Episode 8: Building a SaaS flywheel: The definitive ‘how-to-SaaS’ guide


All Xero Developer Podcast episodes

Hosted by Nick Houldsworth and Dan Young

This is the final episode in our 'Building a SaaS flywheel' series. Nick and Dan host an episode aimed at tying together all the parts of the season – unpacking the three major 3 themes of the season:

  • The consumerisation of the enterprise and the impact this has on brand.

  • How collaboration drives innovation.

  • Ways a platform strategy can drive growth.

And with that, deliver a series of actionable insights for anyone looking to start a SaaS company.

Episode transcript

Nick Houldsworth (@nickhouldsworth) –  [NH]
Dan Young (@dethklok66) – [DY]

Bear Douglas - [BG]
Cody Jones - [BG]
Scott Brinker - [SB]
Ludo Ulrich - [LU]
TJ Ferris - [TF]
Sophie Hossack - [SH]
Atlee Clark - [AC]


NH: My name is Nick Houldsworth.

DY: And I'm Dan Young.

NH: Welcome to the Xero Developer podcast. Sweet tunes, Dan. Sweet tunes.

DY: Thanks. I actually chose that one. It comes from DevTV. Hope you like it, everybody.

NH: Today we have a very special episode. It's the end of our first season of the show, and the end of our first theme, Building a SaaS Flywheel: How Great Platforms Form. For this episode, we're going to take a special spin and do a kind of a roundup of everything that we've learned in the season so far. If you're just starting to listen to us two, please go back and listen to the episodes that we're already covering in this session. There's a lot of really great stuff that you can learn from each of those episodes. But if this is the first time you're listening to us, hopefully there's going to be some really cool insights that you're going to gain today.

DY: Yeah. To be clear, though, this ain't no cheat sheet for getting good at SaaS platforms. We're certainly not just giving away all of the insights or trade secrets. Although, if you were going to listen to one episode from this season, it would definitely be this one. But as Nick said, we definitely encourage you to still go back and listen to them all, because there's a larger narrative here around all of this stuff, isn't there?

NH: Think of it like a sort of season recap of your favorite Netflix show. Sometimes you need a little reminder about what's going to happen in the next season, although we don't want to tease the next season, but we hope you're excited to join us next time. Or maybe think of it like CliffsNotes or one of those podcasts you listen to at four times the speed, because you're trying to absorb as much information as you humanly can in a short space of time.

DY: Yeah, exactly. It's funny, when we started thinking about this podcast, we were thinking, you know, something low-cost with high production value, great guests, providing information that, to be honest, really isn't available anywhere else. It was interesting, isn't it?

NH: It was, and yet what we ended up with was the Xero Developer podcast.

DY: I thought you were going to say what we ended up with was low cost and low production value. Great guests, though, of course.

NH: Great guests. We've been very excited by the guests. Actually, that comes to the reason why we did this in the first place, Dan and I. When we first started working together nearly two years ago now, we thought, "How do we build an amazing platform?" Xero's got an ecosystem of 700 solutions, it's got 50 thousand developers that work with it, and yet there weren't many others that we know personally that were operating at similar scale. And so we reached out to a few of our friends and the companies that we admire and started having some conversations, and thought, "You know what, this is probably quite interesting to other people." Maybe not everyone in the world, but those that work in SaaS, those that work with platforms. We've been really thrilled to have some guests from some of our favorite platforms come in and talk to us.

DY: It wasn't necessarily like big companies, right? It was people who we had an affinity with. They're, as you said, like friends and others who are really passionate about this sort of stuff, and actually who get it, because not everyone gets it, even in some cases inside their own company. You know, fully, I guess, passionate, as passionate as we are about it.

NH: We are very passionate, Dan, aren't we?

DY: Very, very.

NH: Very passionate.

DY: The other thing we're passionate about is the flywheel itself. We've talked a little bit about this in previous episodes, actually the title of the podcast. But it is one of the best ways to define what all good SaaS companies are trying to do.

NH: Is it true that there is a flywheel emoji in Slack at Xero, Dan?

