- The co-founder of Lobb, Harry Zhang, discusses their API company that allows companies to send letters and postcards.
- When they applied to YC, they had very little and had to scramble to come up with something worthwhile for demoing.
- They focused on understanding the problem they were solving and had done due diligence by talking to customers.
- Their MVP was an API that mirrored the response back to the user.
- The interface for API companies is the documentation, and they believe in having the best documentation possible.
- Their initial insight came from a direct mail campaign project at Microsoft.
- They gained confidence in their product by finding customers who resonated with the problem they were solving.
- Their first major client was a tech-forward insurance company that had compliance and security issues with their existing printers.
- They reached out to potential clients through personalized cold emails, highlighting the problem they could solve.
- They emphasize finding customers who believe in their methodology and vision for the product.
- Contracts for their API range from small to large, with some reaching millions of dollars per year.
- Getting the first lighthouse customer was the hardest, but it helped attract other big customers.

- The first customer is the hardest to acquire, but once you have one, it becomes easier to attract similar customers.
- Researching and understanding the customer's industry and needs makes you more credible as a vendor.
- Preparation work involves mapping out the organization, identifying key stakeholders, and understanding their motivations.
- Outreach efforts include contacting key contacts, using marketing tactics, and attending conferences.
- It is important to have realistic expectations and be persistent in reaching out to potential customers.
- The company started with a focus on self-service customers and gradually shifted towards enterprise customers.
- Pricing was a challenge, but the company adjusted its pricing model to better align with customer expectations and value.
- The company differentiated itself by offering additional features and services beyond just printing.
- Understanding customer needs helps shape the product roadmap and determine pricing for different features.

- The company charges more for customers who require secure management of sensitive customer information
- Customers are willing to pay extra for features that are important to them
- The company focuses on its culture and mission to attract top engineers
- The company offers a unique RSU instrument for equity compensation
- The company learned the importance of aligning with customers' expectations when closing sales
- The company made a mistake by building a product without signing any paperwork with a customer

- The company was considered as a vendor for a global company due to their operations in Europe.
- The negotiation process involved aligning timelines and plans for expanding into Europe and eventually Asia.
- The company prioritizes being upfront and honest about their capabilities and timelines with customers.
- They are open to considering new mail formats based on customer commitment levels.
- The company does not plan to own printers or printing facilities, as they see mail as a commoditized product and prefer the flexibility of working with partners.
- The founder's role has evolved over the years, from product development to sales and marketing, and they emphasize the importance of being comfortable with changing roles as a founder.

- It is important for business owners to be comfortable with every aspect of their business
- Building a product is not enough, everyone should also talk to customers and do sales
- If the founder can't sell the product, no one else will be able to either

- Lobb is an API company that allows companies to send letters and postcards.
- They started with little and had to quickly come up with a demo for YC.
- They focused on understanding the problem they were solving and talked to customers for due diligence.
- Their MVP was an API that mirrored the response back to the user.
- They believe in having the best documentation for their API.
- The initial insight came from a direct mail campaign project at Microsoft.
- They gained confidence in their product by finding customers who resonated with the problem they were solving.
- Their first major client was a tech-forward insurance company with compliance and security issues.
- They reached out to potential clients through personalized cold emails.
- They emphasize finding customers who believe in their methodology and vision.
- Contracts for their API range from small to large, reaching millions of dollars per year.
- Getting the first customer was the hardest, but it helped attract other big customers.
- Researching and understanding the customer's industry and needs makes you more credible.
- Preparation work involves mapping out the organization and identifying key stakeholders.
- Outreach efforts include contacting key contacts, using marketing tactics, and attending conferences.
- It is important to have realistic expectations and be persistent in reaching out to potential customers.
- The company started with self-service customers and shifted towards enterprise customers.
- Pricing was a challenge, but they adjusted it to align with customer expectations.
- The company differentiated itself by offering additional features and services.
- Understanding customer needs shapes the product roadmap and determines pricing.
- The company charges more for secure management of sensitive information.
- Customers are willing to pay extra for important features.
- The company focuses on culture and mission to attract top engineers.
- They offer a unique RSU instrument for equity compensation.
- They learned the importance of aligning with customer expectations when closing sales.
- They made a mistake by building a product without signing any paperwork with a customer.
- They were considered as a vendor for a global company due to their operations in Europe.
- The negotiation process involved aligning timelines and plans for expansion.
- They prioritize being upfront and honest with customers about capabilities and timelines.
- They are open to new mail formats based on customer commitment levels.
- The company does not plan to own printers or facilities, preferring flexibility with partners.
- The founder's role has evolved from product development to sales and marketing.
- It is important for business owners to be comfortable with every aspect of their business.
- Building a product is not enough, everyone should also talk to customers and do sales.
- If the founder can't sell the product, no one else will be able to either.

