344: Andrew Davies — The Power of a Merchant of Record
Download MP3Hey. I'm Arvid, and you're listening to the Bootstrap founder. Over the last couple of months, I participated in an AI accelerator program with PodScan, my software business that relies pretty heavily on AI technology. I even got as far as demo day where I got to pitch my SaaS in front of quite the crowd. It was pretty nerve wracking as you might expect, but I learned so much about the business, the market and myself.
Arvid:That accelerator, the AI Launchpad was great and it was run by Paddle, the payment provider that I'm using in almost all of my businesses. And one of the people spearheading the program was Andrew Davies, Paddle's chief marketing officer. Today, I get to talk to Andrew about all things payment. Why a merchant of record is something way too few bootstrappers leverage and what the future holds for online payments. Here is Andrew.
Arvid:Andrew, thanks so much for chatting with me today. Let's dive right into it. I'm a Paddle customer, and I have been for years. Why do you think that is?
Andrew:Oh, wow. Feels like a question that I should be asking you rather than you asking me, but I can posit some suggestions. Before I was you know, before I became CMO at Paddle, I was a software entrepreneur. We we raised money. So unfortunately, didn't live the bootstrap dream.
Andrew:We sold our soul, but we ended up selling the business and, you know, giving money back to the all of the shareholders, including the VCs. We sold it in 2019. But one of the things I learned and I've seen replicate with lots of other bootstrap or VC backed entrepreneurs is we set up a business often to give us the freedom we want, and at some point, it becomes a prism. Now that's really difficult to see from the outset or if you're not yet started up. But the thing that you think is your pathway to freedom, whether it's family, whether it's life, whether it's financial independence, you end up doing a whole bunch of stuff that you don't really want to do.
Andrew:And, you know, I used to describe them as champagne problems. You know, when you win a client, you gotta work out how to invoice them. When you hire a a member of staff, you gotta work out a terms of service or a contract for employment. When you've gotta, you know, open an office, you gotta work out how on earth a leasehold arrangement works and how you do office fit out. And those champagne problems often aren't the first things that people who wanna build a business gravitate towards.
Andrew:And one of the things that I joined Paddle, and therefore, I'm I'm assuming is one of the reasons why you you use it, is that we wanna remove all of this stuff in the back office, this financial operations that really is big company stuff, how you internationalize, how you sell globally, how you deal with sales tax compliance and fraud and chargebacks. We wanna do that for you so that you can focus on the customer and on the product you're building. So I'd hope that's some of the reasons. There might be more, but, yeah, that'll be my first step.
Arvid:It definitely is. Like, the that's the fact that I didn't have to deal with many, many things, and we can get into the specific things that they are, that always attracted me to Palo. Like, I I started out not knowing anything about online payments when I when I started building my first businesses. Like, really, like, back when I was still living in Germany, that 2013, 2014, we a couple of friends and I, we started the business, and we had no idea how to even charge people online. Like, we just did not know.
Arvid:I don't think I I knew of Paddle. I didn't know of Stripe. I all I knew was PayPal maybe. Like, that that was the only online thing that I knew, but I didn't know how to integrate it because their documentation was so bad. Like, their their SDK that they had was so unusable that even though I tried, I was not good enough an engineer to actually build it into the software that I built.
Arvid:So we back in Germany, people still pay with cash. So we had, like, actually local customers that we would go to to grab their cash money to pay for for the services that we render. That's how bad it was back in the day. And I I remember, I I don't ever wanna have to deal with this again. I I I really don't wanna have to.
Arvid:And finding Paddle, finding the not only a a great interface to integrate, but finding a company that understands, like, okay. This is stuff you don't wanna deal with. And the big thing here is taxes in particular. That was that was one of the the key decision factors for me to actually go go there and and integrate it. And the thing is I did not for the longest time know what a merchant of record was.
Arvid:And I think that that not knowing this was a severe hindrance on my career trajectory as a founder because that made it so much easier. I wanna give you the opportunity to in but probably is a a much better way than I could ever explain it, introduce people to the the concept of merchant of record.
Andrew:Yeah. Of course. And, you know, that's that's part of the day job. Right? Because it's still a concept that is perhaps not understand by the wider market.
Andrew:Although, you know, seeing Stripe move into this space, certainly there's a bit wider awareness now than there perhaps was last year or the year before. If we again just take that step back, you're talking about a whole bunch of complexity you've got to deal with. And one of our fundamental principles as a business is is this concept of doing it for you, not just giving you tools to do better tax filing, not better to giving you tools to do better billings and subscriptions, but to actually take that responsibility. So when we talk about a merchant of record, what it is, it's the entity responsible for selling goods and services to the end customer on your behalf. So, effectively, it's this reseller model.