DY: Yes, it is true. It's also true that there is a flywheel corner in our Auckland office, where our ecosystem team sit.

NH: We're all about flywheel, it seems. But a flywheel is just a way of representing how you build a platform. How do you attract innovation from third-party developers, and then how do you create demand for that amongst your customers? That's why we've themed it around that this year. In some of the conversations we've had, we've talked around a lot of these things. We thought today for our non-clip show clip show that we would break that down into three themes, three areas of discussion, and revisit some of the conversations we had with some of those amazing brands that have built great platforms or have worked with platforms.

NH: Those three themes are ... The first one is the consumerization of the enterprise, which is just a fancy way of saying cool marketing for technology brands, and the change that we've seen in the last 10 years around the way that companies position themselves to consumers. The second one is around collaboration as a driver of innovation. You know, it's always better together. Then lastly, if you're starting out as a business, or even if you're established, the ways that a platform strategy can add to your bottom line and help you drive growth.

NH: Quite a bit to get into. Let's just dive straight into it with a clip from our interview with Bear and Paige from Slack. They're answering the question, "How did Slack grow so fast?"

BG: Part of it was that there was an element of Slack that was a little delightful, like the copy and even the loading messages were just fairly nice, and I think kind of exemplifies the consumerization of the enterprise. Like, this is an enterprise product that kind of feels consumer, and kind of feels nice to use, and little bit considerate, and the UI is very straight forward.

BG: Then I think another element is that we grew a lot very quickly with developers, and there were certain elements that were almost very developer-friendly. Like, you could use a slash command to type in commands, which is basically a command line interface, very intuitive to developers. So we were able to get a lot of growth very early with that early adopter, technical startups, Silicon Valley crowd, and then we expanded beyond that.

DY: I've got to say, I love how Slack builds such delight in their developer products. Bear Douglas in particular talks about this quite a bit in her presentations at conferences. Really, really impressive. From simple slash commands, where sales and marketing folk can feel like they're developers, which is pretty neat, right to their documentation that anyone can read and understand, their approach really resonates with us. That's sort of why I think talking to them is just ... you know, it's great. They just feel like a family, almost.

NH: I've got a confession to make, Dan. That's actually a big part of the reason why I ended up at Xero. The first real delightful interaction I had with a consumer brand or a technology business brand that was acting in a consumer way was with MailChimp. We'll have to get them on the episode soon. For something that was quite ordinary, like email marketing, they actually created this really beautiful user experience. I started using Xero about the same time, and the love on Twitter for accounting software was something that I had never expected to see before, and this community that was being built around the sheer energy for this product and this brand was really exciting.

NH: I grew up with an accountant for a father, and I certainly never saw myself working for an accounting software company, when I saw the way they actually connected and resonated with small businesses, they got me really excited about the space. That's why I'm really proud to work here. Dan, what are some of the ways that companies can take some of what Slack has learned and really think about the human approach to how they talk to their customers?

DY: I think there's heaps you can take out of what Slack are doing. I mean, they're just making it easy. This is what I've said a lot to my teams, is if we can make it easy for customers, if we can make things resonate for them, it's going to be easy to get those customers, but also easy to retain them. It's the same with staff. We have such a human approach at Xero, and I believe you can apply the same approach to your customers and to your product.

NH: Let your staff shine. Let them be themselves, not only in how they are at work, in how they talk to their customers and trust that they will do the right thing.

DY: Totally. What I loved about one of Bear's comments on the podcast we did with her and Paige was that it's erring with grace, and things like that too. When things go wrong, actually do it in a beautiful way and all of those things. I think it's brilliant.

NH: Yeah. Great insights. Loved the conversation with them. All right, let's keep moving forward. We wanted to talk about collaboration. At Xero, especially in the API team, we're all about partnerships. One of our longtime and most successful partners is Zapier. I had to think before I pronounced that, because Zapier makes you happier. Let's hear from Cody Jones, head of partnerships at Zapier, around collaboration.

