May 14, 2023
Vitaly Pecherskiy, Co-Founder of StackAdapt (Bootstrapped to $100M+ Revenue) | How to Bootstrap to Product Market Fit
Bootstrapping isn't sexy. At least not at first. As they say, it's not greed that runs the world but envy. And when your founder friend raises $10M, it's hard not to want it too. But 10 years later, when you're running a $100M+ per year bootstrapped business, all of a sudden things aren't looking too bad. No runway to worry about. No pressure to sell. When you bootstrap a business past product-market-fit, the ones that raised $10M+ start to envy you. In this episode, Vitaly shar...
Bootstrapping isn't sexy. At least not at first. As they say, it's not greed that runs the world but envy. And when your founder friend raises $10M, it's hard not to want it too.
But 10 years later, when you're running a $100M+ per year bootstrapped business, all of a sudden things aren't looking too bad. No runway to worry about. No pressure to sell. When you bootstrap a business past product-market-fit, the ones that raised $10M+ start to envy you.
In this episode, Vitaly shares exactly how they did it. From humble beginnings building a minimum viable product for one client, to making a $500/mo salary and raising minimal VC funding, to one of Canada's largest startups today.
Raising money in 2022 isn't easy. Even if it was, it's not clear raising it is optimal. It's always good to do more with less.
If you're bootstrapping or thinking of it, this is the episode for you.
01:47 - Early Days of StackAdapt
06:11 - The Original Story
10:26 - First Iterations
14:30 - Unique Insights
18:55 - Customer Feedback
26:53 - Frugality, Focus, and Sustainability
32:39 - Consistency gets you to $100M
38:47 - True Product Market Fit
WEBVTT
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I think consistency and sustainable growth are the key.
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If you look at the history of Nike, of Shopify, StackAdapt, these are 10-plus year trajectories where it's not the 10X, 100X overnight.
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It's they just doubled consistently for 10 years, and that's 1,000X.
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It just takes 10 years, but it's that consistency of doing it year after year that really gets you there.
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Welcome to the Product Market Fit Show, brought to you by Mistrial, a seed stage firm based in Canada.
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I'm Pablo.
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I'm a founder turned VC.
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My goal is to help early stage founders like you find product market fit.
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Welcome To the Product Market Fit Show.
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Today our guest is Vitali, the CEO and founder of StackAdapt, an ad tech platform that helps companies advertise across the open internet.
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StackAdapt has over 900 employees.
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They were started in Canada but are now actually global and have employees across 10 countries.
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This is the interesting part, which is they've actually raised under$5 million.
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In fact, their seed round was under a million, which iss uncommon these days, but they've scaled in a really, really large way and over over nine years.
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That really kind of brings us to the topic today, which is how to bootstrap to product market fit.
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Vitali, welcome to the show.
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Thanks so much for having me, very excited to be here.
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So let's start at the beginning.
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As I understand it, you have three co-founders and you're not-- you had kind of tested things before, but this was really your first real go at it.
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Take us back to that time.
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I think it was 2013.
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Maybe just how you three came together and what the original problem set was.
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Yeah, so I think what helped us become successful in early days is the fact that all three of us have started independently number of different ventures that-- with varying degrees of success, but none of them as successful as our company now.
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When we met in 2013, we instantly gelled over previous failures, our ambition to build a big company together.
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Once we started exploring different ideas, we just gelled very well just from personalities perspective and in all honesty, we barely knew each other at that point.
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We just shared ambition.
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How did you even meet?
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So myself and one of my co-founders, we worked in a sister company as part of one holding company.
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So we originally gelled with him over just poor state of advertising software.
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So for us, it was a pretty clear opportunity to do things better.
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Then the third co-founder, he comes from from computer science background, so he was doing more-- his experience lies in more realtime financial trading software.
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He's had a number of startups that he was trying to start as well.
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So his background is not in advertising, but his background is technical.
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So he currently still leads our engineering data science teams.
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Myself and my other co-founder, Eldar, we run the business side of things.
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Yeah, the three of us have met and we just wanted to just go at it and whether we would be successful or not it was unclear at that point.
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I think my co-founder said it right at that point.
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He said failure is not an option.
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So we did have that attitude, but whether in fact would be successful, I think that to me it was still unknown.
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It was yet to discover.
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I think there's a lot of things that fundamentally we knew that will be relevant years to come.
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So we wanted to double down on that.
