Monetizing SaaS: Episode 23 with Shegun Otulana, Founder of Harmony Venture Labs

Egan, thank you so much for joining the podcast. We've known each other for a long time, and so it's awesome to have the opportunity to talk to you. You have such an incredible career as a founder and entrepreneur. You founded Theranest, which you ran for, I think, 7, 8 years, and that ended up becoming Therapy Brands. You've been a fellow at the Aspen Institute. Over the last several years, you've gone after it again. You've been the CEO and founder of Copysmith and Harmony Venture Labs. That's just some of the stuff you've done. Can you tell us about your career journey in your own words? How did we get to now?

Yeah, um, I've been a very fortunate person, just to be honest with you, and my story is a— is a— it's kind of exciting for me. I joke with my wife that my second favorite holiday is July 4th, which is tomorrow, after Christmas, because America for me has just been unbelievable, you know. So I came here to the US as a teenager. I went to college. I'm a child of small business owners in Nigeria who hustled their way and decided they were going to give their kids the best education they could afford to give them, which ultimately led to me and my siblings being sent here. So in a sense, entrepreneurship is in my DNA. It's what I grew up with. These folks would didn't have anything close to what I've been blessed with in life. So, and my journey here in this country started easy. You know, my parents were upper middle class people in Nigeria, but over time that journey became very difficult as the economy got hard over there. The dollar got stronger, tuition just kept going through the roof. And my mother has a lot of children and we're all being sent abroad. And I think my junior and senior years were very hard. You know, there were many semesters I wasn't so sure I would be able to make work, you know, between credit cards and honestly just working my head off delivering pizza, engineering internships. Made it work. I graduated, got jobs, but the entrepreneurship thing was there. So my wife, I actually started the entrepreneurship journey right after college. With a, with a classmate slash coworker where we started a software company. We were doing a lot of IT work, software development work, whatever we could get our hands on until we figured out what we wanted to do. But that, what I really wanted after that journey began, not long into that journey was, hey, SaaS is the future. I want to go build a SaaS business. But we kind of disagreed on the vision for the business, which eventually led to us parting ways. Great guy, unbelievably sharp, but we parted ways because we just didn't align on the vision. But it also added to my own financial difficulty because there were some funds that I had been on the hook for, for that business that was now stuck with me because I took the company with me. But my wife eventually was the one that kind of pushed me to go out there, and that was what led to the recreation of that company. It was a software consulting business called Xertys. But this time I had learned a lot and I approached Xertys differently. Still wasn't able to make a lot of money with it, but I was looking to build a product. That was my goal. And that was what eventually led to what became Theranest. So I ran Theranest for a few years and then I decided to create a holding company called Therapy Brands when I decided it was time to take some chips off the table. So Therapy Brands was the holding company that a private equity partner— actually, I brought in two private equity partners, and it was a very successful business. So we weren't really doing it to raise money. We were doing it because I needed to de-risk myself personally. So we did that, and then I ran Therapy Brands for a few years, and I was involved with Therapy Brands until 2021 when we sold it to KKR, and we sold it for $1.25 billion to KKR. And then after that, I started Uh, what for me, the two things that have made the big difference in my life, if you're talking about the things in this world that we see, has been entrepreneurship, the role it played in my family and what that meant for me, and then education. So I kind of poured myself into entrepreneurship through Lamoni Venture Labs, which is a venture studio where I just do the thing I love doing, which is to create companies and to create entrepreneurs. Like, that's what gets me fired up every day. So and it's a lot of failure doing it, but I just love doing it. So my wife thinks I'm a glutton for punishment. But anyway, so, um, so that's what HVL is. We collaborate with partners, with other entrepreneurs, we train entrepreneurs. The second dimension to HVL is to really build our own ecosystem. You know, I'm not too far from you. I'm in Birmingham, you're in Atlanta. Atlanta is way, way ahead of Birmingham. We're what, maybe 1.25 million in Birmingham Metro. But this place has given a lot to me, including my life partner. So I want to kind of give back. I want to give back. And part of HVL is building great companies, but part of it is also building the ecosystem. So that's what I'm doing here with HVL, trying to create companies, looking at what that means within the context of a third-tier startup city, in a sense. And I also run, and it's the only company I run among the studio companies. I also run Copysmith AI as one of the HVL holding, one of the HVL companies within the HVL portfolios. So that's it really. Just a lot to be thankful for. And it's been a fantastic journey.