CJ: The biggest thing for me is that collaboration is key, But how do you get companies to trust each other with product ideas that aren't even real yet, right? That's kind of a sensitive spot for people. For Zapier, it's cool because we're Switzerland and we don't have a horse in the race, you could say. We're kind of a neutral third party that is pretty easy to collaborate with. But I would love to see quite a bit more of that across the ecosystems that are out there. I mean, I'd be curious how you guys are seeing that or encouraging that on your end.

DY: First of all, how cool was Cody Jones? Amazing insight, especially into how you pronounce their company name. That was also a good start, and very ... Yeah, I'd had no idea about that, so that was the first big insight of that episode. But such a good person to kick off our podcast journey, and as I said, the insights were powerful. Collaboration and partnerships, particularly early in your platform journey, are really key. Whether you can – sorry, without it – you can't test out the platform, but once you have a few partners on board, it really creates that groundswell, and funnel, I guess, that you need, and then others just follow.

NH: Really good lesson from them on, you know, you have to sort of engineer it a bit to start with, right? You've got to do some of that build first, like putting some coins in the busker's jar, and then over time you get a bit of momentum and then people want to start to build to you. I think they've been a real success story in creating what is effectively a integration platform. It's not a product in and of itself, it just helps plug together a lot of different systems, and so they have a unique perspective on partnerships.

NH: We had a really great interview with somebody I'm a bit of a fan of, Scott Brinker, who's the VP of platform ecosystems as HubSpot. He was talking about a similar perspective. As HubSpot transitions from products to a platform and thinks about their platform strategy, really from a kind of starting point, who they partner with, how they partner, and how they prioritize. Scott, for those that don't know, is also the editor of Chiefmartec, and he produces every year what in the industry I think is a very famous infographic, showing all the marketing technology solutions that exist in the world. He started this about six or seven years ago, and there was maybe 150 apps. I think he did it this year, and there's 6,000. He knows a lot about the landscape for SaaS technology, and was a really good opportunity to speak to him. Let's hear from Scott Brinker, VP platform ecosystem at HubSpot.

SB: You know, it's kind of interesting. I went through the thought exercise very recently. For instance, one of the things you do ... I'm sure you guys do this, right? When you're working on an ecosystem strategy, there's the question of white space. Where are the places that we're not going to develop, and we'd really love to work with partners who are? That's great, everyone wins on carving out those. The things that are much more interesting, is the gray space, the area where we're going to have a capability along these lines, we're going to have some level of functionality for this, but there's more than one approach to how you do this. Some of it might be just different ways of addressing the problem that would resonate differently with different customers. Some of it might be the extent, the degree. How far do you go on a particular feature, a capability?

SB: I actually think there's so much opportunity in ecosystems for solutions that, from the 50 thousand foot level, you look at and you say, "Oh, well, there's competitive overlap here." Yeah, there is, but the benefit that is potentially there to match those third-party products with the right customers in your platform, who really take advantage of that capability, it doesn't have to be a zero sum game. At the end of the day, this is ... The goal of the platforms, right, you've succeeded when you become, forgive me for this, the hub. Right? HubSpot. You've succeeded when you've become the hub. You've become the center of gravity that serves as that sort of orchestrating engine for all of these other applications too.

SB: And if you're going to go around picking fights with different applications that are plugging in, it's just, you know, you can't moved forward with that. But I think it's far, far better to have a competitor plugged in to your hub, at the expense of a particular application in your product suite, than to say, "No, no, no, no. It's our products or none at all." I think that's actually the fundamental difference between a product company and a platform company.

NH: That was really fascinating. One of the things I enjoyed most about the discussion with Scott from HubSpot was talking about the changing dynamics of platforms. As platforms grow, there's more consolidation and more competition across the platforms. That includes not only between some of the solutions in the marketplace and the ecosystem, but also with the platform itself creating some features that might overlap there.

NH: I think the key takeaway from it is, if you believe that being a platform is part of your strategy, if you believe in an open platform creates choice and competition for the benefit of your customers, then you should have trust and not fear that competition, because it creates a better experience for your customers, it creates better products in your own business, and the reality is that the small business software market is absolutely enormous. There are hundreds of millions of small businesses in the world, and there's quite a lot of space for everyone to play. So I think it is all about that trust, and fostering and celebrating competition, not fearing it, which is a typical hallmark of what we see in the great platforms of the world.

