He grew to $22M ARR in 4 years—but regrets spending so much on growth. | Chris Walker, Founder of Refine Labs

Chris shares the story of how he grew Refine Labs to $22M ARR, what he did to grow so fast, and also why he regrets spending so much on growth instead of focusing on profitability.

He goes exceptionally deep on sales and marketing and provides tactical advice you can steal. 

Chris is the founder of Refine Labs & Passetto. He's also a LinkedIn Top Voice with 150K followers.

Why you should listen:

• Learn when to switch away from founder-driven sales 
• Why sales velocity is the key metric you need to track
• How to use customer feedback to drive a consistent marketing campaign and drive organic inbound. 
• How to know if you have product-market fit based on customer satisfaction and retention.
• Why Chris regrets not focusing more on cash flow profitability vs growth.

Keywords:
entrepreneurship, founder sales, marketing, customer insights, zero-to-one growth, go-to-market strategy,  product management, growth strategy, product-market fit

Timestamps:
(00:00:00) Intro
(00:01:21) Starting e-commerce companies on the side
(00:04:56) Going all in
(00:11:30) Balancing sales and marketing
(00:18:05) Focusing on Customer FeedbackLanding the first customers
(00:27:19) Why you should not spend on advertising
(00:37:55) His most viral marketing campaign
(00:41:04) Finding Product Market Fit

Transcript

Chris: 00:00
 Investor intros and founder sales aren't going to get you from 1 to 10. They're definitely not going to get you there from 10 to 100. You're going to do founder sales likely no matter what from zero to one. The question is whether you have a marketing engine behind it as well. Communicating the narrative around what's changing in the world and how your company or you are focused on doing that. There's all these things that are customer related. You can also talk about your own experience as an entrepreneur, the things that you're struggling with, the things that you messed up, the things that you're learning, but the key is that you have a feedback loop that's coming from your target customer sent back to you, which is driving the topics in your content, which I think is mostly the missing piece. 

Pablo: 00:36

Welcome to the Product Market Fit Show, brought to you by Mistral, a seed stage firm based in Canada. I'm Pablo. I'm a founder turned VC. My goal is to help early-stage founders like you find product-market fit. Listen, Chris, I mean, here on the Product Market Fit Show, we really dive into is the zero to one, the early stages of companies. I find zero to one is special because it's that time where—and every founder goes through this—an idea in your head becomes reality, and that happens. There's that moment in time where you can really look at it, and you're like, holy shit, this thing's real. It's exceptionally hard, right? It's more art than science, so that's why we dive into it. I want to go through your story, your background a little bit, and then we'll really dive into the origin stories of your businesses.

Chris: 01:21
 I started two smaller companies as “side hustles,” one in 2013 and one in 2015, that sold direct-to-consumer e-commerce products is where I cut my teeth and learned a lot of my strategies on Amazon search ads and search engine optimization and Instagram organic content, social media advertising, Shopify, building Shopify stores, fulfilling orders, using Amazon FBA long before it was popular and all these people are coming out with like these hacks on how to build an Amazon store that doesn't work.
 
 Pablo: 01:50
What products are you selling? 

Chris: 01:52

Consumer electronics early on so importing private labeling products from China, everything from an iPhone charger all the way up to Bluetooth speakers and things like that, and then the second one was importing blankets and towels from Turkey so Turkish cotton towels and blankets and selling those mainly on Shopify and Amazon. 

Pablo: 02:12

You think that's still – is that still an opportunity, the dropshipping, or are those kind of edges closed off at this point?
 
 Chris: 02:17
Yeah, this is different than dropshipping. You're actually buying in bulk. 

Pablo: 02:21

Oh, you’re actually doing it. 

Chris: 02:22

You're holding the inventory. You're private labeling and selling. It's quite a bit different than dropshipping, but a lot of those opportunities are dried up at this point, from my perspective, too much competition, too much commoditization. The people in China now know how to do that direct-to-consumer. They don't have to sell through a distributor in the US, and so I find a lot of those opportunities to be hyper competitive, not attractive from a margin standpoint. Back in the day, I was getting 70% gross margin on these types of things. I think you'd be lucky to get 15, 20% at this point, which makes it a lot less attractive and need a lot more volume. 

Pablo: 02:59

You kept this as side hustles the whole time. What kind of volume were you doing? 

Chris: 03:02

There were some days where I did $10,000 a day in sales, so there was some really good days. I think, on average, doing $250,000 to $500,000 in gross sales a year. You think about gross margin and advertising expenses and things like that. You might be making 100 to 200K in your job. At that point, I was probably making 100K at my job and then adding another 100K in profit from this business. Also, really, the point here was learning the skills, learning the lessons, making the mistakes, and so when that stuff happened and then I had the opportunity to start my first, what I consider my first real company or my first successful company, Refine Labs, that I had made a lot of those mistakes before. I had felt the pain and learned those lessons. I had built financial models. I had run ads and had them not work and wasted my own money, and all of that experience helped me eventually be successful, and there's a lot of people that will say that their first business isn't successful. Alex Hormozi talks about his first nine businesses failing. Figuring out ways to be able to simulate or learn those skills as an early entrepreneur without having to, if it fails, not pay your rent or create some really negative impact on your personal situation, I think those are really smart to do if you feel like you have the passion to be an entrepreneur. 

