Overcoming the Challenges of a Female-Founded SaaS Startup – with Rachel Liaw [253]

[00:00:00] Omer: Welcome to another episode of the SaaS podcast. I'm your host Omer Khan and this is the show where I interview proven founders and industry experts who share their stories, strategies, and insights to help you build, launch and grow your SaaS business.

[00:00:27] In this episode. I talked to Rachel Lee, L the co-founder and CEO of Fuse Inventory, a SaaS inventory planning solution that helps brands scale, their supply chain.

[00:00:41] It was 2015 and Rachel had been working in the eCommerce space for a few years, and she was constantly struggling with inventory management. If you didn't manage inventory correctly, you either ended up with not enough product to fulfill customer demand or too much inventory that you couldn't sell. And she realized that this wasn't a unique problem to her.

[00:01:06] It was an industry-wide issue. When she started researching software solutions or she found were outdated software products that weren't really designed the modern eCommerce businesses and even worse. She realized that many companies were managing hundreds of millions of dollars of inventory every year in a spreadsheet.

[00:01:29] So in 2016, she and her co-founder Bridget quit their jobs and set out to build a modern SaaS solution. For inventory management in this interview, we talk about what the founders did when they realized that they'd been selling to the wrong type of customers who were going to churn and accounted for about 50% of their revenue.

[00:01:53] We explore how they've used cold email as the primary marketing tactic to find and acquire customers. And we discuss how they manage to get a 20% response rate on cold emails, we discussed how difficult it was for them as two female founders to raise funding and how they kept being told that they didn't have what it took to be successful.

[00:02:18] And we talk about Rachel's personal challenges, how she believed people who told her that she wasn't a natural leader and how she overcame those challenges. It's a great story. About a SaaS startup, but I think it's an even more interesting story about an introverted female founder who faced a ton of challenges and how she overcame them and learned to believe in herself.

[00:02:47] So I really hope you enjoy it. Before we get started, don't forget to grab a free copy of the SaaS toolkit, which will tell you about the 21 essential tools that every SaaS business needs. You can get your copy by going to theSaaSpodcast.com. Secondly, if you're a new or early-stage SaaS founder who needs help launching building or growing your SaaS business, then check out SaaS Club. Plus our online membership and community, instead of wasting time, figuring out what you have to do at each stage, you can get step by step guidance to help you take the right steps with confidence and you'll connect with a community of likeminded people who can support you through challenging times.

[00:03:28] And help you find solutions to your toughest problems. If you want to learn more or are ready to join, just go to SaaSclubplus.com. Okay. Let's get on with the interview. Rachel, welcome to the show.

[00:03:39] Rachel: Thanks for having me.

[00:03:41] Omer: So what gets you out of bed everyday to work on your business? What drives or motivates you to do what you do?

[00:03:47] Rachel: Yeah. Great question for me. Number one is actually my team. I really love my team. They are just so motivated themselves. And so that really gets me excited to get up in the morning and work with them. The second thing is that we're tackling a super antiquated industry. So we're in supply chain. Supply chain is changing very rapidly today, but you know, a lot of the software that's out there is super out of date was not built for the current model of retail in mind.

[00:04:19] So we're really, you know, driven to solve a real problem that's out there.

[00:04:24] Omer: So tell us about Fuse Inventory. What does the product do? Who is it for? And what's the big problem you're helping to solve?

[00:04:35] Rachel: So we, our inventory planning and demand forecasting software, essentially, what that means is we help customers make sure they don't overstock and they don't stock out.

[00:04:45] So they're not buying too much or too little inventory. and which basically when you really take out, the essence is helping them manage their cashflow. So. Inventory is the second-largest spend after headcount. It's crucial to these businesses and these businesses. I should probably tell you our brands.

[00:05:04] So we work with brands. we started with primarily digitally native brands, but we're actually a very omnichannel now. So we work with brands that might have an online presence, physical stores, wholesale presence, and you know, they're struggling to make sure that they have enough inventory in the right place at the right time.

[00:05:21] Omer: And when you talk about brands, what type of companies can you give us a couple of examples?

[00:05:26] Rachel: Yeah. So some of the best-known brands that we work with are Glossier the skincare brand. Snowe, which is a home goods brand. we also work with Juniper Ridge, which is fragrances. And, you know, we work with a whole range of industries.

[00:05:42] We've worked with everything from food to outdoor gear, just shoes, apparel, skincare, makeup, beauty so we work with a whole range of verticals. So essentially any brand you can think of, I mean, we can probably help them.

[00:05:58] Omer: Great. So let's talk about how you came up with the idea for this business actually, before we do that, you have an interesting background.

[00:06:08] So can you just spend a couple of minutes? Telling us a little bit more about that because you've kind of done a lot of different things.

[00:06:19] Rachel: Yeah. That's actually a comment. I get a lot, you know, before this I've been in, in a wide range of roles myself, I actually started my career as a software developer. I was building Chinese search engines and then I worked on the street fashion app and fell in love with the world e-commerce so I actually, for my next career move.

[00:06:40] Completely restarted my career. I ended up doing operations at a brand called Kiwi Crate. So they made like kids crafts and hands on learning projects. So I just loved the mission and I loved how operations was kind of like optimizing, but with physical goods instead of digital.

[00:06:56] Omer: I've bought some of those products for my kids. I remember back.

[00:06:59] Rachel: Yeah, it's really great. The folks who design it, they're so passionate about it. Shout out to the team at Kiwi Crate. They're doing a great thing on, especially during these lockdown times and you know, folks are a lot at home with their kids. They do things for the kids to do, and you don't want them to be on the phone all the time or on their iPads.

[00:07:17] Then you can get them one of these kits. They can create craft science projects, art projects. That's a really great company. Yeah. And then after QB crate, I was inspired to start my own company. So, I started a brand called Parasol Co it was a baby brand. So we made diapers and wipes. We had the softest and thinnest diapers on the market, worked with some Belgian manufacturers who had the latest manufacturing technology to be able to create diapers that do not use any wood pulp.

