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M&A, competition, pricing, and investing | Julia Schottenstein (dbt Labs)
32 segments available
Julia Schottenstein is a product lead at dbt Labs, a data transformation company, and an active angel investor in data and infrastructure startups. She first got excited about dbt in 2019 when she was a VC at NEA and decided to make the leap from investor to operator by joining dbt Labs. She also co-hosts the dbt Labs Analytics Engineering Podcast, a show about data trends that impact analytics engineers’ work. In today’s episode, we discuss: • Advice for founders hoping to improve their M&A outcome • How to strategically think about competition • How to determine your paid features and have willingness-to-pay conversations • Why Julia lives by “worse is better” and “tech debt is a champagne problem” • Lessons from dbt Labs • What PMs can learn from investors — Brought to you by Vanta—Automate compliance. Simplify security | Superhuman—The fastest email experience ever made | AssemblyAI—Production-ready AI models to transcribe and understand speech Find the full transcript at: https://www.lennysnewsletter.com/p/m-and-a-competition-pricing-and-investing Where to find Julia Schottenstein: • Twitter: https://twitter.com/j_schottenstein • LinkedIn: https://www.linkedin.com/in/julia-schottenstein-25424318/ • Podcast: https://open.spotify.com/show/4BKMMeVXk4jJnAQSqGSJvE Where to find Lenny: • Newsletter: https://www.lennysnewsletter.com • Twitter: https://twitter.com/lennysan • LinkedIn: https://www.linkedin.com/in/lennyrachitsky/ In this episode, we cover: (00:00) Julia’s background (04:15) How Julia went from VC to working in product at dbt Labs (08:24) Four things Julia uses to evaluate a company’s potential (11:10) How to identify whether or not you have product-market fit (12:05) Distribution strategies (13:11) M&A strategies (15:54) Lessons from the Transform acquisition (18:01) Competitive values at dbt (20:25) Keys to dbt’s success (26:35) An offsite exercise Julia used to help her team internalize upcoming changes (29:32) Determining what features are included in open source (31:56) Pricing and willingness to pay (33:34) Lessons from dbt Labs’s first pricing change (36:33) Whether or not to be public about selling your startup (40:08) How to utilize connections during acquisitions (44:57) How to communicate selling your company (46:33) M&A market forecast (47:28) Values at dbt Labs (50:14) Lessons from working with strongly opinionated users (52:02) The importance of shipping, learning, and iterating (54:08) How VC skills translate into product (57:03) Lightning round Referenced: • dbt Labs: https://www.getdbt.com/ • Tristan Handy on LinkedIn: https://www.linkedin.com/in/tristanhandy/ • dbt Labs acquires Transform to enhance Semantic Layer tool: https://www.techtarget.com/searchbusinessanalytics/news/365530993/DBT-Labs-acquires-Transform-to-enhance-Semantic-Layer-tool • Snowflake: https://www.snowflake.com/en/ • Gödel, Escher, Bach: An Eternal Golden Braid: https://www.amazon.com/G%C3%B6del-Escher-Bach-Eternal-Golden/dp/0465026567 • Red strings training clip from Ted Lasso: https://www.youtube.com/watch?v=aVe3Iwy10MA • Monetizing Innovation: https://www.amazon.com/Monetizing-Innovation-Companies-Design-Product/dp/1119240867 • Madhavan Ramanujam on Lenny’s Podcast: https://www.lennysnewsletter.com/p/the-art-and-science-of-pricing-madhavan#details • Pricing survey: https://www.qualtrics.com/marketplace/vanwesterndorp-pricing-sensitivity-study/ • Hunter Walk’s blog post about publicly selling your startup: https://hunterwalk.com/2023/05/13/the-acquihire-market-for-early-stage-startups-is-ice-cold-one-better-strategy-announce-youre-for-sale/ • Range: Why Generalists Triumph in a Specialized World: https://www.amazon.com/Range-Generalists-Triumph-Specialized-World/dp/0735214506/ • The Snowball: Warren Buffett and the Business of Life: https://www.amazon.com/Snowball-Warren-Buffett-Business-Life/dp/0553384619/r • Sam Walton: Made in America: https://www.amazon.com/Sam-Walton-Made-America/dp/0553562835 • Succession on HBO: https://www.hbo.com/succession • In Depth podcast: https://review.firstround.com/podcast • dbt community Slack: https://www.getdbt.com/community/join-the-community/ Production and marketing by https://penname.co/. For inquiries about sponsoring the podcast, email podcast@lennyrachitsky.com. Lenny may be an investor in the companies discussed.
