Episode 55 - Niklas Halusa (Nautical Commerce)

Speaker A: Nicholas, thank you so much for being on our podcast. I've uh, gotten to know you over the last year, year and a half through a mutual friend investor Masha from Drive. You have had such an incredible career. You studied econ in college, then out of college you went into investment banking for a bit. You moved into tech, more specifically marketplaces, which will play a kind of real thematic role in your career. You were running product at Turvo and then after a couple years you joined ActiveT Capital, put your investor hat back on. And then in early 2020 you co founded Nautical Commerce where you're the, you're the CEO of the business. And so it's an incredible journey. Tell us the journey in your own words. How did it all happen?

Speaker B: Yeah, absolutely. So first of all, super excited to be here. I've been watching your story now for quite a while. So uh, it's good to see that you've also blossomed into having your own podcast. I feel like that's a milestone now, uh, in 2020. Well, 2020's startup life and so super happy to be here. You know, I actually never really expected to be in tech. I didn't really know anything about tech. For me the obvious thing was to do finance. So I did investment banking and found it incredibly dull. Apologies to those who really enjoy it. I left as quickly as possible to go. Actually I was at Activint before. Also I went to Turvo and to be honest I thought I was joining a private equity company which turns out it was a venture capital company and I didn't really understand that either. With a specialty in commerce and very close to what we do today, I mean real specialty in commerce platforms. So it's no coincidence I um, am where I am today and then did my, you know, my hajj to the mecca of tech in the Bay Area and Turgo was a super exciting place to do that at. It was super hot company and effectively turning logistics brokers into marketplaces. So again similar to what we're doing today, you know, very much a two sided model, but also being a B2B SaaS company trying to, it's called arm the resistance to Convoy and Uber Freight and then went back to investing with real focus on this kind of a topic which is marketplaces, B2B commerce, some of the fintech that fits into commerce. And, and uh, out of that I came to this which, you know, the short story effectively is that I didn't see the point of people who build marketplaces having to also be tech founders. And fundraisers and, and, and that's not the right skill set. And you know, in a world where whatever D2C store you start, you can just grab, shopify off the shelf and go crazy and you'd never have to worry about, you know, upgrading, react to 18 because of security holes. You can, uh, you know, you should be able to do that, uh, in marketplace world as well. And today that's not the case yet. And we're making that the case.

Speaker A: It's such a good story. Take us back to maybe kind of pre college when you had no idea you'd get into tech. Why was finance the obvious thing to go into?

Speaker B: Oh, it's a really pedestrian reason, which is that my father was in finance. So I did my investment banking internships and I ended up studying economics, which was quite frankly an awful degree. I should have done history. And you know, it was, it was the obvious path. Right. And in my head I had uh, sort of the view that I'd end up, you know, making a private equity firm or something like this. I always had in my head that I would build a business. I just never thought of it at all of being a tech business, not, I didn't really know anything about tech. It wasn't bred in that culture at all. So it was really just a case of I didn't know any better. Uh, and luckily I learned quickly.

Speaker A: Was it that finance and investment banking was so dull or was it that someone or something happened that opened your eyes to I might want to be an operator.

Speaker B: So the operator thing was always in my head to an extent, building a business. And then it was the question of, well, I was at this venture capital firm, right. Activant, and then it was a question of is, is, is this the kind of thing I want to commit my life to? And by then I had discovered tech because I was of course a venture capital investor dealing with founders all day long. And you know, the simple emotional, let's call it trigger is, and I tell everybody this is maybe the sign of the difference between an investor and an operator, is that investors, people who are great investors mostly, they get a buzz from the gamble, the bet when they go and find a company and they get to have a stake in it and they get to bet that money and they're going to have some upside. That's what they get energy from. And I know many great investors who do that in their whole life. They buy and sell watches and crypto and all kinds of other things as well as investing. Right. I never really got that buzz. Instead, the worst moment for me was when I made the investment because I spent all this time getting excited and getting really into somebody's adventure and watching these, you know, these, these mavericks go in and tell me passionately about what they want to do, and I want to be involved. And the moment you pay the money, you kind of walk away, right? It's not your problem anymore. You're off to go get excited about something else. And instead I just got a bit jealous, right? They get to be on this, you know, this crazy adventure with their rowboat in the open ocean, right? And I'm just sitting at home counting the beans, uh, and, you know, and became pretty clear that, you know, I wouldn't be happy unless I started to at least think about, uh, how I get into a rowboat.