Andrew:And what it enables us to do on your behalf is to take all of those complicated, you know, liabilities, the compliance burdens of filing the right taxes in every region, on making sure that you're selling the right thing and and using the right tax code, on making sure that we're charging the right amount of money in each different currency and using the right payment method and dealing with fraud prevention in regions that might have high frauds or chargebacks. And so by being that small interim, that flash reseller between you and your customers, we're able to take all of that liability off you so you can focus. So that's what a merchant of record is. And, honestly, like, it's a concept that's been around for a long time. I thought the first merchant of records was selling software that was physical.
Andrew:Right? This was 1995, 1996, and it was kind of more of an ecommerce thing where you'd ship a physical piece of software to people, and that reseller model was full. And then in the early 2000, 2004, 2005, you had a few other merchant records launch as you had downloadable apps that people were were downloading, and it became a reseller model in that digital world. And Paddle was founded about 10 years ago, and one of our goals was to take this somewhat archaic model that had been used for 20 years or so and reinvent it for this digital first world. Because what's not going away is the complexity of international jurisdictions and tax and compliance.
Andrew:And what's not going away is the rising tide of people around the world who are able and economically empowered to buy your goods or services. And so both of those mean that we think this is a a a world that constantly becomes more complicated internationally, and therefore a merchant of record model simplifies it for the entrepreneur.
Arvid:Tax advisors must hate you guys for how easy you make it for people. I remember I remember back in, like, 2017 when when I was, like, building feedback panda, we had, like, 5,000 customers. Right? And all all of these customers would have an invoice. And before I started, like, actually I think the whole business was never on a merchant of record, basis.
Arvid:It was always, like, each individual invoice, and it was horrible. Like, we had 5,000 invoices a month that we would send to our tax adviser to deal with, and then they would charge us by the hour to go through all of these invoices and actually deal with it. And now that I'm a battle customer, it's like one reverse invoice a month that I have. So it's 12 invoices a year that my tax adviser gets, and they're kinda grumbling. Right?
Arvid:Like, why? This is barely any work. What's happening here? It's it's really, really funny to think how, it's just you facilitating all of this impacts the complexity that a that a founder has to do or does not have to deal with. I think that's that's really, really important.
Arvid:Another little anecdote here, you might find that either horrible or hilarious on either side. Like, I had to integrate as a German, like, building a German company, serving European customers, German customers, and rest of world customers. I had to have different tax brackets for each different reporting things. And even for Europe, every single European country has their own tax rate or multiple different tax rates. So I had to build a part of my software, which was a productivity software for online teachers.
Arvid:Nothing in there was about tax or the financials. Right? It's it's it's just super adjacent in terms of, like, for the operations, but it has had nothing to do with the core of the business. I had to build an an API scraper for the European Union tax percentage API that would regularly grab the new tax percentages and put them into the invoices themselves. It was such a horrible, stupid thing that I never thought I would have to do, but I just did not know that somebody like you would do it for me.
Arvid:It was it's just you know, like, the the educating your customers is a thing that you really have to do as a founder to to show them just how much you could do for them. Right?
Andrew:Completely. And and as I joined Paddle, you know, I'd known Paddle because my series a investor back in the day at IDEO, it was a series a investor at Paddle. So I knew a couple of the board members. I bumped up against Krishna Harrison, the founders, and I didn't really know what Paddle did. And so, you know, coming in, it was really interesting to try and understand and grok what this quite complicated suite of products or services did in order to make it really simple for the founder.
Andrew:And one of the ways that I conceptualize this and the team conceptualize this is really part of our job at Paddle is not really pushing Paddle. It's helping people understand that there's a 2 horse race. There's 2 methods you can choose. And there's one method, which is building all of this yourself. So that would include choosing different PSPs and choosing a subscription management provider and choosing fraud providers and tax computation by and, you know, tax accountants in different regions.
Andrew:And as you said, probably building a whole bunch of your own billing logic and scraping logic in order to make that work. And some people wanna do that. Right? And some people, that's a core part of what their business invests in in terms of a dev team, etcetera. Or you can do it where you use a company like Paddle and effectively outsource all of that complexity and liability.
Andrew:And so this 2 horse race, these two methods is something that I'm really keen on people understanding, not because in every situation, one's better than the other, but because most people don't even know there's 2 options.
Arvid:Yeah. Yeah. That's that's right. Exactly. You have a choice, but only if you know that the options exist.
Arvid:Right? That's yeah. For for sure. So when when you look at, your ideal customer, like, I've I've I've noticed that you've been doing a a lot of good work in the software entrepreneur community, in the the SaaS business community, obviously, because you have a a billing, a subscription system. Is is that your ideal customer for Paddle?
Arvid:Like, who do you serve the most? Who would you like to serve the most?
