476: Design Slow to Go Fast with Phillip Fierlinger of Upstock

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2:42Hey, Founder fam. Welcome back to another episode of The Founder Podcast. Today, we're sitting down with Philip Fealinger. He's the co-founder of ASX-listed online accounting platform Xero and food service marketplace Upstock. We're going to be talking to Philip about how to acquire your first customers during the validation process of starting your business, the dramatic rise of Xero and tackling logistics in the food and hospitality industry, and also how to find product market fit. Please welcome to the Founder Podcast, Philip Feerlinger. first question i ask everyone that comes on is how did you get your job aka how did you find yourself doing the work you're doing today uh yeah i mean i'd say that from the beginning it's um always been something that didn't exist and i've had to invent it um so that's true for my current job and it's true for my very first job and so um you know my first job was at this stealth startup in Silicon Valley, and they were building an iPhone in 1992.

3:49And they're called General Magic, and there's a documentary movie that I highly recommend everyone see. And so I was a kid at uni, and I reached out, and I designed this thing that was a phone and a tablet that was this concept for in the year 2000, what kind of devices will people be using? I was a student, industrial design student. And then I got wind of this company called General Magic that was actually making something like that. So I reached out to them and said, hey, I'd love to get an internship. They weren't doing internships, but they said, hey, I love what you're working on, so let's do it.

4:32And then every other job since then, I started a digital agency. And when at a time when digital agencies didn't exist. Zero, for instance, the role of head of design was not something that existed really in the software world at that point. And it was just something you had to invent. And my current role, I'm co-CEO, which at the time we founded that structure was an unusual structure. So it's always been inventing a role, inventing a job. that that's how it seems to go for me yeah i see and um i want to talk to you about general magic because on your linkedin you describe that as the most important startup that nobody has heard of why so um it was a really fascinating uh experiment or a really fascinating startup a really fascinating company and so it was it actually started inside of apple and so this is late 80s um and they were stealth within Apple and then they spun out.

5:35They managed to be one of the only companies, I think, that ever spun out of Apple. And they were working on handheld devices, so pocket computers, what eventually at the time became known as PDAs. I forget what that even means. And then now we know them as smartphones. And so the technology, and not only the technology was radically new, but the team that was behind it was incredible. It was the original Macintosh team. So these are the legends, the gods of Silicon Valley. Andy Hertzfeld, Bill Atkinson, Susan Kerr. These are absolute legends. And so the opportunity to work with them was amazing.

6:22And the other people that I met and connected with there, so Tony Fidel, people will know him these days as the godfather of the iPod or the iPhone, and he created Nest. He wrote an amazing book recently. um and so he and i worked together pretty closely megan smith and i worked really closely she hired me and she was um cto of the united states at one point and so um the founders of ebay came out of that the founders of web tv founders of amazing companies um came out of that and did amazing things and the the other interesting really interesting thing was that it was a conglomeration of consumer electronics companies and telecom companies and general computer companies.

7:17And so Apple was involved, Sony was involved, and I worked closely with the Sony team, and I said to them, hey, you made the Walkman. I'm not really, I wasn't loving what the General Magic team were actually building. and I kept saying to the Sony team, look, all I want from you is a digital Walkman so I can be able to download music anytime, anywhere, anything I want. And they were just like, okay, yeah, kind of interesting idea and it just shooed me away. And then 10 years later, the iPod came out. Let's talk about your journey at Xero. You co-founded that company. what was the problem that you were trying to solve when you started that and how long ago was that because now it's an asex listed company you're not active there yeah so that was 2006 and um so the the way that that happened for me was um i was working at a digital agency and just kind of frustrated with clients i i couldn't stand working for clients they were annoying and and wouldn't listen and, and, and the projects were really small and, you know, compared to the things that I wanted to do.

8:35And I just felt like they were always undermining themselves. And so I was really itching to do something bigger and more impactful. And right around that time, a friend, a couple of friends of mine started a company called Flickr, which is, you know, one of the first, social media platforms, the first SaaS company. And it made a really big impact on me. So I decided, look, I want to do a startup. It's now possible to do a startup over the internet. And so I was really frustrated with... In New Zealand, there wasn't a lot going on in this startup. There wasn't a startup community. There wasn't startups.

9:19Really, the only thing that was happening was trade me. And, you know, that was, that, that was not considered really a startup in the sense that we consider it today, probably. And, um, so I reached out to a guy that was blogging that, um, he was, everything he was writing about really resonated me about the, you know, he's thinking around technology, about startups, about business, um, all resonated with me. And so I reached out to him and, um, and pitched him an idea I had for a startup. And so we really hit it off and we were finishing each other's sentences and it was amazing. And so that was Rod Drury and who, you know, we ended up co-founding the zero together.