DY: And actually, a bit of competition is great, right? It's great for the customers who you're serving on this platform, because if you've got people who are really competitive with each other, then that's going to drive more innovation and more cool solutions, and ways that companies solve customer problems.

DY: Up next, we have a chap who actually came to our roadshow in San Francisco, hilarious, from Salesforce, Ludo Ulrich. Ulrich?

NH: Ulrich.

DY: Ulrich.

NH: Ulrich.

DY: From Salesforce AppExchange. Here he is.

LU: Sure. First of all, we want to make sure that any startups can have access to our platform, so Trailhead is a key element, it's the education aspect, making sure that the technology is understood. But making the technology available as well through developer additions and things like this and streamlined access to the AppExchange, we of course works on this so that any startup can actually get there in a fairly self-service way. We bring always a little bit of a human touch, as I said, but that's kind of self-service, largely speaking.

LU: Then what we want to do is drive innovation. One of the thing I would say is, it's very democratic. Of course we have opinions about where the ecosystems should invest, but we ask our customers. We ask them what they want and where they want to see innovation, and we try to drive that agenda through a tool like the Incubator that we call now Accelerate. The program is now called Accelerate because, to your point, we had a lot of learning, so we moved from a model that was physical here, with some space in San Francisco, to a virtual model, and we moved from, I would say, a fairly early stage with a focus on platform and artificial intelligence, et cetera, so basically a product focus, to an industry focus.

LU: The current batch, the current class, is actually focused on healthcare and retail. The reason is, we know there is a lot of demand from our customers to have more innovation there, to literally see apps that you will end up finding on the AppExchange. And so we were very intentional about working with the traditional funders, you know, VCs and Accelerators and Incubators out there that we partner with, and accept some companies to basically try to accelerate, hence the name, their journey to the AppExchange and accelerate their go-to-market with Salesforce. We do that on the technical side, but we do that as well on the marketing, kind of sales side as well. We try to do as much as we can to manufacture basically those inspiring example who would actually drive the rest of the market and inspire other developers to build a platform with a specific agenda. That's kind of what we did over the last two years.

DY: That's awesome. Great insights from Ludo, excellent accent and name, all of those. Kind of got the full package. Look, we're constantly looking to leaders like Salesforce in terms of how to scale your platform while still providing an amazing experience, because as you scale, you're a bit more hands-off, and so that's the challenge, isn't it? To kind of remain-

NH: Remain human.

DY: Remain human.

NH: Whilst creating a lot of automation, Dan. It sure is.

DY: Exactly. More robots, but how do you be more human with the robots? I don't know, it's difficult. But I think Trailhead is a fantastic example of an education program that Salesforce set up, and how to build on the Salesforce platform. I think that's a great example of a scalable program.

NH: Yeah, and look, we are 10 years young as a business, and probably eight years young as a platform. In the early days, with just a handful of people and a few app partners, we could have a lot of coffees and a lot of drinks and figure it out together. Now we have 50 thousand developers actively building on the Xero API, and still a relatively small team supporting them. We believe that being an open platform is core to Xero's mission, and being human about that is part of our brand, and so we're thinking around how we scale. What are some of the ways that we've done that, I guess, with our Developer tools, Dan?

DY: Yeah. I think one of the keys, and it's sort of ... You know, we go back to partnerships and how you get things out to market fast and test them and things. What we've done is, we've always believed in excellent documentation. That's one thing we've always been really good at, and making things really clear, and how you get started really easily in that language, and being human, and all of those sorts of things. But then we looked to the community to help us out in terms of building out those code samples, and really, we'd love to encourage the community to contribute to those sorts of things. Not only does it keep people engaged, but it shows that it's not all us. It is a community-led thing a lot of the time, and partnering is ... It's really the way to go if you want to get that deeper engagement.

