Andrew McLeod, Founder of Certn ($100M+ Raised) | How to Find Product Market Fit

Pablo 0:00 Scratching your own itch makes sense. You agree with that. It's just not enough, right? You then still have to go through – and a lot of founders have that flawed thinking. It's, look, I've lived this problem so I know I didn't do any real customer discovery. That's not the right thing to do because just because you have a problem doesn’t mean many other people have it or see it the same way, etc., etc. Welcome to the Product Market Fit Show, brought to you by Mistral, a seed-stage firm based in Canada. I'm Pablo. I'm a founder turned VC. My goal is to help early-stage founders like you find product market fit. Today, we have Andrew, the founder of Certn. Certn is a platform that provides AI-powered background checks for businesses. They're based in Victoria. They have over 500 employees and have raised over $80 million. Andrew, it's a pleasure to have you on the show here today. Andrew 0:49 Thanks for having me, Pablo. Pablo 0:50 The topic of today's episode is a broader one. It's how to find product market fit. The reason that we chose that kind of a topic is because Certn has gone through some pretty important meaningful iterations to become what they are today. I think there's big insights, really important lessons that founders will learn as we take all of you through each of those. Let's do that. I think normally we would start at, hey, how did you come up with the idea. Let's take almost one step before that, which is, because as we were talking before the show, you mentioned you have this broader philosophy around product market fit, a process that you've learned through hard battles on what it takes and what motions you should be running in order to build a product that really ends up getting true PMF. Andrew 1:39 We The 5 Steps to PMF Andrew 1:40 look at it as how quickly can you do something. Every time we do a new – every time we think about doing a new product, we have – basically, we've condensed it down to a five-day process. We start with identifying what we think the problem is, and then we'll build – we don't use Envision anymore. We use Figma now, but we'll build a Figma prototype and then we'll share it with the five most important customers in that space, or the five most important customers in that problem and get their feedback on it. Is this actually solving their problem? What is their level of excitement? Usually, we'll engage a third party to do that so that we don't bias our results. When we first started, we had to do it ourselves. Then you take that back – you iterate on the prototype, you go back out and test that again. Then the last stage is, okay, now would you buy this? If we gave you – if it was going to cost this much a month or this much a year, would you be willing to sign a contract if this thing can deliver? That's always the final test of, yes. Then now you've got this – now you've proven that you've got something that people will pay for. You've got a mock, which then you can put into design and you can put into engineering, and you've spent a week of no more than five or six of your team's talent. Usually, with the customers, I say no more than five, so five will give you the 80%/20%. Pablo 3:08 Why is that? I was going to ask. Yeah, what's the reasoning between – I mean, it could be five. It could be seven, but why such a small subset versus 50, and just collect more data? Andrew 3:18 If you want to do it fast, because a lot of the time, it's speed. If you want to do it fast most of the time, you can, if you're – if you have those customer relationships, it's easier to do five really quickly to get your MVP. Because once you've got it out there, I mean, you've always got to be testing and you've always got to be iterating and you're going to get to perfection, but the idea here is, in that dark room analogy, the idea is at the end of the week you're on the dark ward. If you hit the bullseye, tell me where to send the check because I'm investing, but that doesn't – that doesn't happen. I mean, maybe it happens sometimes. Pablo 3:58 Yeah, that might be, but I get it. The idea is in a week you're actually pointing in the right direction and then the define – but it's that 20/80 or 80/20, however you want to look at it, idea. I think that makes sense. Maybe let's shift gears now. You have this idea for insurance fraud against tenant default, right? How'd you come up with that quickly? Andrew 4:17 It's The Idea For Certn Andrew 4:19 funny because we figured out how to – well, we had this problem and the problem is that if you want to get a new job or you want to get a new place to rent or you want access to opportunity, it's really hard to show that you're qualified for something. We're like, how do we empower people towards opportunity through trust? We found this challenge of landlords and property managers and lenders and employers wouldn't just accept the word of these three guys that were living in Vancouver at the time like, hey, our stamp is on it. Oh, Evan and Andy's stamp is on this person, you should hire them. It started with this whole thing, oh, you want to bet? This person's a great employee. Oh, you want to bet? If this person ends up being a great employee, you pay me $20 a month, and if they're not, I'll pay you the cost of whatever they do or