The most impactful decisions for an early-stage founder

Vlad Magdalin, CEO & Co-founder, Webflow

Derek Andersen, CEO, Bevy & Startup Grind

Derek: Welcome to Startup Grind, thank you so much for being here!

Vlad: Thank you so much Derek, it is amazing to be here. Hey everyone!

Derek: So I wanted to just start – Webflow’s increased $215 million, which for many people and even maybe to a degree yourself is kind of just odd to say…

Vlad: Really I don’t think I have ever internalized that amount. I thought it was somewhere in the hundred to two hundred scope but I have not done the math yet.

Derek: So just knowing your background I feel like you most founders can definitely relate to the battle and the problem of getting something moving, getting off this creation the table and getting it a heartbeat. What type of ancient items did you and the staff focus on just to get from zero to a single state?

Vlad: That is such a broad question, because Webflow has gone through four unique iterations of trying to begin with unique founders. Two of those times were only myself being solo. I believe the thing that’s become the biggest factor that’s weaved in through all those efforts and has kept me going is just the feeling that something is broken in the world and it could be better. Having gone through near-bankruptcy, working on Webflow and just not even nights and weekends — we had children at the moment, we were quite young, so nights were consumed by children — it was just like what is there outside of their day job and nights and weekends? Basically sleep time that went into a early iterations of Webflow. That I don’t always advocate. These days you begin talking about that type of program and it just — particularly if you’re imposing it on your staff — that is definitely not something which you need to market from a work-life balance standpoint. However, for me the thing which has always been the largest drive is simply knowing that this needs to exist and that pushes you into trying all kinds of things to get it off the floor.

For us it was,”how can we get 1 client to utilize us?” We wanted to become a product business from the very beginning but we did not have a product. So you must find 1 customer that you freelance together and then attempt to fix that issue for them and gradually iterate on the item so the next customer is using more of the solution and maybe you’re 95% doing custom freelance work then 5 percent is solved by this product. And perhaps the next client is 6 percent using the solution and then 94% custom development. But that was very early, so I will jump to the last version of Webflow that really worked with the present co-founders, the one that we began in 2012.

I believe the biggest thing we learned there is that we must ship often. Beginning as a designer, I had been in 3D animation and graphic design and you always need to have things perfect. Every icon, every display just has to have perfect balance and needs to match the brand. But then you spend weeks and months polishing this material and sometimes you’ve got this vision of what the item will be but you are never really happy with it. I am just glad that along the way we’d advisors and individuals who just forced us said,’hey in case you don’t ship you are gonna die. Even if you’re not proud of the thing, even when you’re super embarrassed by it, even if you don’t think anyone’s gonna cover it you have gotta send it and you have gotta iterate.’ This was the biggest reason why I am probably sitting here now. We were forced by others to find something out there to show the world some notion about what you are building to build momentum for this.

Derek: I really appreciate you sharing this experience. I think a great deal of people here can relate. About half of the companies, or perhaps about 20%, are pre-customer started but only trying to get going. 50 percent are early traction and 30% are growing and climbing beyond that. At first, at least this was my experience, you are juggling a lot of balls and you are trying to determine what things will stick. How did you know when was the ideal moment to stop juggling a few of those balls and begin focusing on the 1 thing? How did you decide that or figure out that it is time to go all in on this 1 thing?

Vlad: This is a little bit of survivorship bias, and what worked for me , I do not know whether it is a learnable lesson for everybody, but that is a small amount of Webflow lore. The second time we began Webflow, in 2007-ish, I began with a few buddies from Intuit. We were brand new grads from college beginning as they had what was called a rotational development program (RDP), where you’d spend six months in various business units to learn and find out what you would like to do. There’s a whole lot of us that only started into it, first job out of college and the entire startup web 2.0 movement is happening. People are getting funded so we are like,’yeah this is the fantasy, sure we will work at Intuit on the side, but we will begin this company!’ We create the company and we file to get a signature and then we find out that some company in Florida has the trademark for Webflow and it cost us thousands of dollars and at the time, attorneys were giving out $10,000-$15,000 credits, so you’d start together and then they would charge you

Derek: in 3X their usual pace!

Vlad: Exactly! So we spent all that money plus more attempting to combat this signature thing and then just kind of gave up. We almost called the company”Markd Up” since you had to do things with lost vowels because domains were not accessible and it lost steam and we moved back to our jobs. However there was this trademark application that was rejected and then afterwards I kept working at Intuit. I had two children, we moved to Sacramento, we were going to place an offer on a home, so essentially settled and out of the blue — I’d transferred twice — a padded envelope arrives that says”do not bend” and I open it up and it says”trademark certificate for Webflow granted.” That I had way back then as a single proprietorship and it was like, how is this not a sign that I want to begin this whole thing?