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Whether we'll be able to work together, whether there's going to be some surprises in the economy, none of that was, was obvious yet.
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So for us, we just said let's go at it.
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Let's keep building and then let history unfold itself.
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Did one of you come at it with like, okay, here's the idea, here's the thing we we should do?
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Or was it more you're from the ad tech space and you're like, we want to build something together; let's figure out what?
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So it was a bit of combination of both.
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Even though our product fundamentally has not changed since the beginning, we still operate in the advertising space.
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We still built software that marketers use to advertise.
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The evolution of the product has gone in directions that maybe I would not have anticipated in the beginning.
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I think there's some things that we knew will be universally relevant.
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For example, user experience, we knew that that will be always important because people will use more and more software.
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How they interact with software will remain important.
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So user experience is important thing.
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We knew that machine learning will be-- it's one of those fundamental trends that is now going to reverse.
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So we wanted to continue pretty much right out of the gate our investing into our data science capabilities.
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A lot of products or directions or markets evolved by virtue of experimentation.
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Even though I would say the broad strokes of our company was fairly maybe clear in the beginning, a lot of it was built and discovered and invented as we-- as the time going-- went on.
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So I would say if I saw our company in the current state back in 2014 when we first launched, I think I'll be surprised.
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I think I'll be surprised just by virtue of how many new directions we are pursuing now and actively seeing a lot of success in.
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Beyond knowing that you're going to focus on ad tech and some of the trends you're identifying, what was the original problem that you were trying to solve?
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So the original-- the very original problem, it was distilled down to the fact that a lot of users back in 2000-- well, early 2010 started using mobile phones because they finally became fast, great resolution.
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So they started accessing a lot of content through mobile, but most publishers have not adapted yet their monetization strategies to mobile first experiences.
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So still back then, a lot of mobile websites were not responsive to mobile.
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The idea of zooming in to read content of-- back then it was common.
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Nowadays, you basically never see this.
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We started thinking how to actually monetize this inventory.
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The idea of native advertising started to gain a lot of attention.
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We've seen it being successful in platforms, big social platforms.
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We said can that be adopted within mobile experiences across the open internet, but not just integrated ad experiences but also transacted in real time?
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So we called it programmatic native advertising.
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It was-- that's what we went to market with.
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That's the mechanism for where the advertising-- or how it looks.
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The software platform itself, it's the operational piece of how marketers actually execute these operations, so that's remained the same.
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Native advertising is still an important part of business for us.
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Since then, we've expanded into all kinds of new channels like internet-connected TV devices and streaming radio and video and digital billboards, in-game advertising.
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So essentially it's just gone very broad now, but the web platform itself, how marketers interact with our company, that stayed from day one and it's just kept evolving.
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Just to be clear, for the listener who doesn't know much about ad tech, it's kind of-- you think about a publisher, I don't know, let's say CNN or something like that.
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They have a lot of website traffic, a lot of content, and they're displaying it.
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Now they're moving over to-- they have a lot of users that view it on mobile and you were setting out to help them maximize the revenue that they're going to get from advertising on their website, let's say on mobile.
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Is that broad strokes, correct?
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Yeah, at first because that ecosystem didn't exist, we actually for a little while worked directly with publishers, and then we shifted entirely to focus on marketers and then another entity that's sort of emerged around the same time, a number of entities, ad exchanges.
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So their mandate is essentially helping these publishers monetize their traffic.
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We work with ad exchanges to actually deliver the advertising, but setting up all these rules is done within our web platform, which is essentially what we're calling the product.
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Perfect.
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So I think the problem makes sense now.
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So taking us back to 2013, it's the three of you.
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What do you decide to build first?
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I mean, even before that, do you decide-- do you have full-time jobs?
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You decide to just quit and start coding and stuff, or what-- yeah, give us that context.
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Yeah, so I think all of us actually tried starting companies before part-time, and it has not worked for any of us.
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So this time, we said if we want to give it a real shot, we have to do it full-time and just put everything on the line and make it happen.
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So with our backs against the wall.
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Love it.
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Burn the boats.
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Yeah, exactly.
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I remember, yeah, I think my first salary was about$500 for a month, and that was maybe nine months into starting the company.
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That felt amazing.
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You get to eat again.
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Yeah.
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The three of you quit.
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What's the first iteration that you built?
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What is the MVP of this?
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Yeah, there's been a number of stages of that, even like pre-launch, of just even trying to understand-- it sounds like we had a pretty good idea, but those broad strokes is not enough to narrow it down to a very distinct product, right?
