In today’s rapidly evolving digital landscape, software companies are constantly innovating and delivering new products and services to meet the ever-changing demands of customers. While product development and sales are important aspects of any software company, billing and revenue management are equally critical to success. Without an effective billing system in place, software companies risk losing revenue, failing to recognize revenue accurately, and experiencing inefficiencies in their financial processes.
In this episode, Patrick Despres-Gallagher talks about the importance of having well-established billing in the growth of a software company. He discusses the controversial topic of buying versus building a billing system.
Company founders and top management personnel all agree that building a billing system is expensive as it involves hiring senior expert engineers. It also takes a lot of time before the newly built billing system starts functioning fully without constant breakdowns and other hitches.
Listen to this episode to learn more about billing systems and how to best use price systems as a lever for growth.
- From an Idea to an actual Product
- Why Do SaaS Companies Need Stage?
- Price as a Lever for Growth
- Build Vs. Buy
- Understanding Wrong Price Levels
- Transitioning into a Business Owner and a Founder
- Parent’s Reaction to the Success of Their Child
- The Power of Perspective in Building a Business
- Time and Energy Management
- Visit Stage to understand its impact on the growth of software companies
- Connect with Patrick on LinkedIn and Twitter
- Connect with David Khim on LinkedIn and Twitter
- Connect with Omniscient Digital on LinkedIn or Twitter
Listen to the podcast:
[10:16] From an Idea to an actual Product
Challenges bring ideas which can consequently be ideal business ideas
“But then part of it was also, you know, I still have the message, and I actually had him, screenshot it and send it to me. But one of the engineers who’s who’s a Principal Engineer at at loom, now, one of their stronger engineers, and also an investor in stage. He just pinged me out of the blue one day and was like, API’s for pricing and packaging. He’s like, I’m so tired. That was the message that was that was that literally, it’s the message like, why are there not API? I think it’s like, maybe why are there not API’s for pricing faction. And I had been thinking about some adjacent things around how difficult it is to launch self serve, I was talking to another former colleague about that, and then, you know, they’re just, there’s just a lot happening in the ecosystem, I had a close friend who’s a pricing expert, who, you know, charges a very hefty fee to advise customers on what their pricing should be. But heard enough stories of, you know, the Simon Kutcher partners of the world and other sort of big pricing consultants, kind of basically taking these decks and spreadsheets and giving some analysis, and then the engineering team coming back and being like, this will take somewhere from six to 18 months, and we’re not really sure if, and it’s gonna take many engineering resources, and we’re gonna have to change our whole billing system. And we’re gonna have to do all these things that are complicated. And so my original reaction was somebody who should solve that problem. Like, this is a really important problem, and somebody should solve it. But it’s not going to be me. And then slowly over the next, probably four to six months, I continued seeing it, and it was sort of it was like the inverse of, you know, I think bad ideas or ideas that you shouldn’t follow through on are like the ones where you start really excited. And then slowly, your interest wanes. And this was sort of the opposite. I was not super excited about it. And then it sort of slowly, slowly grew. And as I started, kind of, I started to see it everywhere. Like it was kind of like, once you saw it, you couldn’t see it. And so that was part of it. And then Previously, I had worked in technology consulting, and I had worked for another startup that really had struggled early on with monetization, it was probably their biggest Achilles heel, despite having a really respected product. And I’d also seen it as an investor in sort of early and growth stage tech companies where it was just constantly this boardroom discussion of what do we do with this? And so that’s kind of how it all started. And then, you know, there’s obviously a journey from from there to hear, but yeah, it was just sort of seeing it and experiencing it.”
[16:41] Why Do SaaS Companies Need Stage?