[00:07:45] So that was a ton of fun and I really learned a lot about what it's like to be a founder of that company. And from there, I realized that, you know, the inventory issues that I'd seen at Kiwi Crate at Parasol and, you know, with all the brands we were partnering with, you know, that wasn't unique. It was an industry-wide problem, you know, And can we create, we partnered with Nature Box, for example, a snack company, and they had issues and Kiwi Crate had issues, and Parasol had issues.

[00:08:14] And pretty much every brand out there struggle with inventory. I make sure you have again, that right amount of the right place at the right time. And when I looked for software, I just couldn't really find anything that was modern, that was and that was really quick reacting. so that was kind of the inspiration behind Fuse.

[00:08:32] Omer: And so a lot of these businesses, they're like just doing this manually or using a spreadsheet and trying to, you know.

[00:08:41] Rachel: Exactly, so it's pretty much dominated by Excel spreadsheets, inventory planner. What are some of the best spreadsheet users I've seen, and it's mind-boggling that you can be, you know, multimillion-dollar, hundreds, millions of dollars, and still manage your inventory and spreadsheets.

[00:08:58] You know, people do get systems, their ERP systems called like Net Suite or SAP. And. Those are really kind of legacy systems that were built, you know, in a time before eCommerce was a thing. And though they have made updates, they've not really thought about it from the ground up and created something that was designed for what I see as kind of the trends in the future of retail, which are, you know, not necessarily buying one year in advance based on your designer's wins, but rather responding to data and market-driven data. So, hey, we see this shirt is trending. Hey, you know, this particular product, this ingredient in our skincare is really popular right now. Why don't we capitalize on that?

[00:09:43] You know, you need shorter lead times. You need to be very proactive, not reactive and this is kind of like the new world of retail and supply chain has to catch up to that. So, you know, that is really the core of what we do is transforming the supply chain industry to be a lot more proactive rather than reactive.

[00:10:01] Omer: So how did you get started you and your cofounder, Bridget?

[00:10:05] Well, we got started. I had dinner with Bridget and I convinced her to leave Google. And, she was actually itching to do something more entrepreneurial. She had joined Google as an engineer and was actually on the waste team. So she built out their operations and payments and, you know, she had been promised to stay on entrepreneurial projects, but she just felt like.

[00:10:28] Doing her own thing was the true way to get that experience. So it was kind of a perfect fit. We had met back studying abroad in Japan and done a lot of computer science projects together when we were at school at Stanford together. So it was really kind of, we knew we wanted to work together in the future.

[00:10:44] We actually. In school created a virtual closet for lazy dressers. Cause we're both very lazy. Well, I'm tell us what to wear. So we look stylish. You don't have to think about it. So, we knew that we were philosophically very aligned. She was really interested at how complex the inventory issue is. You know, people think that inventory is simple, you just buy it and then you sell it.

[00:11:06] But it's really a lot more complicated than that. There's always fires coming up. People need to be very quick to react, to fix issues that come up in their supply chain. So, you know, it was a fascinating problem and we decided to go full time in July of 2016, we actually ended up. Building out a working prototype of our product, signing some customers to start beta in 2017.

[00:11:30] So early 2017, we had a beta product by 2018. We launched our official product. And then since then we've just been continuing to build out the product based on customer feedback.

[00:11:42] Omer: So did the two of you build the product or did you hire somebody to help you.

[00:11:47] Rachel: Bridget is one of those like hundred X engineers.  So she actually built the entire product herself before beta. We had another engineer, Jason, who's amazing. He's from Tableau. He was on their data integrations and visualizations teams, a perfect skillset for us. And he joined in March and then we've had a few other engineers join as well. But even till today, we only have three full-time engineers.

[00:12:11] And you know, our philosophy is quality over quantity. I think sometimes we get pressured by investors who have a set mindset of like how many people, you should have in a team that builds this much product. But what we found was that we've just hired like these 100 X engineers and we've been able to build all the products in house.

[00:12:30] Omer: And did you go out and try to validate the idea before you. Started building the product.

[00:12:38] Rachel: Yeah, absolutely. I mean, I have lived through the problem myself, so I knew it was an issue in a very visceral issue. You know this is the stuff that people, their full-time job is to fix these, these issues as operations managers and, You know, I think what I learned was that the problem, it wasn't just digitally native.

[00:12:58] It wasn't just certain verticals. We talked to folks that were working at Nordstrom's that were working at Bloomingdale's that were working at Macy's. We talked to folks at the Gap, Levi's we talked to folks across a range of industries, whether it was food, whether it was personal care. and we just, you know, heard the same thing over and over again.

[00:13:17] So after talking to several hundred people, and at this point we've talked to like thousands of brands. We know that this is definitely an industry wide problem.

[00:13:25] Omer: So one of the things that founders struggle with is figuring out what is that right product, what is my MVP or my beta, because you probably have a big, bold vision and a million things that you want to get into the product.

[00:13:41] What was that experience like for you? And then how did you. Figure out what was the, the MVP that you could ship with that that was good enough for customers to pay you for?

[00:13:54] Rachel: Absolutely. That's a great question. And it's not as straightforward of an answer as you would think. for us, you know, we're still learning every day, what customers want.

[00:14:04] You know, we have always had a roadmap in our minds of the overall vision, but in terms of the details, we always talk to our customers. We're constantly updating our product roadmap. and I think one interesting story is just, you know, how we decided to start in forecasting. We started in forecasting because we knew we could get all the data at that level.

[00:14:26] So what I mean by this is in the supply chain process, you know, there's forecasting and planning. Then you go out and you buy the inventory from vendors or manufacturers, and then you have it shipped to your warehouse and your 3PL and then you ship it to the customer or you distribute it to your retail stores.

[00:14:42] And then the customer buys it from the retail store. So what most supply chain companies have focused on? Has been that last bit. So can I ship it to the customer? Can I post back that tracking number? How do I manage multiple retail locations? And again, you know, this was built in the time of when retail locations was the only way to build a business and e-commerce, wasn't that big of a deal. And it seems weird to think back in those times, it's like when you talk to kids and you're like, yeah, back in my day, we didn't have iPhones and touch screen smartphones. And they're like, wow, did you have those old dial phones? I'm like, yeah. Back before Amazon was a thing before e-commerce was thing.

