Finance

313: Surviving a Failing Startup and Thriving in the Midst of Crisis, With Rippling Founder Parker Conrad 

Parker Conrad is no stranger to hard times.

His first startup, Wikinvest, failed to take off during the seven years he was with the company. He then had a falling out with his co-founder, which caused him to leave and start over. Conrad’s next venture, Zenefits, faced scrutiny while he served as the CEO. And now, his current company Rippling is feeling the effects of the Covid-19 pandemic.

But Conrad’s strength has always been approaching problems with a realistic and humble attitude. Despite the fact that Rippling’s existing customer base has shrunk since the pandemic hit, the company’s top-of-funnel performance hasn’t been impacted. They’re setting up record numbers of demos and doubling down on product investment. Most importantly, Conrad is being strategic about finances and still has three years of runway left.

In this podcast episode, Conrad shares his most honest thoughts on the challenges of Covid-19, what he’s been doing to get through this transition, and what he thinks other struggling founders should do.

If there’s any other type of content you’d like to see that would be valuable to you during this time, please don’t hesitate to reach out at [email protected]

Nathan: The first question I ask everyone that comes on is how’d you get your job?

Parker: Man, there’s a complicated history for that in my case. So, Rippling really sprung out of sort of some of the ideas that I’ve been working on at my last company, Zenefits. When I was at Zenefits, I realised that one of the things that worked really well for us, when Zenefits was working, and I think the key insight there was that in Zenefits you could click this button to hire someone and people would show up automagically across all your different HR systems. And that was like mind blowing to people at the time, because before that company came along all these different pieces, payroll, HR, medical insurance, other benefits, those were all completely separate and disconnected systems. And tying them all together and having sort of one place to go for employee changes, hiring someone, terminating someone, really simplified life for the HR department.

The key difference with Rippling, I sort of realised that for the same reason people wanted to be able to do that with an employee across HR systems, they really wanted to be able to do that for an employee across the entire company. And so with Rippling, you click that button to hire someone and you tell us their start date, their manager, or their department, team, level, what have you, and we’re going to get them set up properly in payroll, enrolled in insurance, but we’re also going to ship them a computer that will come pre-installed and pre-configured with all the right software and all the right policies for their role. And we’re going to set them up with all the right systems they need to do their job.

So maybe if they’re a sales rep they get access to Salesforce, if they’re an engineer they get access to GitHub and AWS and a number of other things, they’re going to be added to all the right email lists, all the right Slack channels. And all of this is tied to their role, what they do for the company, that sort of determines how they need to be set up and where they need to be set up.

And so the big picture behind Rippling, the idea is that it’s an employee system that’s not just about HR, it’s sort of the employee management broadly across the entire company and all the areas of the company that have this sort of touchpoint to employees and who your employees are, and that sort of thing.

Nathan: Yeah. Wow, interesting. So look, I have some experience running a company out of the US, we set up an entity a while ago, and it’s definitely not the same as Australia. You guys are very, very, very complicated around all sorts of different things. So can we talk about was Zenefits your first company, or did you start companies before that? Because I know that that company luck was an absolute rocket ship.

Parker: No, it wasn’t. There was a company I started before that, that I was at for about seven years, six or seven years. And it was sort of six or seven years of slow grinding failure. Just barely staying alive, never succeeding, but not quite dying either, which would have probably been a mercy at the time.

I always thought we were six months away from really figuring it out. We would sort of do something and we would launch it and it wouldn’t really work, but it would work just enough for us to think like, “Oh my gosh, I know exactly what we need. We just need to do this next thing, and that’s the thing. That’s the thing that’s really going to get us there.” And so that kept us going, or kept me going, through this succession of pivots where success was always just around the corner.

That struggle, it really takes a toll on you and I think it kind of grinds you down and it led to a falling out with my co-founder. And I left the company incredibly depressed about it, I was convinced even then that it was going to be a huge multi billion dollar outcome. And I’d never do anything as impactful as what we were working on there.

And that wasn’t true. The company has, has done better than since I was there and I’ve also gone on and had some other things that have been really exciting as well, but at the time it felt like there was just never going to be another opportunity.