Stage enables SaaS companies to have an effective billing system in a short time
“Yeah. So I think for folks who maybe aren’t as familiar with, you know, the challenges of selling software, over the, in the recent, you know, five to 10 years, companies like Stripe, and charge B and these sort of billing platforms, it really started with his aura, it was the original subscription management platform have developed to help sell software online, right? And so it was it really was just how do we collect payment for software on the internet, right, and then they’ve sort of built billing systems. And on top of that, the problem with those systems is they have to attach themselves to existing applications. And those applications are messy. They’re, you know, we want to sell this feature, and that add on and, you know, etc, right. And so the way I describe it is, you know, if stripe, and some of these billing systems are sort of the payment gateway or the payment layer, the billing layer for software businesses, we are almost like the fulfillment center. This is sort of like the way I think about it. And so it’s, it’s not just about when you’re doing, you know, monetization, and especially product lead, but also hybrid, right? There’s an there’s an element of how do we get the customers what they pay for? And that so much of that is and how do we enforce when they don’t pay? And how do we do all of this logic that sort of exists between the application and your ability to collect payment. … And so yeah, I think of it as, essentially what we do at stage is we help enforce what you get access to based on what you pay for. We count how much you’ve used, and we make sure that you pay for it appropriately. And it’s very it’s sort of a very straightforward when you think about it, but the actual complexity lies beneath the surface. And the goal all ultimately is to help you be able to launch pricing plans, iterate, test, experiment with them, capture more revenue over time, have more confidence in how you bill and how you price.”
[22:34] Price as a Lever for Growth
Price is as an important component of growth as all other factors
“I’ve always said that, you know, pricing is the Forgotten fourth pillar of marketing, right of go to market. So there’s product promotion, placement, and pricing, right, and so product, you know, tons of tools to help build products, right? Name, all of the that you can name all of them, right? Promotion, you know, being able to market sell your product placement is really about sales is how I think about it in our software context. But then there wasn’t anything around pricing, really, I think there were some early gains from companies like Optimizely, that would help you with just the pricing page, right. And they would actually help us you know, sort of run a B tests and experiments. But the problem is you have to when it comes to pricing, you have to follow through on that promise, right? So you have to be able to then give the customer the features you said you were gonna give them to add, you give give to them at the price, you said you were going to give it to them as quickly as you said you would do it. And all of those things require engineering effort, right. And it’s sort of this, people don’t really realize the complexity underneath the hood. And so we really wanted to build a stack and a platform, and we’re really taking an aggressive bet in the way we’re building the product. Because we believe from this place of product configuration, there is a 10 billion and $100 billion business of what about what state looks like to really be a modern sales platform, um, part of sales infrastructure. And from that place of product creation, you actually unlock a lot of potential things that you otherwise cannot do without that flexibility. And so we’re really excited about sort of what our short term vision is, you know, in the immediate term, just like how do we help companies improve, and launch pricing, close sales faster, and use our tool to do so and to measure and to actually continue to evolve. But then the long tail of opportunity there is also really interesting to us in the way software is sold.”
[25:12] Build Vs. Buy
Building from scratch is expensive compared to buying a ready-made product
“build versus buy is a big one. And I know a lot of the founders from the the pls product lead sales platforms. And I very much respect and admire what what they’re trying to build, because we ran into the same issues with our sales teams being able to get signals out of the product to figure out where to take action. The I think the the difference, in my mind is, we’re not just a data tool, right, we are an actual platform, right. And so we give you sort of superpowers and things that you can do that you otherwise wouldn’t be able to, we’ve run into the build versus buy conversation with a few of the companies that I mentioned, and I won’t get into specifics where we’re actually in some deals with them actively. And they have the same conversation. One example I got was, you know, someone quoted me, it’s gonna take us, approximately four engineers, and about a million and a half dollars to build the basic version of the system that you’ve currently built, right, just like the core part of it. For our use case, right? There. I’m telling you, like, if we wanted to build this in house, that’s how much it would cost us is how much it would cost us. And I can confirm, because I have a pretty well staffed engineering team that’s working on this, and they are all extremely senior and competent and fast. The where the real value starts to come in is not in the year one features, it’s in year two, year three and year four, it’s the long tail, right? For example, things that we will be able to do that most people wouldn’t think to be able to do, right. So when you’re creating limits outside of your pricing, like you can get 20 widgets for this price. Really smart companies like zoom, have done things where when you approach your night, you know, you’re the 90th percentile of your usage limit, they send you an email, and they’re like, hey, you know, it’d be nice for you to think about upgrading. And then you hit your limit, they actually have soft limits, right? soft and hard limits, right? You hit your limit, hey, you hit your limit, like we’re not going to remove access, but it’s really time for you to think about upgrading, then you get to the next unit, you’re a few over, right. Okay, now you’re abusing it, you’re abusing our goodwill, we’re actually going to cut you off, right, and you can’t keep doing cloud storage recording, right? This is admitting to you an experience I’ve had recently. So the that amount of effort, the amount of engineering effort that goes into building something like that, most of our customers, when they think about what they have to build, it’s like, oh, we just need to build this sort of configurable provisioning system and like, it’s just going to be super easy. And then, you know, not that easy. It’s not that easy.”