[00:15:26] Thing, you know, brick and mortar was, it was the only way. And so a lot of supply chain focuses on that. And what we've figured was that with forecasting, you know, you can actually get a lot more information. So you're not just saying like, okay, here is what we sold and what we need to ship out. But. You know, here are the marketing promotions we ran here are the things that have affected our forecast here is, you know, a new side of the business that we want to track.

[00:15:53] And not only that, but we also get all of the manufacturing information. So we know what your lead time is for every single raw material and component. we're able to know how long production takes, you know, which vendors are good or bad because forecasting needs all of the inputs. It's really where you see the full view of the business.

[00:16:11] And so we started in forecasting. Initially, our thesis was to coin with this algorithmic story. So when we started the company and machine learning, AI was like the hot keyword. So we knew that for fundraising, that's what we needed to go with. So we went with that, but you know, You need to walk before you can run.

[00:16:33] And for a lot of these companies, it's like, here's a product that will allow you to run. And they're like, well, we want to walk first. Can we actually see our forecast in like a centralized system and have it update automatically? So what we did was we had to take a step back and really focus on those integrations, building out better UI, things like that. rather than just hammering and like this algorithm, that's going to help you.

[00:16:58] Omer: Right. And if you're going off to customers who maybe are using Excel spreadsheets, they don't need an amazing SaaS product right away. They just need something better than a spreadsheet.

[00:17:12] Rachel: Exactly.

[00:17:13] And at the time it was like, we need some workflow tools really, but you know, before Slack and Airtable and these, these kinds of hotter work productivity, startups, it was all about machine learning and AI and, and investors didn't want to hear like, Hey, I'm building a workflow tool, especially if you're.

[00:17:34] You know, a female founder and they're like, they feel like you're not technically not even though you're very technical and they're like, Oh, that's such an easy product. Anyone can imitate it. What's your, what's your moat. So for us, we had to go in with a very, you know, algorithm data-driven story. And it's not to say that we don't have good algorithms and we're not data driven.

[00:17:53] But what we found was that people didn't want to just buy the algorithm and that had the, you know, the predictive capabilities they also wanted. And first and foremost, wanted. A workflow tool that gave them disability that made their lives easier. That saved them time and frustration with dealing with complicated web of spreadsheets.

[00:18:12] Omer: Yeah. Okay. So you kind of figured out this beta and it, and I think it took about six months for you to, to build it out and get it out there. How did you find the first couple of customers?

[00:18:27] Rachel: Yeah, so cold email, we just emailed a bunch of brands. we went online, we use BuiltWith to see, you know, which companies were using the top shopping cards at the time.

[00:18:39] So Shopify. Magento, Spree, Big Commerce. And then we just started emailing all the folks. You know, it was a very manual process, but we just kind of guessed their emails and said, Hey, let's try to buy your inventory. We'd love to hear what you're struggling with. And, you know, unlike HR or marketing or ads where you're bombarded with add emails all the time in inventory, there's not really much option out there. So. There's not a ton like you don't get spammed with people being like, Hey, I have an app development company, you know, so it's pretty rare to get a cold email. That's like, let's talk about your inventory. Let's talk about your stock outs. I notice you're out of stock or I notice you're putting a lot of things on sale. Did you accidentally overbuy? Let's figure out how to solve that. So we just cold email and a whole bunch of folks, and we were really surprised at the response that we got. we had a 20% response rate, which is cold email and pulled email, just unheard of.

[00:19:39] Omer: And where most of, I mean, you can get 20% response and cold email where everybody tells you to fo, but how much of that was a positive response that led to a, a good conversation.

[00:19:52] Rachel: Those were the people that hopped on the phone with us, or like emailed like a paragraph to us that like gave us insight on what they're struggling with. And, you know, we, we were talking to brands like Glossier, which was one of our earliest customers. They were like the darling of the time, there's still the darling. We're still talking to all birds where you've been talking to a lot of the hot startups have come up and that was literally just cold email.

[00:20:17] Omer: And so why do you think you got such a, such a high response rate? Was it sort of the approach you would taking where you kind of spending a lot of time? Not necessarily a lot of time, but were you spending some time thinking about each company and their particular situation and then kind of personalizing the email that you sent out. This wasn't just, let's just kind of come up with a cold email template and just, you know, send it out to thousands of people.

[00:20:51] Rachel: I mean, I had a template, but I would customize the first paragraph every time. Cause you know, for me, I'm giving my experience in supply chain.

[00:21:00] I can quickly deduce just from looking at their website, looking at, you know, just reading their about us, like as to whether or not they manufacture the products themselves, what kind of ingredients where they do it, or just looking at their sales or not like their sales data, but like, are they putting a lot of stuff on say, are there, have they done a sale where they never did in the past that you can quickly deduce that they've overbought or are they, is everything limited edition? They probably struggled with.

[00:21:29] Omer: So, so it sounds like the outreach was more about learning, starting a conversation.

[00:21:38] Rachel: Yeah. Mentally goes to show how big of a problem it is, you know? And then when you reach out to somebody you're like, You know, the, and the last week all they've been dealing with is this big fire.

[00:21:49] And you're like, Hey, I hear you. Here's the firetruck. How can I help? You know, people are very willing to engage. I think when you're solving a true, true need in the industry, that's been ignored. you really cut through the noise.

[00:22:04] Omer: Yeah. And I think for many of us who don't, who are kind of in the SaaS space where everything is digital, you don't really have to worry about.

[00:22:15] Supply chain or inventory or stuff like that. This is, I think it's just worth emphasizing. If it hasn't hit home yet already, this is the lifeblood of the business. If you don't get this right, you're gonna either end up losing a lot of money or you're going to have some major cash flow issues.

[00:22:37] Rachel: Exactly.  And that's been something that has really pressed brands and it has such rippling effects. You know, obviously the most immediate impact is your cashflow either years, you're sitting on too much inventory, you're all tied up. You can't spend on new products or you spend too little, you're losing on a huge revenue opportunities.

[00:22:56] You're giving customers a bad experience, but it really has that rippling effect. So not only are you spending money, I see this a lot brands spending money on ads and the customer gets excited about a product. They click on it and then it's like out of stock. They're like, well, why did you spend money on that ad to direct someone to an out of stock product and.