Segments Timeline
Creating Strategic M&A Opportunities
Julia Schottenstein discusses the importance of identifying potential buyers for M&A and how to create strategic opportunities. She emphasizes the need to inflict 'pain' on potential buyers to get their attention while maintaining a friendly approach. This segment highlights the delicate balance of competition and collaboration in the M&A landscape.
"m&a is always about creating plan BS and the way I would think about it is for any one company there's only ever two to three buyers that find what you're building to be extremely strategic and the st..."
Julia's Unique Career Path
In this segment, Julia shares her unconventional journey from being a venture capitalist to a product leader at dbt Labs. She reflects on her excitement for dbt and how her background in investing shaped her approach to product management. This transition illustrates the blend of business, technology, and market interests that drive her career.
"optionality welcome to Lenny's podcast where I interview worldclass product leaders and growth experts to learn from their hardwind experiences building and growing today's most successful products to..."
Evaluating Early-Stage Companies
Julia outlines the four key factors she considers when evaluating early-stage companies: people, market, product, and distribution. She emphasizes the importance of trusting the founder, understanding market dynamics, assessing product uniqueness, and identifying distribution advantages. This framework serves as a guide for potential investors and employees looking to join startups.
"shottenstein after a short word from our sponsors this episode is brought to you by vanta helping you streamline your security compliance to accelerate your growth thousands of fast growing companies ..."
Signs of Product-Market Fit
In this segment, Julia discusses how to identify product-market fit, focusing on the emotional reactions of users. She explains that a strong sign of fit is when users express a desire to share the product with others, indicating enthusiasm and potential for organic growth. This insight is crucial for founders and product managers aiming to validate their offerings.
"email each day how about your team you may not realize this but your email tools are wasting your time superhuman is blazingly fast email for high performing teams buil to work with Gmail and Outlook ..."
Distribution Strategies for Startups
Julia shares insights on effective distribution strategies for startups, highlighting dbt's open-source model as a competitive advantage. She discusses the importance of understanding whether a company should adopt a product-led or enterprise sales approach, emphasizing the need for a strong distribution strategy to succeed in the market.
"become PCS and it's rare to see this kind of version of it and so I wanted to start with just a question of just how did that how did that come to be I I do have an unusual background but you know it ..."
The Importance of M&A Strategy
Julia emphasizes that the best time to think about an M&A strategy is when a company is not in immediate need of one. She advises founders to focus on building a strong business with the intention of being an independent company, which can lead to better M&A outcomes. This proactive approach is essential for long-term success.
"it was much more of an identity for them than just a tool that they were using to get their their job done and that really struck me and as I kind of thought about what was happening in the market the..."
Effective Distribution Strategies
Julia Schottenstein discusses unique and effective distribution strategies, highlighting dbt's ecosystem advantage as an open-source tool. She emphasizes the importance of low barriers for users to try products and the need for companies to understand their sales approach, whether product-led or enterprise-focused.
"examples of just really important I don't know unique or effective distribution strategies or I don't know unfair advantages you've seen maybe with DBT maybe other companies like what are some example..."
M&A Strategies for Founders
In this segment, Julia shares her insights on mergers and acquisitions (M&A), advising founders to develop a strong business strategy before needing to consider selling. She emphasizes the importance of having a viable alternative to selling, which strengthens their position in M&A discussions.
"cool so I want to shift a bit to talking about an area that you have a lot of experience in which a lot of people are also really interested in right now which is m&a I've invested in a lot of compani..."
Inflicting Pain on Potential Buyers
Julia explains how startups can attract attention from potential acquirers by creating competitive advantages that inflict pain on them. She shares the importance of maintaining friendly relationships while being strategic about M&A opportunities, using the Transform acquisition as a case study.
"to think about m&a and so m&a is always about creating plan BS and the the way I would think about it is for any one company there's only ever two to three buyers that find what you're building to be ..."
The Transform Acquisition Story
Julia recounts the story of dbt Labs' acquisition of Transform, detailing how Transform positioned itself as a partner while competing in the same space. She highlights the strategic advantages that made the acquisition appealing and how it facilitated smoother integration post-acquisition.
"what's an example of that yeah I mean I can share the the transform story company we we just acquired uh we announced it in in February so so DBT Labs we build Transformations that's our kind of main ..."
