Practical Founders Podcast

#42: Second-Time Founder Scaling Past $3 Million ARR with 3 Employees

Esben Friis-Jensen was a technology professional in Copenhagen, Denmark before he and three Danish friends moved to San Francisco in 2013 to start a new startup called Cobalt. grew steadily and raised several rounds of VC funding to become a sizable cybersecurity software company in Silicon Valley. Cobalt serves large businesses with a platform and services for larger companies to efficiently test and find security holes in their websites and web applications. 

Esben left Cobalt in 2020 to start Userflow to help software companies attract, sell, onboard and support their customers without human touch altogether using a product-led growth approach. Userflow is a no-code onboarding software to easily build in-app explanation guides, checklists, and videos for software product companies to improve free trial conversion and new customer onboarding for expanded retention. Userflow has a free trial and uses their own software to improve conversion and onboard customers without human intervention.

Userflow is profitable and growing with over $3 million in ARR, 600 customers, and just three employees with no outside funding. Esben handles all growth and lives in San Francisco and his cofounder Sebastian builds the product with their UX designer in Denmark, so about $1 million annual recurring revenue per employee.

Best quote from Esben:

“I think the problem is that when  VCs deploy capital, they expect companies to hire more people. And when you hire a lot of people and you keep hiring, it becomes harder to be product-led because you solve problems with people. VC-backed businesses can do product-led growth, not just bootstrappers., but I hope VCs have a change of mind in how they expect businesses to operate.

“Any new founder should consider product-led growth very carefully and try to stick with that model. I don’t see why you wouldn’t be able to do it, especially if you’re in a red ocean (crowded market). It can actually be a differentiator when you enter the market that you allow people to try your product whereas some of the older players in the market maybe don’t.

“Today, you can start a bootstrapped software business and raise less capital. So carefully consider that and don’t just do what everybody else does and go on the VC journey.”

In this episode, Esben explains:

  • Why he and 3 friends moved from Denmark to San Francisco to start a cybersecurity software company
  • How his first company raised VC funding and grew quickly with a large team
  • How he leverages the product-led growth (PLG) approach to grow Userflow quickly and profitably
  • How he resists adding additional staff as their revenues grow
  • Why he isn’t raising outside funding for Userflow despite being in Silicon Valley

Edited transcript of Practical Founders Podcast interview with Esben Friis-Jensen, CEO and cofounder of Userflow.

Greg Head: And we’re live with Esben Friis-Jensen, the co-founder and Chief Growth Officer of Userflow. It’s a great story. Welcome to the Practical Founders Podcast, Esben. 

Esben Friis Jensen:: Thank you, Greg. It’s a pleasure.

Greg: I’ve been looking forward to this conversation. You have a really interesting history with several companies and lots of the deeper things going on around funding and product-led growth and all of that. Let’s just start with where you are right now with your current company. We’ll talk about your previous company and how you got there after that. It’s Userflow. What is Userflow?

Esben:: So, Userflow is a software as a service tool that basically allows you to build in-app onboarding in your software. So, if you want to onboard your customers in a more self-serviced way, you can build this kind of layer on top of your software that guides them to get onboarded. It’s all no-code, so basically, you don’t need a developer to build it. You can have a product manager or a customer success manager build this kind of onboarding.

Greg: So with a SaaS product, and this could be a trial that somebody uses, it could be the first use, it’s the kind of walkthrough checklist, do this first, do this second. And then I get to this corner of the app and it’s not entirely obvious what to do here and there’s pop up videos, I guess, and other knowledge base kind of things? And all those customer service people can actually build themselves to say, “Right there. I answer this question 12 times a day. I’m going to put something in the app right there to tell them the answer.”

Esben:: Exactly, exactly. Yeah, that’s spot on. I mean, it’s a lot of different things, right? It’s a checklist, guides, resource center, widget surveys, etc., all the different kinds of things you need to onboard your customers effectively. And yes, common scenarios are free trial or freemium conversion. So basically, if you have a software tool and you have a freemium or a free trial and you want to convert customers faster, then you can use this kind of onboarding. But it’s also for the longer-term retention. Getting your customers fully onboarded so they stay with your product for the long run.

Greg: Well, obviously conversion and retention, once you’re up and running in the SaaS business is pretty much the most important thing. I remember the SaaStr conferences. In the beginning, it was about building your products and then second it was about selling. And then ever since, like maybe the last 10 years of the SaaStr conference, it’s been about retaining and expanding your customers because that’s the superpower of SaaS recurring revenue companies here. How big is Userflow now? Customers, employees, revenues?

Esben:: Well, we are tiny in the sense of employees. We’re only three employees, so that’s very different from other companies. But we are fully bootstrapped. That’s why we have a very small team. But just because we are a small team and bootstrapped doesn’t mean we are a small business. We have 600 plus customers, we have $3 million plus in ARR. Business is doing really well, and we’re just highly, highly efficient and effective with how we do things.

Greg: Well, I can’t wait to learn more about what exactly you’re doing there. And I know you’re growing pretty fast as well. People try your product, plug it into their apps and say, “Man, we really need this.” Can you buy the software without talking to anybody, the old self-serve product-led growth? Or do large enterprises actually call you, I guess, Mr. Growth Guy. Do you answer the phone?

Esben:: We are very… We’re born product-led business, right? So, everything we do is product-led. We have a free trial; you can sign up. You can buy without ever speaking with a sales person. Of course, we do sales assist in case it’s needed and we do great support, but there is a full product-led workflow for you to buy everything self-service. And we of course use Userflow, and with Userflow we onboard our customers with our own product.

Greg: That’s awesome. And I know you’re growing fast. This isn’t like a slow growth company. How old is the company and how fast are you growing, roughly?

