SaaS Interviews with CEOs, Startups, Founders
916 SaaS: Y Combinator QA Company Passes $12m+ in ARR After Graham Shits on Name
26 Jan 2018
Chapter 1: What is the main topic discussed in this episode?
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. All right, guys. Good morning, everyone.
Chapter 2: How did Rainforest QA achieve rapid growth after Y Combinator?
My guest today is Fred Stephen Smith. He's the CEO and co-founder of Rainforest, which is a QA testing platform. We'll jump into it today. He spends all of his time driving the company to build a better, faster way to do QA while remaining a place that people love to work at.
Since Rainforest's early days at Y Combinator in 2012, he's led the company through rapid growth, building not only a QA platform that leverages both crowdsourcing and machine learning to accelerate testing, but also a team across 16 countries on five different continents. We'll jump into how he manages that.
He's originally from England, has an economics and politics degree from the University of Warwick. When not at Rainforest, he can be found in the natural forest of California, trying not to crash his dirt bike.
Chapter 3: What challenges did the founder face when starting Rainforest QA?
Frederick, are you ready to take us to the top? There's a lot packed in that. We'll break it all down in the next 10, 15 minutes or so. But for people that are not familiar with what QA even is, what is Rainforce QA and what do you do? Yeah, so we've built kind of like a on-demand QA team, which scales up and down with the customer's needs. QA just stands for quality assurance.
Quality assurance is just a weird word, a weird phrase that means quality. finding bugs before your customers find them. So something that every software team has to do, basically. So we have a lot of these kind of listeners listening, a lot of CEOs pushing products on two-week sprints, right?
And they always add one or two days on the, you know, they always try and end the sprint early by two days because they know that's what the testing time and the quick edits will take. And it's kind of a crappy way to do it. But is that where you kind of fit into the system? Yeah, exactly. So we built Rainforest because we saw that
The whole industry was moving to continuous delivery, but we didn't see a good way to have that kind of pre-production gate that was fast enough for continuous delivery. So yeah, rainforest turnaround times about 30 minutes. Most of our customers use us in the method you described. But rather than having to wait two days, they just see it as an automated part of their release, right?
So Rainforest gets triggered by their CICD server, usually. And is this, so I want to understand how the tech works on your end. Is it, I mean, have you written code that auto-tests if-then statements kind of per each customer in terms of when they're pushing new stuff? Or do you have a human, it's humans? So it's what you would think of as human-assisted AI, right?
So a good metaphor is kind of Uber. So when you're a customer of ours, you have a test suite. Typically, customers have a couple hundred tests. You run your test suite. When you run it, we send a big swarm of humans at you, might be 500, might be 2,000, over the course of about 30 minutes, and they test all of those flows in parallel.
And so it's basically like that AWS concept where you want 1,000 servers and then you want zero servers. You know what it means? You have this very spiky demand curve. Same on QA. Exactly. And then on top of that, we're building a self-driving tester. And around a quarter of our results right now are being augmented with a robot tester alongside the human testers.
And the plan for us over time, as you might imagine, is to phase more and more of our testing into this kind of self-driving robot tester. Yep. I want to drive more into where you see this industry going here in a couple of minutes. But first, tell us more about the backstory here. So it's 2012. Was that was that launch date? Uh, no, 2012 was start date.
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Chapter 4: How does Rainforest QA leverage technology for quality assurance?
We, uh, we, uh, me and my co-founder are in America because of YC. Um, and we got into YC with a different idea. Halfway through YC, they told us, Hey, stop working on this crap. What was the idea? Um, so the idea was noticeable for how bad the name was. Uh, the, the, the name was cloud radar, but without any vowels, if you remember that was hit back then.
So it was pronounced by all of my batch mates as cloud radar. And, uh, Paul Graham, who is the famous founder of YC, announced on stage one week that we had the worst name ever to go through YC. So that was what we were notable for. But it was spending analytics for AWS. So we've always been focused on the infrastructure side. And when we pivoted, yeah, we started working on Rainforest.
And we just looked at what problem do most of our batchmates have? And we just saw QA as this real big hole in building software that wasn't really being addressed by YC. as PG would say, smart hackers. And so that's kind of where we started. And where, I want to kind of understand where you were at in life at that point. So how old were you in 2012? Gosh, so I'm 30 now. So in 2012, I was 25.
