$0 to 2 Unicorns: bootstrap vs $250M VC - Jason Cohen [WP Engine]

0:00But in AI, actually, that's not true anymore. It's flipped in AI. It's easier to get distribution than it is to build the product because AI products almost never work. If you make the wrong decision and get lucky, that's still wrong. If you make the right decision and get unlucky, you still make the right decisions. Because once again, with AI, you can build something no one wants. I don't care how efficient it is that you built it. If you're picking between only two options in that sort of huge life-changing situation, then you haven't explored the options enough.

0:23Jason Cohen:Today on Billions, I'm sitting down with Jason Cohen. The guy who built not 1 but 2 billion dollar companies with completely opposite strategies. First, he bootstrat SmartBear to millions in profit with zero funding, sold it in 2007 and later became a unicorn in 2009. Then, he did it again with WP Engine. But this time, he raised 250 million dollars from Silver Lake in January 18. By 2024, WP Engine reached$400 million in revenue with 200 ,000 customers. Both companies became unicorns, both using radically different playbooks. Jason, thanks a lot for being here. Thanks for having me. I'm really looking to that double unicorn blueprint.

1:12Jason Cohen:And I want to ask you, what changed your mind about taking VC money after you had bootstrapped for years? yeah i mean first of all uh smart bear became a unicorn maybe 10 years after that not not the following year um but to your point they were built very differently in different industries what that tells you is there is not a blueprint so that's easy we can dispense with that idea what maybe changed my mind is easy so the so wp engine was my fourth company smart bear was my third company um you know the more successful they are the the more you want to talk about them i suppose but that's not how life really is there's lots of companies and outcomes and everything and uh so by wp so at smart bear had a nice exit so i wasn't forced to do anything in particular and not in a particular timeline which is nice and it just so happened with wp engine about two years in i saw wow this one could actually be really big like it was clear the market was big and growing the company it was easy to sell things um a lot of people wanted it we had a great niche so just in other words everything was kind of lined up with like oh this could be actually venture sized most things aren't and that's not saying anything bad most of my companies weren't and that's not saying anything bad about them just most products aren't going to make billions in revenue or be worth tens of billions like just most aren't like that it's okay um i think we get wrapped up around the whole VC thing, but how many companies do VCs invest in every year?

2:44A few thousand? How many of those survive? A few hundred? Okay, but there's a million companies, a million small businesses just in America and the world much more. Okay, so VCs don't fund very much. So, you know, very few successful companies are funded by VCs, so let's not get carried away. Anyway, but WP Engine was, they had these characteristics of like, oh, this could be really big. And so I could have a different path this time, a different journey, a different set of challenges different goals and so on and be and a combination of the fact that it was my fourth go-around with a bootstrap company and then i was a father already and other and i was older so just for personal reasons of of wanting something different and and having done other things for at that point still more than 10 years right i still have done many things i was it felt like i want to do it differently this time and this one could be done differently this time that was the confluence that made me say yeah i'll take money this time and of course it wasn't 250 million dollars at first it was 1.2 because i had some angels and then the second round was get ready two million right so like we we started modestly yeah well i never wanted to raise more money than the amount of arr we had okay that way we're not we have enough money to do something that's appropriate to our size but not so much that you know sometimes you drown in that and um also i never raised at a crazy valuation again you don't want a low valuation when you get diluted for nothing but you don't want a high evaluation that's too high that you have to grow into before additional growth kicks it in finally you can get there because then the next round might be hard so we were very practical in terms of raising the right amount of money at the right valuation uh to where it was always possible of course we also grew really fast but so good so i guess it makes all things good but if we had raised a 2a valuation it might have still been hard to raise again i think a lot of companies are finding that now where they're very healthy the very good growth is okay and it's hard to raise money because oh wait you don't have ai or something and so all of a sudden they're not interested it's very difficult if you haven't

4:49Jason Cohen:kept those metrics together i'm actually curious because you mentioned ai like you've been in business for a very long time like you've seen many different cycles uh the the crazy hype where you can raise super easily and then the winter when there is no money and you see like the the tide going up and everyone's like swimming naked so the the question for you is like uh what's what's your belief now with uh with ai and how things uh you know some people talk about saspocalypse on Twitter or this kind of thing? What's your view on it? Well, I don't think SaaS companies are going away. I've yet to find someone who was paying for a substantial SaaS product and then vibe-coded such that their company is now not using a SaaS product.

