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How to offload operational complexities so you can focus on growth

How to offload operational complexities so you can focus on growth | Andrew Davies - Paddle

About Paddle

Andrew: Paddle is a complete payments infrastructure for SaaS companies. If you try to sell online, you are certainly serving many companies across the globe. If you’re in a PLG motion where you’ve probably got a lower price point selling via a product experience, there are lots of complexities. And so we help companies who are doing that to handle all their subscription, all of their tax compliance, all of the billing, all of the payments. We take all of that complexity away to allow them to scale to sell anywhere in the world without any illegal liability. And we also recently acquired another company called ProfitWell, which means we’ve got a very strong SaaS metrics platform, a very good retention platform, and the leading pricing strategy team in terms of SaaS.

The problems SaaS founders face

Andrew: When a SaaS founder starts, and I’ve been a SaaS founder in my past before selling that business, your whole company is set up around an insight of where the market is going or something new that needs to be added into the market. And really, what you want to be doing is spending all of your time on understanding the customer, building the product, and then building a team to do more customer understanding and more products to be built. We’ve seen many different stages as the industry has evolved, where there are now shoulders of giants that we stand on.

I think of AWS as one of those key pieces where now, instead of having to go to Best Buy and buy servers and racks and cables, we just put a credit card in, load up, and go, and the same is happening across many of the software tools we use. The main problem we solve is that we’re actually taking all of the admin burden, legal liability, and headache off the mind of a SaaS founder who wants to focus on team, customer, and product. Making sure that they can focus their tongue on that and taking away these other headaches that really get in their journey to scale.

What is the most loved Paddle feature?

Andrew: When you scale globally, there are a whole bunch of challenges that you face. And we’ve got about 3000 customers on our core billing platform, about 30,000 more on the metrics product, and several hundred on the retention and pricing products. It really depends on those different products, but fundamentally, this whole idea of doing it for you is key to our product vision. We don’t want to be a set of tools to help you do your job a bit better. We want to remove that job off your plate completely, and we call that doing it for you. And I think that’s probably the most fundamental thing our customers love. When they use Paddle, all of the problems of calculating local tax in every region when you start hitting the thresholds or remitting that and filling in local language tax returns and all that just disappear. It’s not your problem anymore. That’s probably our most loved kind of capability.

What are the product use cases?

Andrew: When we think about that core billing infrastructure, there are really three moments in a company’s history where they look at ripping and replacing that. Number one is the first time on the first dollar of revenue when people initially set out to transact with their customers. And sometimes that’s in beta or kind of pre-product almost. And certainly, there are a huge number of our customers that we start at that point where they just want to start accepting payments from their customers.

The second piece is normally somewhere between $3-6 million ARR. A business is now starting to hit tax thresholds in different regions and knows they’re probably using different tools for subscription management, payment processing, and tax compliance or calculation. They’re starting to get those letters saying – you’re hitting tax thresholds in these regions. And that’s the second moment where we take that pain away, and people actually invest in re-platforming.

The third one is a bit later stage, often beyond $20-30 million ARR, where businesses are now going into late-stage financing or thinking towards the exit and IPO and then suddenly having a single source of truth of your finance, making sure that single stack is risk-free. And making sure your numbers all add up correctly becomes really paramount. That’s often where people try to clean the house and do other billing stack replacements. Those are three of the points in that journey of scale that founders come to us to take over those problems.

Paddle costs

Andrew: It’s 5%, and 50 cents is our standard pricing. And if you’ve got lots of volumes, then we’re very happy to discuss whether there’s any change to that. We try to be transparent that it’s on our site and for any customers wanting to engage in the conversation. And certainly, if you’re over a few million ARR, we calculate ROI with our data and the customer’s data so they can see how much this costs versus their existing stack. Because this is one of those challenges where if you’re paying it probably through a couple of staff engineers’ salaries, accountant salaries, and a few bits of software, it’s very hard to see what that cost adds up to.

But we know from all of the thousands of customers we’ve worked with that once you get through a few million ARR, you’ll be paying through all of these other different places. It just won’t show up in your statements. It won’t show up in your stack of invoices because it goes to many people. That’s our pricing model. And then retain is priced on a performance basis. If we save you revenue regarding churn reduction, then we take a portion of that, and we normally do a trial to see how much we can save before we decide on a price. And then Price Intelligently is a kind of annualized contract based on the number of sprints we’re doing to advise you on your pricing. Finally, the metrics product that ProfitWell, is entirely free. And that’ll be free forever, so you can just plug in and get the value.

Why is ProfitWell free?

