He fired almost everyone, kept 2 engineers—then grew 12x and raised a $30M Series A. | Rafael Broshi, Co-Founder of Notch

Rafael Broshi (00:00:00) : And what happened was, is that the product was great. I mean, everyone said it was great. It sounded genius. The only problem was, and that's a big problem. There was no product market fit. It means that there was no real pain that we were solving by offering this kind of product. If you were in a coffee shop and you heard someone talking about an idea, OK, that they're actually executing on. OK, a startup three months ahead of you, that they're actually building something and when you hear it, you understand that's exactly the product you want to build. Would you be happy about it saying, oh my God, I can learn some stuff, or will you be completely bummed about it that someone beat you to it? He said, of course I'll be bummed. I said, so why don't you want to tell about your idea, right? Put it everywhere. No one's going to want to do it. That's where I figured out if we get to an enterprise kind of POC and we figure out a way to be a front runner in the race with less than a week of preparation. That means that we have a good product that already fits those kinds of clients. Previous Guests (00:01:05) : That's Product Market Fit. Product Market Fit. Product Market Fit. I called it the Product Market Fit question. Product Market Fit. Product Market Fit. Product Market Fit. Product Market Fit. I mean, the name of the show is Product Market Fit. Pablo Srugo (00:01:17) : Do you think the Product Market Fit Show, has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone. You have to leave the show five stars. It lets us reach more founders and it lets us get better guests, thank you. Rafael, welcome to the show, man. Rafael Broshi (00:01:17) : Thanks. Pablo Srugo (00:01:17) : Excited to have you here, man. I mean, you just raised a $30 million A from Headline earlier this year. Sounds like things are on the up and up. The median series A these days is 15, and that's already massive, like historically. So there's a 2x the median. So obviously, there's got to be some things that are going really well. Let's start where we always start, right? So when was that product market fit moment? When did you feel you had true product market fit and things were really starting to work? Rafael Broshi (00:02:00) : There was this one large contract. I think it was the first seven figure deal that we closed in a land and not a land and expand motion. That was a large insurance carrier where, I remember we got into a POC, not in an ordinary fashion. We got through the back door at the middle of a POC that has been already running, which is pretty good in terms of shortening the sale cycle but it's usually very bad and puts you at a disadvantage because you don't really know where you're working on. We don't know the environment, you don't really know the people that well, you haven't had time to plan and figure out what exactly you had to do. And I think what was really the light bulb moment was after we brought in the first version. The POC had three versions that we had to provide to the client in the AI customer experience space and the idea was that they did not want us to continue to iterate every day on making the product better, but just put up three versions. One every couple of days where they would run thousands of tests. It was a very, very detailed kind of POC where they had people involved throughout the process. It was tech valuation, it was product valuation, it was team valuation and validation. It's a four year contract, a large one with a large enterprise. So the whole deal, and I think that after we brought in the first version, where they told us, look, you were not in the initial phases of the POC, but what we expect is 1, 2, 3 and we had essentially the weekend. We got that on Thursday afternoon and on Monday, we had to figure out and give the second version. So we worked our asses off. It was a team of like six, seven people on that POC. We slept two nights at the office to get that second version up and running. But once the second version hit, suddenly the entire conversation kind of changed from us being the underdog and giving us a chance just because they wanted another vendor in the POC, and they said, "Why not? We already set up the infrastructure too". Oh my God, those guys can actually win and I think that's where I figured out if we get to an enterprise kind of POC and we figure out a way to be a front runner in the race with less than a week of preparation. That means that we have a good product that already fits those kind of clients. Going forward a few weeks, we actually won the POC, got the contract and we're working with this client, and we're now in production, and it's a massive contract. But I think that kind of second iteration, where we saw we're up there in the race, that's where when I figured out we had something that people actually want, and we don't have to completely rebuild something. Because I think that's the part where a lot of people are kind of confusing between product market fit of a product you currently have, or that you have a great team that can execute very fast and be agile. And you build something else that might fit whatever the POC wants. Pablo Srugo (00:05:05) : How big was this contract? Rafael Broshi (00:05:08) : That was around a million dollars, a bit more per year. Pablo Srugo (00:05:11) : And tell me a little bit about, you know, you came in late, then you were the front runner. Maybe give me context on what it is the product does and why you think you went from last entrant to front runner through that second version. Rafael Broshi (00:05:25) : Sure, so our platform is a platform to build and deploy AI agents, in the customer experience space and back office space. Essentially, we take processes in large regulated organizations such as carriers, banks, and asset managers, and we help them automate those processes. In this case, that was a project in the customer experience space, where that carrier wanted to completely revamp their customer operations. That means that people that want policy servicing, that have questions about their policies, want to do some changes, get general information. That they'll be able to get information 24/7 accurately through AI, and because it is an insurance carrier, and highly regulated industry, there is no room for hallucinations. The quality has to be extremely, extremely high and there's a lot of things related to compliance and audit trail that you need to adhere to. So the POC was essentially take a very large corpus of public information, tens of thousands of pages from the website and other kind of sources. Take a mock API with personal information about a set of example customers, not real customers. Plus do a few, I'd say simple processes such as add a new driver to your insurance policy. So