10:02And he pitched me right back. He was like, cool, this idea sounds interesting. Let me pitch you an idea, uh, web 2.0 accounting. And, uh, I was like, yeah, yeah, no, I totally get it because it was the one thing I was really daunted by, you know, thinking about starting a, uh, founding a startup was the finance side. I'd, I'd worked with QuickBooks and MYOB and I'd used those in the agencies that I'd been working with and they were awful. And it was just the one thing that I felt would be a real obstacle. So, um, and that was, you know, and that, that really is kind of the heart of why we created Xero is that these systems were obstacles.

10:43And really, accounting systems were created to pay taxes. And it's no wonder that people hate accounting and hate accounting software, because at the end of the day, they have to pay the IRD or the IRS. And so it's just pain all around. And we really wanted to flip that around and say, this is a business tool. This is all about focusing on business and particularly about cash flow. After doing a bunch of customer research or market research, it really became obvious quite quickly that cash flow was the key to success or failure in small business and in every business really, but particularly sensitive for small businesses.

11:30And so our software really focused on that cash flow. And then the taxes were just a byproduct. We made it so that you didn't really have to do much effort to get the taxes done. And so it was really changing the orientation of the way accounting software is made to make it more about business. And of course, being in the cloud, what made it collaborative and networked. So yeah, that's kind of where it all came from. Yeah, that's crazy. So I actually interviewed Rod for episode 54 of our podcast many, many, many moons ago. And the one thing that I learned from him was he talked about speed and how important it is wanting things done faster, wanting things done faster.

12:22I want to talk about that, but then your experiences there. But one thing he shared on that interview was the fact that he said, uh, basically your first hundred customers were all blood relatives. Was that true? And if so, how did you scale from that to, to what zero is today? Yeah. And that's the way you scale everything. You just have to start off by, you know, dragging people in off the streets and, and winning, you know, one person at a time, another person, getting anyone, convincing anyone that you can find to come on board and to really take the leap of faith with you. And it was interesting though.

13:09And this is kind of how I've operated my entire career. The way I approach problems is by learning about customers. And so I I would go interview customers, talk to customers, and through that process, so I do user testing and analysis on how they're currently working. So I'd go sit with them. I'd watch what they do in a day. And just by that process of spending time with people, they get engaged with what you're working on. And they want to know, okay, so what are you working on? What is it that you're going to build? And so through that process of validating the idea is actually the way you get your first customers.

13:55So you're doing user testing and you're asking them, okay, we've created this prototype. We'd like you to sit down and we're going to walk you through it and you give us feedback. And then, you know, that was the interesting part when we made Xero, we were doing some things that were pretty different to anything that was in the market. And so we really needed to test those ideas. And so when we put it in front of people, it was a really tense moment because we didn't know if people were going to love it or hate it. And when they loved it, it was awesome. And they said, when can I sign up? I want this right now.

14:34And so you're through that process of doing customer research and doing prototyping. You're acquiring your first customers. And that was the case with Xero. That's the case now with what we're doing with Upstock. Our very first customer was based on just researching the marketplace and the opportunity. Yeah. Hey, Founder Fam, I want to talk to you about something super exciting. We're officially partnered with OmniSend, the email marketing and SMS platform built specifically for e-commerce founders. We've been recommending OmniSend to founder students for a while now because it just works. Whether you're launching your first store or you're scaling the seven figures, it really helps you automate your marketing and get real results.

15:20Did you know on average OmniSend customers make$68 for every$1 they spend, which is an insanely good return on investment. And because you're part of the founder community, you get 50 % off your first three months with the code FOUNDER50. Just head to OmniSend.com forward slash founder without the E to get started. All right, now let's jump back into the show. see and i'd love to talk more about upstock how you started it all about that business but before we delve in i just love to go to kind of advice from all your companies that you've built and and just advice for early stage startup founders can you share like at a base level like what should the focus be on ux even if they have limited capital because you talked about like that as as kind of validating prop but like yeah i'd just love to hear it in a more deeper level yeah so my approach and you know what what i strongly advise is to dream big to you know so a lot of companies will start off and and get the mvp out as quickly as possible and then they'll incrementally improve that MVP.

16:36That is, in my experience, a real recipe for mediocrity. You're only doing it incrementally better than what's already existing, where the real opportunity is. When we started Xero, I was going around and doing these customer interviews. They weren't customers at the time. They were prospects or people using competitive software. And both Rod and our CTO, Craig, were giving me death stares because I wasn't on the tools. I wasn't actually designing, making pretty pictures. I was out talking to people and they saw that as a bit of a waste of time. And so you mentioned Rod Speed. He was just like, why are you in the tools and making stuff fast, fast, fast.