[00:23:13] You know, I think what you hear about all those retail bankruptcies and I mean, there's definitely something to be said about, you know, the PE buyouts and the amount of debt that these companies have put themselves into. But you know, a big issue that you'll hear quoted time, and again is they just bought too much of the wrong product and then they had to discount it.

[00:23:31] And then before they knew it, they became a discount store. You know, like when's the last time you bought anything full price at Macy's. Macy's, didn't start off like that. It was a high-end department store. And now, you know, it's like where you go when you want something like over 50% off.

[00:23:46] Omer: Right. Yeah, exactly.  Okay. So you spent about a year on the beta before you sort of really went out there and, and sort of pushed to, to sell it. I know you signed up a good number of sort of beta customers during that year in 2017, but was there a deliberate reason for that? Was, was there some. Some complexity or something that you still hadn't figured out or didn't feel comfortable about to, to sort of launch faster?

[00:24:20] Rachel: Yeah. I mean, I talked about one aspect earlier, which is we went in with this algorithmic story and people were like, Let's walk before we run, give us a product that helps you manage like omnichannel inventory that helps us manage how help gives us insights. So we took a step back. We built that out.

[00:24:36] And then, you know, as we were building these things, we are very conscious about releasing very polished, very good product, because. You know, a lot of times people say like, you know, move fast and break things. But that only works when you're not talking about the lifeblood of companies. You can move fast and break the lifeblood of the company, you know, one wrong calculation and our product and people could be spending, you know, millions of dollars on the wrong inventory.

[00:25:03] So for us, we were very, very careful to make sure that the product is always. You know, fully QC lead. We're not releasing stuff that is unstable. We actually spent a lot of time always updating our infrastructure. We're always making sure that it's, you know, giving you the right data because that trust is so important.

[00:25:24] If the operators don't trust our inventory data to place these large purchase orders, then we don't have a product. And this is a complaint I hear about a lot of the legacy systems. It's like, I don't trust that it's up to date. I don't trust that the numbers are correct. And one thing that we found that was actually quite shocking in the industry is that, you know, a lot of folks, they come in with their spreadsheets every Monday and then they debate which numbers were correct.

[00:25:49] Like how much sales did we actually have? And it's mind-blowing to be like, Oh, you don't know exactly, you know, what affected your sales, why they went up or down and what they actually are. So for us, you know, it really, we wanted to make sure that our product was very stable and was very complete before we went out and said, Hey, we're not beta anymore.

[00:26:10] So, you know, a whole year might seem like quite long for some folks, but for us it was the right amount.

[00:26:17] Omer: And then in, in the last, I guess, two years, you've focused more on selling the product and you've sort of, you've started doing content marketing and ad words recently. But before we started recording, you told me that 90% of your growth has still come from cold email outreach.

[00:26:39] Rachel: Yeah, absolutely. You know, it's worked for us. It's I think, again goes to show just how important and how overlooked this part of the company is. A lot of times people, they don't think about their supply chain first and foremost, a lot of the popular brands that are there. They got there because of really good branding, marketing, advertising, and, you know, obviously they have a good product, but in terms of how do I scale that product?

[00:27:05] How do I read these all sorts of new products on time without accidentally compromising quality? You know, I worked in. In baby products. I launched my own baby product company and I followed the honest company very closely. And I think one of the, you know, they had all these issues with their sunscreen and, and with the ingredients and their whole, their whole premise is up there, the honest company.

[00:27:27] So there's no bad ingredients. Right. And I don't really think any sort of like intentional, like. Hey, we want to, you know, not be honest. I, I do think that the team there is really believes in what they do. But when you look at the rate that they were releasing product, it's just too fast, they were pressured by investors to be, you know, as fast as a software company.

[00:27:49] But the reality is. Physical products. If you want them to be safe, if you want them to be properly QC’d and properly developed, it takes time. You can't just rush it. And so for a lot of founders, they've got initial success with their initial product. They raised some money, maybe they're growing up, you know, through the roof.

[00:28:05] And then they're releasing new products and these new products or they're like, why are they always being delayed? Why can't we release them on time? And it's like, well, it's because supply chain, you have to have the right building blocks in place to scale it. And so, you know, I think the brands that successfully do that can hold onto their momentum and brands that can't, they end up, you know, that momentum doesn't keep up with them.

[00:28:28] And it's not because they're bad at branding or marketing or customer success, but rather because they. They didn't understand the importance of supply chain and getting those building blocks in place before the velocity accelerates.

[00:28:41] Omer: Yeah, no. Another challenge that, you know, pretty much most SaaS startups face is like figuring out who your ideal customer is.

[00:28:51] We may have an idea of who that person is when we start out, but we may end up with somebody. Very different, you know, some years down the line. And you know, that's part of the process of, of, you know, getting to product market fit with you. And with Fuse Inventory, you were able to get to about what I understand about 500 K ARR taking that approach with cold email, focusing on, you know, these brands, but then you got to a point where.

[00:29:25] You realize that you maybe didn't have the right type of customers or maybe the, you know, there were a certain segment of your customer base that really wasn't the right customer for you in the long term.

[00:29:42] Rachel: Yeah, absolutely. I mean, you know, one thing that I always emphasize in my companies is that I always look at the long term vision of the company.

[00:29:52] And so we constantly are self-reflective as a company, we always go back to the drawing board. We say, are we on the right path? Sometimes it's like, yeah, we are great. Let's keep going. And sometimes we take a step back and we say, Hey, you know what? You know, here are the things that are working and here are the things that are not working.

[00:30:08] And I think this is a really valuable thing to do. I think a lot of times you're just like build, build, build. You're just like, yeah, I'm listening to customer feed. I'm just building. But then you end up building and somehow you've veered off course and not even realized it. And for us, it was less veering off course.

[00:30:24] So much as realizing that, you know, the traditional metrics that people use to say, like, is a customer a good fit? Didn't really apply to us. So people would say like, well maybe it's their revenue. Maybe it's the number of skews they have. Maybe it's a vertical. Maybe it's, you know, this or that. These are like common things you would say like, okay, well we target this vertical. Or we target this revenue size? Or we target this number of skews or this bucket of customer. But what we found actually was a more qualitative metric, which was. Are they an ops focused organization? Like, do they have a dedicated team member that's doing operations. And that is actually our biggest indicator of success is whether or not they have a team member that's focused on operations.