take all of those and then provide a chat interface for their team to try out your AI bot, AI agent, as if they were clients. And then, they have a set of thousands of different tests that I wanted to make sure that the more information you digest and the more information what we're seeing with those kind of AI tools. The more information and the more guidelines, and the more processes that you're trying to cover, the lower the quality of the responses. And that's what they wanted to check that there is no degradation because they already knew that the problem is not really figuring out what works in a POC if the POC is very, very short. Is that those kind of products don't scale in production and then things starts to break, and it's extremely, extremely hard to fix those mistakes. Because at some point, if you use a very simple architecture of one prompt, then the kind of context size causes the AI agent to hallucinate, to not be as accurate and it's very, very hard to fix. So that's what they wanted to figure out. Pablo Srugo (00:07:57) : And what do you think you did? Maybe it's just technical, but is there a simple way of understanding what you did relative to the others? I mean, again, I'm asking you because in the respect of a founder selling enterprise, going through POCs, the odds that you're going up against others, very high, right? It's not like SMB sales, where it's just like, you go on a demo, they're like, oh, this is cool, I'll buy it. So you always got to think about where am I actually, you think your product is great or are you actually relative to the others. I don't know if you can share maybe some more details around that because that was the key piece, was that not just did you do it. You did it better than the others and then therefore you became kind of the number one choice. Rafael Broshi (00:08:31) : So I think it all starts with the kind of point of view that we had when we started. So we actually started the company five years ago in the insurance space as a managing general agent. So we actually sold an insurance policy ourselves and started building a product internally to help us service our own policyholders. And then time went on, we closed the insurance product because we saw that the software we built internally to help us service our policyholder is more relevant. And because we came from a regulated space, from insurance, and we built the product to service ourselves. It was always more than a GPT wrapper that helps you answer FAQ. Because we were the one at stake here. It's not like you're selling a product and then you say, hey, good luck. I gave you the tool. You're going to be fine with it or not. It's that we were in charge of our own destiny. If someone would have sued us because our AI made a mistake, I'm the one who was supposed to handle that kind of lawsuit. So I think we build the product from an architectural standpoint a lot different, where when complexity increases it's not that we increase the prompt size. We increase the number of components of AI, components of LLMs that we use. So essentially when complexity increases, we increase compute, and we built things very, very differently in order to adhere to very accurate and very high standards in, production and complex environments. That's the main difference, very technical in that regard, but I think that's what won us the POC. Pablo Srugo (00:10:07) : And maybe, last question before we kind of go to the story. I've met many startups who close one enterprise customer and it's easy to think when you close one enterprise customer, whether it's 100K or 500K. That, well, if you closed one, you've done the hard part. You just got to do this ten times, twenty, fifty times, whatever. You're on the road already, which is not the same again. With SMB, it's like, I've got ten customers. Doesn't really mean you're going to get to a hundred, a thousand, a hundred thousand, which is what you probably need. But with enterprise there's some of that, you know, logically, if you could get one, why can't you get ten? But oftentimes it just doesn't happen. You get the one and you kind of get stuck there. In your case, you're describing this POC, this moment as product market fit. Which entails that it wasn't just the fact that you got this contract, but it was going to lead to a lot more from a lot of others. Do you have a sense of what it was about this that gave you that feeling? That gave you a feeling that not only did we win $1 million contract, which is great, but that this signifies that we're going to win a lot other million dollar contracts? Rafael Broshi (00:11:03) : It's a great question and it really depends on why you won. A lot of companies that get stuck with one or two enterprise clients. It's because they're becoming sort of like their personal dev shop and essentially think about it. Every enterprise that decides to work with a small startup, whether it's ten people, twenty, fifty, a hundred, and there are five thousand, ten thousand people company. Why would they want to work with you, right? They want the speed and they want customization, right? They know that everything they're going to ask, you're going to execute and you're going to execute fast for them. So if you won the POC versus a large, let's say vendor. Because you customized everything about your system to fit what the client wanted, well, I'm not saying it's bad. Sometimes it's needed, but that should be kind of a yellow light in your head. Pablo Srugo (00:11:58) : That's a risk, yeah. That makes sense. Rafael Broshi (00:12:00) : That's a risk but if at the end of the day, you're saying, hey, I did not have to change anything. I just had to prepare the demo in the right way, or I just had to tweak, or I just had to do two integrations to meet their requirements. Then that's totally different and if at the end of the day what you hear from them are very, I'd say generic things that they were looking for, so this was not a POC of hey, you need to create an entire pipeline that connects to our policy admin system and then to our own internal CRM, and then to this, and then to that, something that is very, very unique. But it's we want something that responds fast, that takes a huge corpus of data, that has an audit trail, that is deployed on prem, which is something we do that others don't. If you hear those kind of generic things that people always tell you when you're starting to sell to enterprise, that it's not only about your features, it's the entire kind of holistic picture of how you deploy your services. So I think that's a pretty good green flag as to maybe you have something, although working with enterprise is a lot more than the product. The fact that you need to commit to SLAs, you need a team. This is not a small customer where you can say, oh yeah, we have a bug. We'll talk in two days, right? You're getting a phone call within four minutes from their