Speaker A: I love that story. When you go to Turvo, had you spent much time thinking about marketplaces at that point, or was that really your real entry into marketplaces?

Speaker B: Very little, or at least very little substantively. Uh, because. Because Activant is a commerce fund. They really specialize in it. They're really good at it. Inevitably, we diligence marketplaces. So the concepts that go into it, supply, demand. And I study economics, so that stuff comes intuitively. And I've bought things online, so that comes intuitively. I understand how public markets work and trading works, so that comes reasonably intuitively from the bones perspective. I had a feeling for it. But there's a very different understanding of the theory of marketplaces at scale versus the operating problem of how do you make this, this thing work? Because all that theory of supply, demand and matching and marketplace efficiency and all these kinds of things are irrelevant if you don't have any flow and if you don't have the tools to get people to engage. And so what I really learned at Turvo is this question of, well, how do you incentivize people to go and engage? What workflows? What tools do you have to give them? Do you have to give them vertical software? Do you have to give them financial incentives? You know, what is it that makes people engage, uh, so that you can even start to implement the wonderful theory of market efficiency?

Speaker A: And for those who don't know much about marketplaces, is there best practice on incentivizing supply side first versus demand side first? Can you, can you give us a little bit of the lay of the land about maybe the theory and then where it meets the road when you get into operating?

Speaker B: Yeah. So the, the rule of thumb, which is sort of considered A truism in marketplaces, but life's never that simple, is that supply trumps demand. So most of the marketplaces that have been built found a bunch of suppliers first and then went to go find a bunch of customers. In part because suppliers or sellers have a little bit more patience and a little bit more incentive to get engaged with something that might have longer term returns. Whereas your buyer hits a website and if they don't get what they want, they leave and they never come back. Whereas if you get a seller and you say, well, look, you have business in three months because we have these big dreams, they might be a little bit more patient about it. However, I think that's maybe a framework that is a little simplistic because it assumes the linear path of building a marketplace immediately from scratch. But you could argue that TikTok Shop and Instagram and all these folks are effectively marketplaces, or they are. And it's very clear that what they built first is eyeballs and then converted eyeballs into, uh, demand and then attracted supply. Or if you look at Google or Facebook, if you look at their ad marketplaces, they created a service. They created what they created, um, before they got any kind of a supply. In a way, it's not that simplistic. But if you're really just going from scratch and you're going directly into building a traditional, it's called physical goods or something like this marketplace, it's typically get yourself a good way to get sufficient supply to be able to get demand that you can tell a story to. Let's call it the people who aren't the, uh, early adopters of supply.

Speaker A: It's terrific. When you got to turbo, to what extent was the business mature on the supply side versus the demand side? And from there, I'm curious, what became the biggest surprises to you over the course of that two and a half years?

Speaker B: Yeah. So the business, since I was a rank and file employee, I was there relatively early, but at the end of the day, rank and file employee, there was a business there, I think Tava at the time had just raised Series A and the customer was the logistics broker at first. Somebody who already had supply and demand within their ecosystem. Right. They already have shippers, already have sellers. So there was some form of, uh, Rolodex. Right. They had contacts and already operated. Brokers are your last generation marketplace. Right. Their marketplace 0.5. And the problem then was, well, the difference often between a marketplace and let's say a broker or marketplace and let's say even a drop Shipper and online shopping is that who does the work, right. Who's engaged? And so the problem, for example at Turbo at the time is how do you get both the shipper and the carrier to be using the system? And for example, you know, shipper saying hey here I'm just going to give you a bunch of supply and can you please find somebody to go and move it? Right. A bunch of things that need moved. And then how do you get a carrier to go in there and say, hey, I have these trucks at these locations at this point in time and they will be available to move things. And then how do you get them to care enough to go and you know, have a meaningful transaction discussion and transaction around what they would move something for? Right. And then there's an operational aspect of then how do you match that? But really what, what didn't exist yet was enough product incentives tools to get people to interact more without a human in the middle making phone calls, which is the know, their default.