17:25And so my approach is actually go slow to go fast. So I want to figure out what is the big picture? What is the ultimate, you know, wave wand, magic wand solution that if you could do anything, what would you do? And start from that. And most people don't do that, which I find utterly insane because at the start, you know, you have complete greenfields. you can do whatever you want. It's free to dream, right? And most people don't take the opportunity to do that. Because once you dream, then you can see like, oh, this is the ultimate solution. This is where, you know, if we could make everything happen, here's the ultimate destination.

18:09And then you can work backwards and you can say, okay, we can't do that. We have to do this. What, you know, how do we get from, you know, where we are now to this point in the future? and that is through small steps. But at least, you know, so when I was doing those interviews, I would come back and I would put up sticky notes on the wall and I would say these are the different customer personas, these are different, you know, user types, and then these are the inputs, these are the outputs, so these are the things they're putting into the system, these are the things that they want out of the system.

18:43And as I was doing these sticky notes, then all of a sudden Rod and Craig were getting involved and Craig realized I've been doing all this work, creating the code base, the database structure, the schema, and it's all wrong. I have to throw it out. Like what you've just done on this wall with sticky notes is our database schema and I have to start over again. And so that, you know, taking the time to really look at the big picture, really step back, really understand what are all the moving parts and how do they relate to each other. Then you can dig down and say, okay, that's literally what we did next.

19:25We went around with a red ski dots and we said, we're not doing that. We're not doing that. We have to launch in nine months. We're not doing all these things and just limit it down to what we're doing. But we know with this piece, it has to connect to all these other pieces that we're building. so we're going to architect and design it with that in mind yeah crazy and did you think that the company would be as big as it is today we thought it was going to be an absolute train wreck or an absolute smash hit like it was going to be one or the other because we were going in you know all in in a big way and we were definitely making noise and and pushing hard so it's either going to be just the you know land flat on our face or going to be a monster and you never know.

20:12And so it took a while for us to really realize that we did have a monster on our hands. And I remember this one moment that it really sunk in that we're onto something enormous here. I was walking with my kids in our local mountain range and we were doing a tramp through the hills. and we got close to these people walking in front of us and I overheard them saying, me, you've got to use this accounting system zero. It's so incredible. It's completely changed my business. And just that overhearing that word of mouth moment and the excitement, the passion that somebody had for it and the way that they were selling it for us was phenomenal.

21:03And I realized, yes, we have a hit on our hands. So cool. So you've worked, invested, created, been involved in so many different startups over the past 30 years. What's the most common piece of advice you find yourself sharing with founders? You know, one thing that came out actually, so, you know, I was at zero for about 10 years and then took some time off and, you know, worked with a bunch of companies where I was investing or I was advising them. And the thing that, you know, one of the first conversations I would have with them is, what are your values? Do you know what your values are? And it's, you know, it's become a little bit more common to do that.

21:49And when, so when we founded Xero, that was completely, you know, nobody talked about values. It just wasn't a thing and it's become a thing. but even when I would talk to you know even after it became a thing when I would talk to founders they would say well that's when we get big we need to you know put together our values so that we can you know put these get teams aligned around kind of these big ideas and I said no no no no no that's not what values are for values are um when you again this opportunity before you actually build anything before you do anything. For instance, before you develop a product, like I said, you kind of dream up that ultimate solution.

22:33What is it going to be? And you have to do the same thing with your company, with your business. What kind of business do we want to build? Is it going to be a big thing that we grow massively and quickly? Is it going to be a small thing? What kind of people do we want to attract to this? What kind of operation do we want to run? Do we want it to be creative? Do we want it to be data-driven? How do we want to interact with each other? You're creating the operating system for your business by defining your values. Again, it's this opportunity to say, before we get going, how do we ultimately want to see ourselves?

23:14What do we ultimately want to build as a business? and the reason to do that up front is that it makes it really clear about who you are and what you want to do who you want to attract into the business and so when you're in these moments of crisis and you will be in hundreds possibly thousands of moments of crisis you know every single year, then having these values, these, you know, I consider them more principles. These are like the guiding principles of your business really helps you to shortcut. You know, when you're in that moment of crunch, you can really already answer the question because, or know which direction you want to go in because you've defined it.

24:02You've already laid out the rules for how you want to operate. And so that's, you know, incredibly important for when you're hiring, even more important for when you're firing. Um, it's important for when you're going for investment. Like when do you go in for investment? What size of investment? How do you want to do that? How do you want to scale the business? Um, and then, you know, in our case, for instance, with Upstock, we, uh, it really helped us with our investors. We, you know, got a lot of investment interest and there was an investor that we were, we were a bit on the fence about. We weren't sure whether it was a good fit or not.