Andrew:So Paddle has got the most surface area of any business I've ever been part of because it's a big, complicated, you know, set of tools and services, and it serves companies all over the world. I can fly into almost any city or town in the world, and we'll find a Paddle customer there. And as you as you kind of point to here, we serve people from $0 revenue, people in their bedrooms building their very first bit of code, all the way up to some pretty substantial businesses. Now if we think about what unifies all of them, the ideal customer, it's people who are predominantly self serve. So it's not people who are doing big sales led, you know, campaigns, outbound processes to sell $100,000 a year software subscriptions that then they invoice for.
Andrew:It's people who are selling a portion of their business is self serve to an individual, whether a business person or a consumer. So self serve is a key piece. Secondly, it'll be people who sell into lots of geo geos. So they're internationalizing fast. And we strongly subscribe.
Andrew:I strongly subscribe to the belief that software is now born global. It doesn't matter where you're starting out. You are serving consumers or businesses around the world, and you are facing competition from around the world. It doesn't matter if you're based in Toronto or in a village outside Toronto. You're facing, competition from Hyderabad and Istanbul and London Because people, makers will be doing the same thing.
Andrew:So, you know, our ideal customer is self serve. They are serving an international audience, and, really, that's what unifies all of them and their software, they're predominantly software. Outside of that, we do have a whole pool of indie hackers and pre seed entrepreneurs and bootstrappers, people who have built 5 or 10 different tools, each of which have their own revenue base and their own account. And we also serve some pretty large customers who have a self serve offering that they choose to push through Paddle. And, really, we see that there's three moments in time when people choose a merchant of record model.
Andrew:It's either at the very beginning because they're perhaps a second time founder, and we often see second time founders choose Paddle. They know those problems. They face them. Or they've or they're from an international community where they understand that selling into lots of regions fast is gonna be hard. So there's $0 is the first point.
Andrew:The second point is maybe 4 or 5,000,000 of ARR where you suddenly start hitting sales tax thresholds in different regions and getting tax notifications via Stripe or whatever your PSP is. And you suddenly realize you've got to sort this out. And then the final point is people who are in two contexts. Either they are doing 50,000,000 or so of ARR, and they are now facing significant dings on their valuation because of compliance issues in their finance stack and need to solve that before they can raise late stage financing or exit. Or they are people who have got another payment infrastructure.
Andrew:Maybe they're selling huge volume on the App Store or on the Google Store, and they wanna find a way of bringing that into the web. There's a bunch of reasons for that that we can dive into, but we've got some pretty scaled app businesses that are using Paddle for their web monetization, and so that's an area too. So there's a few different jump off points, which makes it really complicated, but also really interesting for our target market. But these indie hackers at the beginning are certainly a certainly a sweet spot for myself.
Arvid:Yeah. I I can tell. And and it just blows my mind to think that there are people who make, like, $1, and then there's people who make, like, 1,000,000 of dollars, and you serve them all with the same product. That sounds complicated in a way that is maybe not visible on the surface. And how do you make sure that you serve both the interests of the people who are just starting out, who need certain things that the business that has already been there for years and has, like, built a customer base does not need, and still serve them, serve this big massive company that probably impacts your bottom line as well in a way that does not alienate the indie hackers?
Arvid:How do you strike that balance?
Andrew:So I think there are a whole bunch of things we can do to serve both. And so a lot of our work, a lot of our product road map, our investments, trying to find things that serve both. So a great example would be our developer experience. Now as you know, over the last year, we've radically improved our developer experience, our documentation. Now it might seem that that serves the indie hacker, the the tech founder community best, but, actually, it just serves also the lead engineer from a very large company who's who's given the job of doing the research or the technical vetting of us.
Andrew:Right? And so it serves both. Implementation tooling would be the same. So there's there's a whole bunch of work we can continue to do to get better for both. And then, you know, I don't know if you you you're a you're a business book aficionado, but, you know, Geoffrey Moore wrote the classic Crossing the Chasm, which is a a great book to think about market entry.
Andrew:One of the con concepts he talks about is you've gotta think about the whole problem, not just about the bit of the solution that you bring. So if we take that lens and look at the early stage India hackers as well as these larger scale businesses, a lot of the things that they are trying to solve aren't necessarily product problems. So at the early stage, as you know, you've been on our launchpad. That's a community of entrepreneurs that are trying to launch their first business, and some of their needs are camaraderie and advice, and and a community to help them launch on product hunt and advice over their first pricing model and a bit of cash for those who win the prize and some partner credits for AWS. None of those are things that Paddle charge for, but we wanna provide as part of the wider community and platform play.
Andrew:And at the top end, it might be integrations, and it might be specialist, you know, solutions architects that can help you for a couple of months to do integrations or migrate from another provider. And so what we're trying and sometimes, actually, it's stuff that's not even that product related. It might be they want an exec level connection so that they themselves, as perhaps being in the biggest job of their life, leading a 102, 100, 300 person business as a first time founder, can get some advice from someone who's seen around those corners. So part of this is now making sure that it's not just the product. It's the support and the partnerships and the platform and the community we place around it that can be radically different for both parties.
