Episode 84
· 45:39
There's multiple paths for you as a as a bootstrap developer tool founder. Not many founders actually know that there's an alternate path outside of venture and PE.
Matt Althauser:Probably, like, the easiest thing that a founder can do, just answer those 4 questions, and do those questions have interoperability with each other?
Jack Bridger:Hi, everyone. You're listening to Scaling Dev Tools. I'm joined today by Greg Lazarus and Matt Althausa from Polychrome, who are a developer tools focused holding company, which is very different to most of our guests who are founders of DevTools. These guys do something really interesting, and I heard about them when we when I was interviewing Flaggedsmith in the previous episode. So, yeah.
Jack Bridger:Thanks so much for coming, guys.
Matt Althauser:Thanks for having us.
Greg Lazarus:Thank you for having us. Excited to be here.
Jack Bridger:So if I didn't cover that correctly, so a holding company, do you wanna kinda talk about what you guys do a little bit?
Greg Lazarus:Yeah. So we're we're Polychrome, and, Yeah. We're a holding company that partners with, founders. I'd usually technical founders who wanna bring on partners into their business to help them take their company to the next level. That can mean a variety of different things, whether it's, we buy with cash a majority equity position in the business or become 5050 partners in the business.
Greg Lazarus:We usually take over, the go to market side, and and the founder gets to stay in place as the CEO and keeps growing the business, and we they bring on more of a business partner. We typically take over sales, customer success, finance, operations, marketing, and the founder stays in charge of product, vision, engineering, etcetera.
Jack Bridger:Now, like, kind of spoiler alert, it's done well. So you so you guys have, like, I know FlaggedSmith, one of your first company are doing, like, really well, and I think Ben shared that you they have, like, 3,000,000, ARR, and you also have Browserless, which is a company that I'd seen a lot online already and was kind of super surprised that that's, like, a portfolio company when it's, like, I assume they're, like, a huge comp like, a VC backed enormous giant, and so maybe they are now. But anyway, it's doing really well. But I kind of wanted to, like, dig into, like, the early stages where that was not maybe clear. And could you talk a bit about how you decided to start your own private or private equity holding company, stop buying developer tools?
Jack Bridger:Yeah. Could you talk a bit about that, what that was like? This episode is brought to you by Work OS. At some point, you're gonna land a big customer and they're gonna ask you for enterprise features. That's where Work OS comes in because they give you these features out of the box.
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Jack Bridger:Yeah.
Matt Althauser:Well, actually, Greg and I have been working together for a long time. We actually know each other. We played together on the German national lacrosse team, so that's where we met back in, like, 2009. And both of us were super early in our careers. I went off to work at a company called Optimizely, where I was the 1st nontechnical hire and kind of worked super closely with developers to help sell this product of AB testing.
Matt Althauser:So I was there, and right after I got there, I was like, wow. We need Greg. So I was working on getting him to come for many, many weeks, calling him nonstop. Finally convinced him to move from New York to San Francisco, and that was, like, when we actually started getting experience working together. Built a super close friendship as well.
Matt Althauser:And, I went from there to go be the chief revenue officer at a company called Amplitude. It's an analytics company. Was there for about three and a half years. And Greg, at the same time, was the CRO at a company called Returnly. And so we are just kind of learning how to bring products to market.
Matt Althauser:The interesting thing at that time is, like, at a venture backed company, you you have, like, unlimited resources, really. Right? Like, you don't have this constraint. And so we started, like, having this idea of, like, well, you know, what if you could build a business a different way, like with more constraints, but having a heavier ownership portion of that business? And so we started kind of kicking this idea around and eventually came up with what is today Polychrome.
Matt Althauser:And we started really with, like, not that much money. We really just went out and started asking founders, hey. Like, do you need help on the go to market side? Would you sell us half of your business? Which actually sounds completely crazy today, like, looking back at what we were doing.
Matt Althauser:We had no experience buying businesses. And, actually, the first business we tried to buy was, like, for $50,000,000. And we won't say, like, what what business that was, but we got actually into LOI with them, and, like, we're going really deep in the process. And then they kinda realized, like, you guys have never bought a business before. So we kinda took a step back, but it was pretty brutal, like, loss, but great feedback for us.
Matt Althauser:And kinda we realized that, like, buying companies, there's a spectrum of it of which value what what skill sets are valued the most along a spectrum. Right? So if you think about, like, building a product, like, from scratch, the the valuable asset or the valuable capability is is the ability to produce a product. Right? And that's why engineers are commonly the founders of software business.