Speaker A: So there's effectively a real world marketplace that's occurring, but there is not a digital marketplace to facilitate the transactions. And that's where you guys came in. And the real operational challenge was how do you build enough digital tooling to get the analog to come online.

Speaker B: Yeah. And to slowly, you know, let's not replace the broker there. You know, now that the business has exited and they're unsuccessful, I can probably say this, right? Of course, the long term plan was can you replace a broker heavily? Right. You know, they just become salespeople. But the near term is, you know, how do you just make them a lot more efficient? Right. And all they have to do is facilitate the match, not be a glorified switchboard communicating information back.

Speaker A: So you then spent a year at Activant before founding Nautical. Correct. Were you spending that year at Activant just to think about what you might want to start or were you considering going back into investing?

Speaker B: Yeah, I was seriously considering going back into investing. It's got a huge amount of charm to it investing. I don't want to denigrate investing at all. Right. I think somebody called it for profit academia, uh, you get to learn things because you come with a wallet. There are people who are doing the most cutting edge work in the world who have PhDs who know everything about a space, who have to dumb down their incredibly complicated sophisticated knowledge to the simplicity of a financial analyst. And they have to do it politely and listen to, you know, listen to your, let's call it pedestrian questions and you know, you're going around the world and everyone's explaining like I'm five because they want access to the capital that sits behind you. It's incredibly interesting. Right? There's nothing, you know, I don't want to say it's not interesting, but it's really. On my second stint where I, I went, you know, I was a little bit older, I was a little bit more mature in terms of, you know what I like, what I don't like. I was having to a little bit more responsibility of saying, hey, this is actually a career now, not just to start a job. That I clicked that. No, uh, maybe this is not my thing.

Speaker A: Makes complete sense. And so tell us how you come to nautical and what drives the insight and a little bit of the founding story.

Speaker B: Yeah. So I guess the spiel I can expand on, which is we really wanted to invest in marketplaces at the time. We spoke to a huge amount. I particularly wanted to invest in them and crazy concepts. I mean one of the big topics at the time was, uh, the whole seafood industry is incredibly inefficient. Can you automate something like this? But we looked at everything, steel and chemicals and furniture and you name it. There was a little bit of a case of we had missed a few. Right. There are some incredible stories, StockX and Etsy, that as a commerce focused VC, you can't help but think, hey, these are things that we should have been experts in. We had one marketplace investment at the time doing super well today, I think a super cool company called, uh, Tridge. But the reality is most of the time we couldn't really justify it because the math doesn't really work.

Speaker A: Right.

Speaker B: You're trying to figure out how to squeeze a tech company into retail margins for better or for worse. So what I always say is if you started to build Allbirds today or Casper or something, then you went to an investor, you said, hey, so I'm going to build Allbirds, I'm going to make some shoes. I'm also going to rebuild Shopify from scratch. Yeah, exactly. You'd be laughed at. I mean, ridiculous concept, right? And they would say no, no, no, prioritize, Right. You know, you're a shoe expert. What the hell are you doing dealing with software? And that's effectively the conclusion I got to after a while. And my co founder, um, at the time was seeing the same thing at the enterprise level, which is people who were trying to build these marketplace concepts for their business. And there it's kind of a different story. Right. You have a VP of Digital strategy. Who feels the need to make a marketplace happen for their business, for the next generation. But you know, they go and they make a three year plan and two and a half years in, the VP gets a promotion and everybody forgets about it or the board loses patience and you know, it gets shelved into, into dead projects. It's just too hard. Is really the, you know, the tldr and it's an ideal place to build a platform because it actually is in many ways a commodity. Uh, it's very different to first person commerce. Lots of overlaps, but in many ways also very different from first person commerce. But what most businesses do is kind of the same thing. And where software is fantastic is if there's something that people have to redo over and over and over again, like potentially entitlements and pricing. Right, and creating plans and a B testing and financial planning around all of this, but that companies are building themselves and wasting money on, um, and having to build expertise on when really it should be commodity.