Harry Zhang is the cofounder of Lob. Lob makes it possible for enterprises to programmatically send physical mail. They were in the Summer 2013 batch of YC.

https://twitter.com/harryzhang
https://lob.com

Kevin Hale is a Partner at YC.

https://twitter.com/ilikevests

The YC podcast is hosted by Craig Cannon.

https://twitter.com/craigcannon

***

Topics

00:00 - Harry's intro

00:10 - What did Lob have when they applied to YC?

1:30 - Documentation as an API company

2:45 - Where did the insight to create Lob come from?

3:55 - Lob's first version and first customer

6:55 - Closing their first big customer then signing others

12:00 - Did Harry always know Lob would be an API company?

13:30 - How long did it take to work up to enterprise customers?

14:00 - Pricing

19:15 - Creating a product roadmap

20:55 - Tradeoffs when building product

21:50 - Competing for top engineers as an API company

24:00 - Options vs RSUs

27:30 - Sales mistakes

31:50 - Building out features for enterprise clients

33:45 - Why did Lob choose to not vertically integrate?

39:00 - How has Harry had to change as a founder over the life of Lob?

Today we have Harry Zhang, co-founder of Lobb.

Lobb makes APIs for companies to send letters and postcards.

I'm trying to think back to when you guys applied to YC.

I would say it was fairly embarrassing in terms of what

I mean, honestly, we were scrambling weeks before the interview to try to come up with something that we thought was worthwhile for demoing.

But I think the important thing when you're starting a company, and for

us, is thinking about the problem that you're working on versus like having a bunch of stuff.

done sort of the due diligence beforehand.

We had a good sense for what the core problems are, but we didn't have like the exact product just yet.

What was that MVP when you guys applied to YC at the time?

I think back, and it's pretty funny just thinking about this, we literally had an API that took whatever you put into it and spit it right out to you.

And that was our MVP, and we were secretly hoping.

Yeah, it just mirrored the response back and we were just sort of hoping that we wouldn't have to demo, because honestly we hadn't built a lot of product yet.

We didn't know what we wanted to build and we've always operated from the penalties like we want customers to pay us for something before we actually go and do it.

What's interesting to me as someone who's focusing on design interfaces at YC, is that I kind of really love API companies because I think a lot of people think of it as, oh, it has no sort of interface.

But to me, the interface is just documentation.

And so I'm always interested in, when I look at an API company, is looking at, oh, what are they doing here to say, this is how we want to build community around this?

Because what they're trying to build out is that this is something that people who build stuff want to use and so what are the ways they going to communicate that this will allow them to do something sort of cool or solve a problem etc and I feel like you learn a lot about people's thought processes and also how good someone is as an engineer or programmer by like how thoughtful that documentation is.

I think Stripe is a classic example of this.

But for you guys, I remember it's like, you had the basics down, but it was clear that you guys knew enough to be considered to anyone that would want to be using it, even if it was their first time ever writing any API call.

I mean, I think documentation to this day is still like the number 1 thing.

And I think we take a point in pride in making sure that our documentation is something that every single developer is going to use.

Like, when your core product is an API, you better have the best documentation on the planet.

And so what was the insight you guys had early on that made you convinced that you wanted to follow this path?

So it actually started from the problem, and it started from my time at Microsoft.

So admittedly, I did not think I was going to end up in a business that's focused on mail, nor did I think that at a job at Microsoft, At a company that's 100% tech-based, 1 of the main things I was gonna be working on was actually a direct mail campaign.