Pablo: 04:14

A lot of people – one of the big things that comes up in zero to one is when to take that jump, right? A lot of people who start off, they're doing something full time. They'll start a side hustle. They'll do something on the side, and then they start, hopefully, getting some traction. It takes more and more time. There's always that thought when is it proven enough, or when should I really take that job? One thing that strikes me is you have these businesses. They're doing quite well. Like you said, let's say netting 100 K, but you didn't go on these full time? What was your thinking there? Why did you keep them as side hustles instead of going all in and seeing instead of 100K you could do 500K or whatever? 

Chris: 04:47

I think, honestly, because I wasn't ready. I don't know what else to say. I wasn't ready. 

Pablo: 04:52

Was it something you were thinking about like, oh, should I do it, or you just knew you didn't want to do it? 

Chris: 04:55

It's a mindset thing thinking I'm not ready. I'm not good enough, some limiting beliefs around that. Maybe they were right at the time. I want this financial security. I have $56,000 in student loans. I'm just not ready. Then, eventually, when I started Refine Labs, I basically got pushed into it, and it's very different to start a services business versus a product business in terms of the ability to generate free cash flow quickly. As an initial entrepreneur, if you don't have any money in the bank and things like that, I think starting out with a service business if you don't intend to raise money becomes a – almost likely the only path rather than side hustling and waiting for it to be ready. I will say that, in my experience and when I talk to a lot of early-stage entrepreneurs, if you are running your business as a side hustle and you have a safety net of another income or job, the likelihood of your side hustle becoming your real hustle goes down a lot. That not having the safety net changes your behavior completely and not having to work on your side hustle for 10 hours a week while you do your job for 50 hours a week and getting rid of the jobs, you put all of your attention onto the main thing that you're working on I think completely changes the likelihood of success. 

Pablo: 06:11

Is that your recommendation, burn all boats and go all in? 

Chris: 06:14

I think everybody's individual situation is different and I think every situation, so I can't make a blanket statement of anyone out there to just go all in on your thing. If you're doing no revenue and you have a bunch of debt and you're in a situation where that doesn't make sense, you have to be able to navigate your own personal situation, but I think being aware of the fact that, hey, if I'm trying to do this side hustle for 10 hours a week while I work my full-time job to make 80K to pay my rent and my bills and whatever else I have, that the likelihood of success and the timeline to success is likely to be a lot lower and slower. 

Pablo: 06:48

We'll jump into Refine Labs in a second, but I got ask, those other businesses, did you end up selling them? What did you end up doing with them? 

Chris: 06:53

When you're running these types of e-commerce stores, there's not really an exit, from my perspective, and so these are cash flow businesses. Then, eventually, the first one I made a mistake on cash flow. I had to make a large inventory buy of $50,000 out of China. They need to get manufactured for four weeks, and they have to go on a boat for eight weeks. All of a sudden, you pay $50,000, but you don't actually even start selling the product for 3 or 4 months after that, creates a cash flow issue. Those types of companies can't take on debt or revenue-based financing, so just couldn't make a large inventory buy. The company just seized operations. It's not like I lost a ton of money. It's just that we stopped selling things and stopped making money, so overall, the business was still profitable. 

Pablo: 07:35

What happened? Walk me through that. You pay 50K. Obviously, it takes whatever, three months or whatever for the product, but you end up getting the product at some point, right? 

Chris: 07:41

I didn’t pay the – I didn't have the 50K to make the inventory buy.

Pablo: 07:43

Okay, okay, okay, got it. 

Chris: 07:45

Yeah. Yeah. The first inventory buys 5 grand, and then the next inventory buys 10 grand. Then, eventually, you get into a place where you need a lot more volume to increase margin. You can't make the inventory buy. The manufacturers you're working with are requiring a lot more higher minimum order quantities. Those types of cash flow things are very common in direct-to-consumer models because cash is oxygen, and a lot of direct-to-consumer things that get manufactured overseas take a long time before – when you actually make the inventory purchase to when you actually get to sell and collect that cash, it creates a gap in your money, and if you're not lucky enough to have a big personal savings or some financing structure, it becomes hard to scale. 

Pablo: 08:24

You almost grew ahead of your ability to finance sort of thing. That's kind of what happened there. 

Chris: 08:27

Yeah. It gets even worse in retail. Retail makes you make huge inventory buys. If you're not able to sell through in retail, they require that they return all of it and that you don't even get the money from them. Direct-to-consumer, there's a lot of companies that in 2020 and 2021 were off the charts successful, think Peloton, think – who else are the direct-to-consumer ones, Rent the Runway? There's a bunch of them that were highly valued in 2021 and are basically worthless or have been delisted from the stock exchange at this point.

Pablo: 08:58

Yeah, Allbirds is another one. 

Chris: 09:00

Allbirds is another one. There are many. Then, if you think about the private software market, there's a lot. You don't get delisted when you're a private company, but when your valuation drops 8, 10, 20X, it makes a huge impact on your ability to raise money and your overall financial profile as well.

Pablo: 09:16
Let’s shift to Refine Labs. What's the origin story there? I mean, at that point, you talked about mindset. What had happened in those years before it that puts you in a place where you're ready to really do something on your own and burn all boats? 