the damages that they cause as a tenant or whatever. It means you as a landlord or an employer, your liability for the damages that they cause or the trouble that they give you is covered, but I'm betting that they're great, and because we've figured out this method of evaluating people better, we can do that. We can take bets on people that we know are great. We got into the room with our first five customers and we're like, here it is. It's going to be 4% of their wage or their rent or whatever it is. Then you're never going to have to worry about defaults or any of that stuff again because we'll cover all of it. They're like, what are you doing to screen these people? I would much rather pay for that because 4%, I lose that much in a year, because I do an okay job at screening and I've hedged across thousands or tens of thousands of units or employees because that's where the money really is that I – it doesn't make sense for me to pay 4%, but I really want to know how you've figured this out, this secret sauce that you're talking about where you're willing to bet on these people based on something that you've built that takes no time. I want to buy that. How do you instantly know that? That's where the idea originated. Pablo 6:47 Those five customers, potential customers you got into a room with, were they small time landlords or bigger landlords? Andrew 6:54 Big ones. We really wanted to solve the problem for the enterprise problem. Pablo 7:00 How did you even get them in a room? This is pre-launch, pre-product, pre really anything. Why do they even listen to you? What was that process like? Andrew 7:09 I mean, it's pretty amazing what people will do when they see an excited entrepreneur that's passionate about something and just wants to share an idea. I would say I'm really fortunate that I've started businesses in the past and I've worked with or around these people in a different capacity. Between myself and my network, I was able to get in front of all the people that we wanted to have as potential customers. We were very specific about who we wanted to target. You didn’t – it wasn't like we were talking to the CEO of – we didn't bring Jeff in from Amazon and we're like, hey, we've got this really great idea, but we picked customers that we knew that fell into our specific niches and that we thought would be would be great. We worked through our friends and family to get in front of the right people. Pablo 8:06 Then when you get this, this is – I'm imagining, I mean, this is one session and they give you this feedback of I couldn't care less about insurance, but what's this screening thing that you have behind it? Do you – how quick are you to accept that and just throw out this insurance idea that I'm sure you spent a lot of time and got really hyped up about and shift right into a screening product? Let the Data Talk Andrew 8:27 It's really let the data talk. You don't want to lead the – you don't want to lead the witness, so to speak, but the person that you're interviewing, you want to just let them use the prototype. You basically hand them a device and say, I’m not going to explain what this is. You tell me what this is and how it adds value and then you go into it afterwards. Then you don't really get to pricing until the second conversation. With that, it was – when we did this exercise, usually at a five it becomes tricky if you get a – because you do a score. We do a scoring out of ten but you can't really choose the numbers in the middle. It's either really low or high. Then that way you get a – Pablo 9:15 Maybe just walk me through how that session goes, and especially with an insurance product, which is not really a product product, right? Click through screens, what did you actually put in their hands, and then what did you ask? Maybe walk me through that, the scoring and all that. Andrew 9:38 Basically, for the first one, what we put in their hands was a candidate experience or a tenant experience that allowed a tenant or a candidate to apply for an opportunity. Then when they applied for that opportunity, there was a report at the end that showed the information about the person, the fictional person, and then how much it would cost them or what the value to them would be versus the cost. That's basically what we walked them through. The general consensus was this candidate experience is fantastic. This report looks great, but I'm not paying that much per month. You've already told me this person's good. Why would I pay that? I can see that they're good and I'm not just going to take your word for it and pay 4% or whatever, whatever the number was. I can see this report right here. I want this report. How much to just get this report? That was unanimously the feedback. It's amazing what a group of five, five people reviewing what you're doing, can give you in terms of – there's still things from three, four years ago that we did a process like this and the things that those customers said that maybe we didn't take so seriously, we're like, oh, yeah. Pablo 10:55 Were you taking notes the whole time as they…? Andrew 10:55 Yeah, so we basically, when we're done one of these sessions, we have a whole room, imagine a small boardroom, like a WeWork boardroom. It's just covered in sticky notes. Literally there is no space on the wall. It's sticky notes and sticky pads of