[32:12] Understanding Wrong Price Levels
The Price should be equivalent to the value of the product
“Yeah. So one of my mentors, describes, you know, when when you think about what pricing is, and this is getting a little nerdy for a second, but what you’re describing is the price level, right? So when most people think about price, they think about, here’s the sticker price, right? The price level, he and I would both argue, and we debate about this a lot. But we actually both sort of share this is, it’s actually the least important part of pricing. So a lot of the in order, Price metric, price structure and price level. Price metric is the thing you charge per price structure is how you charge when you charge the type of pricing model that you sort of, you know, whether it’s good, better, best or ala carte, or, you know, platform, there’s different ways of charging, and when, and then the level is the sort of dollar amount that everyone’s used to the level is a lagging indicator, it’s an end, it’s a lagging indicator of a lot of things, how you position your product, what market you’re going after, you know what features are in what packages, right? It’s it’s more of the tail, not the dog. And so when we see people making mistakes, we see them doing things like having multiple value metrics, or an incorrect value metric. And you’re seeing a lot of this in SAS right now, a lot of the debate around per seat pricing versus usage pricing versus some hybrid of the two versus metered billing, right. It’s really a debate about what value metric makes the most sense for the business. And that’s going to be business dependent. And so one of the ways in which we sort of differ in our view, and Kyle poyer, who’s out OpenView put up an amazing report recently, I think it was earlier this week, or late last week on on the usage based billing market and just sort of generally where things are headed. You know, he he describes what I believe very deeply based on my experience at loom, which is the sort of hybrid world of pricing is is the one that’s actually starting to take over. So it’s not a world of pure metered billing. It’s not a world of pure precede billing. It’s a world in which you have a conversation with your customers, and they tell you, this is how we want to buy. And then you have to figure out how to architect your software around that. Right. And so I think that’s one of the biggest ones is metric. The other biggest mistake that I think we see people make is, it’s related to structure but it’s a little bit more straightforward, which is pricing is really just segmentation in disguise. And so when you think about your plans, what you’re thinking about is I’m selling this plan right with at this price to a specific type of buyer, right? And when you’re thinking about, you know, the economics, you know, the demand curves, right? You’re trying to hit different buyers at different price points as well. well as different quantities, right? Different packages, right? What are we actually selling them. And the goal is to really optimize and maximize the area under the curve. And the best way to do that is to really know your segments, right? And so when you’re thinking about packaging, we often see companies, oh, well, this other company did a good, better best model. But like, it’s well, does that make sense for your business? Right? Would it make more sense, for example, to have a package targeted at product marketers, and a package targeted at executives and a package targeted at like, I don’t know. But if you’re not asking those questions, you are undoubtedly leaving value on the table, like, undoubtedly. And so those are the most common common issues we see.”
