It may be tough to remember, but there was a time long ago when Justworks wasn’t a household name. Though its monthly revenue growth charts were up and to the right, it had not even broken the $100,000 mark. Even then, Bain Capital Venture’s Matt Harris felt confident in betting on the startup.
Harris says that, with any investment (particularly at the early stage of a company), the decision really comes down to the team and more importantly, the founder.
“Isaac is a long-term mercenary, but short- and medium-term missionary,” said Harris. “The word that really comes to mind is ‘structured.’ If you ask him to think about something and respond, he’ll think about it and come back with an answer that has four pillars underneath it. He’ll create a framework that not only answers your specific question, but can prove to be a model that will answer future questions of the same type. He’s a systems thinker.”
In 2015, Justworks closed its $13 million Series B, led by Bain Capital Ventures. Harris took a seat on the board. Since, the duo have been working closely together as Justworks has grown into the behemoth it is today.
But these relationships work both ways. Oates said that one of the main things he looks for in an investor is how they’ll react when the chips are down.
“Different people behave different ways under stress,” said Oates. “And people show their values and integrity in those types of situations. That’s when these things are tested. The simple way I think about this is, will this person pick me up from the airport in a pinch?”
Though he’s never asked, he believes Harris absolutely would.
On Extra Crunch Live, Harris and Justworks CEO Isaac Oates sat down to talk through how they resolve disagreements, why Oates never changed what must be one of the most simple pitch decks I’ve ever seen in my life, and how founders should think about pricing their products.
They also gave live feedback on pitch decks submitted by the audience in the Pitch Deck Teardown. (If you’d like to see your deck featured on a future episode, send it to us using this form.)
We record Extra Crunch Live every Wednesday at 12 p.m. PST/3 p.m. EST/8 p.m. GMT. You can see our past episodes here and check out the March slate right here.
Episode breakdown
- Working through disagreements — 11:30
- The Justworks Series B Deck — 15:00
- Pricing the product — 25:00
- Pitch deck teardown — 33:00
Working through disagreements
Despite their glowing praise of one another at the top of the episode, the founder/investor duo haven’t always seen eye to eye. But they did provide an excellent framework around how founders and VCs should wade through disagreements around the business.
Oates gave an example from 2017. He was considering putting in a dual-class stock, which would give a kind of high-vote, low-vote structure to the company. He said that it interested him because he’d seen other companies out there who were vulnerable after going public, whether it be activist shareholders or other outside forces, and that that might prevent a CEO from thinking about the long term.
Harris disagreed and gave a long list of reasons why that neither shared on the episode. However, Oates said that one of the great things to come out of that disagreement was seeing how Harris went about this decision.
Harris introduced Oates to every expert on this particular subject that he knew, asking them to have meetings and discuss it further.
In the end, Oates ultimately stuck to his guns and decided to go forward with the dual-class stock, but armed with all the information he needed to feel confident in the decision.
“I learned a lot about how Matt thinks and how he approaches decisions,” said Oates. “The process of making decisions is just as important as the content. As I’ve gotten to know him more, it means that when we find something where we don’t necessarily agree, we’re able to step back and make sure we have an intellectually rigorous way to process it.”
The story reminded me of a similar conversation with Ironclad CEO Jason Boehmig and Accel’s Steve Loughlin. They explained how much time and energy they spent early on in their investor/founder relationship talking about the “why” behind opinions and strategies and decisions, plotting out the short-, medium- and long-term plan for the company.
Ironclad’s Jason Boehmig: The objective of pricing is to become less wrong over time
“I want to know what you want the company to look like so that I can push you and we can have constructive conversations around the plan,” said Loughlin. “That way, I’m not getting a phone call about whether or not they should hire a head of customer success without any context or a true north in mind.”
Justworks’ Series B pitch deck
The deck Oates put together for his Series B fundraising was only seven slides long, including the title slide and the team slide. It walked through the problem (in the deck, labeled “Opportunity”), solution (“Approach”), differentiation (in this case, “The Power of Aggregation”), a traction slide that showed monthly revenue growth, the expansion plan and a team slide.
The deck only has one graphic (the revenue growth chart) and is otherwise sparse, but includes full, simple sentences with nary a buzzword in sight.
Harris explained that the deck isn’t attractive just by virtue of its simplicity, but in its reflection of Justworks as a brand. Justworks aims to embody openness, grit, and yes, simplicity.
“This deck is very consistent with the Justworks culture,” said Harris. “The company’s way of being in the world is actually about transparency and simplicity. When Justworks released its pricing on its website, it was the first PEO to ever do so. That’s all very consistent with this. It’s ‘we don’t need to dress it up, we’re certainly not trying to obfuscate, this is who we are’ and with very clean lines.”
He added that two of the main reasons this deck “sings” for him is the line it draws to the Justworks culture and that the deck isn’t “artificially simple.”
Oates also drew attention to one of the key slides in the deck, which was the traction slide. He said a lot of fundraising comes down to timing.
“Obviously, the graph doesn’t always look like that on the right hand side, but it did look like that at this time,” he said.
Ultimately, this deck (as simple and compelling as it is) didn’t play a factor in Harris’ decision to join. In fact, the first time he ever consumed the deck was with the broader partnership at Bain after he had already decided he wanted to lead the B round.
He said that is par for the course when it comes to a lead investor. Far more important is access to the same content (be it metrics, data or operational documentation) that the founder is looking at and consuming on a day-to-day basis.
