Dax Dasilva: $900M ARR at $2.6BN Market Cap?! Lightspeed, The Most Undervalued Public Company |E1188

Intro (0s)

• The speaker discusses the early days of their company, working long hours to develop software and iterate quickly based on customer feedback.
• The speaker highlights the importance of thorough product development and building a strong foundation for a business, contrasting this with the shortcuts some companies take to achieve attractive metrics for venture capitalists.
• The speaker expresses their passion for vertical SaaS businesses and their excitement to discuss the topic with the guest.

Childhood Challenges That Shaped Dax (1m4s)

• The speaker's childhood was shaped by his mother's multiple sclerosis (MS) and his parents' immigration experience. His parents immigrated to Canada from Uganda after being expelled by a dictator. They were young when they arrived in Canada and had to build a new life.
• Despite the challenges, the speaker had a happy childhood, spending time in nature and engaging in low-cost activities like camping. This experience fostered his love for the environment.
• The speaker was a dreamer and an introvert, often spending time daydreaming and creating fantasies. He also developed an early interest in technology, learning UI design and programming on a Macintosh computer.
• By the age of 12, the speaker owned his own Mac and by 13, he was working for a Mac developer, building networking software. This experience solidified his interest in technology and entrepreneurship.
• The speaker started building software independently at the age of 14, demonstrating his entrepreneurial spirit from a young age.

The Inspiration Behind Starting Lightspeed (3m55s)

• The speaker's early experience in the Apple ecosystem, specifically working in Apple dealerships, provided the foundation for starting Lightspeed.
• The speaker observed that dealerships were building their own software, often using FileMaker, which was inefficient and poorly designed.
• This experience led the speaker to develop software for dealerships, which ultimately inspired the creation of Lightspeed, a platform designed to address the specific needs of complex inventory-centric retailers.

Lessons on Product-Market Fit with Lightspeed (5m36s)

• The speaker emphasizes the importance of product-market fit and how it was achieved through close collaboration with early customers.
• The speaker describes working directly with customers, observing their workflows, and iterating the software quickly based on their feedback.
• The speaker highlights the importance of understanding what customers need, not just what they want, and how this can be achieved through observation and understanding their operations.

Would Early Funding Have Changed Lightspeed's Path? (7m21s)

• The speaker discusses how Lightspeed did not raise any funding for the first seven years of its existence.
• The speaker believes that this period of bootstrapping was crucial to Lightspeed's success, as it forced the company to be close to its customers and focus on profitability.
• The speaker suggests that early funding could have led to a different path for Lightspeed, potentially resulting in a less successful outcome.
• The speaker emphasizes the importance of the first seven years in establishing a strong company identity and culture, which has been beneficial for Lightspeed's growth, public offering, and mergers and acquisitions.

What Dax Would Change with More Early Capital (9m9s)

• The speaker reflects on what they would have done differently with more capital early on. They believe they could have transitioned their product to the cloud earlier, potentially gaining a competitive advantage over companies like Square and Shopkeep.
• The speaker explains that they were initially focused on competing with legacy POS systems but realized the need to adapt to the emerging cloud-based solutions. This shift in strategy led them to seek funding.
• The speaker describes how they secured a $30 million investment from Excel Partners, who were impressed by Lightspeed's potential in the retail technology space. The investment came after a successful trade show presence and a quick due diligence process.

Do Modern SaaS Investors Overlook Potential Gems? (12m32s)

• The text discusses whether modern SaaS investors are overlooking potential gems due to their focus on rapid growth and attractive metrics.
• The speaker suggests that the pressure to meet VC demands for quick growth and strong metrics may lead to shortcuts in product development and fundamental business building.
• The speaker believes that a slower, more deliberate approach allows for more thorough testing and development, potentially leading to more exceptional products and businesses.

Lessons on Winning in Competitive Markets (13m33s)

• The speaker suggests that companies that are not capital-intensive should be banned from raising capital for the first five years of their existence. This would allow for a more direct comparison between companies with similar financial structures.
• The speaker emphasizes the importance of creating a unique value proposition that differentiates a company from its competitors. In the context of the discussion, the value proposition is not simply accepting payments but rather providing a complex operational solution that serves as a source of truth and competitive advantage for the client.
• The speaker highlights the importance of identifying a specific market segment where the company has a clear "right to win" and a strong product-market fit. This involves understanding the unique needs of the target market and developing a product that effectively addresses those needs.

