through one of those stories. What's a product that you guys have successfully created in-house and grown to 20 to 25k MRR?

Chad Pytel 43m 37s

The first successful one was a product called Hoptoad and that is now called Airbrake. The product still exists. So we created Hoptoad, which is an exception catching service. It was technically the first one of these where you embed your plugin in your app. You embed the Hoptoad plugin in your app or the airbrake plugin in your app, and whenever an exception happens, it sends it to the service.

Nowadays, there's a lot of these different services, but these didn't exist when we first created Hoptoad. Everyone was using email notifications, so you would get like 10,000 email notifications if an email notification happened -- if an exception happened 10,000 times. And that was the pain point that caused us to say, hey, you know what, we might be able to create a service that receives these and aggregates them instead of getting an individual notification for each error.

And so we created Hoptoad, and shortly after another one launched called Exceptional. So, we created Hoptoad for ourselves and made it available to everybody, and we did that for free. It was a free product and it had no paid plans. It solved a real pain point at the time for designers and developers, and it was the only product of its kind.

We got pretty quickly about -- I'm trying to remember the exact growth pattern, but very quickly we got to about 10,000 users. I believe it was about 30 to 45 days after our initial launch, we rolled out paid plans, but we were so scared about turning all of those users off of the service that we made the mistake of only grandfathering everyone who was on our free plan in to their free plan and only adding the paid plans if you wanted to upgrade.

The only upgrade we had when we rolled out the paid plans was you could enable SSL on your account and that was the paid feature that you were getting. We were running a service that had a very small number of paying users and tens of thousands of free users. And the nature of that service is we were receiving all of that traffic from everyone's exception.

So it was particularly bad if someone was being DDos'd or if a major internet outage was happening. So thousands of websites would start sending their errors all at the same time as a major error was already happening on the Internet. And so we were essentially, we created a product that would DDoS itself.

Courtland Allen 46m 15s

You created a business that's not very fun to run.

Chad Pytel 46m 18s

Yes. So, we spent an enormous amount of time every week just trying to keep the service online and we had such good intentions. We would meet for our weekly planning meeting and we'd say, "We're going to roll out this new feature and we're going to do this." The two people we had on it full-time would spend all week just putting out scaling fires.

That was really frustrating for us and for the team. We spent a lot of time and effort also trying to roll out new paid features to entice the free people who were grandfathered in to switch to a paid plan. And we weren't having a lot of luck there. We got a significant number, we got the service to about $25,000 in monthly recurring revenue.

And this was back in I guess 2007, 2008 so it was pretty good, but it was very clear to us what was going to be required to continue to scale the service, both on the technical side and the team side and the investment side. But also on the product side, it was very clear we needed a way to convert more of these free plans to paid.

We just weren't willing to do the hard thing that needed to be done, which was to stop grandfathering them in and to send out a notice and say, "We're going to need you to start paying for this." And so we were starting to think these things. And the other service that had launched a few months after us was called Exceptional.

We knew the people who ran Exceptional, they were also a Rails web development company based in Dublin. They sent us an email and said, "We just talked to somebody, and--” Actually, I'm assuming I can tell this story now. "We've decided to sell Exceptional, and they want to talk to you, too."

We talked and we were feeling all these things. We came together and we decided it was the best thing for us and the product to also sell to them. And so they did that. They improved both products, they combined them, they did the hard things that needed to be done that we weren't willing to do in terms of raising the prices and converting people off of the free plans.

They went on to sell that product, Exceptional and Airbrake, and a lot of other things to Rackspace. And so, very successful for them. Successful for us, and particularly because we got to see the product move on and because we weren't willing to do it, so it made a lot of sense for us. So that's the story of just one of the products that we've gone on to build and grow to about that level of revenue, and then sell and that works really well for us.

Courtland Allen 49m 7s

How many products have you guys done something similar with?

Chad Pytel 49m 11s

We've built in total about 10 products. Some of them, there wasn't a market to sell, and so we ended up shutting it down. Some of those we opened sourced because the few customers that were using it, we wanted to make a commitment to them. And we believe in open source. So we open sourced the products. So we've sold 4 products, 4 of the 10 products over the years.

Courtland Allen 49m 41s

It was interesting listening to the story about Hoptoad because working on your own products, you get this, you just get all sorts of stuff that you probably don't get when you're building products for others. And I've experienced this doing my own consulting versus being a founder.

When you're working on someone else's product, you get a certain level of objectivity, you lack some of the emotional attachment you can make some of the harder decisions. What have you found as being the most significant differences between building products for other people versus building your own products, and you think it's easier to make better decisions when you're building products for other people?

Chad Pytel 50m 13s

It definitely is, and I think that you pointing that out, I think is the thing that is the biggest difference. I care about the things that we work on when we're working with a client. The team cares deeply, but we understand that we were hired to make something successful. And so, if we see you doing something that we truly believe is not in the best interest of the product or the customers, that's what we're there for. Then you put the same people, ourselves, in the shoes of the product owner, and we start making the same mistakes our clients do. There's definite benefit to having that. That's a big difference.

Courtland Allen 50m 58s

What are some of these mistakes that we as founders tend to make because we can't get out of our own heads, because we're too close to what we're building?

Chad Pytel 51m 7s

The biggest one is overbuilding. Thinking that something, "We can't launch without this feature, we just can't." And we do the same thing when we're working on our own products, too. We think something's going to launch in a few weeks and then it's a few weeks later and it still hasn't launched.