Esben:: It’s a four year old company. The last year we grew 2X in revenue and the year before that 6X in revenue. So, it’s been growing really fast. I would almost say like similar to how a VC-backed business would be growing with a much larger team. So, that’s been awesome. And right now, we still keep on growing. Even in this market, that seems to be a bit harder. We are still growing in both revenue and customers.

Greg: Right. Because you’re selling to software companies and you know, software is in a little bit of a recession. Buyers are a little bit more conservative in their purchases and there’s less funding splashed over everything to find tools and everything. But you could also say when things tighten up, to find new customers and get funding in the software business, you have to do the best you can with somebody who tries your product and puts in their credit card to make the most of it. Everybody’s thinking about retention.

Esben:: I think a lot of businesses, when this kind of recession scare or whatever you want to call it has happened, a lot of them are looking at efficiencies. And a great efficiency is to do more self-service, allow customers to self-serve a lot more than what they do. So, product-led has definitely… It was already popular before this happened the last two years. It’s really gained in popularity. But the popularity has not become less because of this recession scare. It’s much more popular, probably due to that.

Greg: Well, Esben:, I know you’re in San Francisco, deep in the heart of Silicon Valley, and you’ve been there for a while. But you don’t have a San Francisco accent. Tell us about where you’re from.

Esben:: Is it that obvious?

Greg: Yeah, just being funny here. So, you could be anywhere in the world, and you’re in San Francisco. But where are you from?

Esben:: So, I’m originally from Copenhagen, Denmark. I moved to San Francisco 10 years ago. I quit my job at Accenture, the big consultancy and actually started another company that was my first startup, Cobalt, which is a cyber security software as a service business. I started that with three other Danish guys, and then we moved to San Francisco to basically start it off. Because that was the way to do it back then. You go to San Francisco, Silicon Valley, you join an accelerator, you raise some money, and then you go from there, right?

Greg: That’s just what you do. Yeah, right. And I know you’re an engineer and a math kind of guy, technical. Your Danish friends, were you all technical people and you said, “We need to start a company, but we can’t do it in Denmark. It’s not really set up for this here in Scandinavia to do the crazy adventure. You have to go to San Francisco.” And this was 2013, 2014, something like that?

Esben:: Yeah, this was in 2013. The market back then in Copenhagen, there was basically no VC funding in Copenhagen, I would say. Or the funding you could get was on very bad terms. It was kind of like, “We take 50% of your company and we give you nothing.” Those kinds of investors were there, but you didn’t have like the same kind of risk profile as in Silicon Valley where they would give you a lot more for a lot less. And so, it was like a no-brainer back in 2013. If you had global ambitions to build a tech startup, you would move to Silicon Valley or San Francisco to kickstart your business. That was the way to do it, and that’s what we did.

Greg: Your company was started to get big fast and do the venture funded Silicon Valley-style growth model. Add rocket fuel and work all day, work all night, go as fast as possible. So, you quit your job at Accenture. Did you have an idea? You guys all knew what the possibility was and you said, “Let’s go for it,” and move to San Francisco?

Esben:: Yeah. We were four co-founders. One of the co-founders I knew the best. He worked with me in Accenture. And it was awesome to work in Accenture. You get a lot of responsibility, but you’re also just working for one big customer, one big enterprise client, trying to make them efficient. And you’re typically deploying really old-school software, like SAP or something onto them. And the users don’t really love SAP. It’s more like a management decision. “We need to use this,” right?

Esben:: Lots of great things, lots of great learnings in Accenture, but we wanted to do something that had a bigger impact on more businesses. We wanted to be in tech. Accenture is an IT consultancy, but we wanted to be in tech. We saw the possibilities that you could have with a tech startup. So, that’s what we decided to do, basically. Let’s create a tech startup.

Esben:: And we actually didn’t know what we wanted to build in the beginning, and none of us were from the cybersecurity industry. So, it was kind of random that we ended up with that idea. We had a long list of ideas that we wanted to do. And back then… It hasn’t changed a lot since then. Websites were getting hacked. It was a big problem and there didn’t seem to be a lot of good solutions out there. So, we had this idea to allow software businesses to basically order a hack on themselves. Like, go on a software platform and then get somebody to hack them. And back then, Google had just launched something called a bug bounty program, and that’s what we decided to build the platform for.

Greg: That’s penetration testing, which has been around for a long time.

Esben:: Yeah, a bug bounty programs is a more open model where you actually invite everyone in the world and then they get paid to find…

Greg: Find the holes and we’ll pay you so we can make our platform more secure.

Esben:: Exactly. We were very idealistic, right? So we thought that was the way to go; that was the future. I think what we learned is that…

Greg: A marketplace of testers that you could incentivize to find holes in your website or your SaaS application for security.

Esben:: What we realized later on and we what ended up pivoting to is that most businesses are not ready for that kind of level.

Greg: They’re not even there yet.

Esben:: Yeah, exactly. Google might be ready for that, but most businesses just need a structured pen test or penetration test, right? So that’s what we ended up pivoting towards. Basically, a platform where you could do structured pen testing as a service.

Greg: Software-based, not hiring people in a marketplace. Just, you go run the software on that website and find the holes.

Esben:: So, it’s still a mix. We call it software enabled service. It’s a curated group of testers who do the testing, and then you have a software platform that facilitates everything. And that was a widely successful model. We competed against consultancies that were just using PDFs, very old school. Coming with this tech-enabled model really enabled us to grow fast. And Cobalt just grew and grew. We raised a Series C, we raised a Series A, Series B. We grew to…

Greg: You did the whole seed, seed, seed, Series A, accelerator, take a little piece of your equity. And then round, round, round. How much funding did Cobalt raise?