paper and it's pretty archaic, handwritten sharpie, and I'm left-handed, so everything's smudged. It's chaos. Then in the end it all works down. Typically, we actually, when we have our internal team in the room, we do this first process where we come up with the problem and we start creating problem statements and what if statements. Then we all hand draw prototypes and then we take the hand drawn prototypes that we each do and we start taking the best parts of each of those. Then that creates basically one line of stickies that's what our prototype would be. Then that's when we do a quick design of it to go to the first group of potential customers for review. That process is usually a day because we try and line up those customers before we actually have the prototype so that everything is super efficient. Because at the end of the week, you want to know whether it's a go or no-go. Sometimes it's a – at the end of the week, it's not always a, yes, we should definitely do this. At the end of the week, sometimes it's like a, I still don't know if we should do this. I think we're in the right direction. Sometimes you might need to do it again. Pablo 12:30 Is this something – are you doing this for every feature now or every big cut of – when do you do this? Andrew 12:37 For me personally, every time I think about starting a business or something new, we do it. Our product managers will run a light version of this if it's a completely new feature. If it's a bolt on feature, then not really, but if it's a properly new product, then they'll go through this, add one more field in a report or something like that is not going to be a big thing, but how do we treat social media? You got to ask consumers. You got to ask businesses. How does that look? We'll run a sprint where we get – we do mocks and we do everything and then we get the feedback directly from the source. Pablo 13:22 Let's shift back now. You have that first session. Unanimously it's stated to you very clearly that the interest idea makes no sense, but the screening one could be – could have great potential. Where do you go from there? Do you try and sell them on it on the spot a week later, okay, swipe here sort of thing or what's your next step? Andrew 13:44 Usually, the Revenue is the Best Validator Andrew 13:45 next step is outside of those five customers is try and sell to somebody outside of them because they know you're in a prototyping process. What we'll do is we'll do just cold calls. Just do a – usually, I mean, when we did it, we would do about 20 or so cold calls each and you just ask the question. We call it solutioning where it's like, hey, do you have a problem with defaults? Yeah, I've got a problem with defaults. What if we could guarantee that you'd never have a default again. It's like, whoa, let me see what you're doing. Then we'd show them the prototype and that would be that. We'd start to collect more micro feedback and usually we would get them to sign a contract or a letter of intent. Our first customers with Certn were actually – they were the three biggest landlords in Victoria all basically signed up right away with literally an Envision model. Pablo 14:47 Do you get pushback, like I'll just wait until it's ready? Andrew 14:53 We didn't as much because in going through the process it was this is a real need. The process for us doing tenant screening is painful. The tenant application process, because that's where we started, that was the niche that we really focused on at the very beginning because we couldn't build all things for everybody. Landlords were willing to pay for it right away. They were losing tenants. They were losing good tenants. They'd get people to come in and they would take them a couple days to process the application and everything was paper-based. In fact, if I was in my office, I could show you the rental application of one of our first customers and it was on that carbon copy paper. You had the white layer, the yellow layer, and then you had the ink layer at the bottom. You'd fill out this application. You'd get your copy and they'd get their copy and then they'd go enter it into a system and they'd wait a couple days for the credit report to come back. Then they'd let the tenant know that they got the place and then the tenant would potentially sign a lease, but it's three days later, so they might have found something else with someone that wasn't going to go through such an arduous process. It was great. Then there was a spiral effect because now the people that were using the carbon copy paper, if they were up against a landlord that used Certn, the candidate could be approved on the spot. The tenant was basically like, oh, I want this apartment. I'll give my application here. Then yeah, then it's like, here are the keys. Here's everything. Pablo 16:28 Is that a sign of itself? If you – I'm just thinking you're a founder and you have this idea and you see people are interested. You start calling out businesses or whatever and people tell like, yeah, I'll pay for this. I'll pay this much for this, but not until it's ready, not until it's built. Is that already a sign that, hey, this problem's probably not important enough? Would you take it that way? Andrew 16:47 I think, in some cases. I mean, you don't always – I hate to say this, if our first customers are listening, you don't