5:36I haven't yet to see one. Of course, the stock market valuations are down now. You could argue they were too high. You could argue now they're too low. But when you have companies like HubSpot with more than$2 billion in revenue you're still growing 30 % year over year and profitable and their stock goes down, you say, okay, it's either temporary or it was value to hire something, but it's not like HubSpot's going away. That's not the conclusion. You could say, but AI is the next wave. Obviously it is. But I guess one of the problems with these prognostications, like, well, AI will kill everything and so forth, is the timeline of these prognostications matters.

6:12For example, in 2010, there were people saying that the stock market is going to crash. Well, it didn't. Now, eventually in 2020, 2021, it crashed. Okay. So 10 years later it crashed. So you can say, well, I was right. I told you it was going to crash. Well, that's a terrible, that's terrible investment advice, right? Rather you want someone who says, you know, it's going to crash in the next three to six months that I'm getting out now. And then it does crash in say four months or something like you don't be perfect but if you're not if you're not specific about your timeline the the the prediction doesn't mean anything you know elon's been saying we're gonna have self-driving cars in about two years and he's been saying that for like 15 years right and if anyone's going to have it first it's waymo and not elon so it's the the fact that you made the prediction is irrelevant if you don't have a timeline behind it that's meaningful so will ai take over everything?

7:07Yeah, probably. But is HubSpot going to go out of business in a year or 10 years or never or something? I don't know. Okay, well then it's not really a meaningful statement. It's not helping you and me and anybody build a company now and make decisions. So I think what is useful is to say things like, the customers have the same problems they always had. Meaning, marketers are trying to get leads and be seen in a sea of stuff that's difficult to get attention in and um and influencers are trying to get people by being crazy and doing stuff and other sorts of stuff that's not like marketers or companies and um you know engineers still need to make code and uh you know the finance team needs to do their annual audit and do something about that and have systems like all these issues or those are still issues and so what ai does is is say ah but we may have new solutions that were never that could never exist before where it wasn't cheap enough before whatever not effective enough and so we can solve these same problems we've always had but in a different and let's suppose better way so that's pretty interesting so what is true is if you're a traditional company uh if whatever ai is going to do to the functionality in your area that is true that i don't know the timeline but the clock is ticking for which whatever you're doing now is now the old way and that's okay but the that market will become smaller over time.

8:34You'll fight with other legacy products. The only way to get a new customer will be to steal one from someone else. And that someone else is probably pretty good. And if they are going to switch products, are they really going to go to another legacy one or whatever the new stuff is? So in other words, while I don't think it will kill it super fast, I do think some of these pressures might appear relatively soon. And so in any way, that's your future. So especially on a podcast called Billions, if you're trying to build a big company, that takes a long time i know even in the age of ai we always see oh but this one got there in a

9:03Jason Cohen:month right but almost all of them don't so even in a so settle down right it's going to take many years um and uh and so if it's a legacy non-ai solution and it's going to be five ten years before you get to the kind of size that you're aiming for okay well and you don't have ai like it's possible but doesn't seem likely that you'll be relevant yeah and at your company right now like how do you approach this like do you feel like you're you're gonna have to make an entire switch to interface and how you see things and try to solve like new problems in different ways or what's kind of the the same problems in new ways okay right our customers have wordpress sites they need to build wordpress sites they want to add content they want to get found on seo they want to send uh people there and track them with metrics they want to have a content calendar and write stuff for that they want to be found globally not just locally some of them anyway they want to convert those folks that come to whatever.