And I think that’s one of the hardest things for founders is sometimes when you leave a company as a founder, often it feels like there’s not, at least it felt this way to me, there was very little career opportunity. It was kind of like I’d been at this thing for seven years, but I had no specific skills. I wasn’t really qualified to run a sales team, or run a marketing organisation. And I had this job that was sort of hard to describe as the founder of a company, because you’re kind of doing a little bit of everything and I’d been at this company that nobody had heard of for six or seven years and the jobs that I could get, they were sort of entry level roles that other people right out of college would be applying for.

And I sort of looked at it and I realised, man, the only thing I’m really qualified to do is to start another company. I had had this pain point at my first company. We didn’t have any money and we didn’t have anyone in HR, and so I had dealt with enrolling employees in health insurance when they joined the company. And to do that, you could only do that via fax machine because that was the only way to enrol people. And so we didn’t have a fax machine because this was 2010, not 1982. And so, every time we hired someone, I would stop off at Kinko’s to fax in their insurance application. And I realised, “Gosh, there’s got to be a better way to do this online.” From there, the genesis of doing payroll and benefits all together online in one system.

Nathan: Yeah. Got you. So let’s talk about Rippling, everything that’s happened in these current market. We are in lockdown, we’re chatting right now. How’s everything going for a SAS company right now? Have you guys experienced a massive increase in churn? What is happening right now for you guys? Have you guys been affected?

Parker: What we’ve seen is for the longest time at Rippling every month we would close a bunch of new sales and also our existing customer base would tend to grow and expand. In part because they would maybe add more products in Rippling, but also a big part of it is that we tended, and we still tend, to attract customers that know, or that believe, they are about to hire a lot of people.

Because part of the thing about Rippling that’s really interesting is the ability to sort of click this button to hire someone and they get set up everywhere all at once. And so we always had every month our current customer base was expanding a lot, and because we charged per seed, is worth a lot more money than it was the month before.

And actually March and April are the two months since the company was founded that we will actually have contraction in our existing customer base instead of expansion. The biggest hit that we’ve had has been that. Has been the shift from an expanding customer base to a contracting one that we hope will be a very temporary situation. And that we’ll be back to seeing growth in the existing customer base in the next few months.

We’ve been fortunate that at least the sort of top of funnel has not been severely impacted. What I mean by that is the new customers coming in each month, in March we were certainly down from where we planned to be, but we were still near our record in terms of the new sales that we brought in. And I think April will likely be the same as well.

So generally what I tell people is I think we’re like less screwed than most. It’s not so fun. It’s not a good situation. I would, for many reasons, rather this whole thing not be going on, but we’re sort of less impacted than most because our new customer flow has stayed pretty strong.

Nathan: Yeah, I see. And I guess you guys are in a fortunate position because many businesses that are doing okay they have to use a product like yours that has very, very strong lock-in that you’re not going to really switch.

Parker: That’s right.

Nathan: And I think that’s a really good takeaway for people that are creating products is creating a real painkiller that has strong lock-in that if you were to take that away, it would cause somebody serious pain.

Parker: It’s one of the things, sometimes there are products that are vitamins and there are products that are things that people can’t can’t do without. And stuff like payroll, if your business is going to exist, you’re going to have a payroll system. And so those are things that people, they can’t really cut them as a cost saving measure. And so, there’s still a real market for that even when times are tight.

Nathan: Yeah, I agree. So tell me around you guys have raised around 50 million, is that correct?

Parker: We’ve raised a little bit more than that, but I think that’s what we’ve announced.

Nathan: Yep. Got you. And are you guys planning to do more fundraising? What is the plans for the future?

Parker: Well, look, plans change very quickly and sometimes plans change like right now, like twice a week, given how quickly everything’s changing on the ground. Our current plan is really not to raise money for the next year and a half to two years. To sort of get through this current period of economic contraction and hopefully fundraise at a time when things are growing again, knock on wood. Hopefully that’s what happens.

Nathan: Yeah. So even though there is kind of a contraction taking place and all these crazy things going on right now, what things are you guys doing strategically as a software company to ensure that you are still growing, and ensure that you can thrive during this time period?

Parker: So there’s a few things. One is we’re extremely focused on burn. We’re trying to give ourselves three years of runway. If you want to raise in two years you want to have some runway on the other side of that so you’re not raising on fumes. And so that means that we’re operating the business to a specific burn target that gets us to that level of runway.