Esben:: Even though we went on that VC route, we were still conservative. We had competitors who raised $20 million in Series A. The problem with that is… They raised it on the bug bounty model, and we pivoted. And actually, they ended up pivoting later on. They had a much harder time pivoting because they had raised $20 million. So now they had already sold these VCs on this other idea. And we had raised, at that point in time, maybe $3 million. So, it was much easier for us to do a pivot because we didn’t have those expectations for what we needed to do.

Greg: So you were raising in 2015, 2016, 2017. Before the COVID run up, I guess.

Esben:: But even before the COVID run up, you saw businesses raising way too much money on way too high valuations. And I think what we did wisely at Cobalt was not to do that. Maybe it was because we didn’t have that possibility. We were four Danish people coming to Silicon Valley, right? We didn’t know anybody. We didn’t have the possibility. But that was a blessing in disguise that we actually raised lower amounts of money on lower valuations because that gave us a lot more breathing room to actually pivot, build a strong foundation for business and still grow an amazing business that’s still going strong today. 200 plus people, doing great on revenue, still growing. It’s a great business.

Esben:: But yeah, it’s still a long game, right? The VC game is long. Cobalt is still going. When are they going to go public? It’s a long journey. We’re 10 years in and it might take a couple more before you go on a public market or similar.

Greg: I know during the COVID time, in August of 2020, the run up was really going. There was a series B, $29 million, a big investor with big funding. And last year, in 2022, there’s a new CEO and you’re not there. So, this is an up and running company that’s funded in an interesting spot and maybe they found their product-market fit and are growing steadily. Maybe not. You know, you’re not there. Are your other co-founders there, the Danish guys, or did you guys run the course?

Esben:: No. Cobalt, by the way, is still going strong. It’s a good business, good product-market fit. No, I decided to leave in 2020 to do Userflow. As a startup founder, you are… At least I am, I can speak for myself… It becomes harder and harder to be in a business that grows to a lot of people because you end up becoming more like a big company with operations, team management, all this kind of stuff.

Greg: Big organizations. C-level, VP-level.

Esben:: Yeah, exactly. And it’s not that I’m incapable of doing that. I think I’m actually pretty good at working in such. I mean, I worked in Accenture, which is like that. But for me, that’s not what is exciting for me. It’s exciting, those early stages where you build stuff all the time, you really build the foundations for a strong business. So, I wanted to go back to those roots, and that’s why I decided to leave Cobalt operationally and start Userflow with my friend Sebastian.

Esben:: And the other founders from Cobalt, two of them are still there working in the product organization. The other one, the CEO, where we got another CEO, he is now chairman of the board. So, he’s still somewhat involved, but no longer operationally there as well.

Greg: And you’re still a shareholder, presumably. You still own shares in the company. And go, go, go, right? Let’s do it, yeah.

Esben:: Exactly. I’m still cheering for Cobalt. No bad blood or anything. It’s all good. But for me, I just wanted to go back to the roots and really start a new company and do it with all the learnings I’ve done from doing Cobalt.

Greg: Oh my gosh. Was that a crazy adventure? Did people in Denmark even believe when you told them how much you worked and the things you did and how fast you were growing and the funding? Did they even understand what that was?

Esben:: I think it’s hard to understand the startup world when you’re not in it. A lot of Danish people maybe didn’t understand that. But I mean, there is a growing tech scene in Denmark. And over the last 10 years, from when we started in 2013 to today, I mean, the market has changed dramatically. Now you can actually raise money in Denmark. You can build a tech business in Denmark. It’s much more global.

Esben:: I would still say there are great network advantages to being in Silicon Valley. You can meet a lot of very interesting people that can accelerate your business when you live here. But I would say today, which I don’t think it was necessarily as easy in 2013, today you can build a business from Denmark without problems and make it a global tech business if you want to.

Greg: You moved to San Francisco with your Danish co-founder friends and created this company, raised money. And, you know, not every time you raise money does it work. And so it’s an up and running company and you pivoted and all that. What was the hardest part about that crazy adventure for you, personally?

Esben:: For me, I mean, it’s just a lot of work building a company especially when you have a lot of people. You hire people. Hiring the right people, getting them to work effectively. How do you build a good organization? How do you get everybody to work effectively? The other thing was always raising money was a big time eater. You spend so much time raising money. Or Jakob, our CEO did. You spend so much time raising money.

Greg: Was that like a full time job? Raise money, and then you’ve got to think about your next…

Esben:: Sometimes it is. Of course, you learn something by speaking with investors, but it also takes focus away from your business for a long period of time where you could focus on strategy and execution instead. So, there are pros and cons to raising money. The pro is you get money so you can maybe grow faster and hire more people. The con is it also takes away a lot of your focus and you also end up hiring a lot of people because you get the money and the VCs expect you to apply the capital.

Greg: That’s why you got the money. That’s the expectation. Go use it. Don’t just let it sit there. It’s the most expensive cash in the bank you could ever imagine, so you’ve got to go use it to grow faster. So this was VC-funded in San Francisco. Was it a sales driven model for larger customers, the classic B2B enterprise, just add sales people model of of the Bay Area?

Esben:: In the beginning, when we were just the founding team, Cobalt was product-led. We started with a self-service sign up. Everything was self-service. But what we realized as we grew the team was we were competing against the service industry. Consultancies that were…

Greg: High-touch.

Esben:: High-touch, right? And for that reason, we needed to also be a bit more high-touch than what we were. The market was not ready for this kind of self-service. It was too new a model for them to do that. So then we started doing more high-touch sales, high-touch customer success.

Greg: Bigger customers, bigger contracts, the whole thing.