Andrew: Patrick, Peter, and the team have talked quite openly about this, but when they launched that product, it was back several years ago. There were very few SaaS metrics platforms on the market, and so they thought this was a market they could go and charge for. One thing they’re very good at is customer development and customer discovery. Patrick and a bunch of their team spent lots of time with customers working through how much people would be willing to pay. Willingness to pay is a core part of the pricing research that they’ve done for many companies.

And the revelation they had was that this was something important but that it was really hard to charge for, and other competitors were suddenly entering the market. And you’ll know several of them. They made a really strong and long-term strategic decision, which was rather than shrink the side of the market by pricing and making sure they then competed with everybody else, why not make it a free product? Take as much of the market as possible, and they’ve got 10x the volume of anyone else in the market. Why don’t we make it free and fund it through our other products? And then this is our data set that becomes a core and a heartbeat of our company valuation.

Why companies are adopting product-led growth

Andrew: When we look at a whole range of businesses across the market, we see this value shift towards the end customer. Product-led growth is a piece of that where it’s the individual user buying the product, and they’re getting the value from the product. We’re seeing value being pushed closer and closer to the customer. Many product-led businesses invite trial before they’ve even asked for your email, and you can get that product experience before you’ve handed over even an email address. The market is becoming more and more competitive. Distribution becomes more and more paramount, and if the distribution is paramount, then you’ve got to find ways of differentiating and moving the value in a lower price or a premium type offering, or in a free offering closer to the customer is one way of doing.

Why is Paddle different?

Andrew: That phrase do it for you is really the key to differentiation. One of the most powerful differentiation methods is a different point of view. And we have strongly different points of view on the main ways of doing business in this market, which is the normal way that many founders do. Particularly if you’re in a US context, you’ve got a large domestic market, and the international problems aren’t so big. You go to Stripe, and you set up that, then you maybe go to Recurly or Chargebee or someone for your subscription management. You set up that, and then as you scale, you maybe go to Avalara or some other tax calculation software and go to that.

And then, when you need to look at fraud prevention, you go to another fraud provider and all of those to make up this piecemeal stack. That’s what we see as our difference. We combine all of that together. You’ve got one partner, one person to trust, and one to build a relationship with one single source of truth. We carry all of the risks of building that all together, vertically integrating all of that.

For us, it’s not really a competitive bake-off, it’s more of a case of saying if payments are a core part of your business model as a customer’s business model, then probably they do want to own that themselves. But if some other form of software is what you’re selling, payments are part of the product experience. Still, they’re not a way that you are monetizing in terms of inside the product, then you know Oaddle will probably be perfect for you if your software, and that’s our differentiation.

The story of Paddle

Andrew: Christian, our CEO, is fantastic and also fantastically smart. I think he was actually a Peter Thiel fellow. He dropped out of school early and built a software business on the side for a few million ARR. And the biggest problem he faced when doing that was how he invoiced customers and the actual payments piece of his own software company—recognizing that there are a bunch of people in his community and his network who are also building software companies and facing those problems was the insight that led to Paddle being founded. And so he joined up with one of his schoolmates at that point, Harrison Rose, the co-founder. They built Paddle together, raised some early money, and built a product to go and solve those early problems. And it’s really built and grown very fast.

Was buying ProfitWell the reason for raising your series D?

Andrew: We raised near on 300 million overall. Last year we raised our series D of a couple of hundred million, and we used that also to fund partly fund the purchase of ProfitWell. There have been some big raises, which is a testament to our business’s economics and the strong team building it forward. We were thinking of raising anyway, but the plan to buy ProfitWell was really the trigger point for the size of that raise. We actually went to market, went to different banks, went to different funds with that proposition that we would raise a significantly greater amount of money than we needed as an independent business because we wanted to go and do that M&A.

Why did you choose to acquire ProfitWell?

Andrew: We greatly respect the founding team and the entire team at ProfitWell and what they did on a few fronts. Firstly, the brand that they’ve built, particularly in the US market, is just really, really strong in the way they’ve been helpful to thousands of software businesses. In my previous business, I knew of ProfitWell, I remember pinging them with emails on pricing questions, and they always responded fast. They built a strong brand, and their products serve very similar companies, but we had almost no product overlap.

Whereas we are dealing with this core billing engine and a lot of the tax issues there, they have this retention product that sat alongside it, a metrics product that filled a gap in our reporting that we knew we needed to fill somehow this pricing piece. Together, we have this combined vision of helping SaaS founders fulfill their mission by automatically operating and growing their companies. We helped fill in each other’s pieces of that combined vision. And obviously, there’s more still to build out that we’re working on, but that was really part of the insight that led to that.

Are you combining the two teams together?