NH: I listened to an amazing podcast recently talking about how eBay's growth was really fueled by the love and the loyalty of the community, specifically around the community forums. It was really just a handful of people that started it, and they had tens of thousands of people selling on there in the early days. It was the forums where people really found their like-minded folk, and they answered questions of each other and they got support, and actually allowed them to build that scalable platform. I think that still keeps that personal connection between you, between your audience, and between each other as well.

NH: Yeah, I loved talking to Ludo about that kind of stuff. I was really interested as well in the accelerator they've done, because there are some times where you want to partner a bit more deeply, and maybe you need a more programmatic approach to that. Certainly we've created a partner program for our app developers, so we can be a bit clearer around what we can commit at certain stage of their growth, and a lot more we can learn from the likes of Salesforce around how they've done it. Just a really great set of discussions there.

NH: That brings us through to our last theme to talk about today, which is, how do you take all of this and actually help it grow your bottom line? How can a platform strategy drive growth for your business?  How can a platform strategy drive growth for your business? We're going to go to Ferris from Expensify.

TF: Yeah, I think it's hugely important. That'd probably be a third one, right, is what kind of partner program and successes has a partner that's coming to you or that you're looking at had with other people, right? Whether they're competitors or in a relevant space, or just something that you've seen work successfully. I think the biggest thing sometimes ... And you probably go through this, or Nick, whoever lays out the partner, I'll call them requirements, right? I think we spin those and we try to look at them as opportunities, right? So like, seeking out customers for reviews and things like that to share among the ecosystem, right?

TF: That's fantastic, right? That gives us a goal that we can then take those, and we use those internally to turn around and market to our customers, right? You've basically had done our case studies for us, because when a Xero customer reaches out wanting to have a case study, we just throw 200 five-star reviews at them and ask them if they need to see anything else. I think that's a big way to kind of turn those around. When you see a partner program, it's like, "Oh my gosh. How am I going to make a dent in here?" Don't just view those kind of benchmarks as requirements, but as opportunities, yeah.

DY: Excellent. It was awesome talking to TJ. We were in San Francisco for our roadshow, and we actually got to do some podcasts in person, because typically we're all in different locations, whether it be Wellington, Auckland, be it London or, I don't know San Francisco, wherever it is. But it was really great to actually do this in person with Tim.

NH: You sound like such an international jet-setter, Dan.

DY: The thing about me is, Nick, what you got to understand is traveling business class and going around the world is pretty much what I do, I think. But yeah, in all seriousness, because that is not the case. But yeah, it was awesome talking to Tim. What I love about Expensify is, they've really excelled on our platform. It really accelerated their growth. They're an amazing team, an amazing company, and doing ... They have a wicked product as well, which we use at Xero, coincidentally. But also, they're not just in it for themselves, you know? They came along to a round table that we had in the States, and actually their biggest thing there was to help other people in the room, other ecosystem partners, thrive. Like, how can they also get to the next level? I love that.

NH: Yeah. I was a partner of Xero's for many years when I worked at Vend, and it was always a big thing for me, was learning from other partners in the ecosystem who are all at different stages of growth. So sure, it's a great channel for us, but it was actually a great chance to meet other like-minded people solving similar pain points.

NH: Actually, that's a nice segue there. Speaking of talking in bathrooms and cupboards and all around the world, our last conversation was with Sophie Hossack, who I've known for many years. Receipt Bank was one of the first integrations into Xero platform. She shared some of her thoughts around how that really opened up a new channel to market for them. Let's hear from Sophie Hossack of Receipt Bank.

SH: Yeah, it was really, really formative. We integrated with Xero. It was our third integration. We'd integrated with two UK-based cloud GLs, and Xero was our first international one. We integrated with Xero in, I think, May 2011. I think the international piece was the most crucial, because pretty much within the first six months, we were getting significant calls and emails from accountants and bookkeepers in New Zealand, and then in Australia, asking who we were, what it was we were focusing on, were we interesting to them? At the beginning it was manageable. It was easy to do. I mean, Michael and I spent, I don't know, six, nine months doing late-night shifts, early-morning shifts, to be able to communicate and call people in their timezone. But then very quickly it was evident that if we were going to truly want to service and work with firms across the world, we'd need to move out and to actually become a global organization.