Chris: 09:32

Origin story of Refine Labs, I worked at two venture funded – the first five years of my career, I worked at a publicly traded, highly profitable, highly disciplined set of holdings company that owned about 50 technology and engineering companies, and then I moved to venture funded world, first at a Series D medical technology company called Vapotherm where, internally there, the strategy was just let's just scale our rep headcount. We have an outside sales team. If we put together some math on each rep will do whatever much and close one business that we can eventually build our financial model and raise our way to an IPO. As I started getting in the market and talking to customers and looking at the business data, our…

Pablo: 10:14

What was your role at that company? 

Chris: 10:15

Marketing manager. Going into companies, for me, my title did not match the way that I looked at the company. I always went into companies thinking like a CEO because of how I was trained, and so when I get into a company, they're like, “Hey, we need to help you. We need your help in figuring out how we sell 100K more of this product next year.” I'm like, “We need to figure out how we acquire new customers for our $35 million business and maintain our growth rate and lower our CAC.” My level of thinking, which is very different regardless of my title, that company had very high net-new logo customer acquisition costs. A lot of the growth was hidden in expansion revenue. Growth was slowing. If you talk to customers, there was a mismatch between how we sold and how customers wanted to buy. Sales velocity, sales cycles, win rates, all very low; SDR productivity, very low. I'm looking at it, and the company is like we need to double our SDR team. We need to hire more reps. We need to fire our southeast sales director and hire a new one, and their entire thinking was that sales is the problem. The reality was that marketing was the problem, that we weren't able to distribute our message and our clinical data and our value proposition to customers effectively in a way that they consume, that allowed our sales rep to have educated conversations with interested prospective customers. 

Pablo: 11:29 

What are the signs that marketing is broken and not sales? That's often a dilemma. Where are things breaking? How did you notice that it was marketing that was a problem and not sales? 

Chris: 11:38 

New logo win rates from first meeting to close were 4%. Sale cycles were 220 days to close an average 20K annual first contract deal. Customers, you would go to first meetings with sales reps and customers would have incredibly powerful objections around things they didn't understand that would be easily teachable from a thought leader or somebody that they trusted, but we have a sales rep trying to educate a customer when the customer doesn't trust a sales rep. There were very clear signs about how to…

Pablo: 12:05

It’s like qualification, education, top of funnel. 

Chris: 12:08 

Especially in an outside sales motion but, anytime you're operating at scale with 40, 100, or more sales reps, you need your sales reps talking to people that want to buy. You do not want to have your sales rep spending their time flying across the state trying to convince somebody that doesn't want to buy to buy. It's highly inefficient, and as you start operating at scale, it really breaks. Those were some of the fundamental things. For the next two years, I built complete different marketing engine. We divested from a lot of our events. We cut our trade show expenditures from over 2 million to less than 1 million, from 15 shows a year to 7 shows a year. We invested the rest in digital. I built a podcast where we interviewed – I interviewed thought leaders in the industry, people that had done clinical trials on our product, people that had used our product in a specific space for 10 years, people that developed clinical guidelines of how to use it. I did that, made a video podcast, recorded 37 episodes, put that on our website, distributed it through email, used those videos and social Facebook advertising. Back in the day, you could target exact accounts and exact job titles inside of Facebook before Cambridge Analytica happened, so you're running heavy, one-to-many, one-to-few, and one-to-one ABM campaigns through Facebook, which is by far the most effective advertising channel at the time, where we're getting distribution and views on our video for a tenth of a cent to the exact person that we want. Those were some of the strategies that we put in place. We went over time from our website generating 0% of net-new revenue to generating 33% of net-new revenue. Over the next 2 years, sales cycles and win rates and sales velocity on those specific opportunities were 4X higher than an outbound opportunity, which dramatically changes the equation in terms of sales velocity and customer acquisition cost, and while we spent $29 million a year on sales and $3 million a year on marketing, marketing was becoming a really powerful growth driver at a much significantly higher ROI. It's not a sales versus marketing conversation, but it is a balanced go-to-market conversation that, if you have 40 reps sitting at the bottom of the funnel with no one that wants to buy, you're going to have a highly inefficient go-to-market. We need to have a balanced strategy when we think about creating pipeline, getting net-new accounts in market, closing deals and expanding customers. 

Pablo: 14:17 

What I find in – that was obviously a different stage. You said as a Series D startup? 

Chris: 14:21 

Yeah, different stage. 

Pablo: 14:22 

In the zero to one, one of the things I find within – there's some founders I meet. Either they're marketing first, they get marketing, so they invest in marketing, right? Most of them, the challenge is sales is so easy to measure and the cycle is so short. I mean, you get a rep. They talk to X number of people. You see the conversion. You see all the stuff. It takes weeks. Marketing, a lot of the marketing efforts, sometimes – especially you talk about podcasts. You talk about trade shows, these sort of things. They just have such a longer time until you – it's long-term lift. How do you think about that in zero to one? How do you think about the right shift? I know there's not a blanket answer but just your framework for marketing versus sales and how to instrument marketing so that you get more signal and you know if things are really working or not.

