What this 3-time founding team did differently to find product-market fit faster — Jessica McKellar, CTO of Pilot

 So today I'm joined by Jessica McKeller, the founder and CTO O of Pilot, a bookkeeping platform for startups and small businesses. Pilot was founded in 2017 and is now the largest accounting firm for startups in the us. They hit unicorn status in 2021 and have an incredible set of investors, Sequoia Stripe Index, and a long list of great folks.

And Jessica is a three time founder and has started all three companies with the same two co-founders, Jeff Arnold and Waseem Daher. And I had the opportunity to work with Jessica, Jeff, and Waseem at Dropbox. So I'm super excited to dig into Pilot's founding story today. Jessica, welcome to the show.

 So you've now started three companies together with Jeff and Waseem, uh, K Splice, which I know you sold to Oracle and Zulip, which you sold to Dropbox. That's how we met. Um, tell me about your co-founders, how you met them and why you seem to love starting companies together so much.

 Yeah, well, we, uh, and you know, I've known them for longer than I've known my husband. Uh, so, uh, some of the longest relationships that I've had in my life are with Jeff and Waseem. so we were all computer nerds at m i t. We met in MIT's computer club called sippy, the Student Information Processing Board, which is a callback to when, uh, there was like a timeshare computer system that you had to, to, to reserve time on.

Um, and this was the club that helped allocate that time. Uh, but yeah, so the, the nerdiest of the computer nerds hung out at the computer club, and that's where we met.

 And so obviously there's a really deep relationship and sense of trust with Jeff and Waseem, but I, I imagine things have changed over the years. You know, it's been years and years, three companies. What keeps you the three of you together as being great co-founders?

 Yeah. Well, you said trust, and I think that's so, so important. Um, you know, sincerely amongst the, the three of us, Just having 100% trust and, and belief in faith in each of us doing what is right for the business and just having our shit together in our respective areas of ownership within the company.

I mean, I think it's a, a rare thing to experience. Uh, so certainly I would never let go of it. Right? I think that statistically I wouldn't find it again if I were to try to start another company with other people. You know, how did we get to that point? I think like any relationship, and keep in mind, you know, coming outta school we're, we're like, what, 22?

I mean, we're like dumb asses coming out of m i t. But uh, you know, I'm now 35. We've all matured as human beings, as well as business owners, as well as startup founders, as well as managers and leaders. And like any relationship, yeah, I mean there are ups and downs. I mean, it probably took hone and I would say this to his, I have said this before, so I think Jeff would agree, it probably took Jeff and me a solid like seven years to really get along.

Um, but I think, I think why did we start working together? I think it's because we thought we were the most effective potential co-founders that we knew. And why did we stay together? Because we knew. That we were so effective as a group. I mean, being founders is not about being best friends. I think it's, it can be helpful to, I mean, you need to get along with the people that you're working with.

You're spending how eight to 10 to 12 or however many hours a day with them. but it's about are you able to deliver results as, as business owners together. And so I think we deliver results consistently together. And we wanna be successful. and we're values aligned. We're values aligned about what kind of company we wanna build, the kind of company culture that we wanna build.

So if you have the alignment and it's effective, I mean, that's so precious. We would never let go of that.

 Yeah, I, you know, I wanna dig into this cuz I think you said some interesting things there. So values aligned is one thing, and it sounds to me like motivation aligned too. are there other things about it? are the three of you good at three different things and then some things you're all good at?

Or like what, what are the real components here of what's making this work? Because I'm, I think other founders or future founders are kind of interested in what makes these dynamics work.

 Yeah, the diversification has been interesting. So we're all m i t trained computer scientists, so that's, that's, uh, a lot of duplication and background. So how, how did we end up covering the responsibilities of a founding team or of an executive team? And so first, I think the fact that we all come from this technical background has been helpful for us, for the types of products and services that we're building because we, have this shared understanding about how to approach building software about, how quickly can you build a product, these things that you know, from having done, done it before yourselves in the weeds.

That, that that's a, that that's a, a foundation that we're aligned on. And then I think by our personalities, we, we pretty early on started to kinda separate into our areas of expertise that, that, that have become very durable for us. and when you meet me, Jeff, and Waseem, it's so obvious from our personalities how the, we ended up this way Waseem is a people person.

