Scaling Customer.io to $50M ARR

Twelve years ago, Colin Nederkoorn and his co-founder left their corporate job with a desire to launch their own startup. Fast forward to today, Customer.io has become one of the best products in the marketing industry, boasting over $50 million in annual recurring revenue. Despite this impressive achievement, some still refer to it as "the best-kept secret in marketing tech."

The reason? "I was a first-time founder with a product background," reflects Colin. "I prioritized product over marketing. Over the long run, the quality of our product became much greater than the story we were telling about it." In this episode of Founder Secrets, we delve into this and all the other lessons learned during Customer.io's 12-year journey, including almost running out of money in the early days due to a misguided fundraising strategy.

The ‘aha’ moment

Customer.io was initially founded as a tool for website analytics. However, they quickly discovered that potential customers felt overwhelmed by existing analytics tools. "When we started doing customer development and talking to potential customers, we kept getting the same feedback," explains Colin. "They already had analytics products, and they didn't feel like they were getting a ton of value out of them." What people really wanted was not only to observe and analyze user behavior but to actively influence it.

This feedback led to a pivot in their product strategy. Colin recalls, "We built the first version of our product to help SAAS companies convert free users to paid ones by using data to trigger specific emails based on users' actions. Our product was barely functional, but five companies started paying us $10/month, and we worked with them to figure out what they needed." Twelve years later, and a relentless focus on customer feedback brought that initial version to a whole other level and $50 million in ARR. But why is Customer.io still "the best-kept secret in marketing tech?"

Product vs. marketing

There is a saying in startups that "first-time founders focus on product and second-time founders focus on distribution." As a first-time founder with a product background, Colin has primarily focused on building a great product over the past decade. This product-focused approach has yielded impressive results. However, it has also resulted in a situation where the quality of Customer.io's product is much greater than its brand and visibility.

Reflecting on this, Colin notes, "It's really important to have a balanced approach. If you have a robust product organization shipping amazing stuff, but you're not telling anyone about it, it doesn't matter. You need to have a whole marketing machine that works in tandem to maximize the value of the work you're doing on the product side." Of course, Colin warns against both extremes: focusing too much on product without adequate marketing, or overhyping a product without substantial backing.

The key is to strike a balance between the resources dedicated to product and marketing. Having the best product is irrelevant if no one knows about it, and investing heavily in marketing is useless if everyone churns after trying your product. There are no shortcuts and it's not about product or marketing; the best companies excel in both product and marketing.

Fundstrapping

When it comes to fundraising, many founders make the mistake of being dogmatic about it. Some founders rush to raise capital just for the sake of it, while others staunchly advocate for bootstrapping. After almost running out of money, Colin has learned the hard way that the truth lies somewhere in between. He recalls, "Early on, someone convinced me that we had to raise a Series A even though our company was not at that level of growth yet. I tried to raise a Series A and I failed. We almost ran out of money."

The mistake, he realized, was not raising a smaller amount that would have been sufficient to keep scaling the business. "I had spent all that time trying to raise a Series A," he explains. "Instead, I should have just raised a couple hundred thousand dollars. And that's what we ultimately did." After nearly running out of funds, Colin became cautious about relying too heavily on outside investment. "I didn't want to be dependent on external capital anymore," he recalls.

However, he would soon recognize the downside of this approach. "The business was still so early and there were critical investments that I was not making that slowed us down in subsequent years." That's why Colin now advises founders to avoid being dogmatic about fundraising and just use capital as a strategic tool. "You have to do what's right for the business," he stresses. "You can't be dogmatic about your decisions. If you need $5 million to solve some hard technical problems and scale the business, then you should raise the money."

Colin calls his approach "fundstrapping," and it's all about making balanced and informed decisions when it comes to fundraising, avoiding the pitfalls of both excessive fundraising and strict bootstrapping. He wrote a really interesting blog about the topic that I highly recommend:

Becoming a multi-product company

One of the most interesting (and challenging!) aspects of growing from a startup to a scaleup is developing new products to capture market share in new categories. As Customer.io grew, many factors made Colin realize that there was an opportunity to expand their product offering. "Our first product, Journey, was growing extremely large," he explains. "When we analyzed customer data platforms (CDPs) in the market, we realized that we had already built most of the functionalities you need to run one."

Another reason driving the development of their own CDP product was the existing market conditions. Colin observed, "A lot of CDP companies raised too much money and have an unclear path on how to provide value beyond their core functionality. That has led them to squeeze customers on price. This has discouraged a lot of new companies from using CDPs. But if they don't use a CDP, they're likely to have an inferior experience with our product."

When factoring in all these things, it was clear that there was an opportunity for the company. However, expanding into a new product category was not without its challenges. "The biggest risk," explains Colin, "is splitting your resources onto different things. When we launched our CDP product, we took away advertising budget from Journey and this had a meaningful impact on our pipeline." And it’s interesting how the lesson here goes full circle back to investing in product and marketing. "When launching a new product," notes Colin, "you have to understand that the investment is not just building it, but also investing time and effort to make it a success."

Restructuring the engineering team

One of the reasons startups can outpace larger corporations in product development is that the early team can focus on shipping products free from bureaucratic and managerial tasks. However, as companies grow, founders' increasing involvement in people management can slow them down. Colin confronted this challenge head-on, finding a way to maintain their agility even as the company expanded. And it’s because of these changes that they were able to ship a complex new product in just nine months.

First of all, they redefined the role of their Chief Technology Officer (CTO). According to Colin, the CTO role typically falls into two categories: the people manager and the chief technology architect. "It really depends on the skill set and interest of your CTO," he explains. "We decided to remove the people management responsibility from our CTO, and this enabled him to lead the development of the new product. This wouldn't have been possible if he was doing this as a side project."

This change was accompanied by the VP of Product becoming the Chief Product Officer (CPO), overseeing engineering, product, and design. This restructure meant the CTO and CPO were peers, both reporting directly to Colin, but with the CTO focused more on strategic technology decisions. "It's an interesting dynamic," he notes. "It's working well for us because they have a really good relationship with each other."

Another challenge that was impacting their speed was their complex codebase, which became harder to manage as the engineering team grew. "As we scaled up, there was so much friction in the system for new engineers to be productive because the code was all coupled together." Inspired by Amazon’s model, the CTO is now restructuring the team and their code to allow engineers to work more independently and make changes without impacting others. And that’s how Customer.io managed to maintain its innovative momentum through a strategic organizational restructuring.

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As we wrap up, Colin offers a final piece of advice about the importance of finding a driving force behind your work as a founder. "Find something you're passionate about to wake up every morning and work on," he says. "For me, it's about becoming the person the company needs for the next stage. If it's just about money, you'll lose everything once you get there. There has to be something more." And that "more" is what keeps you consistently engaged and motivated in your work, despite the changing tides of your startup.