24:41And then, you know, we went to our, our, uh, principles and we were like, no, they're, they actually don't align with our principles. We don't think that they'll, they'll be good for, um, you know, our culture and for our business. And so we, we turned the investor down and that, you know, we've since learned there was a very smart move the way that this investor has behaved with other companies.

25:09Values is one of those things that I think people kind of brush over. I advise them to actually spend a lot of time. I actually put together, when I was doing a lot of advisory work, I put together a whole checklist and questionnaire about here are all the questions you need to ask yourself and you need to ask your team, work with your team to really work through these things like we you know figure it out together because you have to align and it's amazing how many things it brings up in you know in the formation of a company where you quickly realize i was building i thought we were and that was something interesting with us when we started zero my template for kind of the startup that we were building was my model was um base camp or at the time was called 37 signals that was my like you know, uh, we're going to be a lean mean, you know, uh, building incredible software, but keep it, uh, you know, a tiny, um, uh, uh, team.

26:10And, you know, Rod had the exact opposite, you know, everything Rod does is big. Um, and so, you know, we are out of the gate. We were 20 people, you know, within a few months. And, um, it was, as, as you mentioned, it went really, really fast and went really big quickly. So let's talk about Upstock. You started the company in 2020. Can you tell us more about, just for everyone listening, what it is, what motivated you to start this new company? Yeah. So like I said, I was doing a bunch of advisory work for different startups and a friend of mine had a soda drink company called Fox and Fizz, which in New Zealand is this iconic soft drink brand.

26:53And he explained to me how he's had this really awful problem of the way he does his wholesale orders. So this is with restaurants and bars and cafes. They come in at, in all kinds of random ways. They come in, you know, texts in the middle of night, phone calls in the middle of the night, emails. He literally still had to have a fax machine because one of his customers insisted on ordering by fax. And it was causing chaos in his business is, you know, his team were really frustrated because a lot of the orders went missing or were, you know, the wrong, they gave them the wrong shipment or they completely missed an order.

27:33So, you know, an order came in and one person didn't see it or, you know, the text was missed and it just kind of got lost in the, in the stream of texts. And it was really causing a lot of expense for his business and friction in the relationship with his customers. And I thought about it and I was like, well, what you're talking about really is e-commerce, right? This is the way people order from you. This is a solved problem. Come on. And it turns out actually that e-commerce is, yes, absolutely ubiquitous, pervasive on the B2C side for consumers. but what i was shocked absolutely shocked to see is that on the b2b side everything operates like it's the middle ages literally writing on you know pieces of paper so they'd have diaries like they'd have you know parchments and they'd have a scribe you know writing it down um and these are hundreds of orders that they're writing down in a diary and they're using you know the advanced technology of highlighter pens was, I guess, as sophisticated as it got.

28:42And they would use that to color code their orders. And then they would transfer all that to a spreadsheet and then transfer that to accounting software. Every step of the way, they were making mistakes. And every time that they would transcribe something from one point to another, it was all manual. So it took up an enormous amount of time. So it's just insane how these companies were working. And it just seems really painfully obvious that software is going to take over all of this. There's no way that this is going to stay the way it is. 100 % inevitable that this is all going to go digital.

29:22And I would love to be involved with it because these are brands, food and beverage brands, hospitality, restaurants, bars, cafes that, you know, are working on really thin margins and, um, and they need all the help they can get. And these are awesome brands that I absolutely love that, you know, I eat their food, I drink their drinks. Um, I, I love what they do. And if I can help support them, then, uh, you know, it's something I feel like I have a responsibility, a duty to do that. And so that's really how it all got going. Hey guys, I hope you're enjoying this episode and learning a ton. As you know, in this series, we interview some of the greatest founders of our generation to find out how they did it.

30:06However, if you're thinking of starting your own business and you want to hear from some incredible stories from everyday people like you or I who are actually in the trenches, only been building their business for maybe one year or two years, like they're building right now and they're really in the early stages, but they're getting success, you should come and check out our new podcast, From Zero to Founder, hosted by our community manager, Molly Flynn. These are in the trenches stories from our very own successful students that have gone through some of our programs. People just like you who are deep within the process of building their very own successful business.

30:45These are the founders of tomorrow. You can find the From Zero to Founder podcast on all platforms. And remember, it's founder without the e all right now let's jump in the show so you launched in 2020 can you talk us about the traction thus far how how long did it take to build out proof of concept validate proof of concept because two-sided marketplaces are not easy no hey so we our mvp you know came out in january 2020 so we immediately the in our first week we had our first customer on and like I said, the reason we had our first customer on is because we were doing customer research with them and they were like, cool, this is great.