From 79¢ Tacos to Technological Milestones: Luke Freiler’s Journey

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0:58Welcome to Built Right, a podcast by Hatchworks, where we help you learn to build the right digital product the right way. In each episode, we'll deconstruct the layers of successful product development, break down popular trends, and offer real advice to help make sure your product is built right. We may not have all the answers, but we've built a lot of digital products across a lot of industries, and we've seen a thing or two. Let's get into it.

1:33Welcome, Built Right listeners. Today, we're chatting with Luke Freiler, CEO of CenterCode. And Luke's journey is a bit unique in the fact that he's been running CenterCode for the past 22 years, starting as CTO, then moving into the position of CEO. And we're going to get into his journey and hear the type of stories you only get from a founder, like how he got the product market fit, insights on pricing, go-to-market, and really everything in between. But welcome to the show, Luke. Thank you, sir. All righty. So instead of like, you know, Luke, you're telling us what CenterCode does. I kind of want to take us back 22 years.

2:08Like go back to when you first realized this problem existed. It's a really cool story we were chatting about in advance. I want to get into that and kind of take us there to kind of get into what CenterCode does. Absolutely. So I started my career from a pretty young age in tech. I started out at Samsung, quickly moved with a big group of people over to Ericsson, which at the time was a hundred year old, hundred thousand person tech company. And at the time, the Internet was still pretty fresh and new. And I was young, but excited and pretty invested in it. And specifically, the thing that really lit me up was just the idea of usability and what eventually became user experience.

2:49You know, back then, tech products were pretty much used by tech people and anything that broke that mold was pretty novel. So I, on the other hand, had low patience, despite being a techie person and kind of grew up supporting, you know, the school network and printers and whatnot, and always thought there should be a better way. So that's kind of where my head was. And where I was at Ericsson was running a web development team that handled any sort of web oriented functionality for the product that we were bringing to market. So firmware of the product itself, internal sites, public marketing sites, everything.

3:23So I had a group under me who were all, again, sort of young web developers. And a product manager came to me and he said, hey, I need you to run a beta test. And I kind of lit up and said, OK, well, what does that mean? And he said, well, it's when you get a bunch of customers. And I was like, no, no, I know what a beta test is. I don't know what that means at Ericsson, right? We have a process for everything. I have a four-inch guide on how to use the logo. There's got to be a path for me here so I don't have to just create it. And he was like, no, man, best I can tell, there isn't. You're going to have to just figure it out.

3:57And I said, okay, can I outsource it? Can I go find a vendor? And he said, sure. And I said, okay, I'll do that. Give me a budget. So I started looking around. I started researching and I quickly realized that it was a gap in the market. What I discovered was this rare necessary evil in business, something that everybody sort of universally agrees is important, is positive, but it's hard. It's challenging. The idea of I'm going to get a unfinished product and give it to a bunch of strangers and expect meaningful feedback that I can transform into a successful product. It's just a tall order. So at that point, I saw that opportunity.

4:35And like I said, I was already kind of borderline obsessed with the future of usability and user experience and technology being more useful. And it all just kind of came together. And from there, I decided after talking to many, many people and asking everyone I knew and everyone within their networks how they did this, I kind of realized that the challenge was, it was something that happened episodically. Every once in a while, somebody would run a beta test for a product. Back then, everything was waterfall development. So it was a good couple of years between products. Product managers were heads down for a very long period of time.

5:07They would run a big beta test for eight or 12 weeks at the end of that. But then there'd be another two years before they did it again. So as a result, they kind of forgot everything they learned. And that led me to a lot of different paths that all turned out to be, yeah, there's an opportunity here. There's an amazing business opportunity that not only fits what I'm passionate about, which is incredible, but also is sort of universally positive. The idea of taking a company and helping introduce them to their customers and then sort of orchestrating the communication between them and helping them ultimately just produce a better product for those customers is just a universal win for everyone involved.

5:45So I never expected to spend most of my career in any one place. That certainly wasn't something I set out to do. I also didn't ever expect to be a CEO. I just kind of fell into something I loved and invested heavily in it, you know, my own personal time. And I don't see myself going anywhere. I absolutely love it. And we get to work with many of the greatest brands ever to bring products to billions of people. So it's awesome. Quick break in the pod. If you're listening to this podcast, chances are you've been thinking about how to actually use AI inside your business. And that's exactly why we built the AI Opportunity Finder.