[39:08] Transitioning into a Business Owner and a Founder
Being a co-founder is an interesting journey and always make sure you enjoy every moment
“I don’t so I’m from I grew up in Massachusetts, I come from, you know, I’m, I was a first gen college student, I don’t come from a family with a ton of means. You know, I’ve gone to grad school, I’ve done you know, some professional things and consulting and investing and I, you know, always thought I wanted to find something. But I also knew that finding something that found something is a mistake, because it won’t carry you through the roller coaster ride that is starting a company. And so I had sort of gotten to this point where it’s like, I don’t know if I’m ever going to do this. And, you know, I lost a close personal friend of mine had passed away during the pandemic, not from COVID but from cancer and In a couple of life, things like that had happened, where I just had to sit down and look back and you know, look back and say like, what if I’m, if I’m myself at 70 years old or 80 years old, the sort of, you know, deathbed test of like, if I’m looking back? Will I regret not having done it? And the answer is definitely yes. And so then I sort of opened my aperture to, okay, what is something I really can get excited about and chase down. And I was making the decision to leave loom and I was, I was making a lot of decisions like, you know, leave a lot of equity on the table and other things. And I remember just sort of, I was in, I was actually in Montana, with with my partner and I was shaking when I had decided, and I was about to go into the conversation. I was just like, this is really, like, it’s scary, right? It’s a scary thing. Yeah. Everything, since that moment, has exceeded my wildest imagination in terms of, yeah, it’s as hard as everyone says, right. And in some ways, it’s sort of like ironic, because it’s harder, but you don’t really, it’s just just kind of like, just go do it. Like, the only way you’re going to feel it’s the only way you’re going to know it. I mean, you started the business like you get this. I think part of it has been the greatest joy, because I just show up and I get to really shape helps shape the culture with my co founder who’s amazing. And we get to build the company we want to build. But it’s also a roller coaster ride. And I think there are two ways you can take a roller coaster ride, there’s the way where you’ve got your hands up in the air, and you’re like, Whoa, like, this is insane. But like I’m having fun, right? And then there’s the other one where you’re gripping. You know, and we’ve just decided, like, we want to ride it, like we’re having a blast, because life doesn’t last forever. And, you know, we want to bring a lot of love to our customers and the people, the customers we serve to the employees were responsible for and who put their trust in us to the investors who do the same. And so like, we’ve sort of, it’s just a mindset shift of, hey, this is really hard. And it’s awesome, because it’s really hard, right? And so it’s been great. There have been sleepless nights, tears, all nighters. Like they’ve all the things you can imagine that happened have happened, but I wouldn’t change it for the world. And I would encourage those who are are thinking about doing it, to just do it. You know, pick something that’s meaningful to you pick a problem, don’t pick an idea. But yeah, if you’re, if you’re excited about it, I think it’s a real gift to be able to do it. And I feel blessed, even on the days when it sucks. And there are many of those days.”