Andrew: We fully combined the teams already, we did that pretty quickly, and I think that was wise to do. We are around 340 staff, and that’s with the combined teams in our hiring that’s been ongoing. All of our teams in my marketing team include BDRs and DG teams, our brand teams, and creative teams of product marketing that have been combined across both of those businesses. Paddle was the larger business, and many of the ProfitWell teams were subsumed. But several of our leaders across the business are from the ProfitWell side. And I think we’re really enjoying working through that joint leadership journey as we combine the two companies based on the best of both of those parts.

What are the things that changed after the acquisition?

Andrew: Everything changes after an acquisition. In my prior role, we went through five acquisitions in two years. I’ve seen that journey happen many times, and it’s tough. There’s a lot of unspoken culture that sits within the fabric of the organization. That is normal for anyone who’s in that culture until you suddenly put it inside another company, and suddenly there are lots of conversations that need to happen about why you do this and why you do that. And this is our background of what we found worked, and this is your background, and how can we come together and make those things work? Definitions and vocabulary are different as well. The way we report on things and value different things in the business are different.

We both have similar value systems, but differences within those value systems need conversations. There have been a huge number of strengths in coming together. Paddle was a more mature business, is a more mature business in its scale, and therefore had some things with better processes. ProfitWell strategically was just extremely strong in how they executed, and their speed of execution was very high. I hope we’ve made the best of both, and that’s still a challenge to work out day-to-day because people have different history and they have, different memories, and they have different ways of doing things. And it’s all about ensuring, especially as we enter 2023, that we leave 2022 behind us. Take the best bits from it to ensure we’re all together in the same room pathing that future.

What has been your best growth tactic for getting new customers to Paddle?

Andrew: Before joining Paddle, I advised 15 different SaaS businesses on their Go-To-Market, and when we talk about growth tactics, I usually dodge that question and come back to the fundamentals because often, it’s the fundamentals that are the problem. Number one, is there a message that resonates with a defined group of people? And that overall strategic narrative, the message you’re telling to the market for me, is really critical, and we’ve definitely made some changes on that front.

Then the second piece, do we deeply understand our target customer? Have we made hard decisions about how small our target universe should be, and have we gone through the hard process of identifying our target accounts? The best growth tactics I’ve experienced at Paddle have been ensuring we have a deep understanding of our target markets and output better target accounts to serve our sales team. Secondly, that we have a message that really cuts through and helps differentiate us. And then third, building a team of specialists that can manage the various different tactics that execute against those target accounts with that message that matters.

What are the marketing trends that you’ve seen in the near future?

Andrew: One thing that feels slightly obvious, but certainly is something we’re exploring, and we’re doing a lot of face-to-face, is field marketing—again, getting back in the room post-pandemic. I think there’s a real need and real desire for people to be back in the room talking. Recently we’ve done it in Paris, Barcelona, Amsterdam, London, New York, Boston, and Austin. We’ve got a whole range of founder dinners that we run with go-to-market leaders and founders from SaaS companies, where we just show some of our data on growth and retention and pricing trends to talk with local founders. And that’s yielded some really good conversations over the last few weeks. It doesn’t feel like a new or trendy tactic, but we enjoy being back in the group and the room.

What are the top mistakes SaaS companies make with their GTM?

Andrew: I’ve already mentioned it, but the message was the least optimized piece of most of their marketing engines. People are trying tactics, throwing things, and doing new campaigns without a central understanding of the message that really cuts through. And when we think about that message, there are a bunch of frameworks. There are a bunch of frameworks that I use in that environment, all borrowed from other people. None of them were made up by myself, but at the core, they really have a sense of the ideal future that the customer wants and how we can make sure that the customer understands and believes in the ideal future. And then, secondly, what’s the reframe? What’s the way that we can help the customer reframe this problem? If they believe us and reframe in that way, then we are the only primary option they want to choose. I think through that deeply, and then doing that with your customers has been one of them.

What has been your biggest personal challenge since joining Paddle?

Andrew: I joined Paddle in January 2022. I’ve been empowered for over a year now, although I was doing about five months of advisory work beforehand as a consultant, helping them with their marketing. I was there before the ProfitWell Journey started and that conversation started. It’s been a fantastic ride for the last year and a half, almost two years. I enjoy every day and certainly seem to have joined at a good time. I love working with my colleagues here.

There have been many challenges, and I see them as opportunities. I think one of my challenges in joining Paddle is that I live outside London, about 200 miles away from London, and I’ve got two young kids and my wife down here in, in Devon. Being present with a team that was mostly London-centric is really important. I tried to ensure I was in the office very often when I was in the US, meeting people in our New York or Boston office or going down to Salt Lake City. That was a challenge to balance.