10:20If it's a media site, they want to have them click a lot. So they get ad revenue. If they're e-commerce site, they want them to buy something. If they're a company, they want to at least understand the product, if not buy. Like these are still what they want. So can we deliver something that helps those things happen more because AI could help sometimes. So for example, in e-commerce, a lot of e-commerce people don't even know this, but when someone searches on an e-commerce site, they're three times, they're instantly three times more likely to buy. Now that's obvious in retrospect, because of course they're showing some kind of intent.

10:56What are they searching for a particular product by name, or at least a category that they're researching? So it just stands to reason. They'd be a lot more serious than random riffraff that comes to the site. Okay. So no surprise. It's interesting. There's a number is three X. Okay. You know, we have tens of thousands of e-commerce stores that do significant revenue. We have even more that don't you know so okay we're not shopify but we still have a lot of data so we we know this um and uh okay so the the search experience like what happens next is very important because this is a golden opportunity right here this is what you want to have a great thing that they want to click and buy because like this is it so we built a a ai-based uh e-com search bar so it gets semantic and understands your product line okay you can imagine what you would want it to be you know um and uh even being able to say stuff like you know i have i pronate my foot and i like a wide toe box and i'm looking for a shoe like right like you whatever they put in you want to satisfy that because here they are so so that's for example a product that we have so that's an interesting way where it makes the customer more money it makes sense for us to do it because we have access to their database of products.

12:10We're also physically there when the person's clicking because we're running the website. So like we're there, you might say, or have access at least to all these things already. Therefore, it makes sense for us to do it. So that's the kind of way that we're thinking about how can we, you know, ultimately the best way for any company to think about it is how do you make the company, I'm sorry, how do you make your customers successful in the way that they measure it? Best is revenue. How can we make the e-commerce for more revenue. That's the best answer, but okay. It doesn't, not everything is that, um, you know, if it's a finance tool, you could say we want the next audit to have zero discoveries, right?

12:47I don't know what that means exactly, but as a vision statement anyway, that's pretty good. And yes, that's exactly what they want. Yeah. Right. They don't expect the finance tool to create revenues. That's okay. But like, what's, what is ultimately, what would they see as this as like undeniable huge success or value? Um, you should, you should be asking that now often you can't measure it yeah often the measuring of that number is not in your purview as the vendor but what you can do is say what it is anyway as your goal as your vision statement anyway because there are some things you could um measure that are proxies of that or at least just as you're saying like well then what kinds of features what kinds of functionality what what things would would we want to tell a customer in a sales pitch what we want to promise on our homepage.

13:35What would we want our existing customers to at least think? So what reports might we show them every week to show them something? In other words, like it imbues, this concept would imbue all the things that are in your control with a direction. So that's part of what a strategy is, right? So I do think it's useful to say what that thing is, even objectively, even if you can't measure it because it still can make everyone aligned around that. You can always, by the way ask the customer hey do you think this is making audits better do you think this is you know increasing revenue and whether or not they have data you know if they're saying yes and maybe there's a scale and i don't know but like if they're basically if if the trend is to the positive you're that's pretty good you know like you're onto something yeah you know because okay it's not hard data i know that but it's better than not asking and just saying well they click a lot so i guess they like it yeah that's not true you know sometimes when they spend a lot of time in the product, it's because the product's confusing and they can't figure out what to do.

14:31Sometimes when they don't spend time in the product, it's because it's just working. So all these kinds of metrics, like time spent in the product, they're okay, but they're pretty far away from what you probably want to be optimizing for. Yeah, definitely.

14:44Jason Cohen:And the way you framed it, you have an existing problem. As you mentioned, I think the search engine is really smart because obviously like search could be powered by Elasticsearch, Algolia, whatever. But it's and right now it's actually like, as you mentioned, what you're doing with AI is probably a lot better to fetch the right product or the right article to solve this problem. But to me, this is like a way to solve a problem in kind of an iterative way, because you already have a system in place, which is your website where people go and where people buy. And it's like an e-commerce website.