SOC team. You have to deliver, otherwise there are penalties and it's not a joke, right? Winning an enterprise contract is the easiest part of working with an enterprise. Pablo Srugo (00:13:34) : So let's go back now in the story. You mentioned you started this five years ago, so about 2021. Give me just a little bit of your background and then, maybe the origin story about what it was that you started and why you started it. Rafael Broshi (00:13:45) : Sure, so I spent ten years in the Air Force. I quit and then I used to work for a startup. After that, I worked for a hedge fund and after two years I decided enough is enough, and I wanted to start something. And a good friend of mine that at the time worked as a product manager. We decided to start something, bought another good friend who was a team lead and back then in 2021, and I said we started in the insurance space. There was a huge hype around crypto, around creator economy. So we created a new insurance product for digital assets. That means that if you lose your digital asset due to an account takeover due to a hack, you're getting insured for it and it was a real insurance product that we launched in the US. So that's how we started, then we started growing, ChatGPT came out, that was November 2022. We started playing around and said, hey, we're starting to scale in the US. We have many policyholders. We don't want to scale headcount. We were VC backed, but we did not have a lot of money back then. So we had to build a product that will help us service our clients while we grow and that's how the internal product started. And that's where we are today. Pablo Srugo (00:15:02) : You started in the crypto space and then you ended up now in the AI space. One way which came and went, most startups that start in one wave. Especially the first wave, doesn't really work. It's hard to ride the next one, right? So let's just go deeper on that. Tell me a little bit more about the product you build and how that, up and down went, and then we can move through that story. Rafael Broshi (00:15:24) : Sure, so essentially we built an insurance product, we started selling it in the US. Launched in forty seven states, in the admitted market. The insurance market has two separate markets, the admitted is the more regulated one. We had to be backed by a real insurance carrier, in this case they were out of Hartford, Connecticut. They endorsed us to be able to launch in forty seven states. So, the US is not one market. It's fifty different markets, which makes it extremely difficult to scale and what happened was that the product was great. I mean, everyone said it was great. It sounded genius. The only problem was, and that's a big problem. There was no product market fit. It means that there was no real pain that we were solving by offering this kind of product. Pablo Srugo (00:15:55) : This is insurance for crypto assets? Rafael Broshi (00:15:57) : That was insurance for social media accounts and crypto assets for digital assets in general, and what you learn from that experience is that it's very, very, very hard. And I don't think it is a startup's job to change a market or create awareness, OK. Yes, you have to ride waves as a startup. If you're lucky, you're going to start and the wave is going to grow with you. But you need to look at a market that is opening. It's like an earthquake when you see the earth shatters and you start seeing a shift, and you start seeing a huge gap. OK, that's exactly what happens now or when we started in the AI for customer experience space, right? So something happened, new technology, ChatGPT came out, a consumer app based on that technology. That made everyone open their eyes and say, wait, I can now offer better support. I can now cut costs. I can do things that everyone tried to do for fifteen years with NLP, et cetera, but didn't work. And that, also meant that every company that has tried to do that up until this point and have poured millions of dollars or hundreds of millions of dollars. Now at that moment, there was an even playing field. Everyone that put money on that was thrown away. Obviously their distribution remains the platform, like Intercom or Zendesk. But in terms of technology, you had the exact same shot of succeeding as Salesforce or Zendesk, et cetera. So I think those kinds of shifts in the market, unlike where we were in insurance, where we had to educate the market. There were a lot of tailwinds. It's a very kind of traditional market where you don't see a lot of new insurance products going to market. The newest insurance product that went to market is probably Cyber and it went to market in like 1997 and only caught up in 2015. So I don't think that's where you should fight. So a lot of people think that starting a startup or building a new product means we're innovating on every kind of layer, right? We're innovating on technology, we're innovating on an idea and what they expect is that when they tell the idea to someone, someone would say, oh my God, this thing is genius. But in most cases, from what I've seen from friends who succeeded or you can see about it online, that's the exact opposite reaction. What you're usually getting, what we got when we were in the insurance business is, wow, that's genius. Everything was genius other than the fact that not a lot of people wanted to buy it. Right now or when we started AI for customer support, the main feedback we got is, isn't everyone doing it? And, that's a bummer but you shouldn't care, right? Because innovating usually means innovating in one place. You're innovating in distribution, you're innovating on service, you're innovating on technology, you're innovating on simplicity and product features, on time to value. But not a lot of companies are able to build a completely new space. By the way, OpenAI with ChatGPT, yes, they built something completely new but even they started in 2015, and they created something that changed the world. But this is not the ordinary story of a startup. Pablo Srugo (00:19:37) : It's so true and I find it especially the case if I talk to somebody. Let's say not in the startup world or not a successful founder and like a late person, whatever. And I'm telling them about companies I work with, the ones that are probably doing the best get the least attention. He's like, well, this doesn't sound that cool. The ones that are having the most trouble because they went for something so crazy. Those are the ones that are like, wow, that's the game changer one. But to make that into reality, yeah, you've got the Elon Musk's of the world or whatever, and I think maybe if you're a hyper successful founder who can attract insane amounts of capital. You know, at the get go, who can have incredible kind of relationships at the biggest levels and that's what it takes to move a market, by the way. And even then, not to say that your odds of success are