Creating a growth-driving community with dbt Labs’ Tristan Handy
Tristan Handy (00:01):
We do very little account development on our own. Because we're such a community-focused company, really 80 plus percent of our managed revenue comes in from our community where people just wave their hands and say like, "Hey, help me buy this thing."
Peep Laja (00:21):
I'm Peep Laja. I don't do fluff. I don't do filler. I don't do emojis. What I do is study winners in B2B SaaS because I want to know how much is strategy? How much is luck? How do they win? This week, Tristan Handy, Founder and CEO of dbt Labs, an open-source data transformation tool that allows data teams to quickly produce trusted datasets. Since being founded in 2016, dbt Labs led the charge in the analytics engineering category and is now valued at $4.2 billion with a thriving Slack community of over 25,000 members. In this episode, we discuss how dbt found so much success through community-led growth, and the pros and cons of an open-source business model. Let's get into it.
Tristan Handy (01:03):
So I had been a data analyst for 15 years, and there was a bunch of new technology that had come out recently. Amazon had released a data warehouse called Redshift, there was a bunch of new technologies built on Redshift. And I realized that this new set of technologies enabled data people at small companies to work with data in ways that they had never worked with it before.
Tristan Handy (01:34):
And so the initial story was not a product story. Dbt enters the picture at some point in time. But the real opening in the market that I saw was nobody at these small companies knew how to work with data this way. And because I came from the inside, I was at one of these companies, I saw this stuff come together. I said, "Huh, I bet that there's actually space for a new professional services company to go out and do this type of work."
Tristan Handy (02:05):
I launched a company called Fishtown Analytics. I'm not an entrepreneur by heart. I had never had these big ambitions to go start a world-changing company. I just wanted to do some work that I loved. And that was goal number one. Of all this new tooling that I was talking about before, there was a tool that did not yet exist in this, now what we call the modern data stack. The historical category is called data transformation. It was clear to me from experiences that I'd had way earlier in my career using enterprise products, or in the Oracle Suite that people needed this stuff and it didn't exist yet.
Tristan Handy (02:44):
So I worked on building an open source tool. My co-founder, Drew, actually wrote the first lines of code. But we needed this actually to do our consulting work. It was not that we had some grand ambitions for what this product could become. It was just that we needed it to deliver our service. And it is through exposure to our consulting clients that the initial community around dbt formed. So we would get into a new consulting client. Their data analysts would get exposed to dbt. They would say, "This is cool." And then they would eventually tell their peers. Dbt has always been a community first motion. And that is really how the transition from a professional services company to a software company happened. It was the community got big enough and they told us, "Hey, we need more support from you."
Peep Laja (03:38):
Starting as a consulting service first is not an unusual path. Lots of SaaS companies grow out of an agency. Consulting is the easiest business to start with basically zero costs to get going. Many start an agency thinking they'll use the profits later to build a SaaS business, but in reality, never get there because they're always fighting the whirlwind. Based on my personal experience, this is how you can do it successfully. Four ingredients.
Peep Laja (04:03):
Number one, go up market with your agency. My company didn't start out as expensive. It's difficult to do so without prior reputation. But constantly moved up market year over year, increasing pricing 10% at a time.
Peep Laja (04:16):
Two, build an audience. The hardest part of any business is getting customers. If you have a large email list, blog readership, et cetera, launching a new business is way easier because you have a buyer base to sell to. So I took audience building seriously from day one.
Peep Laja (04:33):
Three, when studying a new venture, put dedicated people in charge. You can't get new initiative going without it somebody's full-time job. Someone with authority, ideally one of the founders needs to lead this new initiative. Something is only a priority if it comes with appropriate resource allocation. The people working on the new initiative can't sit in two boats, they need to be 100% focused on the new thing. This is the key reason why most agencies never manage to build a SaaS business, because they have their people sitting in two boats at the same time.
Peep Laja (05:07):
Four, build systems and build up your people. If the founder starts working on the next business, the first business has to still keep going and growing. And so you need somebody to lead it. If the business solely relies on the founder, nothing's going to happen, and even the first business might die. So grow leaders from inside. Starting as an agency and adding a scalable business leader is possible. You just need to plan accordingly.
Peep Laja (05:32):
So at first, the community was just an informal community. How did it become into more a formal community?