Speaker A: And so if I'm hearing you correctly, you are seeing the opportunity emerge through the lens of the startup entrepreneur who wanted to build a marketplace and would have to spend a lot of capital to actually build the marketplace itself. And your co founder was seeing it from another angle, which was enterprises who wanted to go pursue their own marketplaces and were struggling with effectively the same problem.

Speaker B: Exactly. That's right.

Speaker A: So how, yeah, how do you guys come together to found the company? How do you guys decide to take the lead?

Speaker B: Uh, we had worked together at Turvo. You know, I think, I don't really remember if there was ever a real trigger, to be honest. It was the fact that we sort of, you know, we're chatting about it and sort of scratching away at it and uh, uh, uh, you know, it was clearly uh, a problem that needed solving. And then Covid hit, or was starting to hit. We founded this thing, I think officially April 1, 2020, mid Covid or mid the worst of COVID And it all just seemed like very good timing to take what we'd learned and the research we'd done and everything else to make the leap.

Speaker A: And I may be extrapolating here, but is it fair to say that if you guys build what you hope to build, nobody has to go build effectively the marketplace tooling to build a marketplace, they can just use you.

Speaker B: Exactly. Which also means there's a huge amount more marketplaces that become both financially viable because they don't need crazy margins to go and cover software overhead and hopefully, uh, Also creates a whole, a lot more diversity in this space. I'm absolutely a customer. I think it's a great service, but I don't necessarily want to live in an Amazon house, an Amazon car, buying everything from Amazon with Amazon movies. It would be nice if there was a little bit of biodiversity in the marketplace world.

Speaker A: So you are arming the marketplace rebels. If Shopify is arming the direct to consumer rebels, you're arming the marketplace rebels.

Speaker B: That's exactly right, yeah.

Speaker A: Um, it's a fascinating vision. One thing that I have felt is true of my own journey building companies is that the path to product market fit is a spectrum. And as you start you can feel these moments of signal, you can feel these troughs of disillusionment. Can you talk a little bit about the moment or where you are in rationally believing in Nautical's ability to execute against its vision, not irrationally believing in it, but really rationally believing it?

Speaker B: Yeah, it's a good question. Product market fit is this, I mean I guess this is the audience here, our founders. It's this problem that is so theoretical spoken about so much and everybody who's been in startups started companies will immediately get a thousand yard stare with the question because it never goes away. All you think about, it doesn't really mean anything, but it means everything. Where are we? I think first of all the problem never goes away. You even look at, you have some companies that are huge scale look at great example. Everyone's been talking about this new Jaguar uh, advertising campaign, uh, copy nothing. This is a car company that's been around for 100 years and makes cars and has thousands of employees and are currently fishing around for product market fit. Right. You have it, then you don't and then you get it and then you don't again. But for us I think it's what's become really clear is that both quantitatively and qualitatively we solve a, ah, really, really painful problem for people who are building marketplaces and a problem that could cost them tens of millions plus often does. Or it costs them, you know, you can always calculate how much it costs them in terms of equity and can cost them up to half their company raising that money. And uh, uh, you know, I think we solve it really comprehensively in the right way. What we have, you know, we have a long way I think to go given that we are a full platform, we sell ourselves a pure platform because we think that's what's necessary in the market, um, to be able to be really A, you know, a comprehensive solution in every single way. And I think that's where um, the challenge comes for somebody like us is, is commerce is really reasonably mature. There are great marketplaces out there. We have to be able to empower our customer to be at the forefront. Ah, and we have to do that with a startup budget and we ah, have to be really, really careful about where we focus our resources, where we invest what we don't do and make some hard choices for what we don't do. Uh, which obviously will always um, you know, have some people just won't be a fit as a result to make sure that you know, we're always focusing on what is the next biggest incremental problem and don't overextend ourselves. And ah, that's very tied together with product market fit because it's, you know, you have to keep evolving your customer and your market as you're able to build customers for it. And one of the things that we, mistakes that we made in the past, which has been a big goal of mine to rectify, is to spend time and effort on markets and on customers that would argue we need to service from a grand uh, vision, product market fit perspective, but don't from a narrow perspective. And that is a really evolving timeline and that you have to plan this product and your customer and your story and your pricing for example, sequentially.