Matt Althauser:Shocker. Right? And then, you know, you kinda get to early, like, user product fit. I wouldn't even call it product market fit. And then the skill set actually tends to be people that can get feedback from customers and start running early sales cycles.
Matt Althauser:And then over time, it's scaling that. And then a business actually transitions into almost a financial instrument. And at that point, it's actual financial skills. It's understanding debt, understanding equity and how to put those things to work inside of these businesses to purchase them. Right.
Matt Althauser:So, most people only see acquisitions where the core skill set is finance. You know? These is like, there's a really famous book in business school called, Barbarians at the Gate. It's the, Nabisco, RJR, like, merger. And, literally, it's a book about these banks bidding to see who can pay the most for a business based on their understanding of debt servicing.
Matt Althauser:Right? So it's a totally different skill set. And we were like, wait. Why are we trying to buy big companies? Our skill set's not gonna be valued there.
Matt Althauser:Yeah.
Greg Lazarus:We don't have that
Matt Althauser:skill set. Started focusing on them, yeah, going and and saying, where can we get the biggest premium for our skill set? And it turned out being, like, kinda right at that product user fit and, like, initial revenue, but not really knowing how to get, you know, to the next market or the next milestone as a business. That's what we've done as operators. And that was kind of what those founders don't have.
Matt Althauser:Right? And so that was sort of the thesis that we started approaching people with. And the first person that we actually closed the deal with was was Ben at Flagsmith. At the time, they weren't called Flagsmith. They were called Bullet Train, and, they were doing about 2,000 a month in in revenue.
Matt Althauser:And, yeah, we we've the the deal is documented on Hacker News. I sent you the link to that. But, yeah, at any rate, we we struck the deal and, you know, it worked out, and that was the first kind of portfolio company, that we did. And, yeah, now we're direct partners with Ben and his group. And, you know, we have now 3 other companies in our portfolio.
Matt Althauser:So, yeah, we just kind of, like, built it piece for piece and kind of on the back of, like, our skill sets that that actually helped founders.
Greg Lazarus:Yeah. That's where we realized when we, when we met Ben well, taking a step back, when we got broken up with, with a larger company right at the finish line, that's when we realized that we're not finance people and financial buyers. The reason why we got so far with them was because of our operational experience and the ability to join them to help take the company to the next level. And that's where that moment came in, and we were like, hey, maybe we go earlier. And with technical founders, that's really our value add when we wanna build our company.
Greg Lazarus:And then we met Ben, and Ben actually was in this similar search of what he wants and what he wants at Flatsmith. And he actually was talking to investors to potentially raise venture capital. But Ben is a serial entrepreneur and runs a bunch of other businesses as well. And he didn't wanna give those up. And when you go down the venture path, that's your only path to go down.
Greg Lazarus:And so he was introduced to us through a good friend. And that's where we realized that we're the perfect fit. Technical founder needs help with go to market. Go to market people, not technical, can join them and and help build. So we both took this this leap together, and that was FlaggedSmith, our first our first company.
Greg Lazarus:Or bullet train then now FlaggedSmith.
Jack Bridger:So I I wanna dig into, the flagsmith, like, how it started. But just before that, I just like, the kind of elephant in the room question there is, like, so you bootstrapped as a kind of, a group, and you were gonna buy a company that was, like, a 50,000,000 company, how would that have been the same, like, financing as buying flagships?
Matt Althauser:Very different. Very different. So in that case, we were gonna basically, once you get a business under a letter of intent, you then go and raise the capital to transact on the business, and you effectively use the terms of the deal to raise the capital. This is called a fundless sponsor model. So most of the acquisitions that you hear about aren't, you know, like, aren't how most acquisitions take place.
Matt Althauser:It's it's just like a fundraise. You know, you're you're setting the terms of the deal, and then you're going to the the capital investors and asking them to participate. And then you get a, you know, carry on that deal or you get a management fee on that deal, and that allows you to have a salary to work in that business going forward. So that's kind of how most, like, in the world of, you know, small cap, meaning, like, less than $1,000,000,000 acquisition. That's how a lot of those acquisitions actually take place.