Esben:: Yeah, that’s kind of where we ended up. And then we grew the business like that. We built sales, customer success, all these things, right? It became a much more high-touch, sales led model that worked. I mean, we grew as a business, right? So, it was great for that time being. But I think what we also realized over the years was we lost kind of a focus, a core focus on the product, and we needed to go back to that and have more focus on the product. We started that transition to become more product-led again.

Greg: Oh, that’s so hard to do once you’ve got the sales people going. That’s the model.

Esben:: Yeah. We started that, I think, already in 2019, 2018. And then we went on that journey and really pushed to becoming more product-led again. And they’re still on that journey, but it’s definitely progressing. The company is much more product-led today, especially for the smaller customers. Because we ended up having sales-led for all customers. And then we realized maybe for the smaller customers, that doesn’t make sense from a margin perspective, etc. That was also part of why I decided to do Userflow, because Userflow as a business… We’re born product-led, but we also sell a product that helps product-led businesses or helps businesses become more product-led.

Greg: So you’re right in the middle of, let’s say, no-touch, self-service, product-led. The product is marketing, the product is sales, the product is retention, the product is support. Let’s do as much as possible. So, you’ve got a fast growing $3 million ARR business with hundreds of customers, heading towards a thousand customers, and there’s still three of you in your business, right?

Greg: You kind of started Cobalt that way, and then it turned into this bigger funded, complicated, sales driven machine and you kind of found your way back. Are you just passionate about making the software, the product-led growth machine? Making the software so amazing and frictionless that they can get the value in an hour and put in their credit card and do it. Is that really what you’re all about?

Esben:: Yeah, that’s spot on. I mean, we try to really be as product-led as possible. We have an amazing product. At least that’s what we think but also what our customers say. And we have a really strong focus on making it easy to use, easy to set up. We reduce support tickets, fixing them in the product, not throwing people at it. And we’re really building a different business that really tries to avoid hiring more people. We’re thinking about it in a completely different way than what we did with Cobalt where growth equaled hiring more people.

Greg: Equals funding, equals hiring, equals growth. And it goes around.

Esben:: Exactly. Here it’s more about how much can we grow without hiring any people? And what should we invest in the product to make it easier to use, to reduce support tickets, to reduce CAC. So, it’s just a very different company. I’m not saying one is better than the other, but I’m saying as a second time founder, this is what I wanted to do. Build a business that’s much more efficient, fewer employees, really strong product focus, really strong product, and bootstrapped.

Greg: And you must be profitable. If there are three of you, and you’re the growth guy… You’re the whole sales and marketing team yourself. And your co-founder Sebastian, is he all of the product? Is he 100% of the product or do you have some contractors out there that do things?

Esben:: We often talk about these 10X engineers, right? I think he’s a 15X engineer or whatever you want to call him. He’s a really, really strong engineer, right? He’s built SaaS businesses before. He worked at Google. He’s just really, really good. So he can build pretty much everything.

Greg: Is he in the Bay Area with you?

Esben:: He used to be. That’s how we met each other. We’re both Danish. We met each other as friends in the Bay Area, but then he actually moved back to Denmark. He lives in Denmark now. I still live in the Bay Area, in San Francisco. And then, the last employee we have is a UX designer who lives in Denmark as well. So, that’s the team.

Greg: Well so, Esben, do you like San Francisco? Is that why you’re staying? Do you anticipate staying in the States, in San Francisco?

Esben:: I think for me now, it’s less about being close to the tech environment. It’s much more about this is where my life is. There’s nice sunshine, you know, these kinds of things. When we got here with Cobalt, it was much more to be close to the tech environment to be able to easily raise money, all these things. But now, I’ve just built a life here. I don’t stay here for those kind of things, but it’s an added benefit that you’re sometimes closer to some of these bigger tech companies, your customers. As I said earlier, it’s not a need to have to have me in the Bay Area. I could also live in Denmark.

Greg: So, you have optionality with funding. You could raise funding if you want. You don’t have to. You have optionality with where you live and how you approach these things and you are running this experiment here. So, if you’ve got a $3 million growing software company and there are three of you… It’s not just three employees and you have 200 contract developers somewhere. Is it three full time equivalents?

Esben:: It’s just three full time. We don’t have any contractors.

Greg: So you must be pretty profitable already unless it’s all just paid ad-driven or something like that.

Esben:: No, no, we are very profitable. We don’t spend so much on SEM.

Greg: Is that a goal too, to create a profitable business? I mean, profit is a good sign of, literally, the efficiency of software. If you can build it fast and it’s so amazing, it ought to be profitable pretty quickly in a product-led model.

Esben:: I think that’s something. VC-led businesses, they kind of lost touch with that, right? I think, yes, you raise money to grow fast, but you should still aim for being close to profitability. Even as a VC-backed business, be close to profitability. Don’t be like far from it because then you’re really in the risk zone.

Greg: That’s a practical VC-funded one.

Esben:: If you cannot raise the next round, you’re you’re out, right?

Greg: Yeah, you’re out.

Esben:: So, even as a VC-funded business, and that’s also how we looked at it at Cobalt, you need to stay close to profitability. But in a bootstrapped business, you of course should strive for being very profitable and really being customer-funded because you don’t have that extra money to save you, from VCs. So yeah, I think businesses in general should think more profit-first than they do, especially in the tech industry. But still, also think about growth. Don’t make everything about profit; also make sure you are growing at a good rate.

Esben:: In Userflow, even though, yes, we are highly profitable, we are still growing. We are still growing as a business. We are not just a lifestyle business, stagnant, kind of at a certain revenue number. We’re still growing at a rapid rate. So, it’s not profit first just to be profit first, it’s also to ensure that you’re also still growing, at least if you want to be a growing tech business.