high, it's just maybe then you have a fighting chance. But if you're a first time founder or even a repeat founder that's not Elon Musk level repeat founder, it's true. These are most of the things that work. Decagon is a great example. I mean, Decagon is like a $5 billion business today doing AI for customer experience. If I were to tell somebody that didn't know that story, it's like, how? What do you mean? Isn't that a solved problem? A lot of these things you think are solved problems are not and, you have to go and talk to, like in your case, the person that actually is doing this initiative at an insurance company that can tell you, actually, there's budget for this right now. We're trying to solve this right now, and we haven't solved it yet. And then you're in the right place, right time. Rafael Broshi (00:21:09) : Yeah, exactly. I think what you said last is spot on. You want to build something where there's a budget for it right now, or you're very confident that there's going to be a budget for it in the next six to twelve months. The thing is, those kind of tech waves. If they haven't started yet, they might start tomorrow or in five years. It's still very, very close. But if it starts in three years, you're not gonna be there, you're gonna start building too early. Even if you don't run out of money by the time the wave starts. Someone that started building two years after you will have better technology and less tech debt, right? So building something for a wave that's going to come has a high reward, but it's incredibly difficult, and usually what happens is you think you're late but you're incredibly early, right? When we started I said, wow, we're late, we're incredibly late, but no, we were early. So same here, right? People think about, you know, AI for carriers, right, for insurance carriers, and you see all those McKinsey reports and seventy percent of carriers said they're using AI. Yes, they have 45,000 people, they're using AI, they might have replaced one person with the kind of efficiency. It's like a lot of carriers haven't even moved to cloud yet. Pablo Srugo (00:22:32) : Yeah, that's what I was gonna say. I mean, that's the one that I always go back to. Cloud's been around for a long time. People are still moving to cloud just to give you a sense of how long it takes. Rafael Broshi (00:22:41) : Yeah, we just spoke to a large carrier that sends status updates of a life claim by mail, physical mail, every three weeks. It happens a lot in the US. So there's going to be a huge transformation now in AI. It's not going to take a year. It's not going to take two years. Enterprise takes time. It's going to take five, ten, fifteen years. The only difference is that unlike cloud, what I think we're going to see is that companies in commoditized industries, such as insurance or banking, where the products are pretty similar, will not have the opportunity to wait for three years and say, hey, let's wait for those things to work and then we'll start. Because companies that are not going to jump in right now are going to be so far behind because of the kind of leverage you get with AI. It's going to be incredibly hard to close. OK, so that's what I think makes this wave a bit different than others. Pablo Srugo (00:23:37) : It's just a faster wave. Yeah. Rafael Broshi (00:23:39) : Yeah. It's a faster wave where you're seeing the kind of crazy technology that you'd imagine those kind of financial services players adopt in five or ten years. They're adopting it now, OK so e-commerce players adopted it eighteen months ago. Banks, asset managers, insurance carriers, credit unions. Now's the time they're starting to implement those solutions. Pablo Srugo (00:24:01) : We have tens of thousands of people who have followed the show. Are you one of those people? You want to be part of the group. You want to be a part of those tens of thousands of followers. So hit the follow button. Tell me more about making that pivot. Like when was it that you decided to go for this AI for customer experience? And what was it that drove you there? Because if I'm putting myself in the founder's shoes, that's probably the biggest thing is, OK, we all know AI is a wave, but I'm right now thinking about where to kind of focus in. Where do I go? How do I catch the space that's the earthquake? How do I catch the space that's going to adopt really quickly? So how did you do it? Rafael Broshi (00:24:33) : Yeah, so first of all, everything looks obvious in hindsight. And we were there when it started. Nothing is obvious. And even if it's obvious, there are always risks, right? So when we decided to pivot, because we said in the insurance part, we're growing, but we're not growing fast enough. We decided to pivot. It took us months to understand what to do, even though we had that platform that helps us respond to questions of customers, real customers in a real company that does business. And even then it took us months to say what we're going to do. And just timeline wise, by the way, when is this? That was in 2023. It's like, first of all, when a wave starts, you're not sure if it's a wave or if it's just the hype cycle. NFTs. OK. Now you're going to see Twitter blowing up. You're going to see Mark Andreessen changing his profile picture and Twitter to an NFT, right? The world's going to go nuts and you're going to say, well, I don't know if that makes sense. Like I wouldn't buy the Mona Lisa as an NFT. And some people might hear this and then write emails to me of how stupid I am and how NFTs are going to change the world. Right. But it's much easier to be at this point in time with the conviction to say, I think NFTs were a fad. I could not have said that in 2021 or 2022, right? You would have been an outcast if you said it. You might not have joined, but you would have been an outcast. So when a wave starts, it's incredibly hard to understand. By the way, it's also hard right now because what's going to happen, everything in life works in cycles, right? Tech hype cycles. So now we're at a hype. What's going to happen soon is we're going to see that AI costs are through the roof. Companies aren't seeing ROI. Then a company that IPOs is going to drop by forty percent because of that. And then the hype cycle of AI will die. And obviously I do think, and everyone agrees, that it is a trend. But there's going to be a dot com time sometime in the future, right? I don't know how hard this is going to hit, but it is going to hit. So I think that's one. It's very hard to understand. But what we said is, look, do we believe AI is going to be a wave that transforms the world? Yes. If we look back thirty years in the future, will we regret not being there? We think we're at a point of the year 1998, we're going to start with AI, ninety nine percent of companies are going to go bankrupt or blow out. There's going to be a ton of competition, but will we regret not