15:26Jason Cohen:And this is very iterative. Like you have a problem on this and you're trying to like make it better. Another way to look at the problem is to say, what do people actually have an e-commerce website for? It's because they want to make sales. And then the next question could be, how will people, you know, like buy in the future? Is it still through e-commerce or is it through something else? So the question I have for you, it's like in innovation, you can either iterate or you can be radical and do something totally different that's kind of like building the future. So in your case, because you have a very established business with 400 million plus in AR, like is the way to innovate by iteration or do you also dedicate a part of your budget to what we could call like a radical innovation or moonshot project?

16:17Well, I think at a certain scale, you can start thinking about how you allocate the capital of your company. You might say some of that is, it's all money, it's people, however you'd like to say it. There's a lot of sort of well-worn ways to do that. These are not that useful for a startup. but when you have you know we have more than a thousand people and we have the ability to try things and so um there's you know some people say that one of the roles of the ceo is to be a capital allocator when you're starting up you hear that you're like well i i get it like i decide what to do what to spend money on but you would never think of yourself that way it's just not how you think about what to do and you shouldn't by the way you shouldn't but at a larger company it does make sense to say we have a budget we have things we need to do we have you know kind of running the business stuff and incremental stuff when you do but also if we never try anything new that would be bad and so there's some way to allocate the amount of attention people money to like you say like big big new it still needs to be adjacent things it doesn't make sense for us to try self-driving cars right because there's no current expertise capability assets brands customers none None of that would apply.

17:28So it wouldn't make any sense. Um, so it still needs to be adjacent, which means leveraging some of the things I just said, where it's like, well, if we built this at our current customers would want it. So the distribution channel would be in now, maybe, or maybe not, they would want this new product. That's the, that's the big bet, but at least we have the distribution. So that's, that would be a good bet. Right. Um, that's the typical bet because distribution is harder than building. Right. So, but in AI, actually, that's not true anymore. It's flipped in AI. It's easier to get distribution than it is to build the product because AI products almost never work.

17:57Like most of the things I use don't work. I spent most of the time I spend, a lot of time I spend a clogged code is correcting it. Right. And then sometimes it gets it really good and it's amazing. I'm not sure if it's saving time overall. I think so. But, but like, you know, sometimes it saves a ton of time, but then sometimes like you're just wrestling with it. You're like, what am I doing? I, it's like three lines of code. I could just fix this. It's so confused, you know, where I just watched a video the other day of someone showing how to use clogged code better. I'm like, good. Maybe I need to use it better.

18:26And I would say like in 45 minutes, probably a dozen times, he was like, see, we'll just tell Clockgo to do this. Oh, well, it didn't quite. Well, you know, in other words, like it doesn't work that well, right? A lot of the support AI doesn't work that well. A lot of times when you talk to support now, it's still not AI, but I thought we, I thought the LLMs were there already. Well, they're not. you know so um so in ai it's funny everybody wants to try it like you make a new ai product it's very easy to get people to try it and then they all cancel in four months because it doesn't really work so ai has this weird opposite pattern to to how the products have been the other thing though is again this this notion of like wait we're we already have a product so is that different yes it is different so i think there's three you might say categories of ai products and you know You could split it up in any number you want.

19:14I find this particular one useful. One is you have incumbents who are adding AI to the product. So it's Notion is adding AI and Google Sheets adds AI and so forth. It doesn't work very well, right? Have you tried using the stuff and shit like this? It's okay. It doesn't help that much, right? So, okay. But they still should do that, right? Because if they can get it to be better and better, they do need to do that. So they're smart, but it's not that interesting. um the second kind is ai for experts so you are a software developer can ai make you a better software developer you're a designer can i make you a better designer you're you're a marketing writer can it help you write content better faster more whatever and so there the answer to me is often yes and the reason is that because to the extent the ai doesn't give you the right answer the expert knows what to do anyway.

20:06If it writes something that isn't good, the writer fixes it. You know, if the design isn't good, the designer just doesn't use it and so forth. So the expert was already doing the job and therefore can still do the job and maybe AI can accelerate parts of it. Great. That's an area where I think if you're making a startup in that kind of a zone, the fact that AI doesn't work all the time is okay or could be made to be okay. The third kind is AI for muggles. I'm not a software developer. I want to build an app anyway. I'm not a designer. I want to make a website anyway, right? I'm not a writer. I want to write a book anyway.