So that is when my wife and I started talking about what it would take to return to the Bay Area and attempt to apply to Y Combinator to perform the whole startup item. We began planning what amount of savings we would have to do this full time for at least a month or two, and that is when I understood — remember how I said ~5 percent was constructed in Webflow? I was still in the 7 percent range or something like this — I’d no product constructed and I knew that if I kept at that speed of just freelancing on the side while working at Intuit, I was planning to take ~20 years to get into a real item. So that’s when it was just like pulling a rip cord, it is now or never and our children were very young at the moment, one and 3, so it is a very big bet to take, but only that serendipitous moment of, how can something like that arrive six decades later, from the blue? It has gotta be a indication that this must go whole time. It was just that little catalyst which gave me enough confidence, though it was not really traction, it was not really anything happening in the company. I was not financially set. I was still going more or less paycheck to paycheck. It was just that assurance that something in the world needs me to create this and go whole time. And that’s the way the ball started rolling.

Derek: a great deal of times also, with your loved ones and yourself you are trying to mentally figure out, how am I going to do so, and have the guts for myself? And then the other side of it’s your family also, like your spouse, you have got your children — same situation for me, I quit my job at EA when my son was six weeks old and it was like, how do you manage the risk and attract those people along with you as if your startup might end, if a spouse or significant other tells you”I can not take this anymore,” it is not just about you, it is about them, and helping them get there also. How have you handled that with the people who you love and hope and helping them be able to get on board with you and remain on board with you as it did not really make sense to you likely at times?

Vlad: The answer is threefold, because at first it was sort of simple, it was lots of energy. My wife had understood that I attempted to start Webflow three unique times before. I was working on Webflow when we got married, so it had been called inevitability. But when we had children the risk that she had been ready to take and that I was prepared to take went through the ground, and I think it was originally the combination of the energy that’s been there around the notion of Webflow for 10+ years, one. Two, knowing that we are planning for it, we are actually saving money and we will have three to four weeks of savings where I could operate with no earnings and the idea is so great that it is certain to get clients — I genuinely believe that.

We saved up officially three or four weeks of private expenses and about $10,000 to get the business off the floor to incorporate and to create a Kickstarter video. So to me it was the combination of, we’ve got enough cash to get off the floor, we’re gonna make this Kickstarter video, we are gonna make hundreds of thousands of dollars in Kickstarter funds and here is the strategy. She is fully on board at that point, then Kickstarter movie turned out to be a complete dud. We spent close to $10,000 doing this, made the entire recording, and found out at the last minute we did not read the conditions of service and they do not accept SaaS applications so that you can’t even finance things which you may register for and we can not update the movie. Three weeks of savings very quickly turned into zero months of savings.

So this was in September, we incorporated in the end of October 2012. That video did not really work out, then we applied to YC, got rejected in early November. Then my daughter got ill in October — she is fine now but it was a life threatening situation where we’d basically what was called catastrophic medical insurance, so to attempt and save money you get health insurance which saves you from, if you get cancer and want really heavy operation, but the trade-off is it is much cheaper monthly, then we find out that my daughter must get these tests around Christmas time, and all those tests cost close to $10,000, which is our allowance. So we invest all this money and then it rolls over to January and our allowance starts over. So we begin selling automobiles, converting a car to a rental as you get some money or whatever your equity is and a inexpensive lease which you may pay monthly.

At that point we are doing these credit card balance transfers at which you write yourself a check and they bill you 2-3% interest and you need to pay back later. So that’s how we are financing family life at that stage, and my brother (who is my co-founder) and I and my other co-founder we are spending $9 per day on dinner as you may take 1 fajita plate in Unomas and divide it three ways since they give you multiple fajitas and we had been working at this free office known as the Hacker Dojo at Mountain View. At this point we needed to give ourselves a deadline, like when we do not launch something by March then we must go get our jobs back. That is exactly what I was telling my wife. It is just unsustainable. When you register for three months of”the money’s coming,” and then it is 6, nine months later and there is zero funding and you are going into severe debt –that is where I really need to stress the survivorship bias component of my advice .

Some founders may be going through this and pulling the identical strategy and 95 times out of 100 it really does not work out how it worked out for me since we could find grip and the product worked and we are just blessed to — when we started the concept of this product — get enough customers interested in it showed that there might be traction. So it was really tough. That November to March time period was really precarious. I was talking to Intuit to get my job back. My brother Sergie was intending to return to San Diego to receive his job back. We were going to begin moonlighting again on Webflow. So I really don’t know what information I can give there.