trying to compete in this way? You said yes. OK, great. We want to go there then, going through what we suffered in the insurance space where we built something very small. We said we're not going to build something small. We're going to build something that has the potential to be huge, and it is so obvious that no one's ever going to ask us why would someone need it. It's going to be the most obvious thing in the world. What's AI going to do? AI is going to replace workforce, awesome. Where are the three areas that we think today, that was three years ago, that is going to work, OK? We didn't talk about developers and everything related to coding because we're not that deep tech and it's not us. We said, OK, that's going to be in sales, marketing, customer support sales. Well, sales is really tough and I am still not a big believer of automated SDRs. Marketing, well, interesting, but it's not really our forte. Customer support. OK, we've done customer support. The ROI is very easy to explain. It's very easy to explain to any company. Hey, you have a hundred people. We can make it so you have twenty people. Great. How much money do you save? Plus you're going to offer 24/7 service, localization, better support, better QA, blah, blah, blah. OK. Very easy. You said, OK, great. AI for customer support, and that's how it started. And since then, no one ever asked me, why would someone need it? OK. It's the exact same question. Isn't it a solved problem yet? Aren't there a ton of competition? What are you doing differently? Why would someone work with you and not with Salesforce? Like those are the kinds of questions we get. Pablo Srugo (00:28:43) : Yes, of course. And I'm curious, like at that time, 2023, I mean, this is still two years ago, three years ago. So there were, there probably weren't that many, like it was probably happening, but it's not like there were like AI customer support winners. There would have been like the 2.0, like the previous wave chatbot customer support winners. So you had that going for you, but did you find sometimes spaces appear way more crowded than they really are? And like, isn't everybody selling? And then you get into it and you talk to the customer and you're like, actually it's you and these two, like it's not thirty, right? What was actually your experience? Rafael Broshi (00:29:12) : Yeah. So it's pretty close to what you said when we started. We said everyone's doing it, but we haven't seen so many VC backed startups doing it because everyone thought everyone's doing it. Pablo Srugo (00:29:26) : Nobody's backing them. Rafael Broshi (00:29:27) : And it's like, when I ask people, I want to. I'm asking them about their idea or people want to consult with me and say, well, I don't, I don't want to launch. I don't want to tell people what I'm doing and I said, look, if you were in a coffee shop and you heard someone talking about an idea, that they're actually executing on. A startup three years, three months ahead of you, that they're actually building something and when you hear it, you understand that's exactly the product you want to build. Would you be happy about it saying, oh my God, I can learn some stuff, or will you be completely bummed about it? That someone beat you to it? He said, of course, I'll be bummed. I said, so why don't you want to tell about your idea, right? Put it everywhere. No one's going to want to do it. So I think that's what happened. So what we saw were either larger companies from past generation, OK. Salesforce, or that was Zendesk and Ada, and other companies like that. That either had older chatbots going into the AI era, or we saw those kind of solopreneurs. The kind of people that did chat with PDF when ChatGPT started, and you heard stories of people making $5 million in two months with PDF. Before ChatGPT killed that and just added the option to add a PDF. So same thing, you know, you saw small companies like that building those fast chatbots, doing a quick buck. But then we said, OK, there is no way they're going to be able to compete long term with the VC backed startup. It's just not going to happen and then you saw in the same time that we did that, there were the larger companies in stealth mode in the US, right? The Sierras, the Decagons, et cetera. But that's what we saw in the beginning. What we're seeing now is the second part of what you said, the area is not that crowded. There aren't a lot of players out there that can deploy on prem with a company in a regulated space, to have the kind of capability that they would require with the same level of compliance and security. And being able to meet their SLA and data requirements. There aren't a lot, OK. We're seeing the same players over and over again. It's not seventeen players, it's not. OK, you can count them on one hand and also the horizontal players, we don't see them that often as well, right? So when you verticalize yourself, or it doesn't matter what you do, right? But when you pick a specific kind of box to play in, we feel that at this space, we don't see many. Now, if we're going to go down and we started before going to financial services. When we built the product in 2023, we started selling to e-commerce and in e-commerce. Obviously we saw more players, but smaller players as well. But again, same few names popped up and I know you have the competition is for losers by Peter Thiel, et cetera. And again, who am I to say something different? But I'll say I don't think competition is what kills startups at our stages, right? It's competition makes you do stupid things like copy other players or go toward the second different direction. Say, oh, those guys succeed there. Let's go there. Oh, they're doing this. So it must be good. But no, those guys are exactly like you. They have no idea what they're doing. Everyone in the space has no idea what they're doing at this stage. So competition makes you do stupid things, not because it forces you, but just because it's part of our nature. Pablo Srugo (00:32:45) : I mean, I find it's almost guaranteed that you're either going to have to fight status quo and people just not wanting to change or move. Because they don't really have a burning need, or you're going to have to find competitive vendors. The odds of you being in a place where everybody wants to buy and you're the only one selling. I mean, you know, if you're there, that's awesome. But, I just don't know how you could manufacture that situation. Rafael Broshi (00:33:11) : Me too. If you're going for an area where there's a gaping demand right now and the demand is growing by 100x a year. There's going to be competition there. There was competition in the dot com era. There's competition now, there's going to be competition in the future and if you look at the dot com era versus now, information flow is so different than it was, right? You can't compare what you're seeing now in terms of