6:18It's a free tool that helps you uncover high impact, tailored AI use cases based on your business, your goals, your pain points, and your industry. No fluff, no generic use cases, just real ideas that fit your business and the ranked by ROI potential. It takes about three minutes to run and it's like having your own personal AI strategist for free. If you want to try it for free, check out the link in the show notes or go to hatchworks.com backslash AI dash opportunity dash finder. yeah it's a lesson in you know we talk about the the built right method at hatchworks it's centered in building something that's valuable for the customer viable for the business and feasible like the marty caking kind of school of thought and you know we'll see clients a lot of the times they'll come to us with an idea but they're kind of missing like what's the problem behind it and you know so that's a key piece that often gets overlooked but i want to get into you mentioned this usability testing?

7:16A lot of people, when they think of testing, they think of just pure kind of QA testing within a solution, which is different though. Yes. And when you talk about usability beta testing, for those that may not know that kind of difference there, like what's the difference between those and kind of purpose of why you're doing these usability tests? So traditional just QA testing is pretty contained to professionals doing it. Now, there are sort of crowdsourced options nowadays, but ultimately you have people who are walking through test scripts and doing very explicit things to basically make sure the product is performing as it was expected to.

7:50On the other side of that, you have UX testing where it's much more focused on the experience. And do people understand it? Is it producing an experience that actually gives them the outcome they want? What we do is a little bit different. And the sense that it's all about real users, the people who actually have the problem, the product solving that will buy the product eventually in their real environments and then over a period of time. So whereas a UX test is often observatory, we're watching somebody do something and taking notes and taking action from that. And it's very qualitative in that sense.

8:24What we're doing is bringing something a little broader and it's more about, okay, how do these real people adopt the product over time? How do they use the product in their real environments, which then naturally leads to a lot of quality issues that you're not necessarily going to find in a lab. And many people do immediately recognize beta as a bug hunt. And that's certainly a critical part of it because the real world does just uncover an enormous amount of situations and scenarios that a business environment wouldn't. But it goes far beyond that. And from our perspective, we're always looking for three things.

8:57And we're looking for issues in the product. What's it not doing that it is supposed to be doing? What's not behaving as the customer expects it to. We're looking for ideas, what could be improved in the product, either small improvements all the way to features that could end up in future versions or what competitors are doing that might be an expectation they didn't see coming. And then the last thing we're looking for is praise. What do people love about the product? What is it that really stands out to them? And what could be promoted to grow the audience? And those three things together, issues, ideas, and praise, we sort of paraphrase it as fix, improve, promote.

9:30That's what we're going for is we're trying to look at this product in that real world and say, okay, how can we maximize the success of this product? And how can we use an audience of enthusiastic volunteers to make that happen? I wonder if this is another one or if it fits into the idea improved category, but we'll see a lot of times when a product actually gets into the hands of end users, they start using the tool in unintended ways. And the initial reaction is like, oh man, that's the wrong way. You're doing it wrong. But they may unearth whole new ideas with how to use the solution and get value from the solution.

10:03Oh, yeah. That promote side and the praise is where you find the things about your product that happen that are just happy accidents. And that happens every time. I mean, virtually every time there are going to be things about your product that are problematic that you didn't see coming. That's the most obvious thing. But to sort of balance out the morale, you're going to see just as many things that are new opportunities to leverage something you did in that product that you sort of emergently came out and you didn't even see coming. Take us back to your first deal. This is such a cool story.

10:36Your first deal, your first conversation when you got this idea of a product you're building. I think it's such a good lesson for folks in terms of really value. I want to say pricing, but it's all about value. I spent decades unpacking this deal and trying to figure out what to do with it. But yeah, it is a great story. So when I started this company, I was an engineer at heart. And I brought together a few people from Ericsson with me. We all left and started this. And I was leading the tech side. As I said, I wasn't a CEO at the time, but I was the product guy. It was my vision, my idea. And my first idea for this company was that this was going to be a platform that we were going to sell online for a couple hundred dollars a month.

11:16And it was going to be sort of SaaS before SaaS and that sort of self-acquisition before product-led growth was a thing. This is, again, going back 20 plus years. But that's how I thought. I wasn't a sales guy. I didn't want to be a sales guy on the phone. I just wanted to sell online and be frictionless so I could go focus on building something cool. And one of the first calls we got was from Sun Microsystems, who at the time was an absolutely enormous entity. They made the Solaris operating system, which was kind of the heart of business. Big deal. Eventually acquired by Oracle. But at that point in time, they were one of the biggest names in tech.