20:43And the thing is, AI is not good enough for that. So it is good enough to be a lot of fun, right? If you're not a coder, you can make some demo wear, some weird thing that you have to maintain for the rest of your life. And you can't, and you don't know how to do it. And then you can't bring it over the line. Like you can't get that last bit to make it good because you don't know how and you can't cajole the AI enough. You don't even know what to ask necessarily. And so, well, that's really interesting. And again, you could make a, a, you could guess that some of these things will work, but you better put a timeline on it.

21:20Cause sure. You're like 50 years, I suppose though. Yeah. I don't know. Um, anyway, that's not, that's not in sight right now. So, um, you could do that. a lot of the things where people say they're going to change the whole world are in that category so I'm not saying don't do it or I don't like it or anything like that it's just it's not as obvious as it might seem that that's possible right now so I know if you did it if you succeed it's probably great you're probably right like in that sense it's a asymmetric bet on your favor it's just I think the probability of success is much lower than people give it credit for because AI is not that

21:54Jason Cohen:good. And in your perspective, like when do you think the conversation we're having right now about AI being like not that good? Because like to me, I actually recorded like, you know, an interview with someone at Lovable Lazar with like a Vipoding a lot and he did a lot of great things and it's really amazing. But I think a lot of people struggle when they're not like expert to get to like the the level of having something that's uh maintainable and that they can really struggle i've never heard of someone getting to that point who's not a coder not once ever so yeah they're struggling but i mean that's part of why i don't write about ai i don't talk about ai because whatever we say it probably doesn't matter in six or 12 months it'll be a different set of things so i like to try to write about things that are uh evergreen i i guess i would say my, you know, if like I was saying a vision statement is something that you try to do, you may not succeed, but that's your goal.

22:56So I want to write things where they're true, you know, 50 years from now. So some of them are like some of them, some of the things I've written are almost 20 years old and they're, and they read like, then people will read them and say, holy crap, I didn't realize this was written in 2008. It feels like it was written now. I'm like, great, that's my goal. Now I'm not claiming they all succeed or that I even believe myself from 20 years ago, right? I've grown and changed, haven't I? You know, so it's not like I'm saying that that actually happens all the time, but it's my goal. So I don't want to talk, so I don't talk about AI because that's going to be different.

23:28I'm going to be wrong. So I try to talk about things that I feel are at least worth thinking about and considering if not, if not deeply true. Um, and, uh, um, that maybe helps people think or helps people understand a certain mechanism or something like that that that might still be true that that's what that's that's all i do so i don't i don't really i don't i'm not an ai expert i don't i'm not an ai strategist i can explain what we're doing but you know and what are the things that uh you you wrote about

23:59Jason Cohen:that you feel are are still true that you wrote about maybe like uh 10 years ago or 15 years ago oh i don't know i mean there's hundreds of articles so but the topic you know that yeah Things about founder psychology, I don't think have changed at all. There's sort of like this weird combination of actually thinking your ideas are better than everyone else and also having imposter syndrome at the same time, which is very funny. There's tricks like, I've been at it for six months, it's not really working, but I'm not sure whether what I should do is persevere and push through and it's coming or whether I should give up.

24:33That's very difficult. And I don't think AI solves it, by the way. at least not not not even close right now um the uh what kind of company should i build how to make a good strategy um what kind of markets are good um how to kind of poke at your own your own ideas sort of with intellectual honesty um how to interview customers the fact that you should interview customers before you have a product so you know what to build because once again with ai you can build something if you build something no one wants i don't care how efficient it is that you built it. So that sort of discovery of what is it that people would actually want to buy, where the word want and buy are both doing a lot of work there.

25:16Want and to buy. So that's hard. So I wrote a lot about that. I think all of that is still equally true now as then.