Matt Althauser:So that's kind of a tried and true process, but you kinda really need to be good at raising money, and you really need to go to finance. Right? And, like, we're okay at raising money, but we're much better at at building revenue. It turns out that's the better thing, in our eyes to be really, really good at. But, you know yeah.
Jack Bridger:And and so and then when you when you, started talking to FlackSmith, that was something that you just didn't need outside capital for.
Matt Althauser:Right. So the the initial so the business was just super early. It was an open source project. They had a SaaS offering, and they were just, you know, really getting started. They had done this as kind of a nights and week weekend project as a rollout from their agency.
Matt Althauser:And so we I think we put up $225,000 in cash for a 25% stake, and then we agreed with them that once we got revenue to a certain milestone, that we would become 5050 partners in the business. And, yeah, so, again, like, you can link to that hacker news kind of conversation, but they were taking a bet on us, and we were putting our own real money into this deal.
Greg Lazarus:And time.
Matt Althauser:And we wanted to do a deal where, yeah, we wanna deal do a deal where we had to do that. Right? Just get in the game. We were gonna double down and make these founders super successful. And we think that's, like, the best way to start something just like a technical founder, like, building the product.
Matt Althauser:Like, we wanted to build the offering, as a holding company. And so, yeah, that's how we started. And now we've since raised $10,000,000 in in capital, and, you know, we can buy more businesses with that capital we have. And we now have a capital base of investors that wanna do more deals with us. So we're not limited just to that, but we can start pulling the trigger on deals much faster, and that's been super helpful.
Jack Bridger:You know, like, when VCs invest, everyone says, like, you know, we are we are we're gonna help you out. Like, we're gonna make all these intros. But, like, I thought what was interesting is listening to, Greg on the podcast. He mentioned that you were, like, on the phone every day for, like at that point, it was, like, for the last year and a half, but I think maybe it was longer, of, like, just doing probably the unglamorous stuff of, like, making the calls and, like, actually not just, like, strategizing, but, like, actually doing the deals and, yeah.
Greg Lazarus:We were doing cold cold outreach on Sunday nights for flagsmith to, to prospects to try to get new customers. So, yeah, daily meetings, taking over sales and marketing, working side by side in the trenches with with Ben and team to build that company.
Jack Bridger:Was it, full time that you moved you were working on this? Did you have other things going on at the same time? Or
Matt Althauser:We we actually started Polychrome, the way that we were able to sustain, like, you know we have a third partner, Alex, who came on a few months later, but he's a full partner, and he's been with us from the beginning. And to sustain all 3 of us, we needed to do consulting kind of on the free days. So we would actually do, consulting for venture backed businesses and then just reinvest all of that money, back into Polychrome. So we did that. Actually, it took us, I think, 3 years.
Matt Althauser:And, like, to date, I think we've only all of our businesses are profitable or cash flow breakeven. And I think to date, we've lost, like, a $100,000 of, like, you know, actual burn. And so, yeah, we're we're now we're very profitable. We're turning the corner on all that stuff, and, we have, like, a holding company that's sustainable. So, you know, it's not an overnight thing.
Matt Althauser:It takes a lot of time to do, and, you have to kind of really be obsessed with, like, what you can accomplish in 10 years. Right? And that's why it matters to do something like this with people you care about, like close friends. All of us have known each other for over a decade. And then the founders we work with, like, we spend a lot of time understanding what they want to accomplish personally from the business and make that a big part of our focus.
Matt Althauser:Like, we talk about that when we have Polychromes. Are we living up to, you know, our partner here or there? And so, yeah, it's not like, it's very different from the venture world we came from, but we really love kinda what this can become, you know, in 10 years from now. And we say that every day.
Jack Bridger:It's super interesting because it's like, it sounds like you actually were taking, like, a really big risk that's more like, you know, it's not like an investor risk in a sense. Like, you're kind of going, like is you're basically taking, like, founder level risk in the sense of, like, you're putting a a ton of money on the on the line at the beginning, and it's all within 1, you know, one asset, flagsmith. Right? And so there's, like, if any I get because even, like, in a very small way, I bought a news I was saying I bought a newsletter, like, 2 or 3 years ago, and it's like, there's so much stuff, I guess, that you just don't know until you actually, like, get into the business and, like, you could do all the diligence in the world. But, like, it's quite a big risk that you took.
Matt Althauser:Yeah. I mean, Greg, actually, didn't you just read that book? What was the book you just read?
Greg Lazarus:The Rick Rubin book?