Tristan Handy (05:40):
The initial dbt community formed in New York. Really, it came out of one particular consulting project that we did. It was with Casper. And this was back when Casper was this rocket ship company. They had maybe a dozen data analysts or something like that. And we did this project. These dozen data analysts got exposed to dbt, and they were very plugged into the overall New York tech ecosystem. And so very quickly, other New York tech companies had heard about dbt. And then Casper hosted a dbt meet-up at its office. And all the while we had this Slack channel that had existed since the very beginning. And as people hear about dbt, people say, "Yeah, you should join the Slack community." And so people show up and we all help each other out, not just in using dbt, but in figuring out how to do analytics in this new way that many of us were trying to figure out at the time. It's a combination of this in-person interactions where the word of mouth spreads, and then all of it comes back to this Slack channel for these ongoing relationships.
Peep Laja (06:53):
What was the moment where you completely dropped the services aspect and said, "Hey, we're now a product company and this is working and we should bet our future on this?"
Tristan Handy (07:03):
We have never totally dropped the professional services part of what we do. Specifically, because I think that you can do as much product management as you want, but on some level, the experience of using the product yourself is the very best way to have product insights. The time where the core focus of our business shifted to being a product company is late 2019. At that point in time, the dbt community was about 1,000 companies. And over the course of that year, we had started to get inbound interest from Fortune 500 businesses. The community had gotten big enough that big companies had now started hearing about dbt and they liked what they saw, and they actually showed up and said, "Hey, I want to buy something from you, but you don't have anything to sell us."
Tristan Handy (07:59):
We had always imagined that we were going to be a very base camp business. We were bootstrapped. We had a very nascent commercial product, but it was all credit card swipes online. And we had never imagined that there was going to be a sales-assisted motion, where it's very focused on large enterprises. So that all changed over the course of 2019 as we saw this demand come. And we realized that that's just not something that we could service with revenue from our consulting business. We had to hire a real sales team, grow the engineering organization. So late 2019 is when we raised our seed round and then have raised a bunch of rounds of funding since then.
Peep Laja (08:40):
So today, what percentage of revenue is coming from those professional services? Or are you just tacking them on as a retention play?
Tristan Handy (08:49):
I think we're probably in the 20% range and it pretty steadily drops as a percentage of revenue over time. The most strategic part of the services revenue stream for us, and I think that this is incredibly important for anybody who operates in an enterprise business is that your professional services organization is often one of the most strategic levers you have at making sure that your customers are successful. Especially with dbt, it's a very blank canvas. You show up and you can just start writing code however you want. And it is often via interactions with our professional services team, where our customers realize, "Oh gosh, there's a much better way to do this. Let me migrate to this new coding style," whatever it is. So, not to be underestimated.
Peep Laja (09:36):
So when you decided to become a more product-focused company in 2019, when you raised the seed round, did you target enterprise-level companies? Or what was your ICP like?
Tristan Handy (09:47):
ICP is challenging for us because dbt is such a horizontal tool. It's like saying, what's the ideal customer profile for Microsoft Excel? It's like, well, I don't know. Humans that want to know things. We maintain two different motions, really three. We have an opensource motion. You download the opensource piece of software. You install it locally and you go off and use it by yourself with support from the community. There is a credit card self-service motion. You do all of this stuff that I just said, plus you use our cloud service and you swipe a credit card to pay for it. And then there's a sales-assisted motion, where typically that's going to be companies that are much larger. Now we do very little account development on our own. Because we're such a community-focused company, really 80 plus percent of our managed revenue comes in from our community where people just wave their hands and say, "Hey, help me buy this thing."
Peep Laja (10:44):
So today your Slack group is something like 25,000 people, right?
Tristan Handy (10:49):
Correct.
Peep Laja (10:50):
And 80% of the sales leads come from that community?
Tristan Handy (10:54):
Correct. There's not such a direct line there. It's not like we're using Slack as a demand gen channel. It's just that our community is where our organic growth comes from. If you look at our product usage for dbt Core, our open source product, you'll see that there's this incredibly consistent growth. Going back five and a half years now, it's 10% month over month, every single month. The heat that powers that organic growth is all generated in the community, but then those people go off and tell others. And so the flywheel is all centered around the community. Now people just show up, they sign up for our product, they contact sales. That is what I talk about when I say community-generated leads.