Chris: 15:04

I mean, I think there's a lot of ways to make this work, but I'll center on a couple of core ideas. The first one is what's your vision? What type of company do you want to build? If you want to build a $100 million revenue company, then it's going to be really hard to do that through founder sales or even just scaling outbound sales. Everyone knows that that's not going to get you there anymore. Maybe it did in 2007 when the internet was simple and things like that, but it just doesn't work that way anymore. Number two, if you understand and take the time to understand how your customers want to buy, how they consume information, how they make purchasing decisions in a B2B setting, you'd realize that a lot of them happen through content distributed on the internet and then sharing of that content through peers and colleagues and things like that. Then, if you don't have the presence there, that you're putting yourself at a disadvantage. I will say that a lot of founders going to zero to one, especially venture funded founders, will get their first million through investor intros. You can get to a million just by having your seed or Series A VCs introduce you to their other portfolio companies and closing those deals, and so I think that you can decide how you want to get from zero to one. Then, once you get from 0 to 1, 1 to 10 – investor intros and founder sales aren't going to get you from 1 to 10. They're definitely not going to get you there from 10 to 100, and so thinking about how am I going to build the muscle? How am I going to be able to get from 0 to 1 but also build the muscles that are going to get me from 1 to 10 and 10 to 100 and recognizing that a lot of that is marketing? It doesn't have to be a founder brand. I do think that you have a distinct advantage when you do that. It doesn't have to be from a marketing standpoint, thinking about that in the different cross-sections. Theoretically, marketing might take longer, but when I did it in my experience – in both of my experiences, both starting Refine Labs in 2019 and I’ve started my new company, Passetto, in early 2024, marketing is a significant accelerant to growth. That posting on LinkedIn a couple of times was way more effective than sending 100 emails to random people trying to get a meeting. I think that it’s just – a lot of it is understanding your own strengths. A lot of it is understanding how the market and how your customers operate today, and then, if you have the luxury of having a VC that's going to pass you a lot of deals or you have some type of network that gives you those deals, that may be getting from zero to one doing founder sales is the – you're going to do founder sales likely no matter what from zero to one. The question is whether you have a marketing engine behind it as well. 

Pablo: 17:20 

I think, yeah, in the zero to one, there's so many ways to hack it, depends if you're enterprises and being these sort of things. Then talk about the 1 to 10 in a bit because there's that shift at one point where a founder says, okay, I think we just – we need to do some marketing. The thing that I was worried about is a lot of times some marketing means like, okay, we're going to do a podcast. We're going to go to trade shows. I'm going to hire someone to do – to start writing blogs. I'm going to do a rebrand. There's all these things that have just clear expenses. They sound great on paper. You see output, but I often find that it's the measurement side of it that's weak. It's just like you just don't know, hey, how are we going to be sure if these things will work? What are you implementing in those stages to make sure that you're actually getting that visibility as fast as possible, or is it even just the sort of things that, obviously, if you're pay-per-click or you're doing like digital stuff, you're going to get data much faster than some of the other offline channels? Just wondering how you think about all that. 

Chris: 18:12 

By focusing on what your customers tell you at the early stages, and even in the late stages, I think that it becomes a really powerful thing. You're doing founder sales. What do people say right when they get on a call with you? When I was doing founder sales at Refine Labs in 2019, people would say I was reading your LinkedIn post and I was listening to – someone else told me about what you were working on, and this person introduced me to your content. I've been following you for three months, and now I'm interested in talking about this. Just listen to what people say. You could also ask them. We asked how did you hear about us, on a demo form or a book a call form? We pushed that into Slack so everyone in the company can see it as well. 

Pablo: 18:50 

You train your sales reps, let's say, to make sure that they're recording, those sorts of anecdotal comments? 

Chris: 18:55 

If you're at zero to one, you're the one listening. You're the one doing all the sales calls, most likely. You don't have five reps, and so you hear all of that yourself. You're the CEO. You're the head of sales. Maybe you're the head of marketing. You're hearing all those insights so that you can actually build a strategy across the entire go-to-market, and so I think that you're not operating at a scale where you need automation and things like that early on. You just listen to customers, and you follow the things that they're saying, specifically around what they need from a product standpoint but, also, what's working inside of your go-to-market? If you're not doing any marketing, don't expect to hear people say it about how good your LinkedIn post or how good your podcast is. If you're not doing any marketing, you're not going to hear any of that – those things, and so I think that listening to customers and using the qualitative insights that come from customers is so powerful in the early stage in terms of building your product and optimizing your go-to-market but also has tons of benefits in the later stage and growth stage that I believe are underutilized across the board. 

Pablo: 19:49

You mentioned LinkedIn quite a few times, especially – I post on LinkedIn. You post on LinkedIn. What do you find works? Just think about you’re a CEO. You're working on something, and these things are mainly software, very specific vertical, not normally the sort of stuff that you can really get a big reach and go viral. What are the sort of things you find that really resonate on LinkedIn and that any founder could start doing? 

Chris: 20:13 

Talking about the things that your customers care about, talking about the work that you do with customers in an anonymized way, talking about the questions that come up in the live event that you host, addressing objections that come up constantly inside of your sales conversations, repurposing the FAQs that happen on your website around how your technology works, communicating the narrative around what's changing in the world and how your company or you are focused on doing that, there's all these things that are customer related. You can also talk about your own experience as an entrepreneur, the things that you're struggling with, the things that you messed up, the things that you're learning, and so I think there's a lot of different angles to make this work. The key is that you have a feedback loop that's coming from your target customer said back to you, which is driving the topics in your content, which I think is mostly the missing piece. It's hard to come up – sit by your desk and write a LinkedIn post every morning and just make one up. You need a flow of ideas that are happening, and getting that flow from your customers is by far the most effective way.
 