always tell them that you don't exactly have it. You don't exactly say that it's not built yet. Because as far as they could see, at least, six years ago when we started Certn, nobody knew what Envision was in the industries that we worked in. It was they saw this thing on the internet. They saw this demo. It seemed like it was working. The report was on me. I ran in on myself and they were like, this thing's real. Pablo 17:19 Then how do you – how do you time the – how do you time the launch? If you play that, because I'm all for it, fake it until you make it, then you tell them, oh, but we'll deploy it in six months? How do you give yourself that leeway? Andrew 17:29 You Timing The Launch Andrew 17:30 really want to know when you could deploy it. You try and start with – you go through that sprint process to get that 80%. From there, you know roughly how long it'll take to build. As you're going through these customer calls, you're saying, yeah, and we're going to start taking customers in six months. We want some letter of intent or something. If you're raising money, usually it's a good idea to get a letter of intent, but otherwise, we want to get you all set up so that you can launch on this specific date. I probably shouldn't say this publicly, but sometimes you'd make them go through hoops so that it just seemed like they were going through this process when really you're building behind the scenes. It's like, oh, I need your list of properties so I can import your list of properties into the system and I need them in this specific CSV format so I can just upload it and it makes it easier for you. They're like, I can just upload it. That feature's not ready yet. You just continue – we’ve got a group of seven co-founders. It'll be like, Curtis, we need a way for people to be able to upload their own properties. He’s like, okay, that'll be in the third release in April. Yeah, so you'll be able to upload your own properties in April, but in the meantime, this easy CSV file will be totally fine. Then the CSV file was not just uploaded, it was one of us manually answering it in. You do things like that to stall the process. Usually, the sales process for these types of things, especially when you're first starting out, it's not a – with bigger customers, you're never going to go to a customer that's going to give you even a five-figure deal and be able to close it in 72 hours based on a vision mock. Our problem was, oh, yeah, we got to get to contracts. Then it was, okay, we actually have someone that wants to do this. Now we have to write a contract. It was me drafting a contract. Then you're going back and forth. Pablo 19:25 To be clear, you took people – it wasn't just letters of intent and then build and then pay. You actually got contracts signed, even checks deposited before you… Andrew 19:31 We wouldn't get checks deposited. We didn’t deposit any checks. Pablo 19:31 But you would get contracts. Andrew 19:31 We would get contracts. Literally for our first customer, again, this is the biggest landlord in Victoria. They've got 5,000 apartments. We literally were drafting the – they were basically proofreading the contract. There was selling sticks in the contracts that their lawyers picked up and all this stuff and was like, yeah, our lawyers are just startup lawyers. They're just – and it's really me drafting the contract of copying and pasting other stuff, but that's – we had no money, or we had a little bit of money that we were self-funding and so we had to figure out, was this really a thing? Turned out it was, but we didn't want to spend millions of dollars, or I mean, hundreds of thousands of dollars on lawyers to draft contracts that no one would be able to get out of if the idea was good for one customer. Pablo 20:35 I think, in a sense, it's just a funny story, but it is – it does have deeper content in there because the reality is, I think, especially a lot of first-time founders miss the fact that you can get so much accomplished without really any polish, right? If the core thing you're going after is real, people will – you call enough customers, you will find some that are willing to go through hoops, as you said, to wait longer than they should, to forego spelling errors in contracts just to get the thing that they're getting promised because it solves such an important problem for them. Frankly, when you're trying to build a $100 million a year plus business, if you're not starting off with something like that, it's going to be tricky. If you're already in this push and everything's got to be perfect and you got to spend all this money on – then maybe the pull's never going to really be there, or you're going to have to do a lot of shifts until you find that pull. You might as well keep doing the sprints. Beware The Feature Beast Andrew 21:29 I started one company where it was like you have to be a feature beast. Every day was a new feature. We'd have a client that would come in and was like, oh, we need this feature, we need that feature, we need this feature, we need – and in the next feature, we'll make it perfect and then we're going to be a rocket ship. It never ends up being that next feature. In fact, most of the time, it ends up being just one feature that you end up building that you didn't need 99% of the rest of it. If you had just focused on that one