Speaker A: Yeah, I think it's a terrific description of the trade offs and the stepping stones. Um, one thing that drew my attention as I was listening to that and also thinking about how you've described marketplaces. Do you think it's fair to describe marketplaces as effectively infrastructure for commerce?

Speaker B: Yes, it's one of the things I sort of say, tongue in cheek, is that marketplaces don't sell anything. They've been around for thousands of years and they started off by being a squarish plot of land in the middle of a town which people could put their carts up in. Now it's a, ah, really, really sophisticated square plot of land that people can put their carts up in and assume when the Romans made their first forum you had everyone sell anything and then at some point a Roman legionary would come in and say, you can't sell that. Or if you sell that and you cheat people, you can't put your card here. And online marketplaces are a really sophisticated version of effectively that. So um, it's a piece of real estate, online real estate, where people can

Speaker A: come to transaction and therefore to build really excellent infrastructure that comprehensively solves the problem for both the startup entrepreneur and the enterprise, you have to build quite a lot of product and you have to make the bets sequentially around who will serve now versus who will serve tomorrow.

Speaker B: Yeah. For example, enterprise is not in that list. Yeah, yeah, it was for a while and I've cut it from the list. And we're totally focused on the Entrepreneurs or the SMBs today.

Speaker A: Some of the hardest decision making to make. But um, thank you for telling that story. I also liked what you said about just the diversity in the marketplace landscape. And I used to be in E commerce software and so Shopify was always so close to us. Uh, they were our closest integration and I always thought that what Toby said that was quite inspiring was this idea that entrepreneurship is sort of the most direct form of self expression there is. And so I love the idea that marketplaces have an opportunity to be more self expressive when the tooling is there and when the infrastructure is there.

Speaker B: Yeah, for sure. If you look at how the majority of. Not to get into a political topic here but if you look at how the majority of it's called comfortable wealth is built in something like the United States was a great predictor of a healthy economy. It's the amount of small to medium businesses out uh, there. And the marketplaces enable them in two ways. Either you build a marketplace or you use marketplaces to help sell your goods which makes you more successful.

Speaker A: How many small marketplaces are there?

Speaker B: It's a good question. It's one of the least researched parts of online commerce. Right. In part because it is such a uh, it is such a uh, spectrum. Right. You have many companies that don't even think of themselves as marketplaces. That so for example Dropship or you have a lot of folks who like distributors or, or things like this that behave again very much like marketplaces. And you have the pure play marketplaces and you have many pure play marketplaces who don't think of themselves as marketplaces. They just think of themselves as asset light commerce stores. Uh, and uh, there are tens of thousands of these and actually the majority of online commerce is run through third party. It's called third party retail, first party stores. Of course Amazon is a monster in that but there are many, many others as well. Um uh, and of that third party set nearly everybody is on some sort of a spectrum of the marketplace question.

Speaker A: Yeah, it's fascinating. The path to product market fit and the path to building a really successful business has quite a bit to do with how you price your product. Can you talk a little Bit about the journey that Nautical has been on with pricing. I'd love to hear just the journey because it is a journey.