 Pablo: 21:18
I think that makes total sense. I mean, this is almost how I leverage a podcast. I have these conversations, and there's inevitably one, two, three, four, five ideas that come out of that. Those can become LinkedIn posts. Same with my day-to-day, I meet startups. Somebody asks me a question. Somebody says things, makes a comment, and you write it down. I guess, for the founder, it’s the same thing, especially as you're talking to customers, writing down things that make you think that extra second or whatever, and those are maybe the seeds for some LinkedIn posts that other customers might be interested in hearing about.

Chris: 21:47
One hundred percent. The insights loop is the – it's just like going to the – posting on LinkedIn is like going to the gym. Build the habit. Do the work. The thing is, if you go to the gym without a plan, then you might not get the results that you want. The plan relative to the content is what are the topics that I'm going to post about that my customer cares about? Who is my target customer? What do they care about? What brings value to them? That's the plan related to content on LinkedIn, but the actual posting, the mechanics of scheduling the post, making the hashtags, answering comments, all that stuff is just tactical work. You put your mind to it. You can do it, but you have to a plan and a strategy around why you're doing it. 

Pablo: 22:28 

Back to the storyline with Refine Labs. You were at Vapotherm. You fix the marketing engine there. What happens? 

Chris: 22:35 

Dramatic increases in sales velocity and reductions in customer acquisition costs and potential on growth rates and net-new logo acquisition and all of these important business metrics moving, and surprisingly, the company still wanted to scale sales. Despite the effectiveness in the marketing strategy, still at that point, in 2017, 2018, executives did not understand the dynamics of having a balanced go-to-market strategy. 

Pablo: 23:02 

Why not? What's so hard about it? 

Chris: 23:05
A lot of it was the funding environment. A lot of it was that marketing is a pretty – the pretty picture department. Marketing doesn't drive actual results. A lot of it has to do with outdated ways of thinking about attribution and lead generation and how you generate revenue overall. There's a lot of reasons why, and in order for people to recognize this shift, what needed to happen was significant pressure on the economy, which slows down growth rates and forces you to think differently about how you grow your company and how you drive – how you make expenditures and investments. That's what's happened over the past couple of years is that growth has slowed. Cost to acquire a customer is more than doubled in a SaaS business, sometimes three or four X. Scaling your sales headcount and building your model around average quota, attainment, and sales headcount is totally not working anymore. Trying to scale an SDR team and double that up in hopes of doubling your pipeline and maintaining win rates is not working anymore, and people are realizing that we need to have a balanced go-to-market strategy, that marketing makes a huge impact in how we create pipeline and how we convert that pipeline and how we expand and retain customers and that those investment – one, marketing needs to be effective and driven against the core KPIs, and number two, we need that part of the process in order to have an effective and efficient sales engine as well. Before, it was like, if marketing adds something, it's extra. It's nice to have, but our sales reps are going to be able to pound the phones and be able to work the pipeline. We're just going to get – we're going to be able to do it ourselves. Given especially with the COVID induced shifts and how people buy and the rise of remote work and the acceleration of digital buying and independent buying from B2B buyers, that philosophy no longer works anymore. We need to have a presence that typically comes from marketing, that educates prospects, and get our target accounts educated and want to buy.

Pablo: 24:56
Head of sales one time at a small startup said to me something like I can hire a rep for whatever. I don't remember the numbers. I can hire a rep for 50K, and I know I'll get 100. I can spend 50K on marketing, and I don't know what I'm going to get. Why would I do that? That was the thinking, right? 

Chris: 25:10 

At that point, there was a lot of success that happened there and a ton of learnings for me at a company that was operating at scale and looking at metrics that marketers were definitely not looking at at that point or even CEOs weren't looking at at that point, in terms of sales – looking at sales velocity in 2017 was – not sales cycle, sales velocity was not something that people were looking at. Comparing the difference between a “demo request” versus an outbound meeting and looking at the differences in sales velocity and seeing those insights almost seven or eight years ago, people were not looking at that. 

Pablo: 25:42 

Just pause for a second. Sales cycle, number of days that it takes to close a sale. Sales velocity is? 

Chris: 25:48 

Sales velocity is pipeline production times average contract value of close one deals times the win rate of close one deals divided by the sale cycle length. It is a combined metric that gives you all the levers that you have to grow and putting that together into an aggregated thing. Sometimes, if you raise your price by 5K a year, your win rate’s going to go down. Your sales cycles are going to get longer, and so you might not get a net positive effects from that ASP increase if you just look at ASP. Looking at them as a combined metric shows you the effect of all of those four things combined, which are the four levers of growth. Looking at those metrics early on was not something that people were doing, and I faced a lot of resistance at that company in terms of scaling marketing. I made a proposal to scale digital spend based on the effectiveness that had been happening, all that stuff. They decided they wanted to hire eight more reps and cut territories in half, which proved to be a very poor decision over the long term, so I moved on to a different company. Then I worked at that company, and basically, all the same issues that existed in the Series D company existed in the Series A company. Then I started to see a pattern, and that pattern was, wow, it wasn't just that one company that didn't get it. It looks like every company is seeing things differently than what I've seen, and so then I started the company off of that core insight. As I started to do initial consulting, I started – my first client was a $100 an hour client. Then we moved to $25,000 a month retainers. Then I started to hire people, and it grew from there. 