Greg: A lot of companies, software companies got overfunded and it was all about growth and not about profits. That’s kind of the point of the venture-funded model, “Get Big Fast.” I’ve been there. I did it several times. And it can work; it doesn’t always work. Like you said, if you don’t raise the next round, you’re out and kind of get washed out.

Greg: But we’re kind of back to a more practical, venture-funded rule of 40, right? At least 20% growth with 20% profitability, 20/20 equals 40. Or 40% growth with no profitability is 40. But you’re probably… I don’t even know what your rule is. Maybe you’re 50% profitable and 100% growth, that’s 150. You’re probably a rule of over 100, which is an extreme kind of thing, right?

Esben:: Yeah. And I mean, that is possible. I mean, look at MailChimp, right? When MailChimp was acquired, I think they had 600,000 ARR per employee. I think that was the number. So it’s possible, even in larger businesses, to be very effective and efficient.

Greg: If you start that way.

Esben:: Yeah. And MailChimp was also highly bootstrapped and built the business like that. So, I think that’s a great story and also tells that it’s not just something you can do when you’re very small business. No, this model can also apply when you grow and even if you hire more employees than what we did.

Greg: So, we talked about when you’re a sales-led, enterprise B2B software company, to go to product-led, there’s almost a DNA change of the whole business model, the product, the culture, the organization. To go from venture-funded, like you did, you were all in on that, to bootstrapped, venture-funded, add more people, go faster… You know, efficiency is behind growth. And now, you’ve kind of changed your DNA or you’ve revealed your true DNA underneath it. You could hire more people, but you’re not. That’s almost crazy in Silicon Valley. You could hire people, but you’re not. It is really interesting.

Esben:: It’s this mindset you often hear. “Why don’t you hire more people? Then you’re going to grow much faster.” And I’m saying, “Yeah, maybe we would.” But the thing many keep forgetting is the more people you add, the more complexity you add. The more processes, the more need for management. One engineer can build a lot. And if Sebastian, he knows the entire code base, as soon as you just add one more engineer, suddenly there’s a part of the code base that Sebastian doesn’t know about as intricately. Actually, then you start to create complexity because then you have two people kind of managing the code base. And then imagine adding 50 engineers, then you have 50 people managing a code base.

Greg: If you could raise funding right now… You could raise $10 million in funding and I’m sure you get offers and all of that, but they would say, “You need 10 enterprise sales people to go push this.” And all of a sudden, you’ve got a VP of Sales and 10 enterprise sales people and the organization inflates. Do you just look at it like, “I want to stay on this efficient product led-growth, small team thing as long as possible?” Or do you look at it just as a math problem saying, “Well, if I spend $1 million, am I really going to get a $10 million return?” Like, your own investor?

Esben:: It’s definitely a mix. I think we enjoy this kind of business where it’s smaller and we make all the decisions. We can move fast, build fast. That’s a lot of fun. I think the other thing we’re seeing is we’re growing. As I said, we’re still growing. So, if we’re growing and we’re not adding people, why should I add people?

Esben:: We can then start saying, “Okay, now we stopped growing. Okay, maybe we need to look at that and figure out why that is. Should we do something else? Should we get into partnerships? Then we maybe need to hire partnerships. You know, have we kind of consumed all our existing channels?” But that’s not what we’re seeing right now. We keep growing, so there’s no need to hire more people. We keep growing and our CAC keeps decreasing. Our support load is extremely low.

Greg: Talk about the CAC to LTV. LTV, lifetime value that somebody will pay you over their lifetime, what it takes to acquire them. The ultimate equation out there. Your LTV, keeping customers a long time is probably part of the DNA, right? We don’t want the customer unless they’re going to stay a long time. And your customer acquisition cost, your CAC, is pretty low. So, your LTV to CAC ratio must be unusually high to be so profitable.

Esben:: Yeah, and we actually look a lot more at payback periods because in SaaS lifetime value is very hard to measure.

Greg: Yeah, it’s an implied lifetime measure based on churn.

Esben:: Most of our decisions we make based on payback period. But we have a really good payback period.

Greg: What’s your payback period?

Esben:: It’s just six months. We have a growing business, so there’s no need to hire people. That’s how we think about it. As long as we’re growing, as long as everything is going well, we don’t want to hire. Let’s see if we stop growing, then we might reconsider. But that’s how we look at it.

Greg: Okay. So Sebastian, you described your co-founder and technical product guy as the 10X, 15X engineer. And he’s building this capable product by himself, right? And there’s super leverage when you don’t have 10 people that have to coordinate and are spending all day on Slack figuring it out and you already have legacy code and so forth. So, you can really move quite fast in the product. You’re the brains of customer acquisition, customer support, customer everything. Sales, marketing, onboarding, etc., which you’re automating, obviously. But do you consider yourself like a 10X guy on the growth side?

Esben:: No, I don’t know. I think I have an advantage from being a second time founder. In Cobalt I built sales, customer success. I built all those functions. I saw what worked, what didn’t work. I wanted to do more product-led this time. Of course, the strong product is the foundation for product-led, but you build some things on top of that, like in-app onboarding, email onboarding, the way you do support. All these things, you always think product first.

Esben:: And all those processes around the product, I have automated and built out. And that was easy to do because I already tried to build a lot of that stuff in Cobalt. So, that made it a lot easier, I think, building all the operational processes around it. The thing about acquisition… So yes, we use SEM, we use SEO.

Greg: So, you do some paid advertising. If you have a six month payback period and it’s just you, you don’t have to pay for sales people. You’ve got a little paid…

Esben:: We’re in a red ocean. Like, Cobalt was in a blue ocean when we started. Userflow is a red ocean.

Greg: One of a kind company and product.

Esben:: A highly-competitive market we’re in with Userflow. And that makes SEM a lot easier.

Greg: Because people are searching for this.