[00:31:10] Omer: Why is that? What is different with a company that doesn't have somebody doing that role?

[00:31:15] Rachel: Yeah. You know, I mentioned earlier about how a brand gets momentum. They've got a great product and they're starting to scale, right? And a lot of times that supply chain scaling is an afterthought. So we get a lot of people who are maybe team of two founders, they're doing great.

[00:31:28] Their product is doing well. They've got high revenue, but they want to scale. And they realize they don't have the ability to scale or the knowledge to scale because maybe they had our background in branding and marketing or product development, but not in supply chain. And so they come to us saying like, Hey, we need help.

[00:31:44] Scaling. And, and we actually, our initial thesis was, Hey, let's target digitally native brands that are fast growth, fast scaling. They're more likely to try innovative product. You know, the legacy systems definitely don't work for their business model. And so we went in with that thesis and what we found was there's kind of like.

[00:32:03] Two groups of companies, one group that has hired operations teams, whether they have a lot of skews or a few skews, or whether they have a lot of revenue or not that much revenue. And we found that, you know, the people that really focus on scaling their ops team and that ops side of the business, they find a lot of success with Fuse.

[00:32:22]and what we found that didn't work was like a team of maybe one or two founders who was using the product themselves, who wanted this kind of like product that would replace an ops member and which is not our product. Our product requires someone to use it. So what we found was that. You know, some of our earlier customers, they had hoped we would build a product that kind of runs itself, but there's not really such a product in supply chain unless you're planning to stay a small business forever.

[00:32:53] So if you're going to be a mom and pop small business, you have a low skew count. You don't plan on expanding your product assortment. You don't plan on scaling to large retailers or to brick and mortar or anything like that. You know, maybe you can have an auto-running product that just tells you.

[00:33:08] Here's how much you have. Here's how much you need to order. And there's no variance, but if you're a fast-growth company, if you're planning to expand your company into different sales channels, into different products, different product categories, you really do need to spend that time, planning time, you know, thinking about your inventory.

[00:33:25] So what actually happened was we allowed, you know, after we raised our round in 2019, we have allowed some of our early customers contracts to expire. and we really focused on serving the customers that, you know, had an ops team and who were going to be successful with the product. So it was kind of painful, to watch that revenue go away.

[00:33:48] But I think ultimately, you know, we found that in terms of how much customer success we were seeing, you know, they were taking up too much time and effort and requesting a completely different set of features than the customers we identified to be our long term strategic partners

[00:34:04] Omer: At approximately how much of your revenue was coming from these, these wrong types of customers.

[00:34:09] Rachel: About half.

[00:34:11] Omer: Wow.

[00:34:12] Rachel: So, you know, it was a big business decision for us and one that we didn't take lightly, but it, you know, I think it has been paying off. We've been able to focus more on building the features that matter to our current customers, which are, those are our larger customers. And as a result, we've been able to grow our contract size as well.

[00:34:31] So when we started off with beta, we were less than a thousand dollars. When we started selling a real product, we were between one to $3,000 a month. And now we still allow some ops focused teams that are smaller to start with the product at a thousand dollars. But the majority of our contracts are now three to $5,000 a month.

[00:34:48] And how do you sell it? Do you get customers to sign some type of annual contract or they just pay a monthly recurring fee and they can cancel it any time. What's the sort of the model that works for you.

[00:34:59] It's an annual contract will be allowed them to play monthly. And we actually priced on the number of channels that they're forecasting for.

[00:35:07] So whether or not you have e-commerce or a retail shop or a wholesale account, multiple wholesale accounts means more channels and then the order volume within the channel. So if it's just, you know, you're testing out a retail location, you don't have a high order volume, it'll be a low charge, but if it's your, your, your bread and brothers' system with a huge inventory of all the network, bringing a lot of value, add to that channel, we charge more.

[00:35:32] So it's kind of waxes and wanes based on how the business is doing. Cause if you decide to ask some of your channels, then it'll go down and if you grow your business, it'll go up. So it really scales with the business and it always comes down to, you know, less than 0.1% of their revenue. So we feel like we, we give a lot of value add while not being, you know, too taxing on these companies.

[00:35:55] Omer: You said that when you had these sort of wrong customers, you sort of, you allowed those. Contracts to expire. And so how is that sort of set up, do contracts, not auto-renew at the end of the year or, or was that the case was sort of different back then? Yeah.

[00:36:11] Rachel: In the beginning, we actually did not auto-renew it.

[00:36:13] We actually just said, here's an annual contract. And then we'll renegotiate every year, which I know is not typical. We were in a SaaS accelerator called Alchemist accelerator, which I highly recommend for folks, especially if you're a more on the technical side. Cause they go over a lot of the business side and they were recommending like three-year contracts for enterprise sales, but we were kind of.

[00:36:33] Not quite, you know, we weren't like a six-figure contract million dollar contract. And we were so early on, we didn't want to lock people in that long before we really figured out our products. So we actually would talk to customers every year to renegotiate and, and have them resign with us. Nowadays, our contracts are auto-renew with the opportunity to renegotiate every year, but now they wouldn't just flow.

[00:36:58] But before we. We made that decision to let go of some of the smart customers. They were actually, we had to talk to them every single time we wanted them to renew.

[00:37:06] Omer: Yeah. That's a fun way to spend your time.

[00:37:10] Rachel: Yes, but no, I, I feel like in the early days it can be very eliminating. Like sometimes people don't give you honest feedback until you want your, you want to take their money, then they're like, well, actually hold on, hold on. Here's my honest feedback on your product.

[00:37:27] Omer: Yeah. Yeah. That's a really good point. Okay. So let me just kind of recap here. So you, you and Bridget came up with this idea. You'd sort of been what you'd been working in the space anyway. So you understood the challenges that these types of businesses face. You knew that the way they were managing or planning their inventory, was sort of a bit antiquated and as ripe for, for some disruption. And you basically had a very simple model let's build, let's take a little bit of time. Let's be thoughtful about building the right product. We're just going to use cold email to reach out to prospects, and we're going to start a conversation with them to learn more about what they're struggling with and how we may be able to help.