Speaker B: Yeah, for sure. So we've done close to everything. We've done a crazy pricing journey. We've done value shares and we've done flat fees and done gone back to value shares. We've done onboarding, you know, set up costs, set up, set up spend and then we've done you know, trying to roll setup into the flat fee. Uh, and uh, and we've sold in features or in uh, like enterprises where you sell this feature and that feature. We've sold as, as a whole kit and caboodle. I mean you name it, we've done it. And uh, and have learned a fair amount in that. And I um, think what I've really learned in that to be honest is aside from our story, right is that pricing is um, there's your pricing strategy is really, really stage dependent. Now I think customer dependent is probably self explanatory, right? I mean if you're an enterprise, you want to buy in bits and you want to buy with an SI and it's all a giant proposal and it's all custom pricing. You know, if you're working with SMBs, it's more sort of public fixed rate, um, and things like this or you know, variable depending on if you're more digital tool. But you know, speaking at least as a venture backed founder, right, because this is different to bootstrap founders who have to be efficient from day one as a venture backed founder I think we over, we over rotated on, let's call it uh, what's the right term on financial efficiency. We're effectively trying to squeeze the maximum value out of our customer in the early stages. And I've learned from other serial founders now and successful folks that that's the wrong approach at the beginning because you have venture funding, you don't have to immediately be profitable. And so what you're really trying to answer is the question of is there a huge business down the road and what you're trying to do from the early customers, you're trying to learn from them, trying to tell a story around to your point product market fit and what you solve a real problem. And so you need to, let's call it leave value on the table for their goodwill, for their patience, for their, for their engagement with you on making the product better. You know, you're really learning you're buying venture customers and uh, you know, only you sort of have that first stage and once you can really tell the story of hey, I have Progmar fit. Then you have the stage of, you know, can you actually price in a way that shows you have viable unit economics in the long run that this is a real business, right. It's not gross margin, negative or anything. And then only once you, and that's for a very long time, only once you're really mature, then do you actually have to think about squeezing your customer for every dollar. And there's a huge amount in the pricing work that helps you understand the value you generate for your customer and helps you build data for what you need to build as a company that needs to be focused on early on and, and you know, you still have to go and do the tests, but your tests are answering a different question is not answering how much can I squeeze out of my customer? Right. It's more a question what will they pay for? What won't they pay for? What else is in there? What else are they spending money on? What are you trading off? You know, how much are there, you know, how much do we create an externality costs these kinds of things to be able to get, ah, a really good understanding of the, the, of the value that you generate.

Speaker A: I think that's an incredibly important lesson. Tactically. Has that required that you go back and approach some of these early adopting customers and revisit adoption based pricing? Or has has it tactically meant something different?

Speaker B: Tactically, I think it's two things. The first is that I've done some, you know, some people would consider, for example, crazy, which is actually taken some early customers and said, you know what, this is not, you know, you're paying too much.

Speaker A: Right.

Speaker B: I don't think you should be paying this and moving them to lower prices as I discover, you know, that actually I'm getting a lot from them by them spending time with me and things like this. Um, the second is that uh, for at least for our customer, I think it's become pretty clear that um, we need to be able to offer what we offer at a price at least to get your feet wet that's low enough to allow people to have the time and the budget. And then it's called the freedom of stress. To be able to get into commerce and get into building a business and start on the path that is, uh, the price that's low enough to let them do that. You know, things that we've learned, you know, from other commerce platforms. Very much so, right. Which is that you got to give somebody a starter plan because it might take them a few months to get on their feet and learn how to run a business and things like this. And you can't charge them their entire budget even if you think that's the value you generate from day one. Because um, because uh, ah, you know they may not even be making any money.

Speaker A: Yeah, you need them to be successful in order for your infrastructure to matter. And so you've got to give them a path to succeeding before you start to realize the value you're providing.

Speaker B: Exactly. And of course there's something you need to charge always because you can't charge nothing. I think this is an important conclusion is if you charge nothing, people treat you as providing nothing in value. You also, especially early on have to charge something because you do invest some time into making people successful and that just can't be zero. Um, otherwise I'd love value only contracts, which is something that we did in the past at something like Turbo. Uh, you really have to bet on the fact that it's a bit like venture. You have to bet on the fact that you know it's growing with them that that really makes you successful, whatever the first three months of contract fees.

Speaker A: So to that point of value, how would you describe where you see Nautical's value metric evolving toward, you know, do you price Nautical based on seats or based on some type of sell through or uh, talk us a little bit through kind how the price metric has evolved today and also from there how you anticipate the packaging will evolve.