And so that means that from a headcount perspective, we’re not growing head count as much as we were planning to, say, three months ago. We’re still hiring though. The company’s going to be more people at the end of this year than it is today, just not as many as we thought it was going to be, say in January, because we want to really focus on that burn.

The other thing is we cut back a lot on our marketing budgets. Our marketing budget, in really early March we cut that in half. And what’s incredible is, we have an incredible marketing team with some really brilliant people, and even though we cut the budget in half, we are setting record levels of demos today in comparison to where we were two months ago, even with half the budget.

Now, I think if we had the full budget, we’d probably be doing even better than we are, but there’s that old adage that necessity is the mother of invention. And I think we saw a really precipitous decline that was fairly temporary, for about two or three weeks I think when everyone was just trying to figure out like, “Oh my gosh, is the world coming to an end?” And in that time, all of the things that we wanted to test and try, all of the plans we had around things that we might do from a top of funnel demand perspective over the course of the year, we just did all of them at once. It wasn’t one silver bullet, but we fired every lead bullet in the gun at this problem. And through a lot of these different things at once, through lots of improvements, we’re actually able to, after cutting the budget really dramatically, bring back the demos that we were scheduling to the level that they were at before the crisis and even a little bit beyond that.

Nathan: Yeah. Wow. So it’s interesting some of the things you think are working, maybe not as much, right.

Parker: I think they were working, I don’t think it’s that we cut things that weren’t working. I think it’s that what we did is we cut some things that were working, we obviously cut the things we thought were working the least, but then we did a lot of things all at once to optimise and get more out of the things that were remaining that led to us being able to grow those things to the point that the sum is greater than what it was before we cut.

Nathan: Yeah, that makes sense. So what else are you guys doing?

Parker: To get through the economic? That’s probably the main thing. I mean, it’s managing burn. We’re fortunate to have a lot of cash on hand so that we have the resources for three years of runway if we’re careful with how we spend it, and we’re refocusing on how we can grow, even with that more limited spend.

I mean, the other thing, obviously, or one big thing that we’re doing, is we’re really doubling down on a lot of product investment. So our hope is that we can come out of this crisis leaping past a lot of competitors in terms of the products that we offer, the stuff that we do, and make a lot of progress while a lot of companies in our space might be on pause or on the side of the road.

Nathan: So you’ve doubled down on product. That’s interesting.

Parker: We’re stepping on the gas on product, engineering, those kinds of initiatives.

Nathan: Got you. So when you say you’re hiring, you’re probably hiring up on product side, right?

Parker: That’s right.

Nathan: Yep. Got you. Yeah, that’s really smart. So what about mindset? What are you doing to stay levelheaded? Because you don’t want to be too pessimistic, you don’t want to be too optimistic, you want to be able to have an in between bias.

Parker: Yeah. I don’t know. Do you have any tips on that? I’m not sure I do. I’m a fricking mess, I’m all over the place. You’re up one day, down the next, probably down a lot more days than I’m up right now. It’s sort of shocking and catastrophic to watch what’s going on. So yeah, I’m not sure I’m the person to turn to for advice on that.

Nathan: Yeah, no, that’s fair enough. Like, are you strategically listening to anything, consuming anything? Like, what are you doing? Like the consumption of news, reading books.

Parker: For me personally, this really goes back to what I said about the last thing, I’m spending an enormous amount of time trying to map out new products and the new directions that I think we’re going to go as a company. Because largely, and I told the company this, I said, “Look, none of us can control right now what’s going on in the world outside. The course of this disease, the awful stuff that’s going on with the economy.” The only thing that I can control, that I feel like I can do, is I can say, you know what, I’m going to buckle down and really solve a lot of these problems that have just been out there for a while, just spend the time to just pump out things that I think will put this company in a place that, when things do come back, we’ll be in a place to sort of capture a lot of the market.

Nathan: And around culture and leadership for founders that have a team, how do you lead during times like this?

Parker: I think motivation is really hard. I’ve seen what happens when people don’t believe anymore. You need to, I think, both be willing to acknowledge what’s not working, you don’t want to pretend like everything’s going great if it’s not, but then I think you still need to be able to paint the picture of where things are headed towards and what’s promising about the future. Because people get really deflated if they don’t have that kind of meaning in their work and if they don’t understand how the things that they’re doing can really translate into something really important.

