💡From Cashew to Retool: How a Fintech Startup Became a $3 Billion Low-Code SaaS
We've written quite a few posts about startup pivots, but trust us, this one is as intriguing as the story of Discord and offers a solid masterclass on GTM.
Retool is one of the most promising Low-code tools available in the market. At Airtribe, we use it for generating invoices, creating quick invites, and dashboarding, among other tasks. Behind their recent $3.2 billion valuation lies an intriguing story of pivoting, packed with valuable takeaways for product enthusiasts. Let's dive into them in today's edition.
The Founding Story
The origin story of Retool is rooted in Cashew, David Hsu's first venture. Designed as a fintech app akin to Venmo, Cashew addressed a specific pain point in London: the lack of a convenient method for peer-to-peer money transfer. In 2017, the startup gained acceptance into Y Combinator, offering Hsu the opportunity to pitch Cashew to John Collinson, co-founder of Stripe.
Collinson pointed out a critical flaw in Cashew's business model: the company was losing money on every transaction due to fees paid to credit card providers. While these losses were negligible in the startup's infancy, they would become unsustainable as the app scaled. By December, Cashew found itself in a precarious financial position, hemorrhaging money with each transaction.
The pivot
While the financial model proved to be Cashew's downfall, Hsu realized that the internal systems they had engineered for the app held significant value. However, the development of these systems was marred by repetitiveness and inefficiencies. "The thought of a more efficient way to build this software was a constant refrain," Hsu recalls. After Cashew's demise, a lightbulb moment occurred: "What if we repurposed the code we already had from Cashew?" Hsu pondered. "Could we offer it to other developers, sparing them the need to build similar internal systems from the ground up?" This line of thinking marked the genesis of Retool.
Figuring out PMF
David mentions the challenges that Retool faced in achieving product-market fit, emphasizing that the pivot wasn't so much about the product as it was about messaging and market targeting. Contrary to the popular notion that pivoting usually involves altering the product, Retool's critical turning points were its messaging and the audience it targeted. Their 2018 post on Hacker News, which spiked demand, wasn't their first attempt at publicizing the platform. A year prior, they had approached the same forum but with markedly different messaging. Terms like "internal tools" and "low code" were conspicuously absent. "Our initial outreach efforts used subject lines like 'excel-like, with higher-order primitives,' which predictably went unanswered," David recalls.
Another strategic move was to court the legacy-tool market, targeting developers who had experience with older platforms like Claris FileMaker. David infiltrated a LinkedIn user group, amassing a list of 300-400 potential contacts. Emails were then sent out, pitching Retool as a cloud-based alternative to FileMaker. The outcome was disheartening—a reply rate of less than 2% and exclusively negative feedback. "That's when it became clear we were chasing the wrong market," David says. "Our actual market was not FileMaker developers but React developers and those building internal applications in general
Nailing Their GTM with Founder-Led Outbound
After figuring out their primary use-case and Ideal Customer Profiles (ICPs), they now had to find a way to reach their ICPs. Initially, they leveraged Crunchbase Pro to focus on mid-stage startups, generating a list of roughly 10,000 target companies based on specific criteria like recent funding and U.S.-based operations. To convert these companies into actionable leads, four key roles within each were identified: Head of Engineering, VP of Engineering, CTO, and Head of Ops. A cost-effective freelancer from Upwork was employed to generate a comprehensive list of 40,000 prospects for only $4,000. "This list served as a cornerstone for our outreach efforts," mentions David.
The next phase involved targeted outreach using the sales automation tool PersistIQ. Through rigorous A/B testing, they fine-tuned their email copy and subject lines, achieving an 8% conversion rate—close to the 9% SaaS industry benchmark. About 2,400 of these leads expressed an interest, many of whom converted into early adopters and even secured paid pilots just in time for Demo Day.
The result of these strategic efforts was a 200% surge in Retool’s customer base in the first quarter alone, accompanied by an impressive Net Promoter Score (NPS) of 78. "These aren't just metrics; they're a testament to our data-driven, multi-pronged growth strategy," David explains.
A cautious public launch.
David discusses Retool's cautious public launch in 2018, despite having 40 customers and $2 million in ARR at the time. "In the developer tool space, you can't afford to launch a subpar product," he states. The decision to delay wasn't indicative of having achieved product-market fit, a milestone David found elusive. Contrary to the notion of product-market fit being a "geyser exploding," every new Retool customer felt like it could be the last.
The diversity in customer use-cases contributed to this uncertainty. "DoorDash was building logistics tools, Brex was managing credit limits, and each use was unique," David recalls. It wasn't until Retool had amassed around 40 diverse client logos that David felt assured about the platform's scalability and versatility.
For him, the journey to product-market fit wasn't a sudden revelation but a slow burn. "It took a wide array of use-cases and a growing client list to finally realize we could scale while keeping customers happy," he summarizes.
Closing thoughts
Following its recent 2022 fundraising, Retool is making strategic moves into AI and workflow automation, addressing the complex issue of real-time data integration into AI models. CEO David Hsu has led the launch of Retool Vectors, a hosted vector storage service that has already improved their internal AI chatbot's efficiency, nearly tripling its ticket close rate. In collaboration with OpenAI, the company is also rolling out AI-based solutions for common tasks like text summarization. Given these innovative steps, coupled with a focus on solving actual enterprise pain points, it will be interesting to see where Retool is headed as they continue to evolve in a rapidly changing tech landscape.
That’s all for today, folks! We hope you enjoyed this week’s newsletter. 🤗
Until next week, keep learning and growing! 👋