You know, he likes talking to people. He likes selling stuff. You know, he, he gravitated towards the sales side, towards the go-to-market side at the, at the beginning, I mean, in the case splice days, like 10 years ago. And, and really, I mean, he was the first salesperson at KSplice and he, that's, that's stuck ever since through every company.

He's really been on the go-to-market side. Uh, Jeff reads corporate tax law for fun. He, uh, you know, he has the honor of having pointed out an error in the YC safe agreement. He's maybe the only bugger report they've ever received for all I know. Uh, so that's, that's where his head is. And, and so he, he is great at those nitty gritty details of running a business safely, uh, a fundraising and, and also a lot of really incisive kind of strategic thinking, but that, that he brings that.

Analytical mind and in some ways like a conservativeness about how to make sure that we're running the business safely. That's really important. And then I've always stayed on the product side, uh, and on the, on the service delivery side, like staying close to customers. I mean, all three of us are very close to customers, and that's really important.

nobody should be closer to the customer experience than founders. you wanna bring other people along to be as obsessed as you, but you should never delegate that responsibility to anybody

 so let's talk about KSplice and Zulip a little. I, yeah. I wanted to get to Pilot, but let's talk about those first. What do you think worked well about those businesses and, and what was kind of the journey or the, the hunt for product market fit, like for each of those?

 Yeah, so case splice, like I said, the seed case splice. It's the late two thousands, uh, I should say by the way. So, so, uh, I was a technical advisor for the, the HBO Show Silicon Valley, and there are a bunch of anecdotes in that show that come from the case splice era A and the case splice experience was such a good formative, I think, first company experience for us because it was so scrappy, so gross, like this is okay.

KSplice. So first off, took no external funding KSplice started as. Jeff's master's thesis was a, he had a, he had, he had developed an experimental technology for reboot list kernel updates on Linux. So imagine that you are a hosting company or a super computing cluster, and you have a lot of computers and uptime is really important, but you also want your computers be safe.

Uh, you, you want to be applying security updates timely. What do you do? Because normally that requires downtime, okay? We have this kind of magical deep tech that allows you to apply these kernel updates without rebooting, uh, coming out of school. Uh, winning the m i t a hundred K startup competition. Got some initial funding, uh, to try to turn this into an actual service that we could sell, like turn into a real business.

Uh, but otherwise, totally bootstrapped like took note. No venture funding. Um, a bunch of people lived in the house that we worked out of, like dubiously zoned. We had to hide when the landlord was coming. Um, there was like a serious mouse problem. Uh, so disgusting. Um, but I mean, boy, do you appreciate a dollar?

Obviously when it's your dollar, I mean, didn't pay ourselves. Uh, you know, all, all of the usual stuff that you can imagine there. So, but when every dollar is your dollar, it's like, okay, well should I hire this person? It's like, well, what am I gonna get for it? Like, what's our runway? You know, how, how, how, what do we need to accomplish before we run out of the very limited money we have?

And you know the answer when, when that's your situation. It's like you gotta get customers who pay you as quickly as possible. So the, the urgency and the scrappiness and the, Hey, you gotta make it work with a small team and prove it out and start making money with a small team and you don't have the luxury of hiring more engineers, more salespeople, a marketing person, what have

 I thought that, I think that that, that instilled very good appreciation for revenue and a good work ethic in us. And I think we have carried that with us through the rest of our companies. And it's actually ended up having an impact on pilot because one of the things that was true about case flight, we certainly couldn't afford a back office team.

So how did we get our bookkeeping done? We did it ourselves. We like literally got a copy of QuickBooks for Dummies. And at the time, QuickBooks Desktop, QuickBooks Online didn't exist and like tried to do it ourselves. We even wrote some software to try to do it and like auto close the books ourselves.

Um, so that experience of like, Hey, we've gotta take care of our finances. How are we gonna get it done? Who do we trust? Who can we afford? I mean, we experience that viscerally in back at KSplice.

 Wow. Okay. So some origins then of the, the later pilot idea came all the way back then. So what, what about Zulip? Was that a similar, uh, kind of journey for you or different Uh,

 Yeah. So Zulip, like Tulip with a z uh, sort of like Slack before Slack existed and obviously you've heard about Slack and you haven't heard about Zola. So a timing is everything. B execution polish not overfitting on. You know, really sophisticated technical users. There are a bunch of lessons that we learned from trying to build Zulu.