Arvid:And and all of a sudden, your acquisition of, ProfitWell price intelligently makes so much more sense to me. Like, obviously, it already made sense because it was this amazing data analytics platform that announced you now to to do metrics and, you know, like, price intelligently with, the the the consulting arm of this, like, figuring out the the perfect pricing to retain product. Right? To to get people find their money back that may may otherwise have been lost. All of this feels more like almost community tooling than, like, specific, like, money tooling.
Arvid:That is great. Like, what triggered that? Because it that is a conscious choice to to be made for a company to embrace not just the transactional stuff that can be easily quantified, but to also embrace community and to to to build people up, support them along a journey, like with the Launchpad. Like, where does this come from?
Andrew:Honestly, I think all good ideas come from customer conversations. And, you know, one of my commitments to the business and to my team is to be in conversations with customers like this one. Every week, I speak to multiple customers and prospects, and, you know, so do the rest of our exec team. And our product teams do, and our CS teams do, and our sales teams do because we believe that it it might not be that every customer can conceptualize the solution, but they can definitely help explain their pain points. And I remember in my 1st year at Paddle speaking multiple times to, to founders or to, you know, CEOs of businesses, and they would say things like, I really appreciate what you're doing on the product side or the tax compliance side.
Andrew:Can you help me with my marketing strategy? Or can you help me with introductions to capital? Or can you help me think about new markets for where I can go next as my business? And so I started to understand that, again, when we think of that whole problem in the Geoffrey Moore framework rather than just the thing we're solving, there are stuff there that actually maybe there are product solutions too. And we we're a product first company, so often we will think that way first through a product lens.
Andrew:But actually, there's other things we can do that might just be sitting around a dinner table with them. It might just be a few hours brainstorming on a whiteboard with them. It might be introducing one of our engineers who they wouldn't have normally spoken to but has done some interesting, you know, API scrapes and therefore can give some advice. And so that's it it came from talking to customers, and I think that's where the best things come from.
Arvid:Yeah. For sure. And and that's that is customer success. Right? It's not just customer success in, you know, getting the your value metric up, like getting their metric that pays you more up, which is also great for you as a business, obviously, but like, actually making them succeed beyond it and introducing them to new people, new things, new ideas that can help them.
Arvid:That that's almost a a selfless way of being selfish. I really like it. I hate the idea of, like, you you developed a stronger bond with your customer by giving them something that you wouldn't have to give just to, you know, get your business transaction done, but it is way more than that. That is that is really cool. And I've seen this.
Arvid:Like, I've I've seen you do this, like, you personally being part of the the accelerator, the the launchpad, giving talks, giving webinars, like, just sharing what you know with the community, being present in the community. And I've seen the marketing team do it. Like, KP is is one of the people that I hang out on Twitter with all the time. Like, ever since he joined Paddle, he just exploded in terms of how much he helped this community even more than he already did before. Right?
Arvid:That is that is something you you made a good choice with that guy. I I love that man, and he's awesome, and he is also a conduit for for empowerment. Right? I think you you made a really great choice there, and he he can now bring your, just passion for this into a community that already knows him as somebody who teaches and shares and empowers. Those moves are super smart for a company to do, and I haven't seen this from competitors in the field as much or at all.
Arvid:So I I think you're doing this really well, and it's showing. It's noticeable that you you're sending people to conferences. They show up. They represent the company in a good way. They invite people over for breakfast.
Arvid:That kind of stuff. Right? Like, that is not normal company behavior, but it it turns out that this is the way you need to to just approach working with people. I I'm sorry. I'm I'm just lauding you for the good things you did at this point, but I I I was I was part of all of these things, and I really, really enjoyed it.
Arvid:I've I've I feel this is rare, and this is good. So good job.
Andrew:I'm glad to hear.
Arvid:And from the from the technical side of things, as a developer, over the last couple of years in particular, as I've been building a new thing, I've seen Paddle be, almost more of a default choice now. Like, I've been using, Laravel to to build my PodScan business here. And from day 1, Laravel has been a great ecosystem with all different kinds of things. They have this this wonderful tool called Laravel Spark, which is a a payment portal integration, and they have they have 2 things in there. 1 is Stripe, and the other one is Paddle.
Arvid:And I love the the fact when I saw Stripe, I was like, okay. Yeah. Sure. They all do. But then I saw Paddle and was, yes.
Arvid:They understand what I want. Like, the it was like, I don't just wanna charge people money. I want all of this dealt with, and the people at and all the people, like, responsible for this, they got this. They understood why this needed to be in there. And what I wonder is, do you consciously approach frameworks like, either payment like, library builders, like people who run open software open source software tools to integrate these libraries?
