Lob is an API service that allows companies to send physical mail at scale, automating the process of sending letters and postcards. The service offers features like address verification, tracking, and customization options. Lob's API can be integrated into existing systems and workflows, making it cost-effective and eliminating the need for manual mail processing. Lob's high-quality documentation is a priority for their successful API product. The insight to create Lob came from Harry Zhang's experience at Microsoft, where he worked on a direct mail campaign. Lob's first version was an API that allowed users to print documents using their own inkjet printers. Lob's first customer, William Way, ran an online store and Lob's solution helped reduce chargebacks and fraud. Lob successfully shifted their pricing model to align customer perception with the value of their technology. They prioritize features based on customer willingness to pay and focus on features that customers value. Lob faces challenges in recruiting top engineers but has found success by understanding individual motivations and emphasizing their strong company culture. Lob offers a unique RSU instrument for equity compensation. They chose not to vertically integrate and prefer to work with a network of specialized printers. Harry Zhang has had to adapt and change his role as a founder and manager over the years.
Harry's intro
Harry Zhang, co-founder of Lob, discusses Lob's API service that enables companies to send letters and postcards.
- Lob's API service allows companies to send physical mail at scale
- The service offers a simple and efficient way to automate the process of sending letters and postcards
- Companies can integrate Lob's API into their existing systems and workflows
- The API provides features like address verification, tracking, and customization options
- Lob's service is cost-effective and eliminates the need for manual mail processing
- The API service has been adopted by various industries, including e-commerce, finance, and healthcare.
What did Lob have when they applied to YC?
- Lob had very little when they applied to YC, with only an API as their MVP.
- They wanted to avoid demoing because they hadn't built much product yet.
- Lob believed in getting customers to pay before building something.
- The speaker appreciated API companies despite the lack of interface.
Documentation as an API company
Documentation is a crucial aspect of an API company, as it attracts developers and reflects the skill of engineers. Stripe is cited as an example of a company with excellent documentation. For Lob, high-quality documentation is a priority for a successful API product.
- Documentation is a key factor in attracting developers to use an API
- Good documentation reflects the thoughtfulness and skill of engineers
- Stripe is an example of a company with excellent documentation
- High-quality documentation is a priority for Lob's successful API product
Where did the insight to create Lob come from?
The insight to create Lob came from Harry Zhang's experience at Microsoft, where he was working on a direct mail campaign due to limitations with email and cost of telesales. The success of the direct mail program led to a larger scale implementation, which became a challenge for Harry.
- Harry Zhang's experience at Microsoft working on a direct mail campaign sparked the insight to create Lob.
- The limitations with email and cost of telesales prompted the need for a more efficient solution.
- The success of the direct mail program led to a larger scale implementation.
- Scaling the direct mail program became a challenge for Harry.
Lob's first version and first customer
Lob's first version and first customer:
- The most profound aspect is that Lob's first version was an API that allowed users to print documents using their own inkjet printers, solving a real problem for people.
- Lob's first customer, William Way, ran an online store for Team Fortress 2 and had a fraud problem.
- Lob's solution was to send physical letters as proof of delivery, helping Way reduce chargebacks and fraud.
- Lob attracted more top-tier clients after successfully solving the first customer's problem.
Closing their first big customer then signing others
Closing their first big customer and signing others
- Found a company in New York with compliance and security issues around printing
- Sent personalized cold email highlighting how their product can solve the problem
- Importance of finding customers who believe in the methodology and vision of the product
- Found alignment with the first customer and scaled with them
- Challenges of getting a lighthouse customer and how it becomes easier to get similar customers once a problem is solved for one customer
- Understanding the language and key problems of the customer's industry to be more credible
- Preparation work involved in researching and contacting key stakeholders
- Multi-pronged approach including email outreach, attending conferences, and understanding customer motivations
- Requires working through rejections but becomes more accurate in identifying the right accounts and decision-makers.
Did Harry always know Lob would be an API company?
Lob, an API company, primarily targets enterprise customers but also serves smaller customers through their API. They recognized that the features desired by larger customers were also in demand by smaller customers.