Uh, but that is a company that, uh, you know, it literally kind of a year and a day after the case splice acquisition by Oracle, we ended up back in one of our living rooms thinking about what other problem business problems were, did we experience, did our friends experience that we thought were worth solving and how to communicate, uh, you know, kind of business communication, real-time chat.

Uh, group chat was the thing that we, we landed on. And I think one of our takeaways from Zulip but so, so the thing about Zulip was that there were some companies that passionately, passionately, passionately use Zulip, like, you know, eight to 10 hours a day average for. The company per person using the product deeply, integrating it into their workflows.

And that was so exciting to see. And then it was too hard and complicated for everybody else.

 And I think what we learned from that is like, hey, be really careful about overfitting to your experience. You need to make sure that you're selling something that is going to resonate with the intended audience.

Like you. You, you can't, it's hard to build a business around selling a chat product only to like the hyper sophisticated tech users. You can, but you have to fund the business and build the business and market the business in a very specific way if that's what you're gonna do. If your goal is to be like a big business at a solving business group chat for a broad segment of the market, you need to make sure that you're actually building that.

And so like how do you, how do you validate that what you're building actually resonates with a broad enough base? In a passionate way, we learned that the, it's always the hard way at Zulip because we, we probably didn't do that successfully. And so what we ended up doing is getting acquired by Dropbox.

Uh, Dropbox was excited to integrate some of the lessons that we had learned about business group chat into its product strategy.

 And so you mentioned, uh, with KSplice it was like year and a day, you know, lasted at Oracle. Then it's like, we're gonna do our next thing.

 Which, to me, fair, Oracle treated us very well. Like the, like, that was great, but we knew that we wanted to get back in the saddle. Like we, we had more that we wanted to do and prove to ourselves.

 And did you know that again at Dropbox? Like, did you know that that was gonna be, you know, a temporary stint and that you guys were gonna find it, found another company together?

 Yeah, I think so. Um, I, I lasted the longest of the three of us at Dropbox. I

 had like a solid tour there. Actually. It was pretty difficult extracting myself from, I was, I was actually employed by both Dropbox and Pilot at the same time for a while. Uh, Jeff and Waseem ended up leaving a little bit earlier.

Uh, I think we did know that we wanted to kind of a, a last, a last go around and, and why, like to accomplish what I, I think that's worth being honest about. I think, and Jeff, and might have slightly different answers for me on this, but I think, you know, speaking for myself, number one, we wanted to have the experience of building a company to a.

A later stage than KSplice and Zulip had gotten to, like, we wanted the experience of, I mean ideally the path to, to a public company. Um, and then also, you know, for the financial upside, like we wanna build a company that is wildly successful, that is transformative financially. And I think that's worth saying out loud because building a company is a lot of work.

There are many, much easier professions that one could have than being a startup founder. And I think in some cases people truly have a product or service that they so passionately believe needs to exist in the world that they're doing it for the benefit of humanity almost. But I think most people are are doing, I mean, you probably are doing it cause you think you're gonna get a lot of money if it's successful.

And yeah, that's a part of it because it's way, it's so much work. It's so much work. I'm definitely not gonna do this again. This is definitely my last company and pilot's definitely gonna be successful. So glad for

 I don't think I have another startup in me.

 Yeah. Yeah, I hear you. Okay, so I, let's get into the kind of early days of Pilot and it struck me that some of the kind of observations you had way back in the day at KSplice around the, the market opportunity, the problem you're solving, but also it seems like you did things a little differently.

Like with KSplice, you had the technology and you're like, who can we sell this to? And with, with Zulip you had the product and you're like, who wants this? And I, I feel like with Pilot, from what I know about the story, you, you did it quite differently. We, we, in terms of like how you came up with the idea and validated the idea.

 Yeah. So I. Again, back on a couch thinking about what, what problems we wanted to solve and frankly, what business problems we wanted to solve. We are, we're just, we're not consumer people. Uh, so what, what business problem do we wanna solve? And we knew what business problems we had had, but how do we learn about where the pain is most acute for startups, for small businesses?