Peep Laja (11:42):
Your community can be a huge asset. The reality is that most communities never take off and become ghost towns instead. There's no single right way to go about it. But most seem to have these two things in common. Number one, there's a shared common identity. Who are we? And two, there's a shared common goal. What are we working towards? As an example, there's a thriving community called Product Marketing Alliance. Everybody in it is a product marketer, and they're all trying to achieve career success as a product marketer. There's a community for the SaaS tool ClickFunnels. They have self-identified as funnel hackers with the joint dream that they share. In their world view, I'm just one funnel away from... It might sound scammy, and it probably is, but it works for that community. Trying to be all things to all people doesn't work. Have a shared identity and a shared end goal and your community will be much stronger for it. Of course, there's no one way to do things. Here's Guillaume Moubeche, CEO and Co-Founder of lemlist, describing how their community formed organically as an answer to an understaffed support team.
Guillaume Moubeche (12:51):
To be honest, I think it started not because I was like, "Okay, let's build a community. It's going to be awesome." It's just because it was just Vianney, and François, and me doing support. And I kept receiving all these messages that were just the same. And then I was like, "Okay, fuck. I'm just going to create a Facebook group where I will answer most questions." And then I started realizing that people didn't really know, like needed more than just answers to their question, but they needed tips. They needed advice.
Guillaume Moubeche (13:18):
So I started writing content, then posting it in the community. I was the only one posting at first. And then people started to find value and step by step people started answering each other questions. And then after that it started to grow. And very quickly we became the biggest group ever around the sales automation. And it just was, to be honest, not something that I started thinking like, okay, it's going to be our competitive advantage. Let's go for it. It's just because I was lazy.
Peep Laja (13:49):
So community clearly is a very important part of the business. So I would also then guess that you approach it quite strategically today.
Tristan Handy (13:58):
I think that's fair. Although when you run marketing programs, it feels like you have at least some level of control over them. When you A/B test, you start to feel like, I've got real agency here. When it comes to community, the conversations that we have, they feel to me as a very quantitative person to be like very squishy. We talk about vibes a lot because a community really is just a collection of humans. And a lot of what we do there is simply focused on making sure that people have a great experience with the product and that they form this cohesive social ties with each other.
Peep Laja (14:37):
There are a lot of companies in this space. It's really heating up. In addition to the community, what have you done to succeed where some other companies did not?
Tristan Handy (14:49):
Our stance relative to competition is maybe a slightly unusual one. There's certainly a lot of companies in our space. So if you look at our space as being data today, there's a tremendous number of companies. But if you look at the view from a practitioner, there's really a very small number of companies that do specifically what we do, which is data transformation in the modern data stack. The size of our community, our user base, there's far more people using dbt in this space than all the other alternatives put together.
Tristan Handy (15:26):
And so why is that? That's not typical for a fast-moving space. And I think it is because of the fact that we got there early on, we also were opensource since the very beginning. And opensource is very challenging to compete with because it's free. And because there's this dynamic of the community ends up not only being a source of growth, but a source of product improvement. Every time we release a new version of dbt, there are a dozen plus members of the community who literally contributed code to that release.
Tristan Handy (16:10):
This flywheel continues to accelerate. And as the product gets better, as the community gets bigger, there's this ever-increasing moat. And you can see this in other leading opensource solutions. It tends to be, once an opensource tool wins a category, it just continues to be very dominant there, which is nice for the ecosystem because it allows subsequent innovators in the space to build on top of that stable foundation.
Peep Laja (16:40):
Yeah. So would you say that opensource and free service is kind of a moat, stuff that other companies charge money for you deal out for free?
Tristan Handy (16:51):
Yeah, it's such a different business model. So if your business model is, I write code, and then I charge people for that code, that is the model that typically SaaS companies take. Our model is, our core IP is yours. You just have it, you can use it. You can literally use it to compete directly with us. What we are selling you is a set of cloud services that makes it easier to use, easier to productionize. And I think that that is a model that is becoming increasingly common in software that is sold to software engineers. But we're maybe just a little bit unusual in that we are taking this open source model and broadening it. We're selling it to data people as well.
Peep Laja (17:36):
Open source models like dbts offer several significant advantages, like the buildup of latent demand, but there are some other major considerations to be had as well. Here's Mike Olson, Founder of Cloudera on the different ways you can think about monetizing an open source model and why, as we'll here, it seems like dbt has got the model right.