I think that was something personally that was a challenge when it came to more of the role. Paddle had a pretty good understanding of its target market, but it took me probably six months of being enrolled to understand that complexity and depth and then make sure that we had the plan to go and fix it. When we think about demand generation as an engine, if we’re pouring bad fuel on top of that, we’re never going to get good results on that.

What SaaS events will Paddle be joining this year?

Andrew: We will be at SaaStock in Dublin again, I know you’ve met some of the team over there, which is great. We love SaaStock. We’ll be at SaaStock USA in Austin at the end of May. We’ll also sponsor SaaStr in London, SaaStr Europa, and SaaStr Annual in California. Those are our four big events of the year, but we’re hosting a whole bunch ourselves as well. Our first half-day summit will be over in Austin in early May, and then we’ll be doing something similar, probably in Boston and London as well. If you want to attend those, it’s probably best just to reach out to one of the team or me because we don’t promote a lot of them publicly just because we try to keep the list tight and the type of people in the room really. But if anyone here is leading Go-To-Market or is on the senior team of a software business, we would love to see you at one of those.

What is your story, Andrew?

Andrew: I was hired as part of the Deloitte Consulting Scholarship program when I was 17. About 15 people in the UK were selected for this program. I joined their technology media and telecoms team before university in the audit and consulting teams. That year of work experience before university made me want to go to uni. to graduate with my own job rather than taking the Deloitte job at the end. I enjoyed my time there and worked for them every summer and winter while studying. But I wanted to have some options outside of that. I really wanted to be in a smaller business. In university, I started multiple businesses, and most of them failed miserably, one of them ending up in court.

But by the end of my university course, we had a business that was doing social media analytics for a whole load of top brands in London. But at the same time, I met the co-founder of the business we grew up raising money for and selling called Idio, an AI-based personalization engine for big B2B tech companies. For years afterward, we grew that very slowly, made every mistake in the book, raised money from a bunch of different funds in Europe, and then ended up selling it in 2019. I suddenly had experience in a much larger company.

And then, as I said, one of the things that I’d agreed with my board through that process was that I’d be able to do some contract work on the side to broaden my experience and ensure I was continuing to learn. I’ve done that for a while. And then also been a tutor for the ABM and analyst relations courses at the Sales Impact Academy and a few other things. I’m very much an always-on learner. I love seeing different company environments where I can see their challenges and problems and maybe use some of the frameworks I’ve seen work with before. Still, most of all, understand and learn more about how it plays out in a specific market.

What’s your best piece of advice for startup founders?

Andrew: I’ve got several founders I’m working with right now, and one of them is a real perfectionist. He wants everything to be perfect before it’s live. Founders normally have a bias for action, so this isn’t good advice for many, but for those who want to make sure that things are perfect before they get live, just think getting in front of the customer and having that conversation is the lifeblood of a startup getting that feedback. I think it’s just a case of getting out there and doing it and not being scared of failure, not being scared of people saying no, not being scared of it, not being right yet.

Do you see yourself more as a founder or as a marketer?

Andrew:  I’m not sure either of those I carry true to my identity. I’m a husband and a father first. In a business context, I think that’s a great question. I don’t think I’ve ever necessarily divided one or the other. I was a founder before I was a marketer. Getting into marketing by taking over the marketing function and building at Idio, and then carried that role through again. And I’m sure after Paddle, I’ll be starting another business at some point several years in the future once we’ve made a good run of this and taken this to its natural conclusion. I think maybe in the next role, we’ll define what the answer is.

What’s your favorite software?

Andrew: Would it be 2023 if I didn’t say that I’m spending lots of time with ChatGPT? I think the application of generative AI is super interesting, and I’m certainly having fun with that. Before this, I was preparing for a webinar with Forrester Research that we are delivering in a couple of weeks And a couple of weeks ago, we launched a rocket into space. It was fun, the back of that space campaign was about internationalization and globalizing your business. I was there asking ChatGPT to pull space jokes and space puns ready for it. I love having that co-pilot in my work.

Podcast Host & Guest(s)

Cristian Dina

Host

Cristian Dina

Managing Partner & SaaS Podcast Host @ Tekpon
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Managing Partner & SaaS Podcast Host @ Tekpon

As one of the founding members of Tekpon, Cristian has worn many hats within the company, but perhaps none shines brighter than his role as the charismatic host of the Tekpon SaaS Podcast. With over 200 SaaS industry leaders gracing his episodes, Cristian's insatiable curiosity ensures he always has one more question. Cristian is a community builder at heart, being the Bucharest city leader for SaaStock Local and the author of the best-selling book King of Networking.

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