[00:38:23] And that approach, gave you a great response rate through cold email and, help you to start generating, you know, multiple six figures in revenue fairly quickly. And that sounds great, but there's always downsides and problems and challenges and, and things like that. One of the things that you struggled with was there was actually a third co-founder when you started out.

[00:38:49] Rachel: Yes. You know, I think this is something that a lot of startups don't talk about and something that I noticed, you know, I'm in a lot of female founder forums and groups, and I see a lot of pressure, you know, to get co-founders and one thing. I learned myself, you know, I thought I had thought I was pretty confident, you know, before starting fuse, but one of the things I had always not wanted to deal with was fundraising.

[00:39:16] And I was like, honestly, I just didn't seem. Very interested in learning how to be good at fundraising. it wasn't something that I personally was interested in. I wanted to be a product builder. I wanted to be in the operations side of things. And so I had a third co-founder and she was like, I want to do the fundraising.

[00:39:33] I want to do the sales. I want to be the face of the company. And I was like, great. I hate being the face. I like to be like, you know, behind the scenes shadow. and. You know, we initially started working together because I thought that was a great skillset. She had gone to Stanford business school, and she, you know, had all the right credentials on paper.

[00:39:54] And one thing I, and, you know, we talked about values and things like that. And we interviewed each other before we started working together. But you know, one of the things I find is that when you're a founder, you know, sometimes you have to make really tough decisions. Well, you know, I talked about how we made the decision to let some of our customers phase-out and hurt our ARR.

[00:40:14] And one of the hardest decisions we had to make was partying ways with this cofounder. And, you know, I won't dive into the details of, of what happened, but you know, when you're a first-time founder, it can be really stressful to make these big decisions and. You know, you have to hire people to fire people.

[00:40:31] You have to decide to not take money from people or to not go to market. Sometimes, sometimes deciding. Not to take action is the hardest thing. And you know, like I said, we were in beta for a long time and we had to keep saying like, you know, the timing is not right. The timing's not right. You have to be able to face investor pressure.

[00:40:50] You have to be able to face, you know, like frustrations with customers as you're building out this product, you have to hear no, like a thousand times, a hundred times, a thousand times, like over and over again. and I think as a first-time founder in those, a lot of pressure for her and, you know, we decided to part ways and October, and it was really difficult because she had originally done a lot of the fundraising.

[00:41:10] So we actually ended up giving a portion of our capital back to some investors, including our, a large investor in the company. And that actually, you know, it was really difficult for us. I mean, I can't emphasize, we had to give like hundreds of thousands of dollars away and for a young company with only pre-seed round, that was very painful.

[00:41:34] And I had to learn how to fundraise and you know, it was definitely, it's not something that comes naturally to me. I'm an introvert. I am not like this, like charismatic Steve Jobs, alpha male, that like goes out there and charms everyone. And also two female founders, minority stereotype of Asian women is that they're very meek and submissive and you know, and I am.

[00:42:01] Half technical and my other cofounders, very technical. So we got a lot of questions of like, well, how are you going to sell? How are you going to leave the company? How are you going to, you know, ensure the growth of this company? And so it was very difficult, to kind of recover from that time and to raise our next round really.

[00:42:18] Omer: And you sort of got through that and you've, you've raised what total 3 million to date now?

[00:42:24] Rachel: Total 3 million. We raised our seed round with cross-cut ventures as the lead in May, 2019. That was people say like the average fundraising time is like 12 weeks. And that is such a lie if you are a first-time founder or a female founder, our fundraising took almost a year.

[00:42:45] And that's the truth. And then people are going to say like, the people was like, make it up. So it's like, well, we put out feelers, but we didn't really fundraise until this time, but okay. We put from the time we put out feelers to the time that we closed the Capitol, it was one year. And you know, it was very difficult for us to raise capital.

[00:43:04] First of all, we're in an unsexy, male-dominated industry, supply chain, you know, SaaS doesn't have a lot of female founders. We were both more on the technical side. And then we, on top of that, we had our former co-founder who, you know, not only had capital pulled out of the company, but who continued to make it difficult for us to fundraise who would block her fundraising.

[00:43:28] So it was quite a struggle and it's, you know, I feel the need to speak out about it because I just see so many people, pressured into having co-founders into taking money from, you know, firms that they don't want to take money from because they need the capital. But I can't stress enough how important it is to choose the right partners, choosing the right investors, choosing the right cofounders. That's so important. And even though people will say like, Hey, Oh, you're technical. You need someone to run the business side. You don't understand business or someone being like your business background. Like you need a technical co-founder because you don't understand technology. Like that's, that might be true on the surface, but my belief is that if you have a growth mindset, like if you believe you can learn, like you can teach yourself that other half like I taught myself how to fundraise while fundraising, it was difficult. I've had some pretty disastrous pitches I had to like, find you my wardrobe.

[00:44:29] I was like, Oh, let's experiment this. I had just fine-tune my messaging. I had to fine-tune everything really. And it was difficult. My team has watching go through it and they've seen how much I've been able to learn. And you know, if I can do it, anyone can, I would say, you know, don't, don't let other people tell you that you're not enough.

[00:44:51] That was something that I realized that was, I, I believed people who said I wasn't a natural leader or a natural, you know, fundraiser. And when I think about it throughout my entire life, I've always been the one to start, whether it was start clubs at my high school or my university, or, you know, bringing people together to work on a project, things like that.

[00:45:11] I've always been the one to do that. and I, I just never gave myself credit for those things. And. You know, those all require people's resources and time. And that's the same thing as capital. You know, you're telling someone to part with something that has value and you have to tell them a story that really shows that, that their contributions are going to be turned into something even greater value.

[00:45:33] And that's a skill set that you can learn. It's not like you have to be born with charisma. You know, you can, you can fine-tune yourself and learn and grow.

[00:45:45] Omer: Yeah. I think that that message is, is really inspirational. And I think it will resonate with a lot of people, whether they're male or female and maybe feel that.

[00:45:59] They don't have all it takes to do all the things that people tell them they should be able to do as a founder.