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Just because it's great UI, AI, it's so broad it can apply to anything, right?
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We still needed to do a lot more trimming down of our idea to be a lot more focused on what we wanted to do.
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We've done a number of things.
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So first we've tried using some other platforms and just see, for example, open source software so that we don't have to invest very heavily in building everything from ground up.
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So we try using third-party software to build on top of using open source, and that did not work for us.
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It was just very slow and clunky.
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So we scrapped that idea and said let's take the harder path of building everything from ground up.
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That was, I think, an important decision because even though it took longer in the long run, it made us a lot more independent because we had a lot more control over how the product is built.
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The direction of not building on top of anybody else's land was an important one so that we can have that independence.
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Then second on, we've-- one of the biggest validations for us came from just putting up a website explaining the idea that we had, and it was like a one- page website.
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Then amazingly, we had an inbound lead a couple weeks later from large car maker basically saying this sounds interesting; can we talk?
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Then later they became our customer, and that was a way for us to understand what are they looking for?
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Then we essentially had that MVP essentially built for them.
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Then once we start working with them, the rest was like a snowball in some ways.
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So I would say our discovery of that very-- of our MVP was a product of experimenting, building on existing systems or existing open source software, like a more-- maybe growth hacking, which at that time we didn't call it growth hacking.
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We just thought we wanted to do it, but then we got this immediate validation that there's something interesting there.
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So we didn't put up multiple websites seeing which ones stick.
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It's more like we had a rough idea of what we wanted to do focusing on native advertising.
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That was the only idea at that point that we had.
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It just got validated very quickly.
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So we're--
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Did you do any traditional customer discovery type thing where you went out and tried to talk to 20 of these, whether it's OEMs or any other types of publishers?
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Or did you-- you got the one and then you just custom made it for them sort of thing?
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Yeah, so we didn't do that kind of discovery because we ourselves were the end user.
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In some ways we're building product for former selves.
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So in some ways, we could put ourselves in the shoes of our customers and ask, is that something that we would want to use?
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So having that experience within industry was really helpful.
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I think that's-- in some ways, I think now I come to realize that it's helpful at least in a B2B space to understand the industry because the markets are so large and it's hard to know what's an obvious idea and what's a more unique idea unless you understand the market really well.
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So having that experience in the market helped us uncover some maybe challenging and unique problems to solve which might be-- may have been tough for outsiders because the market is crowded and there's just-- even though it's large, there's a lot of players and uncovering some unique pain points comes with just experience.
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At the risk of getting into the weeds, do you recall a couple of those nuances, or call them unique insights, that you had early on that you really felt were putting you-- positioning you more uniquely t o what others might be building?
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I think it's probably-- I'm going to think about some examples right now, but I think it comes down to sort of understanding maybe the degree of just understanding what the customer actually values, right?
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For example, one of the things that we've, over the years, learned is that our customers really value speed as-- and that's something that we still continue investing in, is that to them, the speed with which they engage our company or interact with our company, they use software-- really matters to them.
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That's something that people consistently call out when they think about StackAdapt is the word speed.
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So we're just leaning into it.
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We didn't really originally think that that would be an important value proposition, one thing that, for example, we thought would be important early days that never really materialized.
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We saw that people-- this might be a broader conversation, which we'll unpack, but in a way, in early days, we, for example, looked at big or really successful product-led type of companies like Dropbox or Slack.
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We thought, oh, we're going to have a platform where people create their own accounts, start running advertising themselves.
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What we quickly learned is that actually people want to use software directly, but they also want to have lots of support because advertising is a complex topic.
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We realized that actually we need to mix services with software in a way that clients still use our software, but we can help them maximize the use out of it.
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We can help them understand their business better and then sort of solve their business problems using our softwares.
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I think that's very valuable just in general for B2B, because I think a lot-- first of all, product growth is really cool, and second of all, everybody's allergic to services.
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There is this push towards trying to do this product growth, trying to do just this credit card signup flow.
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Oftentimes, especially I think if you're doing something new, like in your case, you're going after mobile, which was this new area at that time, and being able to hold customers' hands, especially in those early periods.
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You think about something like Slack, sure, but we're talking about basically instant messaging.
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I mean, everybody was used to that at the time.
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It was just in a B2B context was kind of novel, but everybody knew how that worked, even Dropbox.
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Sure, cloud is new, but storing things in files is pretty intuitive.