Speaker B: Yeah, so today packaging is, you'll see it very much. You'll be familiar from the commerce industry. Right. Which is a flat fee and a percentage uh, of transaction. And as you get higher in the tiers you pay a larger flat fee but a smaller percentage of transaction over time. And not so dissimilar to let's say the, the typical commerce platform. I think that model continues right until you know, forever in some format. But one of the things that is high on my list is to, and again I think the pricing here is relatively simple in a way is to, let's call it uh, be inspired by the commerce industry and what other folks have done, which is to try to align the value share aspect more and more with incremental service. Right. So you know, if you look at the bigcommerce platforms, they help you get ads, they help you get shipping, they help you get payment processing, they help you by providing incremental services, they help you with apps and these kinds of things. And instead of uh, having a uh, let's call it an indirect value share. It's not directly associated with the particular service that you're actually offering by just charging it, let's say a straight percentage of gmv, saying, you know what? I'll, you know, I'll, I'll. Let's call it, uh, take a profit share in giving you access to all kinds of incremental tools that will make you more successful, but it'll be directly tied to those tools.

Speaker A: Why do you think that trend has emerged? And I'll play it back. As I understand it, it's. Marketplaces in general have said to themselves, it's better if we over time reduce the percentage of GMV that we're taking and instead expand an account by offering additional services. Why has that been the emergent trend? Because it would feel obvious to me that it's easier to just charge more from a GMV perspective, especially if you're locked in. Is it a competitive reality where marketplaces have had to do that to be competitive with other marketplaces, or is it something else that's driving that?

Speaker B: Yeah. Want to split a little bit. Us as a commerce platform from marketplaces themselves, we as a commerce platform, think about pricing from that perspective as there is some competitive aspect, right? So, you know, if, if on the sticker one says we only charge $200 and we charge 0% of GMV, but it's rolled into payment processing or whatever else it is, and you're competing against somebody who then has 1% and it's visible, then, um, there's a competitive aspect there, right? Also, there's an aspect of also telling a story which is you gotta tell, uh, why you're taking that, what are you offering? I mean, just because we have costs doesn't mean that the customer wants to pay them, right? That's not how it works. And these platforms are so big nowadays and you have to cover so much that you have to find ways to fund programs like having, you know, sophisticated app stores, right? It's really expensive to run with respect to marketplaces, I think, you know, the main trends there is in, you know, there's, there's, there's one aspect which is just a straight price war, which is a, you know, you've got, you've got customers who will shop around from marketplace to marketplace and get the lowest price. Uh, but you also have sellers that will shop around and say, hey, where can they make the most profit? And, and, uh, that's led to two things. One, a little bit of a price war in terms of how much they take, right? And How. And then also finding alternative ways to be able to get, um, uh, effectively take a larger margin of the, or large share of the pie. Right. And Amazon's the king at this because they take a little bit from shipping, they take a little bit from ads, they take, you know, they take a little bit on the prime subscription, uh, and uh, uh, you know, try to find ways that they don't have to take as much on a per transaction basis because they take so much in other value added goods, thereby bringing the price down for the customer.

Speaker A: Makes a lot of sense. I want to explore two operational questions. And the first is you have clearly learned a lot about pricing and packaging through the journey that the business has been on. How has that evolved the way you operate pricing and packaging internally? And I'm curious about it through the lens of the strategic lens, like how we set price, how we set packaging. I'm curious about it through the technical lens too. How do we support this in the context of our billing systems and our product? And can you talk a little bit about how it works at Nautical from both perspectives?

Speaker B: Yeah, so it's a good question. The thing that I care most about when it comes to pricing, the stage of the business today is friction to buy. That's the lens that I use most often. And it's always going to be a little bit of a battle between finance and growth, uh, because you lose a lot of the clever tools by simplifying it for the customer. A great example is ChatGPT, since everybody's sort of the hot thing, right? Of course their financial and their cost structure is a function of usage, but for the average person, they can't sell it as a function of usage. So they have to do some math and say, okay, we're going to make a profit if we charge them $20. And it turns out they're not making a profit when they charge $200.