How long did it take to work up to enterprise customers?
- Lob took almost four years to work up to enterprise customers
- Their first few true enterprise accounts were signed just two years ago
- Pricing was a crucial factor during this process
- Getting the pricing wrong could have had negative consequences
Pricing
The most profound aspect of the topic of pricing for Lob is the successful shift in their pricing model, which helped align customer perception with the actual value of their technology.
Key points:
- Lob initially followed a traditional pricing model but realized it didn't work well when targeting larger customers.
- Customers compared Lob's pricing to other mail providers and questioned why Lob was more expensive.
- Lob introduced a platform fee, which allowed them to focus the conversation on the value of their technology rather than the cost of a mail piece.
- This shift in pricing model helped align customer perception with the actual value of Lob's technology.
- Lob differentiates itself by offering customers access to their entire API and associated offerings.
- They aim to provide the best price in the market for the commodity of sending mail while also charging customers for the value they perceive in using their software.
- This is achieved through a split pricing model, consisting of a platform fee and a per piece price.
Creating a product roadmap
Creating a product roadmap involves determining the value of different features for customers and prioritizing based on willingness to pay. Lob, a company automating offline processes, focuses on features customers are willing to pay for rather than just improving conversion rates.
- Lob determines feature value by assessing customer willingness to pay
- Specific features, like a HIPAA compliant offering, are highly valued by customers
- Lob prioritizes their product roadmap based on customer willingness to pay, rather than just improving conversion rates
Tradeoffs when building product
Tradeoffs when building a product:
- Understanding customer needs is crucial in prioritizing features.
- Some features may not be as important as initially thought.
- Example: Execution component and tracking of mail were crucial, but designing better mail pieces was not necessary as most customers already had full-service creative agencies.
Competing for top engineers as an API company
- Lob, an API company, faces challenges in recruiting top engineers
- Lob has found success by understanding individual motivations and emphasizing their strong company culture
- They showcase their culture through blogs, on-site visits, and aligning their activities with their core values
- The video discusses the challenge of attracting top engineers as an API company
Options vs RSUs
Options vs RSUs: A Comparison of Equity Compensation
- Options require employees to purchase shares at a specific price, while RSUs are stock grants that don't require payment.
- Lob has created a unique RSU instrument that combines the benefits of both options and RSUs.
- RSUs at Lob are viewed as more attractive because they are not taxed until a liquidity event.
- Lob wants employees to stay for the right reasons, not because they can't afford to exercise options.
- RSUs at Lob have a vesting schedule similar to options, with a one-year cliff and monthly vesting thereafter.
- Lob offers retention grants to reward loyalty and tenure at the company.
Sales mistakes
Sales Mistakes:
- Align with customers and be upfront about what the product can deliver
- Sell a little ahead of where the company is, but also align with customers on what is actually available
- Importance of being upfront and honest with customers, especially in larger enterprise deals
- Set the right expectations and do not oversell
- Transparency about capabilities and timeline can lead to partnerships and customer support
Building out features for enterprise clients
Building out features for enterprise clients involves evaluating customer interest and demand before developing new features. This is done by prioritizing potential features based on customer commitment levels. For example, a new feature, certified mail receipts, was recently launched after finding interested and committed customers. It is important to have enough customer demand before investing resources into building new features.
Why did Lob choose to not vertically integrate?
Lob chose not to vertically integrate because they see mail as a commoditized product and owning the necessary hardware would be difficult and capital intensive. They prefer to work with a network of specialized printers for flexibility and meeting customer needs. They initially considered having their own printer but realized relying on external vendors was more efficient. They believe their partners are experts in print and are open to partnering with companies that can offer unique advantages.
How has Harry had to change as a founder over the life of Lob?
- Harry Zhang, founder of Lob, has had to adapt and change his role as a founder and manager over the years.
- Initially focused on building the product, Harry took on sales and marketing responsibilities as the company grew.
- Harry emphasizes the importance of founders being comfortable with their roles evolving and being involved in all aspects of the business.
- This includes talking to customers and selling the product.