competition, but you also cannot compare the level of exposure you can get as a startup as well, right? I can reach any company I want anywhere in the world pretty easily. I'm not saying I'll be able to sell to them, but everything is much easier now. So it's like everything works together, more competition, more market opens up, the market grows faster. But I agree, it's all the same. It's like human nature. The easiest thing is to build something that is so complicated and so amazing that you don't have to talk to any potential customer ever and just keep building it, right? That's what everyone would want. That's like the dream but unfortunately, that's. Pablo Srugo (00:34:22) : Not life, yeah, not really. Rafael Broshi (00:34:23) : Yeah. Pablo Srugo (00:34:24) : What I'm curious, just on the fundraising side. How much had you raised by 2023? Rafael Broshi (00:34:29) : That was seven million dollars. Pablo Srugo (00:34:31) : Normally you raise, you do the crypto thing, and then you're probably running out of money. You need to raise again. What was your kind of situation? Rafael Broshi (00:34:37) : Yeah, so when we decided to pivot, we had $2 million left. Fired almost everyone. We're left with one, two engineers. Built the product for a year and a half. We didn't hire anyone for a year. Then we got to a point that we're almost cash flow positive. We burned $10,000, $20,000 a month. Pablo Srugo (00:34:54) : This was when? Now, '20, late '24-ish. Rafael Broshi (00:34:57) : That was, yeah, end of 2024. Investors told us things were picking up and we had our first six figure contract. A few hundred thousand dollars and when you're four or five people team, and eating noodles all day. You don't burn a lot of money. It's possible to build a product without burning a lot of money. But then you get to a point where you say, OK, either I'm continuing like this bootstrapped. It's going to be slow and the market is exploding, or we're going to raise more. So then we raised an additional $7 million and then we started ramping up and then we simply, we raised the $30 million. Pablo Srugo (00:35:30) : Did you find that that was any harder? One thing I do find with competition is, if you have a lot of competition, it might not affect the business. Your business might be growing really fast, but it does tend to affect fundraising, or at least I've seen it affect more fundraising. Because it's just such an easy. Frankly VCs are like finding reasons to say no because you need so many, you got to just filter quickly and so competition is an easy one, too competitive, too competitive. Did you find that was the case? Did you find it was a little bit harder to fundraise? At some point your numbers are so big, it just doesn't matter anymore. Clearly you're winning, but in that seed stage, you know. Rafael Broshi (00:36:02) : Yeah, always when you're in the extremes, everything doesn't matter, right? If you want to raise an A and you have a billion dollars in ARR, and you're growing five hundred percent. It's fine, you don't need a story. You don't need to meet anyone. You're going to get money. If you have $0, you're not going to get money. If you're in the few million dollars, that I get. VC space is business on steroids. I tell it to my parents that have businesses. This is nowhere like building a business. Maybe it's like that in the future, right? But it's extremely different. The KPIs are different. Working with VCs is different, and at the end of the day, a VC that invests in you and the seed round. All they need to really think about is will there be an investor that leads the A round, right? And the A round for B, and the B for C. Obviously building a business, it's important, we all know that. But it's gambling, right? It's building and putting money in a direction, and building a team of fifty people. Where your business warrants a team of five people and when you get there, building a team of five hundred. Pablo Srugo (00:37:01) : Needs to be somebody else to get to the next stage, that's right. Rafael Broshi (00:37:03) : Exactly, this is just the way it is. So it's very reasonable for a VC to only want to back the number one in a category. No one wants to back number three, no one and I think in a competitive space. The story is extremely important, and the story is not enough to say AI for customer support. Because there are a lot of those, but then you're competing with all of the best players in the world and then you're seeing a player that has raised $500 million and you raised seven and you're competing. You're still competing because they said, well, they took over the market, and things like, well, this is a $200 billion market and they have $75 million of ARR. It's not really taking the market, but those things don't really help, right? You need to explain why you're going to be the number one or front runner in a specific box in the market and why. So I think that's the important part, and the more competitive your market is, the more you need to crystallize the story. And it's very easy to say, well, I don't want to do that just for investors, but it's not. Every time I see that and I say that, I say, well, look, if you cannot crystallize it for your investors, you won't be able to crystallize it for customers. And VCs are not necessarily forward indicators of the market, but they are some derivative of what your customers are seeing. Because if everyone wants to buy you, you're going to be number one. If you are saying you have an amazing product, but your growth rate is not good. It means that customers are not buying you and it means there's something wrong. So before starting Notch, I was two years at a hedge fund. All I did was analyze companies, and when you're at a hedge fund and you don't speak to the companies. Public companies that you invest in, at the end of the day, what do you look at? You look at growth rate and you look at market share. If I'm looking at a large company and I see their growth rate is above the market and they have pricing power. They raise their prices by five percent a year, I don't need to know much else in terms of what is their position in the market. They have a great product, people like them, they have pricing power, it means everything. The smaller the company is, the less signals you have, the stronger your story needs to be. So it's always a blend between KPIs and story, and the more competitive the market is, the more fine tuned your story needs to be on how you're going to win at something. That's what everyone wants to bet on. Pablo Srugo (00:39:28) : Yeah, you need to find that kind of sweet spot between, because obviously if you narrow it too much, then you're like, oh, but then that's too small of a market. It's too niche. So you've got to find that sweet spot where the opportunity is still big. You could still create a five to ten billion dollar company. But you're clearly going all in in