Pablo: 27:13 

Walk me through that first client. What was that first engagement? How did you get that client? 

Chris: 27:16 

I think my first three clients were network, people that I had worked for in the past that knew I was talented, that saw that I was doing something on my own and thought that I could help them. Starting off in terms of having hourly contracts allows you to be very flexible and figure out what your customer actually needs without saying, oh, we only do content production. You want us to do this? That's out of scope. You want us to do analytics? That's out of scope. No. Let me figure out. Let me have the flexibility to figure out whatever is most valuable to you and then see the pattern with companies is why I think an hourly model is very fair and smart. 

Pablo: 27:48 

You purposely started generic general marketing. Hire me. Hire Chris. Then you, with that, figured out…

Chris: 27:55

You see the patterns, and you see where you consistently add value. Then you build repeatable processes, and then you have a set offer that you then know, okay, it takes this amount of time. We can charge this rate. It drives this value. Customers are willing to pay this. Then you have a more refined offer over time, but you can never get there without taking the first step. You'll never know. Then, as I started the consulting, you saw the exact same thing. B2B companies, especially the marketing departments, are not optimized around the right metrics, that they are not thinking about how a modern buyer buys. They are not doing a lot of the things that are meant to be – they're following what Salesforce e-book would say about how to do marketing, not about how buyers actually buy today. I saw that pattern. Then we started to have a repeatable process for customers and away it started. 

Pablo: 28:44 

What is that process?
 
 Chris: 28:45
Process at a high level, look at the existing performance of all of your programs, look at what's happening, optimize the existing programs, find out the opportunities, and then launch net-new programs. At a high level, figure out what things you're doing that are already working, make them work better; figure out the things you're doing that don't work, stop doing them, and then figure out the things that have the highest impact both in the short and the long-term and start introducing new things. 

Pablo: 29:09

That's so high level. It's obvious, I guess. Do what works. Don't do what doesn't work. What are you seeing that does work usually, that doesn't work usually? What are the common mistakes you're seeing at that time? What are the sort of things that you end up doing to really make things work out? 

Chris: 29:24 

It really depends on the stage. Just for the sake of the podcast today, at early-stage companies, I don't believe that early-stage companies should be spending money on advertising. When you don't have product-market fit, you barely knew who you're selling to. You don't even have a sales team. What is the point of having someone spend $10,000 a month on agencies or $10,000 a month on LinkedIn ads to get you leads or meetings and then have – pay them $8,000 to actually run the ads? You're $20,000 all in. You don't even know who you're selling to or why they buy. 

Pablo: 29:55 

What's the marketing strategy for early stage if it's not advertising? 

Chris: 29:59 

Organic content production, virtual event strategy, some type of partner strategy, likely VC intros or something like that, and social proof amplifying what your happy customers are saying to you or saying about you. Then, lastly, delivering a fucking good product that drives value for customers so your happy customers tell other people, and I think those are really the areas of focus from zero to  five million. Then, as you start having some scale, maybe at five million, now you have three reps. You have a VP of marketing, or maybe you have five reps. You  have a couple SDRs. Then you can start putting $5,000 a month on LinkedIn ads. You can start to experiment with a little bit. You have a website. You have a website that converts. You have a product that delivers value. You have a process to onboard those customers and make them successful. You have an idea of who your actual customer is that gets a lot of value, and then advertising becomes an accelerant of a proven strategy, not a way to figure out what the right strategy is. 

Pablo: 31:02 

Then specifically on Refine Labs, just in terms of the story itself, how fast did things take off? You mentioned the difference between services and products. Curious if you could talk a bit more about that. At the beginning, consulting is a bit more – I mean, you're contracting. You're consulting. It's like a job, right? You have an hourly rate, and that's what it is. Then it turns into more scalable business. How did that play out? How long did that take until you really felt like this is going to be something much bigger than just your other – your previous jobs?
 
 Chris: 31:32

I've always found that going from 0 to 1 takes about as long, if not longer, than it takes to go from 1 to 10. At Refine Labs, took about 18 months to go from 0 to a million in revenue and then another 18 months to go from 1 million to over 10 million in revenue. 

Pablo: 31:52 

I can tell you, from the startup side, people will be jealous of that. I mean, 18 months from 1 to 10 is huge. 

Chris: 31:59
To me, it's really about going slow to speed up. It's about setting the right foundation in terms of what your customer wants and having the discipline to build a LinkedIn audience over that first 18 months so that when you have a product that works and you have happy customers and things like that that you can pour gasoline on the fire to your 50,000 followers, instead of starting net new from 0 followers 18 months in. 

Pablo: 32:22 

Is that where you – because now you have about 150K followers on LinkedIn. Is that where you got to in the first 18 months, 50K or so? 

Chris: 32:26 

I think I was probably around from zero to around – I don't have the exact number. 

Pablo: 32:30 

Sure, no, more or less. 

Chris: 32:31

Probably around 50K in the first 18 months, yeah. 

Pablo: 32:34 

Did that start driving a lot of the business? 

Chris: 32:37 

It was basically all the business. What I call dark social, a combination of people consuming your content through digital channels, the sharing of that content between peers and colleagues, and then the word of mouth of your happy customers, all three of those things combined was basically all of the growth, all of the awareness that drove net-new customers to want to work with us. 