Thank you for sharing the story. And it's always fun for me to hear it. You mentioned earlier SaaS is the future, and I'm curious, and that would have been what, 10 years ago?

Roughly. It was the future back then.

What does the future look like now? I mean, when you zoom out and when you think about building SaaS companies today, what are the big trends or changes or inflections that you get really interested in that you find a lot of energy about, a lot of energy around?

So are you talking about industry-wide inflection points or inflection points to my—

Yeah, exactly. When you think about building SaaS, what are the big inflections that like you would think about before going after a SaaS company, and those that are like particularly compelling to you that you find yourself thinking about a lot?

Yeah, so when, when I started, I was particular about building a SaaS business because it was still very early in the SaaS adoption cycle. As the cloud adoption was happening, it was pretty evident that the SaaS adoption was going to just follow. Uh, so whatever I built, I wanted it to kind of be that, uh, because I really believe in leaning in on inflection points and tipping points when you're building something. It just gives you a wave to ride versus fighting an uphill battle. So I think right now SaaS, I don't know, I think the numbers are enterprise, enterprise adoption is maybe, and enterprise SaaS is maybe 70% of the SaaS market. More than half of the software that enterprises use is now SaaS applications. So there's still that Last part of the market for SaaS, industrial technology is still not a lot of SaaS adoption in, in the industrial tech space. There's still a lot of opportunity for SaaS, but the market's also changing a little bit. I think there is a little bit of SaaS fatigue also where maybe you have to mix pricing models. Now in the market, there's this significant adoption of, uh, the pay-as-you-go model. That we see happening. So I think SaaS is here to stay. It's a business model that's not going anywhere. But I also think you have to think about monetization market fit in a sense these days, and it's better to sell how your customer wants to buy. So there is a lot there. I don't know how the future is going to play out, but I know there's still room for it to run. But it's no longer in the early days where where, you know, everything is SaaS.

The last thing you said resonates strongly with me. I mean, one of the things that I feel like has attracted a lot of my attention is this idea that the typical B2B buyer of SaaS just has a lot more information at their disposal. They're more empowered than they've ever been. And so they're demanding from SaaS companies a lot of flexibility in the way that they buy their software and the way that they're billed for their software and the way that they like kind of choose, you know, pick and choose, you know, different functionality within a, within a singular vendor. Do you know what I mean?

Yeah, yeah. And, um, that, and that's, that's the market cycles. And there are actually opportunities around now serving that business model. The business model has come around and now there's actually a business of serving the business model, which is very interesting in itself. Yeah.

So I mean, having, having built Theranet, Therapy Brands, and Copysmith and, and the different companies in Harmony, Tell us a little bit about what you've learned about monetization. And maybe the starting question is like, what is monetization in B2B SaaS? How should we think about that? What's your framework for thinking about that?

Yeah, so I think we all will probably agree that monetization in essence just means how do you make money, right? How do you generate revenue? So what's the revenue model for the business? Like what's the pricing model? What are the tactics and key strategies you're going to use to execute on how you generate revenue? How do you in essence take your prospect funnel and turn it into paying customers? That's really what monetization is. And for some people that's free trial, especially when you're talking about SaaS, for some that's freemium, for some that's ads, as in there are all kinds of ways, but that's really in essence what monetization is. So why—

go ahead. Sorry, I think that's a great definition. Why is why is it complex? I mean, because surface level, like, you just need to be paid, right, for the software that we build. But why does it end up being so complex?