11:49And they called us and they wanted to inquire about the product. And I was in shock. Like I had not handled this. I basically was a kid and I brought someone on the call who I had worked with at Samsung initially, a guy named Scott. And Scott had spent 30 years at IBM, you know, growing to very, very senior positions running B2B sales at IBM. And I basically asked him to come be the adult on the call. I I would be there to answer any of the product questions. But as far as sort of orchestrating this call, I really needed his help. And he did that as a favor to me. He was great. And ahead of this, we hadn't talked about what the product would cost.

12:28For me, it was going to be a couple hundred bucks a month. It was going to be self-serve, credit card, all that kind of stuff. And that wasn't his world. But we didn't really talk about it because we didn't think the price would come up on the first call. My understanding of those large sort of B2B engagements were that they had numerous fact finding calls and so on. And it was going to take a while to even get there. So we get on the call, we show them the product, which wasn't done. It was far from done, in fact. And we were bootstrapping this company and kind of working it out on our own time.

12:56And I started trying to throw every objection possible at these guys. And I was saying like, hey guys, it's not done yet. And they're responsible. So that's great. We can help shape the roadmap. And I felt like they must have thought playing hard to get was my sales strategy, when in reality, I was just scared to death that they were going to overwhelm us and we were going to disappoint them. And, you know, it was going to be crushing. So anyway, we showed them the product. They love it. We get to the point where they eventually said, just flat out, you know, what does it cost? And I'm sitting there deer in headlights.

13:26I don't know what to say. And Scott and I hadn't talked about this. And Scott just immediately blurts out, well, it's$300 ,000 and$60 ,000 a year in perpetuity for support. And they flat out said, that sounds reasonable. We can do that. And I'm like, we get off the phone and I'm like blown away. Like I just found my funding, you know, from my perspective. And Scott's like, damn, it should have said 500. And I'm sitting here going like, yeah, man, I just said$200. So thank you, I guess. And we sold it to them and they ended up a customer for a very, very long time. It was a great experience, great relationship.

14:00And they did, in fact, basically, you know, without knowing it, fund the company for that year. And on top of that, like even it even more further when we said to them, like, hey, we're not on your platform. They're like, well, great. We'll just send you a whole bunch of hardware. And they funded all of our infrastructure as test equipment, like tens of thousands of dollars, which at the time was amazing for us. We were living on 79 cent tacos. So it was it was an incredible first experience. And it did sort of reshape the business in many ways moving forward. Yeah, it's such a good story just on the concept of perceived value.

14:34Right. And that's the key thing is kind of getting to a sense. How do you even get to a sense of what that is without having this serendipitous moment like you did where you had the guy in the room that did this? It's fascinating because I like that story because it's pretty wild and it's totally true when I was there. But it's actually not all good. And I once I spoke at a conference about software pricing once. and the guy that spoke next to me was a guy named Rick Nucci who was amazing. He's the founder of Boomi that sold to Dell for a bunch of money. Very successful guy. He runs a company called Guru now, I believe.

15:13And I remember him standing up before I spoke and said something along the lines of, you know, we've spent as much time on our pricing as we have our product. And I like literally laughed out loud in the audience. And the reason was because what I was writing or talking about to that group that day, this was some sort of SaaS conferences, is sort of our journey of pricing and how every price we ever had, like the pricing we have today could not look more different than that first price. It's actually in a lot of ways closer to my first vision for the company, ironically. But every price we had for about a decade and a half after that had some roots in that original price that we made up on the fly.

15:52And the reason was because that price was accepted, Scott basically threw down the gauntlet and said, look, man, this is what the market will bear. They accepted it. This is what's going to happen. And what we recognized later is that they were actually a unique company in a unique situation. What they had was an operating system to test. And if you think about it, operating systems were basically the first agile developed products in tech because you couldn't just sit on your hands for two years in between updates. There is security problems. There's compatibility issues constantly coming out.

16:25So people have been patching operating systems frequently forever. And where I'm getting at with this is they had a unique need that we didn't understand was a unique need, yet we pinned that as the market. And for years after, and I used to have this deck that kind of beautifully outlined this, every price that we came up with from there, every new model we came up with was somehow traced back to that original price. So if it was first$300 ,000 with$60 ,000 in support, I would make the argument of, oh, let's get it down to$120 ,000 a year, but now it's$120 ,000 a year. So over a certain course, it's the same amount of money.

17:00Then we would get and say, okay, well, our average customer has six seats, six full-time users who live in this product. So let's sell it for$20 ,000 a seat. And I could actually trace back like a decade and a half of pricing strategies that were all hooked to this idea of we don't want to give up or cannibalize that very first customer. And the problem with that thinking is we didn't except for the longest time that that first customer had a very unique model. And again, the irony is they were just early to agile. And because they had agile development, they had a continuous need. They could justify building a team around this in one place.