[00:46:06] Rachel: Yeah. I mean, I talked to a lot of, I love helping founders out, especially female founders, but I've also helped, you know, male founders out and, you know, they all struggle the same thing with people telling them that they're not enough and telling them that they need to find partners.

[00:46:20] They need to find someone to fix their deficiencies. And I think, I mean, I think that. Recognizing you have deficiencies is very important, recognizing your weaknesses and working on them actively is very important. You can't just be like, Hey, no, I have no weaknesses. I am just amazing. I don't need to work on anything.

[00:46:37] I don't think that's the right mentality either. But recognizing that you have a weakness and finding the right people to help you learn and grow and supplant that that's great, but it doesn't mean that you can never overcome those weaknesses and you must partner with somebody. To overcome that weakness.

[00:46:54] Omer: Yeah. I would say it's challenging enough for any founder to make that leap and to grow and to get out of their comfort zone and learn those new skills. But that thing you said a minute ago about feeling like. You're not good enough. They're not good enough. I wonder if some of that also comes up from upbringing because both of us, our heritage is, is from Asia and culturally.

[00:47:22] We grew up in an environment where our elders there don't. hesitate to tell us when we're not doing something. I don't know if you experienced that, but certainly when I look back at sort of growing up.

[00:47:36] Rachel: Yeah. I mean, you know, I'm sure everyone's read the hymn of the tiger mom by now, or at least knows the term tiger mom, but my mom was not necessarily your stereotypical tiger mom.

[00:47:50] When I told her I wanted to major in computer science, she said go major in English. And I was like, and she's like, why don't you want to major in English? And I was like, Oh, I want a job after graduation. I ended up majoring in East Asian studies, you know, it's even throughout my life. I've been told, you know, to be self-critical.

[00:48:13] And I think there's a balance between being overly self-critical and not being self-critical enough. And one thing I've seen, I kind of see this balance play out. You know, some people they're like, I have no weaknesses. I am just like the best at everything. And, and because they don't recognize that they have weaknesses, they're actually not.

[00:48:31] Like everyone has weaknesses. And to be truly self-confident you have to confront that weakness and overcome it. You can't just be in denial and just be like, no, I have none. And then, you know, conversely, like you can't always be like, Oh, I suck at this. I suck at that. Everyone's telling me not good enough.

[00:48:49] I'm not good enough. And believe that. Cause then you won't be confident either. So. You know, I think people, they talk about the founder's journey. I think one thing that people always give kind of a general advice on just like surround yourself with people who believe in you and, and will support you.

[00:49:05] But what they don't talk about is sometimes your biggest attractors are people close to you, whether it's, you know, a partner or a spouse or your family or your friends. And like, I have friends who were surprised that I. I got to where I am mostly because I'm just very weird. So they're like, Oh, you're really weird.

[00:49:25] But like somehow, you know, people are giving you money and I'm like, yeah, well, yeah. And, and, you know, my parents even told me, they were like, why are you starting this company? Go back to law school, get a professional degree, go work at a large law firm. You know, my grandparents are always telling me that I need to hurry up and have children before my eggs dry up, you know?

[00:49:50] And my mom would always say like, who are you to be a CEO? What makes you think you're qualified? And I think, you know, that has always been a good way for me to self-reflect. It's like, well, How am I qualified? Like, how am I not qualified? And it really encourages me to face my weaknesses and to tackle them head-on rather than be in denial about them.

[00:50:14] And then, you know, if I can justify to myself why I'm qualified, then I become confident. If I can't justify to myself, why I'm qualified, then how can I justify to other people? Right.

[00:50:26] Omer: Yeah. So, you know, one of the reasons I really wanted to talk to you was you have this interesting background and we talked about that, but then also the fact that this is a company founded by two female founders who are also minority and in a industry that's dominated by men. But then also it's really interesting is that the majority of your team is also female as well.

[00:51:03] Rachel: Yeah, absolutely.

[00:51:04] Omer: That's really unusual for a SaaS company.

[00:51:07] Rachel: Yeah. I mean, I think that it was intentional for us to really care about finding team members who were the right fit.

[00:51:17] And no, like I said, my team is what gets me up in the morning. They are all amazing individuals. They all have just such great, not only professional experience but personal experience as well. And I really believe that, like, I have a lot of grit and resilience and it's built through a lot of. You know, suffering and overcoming that and becoming stronger.

[00:51:39] And I really, I look for that in team members. I look for people who are self-driven, who are not motivated necessarily by external things like titles, but really motivated by internal things like pride in their work. And, you know, part of that is like, I try to look at what life experiences people have gone through.

[00:51:59] And I think. Just somehow it ends up being a lot of women. A lot of minorities have been, you know, they've faced bias in their careers. They've had to overcome it. They've become stronger or they've got a lot of greater resilience and, you know, that's really, I hired the most qualified people and they all happen to be, you know, minorities or women.

[00:52:19] And that's just how it is. Even our investors are mostly, you know, they're mostly men, but they're men of color, our advisors as well. and we're always joking about with our last round. We finally added a white male to the team because our investor was white and male, and he's like the only white male on the team.

[00:52:38] Omer: That's funny. That's awesome.

[00:52:40] Rachel: So, we are diversity quotient. We've got our token.

[00:52:43] Omer: Yes. Yes. You can check that. You can check that box off. Great. Okay. On that note, I think we should wrap up and move on to the lightning round. So I'm gonna ask you some quick five questions. Just try to answer them as quick as you can.

[00:52:57] Rachel: Alright. Ready? Okay.

[00:52:59] Omer: What's the best piece of business advice you've ever received?

[00:53:03] Rachel: I mean, I really liked the idea of, you know, thinking about the worst-case scenario. I forget exactly what the school of philosophy is, but I actually read this on Mark Manson's blog, I think, where you imagine the worst-case scenario, you say, like, what happens if I do this decision?

[00:53:20] And it's like the worst thing ever, and then you realize that it's actually not that bad, a stoicism that's, what's called stoicism where you just mentioned the worst thing. And then you're like, it's not that bad. I can survive that. And then you feel confident to move forward.

[00:53:34] Omer: What book would you recommend to our audience and why?

