Raise Capital for Your SaaS
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Summary
Pre-ApproveMe is a mortgage software company that helps real estate companies get faster and more efficient with their loan approval process. In this episode, I sat down with the CEO and Founder of the company to talk about how they built their business and how they plan to continue to grow in the future.
Transcript
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The real winner there, Michael, is if you can get, you know, three or four clients that want
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that same feature to each independently pay to really make it like a true like triple win.
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I'm doing well. Thank you, Dan. Thanks for having me.
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I'm super excited, man. This is going to be fun.
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Real quick, as we kick things off, obviously, what's the name of the business, the customer you serve, and how you solve their problem?
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Yeah, the name of the business is Pre-Approve Me, and we're in the mortgage software industry, and our customers are mortgage companies, and we help bring efficiency to a very convoluted process.
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have a lot of real estate clients. The mortgage approval process is obviously really important.
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So, how long have you guys been doing it? What can you share about the size of the business,
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revenue, team size, etc.? Yeah, we started it nine years ago. I was a loan officer,
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you know, standard founder story, right? Solved my own problems. And we've been doing it for about
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nine years we really started to grow it five years ago um i think we've got 10 full-time people now
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and we are at about 800 850 arr and hoping to hit about 1.2 by the end of the year there we go
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yeah that's exciting um michael how can i help oh man where to start i mean we um yeah the one
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of the biggest challenges we're having today is um having the capital to scale so we've circled
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the wagon with some of our customers we've been having conversations at a high level about what
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it would be like to get them more invested in the product which would then in turn bring success to
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them because they're leveraging the product and so one of the you know very top of mind things
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we're focusing on is how do we structure that you know what is it like to approach a customer
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what are you trading are you trading equity are you trading access combination of both and you
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know love to just pick your brain on that yeah so the customer financing for me is one of the most
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um strategic and aligned type of financing options and the reason why as you mentioned
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um you get buy-in from people that you want buy-in from and then you get capital typically at a like
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less, you know, like the terms are a little bit more favorable as the entrepreneur because
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they're not professional investors per se, right? Whereas the professional investors might have some
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weird clauses around liquidity, liquidation perhaps, or, you know, discounts the next rounds
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per rata, all these kinds of things. Like, you know, a customer that loves your product, they're
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like, I believe in you. I just want to invest in you. I want to see the product grow. I want to,
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support that. The way to do it, if you can, the best way is just kind of, again, I'm going to
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give you different levels. The best way is to pre-sell multi-year contracts and get them to
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pay up front. So it's really just pulling your cashflow forward. And the reason I do that is
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because it's customer financing. Essentially, you get to invest their current dollars today
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without diluting equity. And that one, you see this happen all the time. I'm involved in a
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company called Pila. They launched a product called Lomi. They crowdfunded $22 million worth of
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pre-sales. There's rules around accounting and when you can collect the cash to invest in the
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business. But at the end of the day, creating an early adopter program to get people to pre-buy
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multi-year contracts of new features, new modules, even the core product is a really great way to do
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it. So that's like this level. Then the next level would be getting customers to support
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the the roadmap so so financing like pre-paying to build custom features and usually what you'll
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do is a 50 50 split so like if your hard cost is 100 an hour you charge them 50 the way to do that
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right is to make sure that the requirements on your roadmap are aligned with what you want to
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build anyways you don't want to start building custom dev shop because it just it ends up being
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a really expensive product to build um when you're building one-off features for a customer versus
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your market so that's like level two kind of uh customer financing number three is kind of what
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i think you're alluding to that um is really you want to do it as close as you can to just
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basic terms right so you know if i would say like what's super founder friendly not so much
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you know investor friendly so even if it's a customer investing it doesn't really matter
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i'll just keep it like it's a customer but investment you know same same model should
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work is if you can do it on some convertible note, a simple debt instrument, discount to the next
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round. Unless you don't plan on ever raising another round, then you might want to just do
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it on a pure equity, what's called a series seed. So you price the round and you want to just give
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them very basic terms and try not to give up too much. When you're small, it's funny. I see some
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entrepreneurs that that undervalue and other people that overvalue right so like at your level
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if you're saying hey we're looking at selling 10 to 15 percent to our customer base that's that's
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okay right like you might give yourself a kind of six to ten million pre-mark you know you know
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pre-market valuation okay you know and you you raise a million dollars at 10 equity or whatever
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that's fair but i've seen other people give away 60 of their business for you know 200 grand and
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that doesn't work right so there's really no difference other than you know if you're gonna
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do it also consider going to the market a little bit because if you already know that you can raise
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half a million from your existing customers and you've got that momentum then you go to like
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you know early stage series seed or like seed stage investors and you say look we're raising a
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million dollars then you've already got the half committed you just find something that's well in
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the right two checks for 250 and then you put it together and you can kind of raise on that 10 or
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15 dilution to me that makes sense and then it also lets the customers know that other professional
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investors are investing so they feel good about the terms versus otherwise now does that help
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michael or do you have a specific scenario you want to kind of talk through no i think that does
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help um you know it's it makes sense and i think i am leaning more toward number two because which
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which is what you said was financing for the roadmap.