Matt Althauser:No. I think you were was it skin? Sorry. No. Skin in the Game.
Greg Lazarus:Was it Skin in the Game?
Matt Althauser:Yeah. Yeah.
Greg Lazarus:Skin in the Game. Sorry. I'm reading Rick Rubin right now. Love that guy.
Jack Bridger:I'm a good. Yeah. Yeah. Yeah.
Greg Lazarus:Yeah. Skin in the game, I think that that is exactly what what we do and what we did in order to get Polychrome off the ground. And that's Yeah. Yeah, super founder friendly.
Matt Althauser:I think there's, like I don't know, Jack, if you've spent time, like the the question that I got obsessed with, like, back in, like, 2015 was, like, it was so interesting. It was probably 2015 to 2017 where I could not get this question out of my mind. And it was like, we built so optimizing was an extremely fast growing business. So we we went, I think, you know, in the first 18 months that I was at the business, we went from 200,000 in revenue when I joined to 9,000,000. So it's just super fast growth.
Matt Althauser:And the company continued on that path for a while until we kind of had bad unit economics. So basically what would happen was a customer would we would acquire a customer. They would love our product and then they would churn. And we were like, wait, why are you churning? And they're like, well, we're done with the AB testing project.
Matt Althauser:Right? And so it was like super that was just seared in all of our minds. Right? If you were at the company at that time, you kinda knew what we were dealing with, and that was a challenge. The company overcame that challenge and got to, you know, over a 100,000,000 ARR and then eventually sold.
Matt Althauser:So it was successful, but it wasn't, you know, the IPO, the multibillion dollar business that we kinda thought we were on track to build. And then I went to go, work at Amplitude where, now it's a public company. The, you know, net retention at the time was just off the charts. Like, if you acquired a customer, you knew they were gonna spend more and stay with you sort of forever. And, it was interesting because I started thinking about valuation and, like, what's a company worth and where does a company derive value from?
Matt Althauser:Right? And in the venture world, it's like just about speed. Right? It's like really about speed. They're like, we'll make money in the future.
Matt Althauser:Let's make this thing go as fast as possible. And what I realized is that, like, not every company should be run that way based on the unit economics that a customer might provide to your business. Right? And that was a huge insight to thinking about, man, if we'd have run Optimizely with a different mindset from the beginning, how big or how profitable could that business have been if it had the right expectations? Right?
Matt Althauser:And that that, like, question of valuation is, like, something that's really hard to kinda understand from a book. And so I wanted to get better at financial valuation and, like, what would I pay for a business? And we went through all these hoops and exercise. Greg, we're looking at Greg and I. We're looking at a bunch of different businesses, and it turns out that, like, you really just have to, like, sign your name and blood on a business to really know what you believe it's worth.
Matt Althauser:Mhmm. And, like, it's like, you can't do this, like, in an, you know, an agent situation. You have to be the one making the decision. And once you sign your name, just like you learned with that newsletter, you're now on the hook for all the benefits, but all the problems that come with that business. Right?
Matt Althauser:And you just cannot simulate that. And I think when a company becomes really, really big, maybe you can, you know, at that point. But, it's very, very difficult to do in the earlier stages of businesses. And so, yeah, we kinda knew we would only learn this through getting skin in the game. And that's, like, why we took that level of risk with founders because we just didn't think we would be good enough if if we didn't do it.
Matt Althauser:So yeah.
Jack Bridger:Was there something that you saw like, what compelled you to like, FlackSmith is the right business.
Matt Althauser:Yeah. I mean, Greg can talk about it too, but, like, it's like we just know that market really well.
Greg Lazarus:There's a lot of crossover and similarities between that and Optimizely and Amplitude where Matt was and just the world is just we're super familiar with that world feature management, AB testing, analytics. And so the other side of it, not just the product, is is the people. And so we're we love working with these bootstrap developer founders. We have a lot of similarities. We go to London all the time, and we we hang out with them.
Greg Lazarus:And, like, these are people we wanna spend a ton of time with, not in, like, get to know them, their families, build something together. And so it's not just the technology, but when we met Ben and team, we were like, we gotta work with these people.
Jack Bridger:Yeah.
Greg Lazarus:Like, we would love to work with these people. We would be honored to be able to work with these people. And so, yeah, that's how we just tried to figure out a way how to do it.