Because it kind of touches everything. And like I said, you, you can't think of monetization just by itself. There are, especially in the world of SaaS, there are 4 key components that kind of make up the journey in the business. You know, you have the acquisition, you have the monetization, you have the retention, and then you have the expansion. When you're thinking about all the different things you do in the business, monetization also kind of affects all those things, right? So monetization affects all those things. The way you're funded also affects the way you can monetize. The market cycle also affects the way you can monetize. The stage of the business also affects the way you can monetize. So that, that's part of the complexity around monetization because many times if you are following a tried and true path, you pretty much know what the market wants from you from a monetization standpoint. But sometimes you don't actually know, you don't know how your customer actually wants to buy. And that's part of the discovery process when you're trying to craft a monetization strategy. So The pricing and monetization strategy in a sense has to fit the solution and the job, the way the customer also works. If you are using technology to replace something that the customer does and pays for a certain way and has a budget allocated a certain way and the use of resource allocated a certain way, and then you introduce this very, very new thing, you've introduced friction that they now have to kind of think about. So all those things kind of affect monetization. And then there are the tooling and everything else that goes into monetization that gets complex, hard to withdraw. Different customers, depending on the stage of your business, have probably had a totally different monetization relationship with you. And now you kind of have to think about all that. So it kind of makes it all complicated.

One of the things that's been like really interesting for me as we've built Schematic and had this podcast and talked to more operators is like, you see this sort of recurring inevitable cycle where like a business goes to market with a simple product. It gets some traction. It might have a simple pricing model too.

It grows.

It needs to serve new customers. Its pricing model gets more complex. Its product has gotten more complex. A lot of what I hear from companies is they've hardcoded pricing into their actual applications, which is fundamentally challenging because it means a change anywhere is a change everywhere across all these different systems that don't talk to each other. And I wonder if that feels valid to you.

It's, it's a lot of things affected. What, how much room do you have for, for like getting back your customer acquisition costs, right? That should affect your monetization. You have to start thinking about if you don't have a lot of funding, you have to start thinking about monetization strategies that shrink your customer acquisition costs, your payback period, right? So again, when you now have a lot of money, you may want to change that thinking because you are less worried about payback period, but you've built in this engine around that. How you acquire customers is also part of that. And then your expansion, because the holy grail of SaaS is, you know, net revenue retention. Well, that is affected by monetization strategy also. And what, what does that look like? And then the challenge is businesses are designed to get more complex over time. It's a lot of work to keep them simple. The part of why they get more complicated over time is because your customer gets more complicated and you are designed to serve that customer's needs. So as that customer gets more complicated and their needs get more complex, you kind of have to keep providing more complex solutions. Well, the, the challenge with that is simple wins. So now you have a, there's this, there's this fight between simple wins, but things are more complex and I have to match the complexity to serve the needs of the customer. So all those things, and then the systems get more complex. Your software infrastructure has gotten more complex. Your engineering team is larger. Some decisions you made early in the cycle were not properly, um, memorialized in the organization. So all those things that kind of add into the complexity of monetization for you as a business, as your own business evolves, your customers evolve, your product evolves, and monetization is touching everything. And that's part of the challenge, and which is part of why what you guys are building at Schematic takes a big part of that. And helps simplify it so that you can actually continue to be, uh, proactive when you need to be and reactive when you need to be to what's happening in your market from a monetization and pricing standpoint.

Can you tell us a story, like what, what is the story of any of the companies that you've been involved in that comes to mind where you learned a really hard lesson around monetization, specifically around all this systems complexity? Is there a story you would tell that could be instructive for other operators?