feature, you would've raised money faster, you would've needed less money, and you would've been far wealthier than spending your time building motherboards that Foxconn can build in ten seconds for 1/10th the price at 100 times the quality. Pablo 22:12 That's right. I think that totally makes sense. Now, again, fast forwarding a little bit, I mean, you go through this. You figure out this screening thing for tenants, right? You get some traction and I think you get to meaningful revenue, half a million or a million or so hours on this. When do things start to shift? Because now you're focused a lot on screening for candidates, for employers. Walk me through that. Follow Your North Star Andrew 22:39 Yeah, so I mean our North Star was always empowering people towards opportunity through trust. That was the end goal that we wanted to get to. We knew that we had a problem that people wanted to solve, but we didn't necessarily have the reputation to solve it. Because our last business was in payments for rent, we knew a lot of landlords. It was an easy start because tenant screening and pre-employment screening are pretty similar. You look for slightly different things, but you collect roughly the same information, a lot less when it comes to pre-employment. We started growing our property management business. Then the day that we knew that we had hit it, we had hit the first stage of our plan because we had this plan of do the traditional industry but better, so better, faster, cheaper, the same industry, just apply tech and then break the industry as Phase 2. We started realizing that we had done something great when some of our bigger clients were like, hey, I'm not sure if I'm supposed to tell you this, but I've actually been doing this screening on my employees because I've got property managers at the building that are managing money. They're dealing with tenants. They're dealing with potentially elderly people or kids. I don't want any issues and this report gives me all the stuff that I need to know. It's a great experience for tenants and it's been a great experience for the people I've been hiring. You should do this for employment. That was where we started doing it for employment. Then really the pandemic happened. We had built the product. It's basically the same product with a different skin for pre-employment because our landlords wanted it. Then, all of a sudden, we started getting more and more employers. Then the pandemic happened and everyone was remote. Companies just needed to figure out way – well, a couple different things. There was the first wave of employers, people in human resources, which are typically the buyers of our product in March and April of 2020 were like, oh, my God, I'm not hiring anybody so I need to make our processes more efficient. Then the second wave to that was, now people are remote, I need to do a better job of screening people because I don't even know whether the person I'm talking to on the phone or on Zoom is actually the person that I'm hiring or they're located in the place that I need them to be. There's higher risk of fraud or bad employees. Then that compounded with the economy booming. It was, okay, now I need to hire – got customers that are hiring tens of thousands of people really quickly. I mean, we look at Certn, and when the pandemic started, there were 24 Certn-onians. Now there's 500. It's like, even for our own problems, it's how do you start – how do you scale that? I mean, one of our customers hires 13,000 people per year, and prior to Certn, 40% of people would drop out during the screening process because it would take too long. If you think 13,000 people, 40% dropout, and then those are the people that have actually passed the interview process. The number of people that they need to get to fill out an application is 100,000 people. To make that process faster and more efficient, that was a big initiative then. Now it's just become standard. I mean, I don't want to say it was luck, but we timed it perfectly with – we made this transition where customers started to need us. We did that spread process in people. The timing worked out. We focused on industries during the pandemic that we knew were going to grow. Because we watched that movie Contagion with Matt Damon on, ironically, on an airplane before the whole thing happened. Pablo 26:45 In the world of Certn for employers, when you think about the ROI, where is it? Is it lowering friction on the screening side? Is it more about reducing issues down the road and whatever the equivalent is, tenants defaulting, but for employers at employees, these things? What are the – what's the buyer most concerned with when they look at Certn? Andrew 27:14 I would say that the most important thing for buyers, and whether they're all concerned about this or not, it might be a biased perspective or me projecting my feelings, 99% of employees that go through an interview process are going to be great. They're going to be good employees. Everything is going to be fine. Things have changed now where background screening is, you need it for SOC-2, you need it for ISO, you need it for PCI, you need it for – pretty much every business these days needs some type of background check. That process is really painful. What most of our clients are looking for now, different than three years ago where it