Matt Althauser:It was funny though because we did our first deal during the pandemic, and, it was actually, like, a weird, but also, like, saving grace for us. Like, every other kind of private equity or holding company would have traveled to meet them in person, and, like, it totally equalized the field for us. So, and then we met them in person, like, a year later or maybe a year and a half later, and it was like, we've been working together every day. And they were like, woah. You're this tall.
Matt Althauser:You know? Yeah.
Greg Lazarus:Yeah. Because we're very excited
Matt Althauser:for y'all met in person. We had a great night. They hang over, but it was super fun.
Greg Lazarus:London will never forget that evening.
Jack Bridger:Yeah. Yeah. The I think I heard rumors about it. Yeah. Yeah.
Matt Althauser:For sure.
Jack Bridger:Okay. Amazing. And then what did it look like, that first maybe that's a good place to start. So that 1st year and a half, like, what was, what did it look like? Like, and and maybe starting from, like, the 1st month.
Jack Bridger:Like, what did you do when you kinda came in? Like, the the ink the blood on the on the on the signature is dry.
Matt Althauser:Yeah. We're we're actually lucky because, like, we, so we're not financial buyers, right? Like, we have obviously ranges of finance that we can pay and afford. But it's like it's more kind of binary conviction or not with us. And so we our process to evaluate, like, a business is much more based on go to market strategy, because we basically price in that we're not gonna evaluate the right way compared to every other financial buyer.
Matt Althauser:But the question is, can we 10 x this business? And so, like, if we feel that there is a clear case to 10 x ing the business, it's gonna be rooted in the go to market and product strategy. It's not gonna be rooted in, you know, some finance, like wizardry. Right? And so we have a process that we go through.
Matt Althauser:We call it, like, for fits, and it's just asking the model or excuse me, market, product model channel fit. And so this is, like, one of probably, like, the easiest thing that a founder can do is just, like, just answer those 4 questions. And do those questions have interoperability with each other? So, like, if my target market is enterprises and, you know, I'm going to charge them a $100,000 a year to start, I'm not going to do, like, product line growth. And all I'm doing is self serve content.
Matt Althauser:Like yeah. Like, that's not gonna work out for you. Shocker. So I think most people, though, it's like they they like they get their experience from, like, a bunch of different places, and they're like, this is what great is. Right?
Matt Althauser:And the answer is is, like, there is no playbook. There's just frameworks. And then within those frameworks, you need to, like, be pliable enough to figure out what works for you in this situation. So the kind of the thing that was super interesting about Flag Smith was it was open source and we'd never worked in open source before. And like, yeah, we were kinda nervous about that, and then we realized that it's just this, like, this glaring strength for the business.
Greg Lazarus:The Supercar.
Matt Althauser:And yeah. And so we just doubled down on that as kind of, our core go to market motion there.
Greg Lazarus:There was 2 things that we we worked with Ben and Tim on immediately. And the first was, in this this model that Matt mentioned, the 4 5ths, is understanding, like, our target market and who we wanna serve. Feature management is a is a commoditized space. It's very busy. I I would say software as a whole is a commoditized space, and so you have to find your corner and you have to execute really well there.
Greg Lazarus:And so we agreed on our on our target customer. And then what we did was the other thing is, developers, especially open source founders, that is a it is a very sensitive topic to monetize start monetizing as an open source project. We totally understand that. And so we worked a lot on, what what our open source philosophy was as an organization. What will we gate in our open source project, and what will we have as open for anybody to use?
Greg Lazarus:And so we had to overcome that as a team and come up with our philosophy there and understand our target customer. Both worked really actually well together. And then we could hit the ground running all all at the same team. As a small team, you have to be aligned. And and that's what we what we worked on really early.
Jack Bridger:Yeah. And so that what what were that like? Were there any kind of big changes that you made there, that kinda came out from, like,
Matt Althauser:Yeah. For sure. I mean, one was Ben at the time was like, let's just build the model that Ben and team were going off of was we're going to have an open source version of the product and then we're going to have SaaS. And it's basically like that was going to be the line between the 2. And what we realized was like, well, like there's big organizations that just want to run feature flags or flag management on premises for performance and security reasons, and they want support with that.
Matt Althauser:Why don't we also make this like a first class opportunity, you know, for those customers that want flexibility of how they run their feature flags? Okay. So that was, like, know, a big insight early on and, figuring out, like, how do we do pricing for customers like that? How do we support customers like that? I think that was all big.