Derek: This experience is extremely beneficial to hear. I believe that it’s easy to see and see someone read some press release or any blog post and think’they do not understand what I am going through’ but you have definitely been through’the valley of the shadow of death’ and I feel every creator does this at some point — you stare death in the eyes. I did the exact same thing. I was trying to find part-time tasks and talking to friends about what to do and then by some miracle I managed to keep getting enough cash to go another six months. However, to hear that experience that you and your family had, just looking at a number of the opinions and things it is something which people are dealing with right now and can relate to, and I believe that is something that’s also unique to utilize this notion of fundraising versus being rewarding. You had to earn money as you didn’t have any money and you had not raised plenty of cash and so can you just talk about the way you’ve thought about that? I think it’s quite unique to the majority of startups which you see coming from Y Combinator or the valley. How have you really looked at profitability versus fundraising for growing the company over time?

Vlad: I will inform the abridged story. We fell into it by accident from necessity. We were in this type of’valley of death’ as you call it and then in March 2013 we found this playground that wasn’t even the last product that we could bill for, but it was an idea of a product that we started on Hacker News and Reddit, etc.. And then it took off and that got us enough grip to enter YC the next time that we applied. Then we thought, you get into YC, the idea is everything else is easy from now on. And really going through that program was really rigorous but it was kind of on rails. You finally have a small amount of funds because they give you financing . It’s something which really can assist me assuage my wife’s fears and my anxieties even though we are paying ourselves minimum wage at the point, it still feels like something is coming.

We moved into demonstration day and by the time presentation day struck all these other startups in our batch (like Doordash and a whole lot of others) were already financed on that day or were off the floor or talking to a slew of investors, and we believed the same was in the cards for us. We have some early investors where all these other organizations are increasing $1, 2, 3, four million occasionally. After demo day at the first few months we raised something like $250 or $300k and then we’d 60-70 meetings with investors and this was an even more anxiety-inducing and stressful period in my life than the fall since it was always going into the anticipation of, it’s gonna be simple to raise as soon as you’re a YC business to get either silent or”we will see when others join.” And I believe we went nearly a month of not constructing anything and being in discussions with investors, freaking out about, are we gonna have cash to keep going?

And then we met with Paul Graham who is among the founders of Y Combinator and he said,’look, you have around $300k. There’s three of you, you divide that by 3, you have a year. You can not hire but you need a year and you can just concentrate on the product. You can not keep doing this if it is stressing you out so much.’ So the second we moved back to all of the investors and said we are done increasing, then a whole lot of investors said,’wait a second… now that you say you do not need more money, here is a bit more.’ So we ended up really increasing a seed around around the fall of 2013. That seed round allowed us to function the exact same way that any startup operates. We’ve got a bunch of cash (it was $1.4 million in the bank), let us start to hire as rapidly as possible, let us start building merchandise, etc..

And then a year goes by and that money is — you can see the curve moving aggressively towards zero. And then we begin having conversations again about increasing and they sort of fizzle out because we are not growing fast enough. We are still building the product, what we’re hearing from both shareholders and from clients is that it is not strong enough for professionals, but it is too tough to use for people. For men and women that are building really powerful things, Webflow simply was not there yet. And it was like, we are gonna die. If we keep our earnings going up like this, but our expenses going up like this… So that is when we actually buckle down and out of necessity, we are like, well we can not raise more, nobody is gonna give us more money to get a string A so we only need to get to where we are cash flow positive. This was the best thing to be pressured to be honest since it forces discipline.

We had to pause hiring, we had to actually consider revenue. We had to think of what products and what improvements are gonna lead to earnings. We began working on our CMS, which has since been the vast majority of our business. And then another six years we are only running on this revenue. Our clients were our investors. It was not until we’d probably crossed $20 million in annual recurring revenue where we began talking to investors and that was all about how can you accelerate the vision and mission, and that is when we started seeing venture capital as a tool, not a requirement where you want it to survive, but more how do you use it as a tool. Just like you would taking out a mortgage on a home. Sure, you can save 30 years and then buy it with money or you could get that value earlier, and that is how we began to see bringing in our investors.

I think if we’d set out to bootstrap from the very beginning we would be in an entirely different position. We would not even be able to do that. We did not have a product which actually led to earnings and it had been necessary to increase that seed around, otherwise we would be completely out of business and getting to profitability or cash flow positivity was a happy accident because we were forced to it, but once we were there we made the discipline that we attempt to keep to this day where we always want the company to become default alive we never require extra investment dollars to survive. We use that funding strategically to move faster but it is not one of them make it or break it kind of conclusions.