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Mortgage companies are really trying to find efficiency.
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They wanna know they're planning for the future.
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my exec team yesterday talking about this product we use
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and they're like, yeah, they don't have that feature.
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And I'm like, this is a $200,000 a year problem.
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I'm pretty sure I could get on the call with the CEO
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that if you said we'll write you a check for a hundred grand
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to build this integration to solve our problem,
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they'd probably get that done in the next two months,
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we're going to have to migrate off their platform.
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like just impact to our business that for a hundred grand,
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I'd rather write the check than have to move off platform.
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is like super aligned with what they wanted to build anyways,
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And I just think the real winner there, Michael,
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that want that same feature to each independently pay
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to really make it like a true like triple win, right?
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and i would be you should want to do that like let's say i go to this company i'm like i'm willing
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to pay you 100 grand for this if i'm that ceo i'm going to turn around to every one of my other
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customers that use the same integration that we have and ask them if they want it and if they're
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willing to throw in 50 grand 100 grand and then take all the money build it and then deploy it i
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mean that's that's business and i think everybody wins yeah that's awesome yeah that's exactly what
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i'll be planning on doing now one one question i have regarding that is um do you sort of sell
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based on the vision of that based on like what they get in return as far as a product or like
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the outcome um you know for example in our business right now there's a push massively
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for purchase loans because refinances just dried up and so now everyone's going like i got to get
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out there and get purchase loans which means competing for realtor business you know and so
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i've got a very defined pitch for that and you know could project what you might be able to get
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as a result of it is that how you would put it in front of people yeah i mean to me it's like
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selling anything right if it's an add-on module your existing business you're always trying to
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figure out what's the roi calculation there's like kind of the left brain and the emotional
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side to it so the the impact is what you're always trying to pitch and then you know you justify with
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emotion like what would that mean to your business what if you don't and then all of a sudden the
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market shifts on you right now it's easy but and and that's the the beauty of it is is like
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product roadmap and pre-selling to finance development that's been kind of my mo since
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the beginning of building software it's i literally will do a clickable prototype that's that's 100
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prototype i don't try to make it look too fancy because then the customer or the potential buyer
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might think it's real so i give them like clickable prototype and say hey here's what we're seeing in
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the market we're hearing it from other customers wanting to get your feedback and this is the key
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michael ask for advice get a customer so use the i need your feedback on this thing we're thinking
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of building to get the advice on it and truly listen like do some customer development but then
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at the end of that call you know transition to a sales conversation and be like so it sounds like
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you guys also have this problem they're like yeah well it's like well we're creating this
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um you know you can call it an inner circle an early adopter program you know uh customer
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advisory board and we're looking for people that are willing to invest in this um to co-create it
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with us and and this is where i think your question was leading to michael like what else do they get
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well i like to do the customer advisory board like um everybody that invests will uh get access to
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early features and help us co-create the roadmap they'll obviously get uh first access to this
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product in beta which will probably be three months prior to the rest of the market so you
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If you have a competitive advantage, um, you'll get direct access to the CEO and his cell number,
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which is always a benefit for a lot of people that are paying for SAS products.
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Um, and you'll, you know, you can even go as far as seeing some of my clients put,
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you know, we'll put your name on our website under, you know, like partners that support us.
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And that might just be value to them because they want to, the, the link and the, the recognition.
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So there's ways to like create an offer around that.
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But the core is, is it's gotta, you gotta lead with the outcome.