Greg Lazarus:Yeah. We worked with Ben to and we realized that we don't want to take away from the current open source project. If you're a developer or if you're a small team and you want to run feature flags or AB testing or segmentation, you should be able to do that with our open source project if you just wanna host it locally yourself. Yeah. But what we agreed on was there's there's certain features and there's certain permissions that a team or an enterprise organization would need, like SSO or role based access control, that in order to get it across an organization, they were would need those features and are willing to pay for those features once they've once they've proven that the product is right for them and their and their team.
Greg Lazarus:And so that's how we really differentiated our open source versus our closed source enterprise on prem solution.
Matt Althauser:And then I think Ben Ben's really the one that set out the philosophy. Right? And then, again, it kinda goes back to, like, constraints. Right? Like, if you're in a venture backed business, you're not really allowed to set constraints.
Matt Althauser:Like, You need to grow at all costs. Right? And so, like, a lot of our competition is also like open source feature flags and like, yeah, they they can like they're probably at one point going to need to grow so fast that they'll sort of have to violate some of those things. And so for us, like, we can just approach the market differently. Right?
Matt Althauser:We're profitable. We're growing quickly. We don't have outside investors. So, like, from that point of view, like, our investors are our customers and the community. And so we need to make sure that we do a good job of nailing that.
Matt Althauser:And I'd say, like, that's also, like, not a private equity mindset. Right? So that's why that word for us is always like, sure. Yeah. But I think the bigger thing is like you.
Matt Althauser:There's a million ways to build a business, you know, and you're always going to have, like, what they call, like, value leak or like things where you don't capture every dollar. And we're okay with that. Like, we're okay with building the right business for the right market for the best founders. Right? Like, that's what we wanna do.
Jack Bridger:It seems like a actually a really good fit, this model for, like, open source, where you still get some kind of funding to keep you going and and kind of that go to market, but you're not, like, having to make, very yeah. Kind of well, people call it, like, rug pulls. Right? Like, that's what developers are like. That that's how they feel whether that's true or not, but a lot of companies perform what you know, Hacker News is like, that's a rug pull, but, like, you know.
Matt Althauser:Hacker News is crazy, man.
Jack Bridger:Yeah. Yeah.
Greg Lazarus:It's a crazy place.
Jack Bridger:And so was that, like how long did it take for you to, like, kind of, you know, let's say, like, okay, this has worked.
Matt Althauser:Well, I think we did the deal with Joel at maybe, I don't know, 9 months later, Craig, or 6 months, 7 months later. We knew kinda we were on a great trajectory and path pretty early. I think we, closed our first enterprise deal for Flightsmith, like, within, I think, like, 60 or 90 days of getting in there, and it was like
Greg Lazarus:Yeah. It was like Christmas Eve.
Matt Althauser:Yeah. That's right. So that was that was great. So we kinda were we were pacing on plan. Alex, our our third partner, he does finance and kind of operations, and, like, he just builds, like, the best financial plans for businesses, with constraints.
Matt Althauser:Emmy also without constraints. He comes from Venturi. He comes from Twilio. But, yeah, like, we were hitting plans sort of every single month, and we had a lot of conviction of what we're doing. We loved who we're working with, and we were keeping ourselves afloat with outside consulting just as needed.
Matt Althauser:And so we're like, yeah, let's keep doing this. So we did another deal. And then once we hit kind of the goals of both of those founders, at least in terms of our partnership, not like their long term goals, but in terms of, you know, the partnership, then we were like, wow, we should do this, like, at a lot bigger scale. And that's actually when we went to friends and family and, some, like, really cool people that we have on the Polychrome cap table. That's when we actually went and asked for money.
Matt Althauser:But we were 2 years on our own money and our own time and risk and really getting, like, way past product market fit Yeah. For what we do Yeah. Before we went and asked our friends and family and investors for any money. So Yeah. Yeah.
Jack Bridger:With this kind of a track record, I guess, like, everyone would you wouldn't want to, like, give you money and, you know
Matt Althauser:Yeah. Yeah. I mean, it's it's like I think I I think it's like it's now it's like sort of this time thing. Like, at the yeah. I know you mentioned, like, tiny, and we look up to, like, Constellation and all these business.
Matt Althauser:It's like, you kinda look at the mountain of a business that you've built. They've built it. It's super intimidating. Yeah. But, like, you know, I always say, like, how do you you eat an elephant one bite at a time.