So that's sort of like how we initially got started with the problem, and it actually started from a place of complaining.

I was driving back from a ski trip with my co-founder, Lior, And I was complaining to him about this project that I was working on at Microsoft.

And essentially what we were doing is we had come up with a system for sending out these very custom training materials and an invite to a webinar online.

But for a number of different reasons, we weren't allowed to do that using email, and telesales was too expensive.

So the thing I was doing was actually building a direct mail program that was 1 of the most effective things that we've done to date.

And honestly, it was a little out of, you know, we didn't have any other options.

But when it worked really well, I got a huge budget and was asked to sort of scale across a much bigger set of customers and different use cases and more products.

And I thought that was going to be something that was easy.

But it turned out to be the bane of my existence for like the following 3 months.

In the early days, like for YC, what did the API do?

The API just went into a database that literally, I started off using my inkjet printer.

We printed everything on my home printer out of my apartment.

There hit a point where we were watching TV and stuffing, we had an assembly line of letters that we were stuffing ourselves.

And sort of at that point, we're like, maybe we should go get a printer to help us with this problem.

Ediette Leung What made you feel confident that you could just go try to sell to a company or get someone to program against that, even though it was connected to your NGINX printer.

What gave you the confidence, like, I'll go in here and sell someone on this fake magic?

Edwin Lee Chu I guess for us, it was more just a belief that this was a real problem for people.

So when we told them about the problem that we're solving, it really resonated with the customers that we were talking to.

And I remember like our very first customer.

And he sent me a note saying, hey, I want to use your guys' lighter product.

Tell me a little bit more about your business.

I was like, very little information online.

But he actually ran 1 of the largest Team Fortress 2 stores online.

And if you don't know what Team Fortress 2 is, do you know what that is?

So 1 of the things that people like to do is they buy digital items online, right?

And that's like a regular thing because people don't want to go through all this time to find the right weapon or whatever that might look like.

So he had 1 of the largest team fortress shoes online.

But it Turns out he had a problem, which was every single time people would buy his items online, he'd deliver it.

And he'd give them the item online, but he had no proof that he actually gave them a digital item.

So what he had was a ridiculously high rate of fraud, which is people would charge back and he will lose every single dispute because he couldn't show that he actually sent anything.

So his solution to this problem was, I'm also just going to send him a letter in the mail with a code.

And that served as his proof, but he had to do that himself and he hated that.

That's something that we would have never thought of out of the gate, but I think it goes to show, you can always think you have

I think that thread might still be around somewhere.

But that's sort of how he found us, right?

And we basically said, we have an API for sending letters.

And then once you got past having 16 year olds as clients, how did you get the first like really top tier big client?

Yeah, I think, you know, for us, that top tier clients, it's a big insurance company that's currently in New York.

I can't tell you the name of that company.

But 1 of the things that's exciting that we found them was they had a problem in that they didn't have compliance and security around their existing printers.

So This is in the midst of me as a sales rep literally sending hundreds and thousands of emails to potential companies that I thought could be a fit.

And this 1 got a response back from the CEO.

He asked a few qualifying questions and punded me to the guy who was actually in charge, he's now their VP of data.

And they had a problem that their printer, they didn't have confidence their printer knew what HIPAA was.

They didn't know what a BA was, and they were essentially reevaluating the technology they were using to work for PrintShop.

And that's sort of where we entered and ultimately that became 1 of our first major real customers, and there's still a client with us today.

Here's the question, can you remember, was it not cold email?

Was it super short, was it super long, was it personalized, et cetera?

I had a good idea of what type of mail that could be potentially sending.

This is what we do, here's how we're different.

And I think we can help you with your current problem in these 3 ways, right?

I think the key things in a cold email, you really wanna hit on like, did you know that they were having

I was gonna say, like, were you clued in on the HIPAA?

I did not know that they were having a problem at that company.

We didn't know what like HIPAA was, and this was sensitive information, but like we didn't know that they were looking, right?

They were looking, we didn't know about it.

We knew that they were sort of within the space that we're looking for.