Mike Olson (17:56):
Open source innovates faster, spreads faster, does great work faster than any single company can, but we have to have reasons for companies to buy our product uniquely. How do you get paid, right? A bunch of different things have been tried. One is, take an open source project that's not very good and make it your own secret internal project and make it better, but don't share any of your enhancements. The problem with that is you surrender the contributions of a global community, right? Other models that have been tried include, well, the last version is freely available in open source, but the current version isn't. So, version lagging. But just be a services company, right? Yeah, the software's free, but if you want support, if you want consulting, you're going to pay me money.
Mike Olson (18:45):
Last example, and then I'll talk about what we do at Cloudera. SleepyCat used a technique called dual licensing. So the idea here was we have a good piece of software, but it's only good if you combine it with software that you have. You got to give your IP away as well. If you don't like to do that, well, you can come and pay us money and we'll sell you a different license, right? Good business if you can get it, but your relationship with your customer begins based on a threat. And that's not a really healthy place to start out.
Mike Olson (19:12):
So here's what I believe and here's what we believe at Cloudera. We can, we do build proprietary software of our own that lets our customers get more value out of their data, out of their infrastructure, operate it better, manage it better, secure it better. We call that really the Cloudera Model. I think it's a sustainable way to build an open source business.
Peep Laja (19:33):
In 2021, you guys wrote on your blog that you 6Xed your revenue and 3Xed your customer count. What do you attribute this to?
Tristan Handy (19:45):
It's not that typical to see a software company go to 6X in a year. I think that there's a tremendous amount of latent demand in our open source ecosystem. So if you go and talk to VCs about how do they value businesses, if you're talking about a straight up SaaS business, they value that in a certain way. And there is now an emerging viewpoint in the VC ecosystem for how do you value an open source company? Because open source companies tend to, they don't actually show revenue for much further into their trajectory because first you have to build the open source product, which by its very nature is free. So you go through that period for two, three, four years, and only then do you then start to commercialize.
Tristan Handy (20:33):
But once you've commercialized, there's this deep group of humans who is like ready and banging on your door to buy something from you. You can observe the same trend in many of the great open source companies that have IPOed over the past several years. It's really just that our revenue numbers looked like a SaaS company that has been active for two years, but really we're an open source company that's been active for almost six years now.
Peep Laja (20:59):
On your website, the quite central message there is that you're pioneering the practice of analytics engineering. Is that like your narrative to go to market with, is that something external that happened and you jumped on? Tell me about that analytics engineering.
Tristan Handy (21:18):
I think that one of the things that needs to be true for a community-driven company is that you have to actually advance the conversation in your field in some way. I was a marketer in the early 2010s. And I really thought about how HubSpot created this category of inbound marketing. They were so closely identified with this new way of doing marketing.
Tristan Handy (21:40):
But in our case, it was very much that we were a professional services company first. We were specifically focused on finding the new way to use this set of technologies that had arisen in the market. And we didn't know what to call that, but we had this, at the time, small community of humans that were all kind of figuring it out together. And I honestly don't remember who started using that term. I know that it was in the dbt community that the term analytics engineering first started getting used. And it has become a really important flag to plant in the ground because this community is actually doing our jobs differently than people have done their jobs in the past. And so it's important to have something to call that. And you now see it showing up on job descriptions on LinkedIn profiles, all over the place.
Peep Laja (22:31):
So you raised your very first round in 2019, and since then multiple rounds, which means that your fundamental growth motion is in place and is solid. How did you land on it? Is that all community related? What else is going on there?
Tristan Handy (22:50):
It's all community related with a little bit of a layer of, I guess content has been really central for us. It's one of the nice things about being a practitioner is that it's very easy to observe your market, observe best practices and help surface them to this group of humans. So our blog has always been, it has helped us continue to build that brand with this group of people. And then really most of the traffic that comes to our site and goes through the center flow is branded traffic.
Peep Laja (23:24):
So blog is big, but you also do meet-ups and conferences.
Tristan Handy (23:30):
We started conferences in 2020. We were supposed to do that in person and we transitioned that to an online conference. The meet-ups have been a part of our story for a long time. We haven't done a perfect job of scaling them, but they really are an ingredient in our community motion. If you think about community as an NPS thing, the people who are sevens and eights on the zero through 10 NPS survey scale, they're great. They're using your thing and they're going to continue using your thing. But we rely on our community as being our source of growth.
Tristan Handy (24:03):
And so you really need people at like nine and 10 who are out there gushing about your product. And oftentimes it is these meet-ups, these like in-person experiences where people have these moments where they get converted from like, "Yeah, I like your thing," to, "holy crap, this has changed my life." And so that is really what we're focused on in those events. It's not like, how can we get a bunch of new people to come together? It's how do we take our core community members and activate them and make them really have transformational moments.