Esben:: Yeah. With Cobalt, we could also have done more SEM because people were searching for the consultancies. They were searching for the incumbents, so we could have done SEM based on that. But yeah, SEM has been highly-effective for us at Userflow. But the other thing that’s been highly-effective, and that’s actually also a learning from Cobalt was at Cobalt…

Esben:: When we got to the Bay Area, we were four Danish guys, as I said, coming to a place and nobody knew us. And nobody knew us in the security industry. We didn’t have any knowledge as such. We had this new way of doing things, and it was a better way, but nobody was listening.

Greg: And nobody was searching for it in search engines.

Esben:: No, no. One great hire we did at Cobalt back then was a thought leader, Caroline Wong. She’s still with the business today. And she started speaking about Cobalt, speaking about security, and suddenly everybody was listening because she was part of the community. She was a great thought leader. So, that was something I saw. We of course were grinding, doing sales, all the grinding you can do to get customers. But she had like a 10X effect with her thought leadership.

Esben:: So at Userflow, as a second time founder, what I didn’t have at Cobalt, I now had as a second time founder because suddenly I could get that speaking time that she was able to get. I could go out, be a thought leader in product-led growth, speak about product growth, and use that to both speak about a model that I love to talk about…

Greg: Which we’re doing right now, yeah.

Esben:: …And be truly invested in it. But it’s also a great way to get cheaper marketing for Userflow. So, that’s an unfair advantage you have when you are an established name in the business. So that’s something we’re using as well, of course.

Greg: So, product-led growth means you don’t have sales people that are doing outbound. You’re not doing a lot of big fluffy advertising. It’s the product. It’s a free or free trial product that people use and experience without talking to anybody and then buy and onboard themselves with your tools as help to automate that kind of thing. That’s been around a long time. What’s new in product-led growth in the last few years? Because it’s almost like a new season for SaaS companies. So, Salesforce was a product-led growth company. They just put it out there and people started using it. They competed with other CRMs.

Esben:: I agree. I mean, the free trial has always been around. The motion has always been around. The early idea was with SaaS was to do free trial, freemium, right? But even Salesforce, they added more and more people at the problem, right? Even when you did a free trial, you suddenly had to add a customer success manager, dedicated. It was not a self-service model as such. When you start doing those kind of things, those become stopgap solutions. I still think many SaaS businesses, they were able to maintain the the product-led motion.

Esben:: But what happened over the years was, many SaaS businesses, they moved more and more towards sales-led. You started seeing, instead of sign up for free trial, you started seeing a request a demo. Everybody was starting to do it. Cobalt did it; we moved away from self signup. And the idea was you can get higher contract value from the beginning and all these things. And the buyers were also more business executives, so it was the managers buying the software. So basically, SaaS already had the idea of self-signup, but the market was not ready for self-signup.

Esben:: What has happened over the last five or ten years is that the market has transitioned into being an end user market. Now the end users have a lot more power when it comes to buying software. And therefore, you’re now seeing product-led growth becoming more popular again because suddenly the model fits the market. Now the businesses need to move back to this self-service model in order to cater to a market that increasingly wants to do self-serve.

Greg: So your customers, presumably inside software companies, is not the Chief Product Officer or the CEO or some engineer. It’s some designer person who owns, “I have to improve customer experience and retention,” and they’re trying all kinds of tools out there. They find your tool and your tool has to try better than the rest of them. Is that what it looks like?

Esben:: Yeah. They have a lot more decision power today. They still have to have a sign off on the budget from some manager, but end users have a lot more buying power today and they want to try before they buy. That’s the other thing. So it’s just been a change in the market how…

Greg: And nobody wants to talk to sales people anymore.

Esben:: Exactly. But if you just look back 10 years ago, everybody wanted to talk to sales. They didn’t trust the business if they didn’t speak with sales. I think that’s a change we’re seeing and that’s why product-led growth is picking up.

Esben:: The other thing we’re seeing in product-led growth is now… Yes, now product-led growth is becoming more popular. Then people are starting to think, “Hmm, but what about all the sales people we have? What about all these people we have? Where do they fit in now?” And the way they fit in is more as an assisting role in this product motion. Basically, they need to be there to get that last piece of value, get the full kind of value out of a customer. So if a customer signs up self-service, there can be a sales or customer success person that is maybe there to help them get the most value of the product so they will buy the biggest package.

Greg: That’s very different. That’s a DNA change from close the deal. I mean, there was a huge DNA change… I’m older than you; you missed it. Software, in the ’90s, in the 2000s was licensed software. You sold it all up front and you got a little maintenance contract out of it. And now there’s a way better DNA of SaaS and usage and so forth. But now this is like the new phase. It’s all about usage and value. It isn’t about sales tactics or negotiation jiu jitsu, it’s about delivering value, finding value, delivering value, communicating value and making the product. Is that really possible for a sales person to go back to? It’s almost a serve product, savvy service model.

Esben:: Sales people need to pivot, right? I always believe the best sales people are the ones who know the product inside and out. But in product-led growth, you can’t be a sales person if you don’t know the product inside and out. You basically become… It’s not nice to say, but you become more like a support person but with that sales agenda on the side. Somebody who needs to support the customer in the best way possible to extract the most value from the product so they will end up buying more.

Greg: And I think that’s also why we will see, as product-led growth gains more traction, we’re going to see an organizational change where functions like sales, customer success, sales engineering, they’re going to merge because you don’t need three functions anymore. You don’t need somebody for the first sale for the customer success, for the technical sale. No, you just need one person. You don’t need three different people here because the product does the initial sale. And then this person is more like a product expert, you can call them, who needs to be there to kind of guide the customer.

Greg: Right. And there’s no longer the handoffs that create all that friction.