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they got to feel like they're getting a competitive advantage and then everything else is really just
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stacking the offer to make it desirable and then that allows you the better the offer is the more
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you can charge for it and that allow you finance even more of your growth i love it that's awesome
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thank you so much yeah oh cool i appreciate it anything else mike i can help you with well yeah
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so okay so we're spooling up marketing on our side right now and having a lot of you know really
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success and the result of that is that we're also getting more people signing up for our services
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is our onboarding team it's loosely an onboarding team right i'm actually i'm not the sales side but
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i am helping people onboard and we had to massively increase our prices to make that happen
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but we're still struggling with customer journey especially in the activation phase like how do we
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bring success early to get them to first value and um and so as we kind of scale and grow like
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just any advice you can provide about that would be great. Yeah. I mean, one of the core metrics
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that I talk about often, I have this framework called this precision scorecard and it's time to
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first value, right? And I think that every company needs to define what is that first value? Is it
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sending an invoice? Is it getting your first loan origination completed? Like that to me is the
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activation step you know if i'm building an instagram it's took a photo added a filter
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posted it on my timeline like everything at the beginning of a new customer sign up has to be
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focused on driving them to that first you know first time value and track it right like what
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percent of your new signups got to first value uh in the last 30 days and um how fast what's the
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average time to achieve that and then you can task your product manager your customer success
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manager depending on how your product works to improve that metric and the truth is as you know
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is the people that get there are going to use the product more they're going to consume higher
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and they're going to retain at a higher and expand right they're going to start with a
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simple package and over time the volume increases so there's tricks to doing that okay so so how
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about i unpack a few of those the one thing that i like to do is is i really force the user into
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a setup flow so when i was building clarity and you signed up as an expert or as a seeker looking
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for advice we didn't let you do anything in the product search look at the directory etc until we
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got what we knew we needed to make sure you were going to have a successful engagement in our
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product so for example if you were a seeker we would ask you what is the number one challenge
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you're currently facing in your business and they had to answer that question or they couldn't move
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forward why honestly if they didn't know the answer to that and they weren't willing to give
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it to us then i shouldn't let them into the marketplace because to me that and but if i
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have that what can i do with that ton of stuff one our recommendation engine was customized based on
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that answer our uh our onboarding email sequences was customized based on that answer um the
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questions that we would show you from our answers product was as dynamic based on that answer um
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we would even be able to offer them free calls with experts that were willing to do free calls
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to build their profiles right based on that answer and it just we did everything we needed
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to do to get the first call to happen even if they didn't pay for it at the end of the day if
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we can get two people talking on the phone at the same time and it was done through our platform
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we just started to build that that mental trigger that that that pathway of problem clarity problem
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clarity man that call was super valuable wonder who else is on there boom boom boom right so we've
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asked them that question we asked them to pick categories of things that they felt like were
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going to be challenges over the next year we even did this cool thing where we made them listen to
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a clarity call with mark cuban so that it would force them well it would essentially indoctrinate
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them into the product right because a lot of people we learned when we asked them like hey
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why haven't you done a clarity call yet they were like well i don't really know how it works
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which sounds like when you hear that you're like oh i get that but at the time we were like what
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do you mean you don't know how it works and then it was like no they don't understand like how the
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request works how they approve it are they supposed to send something ahead of time so we
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literally created this like mini simulation of a clarity call with mark cuban and it was an animation
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that would say request and then um and then accept and then the call happens and then the call would
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play so they could kind of see visually the sequence and hear what was going on to kind of
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get comfortable with the platform so to me there are certain things that you know and this is the
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technical way of doing this is it's called the click stream look at your best customers and try
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to get your engineers to log the activity stream by date and so you go in the database again i'm
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getting super nerdy but that's my background um think of like all the objects that they created
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and did so search created a thing did a thing whatever sequence those in a timeline and then
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look at your top customers and look at like what are the milestones that they executed over that
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first experience over the first week over the first 30 days and look at what's common amongst
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all of them and then what you do is you you front load that experience for every new customer and
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that's the game plan that you give your customer success managers or your onboarding people to
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execute with every new account it's like every new account has to and you can make it a name like
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uh seven steps to success right and every new account has to have seven steps you have a
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dashboard how many customers have done those seven steps the time the first value is part of that
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but it just also says like profile completion did they connect their accounts did they upload this
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did they do that and then you can hold them accountable to an outcome does that make sense
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yeah love it that's awesome awesome well michael as we kind of land the plane and wrap up um what's
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been the two or three things that has resonated the most with you that you feel is going to have
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the biggest impact? Yeah. So, the two things really come to mind are just like understanding
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better how to present the idea of having my customers finance our roadmap. I mean, that's
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just… Even the way you said that sounds so clean, right? Yeah. Yeah. I mean, it's clicking
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and we've really struggled with fundraising. So, this is huge. I'm meeting with our biggest
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customer tomorrow about this so it's very timely um and the other thing is just like the click
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stream understanding how to look from a data perspective back at what our most you know uh
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best users are doing in order to identify what are those things of value that brings success so i'm
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gonna have the team looking at that right away bring those back yeah bring them forward in the
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product yeah i guess start with the end of mine so that's yeah that shapes the onboarding yeah