And, you know, we did this straightforward thing that you would do if you wanna answer that question, which is you go talk to a lot of startup founders and small business owners and ask what are your biggest pain points? And so we did that. We literally, I mean, we surveyed finance and accounting teams, legal teams, HR teams in a bunch of SMBs, like early stage startups, mid-market companies, and assembled themes.

And those themes happened to drive with what our

 How did you do that, by the way, Jessica? Did you like call him up on the phone? Did you send email surveys? What's the, what's the actual method here?

 Oh yeah. This is like, oh, who are our friends at? You know, we have friends all over the place, like go out. Hey, can you do me a favor? Can I like talk to you for 30 minutes about your challenges being in accounting at Dropbox? Yeah.

 Um, so yes, sit someone down, buy 'em coffee and get the deep qualitative feedback on this.

And the theme, like the clear, the overwhelming loudest theme in this was in fact that getting your finance and accounting taken care of was seemingly as unsolved a problem somehow in 20 16, 20 17 as it had been back in 2009 when we were at Case Splice and trying to do it ourselves. Uh, so we, you know, that seemed like a thread that was worth pulling on.

 What level of kind of validation or like, you know, things that you needed to hear from people got you there? Like were you, were you still considering other ideas besides accounting and bookkeeping? And what, what made this the winning idea? I.

 I think it was the winning idea because A, it was the loudest thing. And I remember having a document that I, I think it had two or three kind of final candidates in it. Uh, why,

 Uh, there was something about HR software. I don't, I don't remember the details, but, but, but the, but why, why bookkeeping first?

So first loudest theme, second enormous market. Uh, third, like the ASPs that we thought we could command if we're really solving the problem end to end. So not selling bookkeeping or accounting software, but being your bookkeeping solution. You know, what does the market pay for bookkeeping today?

And it's like hundreds to thousands of dollars per month. If we can try, like, if we can capture that, you know, the higher the as p in general, the more choice you have about how you're gonna build the company, right? You have more marketing dollars to sp like you have more choices about your go-to-market strategy if you have higher ASPs.

So, so like this idea that we could capture the hundreds of thousands of dollars per month for a subscription service solving bookkeeping end-to-end. That's really attractive, like cat like versus let's say HR software. How much can you get a company to pay for HR software? It's probably at like a much smaller percentage of their total spend.

Um, and then, you know, who are the incumbents? Well, who does bookkeeping? You know, bookkeeping is done by a long tail of mostly local, small, local providers. So we don't have, uh, like, you know, one or two huge incumbents that are gonna make our lives really difficult. We're competing against these, you know, kind of small outfits that have widely varying quality.

There's a lot of latent dissatisfaction in the market with, with the existing solutions. Um, it's i in a world where more and more of your, uh, systems like your, your bank accounts, your credit cards, your payroll system, your expense reporting system, How you're invoicing, all of that stuff is all moving online.

We can benefit from this trend towards digitization and it's also harder for legacy bookkeeping firms to keep up. If you are a company that, you know, sells something online as a subscription service via Stripe and you have 5,000 stripe invoices every month and you care about getting the service periods right, it's actually hard to solve that problem if you're not writing software to, to, to, to book those entries, right?

Like, we can do things that nobody else can do because we're able to write software to accomplish parts of the bookkeeping process. So for all of these reasons, like the rising tide of digitization of your financial systems, the high ASPs, the the market, not having big scary incumbents that we're gonna make our lives hard.

It's not a regulated industry for all of these reasons, it just, it seemed like it really had teeth. So what is the next step? Like at some point you just have to call it and you say, okay, we're gonna try it. And what does it mean to try it? Well, it means you're gonna try to get someone to pay you, right?

Like the, the, the, the true proof point is can you get someone to pay you? And so, you know, we start out, we have, we have no engineers, we have no software, we have no bookkeepers. We just have me, Jeff, and Waseem. So what do we do? We go to some of our startup founder friends and say, Hey, how do you get your books done?

Oh, that's a pain point for you. Great. Uh, would you pay us a hundred dollars a month to take care of your bookkeeping? And if they say no, like, probe on Y. And if they say yes, say Great. Please provide your ach h details and we will commence with being your bookkeeper. And then Jeff and Waseem started doing the books manually and I look over their shoulder and start writing software to do that work in software.