a certain direction, in a certain position that nobody else is really going all in on. That doesn't mean they don't compete. They compete there, but it's like, hey, they're actually spending seventy percent of their time doing this stuff and I'm spending a hundred percent of my time doing this thing. So we'll cross over, but frankly, we'll probably beat them most of the time in this place. Because we're all in on this place, you know, something like that. Rafael Broshi (00:40:03) : And I also think about it a bit differently in the sense of, I do think that every time I go on a call with the VC. That VC probably wants me to be the best founder that they've ever met. I mean, that's their job. They want to invest. When I interview people, if I interview six people a day. I don't go in saying, oh, this guy, I'm sure he's not going to be good, right? The guy goes into my interview, all I want right now is for this person to blow me away. That's all I want. So that's what VCs want as well, right? They meet startups. They want to say, oh my God, this guy's the best founder with the best story I've ever met. This is the craziest company, is going to be worth trillions of dollars, right? You just have to give them a reason why this is the case and if you cannot give them a reason why this is the case, then you should not be surprised why they don't want to invest in you. That's all. Now, if you're a good enough grade, then you're not going to get money from Sequoia. You're going to get money from others. Maybe you are that good, but maybe right now you had a bad round. Maybe you were scaling the business, right? Maybe you did a lot of other things while other people grabbed the market. No one knows what's gonna happen in two years, right? Some companies struggle in their A, some companies struggle in their B, some companies struggle in their C. Most companies struggle somewhere, most companies, right? So it shouldn't bother you, right? You have to raise, otherwise you're gonna die. But if you're raising, you need to do, I would say, the minimum amount between perfecting the raise versus perfecting what you believe is the right strategy for the company. Hopefully those two align, but sometimes they don't completely. Pablo Srugo (00:41:48) : So let's spend the last few minutes just going very tactical. You've been selling to Enterprise for a few years now and I mean, nothing is easy. But I think especially when it's a small startup selling to a large enterprise, there's always something about that that is especially hard. Tell me a little bit, maybe some lessons learned, some tactics that founders can really use when they're selling enterprise. Maybe let's start at the top. The first part being you've got to get in the room. I mean, you've got to actually get somebody to listen to you, to hear you. Which you can't do through Google AdWords or Facebook ads or the sort of things that might work in SMB or mid market. How do you get the right people in the room to begin with? Rafael Broshi (00:42:24) : First of all, there is no formula for that. At the end of the day, it's all about connection and relationship. And the higher up you manage to build a relationship with, the better this is going to be. Now, you cannot just work the CEO. The CEO of a larger company, he might be the decision maker. He might weigh things your way, but he's not gonna get you to the POC if you don't do a good job with innovation. OK, so you have to work both ways, bottom up and up down. And up down, that's using all of your relations. Just hustle, hustle, hustle, hustle. That's all it is. Use all of your investors, use all of your employees, use your father, use your mother, use your brothers, use your sisters, use everyone you know. Everyone wants to help you. Everyone wants to help. If you're gonna ask help, everyone's gonna say yes. I really, I've never had anyone say no to me. I had people say, well, I don't know this guy. I'm not sure, maybe you can speak to this guy. Just ask, if you don't know him, who do you know, is there anyone else that can help me? A lot of people think that they need to come in a superior place asking for help and not really saying, hey, I really need your help, right? I need to close a sale there and I'm really looking for some from the company. Can you help me? It's much more sincere and people wanna see this kind of vulnerability. Everyone has it, I think, and again, I'm trying to be there. But I think the best founders that I see out there are those ones that, they don't care to put themselves out there. So that's one, in terms of coming from below. If you start talking to someone in the working level or talks with you in the first calls and you throw out too much that you came in through the CEO. This will not end well for you. You have to respect every person you talk to and you have to give them what they want and not what you have. It is fine to say, I don't have this, but listen to them and it's extremely hard, right? You want to sell what you have, but it is not how people buy. OK, and usually you might say, and I see this a lot where you say, well, but I'm talking to a company. An enterprise, and they don't have a pain point. I said, OK, great. If they don't have a pain point, you have nothing to sell. It doesn't matter what you're going to give them. It's fine, so just use the conversation to ask questions. What do they care about? They care about something. If you go on a call and a person say, well, yeah, I don't care about anything, right? I'm just here to pass the time. By the way, it does happen. It does happen, rarely, but it does happen that. Well, it's fine, you know, talk to him about life. But I think that's the key thing. Second, something that we didn't do as well when we started is thinking that in order to get an enterprise contract, you must slowly move up the ladder. I think there is zero connection between getting an enterprise deal and going from $10K to $50K to $100K to $200K, OK. It's just the fact that it's a rule of numbers, out of a hundred enterprises you're going to talk to, only probably five to ten of them will even consider working with a startup. So that's one. OK, ninety put aside, not relevant. Out of the five to ten, five might say, well, you know, I want more logos. They wouldn't care what and some might say, you know, that's fine. You know, one, you just need one. So I'm not saying don't try. Obviously, it's much easier when you have twenty logos. But it also happened to me where I had a lot of logos and the person said, well, you know, you don't have a company that does exactly this at that size, so it's not relevant. I'm like, so you want me to find the same company in a parallel universe? And then you figure out the real problems. Usually when you hear no, it's not just that you don't have specific clients. It's that something didn't add up. It's like when people tell you, hey, when an investor, when