Key Lessons for Global Expansion Beyond North America (14m34s)

• Product Marketing Lessons for Global Expansion: The speaker discusses the challenges of expanding a product's target customer base beyond its initial focus. They mention the risk of alienating existing customers when trying to attract new ones. The speaker also highlights the importance of focusing on specific areas of growth and avoiding over-expansion across regions and products.
• Reseller Strategy and its Evolution: The speaker shares their experience with a reseller strategy that was initially successful but eventually became less effective as the company grew. They explain how the shift to a direct sales model and the adoption of a high-velocity sales approach led to a decline in the reseller network. The speaker acknowledges that this might have been a mistake, as the company is now trying to rebuild its partner channel to address the complexity of serving more complex businesses.
• Direct Sales Model and Target Customer Profile: The speaker describes their direct sales model, which involves performance marketing, lead generation, qualification, and closing. They emphasize the importance of targeting the right customer profile, which for Lightspeed is businesses with an annual transaction value of $500,000 or more. The speaker explains that Lightspeed's product is best suited for businesses with complex operations and that they are not targeting smaller businesses that might be better served by other platforms like Clover, Square, or Shopify.
• Focus on Specific Locations and Verticals: The speaker discusses the company's transition from targeting a wide range of locations to focusing on specific locations that are a good fit for Lightspeed's product. They mention that they will be outlining their approach to location targeting at their upcoming Capital Markets Day. The speaker also provides an example of a specific vertical, golf, which is a good fit for Lightspeed's product due to its combination of retail and hospitality elements. They explain how Lightspeed acquired a company that integrated Lightspeed's retail and hospitality systems with golf management software, creating a comprehensive solution for golf courses.

Reducing Implementation & Hardware Costs to Improve Margins (22m11s)

• The discussion focuses on Lightspeed's efforts to improve margins by reducing implementation and hardware costs. The company prioritizes software subscription revenue and payment revenue over hardware sales.
• The speaker emphasizes the importance of the market understanding Lightspeed as a profitable growth story, despite being perceived as a "show me" story. This perception stems from the company's focus on growth in the past, leading to high operating expenses.
• The speaker's return as executive chair is attributed to the company entering a new phase of profitable growth. This transition requires structural changes and a focus on investor confidence.
• The speaker acknowledges the difficult decision to implement a reduction in force (RIF) and emphasizes the importance of respectful execution. The RIF was necessary to improve the company's financial position and focus on profitability.
• The speaker explains the decision to halt large mergers and acquisitions (M&A) due to the need to complete backend integration of previous acquisitions. This integration is expected to reduce costs and simplify the company's operations.
• The speaker believes that further large M&A would not benefit the business at this time, as the company has already consolidated its position in the hospitality and retail sectors.

Misaligned Capital Market Expectations vs. Business Needs (28m44s)

• There can be a disconnect between what the capital markets want to see in a company and what is actually beneficial for the business's long-term growth. For example, the market may prefer a company to focus on existing operations, while the company may benefit from expanding its product portfolio or international presence.
• In the context of mergers and acquisitions (M&A), shareholders have expressed concerns about Lightspeed's continued pursuit of acquisitions, suggesting that the company should focus on integrating existing acquisitions and generating profits.
• The company's growth through acquisitions has made it more complex to model, which can deter investors. This complexity arises from the increased number of locations and the diverse revenue streams resulting from acquisitions.
• The speaker emphasizes the importance of simplifying the business model to make it easier for investors to understand and model. This simplification will involve addressing the question of locations and aiming for clarity in the business's structure.
• The speaker believes that simplifying the business will make it more attractive to investors, as they are often hesitant to invest in complex companies.

Should SaaS Companies Go Public Earlier? (30m58s)

• The text discusses the advantages and disadvantages of going public early for SaaS companies.
• The speaker believes that going public is a graduation for a company, allowing for greater feedback from shareholders and a more independent way of operating.
• The speaker also believes that going public can be beneficial for a company's growth, as it allows for greater access to capital and a wider range of investors.
• The speaker acknowledges that there are risks associated with going public, but believes that the potential rewards outweigh the risks.
• The speaker also discusses the importance of fearlessness in leadership, and how it can be a valuable asset for a company's success.
• The speaker acknowledges that fearlessness can sometimes lead to mistakes, but believes that it is important to be willing to take risks and learn from failures.
• The speaker also discusses the importance of having a strong culture and how impatience can be a double-edged sword, potentially driving velocity but also harming company culture.

Leadership (35m0s)

• The speaker did not initially consider themselves a leader. They transitioned from being an independent software developer to a leader during a period of rapid growth for their company.
• The speaker's introverted nature and lack of natural leadership skills were challenged by the demands of leading a growing team.
• The speaker believes that many entrepreneurs struggle with leadership skills, despite their passion for solving problems. They suggest that VCs are often better communicators than founders, which they find concerning.

Quick-Fire Round (36m57s)

• The speaker believes that individuals can make a significant difference in the world, even in the face of large-scale challenges. They cite examples like Paul Watson of Sea Shepherd and Steve Jobs to support this belief.
• The speaker prefers to focus on action and results rather than personal branding and content creation.
• The speaker believes that writing a three-year business plan, even if it feels tedious, can be incredibly valuable for clarifying a company's direction, pricing, and core elements.
• The speaker has shifted their perspective on the balance of profit and growth, now seeing it as a positive constraint that can foster long-term value.
• The speaker is concerned about environmental trends and believes that local businesses can play a role in promoting sustainability. They also believe in the resilience of nature and the power of individuals to make a difference.
• The speaker is concerned about the disconnect between individuals and nature and spirituality in modern society, and believes that this disconnect contributes to a sense of meaninglessness and a focus on individualistic pursuits.
• The speaker believes that local businesses can be a force for good in the world, promoting sustainable choices and community-oriented values. They believe that rediscovering retail and hospitality can be a way to reduce waste and support local communities.