20VC Rippling's Parker Conrad on The Four Main Benefits From Building a Compound Startup Why There Should Never Be a TradeOff Between Speed and Quality How Zenefits Gave Parker a Chip on the Shoulder and Why That is so Important

In this episode of 20 VC, Harry Stebbings interviews Parker Conrad, founder and CEO of Rippling, which recently ventured into spend management. Rippling simplifies business operations by integrating payroll, benefits, expenses, devices, and apps management. Parker shares his journey from his departure from Zenefits to founding Rippling, driven by the need to manage employee data across various company functions. He discusses the challenges and motivations behind building Rippling, emphasizing the importance of leveraging employee data for cross-selling and creating a "compound startup" that can develop multiple products simultaneously. Parker also reflects on the significance of investor support during tough times and the role of Rippling as a potential internal-facing system akin to Salesforce. Despite the macroeconomic environment and his past experiences, Parker maintains a forward-looking vision for Rippling, aiming for it to become a key player in managing internal business processes.

• Ripling announced their entrance into spend management.
• The company is on a mission to build the App Store for business.
• Ripling manages employees' payroll, benefits, expenses, devices, and apps in one place.

"Over the last few weeks they announced their entrance into spend management and another step in their mission to build the App Store for business."

The quote explains Ripling's recent business developments, highlighting their new venture into spend management and overall goal of creating a comprehensive business platform.

• Parker Conrad has raised over $697 million for Ripling.
• Notable investors include Sequoia, Founders Fund, Green Oaks, Bedrock, Kleiner Perkins, and Initialized.
• Conrad was previously the co-founder and CEO at Zenefits.
• He is also an angel investor with investments in Census, Pulley, AgentSync, and True North.

"To date, Parker has raised over $697,000,000 for ripling from some of the best, including Sequoia, Founders Fund, Green Oaks, Bedrock, Kleiner Perkins and initialized to name a few."

This quote summarizes Parker Conrad's fundraising achievements for Ripling and names some of the prominent investors involved.

• Parker Conrad started Ripling after leaving his previous company, Zenefits.
• The thesis behind Ripling was the need for a system managing employee data across various company functions, not just HR.
• Conrad identified a market requirement for a more integrated management system for employee information.

"So I started rippling really with this thesis about employee data and what the market that we're in really required."

The quote outlines the foundational idea behind Ripling, emphasizing the need for a system that goes beyond traditional HR management to encompass various business functions.

• Parker Conrad faced legal restrictions and media challenges after leaving Zenefits.
• He decided to build Ripling as a way to communicate his perspective and prove his capabilities.
• Conrad was motivated by the desire to create a significant company despite the difficulties he faced.

"I sort of decided the only way I was going to be able to communicate about this to people in the tech community, to the world more broadly than that, was to build this specific company, try and make it into a really big 100 billion dollar outcome."

The quote reveals Conrad's response to his past challenges and his determination to build a successful company as a way to share his story and vindicate himself.

• Parker Conrad believes people are capable of more than they realize.
• A founder or CEO's job is to extract maximum potential from their team.
• High performance is not just about working harder but also about organizational efficiency.

"One of your jobs as a founder or as a CEO of a company is to find ways to sort of pull that out of people."

The quote discusses the role of a leader in fostering high performance by unlocking the potential within their team members.

• Conrad challenges his team to think beyond binary choices and question underlying assumptions.
• He encourages looking for solutions that achieve multiple objectives simultaneously.
• Conrad believes in questioning the perceived impossibility of achieving certain goals.

"Refusing to accept the set of implicit assumptions that people come to you with about why certain things are possible and certain things are not possible."

The quote emphasizes Conrad's approach to leadership, which involves pushing his team to challenge assumptions and think creatively to achieve ambitious targets.

• Conrad articulates the consequences of not meeting objectives and the benefits of success.
• He engages in discussions about why certain goals seem unattainable and explores alternatives.
• Understanding the reasons behind perceived limitations can lead to innovative solutions.

"It's about sort of articulating the sort of genuine and real consequences of not being able to do a and b."

This quote highlights the importance of clear communication about the stakes involved in decision-making and the potential impact on the company.