Competition Philosophy at dbt Labs
Julia shares dbt Labs' philosophy on competition, emphasizing the importance of staying true to their vision and focusing on growing the market rather than getting distracted by competitors. She outlines their three pillars of competition strategy, which include maintaining focus, collaboration, and leveraging strengths.
"easily how do you just think about as a either as as a startup or even an incumbent about how to think about competition how much emphasis how much energy to put into thinking what competitors are doi..."
Keys to dbt's Success
In this segment, Julia discusses the key factors behind dbt's success, including its commitment to simplicity and being open-source. She explains how these elements have contributed to dbt's widespread adoption and the creation of a robust ecosystem that benefits users and partners alike.
"just chat about DBT and the success the company's had like so many startups have tried to become a standard default layer of what's now called the mo modern data stack and I don't know any startup doe..."
Timing and Customer-Centric Development
Julia reflects on the importance of timing in dbt's success, noting how they capitalized on the growth of cloud data warehouses. She highlights the value of their early consulting work, which allowed them to understand customer pain points and develop solutions that directly addressed those needs.
"powerful today so what I'm hearing there is essentially there the product was right for what people needed to solve there's also like a product Le component open- Source free self- serve kind of piece..."
Creative Team Engagement
Julia shares an innovative exercise she conducted with her engineering team to internalize changes in their data transformation algorithm. By using a physical representation of a graph with rope and sticky notes, she ensured that every team member understood their role in the new process, fostering ownership and collaboration. This segment illustrates the importance of memorable team-building moments in driving project success.
"you told me about how you made your Eng team do some manual work of an algorithm involved in transformation can can you share that okay so I'm going to preface this story by sharing that I'm a huge ma..."
Open Source vs. Proprietary Software
In this segment, Julia explains how dbt Labs differentiates between open source and proprietary offerings. She discusses the core functionalities that remain open source, which focus on data transformation, while proprietary features enhance collaboration and stateful interactions. This distinction is crucial for understanding dbt's business model and its commitment to the data ecosystem.
"what was the actual algorithm you were trying to implement um we we were trying to figure out how to make uh kind of a flipping the way that we run people's dags from an imperative way to a declarativ..."
Pricing Strategies and Value Creation
Julia delves into the complexities of pricing and willingness to pay for dbt Labs' products. She emphasizes the importance of having early conversations about pricing and how their core value lies in creating value for customers rather than merely capturing it. This segment provides insights into the challenges startups face in establishing effective pricing strategies and the lessons learned from dbt's first pricing change.
"DBT today's episode is brought to you by assembly AI if you're looking to build AI powered features in your audio and video products then you need to know about assembly AI which makes it easy to tran..."
Transparency in M&A Strategies
Julia discusses the evolving landscape of mergers and acquisitions, advocating for transparency when startups are seeking exits. She reflects on the shift from secrecy to openness in the M&A process, highlighting the importance of building relationships and networks early on. This segment underscores the significance of proactive engagement in creating opportunities for successful acquisitions.
"and focus on that I'm so curious with that pricing process was like to figure out what to change is there anything you could share about just like what that was for you or what are some just surprises..."
Leveraging Corporate Development Teams
In this segment, Julia advises founders on how to utilize corporate development teams to their advantage. She explains that these teams are tasked with meeting potential acquisition targets and can facilitate introductions that may lead to partnerships or acquisitions, even if the startup isn't currently looking to sell.
"B and I met airb B initially at uh a year before we actually started exploring the process at a random party at South by Southwest where I was I actually have no memory of this party but the had of pr..."
Navigating Dire Straits: Finding Buyers
Julia provides insights for founders in challenging situations who are considering selling their company. She emphasizes the importance of leveraging their network, particularly venture capitalists, to find potential buyers and reassures them that investors understand the realities of startup failures.
"competitors potentially for us like Airbnb was never even a potential company we would sell to because had nothing to do with it but ended up making sense down the road what's like the realm of the co..."
The Long Game in Startup Exits
Julia discusses the long-term perspective that investors have regarding startup exits. She encourages founders to focus on finding a good fit for their next chapter rather than solely on financial returns, emphasizing that a successful exit can lead to better opportunities for both founders and investors.
"what do you suggest folks do in terms of I guess finding connections to potential companies that might be acquires yeah I mean use your use your network usually your venture capitalist has a really bi..."