[00:53:37] Rachel: I really like the Alchemist by Paulo Coelho, it's like an allegory and I love literature. So I love interpreting in many ways. So I'll leave the interpretation up to the audience, but there are many ways you can read it. And oftentimes my interpretation is a little different from what I've heard from other founders.

[00:53:55] Omer: That's interesting. I haven't, I've read that book a couple of times. Tell him to read it for a while. I should go back to it. What's one attribute or characteristic in your mind of a successful founder.

[00:54:04] Rachel: I mean, I think it's been said over, over again, but resilience, grit being able to survive, like anything that's thrown your way, because it will be thrown your way.

[00:54:15] Omer: What's your favorite personal productivity tool or habits?

[00:54:19] Rachel: I like to actually just garden. Like I just turned things off. I go to my balcony, it gets some sunshine, especially now, while everyone's stuck at home. I like to just kind of brisk share, take a walk. I think people really underestimate how, how much creativity you can have when you just step away and step back from things.

[00:54:39] Omer: Do people still walk in LA?

[00:54:40] Rachel: They do, there's a lot of toddlers, you know, you got to keep your, your, figure for one that

[00:54:49] Omer: I remember a friend of mine went to, he, he went to LA for the first time and I don't know where he was walking, but taxis kept on pulling over to pick him up because they were like, why are you walking down there?

[00:55:00] Rachel: Yeah, it's true. People here, like, they're like, wait, I have to walk more than like, one block. I'm just wondering, but then they love like jogging. It's bizarre.

[00:55:14] Omer: What's a new or crazy business idea. You'd love to pursue. If you had the extra time?

[00:55:20] Rachel: You know, I really love creating new physical products too. Like I really enjoy that process, the branding, the creative process. So if I could start like a side business, I would. Probably start another, like maybe a CPG company.  Yeah.

[00:55:37] Omer: Oh, what's an interesting one fun fact about you that most people don't know?

[00:55:40] Rachel: A lot of things. Let's see, you know, I've always been somebody who has a wide range of interests. So if you name it, I have probably done it, including all sorts of odd side jobs. I kinds of hobbies kind of activities.

[00:55:57] Omer: What's the weirdest site job you've had?

[00:55:59] Rachel: Ooh, let's see. I'll tell you what I really enjoy it. I would correct the PhD thesis of foreign students. So for PhD is where English was not their first language. I would get to read all this like cutting edge or like research full of like technical jargon that I would have to like, make sure I was grammatically correct.

[00:56:23] Omer: Interesting.

[00:56:24] Rachel: Yeah. It was just fascinating to get, to read all sorts of different PhD thesis. And this is like people's, life's work of, they spent like, you know, years and years doing so it was really great. I also worked. In Beijing for a summer, I basically packed up my bags and just like plop myself in Beijing, not knowing like a single person except for my cousin's ex-boyfriend and my friend's mother.

[00:56:51] Cause I don't have any ties in mainland China. My family's from Taiwan. So I literally was like, I'm just going to go study abroad and. Like do an internship in China. And people might think that I speak Chinese at home, but I absolutely do not speak English at home. So I had to learn like on the fly while avoid getting scammed everywhere.

[00:57:12] And then what I found with my first internship. I was like writing all these articles about how to do business in China. And I was like an undergrad and I didn't know anything about doing business in China. And I was like, these, like corporations were relying on my advice and I just found it like very scammy that they were selling my advice for like, Thousands and thousands of dollars.

[00:57:33] And I'm this like call student who's Googling like how to do business in China. So I ended up like, just finding another internship by networking with random ex-pats in China. And I worked at. A Chinese legal firm were actually drafted venture capital deals for investors who were looking to invest in Chinese, US investors investing in Chinese companies and vice versa through the Cayman islands of course. so that was fascinating, kind of introduction into law and VC financing. And I just, I loved it. It was very interesting. And then there are all sorts of like funny stories of like surviving the streets of China at the time. So.

[00:58:15] Omer: Okay. You have to tell me about that later.

[00:58:17] Rachel: We'll talk about them offline. I think that was too long.

[00:58:21] Omer: And what's one of your most important passions outside of your work?

[00:58:24] Rachel: You know, so many, I love the arts. I really love martial arts. I love dancing. I'm a Lindy Hopper. I love celebrating different cultures through expression. So I really. Believe in that. I believe that art gives people a voice.

[00:58:40] And I think, you know, at the time that we're all like, Staying at home like entertainment and arts have been a huge Avenue for folks to really, you know, reduce their anxiety and be at peace. So I really try to support independent artists. I love, like helping independent artists on Instagram. I'm buying their products or donating to them.

[00:59:01] And then I also like helping kind of on that same vein, like founders, I will help founders out like female founders, especially, but founders of any type, whenever they want to talk about advice or if they're going through a hard time, like the founder split, I like to just kind of be there for them. So yeah, those are kind of, my passion is really just, it sounds so cliche, but making the world a better place in the capacity that I have the power to do so.

[00:59:28] Omer: Awesome. I love that. Now, if people want to find out more about fuse inventory, then go to fuse inventory.com. And if people want to get in touch with you, what's the best way for them to do that.

[00:59:38] Rachel: Yeah, they should just email me. It's just Rachel[at]fuseinventory[dot]com.

[00:59:42] Omer: Awesome. Thank you so much for joining me, Rachel. I'm really glad we had this conversation. I love what you're doing, the team that you've built and how you are disrupting an industry. That's really long overdue for something like this. So congratulations on everything you've done and, and, you know, hopefully we can get you back at some point and, and talk about where the business goes in the next couple of years.

[01:00:08] Rachel: Yeah, absolutely. And thank you so much for having me.

[01:00:10] Omer: It's my pleasure. All the best. Take care.

[01:00:12] Rachel: You too.

[01:00:13] Omer: Cheers. Thanks for listening. I really hope you enjoyed this interview. You can get to the show notes as usual, by going to theSaaSpodcast.com where you'll find a summary of this episode and I'll link to all the resources we discussed.

[01:00:26] If you enjoy this episode, then please consider subscribing to the podcast. And if you're in a good mood, consider leaving a rating and review to show your support for the show. Thanks for listening until next time. Take care.