And so you were out of university. Was this your first kind of gig or had you worked in corporate and saved up a cushy salary so you could afford to take a risk? Hell no, man. That's such a, am I allowed to swear on this? Mm-hmm. That's such a bullshit narrative as well. Like all of my friends that told themselves that they were going to do that, they're still in those corporate jobs.
No, not at all. So I had a place on a large financial institutions graduate scheme after university. And a week before I was due to start, I was like, fuck this. I'm not going to do this. And I moved to Berlin with a friend. We started a marketing agency.
And so from the ages of like 21 to 25, I was just basically being scrappy, doing small business, making a bunch of money, having a bunch of fun, but realizing for me what I was kind of meant to do in life. And I realized that was scaling an organization very quickly to a large, you know, large revenue, large number of people. That's kind of what turns me on. That's what gets me excited.
And that's why I kind of started doing startups. And was your back really against the wall? I mean, in 2012, like how, I mean, how much cash, how much cash did you have in your bank before you went all in on this thing? Negative cash. Really? You did. You were in debt. Oh yeah. How much? Not that much. Okay. Well, notional debt of about 15 K, but that was all student loans.
I was right sitting at zero in my bank account. Yeah. When we got, when we got the invitation to come to the YC interview, the YC interview is 10 minutes, right? And so you're flying like 5,000 miles from London for 10 minutes. And after that 10 minutes, they'll, they'll kind of decide your fate, you know? So
it was definitely the fact that that was kind of like, we pulled together our last thousand dollars to buy those plane tickets. Me and my co-founder, that was definitely part of what made it like, we cannot fail. We have to succeed here. That's probably part of the process, right? It is on purpose. Oh yeah, for sure. Sure. And honestly, the, um,
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Chapter 5: What is the significance of customer satisfaction in Rainforest QA's strategy?
The next day, they send an email with the countdown to demo day, right? So the next day, you get an email saying 101 days to demo day. And every morning at 6 a.m., you get that same email. Yeah. That's pretty cool. Okay, so now let's fast forward to kind of today. We didn't talk about this, but how do you make money? So we charge customers based on running tests.
Customers enter into contracts with us and then, yeah, every time they run a test. Is it SaaS though or is it project-based? Yeah, it's SaaS, yeah. It is SaaS. Okay, so what's the, I imagine you have many different cohorts, but what's the average customer paying you per month? Per month, the average customer is paying us about seven and a half grand.
Okay, and give me, if someone listening right now says, I want to pay someone half grand to these guys, what are they getting for that? Is it a number of tests, number of seats, what? Yeah, so it's a number of tests executed. So for seven and a half grand, you could have about 150 tests and you could be continuously deploying every day.
You could run those against three or four browsers or three or four different mobile devices. And that plan would kind of cover you for that. Okay, got it. And obviously, well, at least I know you have the YC money, but have you raised additional capital? And if so, how much have you total raised? Yeah, so publicly today we've raised $16 million so far. Okay, you on purpose said publicly.
Did you do something like venture debt or something behind the scenes or you're getting ready to potentially announce something? Yeah, we're in the middle of our Series B fundraise right now. Got it, very cool. Okay, and then what's the team size today? We're about 80 folks. 80 folks all in San Fran or actually, I know that's not the case. You're based all over the world. How many countries?
I don't know. You said it in the intro. Sixteen. Sixteen. And so how do you. Yeah. How do you. So actually tell me the story you told me right before you came. Are you're you're in your office right now or your home? I'm at home. Yeah. And why? So about a third of our company is remote. Um, that's, that was kind of by design.
We wanted to hire people remote and in person, we want it to be remote first kind of culture. We just felt that, listen, it's 20, you know, at the time, 2012, now 2017, like we need to be able to work from all over the world as a software company. And, you know, what we started doing is one week per year, most of the company goes remote who usually work in San Francisco.
all of the sales marketing product design folks, you know, they're willing to San Francisco office. So we will go remote. So experience what it's like, but the rest of our teammates for the rest of the year, you know, so that's just a core when you have a culture where. Some segment is in an office, some segment is distributed, some segment is in another office.
You have to continually work to bring these cultures back together as they diverge over time, you know, because the culture for the remote folks, the folks that live in Slack, that live in GitHub, you know, all of the communication happens asynchronously and over text versus when you're in the office and you just get to see people by the face and all of that good stuff.
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