Speaker A: Yeah.

Speaker B: What they're doing is they're reducing friction to buy because you don't have to have complicated contracts. And you know, the Internet is riddled with stories about people who don't buy Salesforce because they're so confused by, you know, how much it's going to cost all in. Or, you know, who complain about AWS's crazy cost structure and they have no idea how much their cloud infrastructure is going to cost them. You can do that when you're the biggest game in town, but you can't when you're not the biggest game in town. You've got to make it simple, right? So the main thing that we really look at is testing appetite on the sticker price. And that is mainly achieved as a founder. The way to approach as you grow, it's very simple, right? You run experiments where you a b test it and you effectively test price elasticity or of demand or demand assistive price. Uh, and you run experiments where you say if we increase the price by 50 bucks, how many customers do we lose or how many fuel do we sign or things like this to try to go and optimize what you're and um, ah, how much you take. Early stage I think a lot of it comes down to actually having a conversation. So I'm a big believer in human beings, particularly founders experimenting by talking to people and saying, hey, what would you be willing to pay? Iva, I have an advisor who loves to say ask people what they're actually willing to pay. You know, what would this be worth to you? And building sort of a little bit of a profile for at the end of the day, what makes people comfortable enough to jump into the, to go and take the dive, take the risk with something that is an unknown, completely unknown tool, an unknown business.

Speaker A: I'm so glad you said that because my personal opinion, and this was hard one from my first company where I thought my most crucial mistake was my ignorance around willingness to pay and how to have those types of conversations. But at this point in my career I feel like willingness to pay and how to have a willingness to pay conversation with a prospect or a customer or a design partner, wherever you are on your journey, is one of the most powerful tools in a founder's kit for pursuing product market fit. I think the world of it as an exercise to be great at for sure.

Speaker B: Uh, and uh, at the end of the day, value means somebody puts money down. It's a totally different conversation when you offer something for free versus when you offer something for money. Because suddenly everyone who thinks it was a good idea thinks it was maybe less good once they have to pay for it.

Speaker A: I've had such a fun time with this conversation. I think that the vision for nautical is inspiring on the order of Shopify's in terms of what it can do for commerce broadly and for entrepreneurs broadly. One of the closing questions that I always like to ask on this podcast is, is there a moment in your career, like a real moment in time that you view as an inflection that really changed the course of things?

Speaker B: That's a great question. One I have to think about it, uh, for a moment. You know what it's actually not a moment in my career. It's something, it's a piece of advice a close friend of mine gave me when he was building at the time a marijuana company. And if he ever listens to this, you'll know who he is. Uh, and he said to me is write your life backwards. You know, think about what you once said at your funeral, think about what your eulogy would be and then make sure that eulogy happens. If you want to be known as a great parent or great sibling or a great friend, make sure that you do the work to become that. And if you want to be known as somebody who's moved the world or touched a lot of lives or had a positive impact, if that's how you want to be remembered, go and do that. Don't worry about what people think about right now. Worry about what people will think about in 50 years when the aggregate of your life is summarized in a six paragraph eulogy. And I think that one gave me the confidence to go and do something that for this podcast maybe doesn't break the mold, but for most of life does.

Speaker A: I think it's an incredible piece of advice and thank you for sharing the story. Where can people learn more about what you're building at Nautical and reach out to you if they want to learn more?

Speaker B: Yeah, absolutely. You can find me on LinkedIn and I'm fortunately the only one with my name so I should be fine. And otherwise you can find us on www.nauticalcommerce.com and it's really been fantastic to be on this podcast. This is this pricing entitlements problem is really forefront for us right now and I'm always happy to chat more with folks also if they want to know a little bit more tactical details. I know we couldn't cover everything here on some of the journeys and some of the hints I've dropped on what we've done in the past, uh, uh, this is a topic I'm always willing to pay forward on.

Speaker A: Thank you Nicholas. So much fun.

Speaker B: Take care.