And that’s where things get really bad is people just stop trying. Even if they don’t leave, they’re kind of sitting around unfocused and not getting stuff done.

Nathan: Yeah. Yeah, no, I know what you mean. So what about remote and stuff like that? Did you guys have an easy transition because you run everything in the cloud, or?

Parker: No, I mean, I hate working from home personally. So I personally had probably the hardest transition of anyone. Because I’m used to kind of popping in on people, going around the office and seeing some people in a conference room and popping in and saying hello and swinging by someone’s desk and bothering them while they’re trying to get some work done. That’s sort of like my whole thing. And so suddenly there’s no way to do that, I felt, candidly, a little lost for a bit. I’ve sort of started to figure out how to do that in Slack and in other ways, and sort of drop in on people.

The company is doing okay remote. But we were not a remote company before this and it has not converted me into someone who’s like, “Oh, the future is everyone should be remote.” I can’t wait to get back into an office and have everyone together, working and collaborating together in person. I don’t know if that’s going to be two months from now or 12 months from now, but I’m looking forward to it.

Nathan: You said that you don’t believe in the future of work being fully remote, or even kind of a hybrid, why is that?

Parker: So I guess the snarky answer is like, “Have you had fun during the lockdown?” Because it’s definitely been a nightmare for me. Most people I think are like, “Oh my gosh,”… You can maybe hear my kids in the background, there’s a lot of distraction at home. It’s just easier to work with people face to face. I think that you can build relationships more easily that way. I think I’m more compelling in person. If I’m trying to sort of pitch someone on why this particular project that they’re working on, why we really need to get it done next week because the company is sort of hanging on it, I can do that more effectively in person than I can over the phone or over Zoom or over Slack or something like that.

So I think there’s something that you lose when you go remote. This crisis is forcing companies to try and make remote work. So you’re getting the infrastructure in place, everyone’s using Zoom, everyone’s adopting the tools to do this. But I think also, at least for me, it is really emphasising the things that you lose when you’re not together in person. And so I tend to be in the camp that thinks that when this is all over, restaurants are not dead, everyone’s going to want to go out to a restaurant. Movies are not dead, like I can’t wait to go to a movie theatre. I haven’t seen a movie in a theatre in like three years. But when this is over I can’t wait to do that now that I’m not allowed to. And I think the same thing with working together in person, I think everyone’s going to really look forward to those kinds of in-person experiences being in just a room with a lot of other people. I can’t wait to have that.

Nathan: Yeah, no. Yeah, look, it depends on certain people. Like for me, I’m actually loving it. I’m the most productive I’ve ever been and I’m just working around the clock. I don’t have kids yet. So I’m doing okay, but I know certain people, it doesn’t work for them.

Parker: You get lonely, it’s hard.

Nathan: Yeah. I know what you mean. So it’s always interesting to hear that take because I believe that nothing beats in-person. You can have a fully remote team or you can have hybrid whatever, but nothing beats in-person. If you do a team strategy day you want to do it in person.

Parker: Yeah, of course.

Nathan: Remote’s painful.

Parker: Yeah.

Nathan: So talk to me around how you’re managing your team, like in your leadership team remotely, what does that look like? So it sounds like it hasn’t been like an easy transition.

Parker: I think there’s a lot more tooling. I was like a holdout on really using Slack, I didn’t use Slack. Now I’m all in on Slack, obviously. It’s sort of the only way to do this. There are many more structured meetings, one-on-ones, things like that. I did much more informal communications and catch-ups, and now things are a lot more structured and formalized.

Nathan: Yeah, I see. And look switching gears, because we have to work towards wrapping up, I’m curious what advice would you give to SAS founders right now during this time period. I know you’ve shared what you guys are focusing on and everything that you’re doing, but what kind of advice would you be able to give?

Parker: So this is super unpopular advice, but one thing I would say is for founders whose company is struggling my advice would be to maybe consider giving up.

Nathan: Oh, wow.