was, oh, we need to think about screening our candidates because we don't want to hire a bad candidate. Now it's how do we screen candidates in a way that's fast, efficient, and it's painless for candidates? Because most people, outside of people that have gone through a Certn process, have a really uncomfortable experience with background checks. I know for me personally, I've lived in eight countries and to go through a background screening process, it’s like, tell me the last – I need address history for the last five years. Prior to Certn, I had lived in two different places a year, so I'd have ten places I'd need to remember the postal code or the zip code or whatever. You get one of those wrong, and all of a sudden, you have to go to the post office and you have to work with a post office employee to be like, no, this is me and I was told to be here. They're like, I don't know what – do I photocopy your identity? I'm like, I guess so. Then, a couple days later, a couple weeks later, it's like, hey, you got the job, or for me it was always volunteer experience. It was, I would sit on the board of a charity or a not-for-profit or something like that and it was six weeks would go by and I wouldn't hear anything. I'm like, I don't think I committed any crimes that I'm aware of. Where this process makes it super easy and it's all about that candidate – the future is candidates own all this information and today we give it to all candidates so that they can share it. Because in my world, in my future, it shouldn't have to be a retroactive thing. If you want an opportunity, I should be able to show up and say, here are my credentials. I'm credit worthy, lend me money. It shouldn't matter what country I'm in. I don't want to start fresh. I'm in the Dominican. I've got a hotel here. I shouldn't have to start from – I waited for four and a half hours at the bank yesterday. I've got great credit in Canada and the States. Why can't that be the case here? When I moved to the States the first time, again, I was like – I went from perfect credit, enough money in the bank to be able to do what I want. Then, I'd show up to the States, from Vancouver, literally [unclear] and it's, no, you can't get an apartment. You're nobody to us. That’s the future for me.k. Pablo 30:28 I think – and I appreciate you sharing your vision. I think one of the things I'll take out of there is, it started off with this ROI more around. It still has this insurance feel like, well, what if something happened? This is prevention, right? It's a prevention of why preventing something bad from happening. It really exploded once the ROI was more around, look, I need to do this. I'm going to do this. What's the most efficient way to do it? Certn was the answer to that. I think there's a nugget there, again, for founders that are starting something and starting selling in terms of positioning and in terms of finding that pull. Look, we'll stop the core episode there. We'll finish on the question we always finish on with, which is, think back and tell us maybe when was the first time and what did it feel like to first feel product market fit? Finding PMF Andrew 31:15 The exact date of product market fit was actually one of my cofounder’s birthdays in March. We got our first – this is March of 2017. We got our first signed contract from a property management company in Victoria. They’re still a client today. I just remember the feeling of, okay, we've figured this out. Then the next time that we figured out we had product market fit, and I'm probably not allowed to say their name, but they're also still a client, a major airline that happens to be in the country in which I live and I'm from, and I'm proud to be from. I walked into their office and pitched them, and this is one of our first pre-employment screening customers. I was like, we're going to solve this massive problem for you. They were like, yes, this is amazing. Let's go. I remember just being like, I can't believe that just happened. Yeah, I mean, we had the product. We had built it. We had done the sprints. We had done the work. Then to have someone be like, I'm going to give you six figures a year to do this thing that you think was right. It was like, yes. Then that was when everything started to just go up and to the right. Pablo 32:41 Awesome. Perfect, well, we'll end it on that note. Andrew, thanks a lot for taking the time to chat with us. Maybe just Recap Pablo 32:48 to recap, you started off – you'd built many businesses. You learned some lessons from there. You developed this whole approach to finding product market fit. This five-day sprint taking us through and you've applied it to Certn. I think you may – you've moved through it a lot faster than you otherwise would've and probably discovered things that you might not even have discovered without that process. Really appreciate you sharing that with us. Then I think ultimately found yourself really in the right place at the right time with the right idea is not an easy combination, and now have built Certn to what it is today, which is a major, major success coming out of Canada and one that I think is only getting started. Thanks again for being on the show. Andrew 33:30 Thanks for having me, Pablo. This is great. Pablo 33:32 Thanks so much for listening. If you want to see more content, check out pmf.show