a VC says, no, I don't want to invest, right? Just take the no. Sometimes the response is not that accurate. Because why would they tell you, hey, I would never invest in you. I didn't like you, right? Never, it's either too early and it makes total sense when you think about it. So the same thing here, right? When people, when enterprise tells you, hey, you need more logos, the reason is probably different. OK, now the more logos you have, the easier it is because you have credibility. So they'll start by thinking that you probably have something to offer them. But if you don't, it's just about really pinpointing the pain point, OK. If someone can solve the exact thing you're looking for, usually you wouldn't care. At least not in meeting number one, meeting number two. Maybe you're going to fail security, right? That's fine, but you're going to get through those meetings. So I would say try to be extremely skeptic in what you sell and try to be very sharp in how you debrief what happened on the call in terms of, did I hit their pain point? And if not, why? Person didn't want to tell me, the pitch was off, my positioning sucks. It's usually that people always escape to my product's not good, the company doesn't care, they want us to have more logos. But it's not that most of the time. So I think all of the tips revolve around those points. Pablo Srugo (00:47:39) : The no's are kind of easy in the sense that someone's like, I'm not interested. No pain point, OK, move on, right? And then the yes's are great. But there's these middle ones where it's like, yeah, we've been talking to them. They're interested. Maybe we even did either a proof of concept or an actual pilot. You did something, you signed some sort of initial MOU, like something, right? And it's just, but it's not getting you there. You're not getting to that final contract. Sometimes it's just, that's what it is. It takes six months, it takes twelve months and sometimes you're just wasting your time. How can you tease those two apart? Rafael Broshi (00:48:06) : So usually, and it happened to us as well, working with an enterprise. If they're going to spend the time to do an actual POC with you, things will probably move. OK, it's not something that someone can decide. What could happen is that you're doing a POC with them, which they did not consider a POC. As an example, you might speak to someone who is not the business owner. Well, there's someone from the tech department in a company, and you're pitching, and you're pitching. We have a great platform for document ingestion and an AI agent, and this and that. And you excite the guy, the guy, the woman, they're from the tech team. They want to see capabilities and they're like, well I can show you this and that. And yeah sure I'd love to see, and they're like, well if you get me a document I can do this. This happened to us about a year ago. I was so excited. It's like, yeah, I'm going to get you documents, right? And you're getting documents and you're like, we're in a POC with a five thousand people company. Then you finish the POC. Great, look, we don't see any need right now, or we're going to be in. Because it wasn't a POC, a real POC and again, it's everything that the books say. We're all wrong about that. We all made those mistakes because you have wishful thinking. You want to go into POCs, but POCs should be budgeted. You should take money for them. You should meet the business owner. You should understand the use case. You should also not be afraid to ask questions. Hey, what are the KPIs for the POC? What happens if we succeed? How's the process going forward? How would that look like? If people want your product and you send an offer. They're not going to move out just because you wrote a number they don't like. OK, If they want to do a POC with you and you say it's a $50,000 POC, and they want to do a POC with you but they think it's an outrageous price. They're going to tell you this is an outrageous price. They're going to do something about it. But companies, I feel especially in the US. They understand that if they want a good partner and a vendor. They need to pay, they need to put in the resources. OK, so I really feel that they're very fair as long as you do the process correctly. So usually in those kinds of deals that get stuck, it's because if you really go back and ask, did I meet the relevant people? Did I ask the relevant questions? Was it really a full blown POC or did I spend seventy thousand man hours in my company to prepare a POC that someone looked at once? It's not a real POC, so I think those are the cases. If it's just stuck, yeah, that's the risk in enterprise, right? Someone changes jobs, your champion leaves. You have to build as many intricate connections at the same time in a company. Don't stop meeting people. Don't stop trying to build connections in every level. That's the only way to make those kind of projects work. Pablo Srugo (00:51:03) : Perfect, last question, we'll end on this. What would be a top piece of advice that you find yourself giving pretty often to early stage founders? Rafael Broshi (00:51:10) : I'd say I ask, who are your dream customers? And they give me a list or something. I said, OK, go talk to them. Well, we don't have a product. We don't have this. We don't have that. We're not sure. We don't have any other. No, that's the wrong way to go. Don't go the long route. Talk to your dream customers first. Just go to them. Because those are the people you're after, right? And if they're not interested, at least you know it now. But people are afraid and I was as well. That's a mistake I made. You're building something for someone and instead of talking to them, and saying, let me first raise $10 million, sell to 24,000 other customers. So then I could go to this customer and find out that he doesn't care about what I want to sell. Pablo Srugo (00:51:56) : It seems silly, but I think it's a protection of ego. But it makes a lot of sense, you're saying. Rafael Broshi (00:51:59) : It's just human nature. Pablo Srugo (00:52:01) : Rafael, thanks so much for jumping on the show, man. It's been great. Rafael Broshi (00:52:03) : Thank you, Pablo. Pablo Srugo (00:52:05) : So picture this. It's months from now, years from now, and one of your founder friends. A really close founder friend of yours, guess what? Their startup went bankrupt and it turns out, if you had just shared the Product Market Fit Show with them. They would have learned everything they needed to, to find Product Market Fit and to create a huge success. But instead, their startup has completely failed. You have blood on your hands. Don't let that happen. You don't want to live like that. It is terrible. So do what you need to do. Tell them about the show. Send it to them. Put it on WhatsApp. Put it on Slack. Put it where you need to put it. Just make sure they know about it and they check it out.