Arvid:Do you actively kinda try to get Paddle integrated, or does this just happen because it's a product that people use? What's what's your your approach to this?
Andrew:So there are many things that I would be self critical about about Paddle. Like, I've been here a few years now. We really believe we're solving some fundamental issues in terms of, you know, the things we've talked about for the founders we serve. But there are so many more things we wanna And because what we do is quite complicated, there were many years where this business was entirely focused on our own knitting. And so reaching out and building those community relationships and partnerships with frameworks and code bases and other other platforms wasn't something that was a high priority.
Andrew:It was often done when an engineer or a product manager knew someone or found out someone or thought this would be cool and a customer maybe thought the same, and then together we did something. We are now we have a much more concerted effort to do that. We want to be a business that is weaved into the fabric of the toolkits that people use, and it's something we're putting much more emphasis on. But, no, pretty much most of what you see out there was by default, not by design. And so that makes me excited for the future as we do now apply some rigor and thought.
Andrew:And I'd really encourage anyone who's got an idea of where they'd like to see Paddle integrated reach out. And you know, Kieran, who runs developer experience for us, would love to have that conversation. So we wanna hear where we should be, and I'm certainly taking more of those calls now, and intentionally in my diary, making sure I meet with, you know, CEOs of businesses that are tangential to ours to see how we can play together.
Arvid:Yeah. Yeah. I think integrations are, like, one one of the frontiers that most businesses now have to deal with or have to embrace. Right? Embrace probably is a better word here.
Arvid:To to want to be there, to want to be integrated, and to deal with the technical hassle of having to, you know, make things happen that may not necessarily, be be a priority, but they are important to get your foot in the door. Right? And and for for anybody building a business, I I personally always think of how can I make this either integratable so that somebody else can build the integration for me, or how can I use, like, almost neutral in between platforms to facilitate integrating? Either like, that's that's what I've done with PodScan here. I I have a an API, a REST API, and a webhook API.
Arvid:Right? So people can, like, get data or or pull data. And that webhook API also facilitates using Zapier or if this and that Integromat, whatever the tools might be. Right? Like, if you have a business, at least give give people some kind of interface to work against.
Arvid:That's that's that's just a little recommendation that I have at this point, and I'm glad to see you guys embracing this even more. That's really cool. Okay. Another thought just came to my mind because I I remember my journey, like, onboarding at Palo, particularly with with PodScan recently. It's been a a rather fresh experience because that happened in kinda December last year or something.
Arvid:And you you have this initial vetting process because and I know that people now are thinking, okay. I have to check this out. So they go to the website, they sign up, and they put in, like, the information about the business, then it's like, okay. Now we're gonna vet you guys. So we're gonna you wanna be on Peddle?
Arvid:We gotta check out if that's okay. Can you guide me through how this looks on your end? What do you do, and who do you who do you let in? And and why is that? Maybe that's awesome.
Andrew:Yeah. Of course. And, again, to be self critical, we at Paddle, we very much believe that we've made it too difficult either either for people to understand or to join. But often it's to understand, to answer your question, why certain people are allowed in and and aren't allowed in. And I apologize for that.
Andrew:Like, that's been a case of needing to just focus on other priorities, and we haven't prioritized perhaps where our communication there should have been clearer. So, hopefully, the new self serve process we've launched makes that much more clear. The key thing I'd ask people to go and have a look at is if you Google Paddle acceptable use policy, it gives you you know, in our documentation, it shows you what we are allowed to sell and not sell. Now, critically, because we are taking this role as a reseller of the people, the customers we serve, we are taking liability there. In the eyes of the acquirers, in the eyes of the ecosystem, it's really important that we maintain trust, because everything we sell, we are selling.
Andrew:And so that means we have to be very careful over, you know, are you selling what you say you're gonna sell? And we've had lots of bad actors in the past who say they might be selling, you know, yet another email marketing software, but when they start transacting, it's actually something else. And it's something that, you know, would cause us problems and then problems, and and we've had to shut them down. And so there are those con there's the context where there is outright fraud. Then there's also just taxable categories that we support and don't support.
Andrew:So if you think about the challenge of selling software globally, we have to make sure with every jurisdiction globally that we understand the sales tax rate. You talked about this earlier and scraping them. The sales tax rate for software in every region, and they change all the time. And so we have to maintain all of that. Now if we were selling not just software, but also, commodities and apparel and, oil and coffee and a whole bunch of other things, the complexity will be huge.
Andrew:And so what we've done is try to make sure we've got a bit of focus, and it's basically digital products, which, yes, at the moment, does exclude consulting services, for example, because that's just a different taxable category. And it's more difficult to understand whether a service has been delivered because it's not a a transaction with something that's that's given or access that's given. Therefore, you know, the challenge of refunds and chargebacks becomes more complicated, and we just haven't yet addressed that from a product perspective. So if if if people go and read that, you know, Paddle Acceptable Use Policy, what you'll see is we we love to serve software companies, b to b SaaS, consumer software, games companies. But if your primary offering is human services, design services, consultancy services, or if your primary offering is physical goods, sending a physical thing to a location, then Paddle's not a great fit for your needs.