• Parker Conrad does not agree with the trade-off between speed and quality.
• He believes that projects moving slowly are unlikely to achieve perfection at the end.
• Speed and quality are seen as more aligned than opposed in his view.

"It's very rare that you see projects that really move slowly, that end up just really nailing it at the finish line."

The quote reflects Conrad's belief that speed in execution does not necessarily compromise quality, and in fact, slower projects do not guarantee better outcomes.

• Emphasizes the importance of urgency in addressing problems and building high-quality products.
• Suggests that being slow or lackadaisical does not result in higher quality products.

"I think that having a lot of urgency on fixing underlying issues and building a high quality product is a virtue."

This quote underlines the belief that urgency in problem-solving and product development is critical to achieving high quality.

• Parker Conrad's ability to prioritize efficiently is highlighted as a major skill.
• The process of deciding on new efforts to prioritize is discussed.

"And many of your investors told me that kind of your ability to prioritize efficiently is one of your biggest skills."

Harry Stebbings notes Parker Conrad's recognized skill in prioritization, indicating its importance in business strategy.

• Rippling's approach to building a tech company involves creating multiple products in parallel, termed a "compound startup."
• Parker Conrad describes the compound approach as focusing on breadth rather than a single narrow focus.

"And rippling is a little bit different. I sort of take a very different point of view, and I call it building a compound startup, which is building multiple different products in parallel, focusing on sort of breadth versus doing one extremely narrow thing."

Parker Conrad explains Rippling's unique strategy of building multiple products simultaneously, contrasting the common startup focus on a single product.

• Discusses the four critical advantages of a compound product: deeper integration, abstraction of common functionality, middleware capabilities, and relevance to the company's system of record.
• The goal is to build products that maximize these advantages.

"My view is that the way that we make decisions about what products to build are sort of really focusing on what I think are the four critical advantages of a compound product or a compound company."

Parker Conrad outlines the framework used to decide which products to develop, focusing on the advantages that compound products offer.

• Building common functionalities once allows for reuse across multiple products, leading to efficiency.
• The strategy aims to match or exceed best-in-class capabilities with a fraction of the R&D investment.

"The advantage is that we get to build once and then reuse that across every single product that we build."

Parker Conrad explains how Rippling's approach to building common functionalities once for reuse across products leads to greater efficiency and speed in product development.

• Rippling's integration with employee data provides a competitive edge in displacing other products like corporate cards and expense reimbursements.
• The company's understanding of roles within an organization informs approval processes and spending policies.

"I do think that spending things like corporate cards and expense reimbursements just has an incredible nexus to the employee record because so much of who's allowed to spend money on what, what approvals are required is about your role within the organization."

Parker Conrad discusses how Rippling's deep integration with employee data gives them an advantage in developing financial management products that are more attuned to an organization's structure.

• Data shows that companies using Rippling require fewer HR, IT, and finance staff compared to those not using Rippling.
• The difference in staffing is attributed to Rippling's ability to manage employee data across the company.

"For companies that are on rippling, we can look at the data inside of ripling in the aggregate. And for companies that don't use rippling, we can look at the data on LinkedIn."

Parker Conrad presents data supporting Rippling's impact on reducing the number of staff needed in HR, IT, and finance by efficiently managing employee data.

• Cross-selling within a compound startup is challenging but can be highly effective.
• Rippling uses the 'employee graph' to identify the right moments for cross-selling, leading to significant net new ARR.

"The secret to this is that what we call the employee graph, this data about employees, it is like the right underlying primitive for doing cross sell to an organization."

Parker Conrad reveals the strategy behind Rippling's successful cross-selling efforts, leveraging employee data to target the right moments for product promotion.

• Rippling aims to maintain software margins of 70% to 80% for most products, with payroll being an exception due to a higher support burden.
• The margin profiles for physical products and services are managed to align with software margins where possible.

"We try and maintain sort of 70% to 80% software margins for all of our products."

Parker Conrad discusses the target margin profiles for Rippling's products, emphasizing the goal of achieving high software margins.

• Early-stage companies may not fully understand their margins due to a lack of maturity and comprehensive cost accounting.
• Margins can improve over time as businesses grow and gain efficiencies of scale.