[44:08] Parent’s Reaction to the Success of their Child
It’s a joy of the parent whenever their child is excelling
“Yeah, no, I think like, they don’t. I think the thing they don’t they don’t connect with it in the same way you and I do are folks who sort of live in this world. And there’s, there’s something really wonderful about it, because there’s also like it, their response is just love, right? Like, I’m just there. I’m just their son and like, they see me doing great things, and they’re proud of me. But most importantly, they just see me as happy and fulfilled and chasing things that, you know, the first I’ll never forget, when I told my dad I was quitting my job to go start a company. You know, the first text message I got back was that’s courageous. You know, what can I do to support you and you know, they don’t need to know the details, right? Like they don’t, it doesn’t matter to them right? What matters to Um, is it comes comes back to, you know, the love thing, right? It’s like, they just love me and they want to see me succeed. And I think that that’s the most important thing. You know, I in some ways, it also gives me amazing perspective, because there’ll be days where I’m like, you know, we’re trying to figure out this, you know, SDK, and it’s not the auto generation of the docs isn’t working, and you know, our customers mad at us, because, like, we return the wrong price onto their pricing page. And like, there’s just, you know, all these like minutiae of details. But they matter a lot to our customers, and therefore, they matter a lot to me. And so I get worked up about them. But when you can’t sort of zoom out, and you take the perspective of like, I’m, I am living the dream, and like it is, I absolutely no matter like, I’ve already succeeded beyond my, the what my wildest imagination, that doesn’t mean I’m anywhere close to done, and I don’t have that life force that sort of drives me forward of this sort of balance of gratitude and ambition, right. And it’s a tricky balance. But like, I feel, yeah, for me, I’ve got nothing to lose, I have literally nothing to lose, right. And if I were my competitor, that would be the thing I would actually be most worried about, and competing against me, because like, I don’t have anything to lose, and I will put it all out there. And I just won’t care. Because I’ve already got everything I ever need. Right. And so in that sense, I’m just feel so lucky to be here. And I feel lucky that they support me. And they sort of are curious. And they’re like, this is super cool. Like, who even knew this was like a thing or an industry, right? My dad worked in construction his whole life. You know, I did that for four years in high school. Like, it’s just like, such a world, right? It’s a great, it’s a really blood, it’s a blessing truly.”
[47:48] The Power of Perspective in Building a Business
Positivity from a gratitude point of view is the best driver in starting and building a business
“Yeah, and I think it carries you through in a way that gives you the energy you need, right? I think people always talk about time management. And I’m so less worried about time management than I am about energy management, like I’m a human being I have, you know, only so much energy, I can give it a day and I try to do everything I can from exercising, you know, journaling and meditating to like, give myself that energy. But some days, it’s just, it’s not there. Right? It’s like, there are days where that happens. It luckily, it’s far fewer days than not, but like it happens, and you have to have something, some pilot light burning inside. I think a lot of people, you know, and it’s such a great story to tell about your parents, it’s so great to respect what they did and what they went through to get there. And I you know, we all I think a lot of us have similar, similar perspective, admiration, but that pilot light has to be there. And hopefully, I think for some people, that light comes from a place of like, you know, insecurity or like fear, like, more like I need more money, or I need a better role or a better type. And I feel like that light burns out a lot faster. And it’s often not there when you need it. Whereas if you can find it from that place of gratitude from that place of joy and like from having fun, like this is supposed to be fun, like talking to you is smiling, right? Getting to Know You is fun, and what you all are building. And so like if that that light is sort of the one that I find to be the most important to both cherished and flame the flame to what is it what’s the what’s the phrase I’m looking for here? fanned the flames. Yeah.”
[56:00] Time and Energy Management
Spend your time and energy in learning new skills and acquiring knowledge
“Yeah, the immediate word that pops into my mind is learning. I just love learning. Part of being a founder, that’s amazing. Because I get to learn when I’ve been unhappiest in my career, or in my life has been where I felt my learning was curtailed, intentionally relative to because I had to get some economic outcome of productivity done, right. And so I had to, I had to be put in to a space where I was forced to this is the, you know, the thing that you’re doing and like, you can’t think outside of that box. And I always rebel against that I just like i My energy is, how do I learn. So I can be a more effective person in everything that I do. And I think one of the things and we I manifest this in my team, I’m like, just because you’re a product designer, doesn’t mean you can’t learn front end development and product, like, I will give you whatever resource you’re interested in, in learning there. Because I know, somehow, you’re still your outputs still going to be the same. It’s like one of those things where you’re the thing you’re supposed to work on, it will still end up, you’ll still end up getting it done. And you’ll be happier doing it because human beings aren’t. We don’t think in narrow tunnel vision, we our thoughts wander and we’re curious, and we want to understand the world. And so for me learning is is the big thing. And so the way I do this, the way I manifest this in my life is every year I pick something new, I need to learn. So right now I’m taking a DJ class, which is great, I love music, I grew up playing music. And the other thing, like last year was boxing, you know, I pick something every year.”