Andrew:And then there's a bunch of these kind of off limits things because of, you know, fraud or it's a over 18 type product, etcetera, which we just don't exclude for good reasons. So that's a quick map of it, and it's really interesting. We've now got a couple of people in our community. I don't know if you know Alex over at Boathouse, but he started writing a whole load of videos to help explain for us what do you do if you get a paddle rejection, and why we're and so we also wanna get better at doing this ourselves, and we're so grateful to people like him who are helping us communicate that. But those are some of the primary reasons.
Arvid:That's cool. Yeah. I met Alex, off boathouse at the, the the breakfast at at MicroConf. He gave me a little Lego minifigure that I have on my key chain now. Like, that's that's how good of a buddy he is at this point.
Arvid:Yeah. It's just, yeah. And that is the community aspect that you just don't necessarily expect with the payment provider, but it's there. Okay. Thank you for explaining this.
Arvid:I I think it makes a lot of sense. And, obviously, like, liability for for you taking on these thousands of customers and all the different products, and all of their customers are now your customers too. Like, there must be just a a lot of, you know, put potential red flags in the the legal department just to even come up with the idea of being a merchant of record. So, yeah, makes makes sense to me.
Andrew:Yep. And and it's also important for our customers.
Arvid:Right.
Andrew:Like, you should be worried, David. You should be worried if it's too easy to get on Paddle because your risk profile, because it's our risk profile, is compromised if we're if we let anybody come on board and we then are a merchant record for them. And so that's important to note as well. Like, once you're in Paddle, we want you to understand that we have these policies for a reason to protect you as well as protect us. Yeah.
Arvid:It's kind of you're you're not completely removing my platform risk because you still are the platform on which I'm building, but you're derisking your own platform risk and your own risk. So that kinda slightly, but noticeably, derisks my risk. That's that's that's a very good point. Yeah. Do do you think you'll ever kinda open this up or embrace other fields, or or do you think Paddle would stay in in this lane where it is, like, the best at what it's doing?
Andrew:So I'm definitely never gonna say never. Though, you know, some of those adjacent markets are really interesting to us, and, there's some adjacent markets where the merchant of record model is really normal. You know, if you think about how Shopify markets work, for example, in ecommerce. So, yes, we definitely won't say never, but I think what's really important for now is that we make sure that most of our product development is to improve the value and experience for the kind of customers we serve now. And I wouldn't want to go and open up new markets if it was taking resource and investment away from the thousands of customers who have trusted us, to manage their businesses.
Andrew:And so it'll come, but over time.
Arvid:It's so funny. I was I was thinking a lot over the last couple of days weeks about striking this exact balance between wanting to go somewhere else because it's also nice. And it's not necessarily even a grass is greener thing. It's just, oh, there's also grass over there. We have good grass here, but there's more grass.
Arvid:That's kinda how this sometimes feels. And then making sure that the the people you already serve, the people who who chose you for a reason. Right? And you want them to keep choosing you, so you wanna serve them as as best you can. And that balance between, like, conserving and progressing, which is funny because that is all what politics is all about.
Arvid:Right? This kind of oscillation between, you know, maintaining status quo and trying new things. It feels it's the same for entrepreneurs and for businesses that you always have to kinda deal with this balance. Go one side, go the other side, find the the golden middle in between. I think you're doing a good job of this, and I I one of the one of the things I I always wonder about that you did so well and so few others have even understood that it's a thing is, purchasing power parity pricing, which is a mouthful to say.
Arvid:Like, the idea of charging different amounts of money in different countries. And I think this is also an empowerment thing, since we were talking about this, like, giving, giving people the opportunity to build a global business, but also giving people globally the opportunity to purchase things from businesses. That's what this is. Right? Like, how how are you approaching this?
Arvid:Like, is this gonna be a thing you're gonna dive deeper into, like making making things have different prices globally? Are you gonna introduce more currencies? Like, what what's the what's the future of this looking like for you?
Andrew:Yeah. So if we just step back so everyone kind of understands the context that you definitely understand, and then we'll dive into where we're going, we see very clearly in our data that if you are offering localized currencies, I think our current metrics are that your checkout will convert to about 31% higher rate than if you're not than if you're just charging dollar everywhere, for example. So currencies are the first bit of localization. Then it's about payment methods. We also see a significant increase in growth rates for companies that then offer multiple payment methods.
Andrew:Because around the world, people want different types of payment. They're used to different payment methods. And then the 3rd piece you talked about when we dive into the nuances of internationalization, yes. It's is there the same willingness to pay for your product or service in different regions? And if we just take a macro view, what we see and I'm just pulling some data up in front of me right now.