But honestly, in the early days, not everyone's going to be able to find you.

And what's important, especially in our business as a B2B SaaS business, is you've got to find the customers that believe in the method and the methodology in how you're building the product, not just what you serve today, but also the vision of what your product could become.

And that's where we found a lot of alignment with this company because they understood exactly why building it as an API is valuable.

And while we didn't have every single capability they needed, we could cover the majority of what they wanted.

And they knew that we would be able to scale with them as well.

And so once you got there, how did you start expanding that out to other top-tier clients?

Yeah, these are definitely big contracts.

So today our contracts are everything from on the small side for our mid markets, like 30,000 a year just to use Lobb's API.

And we sell contracts up to millions of year as well.

But I think for us, there's a couple of things.

It's a sort of a chicken and egg problem in that you need a lighthouse customer to get other big customers.

So getting the first 1 is always the hardest, and that's a combination of just combination of luck, hard work, and really understanding your problem space and what you're solving.

Once you've done that, and you've successfully done that for a customer, it's much easier to take that exact same story to a similar customer and help them realize that value.

And by that point, you should also understand the language of the customer.

In their industry, what do they care about?

What are the key problems that they have?

And when you have that insight, it makes you much more credible as a potential vendor.

How much time do you guys spend researching before you reach out to?

You're like, I really want to have their business.

What's the prep work that you start doing?

Yeah, I mean, there's a fair amount of prep work.

So, for us, it starts from just mapping out the organization, right?

Drawing a blueprint of like, who are the key stakeholders in the organization, especially for larger companies.

Decisions aren't made by just 1 individual.

They're made by different folks and each different person may have a slightly different motivation.

We work with our sales reps to figure out what is that motivation for each of those individuals, who are the key contacts, and what's the message that's going to resonate with them.

So we'll typically start by having Cole outreach these folks.

We'll also combine it with a lot of our marketing tactics in that they're going to start seeing law pop up everywhere.

And ideally, if they're not responsive to email, we'll also look at what conferences they're going to be attending so we can actually find these folks in person.

So really, it's sort of like a multi-pronged approach.

It's pretty rare, and You shouldn't have expectations.

I send 10 emails, I'm going to get 8 responses back.

But that's part of your job, is to work your way through that and figure out who are the accounts that are going to work.

And over time, you're going to get more and more accurate about understanding the motivation, what resonates with people, and what people care about.

And you may find that the person you thought was the person who's going to make the decision might actually be someone totally different.

Did you always know that this was going to be an enterprise company, that this would be what you'd focus on?

Or was there, like A lot of people will start an API company and they're like, anybody could use this.

And actually, I'm kind of interested as what is this split in the API?

I imagine Most of it is enterprise usage, but how much is also SMB?

So I'd say roughly about 15% or so of our business is still self-service customers today.

So it's a meaningful share of our revenue.

And that fluctuates based on how much our big customers do.

But there's a healthy self-service segment of folks that utilize our API.

So for us, how we ended up focusing on enterprise is really sort of evaluation of our market.

And it turns out the market that we're in today, the top 20 players send such an enormous amount of mail that if you really want to capture the entire market, you have to focus on how you're going to win those top couple folks.

And what we realized is 1 of the things that's really nice about an API is that you can essentially give those same capabilities to people who aren't executing at that type of volume.

So in fact, it's a focus for our business to sign these enterprise customers, but we know a lot of the features and functionality that these guys have or are looking for, are also things that smaller customers want but don't have access to, because they're not operating at that scale or capacity, and API enables them to get access to that.

We're still working on it now, even today.

So really it's been a 6 year journey for us.

I would say we signed our first few true like enterprise accounts, you know, just 2 years ago.

So it took us almost 4 years to get there.

So 1 thing a lot of startups don't get right is pricing.

So when you guys were working your way up to enterprise, by the time you got that first big client, did you feel like you had your pricing locked down?

Because if that was wrong, it could have multiplied in a bad way quickly.

You know, We're always evaluating our pricing to make sure we have the right model.

We actually made some pretty big mistakes early on as it came to price.

And I think you guys have probably all heard the typical mistakes, right?