Pablo: 32:58

Got it. I guess, I mean, the thing – especially in a services business like that, the content is powerful, not just because of the reach and all that stuff, but it really does make you the expert. It makes you the person. When people start talking about I want help with marketing or whatever, they want you because they've read so much of your stuff already. They're just hooked on it, and they come, I would assume, so much more ready to buy than they would had it been through some other more traditional channel. 

Chris: 33:23 

I mean, just wait. Software companies are going to be partially services companies in the future too. The customer success department and the talent of those people – if you look at a marketing technology company and who they hire for customer success, those people are not equipped to really help their customer solve the core problem that they're buying the technology for. I think you'll see – and software companies haven't had the pressure on NRR and GRR in order to make changes around this, but the customer success model is really being challenged right now. The fact that you don't – maybe you build it into the cost of the product, but a lot of companies don't charge for it. Then they don't want to have professional services because they don't want to have 10, or 20, or 30% of revenue come from professional services, which then theoretically devalues their business. With the professional services, one, it becomes a revenue stream. Two, you can hire the really great people, charge appropriately to deliver the value for what you actually need for your customer to be successful, and then see the downstream impact on NRR and GRR. I think that we'll have – that we'll see a lot more software companies need to build a professional services org and charge appropriate for it, given the changes in the economy and what's happening to just overall success of customers. People have shunned that a lot in SaaS businesses, but there's a lot of things that are changing right now, the economic environment but also the commoditization of software and the ability for people to fast follow you and copy you and then build features and charge way less money and undercut you. We need to figure out ways to ensure we deliver appropriate and requisite value to our customers and deliver on the promise that we have to our customers. I think blending services with technology will be one of the routes that companies take, and I think that, over time, we will also see software gross margins decline. If you look at most software companies, they don't put customer success in COGs. Customer success, the people that are there to help your customer be successful that are also not responsible for expansion revenue is a cost of goods sold. If you put that in, now you're under 80% margin when you put customer success in, and then, over time, I think, through pricing pressure and pricing – and software commoditization, we'll see margins go even lower. Some people predict as low as 70 or 60% overall, which fundamentally changes the financial dynamics of a software company. 

Pablo: 35:42 

I think that makes sense. I think it's hard for an industry to operate forever and ever at 80, 90% gross margin. Walk me through. What ended up happening with Refine Labs? You grew it to 10. How big did it get? 

Chris: 35:53 

Refine Labs benefited a lot from the zero interest rates and tech boom. We went through an artificial growth period where we maxed out at around 22 million recurring run rate. We did about 20 million in actual collected revenue in 2022. 

Pablo: 36:06 

All bootstrap, by the way, or did you need – did you raise anything? 

Chris: 36:09 

No institutional capital. We did take on mezzanine debt, which is – I don't really consider that. It's still bootstrapping, from my perspective, mainly to fund this really accelerated growth in terms of hiring people and things like that. Obviously, the beginning of 2022, if you look at the Salesforce stock, which is – it's interesting if we start talking about that because of the news that happened yesterday, but Salesforce stock really started to decline in December of 2022. You see a lot of SaaS companies have pressure, scared they're not going to be able to raise money, start laying off people, cutting expenses. We had a decline in revenue now, but if you look at it over a long period – and it's really interesting, so I think a lot of people miss this part. Yesterday, Salesforce stock dropped by $50 billion in enterprise value. They reported that they missed earnings for the first time since 2006. You look, and you see this big crash. You're like, oh, Salesforce is fucked, but then, if you zoom it out and you look over a five-year period, the stock is up by a ton. We had a revenue decline, but when you look over a long period of time, we have a multi – eight figure business. We have a ton of great people. We have a bunch of happy customers, and so I'm very proud of the way that we navigated that situation and the business that we have today. 

Pablo: 37:24 

We're coming off to the end of the podcast, and I just have to ask, maybe a stupid thing. For non-marketers outside your world, a lot of times we think about like the epic campaigns, think Dollar Shave Club, YouTube video goes viral, or there's that mattress one. I don’t remember it was Casper or which one that did that Goldilocks mattress commercial. Do you have, from your years in marketing and helping all these companies, any campaigns that come to mind when you think about just a campaign that crushed it? I'm just curious if there's a story like that that you could share. That's always entertaining. 

Chris: 37:54 

Yeah. At Vapotherm, in 2018, there was a pivotal clinical trial that was published about our product that compared it to the gold standard product that every hospital used and thought was the best option that concluded that – with a study of 236 patients, that our product delivered the same clinical outcome with way less side effects to patients. The previous strategy for the company would be, okay, train the sales team, and then have the sales team walk around hospitals and try and tell people about it. What I did was I interviewed the people that did the clinical trial. We did video podcasts with them. We cut those videos into short micro clips. We put that long form video on our website. We took the clinical trial. We wrote news articles and PR articles and put those on our website, and then we ran ridiculously sequenced – well thought out sequences of advertising across Facebook, Instagram, LinkedIn, and then email organic to be able to get that content to all the people. We launched that. We spent $50,000 over 2 – $50,000 a month for 2 months so a $100,000 campaign investment. Over those two months, every single person in the country that mattered knew that that study came out, knew the details of it, had watched part of the videos about the person that's very credible that they trust and they know talking about what happened in the study. That is so powerful when you think about being able to get your entire market to know something really important, having a very focused objective around what am I trying to communicate, what do I want people to know, that I think that was one of the most impactful campaigns that I've ever been a part of and orchestrated. I think a lot of companies should really be thinking in that mindset a lot more about how they think about campaigns. A lot of people want to be cheeky and make the Dollar Shave Club, or the Purple Mattress YouTube video, or the monday.com YouTube video that they spent millions of dollars to advertise on. The reality is that, when you do that, you're going to spend $100,000 in production. You're going to spend hundreds of thousands of dollars in media, and most of the time, it's not going to work.