"Understanding margins is something that takes a lot of time and a lot of maturity in the business to understand."

Parker Conrad speaks to the complexity of accurately assessing margins in the early stages of a company and the evolution of understanding as the business matures.

• As companies scale, their margin profiles can become obscured by growth.
• Growth can distort the assessment of a company's margins.
• Margin profiles take time to stabilize, and only then can a company understand its true financial state.

"It can also really be hidden by growth. Right? Like growth can sort of screw up your assessment of margins in a lot of ways."

This quote highlights the challenge of accurately assessing a company's profitability when rapid growth can mask the underlying margin profile. It implies that growth can make it difficult to discern whether good margins are truly sustainable as the company expands.

• Partnering with other companies allows for competition against internal products.
• Revenue sharing with partners means not internalizing full margins.
• The goal is for partner companies to compete on an even footing with internal products in terms of integration and distribution capabilities.

"Our goal is to have companies that we partner with that compete against internal rippling products on even footing."

Parker Conrad explains that the strategy is to allow external partners to compete fairly with Rippling's own products, suggesting a business model that values ecosystem over complete vertical integration.

• Many companies aspire to become an App Store for business software.
• The challenge is proving the value to others, not just the company itself.
• Rippling's employee data serves as a fundamental primitive for business software, much like Facebook's social graph for consumer products.
• Rippling's ability to leverage employee data can drive business to partners and assist customers effectively and quickly.

"And I think in Ripling's case, the sort of thesis on why this makes sense is really the employee record, that employee data, it's not an HR department thing. It's a fundamental primitive for business software writ large."

Parker Conrad compares Rippling's use of employee data to Facebook's use of the social graph, suggesting that having a core, valuable dataset can be the foundation for building a successful platform for business applications.

• Starting a company is extremely challenging and is considered a grind.
• Over time, certain aspects such as customer acquisition and hiring become easier.
• The intensity and pace of challenges increase as the company grows.
• Delegating responsibilities to internal 'founders' of new products within the company is a strategy to manage scaling challenges.

"Some of the grind kind of goes away. Like, early on, it's so hard to convince. Everyone's skeptical, every customer, every prospective employee."

This quote from Parker Conrad reflects on the early difficulties of establishing credibility and trust with various stakeholders and how these challenges evolve as the company matures.

• Rippling employs a significant number of former founders.
• These individuals are tasked with leading new product initiatives within the company.
• Having founders as employees helps deal with the increasing complexity and demands of a scaling business.
• This approach allows Rippling to build multiple products in parallel effectively.

"That's how I deal with that fire hose effect. And it's a big part of this kind of compound approach of building a lot of different products in parallel."

Parker Conrad describes employing former founders as a strategy to manage the growing demands of the business and to foster a culture of entrepreneurship and ownership over new initiatives.

• High valuations during fundraising can be seen as external validation but may not reflect the long-term success.
• Previous experiences with high valuations followed by downturns have informed a cautious perspective on fundraising.
• Financing rounds are viewed as a practical means to an end, not a measure of success.
• Rippling's R&D costs are significantly higher than the industry average, necessitating substantial cash to continue investment.

"It's money to kind of get where you're going, and that's it."

Parker Conrad downplays the significance of fundraising valuations, emphasizing that the primary purpose of raising capital is to finance the company's growth and operations, rather than as a barometer for success.

• The market's perception of valuations can fluctuate, leading to different fundraising environments.
• Investors' sentiment can be overly pessimistic during downturns.
• Historical market trends suggest that grim predictions about valuations often do not materialize as expected.
• The size of software markets has proven to be larger than anticipated, which may justify higher valuations for SaaS companies.

"Things came back and valuations recovered."

This quote captures Parker Conrad's observation that despite negative sentiments during economic downturns, markets tend to recover, and valuations for companies often bounce back in the long run.

• Taking money off the table during good times can provide security.
• Experiencing personal financial security may impact the founder's mindset towards the business.
• Offering the same terms for secondary sales to employees ensures fairness.
• Personal experiences with financial insecurity can lead to a conservative approach to personal investments.