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Also there's kind of a bottoms up, aspect and so on.
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What you're talking about and moving people, moving these big companies into this new world of advertising on mobile, I think it makes sense that you required some handholding.
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I think there's a lot of founders out there doing something B2B that is pretty novel where they're better off, especially in the early days, adding a services component to it and being willing to really be there.
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That's how you going to get-- drive the most value.
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Yeah, I really believe that as you scale up, it's just really hard to build a business on just individual users at that small price point.
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There's very few companies that can actually attract 10 million users, and there's a reason why every enterprise company that starts with this product-led bottoms-up growth eventually hires enterprise sales teams and sells top-down.
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So I think even companies that start with that bottom-up, I think they should be prepared that, well, there's-- essentially, there's no reason not to sell top-down as well.
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You should do both.
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Makes sense.
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So going back to it now, you have this inquiry coming inbound, and I assume you start chatting with them.
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Do you build something to their specs?
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Is that how far you take it from a customer perspective, or how do you balance that?
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I assume they're a pretty large customer.
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Yeah, so at that point, it's really challenging and I can-- there's a number of customers, especially in early years that I still remember, that I distinctly remember.
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They were the ones that pushed us to build something, right?
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Some of that was transformative.
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In the beginning, I remember thinking, I can't believe we're doing something for one customer.
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Years later I look back on this, and this becomes one of the critical capabilities of our product and one of the major reasons for our platform, I would say a big, big part of our platform's success.
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I think internally, we think about this product feedback, whether it's the first customer or 10th customer or the thousandth customer.
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It's a balance of building a faster horse versus a car.
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I think maybe people are tempted to think well, if I'm starting a-- building a new capability or entering a new market or building new, it needs to be a car.
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It shouldn't be a faster horse.
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I don't think there's a problem with building a faster horse.
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You need to have a balance.
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As you grow, you need to have a balance of faster horses and cars, if that analogy makes sense to everybody.
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You need to-- with faster horse, you have maybe more predictability.
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There's less risk involved because you get that direct feedback from customers of what they want and you just build it for them, versus building a car is essentially speculating maybe, or reading between the lines, and in some ways gambling on a solution that would be adopted by our customers.
00:20:36.690 --> 00:20:48.358
I think there's been a number of faster horses and cars that we have in our product rosters that have been incredibly successful, but I wouldn't say one over the other.
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It's a balance.
00:20:49.569 --> 00:20:53.200
So that first customer, in some ways, it was just a faster horse.
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Over years, we've maybe spun up some net new innovation that didn't exist.
00:21:01.890 --> 00:21:04.759
So I would say there isn't a rule of thumb here.
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It doesn't have to be something groundbreaking that you think oh, it just needs to be completely novel.
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It can just be a better iteration of what exists already.
00:21:15.780 --> 00:21:19.420
Sometimes y ou're just taking direct feedback from customers just doing what they a sk you to do.
00:21:19.890 --> 00:21:21.420
Well, that's kind of the question, right?
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It sounds almost too easy-- too good to be true.
00:21:23.461 --> 00:21:39.220
What's the-- do you have any maybe lessons from that where you can take that too far, or when you took it too far, where you just started getting into this mode that almost felt like pure services company that's just building ad hoc for this customer?
00:21:40.181 --> 00:21:43.539
Did you always manage to really balance and--
00:21:44.950 --> 00:21:47.380
So we've always taken that-- because we have one product.
00:21:47.381 --> 00:21:51.539
That product is not customized for different customers.
00:21:52.420 --> 00:21:58.380
Whenever a customer provides feedback, or at least in early days, the way it was, they provide feedback; we essentially introduce it for everybody.
00:21:58.789 --> 00:22:07.220
So we never were in this situation where we built something unique for one customer and we have to build something different for different customers.
00:22:07.460 --> 00:22:14.460
So it's one product that essentially customers influence through feedback and yeah, I mean, absolutely.
00:22:14.461 --> 00:22:21.339
I think everybody has built things that customers say they want, but in reality they don't use it.
00:22:22.108 --> 00:22:26.460
I think maybe it's a question of asking the questions, right?
00:22:26.740 --> 00:22:36.339
Oftentimes what I learn is that oftentimes customers, they don't know full context because they're not the insiders of your company, right?
00:22:36.339 --> 00:22:39.779
Sometimes you come to them and you say, would you want us to build this product?