NH: That was fantastic. Loved hearing from Sophie. She really talked to how building a proposition with Xero opened up a whole new channel with them, not only with their customers direct, but with the accountants and bookkeepers that were using Xero. They've got a really successful business. They're our most popular solution in the marketplace, and they've just gone from strength to strength.

DY: Absolutely. I love the targeting the advisor. That's just brilliant. Look, Receipt Bank were one of our first, if not our first partner.

NH: Really?

DY: And a really neat team as well. Just love the colors, the orange and everything else. It's brilliant. But Sophie's awesome.

DY: Our last clip of the day, we spoke with Atlee Clark from Shopify. She's talking about how they scale growth for their customers, not only on their platform itself. Let's hear from Atlee.

AC: That's all fine and good until you actually have someone who's running a business, who wants to buy a tool, and then you're asking them to put in a credit card again. So we made the decision to spend some resources on building a billing API, which essentially allows an app developer to build in either a one-time fee, a monthly fee, or it's like a variable fee. So you can say, okay, for every hundred emails, it's two bucks, or whatever. And so we build that API, and what we saw right out the gate was that the apps that adopted the billing API had way higher conversion, because of that reduction in friction for the merchant to try their app, and then that charge just show up in there, in their monthly bill from Shopify.

AC: So now we require that apps use the billing API. That decision, that requirement, really came down to the fact that all the decisions that we make are all about the merchant experience, and we saw that this was a better merchant experience. That is why we do it, and why we're continuing to invest in the billing API and making that easier, more clear for developers as well as merchants. I think it was that transition from not having a billing API be required, and the billing API being required.

AC: When I say setting up business expectations, going back in time, I think if I could wave a magic wand, I would say let's make that the case from the beginning. That is hindsight, but the effort it took to get everybody from a self-reporting situation to using the billing API took a lot of people hours, where they could have been doing something else. I think it was worth it, because it did improve the merchant experience, but it did take away from our developer experience for a little while because we had to focus on it so heavily. So if I could go back, I would have a perfect billing API-

DY: It's-

NH: Ah, a fantastic conversation. I have been a Shopify fan for many years. I have looked to them for inspiration in how to do many things. Hearing how building the capability for their developer partners to do more through their platform, whether that's distribution through the marketplace, through building products through the APIs, or even billing their customers, has been a focus for them, which drives a greater conversion rate for their partners, is inspirational for us.

NH: Lots, lots in the series, Dan. What have we learned today?

DY: Well, I think we have pretty much given everyone the tools to go out and build a SaaS flywheel. Yeah, the attach rate of that saying at Xero is very high. We hope that that also gets high for you, everyone out there. And potentially created a ton of competition for ourselves, so you know, was that a flaw in the effect we wanted? I'm not too sure. But I think that hopefully people will be able to see the huge value in integrating between platforms and focusing on their niche can make them even more successful.

NH: Yeah. Hopefully some really good nuggets for everyone who's listening. Thinking about that human approach into your brand and how modern B2B marketing is all about connecting with your consumer, how partnerships are all about innovation together, right? You're working together for the benefit of your customers. And how both of these things actually add to your bottom line, how platform strategies not only drive growth, but drive that competitive differentiation and defensible position in market.

NH: That's very sad, Dan. This brings us to the end of our first season. What we define as a season is a fairly arbitrary point of time. Next season, we promise to be super disciplined in the release schedule of our episodes and the content. I can tell you it's going to be good.

DY: The new season, or next season, will be coming soon, but we'd love to get your feedback. Go back and have a listen to all of these episodes. We'd love to hear from you. You can Tweet us or Slack us or hit Nick's Myspace page with any suggestions you'd like us to talk about for an upcoming season.

NH: If you are looking to work with Xero or you know a company that you think could benefit from being part of the Xero platform ... And why not? We have over 1.4 million customers worldwide looking for solutions just like yours. Head over to developer.xero.com, and we can help you on that journey. It's been a lot of fun, Dan.

DY: It has. You've been listening to the Xero Developer podcast from Nick Houldsworth and Dan Young. Good night, good day, good luck.

NH: And goodbye.

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