25:23Jason Cohen:I think you wrote also about the different type of CEO, you know, and that you would only figure out the kind of CEO at the stage that you will encounter. So you kind of like discover it sometimes a little bit too late so typically when you start you you want to build the you have this image of a company you want to build with a thousand people but actually when you reach a hundred you realize that you spend your entire day like managing and talking and hiring and and that you know it's not the company you had envisioned so right what kind of uh what kind of founder are you and can you maybe like walk us through that journey because i'm guessing like the the businesses you built as you mentioned have been different along the journey?

26:09I'm a great CEO through probably 30, maybe 50 people. And I've done that a few, well, not necessarily 50, but I've done that kind of range a few times. So I know that. But at WP Engine, I was a CEO for four years, But then we hired the wonderful Heather Bruner, who's been the CEO now for, I think, 11 or 12 years. That was so amazing. It was such a good decision. I mean, just everything about it, I shifted over to be the CTO. But over those years, and I was there for years, but over the years, I continued to change roles as I continued to try to find what is in this intersection of things that I like and things that I'm actually good at and things the company needs done and maybe even needs me to do.

26:59um so i would continue to shift over the years um as as that intersection seemed to change of course everyone's different like of course there are founders who want to be the ceo of you know even when amazon's as big as amazon is so this is not you know once this is such a personal thing it almost doesn't matter what i did except to show that many paths are possible and except to talk about like how did i make that decision because maybe the way to make the decision is something others can do. And again, it's those three things and asking that, which is very similar to many other things. It's like Ikigai.

27:33It's like, you know, Daniel Pink stuff. Like, of course, because it's, it's basically all the same thing. You know, we want to be needed that we need to do things that are in fact needed. Of course we want to enjoy it. At least sometimes we need to be confident because the company needs everyone to be competent in the role that they're in um so i mean these things you might say they're they're sort of obvious or automatic and yet so many people act like they don't know about it or they're not acting accordingly so we still need to say it and write it down and say you've got to look at this because when they say well i know it's like well you're not acting like you know right and do you feel like um over time you you

28:15Jason Cohen:changed like or at least your your vision changed like i'm asking because typically for me like uh yeah i started company i like stepped down as ceo when we were like 100 people because i didn't really like uh enjoy the hiring and it was just too repetitive and i wanted like more innovation so do you feel like over time this is something that change and evolve or do you feel like yeah yeah yeah you change over time the company changes obviously and this is one of those things where you can't know when you start what it's like. And so you can't predict what you're going to want. So it's like, you know, if you've never had kids before, you think you know what it's like to have kids and you can recite the words, oh, it's the hardest and the best thing ever and blah, blah, blah.

29:02You can recite those words and you have no idea what it's like. If you've never started a company, you can intellectually say what you think it is like. And it's not like that in, you know, month seven when you're struggling and wake at two in the morning. That's just the exact, that's just not how you, even if you knew it would be a struggle, like you just didn't know what this was like and whether you would want to do it for years and years. You just don't, you might think you do and you don't really know. Um, even younger, like you, you know, is this the career you wanted? Is this the school you should go to?

29:32Or is this someone you should marry? Like, and it is getting married a good idea. What's that going to be like? These are all things you don't know. And so since you don't know, even things like, I don't know, a pro con list or a rubric or something doesn't help because you don't know what to put on there. You don't know how to weight those things. You don't really know what they are. None of that stuff is useful. So that doesn't mean there's absolutely nothing you can do about it, but it does mean like you're not going to find out ahead of time and then make all these decisions and it's going to work out perfectly unless you just get really lucky.

30:02Right. And so, um, so what do you do? You say, okay, I'm going to not be second guessing myself every day because that's nonsense and a distraction. But at the same time, I'm not going to hold on to whatever I thought I needed to do or needed to be or something like this. And I need to check in, maybe it's once a year, maybe it's just sometimes when an event happens, I don't know, and try to figure out like, is this right? Is this good? Am I up for this for another three months, 12 months? Does something need to change? And then the other thing I would say is when you're in the place where we were like, yeah, something needs to change, right?