When to Consider Selling Your Startup
In this segment, Julia talks about the critical moments when founders should consider selling their startups. She highlights the importance of recognizing when a company is out of cash and the need to find a suitable home, while also stressing the value of maintaining a positive outlook and exploring all options.
"on like life is short yeah I think Founders for I get that it is so risky investing in early stage companies that portfolios 50% of portfolios don't return Investments don't return anything and that's..."
Strategic Communication in M&A
Julia shares advice on how to communicate during M&A discussions. She suggests that founders should avoid being overly clever and instead be straightforward about their intentions, depending on their company's situation. The conversation emphasizes the nuances of discussing potential acquisitions.
"and Find A Way Forward agreed specifically for people thinking about selling their company are there any companies you think are good companies for people to look at right now that are actively acquir..."
Current Trends in the M&A Market
Julia analyzes the current state of the M&A market, discussing why many companies are hesitant to engage in acquisitions. She suggests that founders should identify a select group of potential buyers and be transparent about their situation, while also being strategic in their approach to attract interest.
"a level of complexity that a lot of buyers are just not looking to uh take on right now and so there are a number of reasons why people might sit out but what I would do if I were in a position of wan..."
The Future of M&A Activity
Julia speculates on when the M&A market might pick up again, noting that as companies come to terms with lower valuations and the market stabilizes, opportunities will arise. She encourages founders to stay optimistic and prepared for when the market shifts.
"depends like are you looking do you have time if you if you have time yeah don't don't come out and say hey I'm for sale like that's not going to end up in a a good outcome but depends where you are i..."
Core Values at dbt Labs
Julia shares the core values that drive dbt Labs, emphasizing the importance of value creation over value capture. She discusses the company's commitment to transparency, humility, and the belief that quality work is its own reward, which shapes their approach to product development and community engagement.
"think what is happening though is we're like far enough out from the peak of the markets so the the peak was really like November of 2021 and why does that matter uh two things one Founders are coming..."
Community Engagement and Product Development
Julia highlights the significance of community involvement in product development at dbt Labs. She explains how many employees come from the community and contribute to the product, fostering a strong connection and commitment to delivering an excellent user experience.
"about about about all sorts of things transparency wins we're really transparent company like we uh share our board decks we have lots of communication and participation in all of our slacks we writin..."
Managing Strongly Opinionated Users
In this segment, Julia discusses the challenges of working with a passionate user community that has strong opinions about product changes. She shares insights on how to balance user feedback with product development while maintaining a positive relationship with the community.
"is another thread maybe we'll go down real quick I'm working on a different post around Reddit and how to work with really opinionated users that strong opinions about changes to the product and the w..."
Learning Through Shipping
Julia recounts her experience with the initial version of the dbt Cloud scheduler, which was simple yet effective. She emphasizes the importance of shipping products to gather user insights and iterating based on real-world usage rather than theoretical perfection.
"running teams I'm not a big framework person but there's kind of two sayings that I find myself repeating or either to myself or to others and it's uh um worse is better and Tech debt is a champagne p..."
The Role of a Product Manager
Julia reflects on her transition from investor to product manager, sharing how her background in venture capital informs her approach. She discusses the importance of building a network and leveraging diverse experiences to enhance product leadership.
"scheduler we have to manage 10 million runs per month but what we didn't need at launch was a distributed scheduler with gow workers and rabid mq we just didn't need it because we had no users and so ..."
Risk and Opportunity in Product Development
Julia draws parallels between investing and product management, emphasizing the need to identify high-potential opportunities while managing risks. She discusses how understanding the dynamics of investment can enhance decision-making in product strategy.
"find their investor judgment they're also investing a lot in their Network and Connecting People supporting people and Mining people for ideas that are way smarter than they are and so you do that all..."
Lightning Round Insights
In a rapid-fire segment, Julia shares her favorite books, TV shows, and interview questions. She highlights the importance of genuine enthusiasm in potential hires and discusses her podcast, 'The Analytics Engineering Podcast,' which focuses on data industry trends.
"our business we've reached our very exciting lightning round I've got six questions for you are you ready yeah let's do it what are two or three books that you recommended most to other people okay so..."
Connecting with Julia
Julia invites listeners to connect with her through Twitter and the dbt Community Slack. She expresses her openness to discussions about data challenges and how dbt Labs can better serve the community's needs.
"Julia we've talked about inflicting pain and strategic Partnerships and why worse is better thank you so much for being here two final questions where can folks find you online if they want to reach o..."