It's like, hey, didn't price high enough?

We started talking about pricing too late.

For us, it's the structure of pricing we actually learned a lot about and was a big motivating factor in us changing our pricing model a couple of years ago.

So we started off thinking very much like a traditional mail provider or even someone who sells like reserve instances in AWS.

And what you were buying is you would buy 100,000 letters over the course of a year.

But the problem we found was we went into larger customers.

They don't look at not every single budget is made equal.

So when you were selling 100,000 letters, they're going to evaluate us against 100,000 letters from another direct mail provider.

And our value is $0.05 of that letter is going to law.

That's the value that we see in our technology.

But the problem is when you're talking to customers who are used to pricing in a specific methodology, they're comparing us to like, why are you 5, 5 cents more expensive than everybody else.

And they're starting to do the math, like how many more responses do I have to get?

What's the higher conversion that I need to see a result.

But in reality, it's 2 different investments, right?

They're making a technology investment and the technology that we're providing them, and they're buying the mail piece.

So 1 of the big changes that we made that was really successful in helping shift the conversations to the right level of our customers was actually creating what we call like a platform fee.

So essentially now our customers pay us $25,000, $30,000 a year to use Lobb.

And they get access to our de facto mail pricing, which is now competitive, if not lower than every single other offering.

So now we can focus the conversation as like, How do you value Lobb's technology?

Instead of having a conversation about what is the cost of a mail piece and what's the conversion that we're looking for, I think it's important to differentiate and associate the value that customers see in your technology with what they pay for versus something that could be a commoditized product in the market today.

Now, was that pricing model only an option given your maturity?

I think we could have started that model.

The reality is we just didn't know people were going to think that way.

Well, we kept getting feedback from customers, right?

And we could tell that the way that they were modeling us was they would be trying to figure out.

And the part that was challenging is they were totally OK with paying with another agency to help manage their mail sense.

But that's not pulling out of the same budget.

And essentially, part of what we offer is We're doing that for them.

But they were looking at our mail piece price and comparing it to another mail piece price.

But in reality, it's the mail piece price plus whatever they're paying this other agency to manage it for them.

But those are coming at 2 different budgets.

So for us, we had this realization when we started talking to companies.

And they kept trying to ask, why is it more expensive?

When really the reason why it's more expensive is because we're doing more things for them.

That's very logical, but help them understand in a model that we're used to, we had to adapt to what they've already seen in the market.

1 of the things that's been interesting to me as a trend is that software wanting to be a commodity and the value and price of it getting lower and lower.

And then API companies sit at the very bottom.

They're fundamental infrastructure for services.

And so this is probably related, but how do you think about that as a business?

Do you guys set out to be like, okay, we're going to look here to compete on price or on a value, and then how can value work in an infrastructure commodity-like business, like an API?

Paul Kimmel It's different for every single commodity.

So while you might be able to compare email or SMS, I think those are priced differently than LOB.

For us, I think what we found is we wanted to be cost competitive, if not the best price in the market for the actual cost of mail, which we see as a relatively commoditized product, right, you can go to any number of commercial printers, and they can produce the mail for you.

So really, like what's different about buying software through lob is that you're getting access to our entire API and all the associated offerings that come with our platform by sending mail through Lobb.

So we want to differentiate what is it that a customer is paying.

We want them to know that they're getting the best price on a market for something that they see as a commodity, which is the cost of the actual mail piece.

But we wanted them to pay us the value that they saw in using our software to send mail.

So that's sort of why we made this split and having a platform fee as well as a per piece price.

How does that adjust your product roadmap to have these technology differences that makes you different from just a printer who can say, hey, I can do that digital printing?

So I think for us, it goes down to a conversation on how much are these features worth to our customers.

And I think over time, we built different layers, like different sort of offerings, like main market and enterprise offering.

We realized that customers would be willing to pay more for specific features.

So a good example of this is like, you know, HIPAA.

1 of the key considerations for companies that are more regulated spaces that they need to have a HIPAA compliant offering.

See all Y Combinator transcripts on Youtube

Harry Zhang with Kevin Hale on Building Lob to Automate the Offline World