20VC: Scaling to $50M ARR in 3 Years, Scaling to $20M ARR with Just $2M Invested; The Story of PhotoRoom, Is This YC's Most Capital Efficient Company with Matthieu Rouif, Co-Founder & CEO @ PhotoRoom

0:00every three, four years, like software efficiency makes it possible for a three X X more each team to take to make the same amount of revenue than a bigger team. So I think this will definitely happen like a 10 people team doing a billion dollar in revenue. And we're like pushing for that. We actually measure how much revenue per teammate we have at photo rooms. Actually, I think YC say like they never saw a company going that fast like with this blog capital. 50 million in error in just three years. they hit 20 million in error on just 2 million of invested capital. This is the immense story of Photo Room.

0:33Now with over 100 million downloads and one of YC's fastest growing and capital efficient companies, I'm so thrilled to be joined by Photo Room CEO and co -founder Matya Roof. But before we dive into the show with Matya today, did you know that every 20 VC episode you listen to is recorded with Riverside? Riverside is insanely good. Like I would pay $1 ,000 per month 4 Riverside, it's that good. Why? First off, E's. Your guests do not need an account, one click in their in the recording room with you. It is fantastic, especially for high -profile guests. Second, they record your video and audio track separately, and in the background, so they're not only higher quality, but the guest does not need to record their end, and then send after which is a total nightmare.

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3:48Thanks, Harry. We see photo room today. What was the aha moment for you that like, I'm going to dedicate many years of my life to creating his product. Yeah, that's a great question. Well, first I've been working on photo video apps for the past 15 years. Like I started that on campus at Stanford during my master. So it's been a long, long journey. That's why I got to know iPhone development was photography. And they have a moment for photo room is I was at GoPro that has acquired the started by was working at as an end of product. And well, we were doing an iPhone app quick for video editing.

4:20And we were being featured by Apple. And I don't know if you know these things, but they ask you like, can you provide the artwork for tomorrow? Oh, yesterday, oh, very fast. And while we were this small started being acquired with the US, where they were sleeping, or as I knew I was off and tell myself, well, I'm good with Photoshop, I'm good with computers, let's do it, and I opened my computer, and while I ended up spending the afternoon, literally like trying to get what I wanted, I had a clear vision in mind, and it just, it didn't work, like too many options, I didn't manage to do something I wanted, it was frustrating and at the same time, I had like on the other part of the office at the ATM and it kind of clicked for me like, okay we need something easier, programming got easier but editing didn't and it built something, there's an opportunity here.

5:03I have this strong investment, I get in trouble for this from the team, I really don't like investing in first -time founders, I just feel there's so many mistakes that you make when it's your first time, this is your third time there. What are the big fuckups that you made with the first two that you've done differently this time? I think first one is Focus. So really the my second story like we were doing too many things We tried to do two products. We were not focused and one thing that worked amazingly well for our photo Amies we fell your track from the beginning every six months We would focus more so we started with video and photo and they say like okay Let's just do photo and then we started to say okay it's focused on people selling online and every time we focus with their next number of people like signing in and being happy being like very engaged with the product.

5:49When it works you can fill the traction, you fill the pool. So I don't think you should expand or like be wider as long as you don't have product market, which you shouldn't expand anything. And so for instance, we just focused on the iPhone app in the beginning and really create an amazing experience for these users. So we have intense focus number one. What else is really different? I think starting company is like especially for curious people, you learn like it's an exploration of learnings. You get like ship faster every time you ship your learn and well I think after like 15 to 12 to 15 years in a field like you know it by heart like you're a next -barter.

6:22So I know like mobile apps, I know photo apps, it's the third time I wanted to start subscription third company you know. So all these things like you go so much faster in the beginning so can I ask do you think the speed of execution is as important as everyone says? Yeah, definitely. Actually, so we have three culture values at photo room. One of them is instant learning. Speed of execution, like, ship learning to rate is one of them. You have a finite time in life, and a number of things you can learn really depends on how many loops you can get in that. And I really want everyone working with us to think about how can you learn faster from what you do for my two ships.

6:57For us, it's critical. I think all your makeup thunder is the fastest builder I ever met. like, he ships so fast, it's amazing. How do you think about instilling learning as a process? And what I mean by that is I find a lot of people, I move fast, move fast, move fast. And they don't actually spend the time to analyze what went right, what went wrong, and learn from it. How do you think about learning from the living fast? You have to know what you're trying to learn, and that's how you reduce and you condense what you want to ship. Like, what's the B0 of what you want, and what do you want to learn from that?