Andrew:What we see over the over the whole, if we index the US as a 0%, we see that Southeast Asia is willing to pay 35 or 38% less, and the Nordics are willing to pay 28% more. And so you're leaving money on the table if you're not changing the price the actual price you're charging in each of those different territories. And, yes, on all three of those counts, more currencies, more payment methods, and enabling people to, you know, with one click or increasingly in the future, automatically charge the right price in the right regions, that's something we are investing in. And, you know, we obviously have price intelligence that you referenced that sometimes does these big quant studies for very large businesses. You know, customers there would include people like Canva and Intercom, etcetera, where we're doing panel studies on this.
Andrew:But, actually, you can do simple things as an indie hacker thinking about the Big Mac index. How what's the cost of a Big Mac in every region? And they've done the research for you. And so you can use equivalents like that. But, yes, we absolutely are investing in making sure we can be more localized and therefore help you drive more revenue in every region.
Arvid:I found this very important for for my media business in particular, like my book sales and, like, those things. And they are both, like, ebooks physical products, so we're somewhere in between what's good and what's maybe not as compatible with Paddle. But Mhmm. Purchasing, Like, in certain countries, people would not have been able to buy it just from not having any capacity to spend this much money. And then I I slashed prices, like, by 70% or something, and all of a sudden, thousands of people bought it, which kinda compensated for the 0 people that would have bought it because of the price.
Arvid:Right? So this this makes a lot of sense, and I I love what you said earlier, like like digital businesses are born global or born, like, in a in a sense that you're competing with everybody, but also everybody could be your customer. That is new. Right? Like, that that is not a thing that business conceptually was to me until, like, 10, 15 years ago.
Arvid:A business was a thing that happened here, and here are my customers. I can see them, but now that is very different. One good link placed in the right location, and you have thousands of potential prospects that you need to be able to serve with your payment provider. And I think you you guys are definitely like, I can only ask to do more of this because not only does it allow people from these places to also build businesses and charge more for their product somewhere else, but local consumers benefit from this more than anybody else. I think it's really cool.
Arvid:I I wonder what the future is of payments. Like, I I've been thinking about this a lot. Do you know with cryptocurrencies and, like, micro payments have been talked about in these communities over time? Do you guys keep, like, a tap on this? Like, what is your vision of, like, online payments of the future?
Arvid:Do you see it change significantly?
Andrew:So many people have used this example, and I might get the, the exact details wrong. But I can remember there was a Jeff Bezos earnings call for Amazon where he was asked where they place their their innovation budget for Amazon, what they believe about the future, and where what crazy things they're investing in. And his answer was, actually, we know what our customers want. They want things cheaper and quicker. And so all of our innovation budget is spent on making sure things get to you cheaper and they get to you quicker.
Andrew:And, you know, that's really our, you know, short term strategy here at Paddle. Rather than dreaming up completely new ways to reinvent fintech, a lot of this is, are we to the things you just mentioned. Are we able to allow more people around the world to spend the money they have in the ways that are really simple to them and understandable to them to get the value that globalized software providers can deliver? And that's really where most of our time is spent. So, yes, we do think about, a little bit further out, but most of it is, how can we make sure we develop our current platform?
Andrew:How can we make sure the checkout converts better? How how can we make sure we've got one page checkout and save payment methods and a customer portal and all the other things that people are asking us for right now that we're about to deliver? Those things for us are much, much more important. So, yeah, we we do think about it, but it's really a very small portion of our time because we really believe this this job has only just started. We're only 5% of the way there.
Andrew:There's 95% of stuff we haven't even yet built that we know about even before we come to the futurescape.
Arvid:Yeah. And here you are again striking that balance. I love this. This is this is this is what entrepreneurship is. Right?
Arvid:Like, figuring out there are dreams, there are visions of the future, and we kinda keep our eye on this. But here's the reality of what our customers need today, and this is what we're gonna, like, de derisk. We're gonna make it easier. We're gonna make it smoother. We wanna make it less complicated.
Arvid:I I think I I feel you. Again, in my heart, I feel like this is exactly what needs to be done. And particularly what you've done over the last years with the new billing system, like, the developer experience of this has improved so significantly. Like, I built a business couple years ago on the old system, and I look at the new system and I'm like, wait, what? And the old system was still okay.
Arvid:I'm not saying it was great, but it was good for the time that it existed in and it did the job. It still does the job, right? It's still just humming along, not making it making a scene or anything. It works. But the new billing system and the fact and how easily and how well, apparently, it's integrated into the the libraries out there and your efforts to get it into more of them, that that is the right move.
Arvid:I think that is that's where it should go.