Esben:: I mean, the friction of handoffs is crazy, right?

Greg: Business development, to an account manager, to onboarding, to support. It’s really painful, right?

Esben:: Yeah, it is. That’s one of the biggest discussions you have in SaaS organizations. Who owns what? Does sales own this? Does customer success owns this? Who owns what, right? And I think it’s time we change the SaaS org to simplify. And product-led growth is a great opportunity to revisit the SaaS organization.

Greg: I’ve been through that a few times. It’s really hard. The customer experience goes across all these silos of the departments, sales, marketing and the rest. It’s almost impossible to solve it with the traditional department silos that are out there and the handoffs. This is very important for SaaS companies, and you sell to this industry of software companies, right? So, it’s almost a vertical software company that you’re focused on.

Esben:: Yeah, we focus primarily on selling to other software companies or B2B software primarily. I think any SaaS business should always pick or find their ideal customer profile. And as a bootstrapped business, that’s even more important. You don’t have the resources to throw money at different places.

Greg: You can’t fake it.

Esben:: So, to build an efficient organization, you really need to nail your ideal customer profile. And for us right now, it’s software as a service business, it’s B2B. We’re selling to product managers and customer success managers.

Greg: It’s a crowded market. There are all kinds of tools that help. It’s very important. People are searching for this on the web. It’s not a new industry. What is your angle out there? What are you doing differently than your competitors in your positioning, your pricing? Maybe you’re so efficient you can have the best pricing and you’re the best product. How are you winning?

Esben:: It’s a try before you buy market. It’s a competitive market, but all our users will typically not only try us but also other competitors.

Greg: It’s not like you’re the only one they get to try. Salesforce was the first enterprise software a sales person could go try for themselves. But everybody’s try before you buy because they’re all PLG tools.

Esben:: Of course you need to attract them, right? That’s about the SEM, SEO, thought leadership, get them to know about you. But when they have to evaluate who should we buy between two or three competitors, it’s really about having the best product and showing that value as fast as possible.

Esben:: For us, we focus a large chunk of our development on fixing issues to make the product as lean and easy to use as possible. We have a different way of building than our competition. We use a Kanban interface which a lot of businesses like, and we have a high level of sophistication as well in the product. But in that initial trial period, what we’ve done as well is built this really good onboarding with Userflow that drives the user to this, we call it, hard moment.

Greg: You use your product.

Esben:: Yeah, exactly. So, they sign up for the first time and we guide them within five minutes to build their very first onboarding guide. And in that way, they get to see how easy it is to build these guides. And that’s really the value they were looking for, right? So it’s super important.

Greg: So if you have SaaS onboarding software and your onboarding experience sucked, that would be a problem, right? So, you have to make that great.

Esben:: Exactly. But also, we need to show them as fast as possible that they can actually use this tool. I think that’s a common… If you look at any no-code tool, when you sign up for it, people will give up if they feel overwhelmed. “Yeah, okay, they promised it was no-code and it was easy to build. But when I signed up I had no clue how to build anything. I didn’t know how to do anything.” So it’s super important that we show right away, “No, you can actually do this.” Let’s guide them to build something that they can then see in their own product. That’s what we do.

Greg: It’s kind of the bridge between the problem of easy to use means simple and powerful means complex, right? You’re raising the bar of easy and lowering the bar of complex so they can see the power as quickly as possible in the value.

Esben:: Exactly, exactly.

Greg: Do you see generative AI or AI technologies? AI has a lot of assistance possibilities in use helping customers use. Whether it’s put in an English language query, “How do I set up this page?” And then it will explain it to you, a generated ChatGPT3-style thing. Is there any AI in there now? Because you’ve got the data now?

Esben:: If you would have asked me four months ago, I would have said, “AI? That’s far out in the future.”

Speaker4: Here it comes.

Esben:: And now we’re here. And now it’s a lot of fun, right? Like, ChatGPT, I think, is one of those things that has grown so fast and it’s so valuable a tool that SaaS businesses who won’t adopt it, they’re going to lose. For sure, we’re looking at AI and how it can allow you to build an even more effective onboarding experience. And I think that is a fantastic use case for for AI.

Esben:: Maybe replace the support person, right? There have always been chatbots around but they sucked. Chatbots sucked. Let’s just be honest about that. And now ChatGPT is here and it doesn’t suck. It’s amazing, actually. What it can do and the correctness of the answers. So yeah, we’re going to see some exciting stuff and it’s definitely on top of our agenda at Userflow.

Greg: Congratulations on your success with Userflow. You’ve got a successful, fast growing, powerful, efficient, profitable business. Because you were on the sales-led and venture-funded before and now you’re in the bootstrapped and product-led, no-touch, just three employees. You’re kind of doing it clean, you know? Do you feel like venture-funded companies can’t really do the product-led thing and that bootstrapped and product-led kind of go together because of the efficiencies and the discipline?

Esben:: I think VC-backed businesses can do product-led and I hope the VCs have had a change of mind in how they expect businesses to operate. I think the problem in the past was that VCs, when they deployed the capital, they expected people to hire. And if you hire a lot of people and you keep hiring, it becomes harder to be product-led because you solve problems with people.

Esben:: So now, with the recession scare and a lot of other things, but also product-led growth growing in trend, I hope that VC-backed businesses and VCs will also understand the power of this product-led model and being effective and efficient with your capital and maybe invest it in the product instead of in sales people. So, maybe hire more engineers or product people. But even with that, be careful. You can add more complexity by doing that.

Greg: There’s a lot of traps there. And hiring engineers, it’s not a straight line to the growth game. You can hire sales people and five out of ten sales people will make quota or whatever it is when you put it on. You can pile them on; there’s a little bit of a myth there that you can pile on infinite sales people. But it’s not as direct a return when you invest in product, and that’s notorious there.