7:26Before shipping, try to know what you want to learn from, otherwise, Well, you manipulate the result to say like you've learned something. It's better to like start from that but there's some validated. Do you know I spoke to a mutual friend of ours before the show Jacob at revenue can't? Nice. And I said, what should I ask Mathieu? And he said, asking about the McDonald's test. Or the McDonald's test. In the early days and we still do it like in the street, we would go with all the other, and we would go to McDonald and the Italian would go in the line and offer people like ordering things to other food.

7:58like, can we pay for it and you just test photo room? And we would run like, yeah, 10 questions about photography and then we would let them try the unboring and really give us feedback. And every time they wouldn't get to the new feature we were trying to do like, it was a new feedback, we discovered something and it was the best learning experience. It actually comes from the ZenLit team they were doing that in Paris. I did it so much that I got banned from the McDonald from next to office. So it's just like, I couldn't enter it anymore. The security guard would come to me and say, you can't go in because you're bothering your customers.

8:29What questions do you ask when you sit down with them? Two things. First, you want to understand how they approach your vertical. So far, it's great. Everyone does photo and it's a big asset. And so I would ask, are you capturing your photo, which app do you use? What do you use for using them for fun, for selling for other stuff? And give you an insight, people get comfortable. and then while it's really show don't tell, like you show them the app, they download the app, well it's very difficult because you get frustrated because you know what, you want them to tap, but all the value of it is like them telling you how they feel, what do they understand from the app, what they wish was happening now, and it's user testing, like we're understanding what's a process for them when they see that as a first experience.

9:11When do you listen to customers first, as when you go, great, but we actually have a product roadmap that we're gonna ask you against? Yeah, for first, I think you get a lot of insight from what they expect. Give you an idea, we ask people to take a selfie to show them how the app is working. One of the user testing we realize, well, some people, if you ask them to take a selfie, first they think it's create an account, we refuse, so they're going to spend like actually minutes, a lot of time, in the environment finding the right picture for them because they want to look good, maybe it's a social network, maybe something like this.

9:41I would have never guessed that, like if I hadn't seen it, someone doing it. Well, in the early days, it's also about the blockers, like what people understand, what people see, like what they understand from the product itself. So what we do with L .Y .O .T. is really, well, going back to the office, like changing the feature a bit, changing the wording, and getting back to my dongle, and testing it again. You shouldn't wait longer than like one hour to test again. That's how you iterate fast and learn faster. The sum would say like, ads, like background removal, as a service, like cool, but like it's a feature.

10:11How do you advise found, and I'm sure you've been told that, respectfully? Yeah. How do you advise founders who are told that it's a feature not a product. Yeah, I think it happens to a lot of entrepreneurs. It's a great question. What's important is you... I mean, to see the depth in the feature. And I think you become like a product and not a feature. The moment you understand, this feature is giving depth to what you can do. To give you an example, you can say, background, move all while it's like a feature or like you do a wide background. Well, first it's useful for some use cases. But being in the industry for like 10 years before that, I knew it's not only that.

10:44like first as a product you can remove background but you can also blur you can like focus on what's important you can do templates YouTube thumbnail like it's like actually you double the a lot of opportunities for other features you can build on top of that so I think seeing the step that in the product that's coming from it is really important features that are like minimal lovable product that you execute extremely well are the beginning of a lot of successful products I do believe like focusing and making people extremely happy with what you do is more important than being very wide when you approach something new.

11:19I expect many of your investors and you know, we've got many thoughts back in terms of what we should talk about. The first, which we channeled about before this, was capital efficiency. You scaled to 20 million in an era with two million of cash. Yeah. I've never had that before. I've had the opposite. Very often and that's the capital efficient company, by the way, in venture. When you reflect on that journey, 20 million an error, a 2 million cash. How did you do this? Do you think so efficiently? When you look back, what are your lessons from that efficient scaling? Yeah. I mean, I see $1 a mean, like, to tool, and you can deploy it.

11:52But we never came from with the idea of, like, I don't not spend money on, let's, like, we reinvest everything we can in the growth. So it wasn't conscious, let's save money, let's be super lean, let's save money. I think we're like the idea of being lean, and like, but we always pay for the best tools, like, so we're not lean on, like, the best tool for the team. I think we really like to hire like individual contributor and that's part of our culture We just want to move fast and we know like small team move faster I think that's one of the reason why we're very efficient and then there is Thinking like a macro.