17:34And therefore, they could justify the budget to support that team. Whereas for the next decade plus, most companies were putting this on individual product managers like we had at Ericsson, which meant they were only actually running a beta test every couple of years. And when you have that, when you're decentralized in that form, you don't have a centralized team, a centralized process. So you don't have tools to support that centralized process. You don't have a budget for those tools. And that actually held us back. Again, we were bootstrapped. So things like awareness weren't something we could invest heavily in.

18:05And as a result, that kind of held us back sticking to those guns. And it was only in recent years after I took over CEO and wanted to get a lot more aggressive with how we approach the market and rethink what our go to market strategy is that we got around that. So but we lived with those. I mean, it funded our first year. I can never say it was a first mistake. It really did help put the business on the map, gave us an incredible customer and a wonderful relationship and all sorts of social proof. But it also kind of stuck us to our guns way longer than we should have because we didn't accept that the context changed.

18:34And again, now any company that's grown up in the last 10 years or so is agile. They're typically doing consistent development of some, you know, most products or services now. So our newer customers, the Pelotons and Sonos and Rokus of the world, they all have teams for this. They all centralize efforts for this because they have a constant need. Therefore, again, it went back to that idea that we need a tool or services to support that. So, yeah, it's been an interesting journey that's been kind of in all directions. That's really interesting. It's interesting that initial frame of reference.

19:06It's just kind of burned into your memory almost like you talked about. You're always working from that point. And it was kind of, you know, it's taking you down the wrong path in a sense. That's really interesting. Let me get back real quick to, you know, the product wasn't fully ready in the beginning either. You mentioned y 'all were bootstrapping this because you were coming out of effectively the dot-com boom and bust. It's not like it was by choice per se. Didn't even try to raise money. No point. I think this is an underserved thing from a lot of companies. Services is a lot of times a very viable way to A, help fund what you're doing, but you also learn as you go.

19:50I know with Hatchworks, we've been bootstrapped as well. We are a services company, so it allows for more of that. But talk me through that journey. I think that's a really interesting story, how you got kind of into the services game, and it's evolved over time. So, yeah, even before that big software deal, we had spent about, I don't know, nine months or a year kind of building up the platform. And at this point, we're taking on separate contract work because we're all like 20, 21 years old and don't have life savings. So at that time, through a friend of a friend, we met this brilliant guy named Mike Fine.

20:21And Mike had spent a bunch of years running beta teams at a few big tech companies. And at the time, he was the most passionate person I had ever met about this whole concept, this whole domain. And when he heard we wanted to start a business about it, he was just instantly all in. It was in his blood. And what his perspective was, and the pitch he gave us that to this day is still alive, was, hey, while you're building the software, why don't we deliver managed services on top of it? There is a need out there, especially if you look back at that sort of episodic need of once every year or two per product manager, they have a product.

20:58He said there's a need out there. And if we're delivering on the software, it doesn't need to be done. Right. The last 10, 20 percent of the product takes 80 percent of the time when you're polishing and getting it ready for users and going through the UX and everything else. So, you know, when we're working close in hand within the company, we don't need that level of polish. We can do the heavy lifting behind the scenes. And he made a compelling pitch. And we started working with them virtually immediately. And we started delivering managed services. And, you know, initially it was challenging because we're now effectively running two companies in one.

21:29We want to be a software company. We also have managed services. But at the same time, those services lean on the software heavily. They're a tech-enabled service. And that means they have pretty great margins. And as we innovate the software, we can directly have an impact on the margin of our services, which is a really great thing. So to this day, we still offer managed services. It's still a part of the business. And most importantly, as you alluded to, it became what we think of as our test kitchen. We knew that we now had this central team that ran a more diverse set of beta tests than virtually any company in the world.

22:02And therefore, we could learn and implement. And from that, we started to recognize that, hey, one of the problems in our space is that there's no framework, that everybody does it differently. Everybody's kind of recreating it from the ground up and everybody's wasting a lot of time and the opportunity cost there for them is huge. So what if we stopped thinking about just technology and started thinking about the process and everything that's layered on top of it that companies could reuse? And being that we are in the center of this and do so many of these tests, we don't even have to go learn from everyone.

22:30We can and we do, but we have it direct. We have the information that they would never want to share with us anyway. It's right in our wheelhouse. So that led us to making a framework and certifications and everything else and just kind of mastering our space and recognizing that if this category is going to flourish and achieve its goals, it can't just be software solving a problem. And therefore, you need, in IT, the typical way is software process and people, put those three sort of things together to achieve something. And we recognize that we have the software and that's what we're focusing on.