The customer doesn’t care what 'scales': What funding gets you and what it costs you

Joe Malcoun
Joe Malcoun

Our industry is funny when it comes to “inbetweeners.”

We have no problem holding unicorns on a pedestal and worshipping them like idols. And we gladly celebrate total failure (perhaps too much) because you can learn a lot from people who took a big swing, whiffed, and managed to bounce back.

But the vast majority of tech companies are more like Nutshell. We’re just doing our thing. We’re profitable enough to maintain our operations, but we’re not going to join the three comma club any time soon.

What You Lose When You Raise Money

Money has a tremendous impact on how a company makes decisions.

When a company takes on large amounts of investment capital, that money comes with a set of expectations that don’t align with the needs of customers. Being on the hook for tens of millions of dollars means you have to constantly find ways to multiply your customer base and squeeze them for more revenue, in an attempt to make lots of money for your investors.

It's an arrangement that means your customers will never come first. Since your company has to provide its investors with a strong return on every dollar raised, more money means more pressure to focus on things that “scale.”

Scaling refers to strategies and tactics that allow you to earn more revenue from the same set of resources. For example, it’s generally accepted that phone support is less scalable than email or chat support, because support calls require individual team members to field them and can take up a lot of time. It's a lot easier and cheaper to outsource your customer support overseas, and have those support reps reply to customer messages by email or chat on their own schedule.

So, if you were ever wondering why large, well-funded companies with massive teams don’t pick up the phone and provide free assistance when you call in for help, there’s your answer: It doesn’t scale.

One of the advantages of funding is that you can spend a lot more on marketing. However, while that will get you a louder bullhorn to reach potential customers, a bigger marketing budget comes with some pretty consequential baggage, since your investors will be expecting you to frantically drive customer growth with that money.

It doesn’t mean you’ll grow efficiently in terms of revenue, either. Now, I don’t know the precise amount of revenue each of our competitors is pulling in, but I know enough to make a very educated guess. And even though other companies in the CRM and sales automation space have raised anywhere from eight to twenty times more money than Nutshell, they sure as hell don’t have eight to twenty times as much revenue. Not even close.

They’re also not creating a product that’s more technically advanced or well-liked by users. Just take a look at any software comparison site and you’ll see that generally speaking we all offer fairly similar features. Our product is just as highly regarded, and often outscores our rivals in user reviews, particularly when it comes to ease of use. (It's kind of incredible that CRM users can't tell the difference between a product that was built with a few million dollars and 20 people and a product that was built was $90M and 300 people, but of course very little of that VC money actually trickles down to customer experience.)

So where does that leave our competitors? They have lots of money and people, but their teams don’t necessarily build a more functional product nor do they service it any better. They have more revenue but they have to make decisions based on what scales.

In other words, money influences the product and experience you offer your customers, in ways that are guided more by the needs of your investors. At some point, the chickens come home to roost and when they do you’d better have a big fat nest waiting for them.

Controlling Your Own Destiny Is Priceless

People ask me all the time what makes Nutshell different than our competitors. I usually describe our relentless focus on design and how it impacts our customers’ ability to get their jobs done. I also talk about the importance of being able to document and automate your sales process, and our belief that companies should be able to use whichever software works best for them, and it should all play nicely together in a single platform through seamless integrations.

That’s all true. But it’s not quantifiable. So, here’s another way we’re explicitly different than our competitors:

Nutshell has barely raised any outside funding and what we have taken on is from people who we can genuinely call our friends. In fact, over 80% of the company is owned by founders, friends, employees, and myself. That means we control our destiny and Silicon Valley venture funds don’t drive our decision-making.

From day one, we’ve been very deliberate about how much money we raise, when we raise it, and from whom we raise it from, because like all things in life, money comes with strings and the more money you take the more complicated those strings become.

Our competitors, on the other hand, have raised a ton of capital from Silicon Valley investors.

Note that Base recently sold their company to Zendesk and word on the street is that Copper (fka ProsperWorks) is contemplating another huge round.

Now look at Nutshell’s revenue for every dollar raised, compared to our competitors.

This isn’t a magic trick. Not having a massive financial burden hanging over our heads means we can prioritize the right things. We don’t worry about what’s “scalable” because, thankfully, we don’t have to, and it’s rarely what’s most important to our customers anyway. (I don’t think anyone has ever called us or sent in a support ticket to inquire about our scalability.) Answering the phone and offering to help someone struggling to sync their email won’t make Nutshell a unicorn, but it will ensure that those who matter most to us won’t be left out in the cold.

What about headcount? Nutshell has 21 incredible team members, who build product for and support thousands of customers around the world. Check out how much larger our competitors’ teams are than us.

Again, what are all those companies doing with 100+ employees that’s so fundamentally different from what we’re doing with 21? (Besides contributing to the unaffordability of Bay Area real estate which in turn has created a tech industry salary bubble that will eventually bury Silicon Valley entirely. Don’t get me started.)

So, while Techcrunch will continue to report on our competitors’ vanity metrics and how many dollars they’ve raised and how many employees they’ve hired, we’re going to keep our heads down and focus on the metrics that reflect how well we’re actually serving people.

Like our NPS score, for example:

Of course, the real success metrics are your customers’ success, growth, and happiness. If you’re not making their lives easier, why bother at all?


Joe Malcoun is the Former CEO of Nutshell and a Co-Founder of Cahoots. Connect with him on LinkedIn and Medium.


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