Andrew:And and that was a huge investment for us because we pretty much rebuilt our core product. And one of the things that you know, as someone who's not super technical, one of the things that I found is so valuable as a result of that leap of faith that our engineering and product leadership went on through that process is the speed of innovation. I can remember coming into Paddle, and because we have this project that was in the backroom that at that point, we were calling next gen billing that then got released as as Paddle billing eventually last year, because that was there, it was consuming a huge amount of our engineering resource. And so we couldn't there there weren't many product updates coming, and you would have felt that. Whereas now, if you look at our change log, every week, there's new things coming.
Andrew:We've got paddle forward coming up in in mid September where we're gonna show everything we've been working on for the last few months. And it's really great to be at a business that can now operate at that speed because that's what all of that investment unlocked. And so that, again, I think is that that balance of things that are further away and harder to invest in, like rebuilding our entire platform, and the benefit we see right now day in, day out of us going much faster as a result.
Arvid:Yeah. Here's something I really like about this conversation in particular. Not only did you expose, I I hope, a lot of people to the the concept of merchant of record and to the the the paddle in as a as a tool too that does it really well. You also showed how a good business is run and how how a good business, like, looks at the market, looks at the reality, looks at the future, and makes choices over time to, you know, like, smart strategic choices today for a long term vision in the future. That that comes across very strongly, and I think that's a good lesson for entrepreneurs.
Andrew:I I I really hope so, and I love working with this leadership team. And one of the things that happened behind the scenes that some people know about, but not many, is that our founder, Christian, stepped up to executive chairman, and now is pretty much nonexec in the company. He's an adviser still and sits in there as a board observer. And Jimmy, who he hired as COO 3 or so years ago, is now CEO. And I've never been I've never seen or been part of a succession that was that smooth because Jimmy was in the business.
Andrew:He was the operating leader of the business for a couple of years before he was promoted to CEO, and Christian saw it as his greatest success that he could now leave this to the leadership team for the next decade of building what we were doing. And so, yeah, I really believe that from Jimmy and Rob and Stu and all of those across that leadership team, there are there are there's value we can bring to the market of just, you know, Jimmy as example. You know, I think he was at at ServiceNow when they were smaller than Paddle is now, and he was there he was there until they were 12,000 people. So there's learnings there of going through scale up for for for many, many years that we wanna make sure people can learn from because I learn from it every day.
Arvid:Yeah. And and it kinda shows, like, you're embracing both the the smallest of businesses and serving the biggest of them as well. That is that is just looking at at entrepreneurship and looking at at business as a journey from a point to another. Right? It's not just picking the best thing that makes you the most money.
Arvid:It's like embracing the whole thing holistically, and I really like this. Man, this this was very insightful. I'm I'm really I'm glad to be a customer, and I know this is all super biased and everything, but it's just every time I interact with anybody at Paddle, be it you, be KP, and be Christian, like, the the leadership as well, everybody is nice. Everybody is friendly, kind, and understanding. Right?
Arvid:They know what founders need. So thank you. Great job. If people wanna find out more about you in particular, because you're a super super interesting teacher, or the business that you're working for, where should they be going?
Andrew:Yeah. I mean, come to paddle.com if you wanna find out more about the business. And if you're hearing about merchant record because we're talking about it or Stripe's talking about it or other people are talking about it, then just come and find out. We'd love to enter that conversation. For myself, I'm most active on LinkedIn, and, but I'm there on Twitter as well.
Andrew:Please reach out. Andrew Davies Paddle, and Twitter is a n d j Davies and j Davies. Both of those are good places. And to your point earlier, face to face. I'm traveling all over the world.
Andrew:I think in the next month, I'll be in San Francisco as well as in Dubrovnik, as well as in Paris, as well as in Dublin and London. So, hopefully, I'll be in a city near you soon. And ping me. I'd love to grab a coffee and hear your story and find out how we can help. And if I'm not there, someone else from Paddle will be.
Andrew:So, yeah, in real life, all LinkedIn or Twitter are good places to find out more.
Arvid:I really appreciate it. Thank you for sharing everything with me today. That was really, really cool.
Andrew:Total pleasure. Thank you for having me on, and really appreciate, not only seeing your business grow in partnership with Paddle, but I believe we're using your service too. You're helping us find references on podcasts around the place. So I know Bianca's a fan, so thank you for that.
Arvid:I appreciate it. Alright. Thank you so much.
Andrew:Cheers.
Arvid:And that's it for today. Thank you so much for listening to the Bootstrap founder. You can find me on Twitter at Avid Kal, e I v I d k a h l, and you'll find my books on my Twitter core set too. And if you wanna support me and this show, please tell everybody you know about PodScan dot f m if they need an API for all kinds of podcasts or maybe they need alerting and mention tracking, and leave a rating and a review by going to rate this podcast dot com slash founder. It makes a massive difference if you show up there because then the podcast will show up in other people's feeds.
Arvid:Thank you so much for listening. Have a wonderful
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