12:20I think there is the App Store story which is a big part of it Like so Apple and Google like the app store and mobile they're giving you distribution Yes, it take like a cut of it But basically it means they offer like a worldwide distribution to five billion people and you you don't need like a big marketing sales team to do that. So it's very capital -efficient, like a very small team product team can go a very long way. And then in terms of capital efficiency, like one of the secret of mobile apps is people are willing to pay upfront. You have a payback of one month so you don't need that much capital on the outside.

12:53Payback of one month. What are the cash today? Oh, I won't give the exact number on that but you can see how much people pay or you're only subscription and you just get the money back in one month. How many people pay monthly versus annually? If you want to be efficient and you want to be able to scale, like fast like I guess, I think jumping on the YOLI by default is the best option and it's actually how you create retain users. So, most of people like going on YOLI is a really good way to scale. When you look back on those early days, is there anything that you wish you'd done that you hadn't done?

13:25We hired great people so you need to try. You don't get the right person 100 % of the time but for sure. Do you agree with high F -5? One thing we do is we work a lot with freelancers and that's a great way because they have so many opportunities so they're willing to try and we give them a lot of freedom and autonomy. You should be able to know in a few months if it's the right person or not. How do you know whether the higher a freelancer or a full time? Files, if the person is willing to learn a lot from working one week together, we love this model, people come to the office, it's amazing.

13:54It's actually less risk for them because the culture is such an important part when you're going to put like... I'm not sure you're successful. I'm okay, so they sent you. You hire them in the freelance first. They come for one or two months. See how it is. And then it's like, eh? No, a few weeks, even. Yeah. You know in a couple of days. Yeah, and they ask for, I mean, usually people are super happy to do that. They love to try and do, like, they have so much gym in and they don't want to commit to a job. And sometimes they have already, like, their status. They might be working with other companies at the same time.

14:21So we were very successful working with Philancer. A big part of the team has been freelancing at some point. I've been freelancing, you know? Have you always had good culture? We spent a lot of time, I remember sitting with Aliyah working even for our first hire, like what are going to be the three pillars of our culture. What matters to us? So I think we did the process quite early on. And with the other two pillars, you mentioned the first about the shipping, it's rising. Yeah, the first one is challenged toward progress, you know, kind of feedback. Like you should be able to challenge anything in the company if you think it's not going great, or even if it's not your field.

14:56Second one is instant learning. So really this idea of shipping and learning from that and how really we're all learners. The last part is being an artisan. We're all makers and we really love people that master the craft and the art of making. And the best that they're craft, sharing that part with others, learning from others. Yeah, being an artisan. That's the name of the entity in France. What we look at this skating as we said, 2 million in 20 million of error. at some point around there, I believe one of your investors said it was kind of a plateau in the growth. What happened with the plateau?

15:29Why does that happen? First, yeah, exceptional growth. Actually, I think YC say they never saw a company going that fast like with this low capital. So indeed, it's quite uncommon. Growth happens with its step function. So you kind of unlock new things and you just need to be passionate and talk a lot to your user, or like getting back to talking to them, understanding what are their pain points and exploring that. And these that you can't always be growing and it happens the right, I continuously. Is it challenging with team rural when you have a growth pluser? Well, yeah, I think we're very focused and driven by growth.

16:03People don't improve something they don't look at, like numbers they don't look at. So we talk about growth every week. And so people are happier when there is growth. So you have to be careful with that. But the company is growing amazing. Well, we are profitable. So it just like take a step back understand what are the kind of adjacent needs of your user and go even deeper with that. I mean, it happens all the time. So you don't want to hire people that are here just for growth. You want to hire people that are here for the mission you're solving. You said about kind of the focus on metrics there, and you know, metrics move when you pay attention to them.

16:33What defines it like successful user to you? When you think about the metrics that you focus on, what are they? Yeah, for us, it's quite simple. A user is like successful as a user, exploring x number of photos every week. Someone who is engaged and who is successful, like, the guy who has a number of exports per week, he has defined this as a successful user. Yeah, in terms of metrics, I think it's really always better to talk about people. So it's like a number of people doing that, like doing one export every week. So a weekly active user is an amazing signal for us, and the signal of someone who's active.

17:05But I really love when people think of not numbers, but people who are in the numbers. So I always have to say, just a number of people doing something, not like a number of exports per week. How do you think about photo? Is it a daily use case product? A weekly use case product monthly? It's interesting. We love our sellers and people like doing e -commerce. That's one of the best person and kind of all the early, early, e -mintry. People do list like on a weekly basis. So for us now, it's more of a weekly better than we see with the app. How helpful was it from a product marketing? So I recently did a show with Matt from Cloudflan and it originated because I said focus is most important thing, have a very, very specific ICP because it will allow you to have way tighter product marketing, much better use of customer acquisition channels.