It's because, well, we don't have this feature in that is really important. The reality is it's really not important. And we have talked to people, we have a prototype oftentimes where we've validated it and we've shown it's just not important to the success. It's not going to make or break whether people use the product and pay for it.

And we can launch now without that, and we can add it really quickly after. And it's so common to want to delay, delay, delay, delay until you have all of that stuff in. Perfect. Because you believe that it's essential. "We can't launch without this feature." In reality that's not the way it is.

Courtland Allen 52m 12s

Having built so many products for so many different people, building your own products as well, I'm sure you have some sort of playbook by now, and I'm curious about some of the secret sauces. Are there any things that you guys believe about creating products that others typically don't?

You don't see written up online, everywhere that goes into your process for being able to build so many things at such a high quality and get them out the door so quickly?

Chad Pytel 52m 36s

I think I touched on the biggest thing before. I just said it in passing, that we believe in an integrated design and development team. What that means is designers at Thoughtbot do great visual design and research and user experience. They're also visual designers, graphic designers. They also are front-end developers, so they implement their work.

Developers at Thoughtbot care about usability and user experience. They're involved in the design of the product, which means how it works. Then they meet the designer in the front end, and they do everything back from there. On our teams, we really only have two roles: Designer and Developer, and Designer isn't traditional.

It's that full-stack designer implementing their own work. And those two people, working together directly with a founder or a stakeholder is a really, really powerful combination. And that's our secret sauce. If there's one thing that affects the way that we work, the speed at which we're able to create products, it's those two roles and working directly with each other.

We don't have project managers. If a startup company was coming to me and they said, "Our founding team is a salesperson or a business development person, a developer and a project manager." The project manager doesn't have, a traditional project manager, doesn't have a place on a startup team.

The three roles that you need are the visionary, the designer, and the developer. Those are the three roles that you need. The visionary, the founder, the CEO should be playing the role of project manager or product manager in the early days of a company. So if a company that we work with isn't-- the founder is not equipped to do that, we see it as our responsibility to train them to be a product manager for their product.

Founder, designer, developer or stakeholder, designer, developer working together to realize the vision of the first version of the product as quickly as possible, get it in the hands of users and then iterate from there.

That's really powerful. And so a lot of other consulting companies, a lot of other founding teams make the mistake of introducing people in between all of the different, those different roles. And the more people you have, the slower you go, the less iterative you can be, the less agile you can be, and it becomes harder to make changes and harder to adjust.

Communication becomes an issue, overhead becomes an issue. You need to start doing things like story points, and planning velocity, and tracking velocity, and all that stuff because things have a tendency to get bogged down. We avoid that by having really small teams of people who are all actually doing things.

Courtland Allen 55m 34s

You talked about 10 years of Thoughtbot being a midlife crisis for you guys. You just passed 15 years now, and before we know it, it'll be 20. Your company has changed a lot. Your role has changed a lot. I'm curious if you see any crossroads, midlife crises coming up for you again in the future? Why you're still a founder today, when those reasons are certainly different than they were in the beginning?

Chad Pytel 55m 57s

I actually had the second crisis and I think the problem or the worry I have is we had it at 15 years. So, we have a half-life to our crises, which doesn't make me crazy. It doesn't make me too happy. But what happened at 15 years was, we had grown a lot, and I was feeling like a lot of what we had done, we were in danger if we continued to grow, of losing what made Thoughtbot special.

As part of dealing with that and figuring that out, I actually had Seth Godin on our podcast and Jeffrey Moore, who is the author of Crossing the Chasm, and I asked them questions about what that growth looks like and how you cross that chasm and hit scale at a higher level. And what I learned from both of them, different sides of the coin, but particularly Seth Godin was like, he explained to me, you don't need to do that.

It is okay to say, "We're going to figure out, we're going to stay in the niche. We're going to continue to be the boutique company, we can still be the size we are. Or maybe if we really commit to that strategy, that means we are going to be 30 people again. But that it is okay. It's an acceptable path to say we're okay being small."

That conversation was really valuable to me because that was the most extreme version of that. Having him lay that out and making it clear that that was okay, and we could still define that as success was really valuable.

It made me realize that there was a way, again, to not let our fears hold us back and that we could instead let those fears guide us into making the right kinds of decisions and staying true to the kind of company that we wanted to be.

We've moved forward from that phase of that next crisis of growth. And it's been really, really valuable. We've already had that next one. So based on the trajectory now, that was last year. So that means a year and a half we will have the next one because we have the half-life.

Courtland Allen 58m 24s

I love it. Well, you live in a world, I think, where everyone's shouting at you, what you should do, what kind of business you should build, how big you need to be. I think hearing from somebody that you respect and trust that it's okay to be small, that it's okay to do what you want to do and build a business that you like.

That's really what being an Indie Hacker is all about. Making your life happy, making the life of the people you work with and work for great. So, Chad, I've appreciated talking to you. We have run out of time, but I've loved hearing your stories.

Hopefully I can have you back on again at some point in the future. Can you tell listeners where they can go to learn more about you and about what your team is up to you at Thoughtbot?

Chad Pytel 58m 56s

Yeah. If you want to learn about Thoughtbot, you can go to Thoughtbot.com. I just mentioned that podcast, so I guess you can go to giantrobots.fm, and that's a podcast where we talk to designers, developers and the businesspeople behind the products that we love, and you can follow me on Twitter @Cpytel.

Courtland Allen 59m 13s

Thanks so much Chad.

Chad Pytel 59m 14s

Thank you. It's been a blast.

Courtland Allen 59m 21s

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