Pablo: 39:52

By the way, on that campaign, were you able to tie it back to revenue? What was the ultimate KPI for you guys? 

Chris: 39:57

If you think about it at a high level, the value of just having every single person in the market understand that this study came out has millions of dollars of value on its own, rather than paying a sales rep $5,000 to try and tell one person. There's a huge value in just people knowing that it happened, being aware of it, having consumed that, understanding that. Outside of that, website pipeline continued to grow for 18 months beyond that, and so it was very easy to tie back. Back in the day, I think that our average was $18 in qualified pipe for every dollar we spent on advertising. That's only the pipe coming through the website. When you look at it blended across all of the sources, it would probably be like $30 in pipe. A lot of companies on their Google ads expenditures today would be lucky to get 2 to 1, and we were getting 18 to 1 back in the day so, yeah, very easy to tie back ROI on that.
 
 Pablo: 40:49
Let's end it there, and let me just end it with the two questions that we always end on. When you think about your story with Refine Labs and, again, starting as effectively a consultant and then really creating a big company out of it, when did you feel like you had true product-market fit? 

Chris: 41:04 

I'll talk through my current situation. I started Passetto five – we launched publicly five months ago, and just this month and the – this month and then coming into May and June – we just turned into June, so the last two months is the first time that we've had customers that we've done work for say, hey, we want to renew. We want to keep working with you. We've had new customers come in and say, hey, we heard about the work you did with this CMO or this CEO. I want you to do a similar thing with us. Then, lastly, that customers are talking about the results and the impact that we've made with them, being willing to put on the record, do a testimonial, talk about that with somebody else. To me, that's the first indicator. Those are the first indicators of product-market fit, that your customers are happy, want to renew, want to tell other people about what you're doing with them. I really like that as the core definition. Without that, you have – you don't have anything. Just being able to acquire a customer is not enough, and so to me, that – the impact that you have for your existing customers becomes the number one indicator of product-market fit. 

Pablo: 42:08 

Perfect. Then last question, having done Refine Labs for five years, now you're starting a new one, what's one of the biggest pieces of advice, biggest lessons that you took from that first journey that you're implementing at the gate with the Passetto?

Chris: 42:23 

Know what type of business you're building from the beginning. Are you building a company that you're trying to burn, grow, and exit? Are you building a company that you're trying to cash flow and then potentially exit based on EBITDA? I made the mistake of thinking that we were trying to build a company that was going to get a massive revenue value and sell as a multiple of revenue when I should have been building and taking a lot of cash off the table and building a much more profitable, sustainable business from the get-go. We invested a lot of money and growth, and a lot of those investments I'm happy that I made. From a personal standpoint and for the shareholders of our company, it was not a – in hindsight, not necessarily a smart financial decision for shareholders to do that, to invest so much money in growth. I know a lot of people that are listening to this would probably think the same way as they look back. If I thought that way, you would have built a company on a lot more disciplined financial metrics, and if you look at the market today, that learning is omnipresent. Every single person that went through that would say almost the exact same thing from 2021 to now and what they learned, and you got to make – just like when I made the mistakes and couldn't make the inventory buy in 2013, as a founder, as an executive, as an entrepreneur, sometimes you have to pay the price. You have to feel the pain in order to learn the lesson. I think a lot of people went through a similar thing during that time, and so I think we're in a different time now. Even if the boom times come back and interest rates come down, I encourage a lot of people and I know I will be to operate with a lot more financial discipline, to think about your business on a cash – on two different spectrums, on enterprise value and on cash flow. Sometimes those things are interconnected. Building a free cash flow or positive free cash flow business today I think is – whether you're building a tech company or anything like that I think is a really smart move because you control your own destiny in a lot of ways. Salesforce reports that, next year, they think they're going to – year over year they're growing at 11%. They're not a growth stock anymore. What did they have to do? They had to become a dividend stock. They drove 18% gap margin over this quarter. Last year, it was – I think it was close to negative. It was the first quarter they had a dividend for shareholders. When you're not a growth company, you need to be a cash flow company, and I think a lot of companies are in that position right now. 

Pablo: 44:47 

Chris, thanks so much for spending the time, man. This has been great. 

Chris: 44:51 

Yeah. I really appreciate you. Thanks for having me. 

Pablo: 44:53 

I just gave you content that you liked so much. You actually listened to the end. Guess what? You didn't pay a single dollar. Not only that, I didn't even put any ads in your face. You just got a bunch of content for free, and now that I've delivered that value, I'm asking for something in return. Open your app, open Apple podcasts, open Spotify, open whatever app you use to listen to this and hit that Follow button. It's actually going to help you because it's going to help you make sure you don't miss out on the next episode, which you liked so much that you listened to the whole thing.