Greg: So Esben, what do you see with the possibilities here? Do you see this being a big Danish DNA-ed company like Zendesk and Skype were some of the Danish success stories? Where do you think this goes? You have all the optionality. You could sell it, you could fund it, you could grow it, you could integrate it, you could do all kinds of stuff. What’s your vision?

Esben:: We just kind of keep growing. As long as we’re growing, we’re happy. I don’t need to be… If I wanted to be Zendesk, I would probably have raised capital and hired a lot of people and created the hype around that. But I still think we have an amazing product, just like Zendesk had an amazing product back then. But I hope we can build an even more amazing product and stay on that journey, right? Keep evolving the product. I think a lot of sales-led businesses… Zendesk, I concluded sometimes loses touch with their product and the product becomes not as great as it used to be. So we want to stay with those…

Greg: It’s almost predictable in software. You get big; and you can imagine that their code is old and complicated and legacy.

Esben:: Yeah. So we want to stay with that product focus. We want to grow, keep growing, and maybe we can build as big a business as Zendesk. But that’s not the most important for us. The most important is just build a great business that can help a lot of customers and that is growing and that we enjoy doing.

Greg: Yeah. So could you do this for the next 20 years?

Esben:: Sure, I could. I think the thing about Userflow is it’s such a product that can keep evolving. Whenever we add a new thing, 10 other things appear that you could do, right? So, it’s not like the static product. The way we do onboarding will keep changing. That’s something we enjoy working with and we keep getting new requests from customers on how we could do things smarter, better. So yeah, it’s still an exciting product that you can keep adding to. So, I enjoy it.

Greg: And you’re certainly on trend. Recurring revenue SaaS software is still booming. Maybe the funding is a little bit off, but the industry is still growing. And retention and conversion and product-led growth are just more important than ever and increasing, and you’re right in the middle of that. So, thanks for sharing your story and some of the lessons you’ve learned there.

Greg: Esben, is there anything else you’d like to add for practical founders out there? Maybe new founders thinking of an idea or they’re up and running and they’re talking about product-led growth. They’ve said the letters PLG. What do they really need to know besides free trial?

Esben:: I think any new founders should consider PLG very carefully and say, “Let’s do that. Let’s try to stick with that model,” if you can. Especially if you’re in a red ocean, then I would. I don’t see why you wouldn’t be able to do it. And it can actually be a differentiator when you enter the market that you allow people to try your product where some of the older players in the market maybe don’t. So, that’s something I really think you should consider.

Esben:: And then I think you should also consider, “Should I bootstrap or should I raise capital? And what journey do I want to go on? And if I raise capital, how much do I raise and at which valuation?” Because if you raise a huge round at a huge valuation, then you’re on the public journey. Like, now you need to go public. If your valuation is like, let’s say $100 million, then there’s not a lot of acquirers out there who can buy you And who are going to buy you. Then public becomes one of the few paths, right?

Esben:: And that’s a long journey. That’s like 15, 20 years if you want to do that before you see an exit. I think really as a startup founder, you need to decide, “Is that what I want to do or do I want to have a bit more flexibility and maybe raise less? Or stay bootstrapped so I can have many different exits scenarios in case I need it?”

Esben:: And I think that’s a decision that people didn’t take back in 2013. There was only one way. It was the VC way if you wanted to build a tech startup. And that’s not how it is anymore. Today, you can also start a bootstrapped business, start a business that raises less capital. So reall
y, really carefully consider that and don’t just do what everybody else does and go on the VC journey.

Greg: Do you feel like you’re bootstrapped and you’ve got a cool software company, you’re in San Francisco, but you’re bootstrapped and, I guess, proud of it these days. Does that feel a little strange in the Bay Area these days especially when valuations were crazy.?

Esben:: It’s gaining popularity in the Bay Area. I think if you ask even VC-backed businesses, they envy it a bit when I speak to them,. They envy the bootstrap journey. They say, “Yeah, that’s probably what I would do as well if I do it the next time.” So I think, yeah, there’s definitely a growing trend of bootstrapping but it is still an outlier, especially in Silicon Valley, to be bootstrapped.

Esben:: In Europe, on the other hand… This is interesting. I went to SaaStock, the big conference in Dublin last year. And there I met with some of the larger SaaS companies in Europe. And all of them, or a lot of them, are bootstrapped because they also started in 2013, but they stayed in Europe and you couldn’t raise money, so they just were forced to bootstrap. And they still built great SaaS businesses. So, it is possible to build a great SaaS businesses being bootstrapped.

Greg: I see the smile on your face here, which I imagine is a lot different than that feeling Sunday night when you have just raised $30 million and you’re making the quarter.

Esben:: I mean that’s also great. I’m not saying that the VC journey is bad or anything. It’s just, you really need to consider is that the journey you want to do? Sure, if you want to build that unicorn public company. Sure, then do it. Then your ambitions are aligned with the VCs.

Greg: Well, Esben thanks for being on the Practical Founder Podcast and sharing the story of and Userflow, which I know most listeners in the SaaS business here should check out,

Esben:: For sure.

Greg: Thanks again, Esben.

Esben:: Thank you.

Userflow Company Facts

  • Founded: 2019
  • Employees: 3 employees with $3 million ARR
  • Description:  Userflow helps teams at software companies build customized in-app tours and checklists, without code to improve user onboarding and improve conversion and usage rates.
  • Funding: Userflow is bootstrapped with no outside funding.
  • Headquarters: Esben lives in San Francisco and his cofounder Sebastian lives in Denmarks.



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Greg Head recorded this on episode on April 21, 2023 for the Practical Founders Podcast see all of the episodes.

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