00:22:40.141 --> 00:22:41.539
They say, oh, that's great.
00:22:41.540 --> 00:22:42.299
That sounds awesome.
00:22:43.141 --> 00:22:46.339
You take that at face value and you build it and it never gets used.
00:22:46.539 --> 00:22:51.180
We've done thing-- we've built things like that.It's not fault of customers.
00:22:51.420 --> 00:22:59.940
It's just they could genuinely be excited, but it could just not fit their workflows, for example, or the way their organization is set up.
00:23:00.470 --> 00:23:20.940
So I would say the way we've dealt with this over the years and as the company grows, we really need to move away from rolling the dice and make all our efforts a lot more predictable so that whenever we build something, we have a really high degree of confidence that it's exactly what customers want.
00:23:21.599 --> 00:23:25.660
For us to do this is much more mature now.
00:23:26.339 --> 00:23:39.019
Customer interviews, we find ways to MVP specific capabilities of products and gain that initial traction and feedback before we invest more effort into it.
00:23:39.980 --> 00:23:49.039
We have the luxury now to be running many, many, many different experiments at the same time and just see what gets the most traction and invest more effort into it.
00:23:49.049 --> 00:24:06.680
In the beginning, you can only afford maybe running a couple of experiments and now we have ways to actually just release certain capabilities to a group of customers, gain their feedback, continue improving on it, and then release it to everybody knowing that it's going to be used widely.
00:24:07.480 --> 00:24:18.829
In those early days, I think we were-- maybe we had a little bit of a more cowboy approach to things where customers said they will want it.
00:24:19.310 --> 00:24:21.549
You also leverage much fewer data points, right?
00:24:21.750 --> 00:24:22.950
You have a handful of customers.
00:24:23.270 --> 00:24:30.710
You just don't know sometimes if that's important just for them or it's a universally valuable thing.
00:24:30.880 --> 00:24:33.789
So you have to roll the dice a little bit in the beginning.
00:24:33.900 --> 00:24:37.150
It's definitely more art than science in the early days.
00:24:37.151 --> 00:24:46.470
Where did you-- as you rolled out this customer and you had some traction, did you consider-- did you try to raise around or was your next move to go get 10 more customers?
00:24:46.670 --> 00:24:50.069
Yeah, we've just never stopped looking for our customers.
00:24:50.309 --> 00:25:00.589
We wanted to build a business that is not reliant on constant outside funding, and we're just not in the business that needs to do this, right?
00:25:01.070 --> 00:25:07.710
We're not doing some deep science for 10 years and then hoping to commercialize the product.
00:25:07.711 --> 00:25:14.269
We're selling in an enterprise space, so we should be able to generate revenue very quickly if there's a product market fit.
00:25:14.358 --> 00:25:20.789
So I definitely discourage people from sitting too long in their office building things.
00:25:20.790 --> 00:25:29.190
You want to have your product interact with customers as much as possible, because in the beginning it's going to go through a lot of iteration.
00:25:29.480 --> 00:25:31.990
So the sooner you get it in the hands of customers, the better.
00:25:32.589 --> 00:25:44.950
Honestly, I still show a screenshot of our very first MVP that we launched, and it's very basic and it's amazing that people used it.
00:25:44.951 --> 00:25:45.630
It's amazing.
00:25:45.759 --> 00:25:47.150
So you just never know.
00:25:47.151 --> 00:25:51.589
There's a lot of people that are totally okay with using some very basic products.
00:25:53.109 --> 00:25:55.230
That sort of interaction in the beginning is very useful.
00:25:55.539 --> 00:26:01.710
Well, one of the questions I have for you specifically is-- and especially right now, I mean, 2022, second half is a tough year.
00:26:01.711 --> 00:26:07.269
Probably going to roll into 2023 and there's just not much liquidity out there.
00:26:07.270 --> 00:26:09.789
Everybody's gonna have to do less-- more with less.
00:26:12.950 --> 00:26:14.490
I'm sure you've talked to a lot of founders.
00:26:14.490 --> 00:26:16.368
You've seen different founders.
00:26:16.369 --> 00:26:19.049
You were able to do a lot with very little.
00:26:19.050 --> 00:26:23.490
I mean, now you're over-- you're close to a thousand employees, over nine figures in revenue.
00:26:23.931 --> 00:26:25.849
It's a big, big enterprise that you've built.
00:26:28.118 --> 00:26:31.089
What was it about-- was it the philosophy that you had?
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