Matt Althauser:Like, it's not like
Greg Lazarus:I think Tiny just went public and they were around, what, 25 years or something like that.
Matt Althauser:So you gotta, like, love the software game to be like, I'll be doing this for a long time. So
Greg Lazarus:Yeah. Yeah. It's a totally long play. And you have to take the long view with with and, and with the businesses that we're working with and the founders that we're working with and to make sure that we're all aligned. And yeah, it's just a patience game.
Greg Lazarus:Yep. Which is hard when you come from the venture world, because it's a totally different mindset. You should see our internal meetings. Yeah.
Jack Bridger:Yeah. And, one of the things that, I think Greg mentioned on a podcast was that, like, if in your ask, like, what what do you look for in businesses? And I think the first thing you said was, like, open source developer tools is like our is our our space. And, I wondered, like, why why why is it because you some some of the companies that your background is, like, you could have also gone, like, the marketing software or, like, there there are, like, a few or, like, general SaaS or, like, what what drew you to, like, open source developer tools? Why do you believe that's such a opportunity?
Greg Lazarus:Yeah. I think for us, there's a few things. 1, developer tools typically are founded by a technical person. And that person, most likely, again, is an engineer, and they probably don't have sales experience or go to market experience. So just as a founder fit with Polychrome, that's exactly the profile that we would wanna partner with.
Greg Lazarus:Outside of the founder fit, what we also look for is high net revenue retention in organizations. And we found that the developer tool space has very high net retention. Typically because those tools are built into processes or into the actual infrastructure of an organization and etcetera. So that's that's also what we found there as well. Matt has a good, analogy where he talks a lot about, companies that are either the scaffolding or a hammer.
Greg Lazarus:And you could think about like an AB testing product as a hammer to solve a specific problem in that given moment where you log in and you log out to make a decision. And we think a lot about developer tools as scaffolding of organizations where process and systems and teams are built on top of. And so we like working with those types of types of organizations as well. And then we have this strong belief that, I have a strong belief, I know Matt shares this too, but that I said this earlier, that software is a commodity. It's getting easier and easier to build.
Greg Lazarus:I believe wholeheartedly that open source software is the future. If you look at YC and a bunch of other investor memos lately, they're all saying we want to invest more in open source software. And so we like that as a distribution channel and we like the way that we can build communities and trust with developers and customers in in that way.
Jack Bridger:Yeah. And, one of the I think, was this Matt's article that you have on, because shout out. Polychromes blog's really good. I think you talk about, like, rented channels.
Greg Lazarus:Was that
Jack Bridger:that was your article, right, Matt? Yeah. Yeah. And yeah. I think you mentioned that, like, you know, this stuff around, like, well, if the big players have a greater customer lifetime value and you're this new startup that does something very narrow with a small lifetime value, like, those channels are just not gonna work out for you because Salesforce is always gonna pay more, can be able to bid more than you tiny little new CRM.
Matt Althauser:Yep.
Jack Bridger:And I think you mentioned that, like, open source is, like, one of those examples of, like, for FlaggedSmith of a channel that's, I can't remember what the word was that you used for the opposite of rented.
Matt Althauser:Yeah. It's owned or built. Yeah. Yeah. I think it's important to like, I think most people, like, a lot of, developers, like they're like, okay.
Matt Althauser:I'm gonna build this product, and I'm gonna get AdWords. And then, like, that's all we gotta do kind of deal. Like, I'm not I'm oversimplifying it, but like and then they're like, and we're gonna do product led growth and we'll never have to talk to someone about sales. You know, it's like it's kinda like, woah. There's like kind of a lot of, like, hopeful situations, but, like, very few companies function like Slack do.
Matt Althauser:And, like, very few companies have our products have like built in network effects, whereas like distribution becomes more distribution. That's very, very rare. And so you have to think about like channels almost as products. And how can I build and invest, you know, this this product that will give me something over time? We did this at Amplitude.
Matt Althauser:We did really good first party events, and we were able to get hundreds of people to come up to our events in any city, you know, that we went to because we built really good thought leadership, and we got great speakers to come to those events. That's a good example of a built channel in a non constrained budget. Because, like, what bootstrap startups gonna go do a roadshow? Right? But the key thinking is, like, what stage can I build as a founder that is long term valuable for my audience and defensible of everybody else?