"I feel like maybe it gives you a little more security."

Parker Conrad acknowledges that having financial security from taking money off the table can affect one's mindset, potentially providing a sense of stability and reducing financial paranoia.

• Parker Conrad reflects on the difficulties faced in his career, including the challenge of finding venture capital funding and the experience of starting a company.
• He emphasizes the extreme highs and lows of entrepreneurship.
• Parker's personal experience with rejection from VCs and difficulty in finding employment after leaving his first startup shaped his cautious attitude towards starting new ventures.
• He advises against starting a company due to the hardships involved, despite this advice often being ignored by aspiring entrepreneurs.

"I've had some big highs in my career, but also some really low lows where it felt like there wasn't really a path forward."

This quote illustrates Parker's experience with the volatile nature of entrepreneurship, where success can be uncertain and the future often looks bleak.

"And by the also, I did not want to start a company because starting a company was such an awful thing and had been just such a soul sucking experience."

Parker expresses his reluctance to start another company after his negative experiences, highlighting the emotional toll entrepreneurship can take.

• Parker Conrad discusses the significant impact that investor backing, especially from well-known firms, can have on a startup's success.
• He notes that a reputable investor can lend credibility to a company, making it easier to attract employees, other investors, customers, and media attention.
• Parker values investors who maintain a steady demeanor, neither getting overly excited during good times nor too negative during bad times.
• He appreciates the role some investors have played in recruitment, beyond the services provided by executive recruiters.

"It's this sort of magic pixie dust that gets sprinkled on your company when some of these firms with really big brand names invest."

Parker metaphorically describes the positive effects that come with investment from a prestigious firm, which can open doors and create opportunities for a startup.

"But often the best candidates are not ones that you find through exec recruiters. They come in through personal networks or through sort of like gps and investors and things like that."

He emphasizes the value of personal networks and connections provided by investors in finding top talent for a company.

• Parker's favorite book is the one he's currently reading with his children, which is "Lord of the Rings."
• He wishes he had known that his company Rippling would be successful from the start, as it would have provided relief during the challenging early stages.
• Parker has changed his mind about focusing Rippling solely on the U.S. market and is now looking at international opportunities.

"Ripling, it would have been nice to know that it was going to work, at least so far."

This quote reflects Parker's desire for assurance during the uncertain times at the beginning of his company's journey.

• Parker Conrad discusses the polarized portrayal of founders in the media as either heroes or villains.
• He criticizes the unrealistic and simplistic categorization of founders, expressing a desire for a more nuanced view that recognizes founders as regular people doing their jobs.

"It's either like saint or supervillain, and there's such a thin, fuzzy gray line between those two, and you can slip so easily from one to the other."

Parker points out the fine line between being celebrated and vilified in the startup world and the ease with which public perception can shift.

• Parker shares his experience of being portrayed negatively in the media and the support he received from people like Ron Conway.
• He appreciates the reassurance from others that challenging times will pass and the importance of perseverance.

"There were a number of people that reached out that sent me sort of long emails that were just kind of like, look, this too shall pass. It will get better, people will move on."

Parker expresses gratitude for the support and encouragement he received during his difficult times, underscoring the value of empathy and perspective.

• Parker Conrad envisions Rippling becoming a public company within five years and hopes to establish it as a system for managing business processes based on employee and organizational data, akin to Salesforce's customer data-based system.
• He believes success will be measured not just by financial metrics but by the company's ability to manage internal business processes effectively.

"I believe that there exists this entirely other side of the coin, this bizarro world version of Salesforce where you have a lot of the same tooling and a lot of the same functionality, but it's just built on a different underlying primitive."

Parker outlines his vision for Rippling to become a complementary system to Salesforce, focusing on internal rather than external business processes.

• Parker Conrad expresses gratitude to Harry Stebbings for the interview and to all of his investors for their belief in him.
• Harry Stebbings highlights the role of Harvard Management Company and Mercury in supporting startups and investors, and mentions Market X as a platform for accessing private investment opportunities.

"Thanks so much Harry."

Parker thanks the host, Harry Stebbings, for the conversation, showing appreciation for the opportunity to discuss his experiences and insights.