17:50He was like, what a load of crap. It was like, is she go horizontal? You don't know who's going to use your product, you don't know how they're going to use it. And my point is, when you think about the sellers, you can so efficiently product market to them in the early days and to the 8, as you know, exactly that sellers on these three platforms make. Product marketing is much tighter, no? I think you can combine both. So we have 100 million downloads, like obviously not all of them are sellers. But I think it's really important in your product development run map when you focus to say, okay, we're going to like, to focus on this person now.

18:25It's good to be beneficial to others, but to really the way we build it is for this person. In terms of acquisition channels, how did the acquisition channels look in the early days? When you were growing really fast, where were they coming from? The early days, I mean, it's the word of mouth. So the story and it's kind of on DNA of photo omnis, we got product market fit in the early 2020. Gary V mentioned us, we got a few eBay influencers that talked about us and we got viral like a verified growth. And one month later, there was COVID. From one day to another, everyone, well, can't sell offline.

18:57So you all need to go online with your products. And you can't access a photographer because you can't be to prefer other people. So to be honest, like, looking back, I didn't realize back then but we got product market fit and like one month later COVID hit it just like double down on our growth and it was the photo and watermark so if you go on any marketplace you'll see photo and watermark on a lot of listing and that got the viral growth. Do you want people to remove the watermark? Because it's great advertising fee but you also want them to pay and so it's right. I mean in mobile subscription like there's always 10x at least more people that are never going to pay for it and they're always like at least 10x more people that are yeah that are going to be on the free plan.

19:35So the number is like it makes sense. And actually we have a lot of people that do screenshots, they do screenshots of the image in the editor and just like remove the watermark this way. And we actually reserve it. It's big. If they use it a lot, at some point, they'll pay. What's your yearly chart? Well, I won't give you the exact number, but that's the thing I would love to know if I'm all competition. If there's one number, it's not the highly -gray -al -number, do you think? Yeah, I think it's the one that you love to know. Yeah. It's really eye for, like, because we're useful. So I think there is...

20:01Because if I'm just totally honest, I'm generally more of an enterprise investor. Yeah, and when I think it consumes nutrition, I've had this out with Nico and Jason. And I do, when I'm churning 30, 35%, I'm not saying this is you, but just consume nutrition. 25 to 40 % in the customers every year. How do we make that business work? Yeah, the dynamic is, I think you need to live with the idea of, mobile software is tenix bigger than anything you'll do on desktop anyway. We are addressing 5 billion people. My kids, the first app they use is photography, they use photo room. It's like one of the first software you're using in your life is photo editing and probably the last one you'll use to.

20:38So when you're addressing 5 billion people, it's much bigger than anyone else for sure in your SaaS business. But it's really the top of funerous use and you shouldn't embrace that for mobile subscribers. I'm just going for this because I am too intrigued. I see everyone's kind of coming into each other's space. Something you've got, Kamma moving into other people's place, Adobe moving into other people's place, you moving up. And I'm looking at it going, I don't know how this plays out, because everyone's trying to just eat all of the pie. How do you think it plays out when you look at your photo, your camera, your Adobe, your Mojo, what happens?

21:10What we really try for is making studio quality photo accessible to any professional or any entrepreneur in the world. And I think for that we focus on a different use case. Then Canva, which is more for design on your desktop, or Adobe, which is for the experts. Adobe is for the tens of millions of people that are spending the day in front of their computer and their experts. We are providing the service for people that come up for that. So we're making it more accessible, 10x more people because they're on their phone, and it's wider origins. But I actually don't think it's the same product that you can develop.

21:45You need to choose the one. and we'll all make like a more than a billion in revenue. I mean, the adobe is already doing it and can work close to that. Can we do it while ever? Yeah, so can we do it while we're on the same track and we'll be doing one billion for different social agents? Do you need to move into enterprise? Well, we already do need to move into desktop. Our customers are like small businesses or B2B. And the price we already, like that was our, we started with the photo -home API. So we have like iOS, Android, Web, API. We can render the same thing, which is quite unique. And we were very successful with the API.

22:18There were, you sense a strong pull. And so last May, you get the Barbie movie. And they love it a lot. But they're more like Robby. And they did like a big part of the marketing was using photo room to create like a Barbie poster for anyone in their origin. So they use our tech and anyone like not a pro, could create pro quality posters. I mean, the Cartesian, Rihanna, they use that tens of millions of users. And that's like the API is taking off with that. And that's one example. So that's what we've been doing for the faster. We're just delivering to more people with the enterprise part and the APA.