Parker: That’s sort of one of the things I always wished in retrospect that someone had told me at my first company when things were not working. We met with 70 different investors, everyone told us no. We were constantly weeks away from not being able to make payroll. And I think that I always kind of wished someone had sat down and said, “You guys are smart guys, there’s a lot of other stuff that you could be doing and there are many other things out there, and this company is never going to work.” And I think most investors knew that, but we didn’t. And you should consider doing something else.

And I don’t know, I probably wouldn’t have listened to them even, or would not have received it well if they had said that, but it would have, I think, been better. There’s a misconception that people learn a lot from failure. I think that’s largely not true. I think people learn a lot more from success than they do from failure. Mostly what you learn from failure is a failure really sucks. And it’s destructive, it takes a long time to recover from, emotionally, psychologically, and in many other ways as well. And really you never, ever, ever want it to happen again. You can learn that lesson from failure pretty quickly, you don’t need to keep relearning it over and over again.

And so if things are not working for a company right now, things are now much, much, much, much harder than they were even just two months ago and they are going to continue to be challenging for a very long time. And so if things were really working well maybe you can get through this, but for people where things were not really working now might be a good time to consider doing something else.

One of the differences I think between now and when I was doing my first company is I think the opportunities for people who have that experience of starting a company are much broader than they used to be. We really try and hire founders at Rippling, we have a bunch of founders that we have on staff, the surface area of our product is very large. And so we’re able to really put people in charge of big sections of our product, of our company, to run an initiative. And we love finding founders who can take that on and do that. And so there are so many opportunities if you’re a founder and you are struggling, opportunities at Rippling or elsewhere, to come in and build something very meaningful.

So, yeah. So if things are not going well, maybe now’s the right time to look for something else.

Nathan: Yeah, no, that’s a very contrarian advice, but it’s fascinating.

Parker: Look, I get it. I feel like I might get beaten up for this, because most people say, “Stick to it, stick at it,” and yeah, there are always examples of companies that eventually find a pivot where things just take off for them. There are these mythical Silicon Valley stories, like Airbnb, where that eventually worked. But most companies don’t tend to pivot from failure to success. Like most successful companies are much more likely to start largely right on the mark or very close to it in terms of where they end up.

Nathan: Yeah. No, look, that makes sense in many ways. So when I think about it, like when you launch and you know you’ve got a good product, it’s so much easier to just sell a good product. That’s everything. But if you’ve launched and it’s not doing too well and you can see the difference.

Parker: Yeah. Sometimes people come to me that I know that are thinking about starting a company and they’ll come to me and say, “Hey, I’m thinking of starting a start-up, what’s your advice for me?” And my advice is almost always like, “Oh my God, don’t do it. It’s such a mistake. If there’s anything else that you can do, don’t do this because it sucks so much.” And I really mean that. Every company that I’ve started I felt like I had really no other good option. I’m sure that’s not really true, but it really felt like that was very clearly the right path forward for me.

One thing I used to tell people is I was like, “Look, you will definitely, definitely be able to go out and raise two or $3 million in seed funding because you’re smart, you’re maybe well connected, you’re an engineer, whatever. You’ll be able to raise money in this environment, but that’s not a reason that you should do it. It’s a reason that you shouldn’t. Because that money is a trap because it’s going to give you the resources to go for a long time on this company, whether it’s working or whether it’s not.”

And the most precious thing you have is your time that you’re going to be spending on this enterprise that might not work. And so I think the downside of a strong economic environment and a strong fundraising environment is actually perversely that you can end up doing what I did for a long time, which is staying in something that’s not working and spending a lot of years there.

Nathan: Yeah, interesting. So look, we have to work towards wrapping up, but anything else that you would like to share with anyone during this time? Any questions that I didn’t ask you that you’d want me to ask.

Parker: No, that kind of covers it.

Nathan: Okay, awesome. And where’s the best place people can find out more about yourself and your work?

Parker: They can follow me on Twitter, @parkerconrad.

Nathan: Okay, awesome. And go to Rippling, find out more about Rippling?

Parker: Rippling.com. Check it out. We have some great deals for companies that are starting out, so if you’re thinking about setting up things like payroll or getting computers or laptops for your employees, things like that, come take a look.

Nathan: Awesome. Well, look, thanks so much for your time Parker. We’ll wrap there.

Parker: Great. Thank you so much.

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