 Wow. And what, so what was the reaction to that, that you were getting? Were they like, hell yes. I, I need this? Were they like, wait, what, what, what makes you guys qualified to do this? Was there any of that?

 well, I, so I think the, the problem for the average founders is like, who, who am I supposed to trust to do my books? It's not like there's some clear best in class provider that all of your other startup founder friends are using that you, you know, kind of web of trust are gonna go sign up with. It's totally fragmented.

And so how do, like what are you, what are you gonna do? You're gonna go on Yelp and uh, find the best bookkeeper. Like, no one's gonna do that. It's, it, it's hard to find, it's a trust-based decision and it's hard to get feedback from people you trust on what bookkeeper to use because it's so fragmented.

So it's like, Hey, I don't know. It was Waseem, and Jeff and Jessica are smart people. I like know, like, there seem like reasonable people. They have experience running companies that have been successful. It's not worse than signing up with a random bookkeeper who I have no context on. Sure. Yeah. Let's have you do it.

You'll at least care. You'll care enough to try to make sure my books are correct. Right. Cuz you're trying to build a company. I think that was the reaction. It's like, Hey, if I can, if I can stop thinking about this, because Waseem, who's a reasonable human being who I trust's gonna do the books for me?

 And so the three of you are doing the books by hand, and then you're also sort of. You know, watching over over shoulders and figuring out how do we, how do we engineer this? How do we automate this? When did you, like, when did the software start getting written?

 I mean, immediately it's, it literally like, okay, Jeff and Waseem are. You know, what does it mean to do the books? It's like you're importing transactions into QuickBooks, you are reconciling, you're categorizing, you're dealing with bills, you're dealing with invoices. There's a review process. Like how do you validate that to yourself and to the customer?

That the books are correct? Okay, well, let's get really familiar with the QuickBooks APIs and figure out what's possible. What are the sy you know, start figuring out what are the systems that we would need to build? you know, step one is like, produce a checklist.

Can you articulate what needs to happen in a checklist? Because if you can do that, you can translate that checklist into, you can, you know, piece by piece, you can translate that checklist into software. And yeah, you've gotta build these big systems, but you, you start getting the shape of what is the process flow, what are the checklist steps, what are the systems that need to be built?

 So how many customers did you take on at once while you were doing this? Like, could you handle 10 or 20 of these folks, or was it less?

 Yeah, no, I think, yeah, dozens. Uh, we used to track all of our customers on a whiteboard. Uh, now we have like really sophisticated internal, uh, you know, coordination software, uh, to make sure that we're delivering on all of our commitments on time. But, uh, yeah, it's like on a whiteboard. This one's assigned to a seam.

This one's assigned to Jeff. This one's due on the 10th. This one's due on the 12th. I mean, we're the founders, right? It's like, oh, we're running behind. Great work. Later tell you, catch up

 So how, how long was this period where you would sort of consider it like, you know, the design partner phase or the, the pilot phase? The pilot, no pun intended, but the, um,

 pilot phase for pilot. Uh, I mean, I think it was short in that, I mean, this is again, the, the goal is to. Get revenue. And not just because that's ultimately how the business is going to find itself, but because it proves that you are selling the right thing, that you're pricing it correctly. Uh, so I, you know, I, I think very early we spun up a website and like let people try to pay us, uh,

 at this point, you're charging a hu, you're charging a hu a hundred dollars a month, right. Is that, which is, I assume not the a s p you were sort of striving for initially. So when did that, when did that sort of kick in that you could charge, you know, what you wanted? Yeah.

 Uh, so I think we started taking on more complex customers and, uh, wait, I think we found that we needed to charge more to have the margins that we want. Uh, and, and, you know, pilot has strong margins, but that, you know, margin is, is an important part of how we assess the health of the business and the growth of the business because it, it is not pure assess.

It's not shrink wrap software. We're, we're delivering a, a service, uh, on a monthly basis. Uh, so we we're very attentive to margins. But yeah, you know, starting to take on larger customers. A what can we charge for the value being delivered, and b, what do we need to charge to have reasonable margins like now and or in the future, right?

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Jessica McKellar is the co-founder and CTO of Pilot, the largest accounting firm for startups. She’s also a three-time founder, all working with the same group of co-founders. McKellar shares the most valuable lessons the founding team has learned about smoothing your path to product-market fit by choosing the right market. 

What this 3-time founding team did differently to find product-market fit faster — Jessica McKellar, CTO of Pilot

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