“I frequently say to founders I work with, ‘Don’t build a pretty deck, just bring in your KPIs’,” Harris explained. “Show us what you look at and we’ll know everything we need to know. It tells me as an investor what a founder really cares about. And you can only learn that by looking at somebody’s own dashboard.”
We also discussed how that type of transparency, that goes well beyond the pitch deck, engenders a level of trust relatively quickly that otherwise wouldn’t be there. The “inside” data doesn’t need to be all up and to the right to be effective or attractive to a VC. It just needs to build a level of trust and show the potential of what the startup could one day be.
Harris explained that so much of the processes he’s involved in are around figuring out things that the management team is trying to keep him away from, to one extent or another.
“Honestly, it’s so awkward,” he said. “I understand it’s part of the ‘fake it till you make it’ process of building a company and I don’t begrudge founders. But boy, it really does the opposite of build trust when you’ve got this ‘gotcha’ style of due diligence. You’re trying to ferret out information they don’t want you to know. That’s an awful feeling.”
With the confidence to lay the cards out on the table should also come the conviction and confidence to believe in the pitch you’ve put together, according to Oates.
“I think there is a real temptation — and this certainly happened to me, too — where you get so many no’s from all these different investors and you want to tweak your pitch to get them to say yes,” he said. “It’s one thing to improve how you’re communicating, but your investors probably don’t actually know more about your specific business than you do.”
Avoiding the temptation to tell people what they want to hear is really important, he added. He recalled how a couple of investors told him he should consider distribution through channels. Oates would find himself talking to a VC several days later saying that they’re thinking about distribution through channels even though that was never the plan.
“What are you talking about? Why? You’re an idiot,” he said to himself. “I took this bait that just wasn’t worth it. Stick to your guns.”
Pricing the product
Pricing is the single biggest lever that a CEO has at their disposal to change the trajectory of a business. And yet, many founders don’t spend enough time focusing on it, according to Harris.
“I think most founders are scared of it because it really is daunting,” said Harris. “You don’t want to be too low and not have a good economic model, but you don’t want to be too high and get in the way of growth. I can’t tell you how many board meetings I’ve been in where the CEO wants to talk about their real estate plans and the board wants to hear about pricing.”
Oates said that it wasn’t until the fourth try that Justworks found its pricing groove.
How should SaaS companies deliver and price professional services?
Originally, the company was pricing its product as a straight-up payroll tool, which is a lower-cost business with a different cost structure, explained Oates. The company also bundled in its workers’ compensation insurance with its base product, meaning that on both counts, Justworks was undervaluing its product.
The early price point for Justworks was $75/month/person, which included workers’ comp insurance. Oates believed that customers, who had to become acquainted with workers’ comp insurance (as it’s mandated by law) but weren’t familiar with it before starting a business, assumed it was a relatively low-cost line item. In reality, it cost around $30/month.
Justworks launched an experiment where it removed workers comp insurance from its $75 monthly bundle and absolutely nothing changed about how people were purchasing.
“You’re like ‘wow, we’re just throwing away $25 a month per person’,” he said.
The other big lesson for Oates was transparency. He says it’s more of a personal preference than anything strategic, but it drives him crazy when he wants to buy something and can’t figure out how much it costs.
“I don’t want to put my phone number in a web form just to see price,” Oates said.
Before the company made the decision to put the pricing on the website, Oates was second-guessing himself a bit. No other competitor in the category put the pricing up publicly. The leadership team at Justworks was concerned that it might impact their lead flow and that nobody would call because they’d think it was too expensive without knowing anything more.
“The truth is that when we talked to the person in charge of inbound leads, the first question they would get nearly 100% of the time was how much does it cost,” he explained. “So we finally just decided to put the price up.”
As it stands now, the Justworks pricing model is one that both Oates and Harris are pleased with. But that doesn’t mean that the question of price is not always lurking in the background. The truth is that things change, whether it’s the growth plan of the business, the cost structure, the competitive landscape, etc.
“Pricing is one of those things where I don’t think it’s possible to be done,” said Oates. “It’s possible to be done for the moment, but that’s not something that endures.”
The pitch deck teardown
Each week, our guests take a look at decks submitted by the TechCrunch audience. They give actionable, widely applicable feedback around what works for them and what doesn’t. Here are some highlights from this week’s episode:
- The TAM slide should be ambitious, but grounded in reality.
One of the tricky things that a lot of companies face is that the first thing they’re doing isn’t that big. The trick of being able to present an approachable goal in the early years where you can actually become a leader, but not in too niche a market is really hard to do. It’s hard to make the case that you’re going to be the leader in a $1 trillion market anytime soon. It’s important to be candid about the size of the initial opportunity, but also aspirational and legitimate about the eventual size there.
- Competing with massive incumbents isn’t a deal breaker, as long as you present the fatal flaw the incumbents are making and how you can join, or even beat, them.
The team here could have done a better job of acknowledging that there are big, well-funded competitors, and people like them, but then nailing the part where they explain here’s why they’re vulnerable. And here’s why what we’re doing lines up against those vulnerabilities pretty dramatically.
- Show that you truly understand your customer. And prove it.
I recommend that consumer companies do something called a painted door experience. You don’t know what it’s going to cost to acquire a customer, but you can run some experiments that are quantitative where you have not a real door for the customer to walk through but a painted door. That way you can find out what interest is going to be. To me, it says a founder is not building their company for investors, but for themselves and they need to know if it’s going to work. It’s a smart tactic that more founders should do.
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