Matt Althauser:Right. So your podcast, Jack, is a great example. We actually built the podcast for Flightsmith. That was one of the things that I did in the 1st few months that I was there was like, Okay, we need an awareness channel. We want the nth investment into that channel to be lower than my upfront investment and like podcast.
Matt Althauser:The reason why so many people are doing podcasts is because they are built channels, and you can create a stage for distribution, right, with your message. And so, it's a it's actually like people make fun. Oh, this next person has a podcast. Like, it actually makes a lot of sense. Right?
Matt Althauser:Now does that mean that the average founder should go do that? No. Like, you should do the channel that especially as a technical founder, you should build the channel that you can uniquely build with your audience and your product. And, I just don't think I think people are a little bit lazy on on channel, like, ideation. Right?
Matt Althauser:So we're actually building if people want to join, we're building, like, the 1st industry conference right now, a browse list for the headless browser space. So we've got speakers from Google coming from Sauce Labs, and we're, you know, a 7 person company, and we're getting really, really good people to come to this. So, like, these are examples of, like, I'm doing a virtual conference. I focus on the quality of speaker, and the quality of speaker drives distribution. Right?
Matt Althauser:And then this is run by a small team. Right? It's the same thing as you. The better speaker that you get on here, the bigger your reach is gonna be for your podcast. So, like, you should be going after the GitLab CEO.
Matt Althauser:Right? Like, you know, it's like these are the the kind of thing I mean, I'm telling you Yeah.
Greg Lazarus:Yeah. Jack wrote about that.
Matt Althauser:Oh, okay.
Greg Lazarus:Sorry. Joining a podcast, about what podcast Yeah. Hosts care about is quality speaker and and whatnot and distribution from them.
Jack Bridger:For sure. Okay, guys. This was amazing. I think I have, like, way more questions, so maybe I'll have to get you back on at some point again, if you're interested. And, do you if you have a kind of takeaways for someone buying a developer tool and then also, like, just a founder of a developer tool.
Greg Lazarus:I think on the on the founder side of things, there's there's multiple paths for you as a as a bootstrap developer tool founder. There, you can obviously go raise money. You can keep running the business yourself for as long as you want, get it profitable and the life that you want, get bought by private equity. But I think a lot of people like, there's other paths you can go down. It doesn't have to just do Polychrom.
Greg Lazarus:There's other unique paths that you can go down. And I think what we learned is that every founder is different. There's not just the raise money path and and and grow, or it's not just sell to private equity. You can live your life. You can have other companies too, and you can still build really great great businesses.
Greg Lazarus:And I think, not many founders actually know that there's an alternative path outside of, Venture and PE for them. So think think more broadly. Go down the path that you want. I'm happy to talk to anybody as well who who's interested.
Matt Althauser:On the on the buyer side of things, I think the there's a few. So number 1 is you're not just buying the upside, like when you buy, you know, I think like when you buy a stock, you're buying like you're buying upside, you are buying some downside, but it's limited to your position, right? With buying a company, you're buying the upside for sure. The downside for sure. And you also can lose your time.
Matt Althauser:So I think you really want to be thoughtful about and this is like why choosing the people to work with matters so much because, you know, you're going to have to get down in the foxhole and you're gonna have intense times, and you wanna be aligned that it's worth it for the people you're working with. Mhmm. So it's you know, I think people have probably said this a lot, but at this stage of buying businesses, you're you're buying a partner more than, you're buying, like, a pure asset, if that makes sense. And losing side of that is is really, really dangerous.
Greg Lazarus:And the flip side of that is as a founder, you wanna and if you're gonna make the decision to bring on a partner, you wanna bring on somebody who is gonna have skin in the game with you and somebody who's gonna be in the trenches with you, closing deals, ideating, losing deals, all of the above.
Jack Bridger:Yeah. Yeah. Well, it seems like there's probably not that many Polychromes out there. It's in the developer tool space. So, yeah, this is I I think that's probably hard as well is that to find a find a buyer that's actually willing to do what you guys did, and still do.
Jack Bridger:So, yeah, definitely, if anyone is thinking of, you know, selling or not selling, but, like, kind of getting a different route, then they should definitely chat with you guys.
Matt Althauser:Polychrome.com. Polychrome.com.
Jack Bridger:Blog is very good. Thank you so much, guys. And, Yeah. Thank you everyone for listening.
Matt Althauser:Alright. Thanks, Jack. Thank you.
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