Peep Laja (24:34):
I've been organizing conferences since 2009. COVID changed them forever. While before COVID traveling to events for content made some sense, today, that's completely pointless. You can get any content from YouTube or other places. Most speakers deliver the same talk many times at different events. Meet-ups and conference are not about PowerPoints. They're about people. If there's one thing I've learned in this life it's that ROI on relationships is infinity. The real value of events is the people who are there. Conferences are kind of self-selecting systems. Only people interested in getting better, plus ready to pay for it, attend. This is the kind of people you want to get to know.
Peep Laja (25:14):
Absorbing content is not the point of these experiences. Round table discussions, matchmaking, one-on-ones, white boarding sessions, and all other forms like that, where real people are figuring things out together, that's what it's about. Traditional conferences are outdated and need to be reimagined, to focus on creating the kinds of experiences that allow people to have the kind of transformational moments Tristan is talking about. Here is Drift CEO, David Cancel on a past episode of how to win, explaining why they decided that deconstructing the traditional conference model was well worth the risk.
David Cancel (25:49):
We're just going to do like non-obvious things at the time that we thought would help stand us out. Like create our own conference, which everyone has their own conference at this point. But we were audacious about it and we were like, "We're going to get like 2,000 people to show up for our first one. And then we're going to get 5,000. And then we're going to get 10,000 in our third year." And it's like, how are we going to do that? That's for a one-day event and we're not going to have any sponsors and we're not going to have the vendor booths and we're not going to have any of that stuff. And it's going to be reimagining over this whole thing. And by doing all of that, which was hard and expensive and a risk, that helped us stand out.
Peep Laja (26:27):
What are some key lessons that you would pass on to other B2B founders?
Tristan Handy (26:32):
I have an MBA. I really enjoy the academic discipline of strategy. I think that a lot of the strategic insights that I've gotten over the past years are ones that literally no one has ever taught me and they're very counterintuitive. I think that the biggest one is that it is actually possible to create trust at scale. And that if you start from a place of trust, then there are completely different ways that people can relate to one another.
Tristan Handy (27:06):
I've talked about this publicly before, but the most recent eNPS survey that we've done, engagement for our employees internally, the result was 90. 50 is phenomenal, but 90 is as high as you can actually get on the scale. So much of the way that we work together requires this high trust environment. And if you then turn it around and you look at our relationships with the community, they're all based on trust, like our values as a company are at the center of everything we do and we relate to our own community. To me, that is this big unexplored area of business strategy. Like, how can you actually work differently as a company if you turn up different organizational dynamics than have traditionally been able to do before? We're in this era where COVID has created a lot of opportunity to just decide that we're going to work differently together. It's this big reset moment. And so I think leaders have an opportunity to make some very proactive decisions that deviate from the ways of working in the past.
Peep Laja (28:16):
So what three key strategies keep dbt Labs winning? One, they built an open source software that serves as a foundation to their community.
Tristan Handy (28:25):
Every time we release a new version of dbt, there are a dozen plus members of the community who literally contributed code. This flywheel continues to accelerate. And as the product gets better, as the community gets bigger, there's this ever-increasing moat.
Peep Laja (28:44):
Two, they use meet-ups and events as opportunities to create super fun customers who will evangelize the product.
Tristan Handy (28:50):
You really need people at like nine and 10 who are out there gushing about your product. And oftentimes it is these meet-ups, these in-person experiences where people have these moments where they get converted from like, "Yeah, I like your thing," to, "holy crap, this has changed my life.
Peep Laja (29:06):
Three, they invested in being a community-focused company, and now it drives most of their pipeline.
Tristan Handy (29:12):
Because we're such a community-focused company, 80 plus percent of our managed revenue comes in from our community where people just wave their hands and say like, "Hey, help me buy this thing."
Peep Laja (29:25):
One last takeaway from Tristan.
Tristan Handy (29:27):
If you look at our product usage for dbt Core, our open source product, you'll see that there's this incredibly consistent growth. Going back five and a half years now, it's 10% month over month, every single month. The heat that powers that organic growth is all generated in the community, but then those people go off and tell others. And so the flywheel is all centered around the community.
Peep Laja (29:52):
That's how you win. I'm Peep Laja. For more tips on how to win, follow me on LinkedIn or Twitter. Thanks for listening.