There's many. So I mean, maybe two stories. The first one was Terranest early days was a lot of hacky stuff, right? On the pricing side, this was what, 2013? And it became pretty clear that we had created something of value. We needed to charge more for it. Well, it was kind of hard to charge more for it. So we had to get creative. We doubled our price, but we couldn't double the price because the faster way to double the price was to give half the value. So you can see how those things kind of affect each other. So instead of doubling the price, which it felt like the market could bear, the fastest way to get the returns we were looking for was to actually cut the value in half. So you were getting half for the same price. But that's because that was the faster thing to do. It worked out, but cash-wise, it would have been better to actually double the price. Do you get what I'm trying to say? Exactly. So that's an example. And then, you know, the big thing that people do sometimes is they worry too much about their earning before they're learning. When it comes to monetization, you really want to try very hard to make it easy for you to learn so then you can earn. One other company in our portfolio literally was so worried about people taking advantage of the product and tire kickers that they introduced a dollar trial. Well, you create this huge friction that really limits your ability to learn by introducing a dollar trial. And now you've tooled your whole business, including your acquisition funnel and the customer engagement funnel around a dollar trial. And to reverse that is a ton of work. So those, those would be two examples around tooling and how hard it is to reverse and the reasons you do it. So many reasons. And then you kind of pay the price.

So great, great examples. What do you tell companies now? Like what are best practices that you try to relay to early stage companies? Around how they should be thinking about pricing, packaging, monetization. If you do these things, you'll at least be improving every month.

So number one, it's the pricing and monetization strategy has to fit the solution strategy and how the customer does the job. If it's something that might— if a customer sees value in individual events, you probably have to find a way to price for individual events. However you package it, somehow it has to fit the job. So that's one. How you charge is just as important as how much you charge. Introducing friction, uh, and all that stuff is just as important as how much. Sometimes we're so focused on how much we, we forget the how, and the how is just as important. Uh, and that's even important if you're selling to small customers, large customers, all that stuff. Uh, it is very hard to win in pricing without experimenting very often. So whatever you do, you really want to give yourself a chance to be able to experiment frequently. I think it's okay to experiment 2, 3, 4, 5 times a year around pricing, especially in the early days, even later on in the early days. Don't decouple how you're funding the business from your monetization strategy. If you need to quickly recover your customer acquisition cost, you can probably find a way to build something. So for example, we have a product. In, in one of our companies that doesn't have a lot of funding, but it's growing very fast, but it's selling to larger customers that have a longer sales cycle. So what they've done is they have their core pricing strategy, but they've introduced an element of pricing because many times the customers will come with an existing problem they need to kind of take care of and then an ongoing use of the software. So they've decoupled the taking care of the existing problem from the ongoing use of the software, and the pricing for taking care of the existing problem pretty much recoups the cost of customer acquisition. So there are different ways to think about it. Do you get what I'm trying to say? Because it helps the company with its funding. So how you fund is— how you fund the business cannot be decoupled from your monetization strategies. So those are some of the lessons I would kind of I would kind of give companies. I, I think those would be some of the things I would really think about. And maybe the idea that optimizing for monetization is antithetical to growth is also not true.

Yeah, those are great lessons. It's so much fun to get to have the opportunity to talk to you in this format, in this forum. Thank you for doing it. I like to close with a question around the, the specific experience or moment that you think played the most formative role in your career?

When I was born. No, I'm kidding.

I'm alive, baby. I'm alive.

I know, I know. Uh, there's a lot. There is a lot. You know, like I said, building Terranest was very, very challenging. It took us— we raised a small angel round, and it took us almost a year to even do that. And the first check was a $75,000 angel check, 8 months into the fundraising cycle before I got the first check. And I'm not sure we would be here without that check, just to be honest with you. But when I went to the investor and I got that check, he also kind of told me, hey, I really believe in you, but this may go to zero. And I was like, no, no, no, you were the first guy to give me money. I would do whatever the heck I got to do. If I have to deliver a million boxes of pizza to pay you back this money, it's not going to zero. So obviously that really kind of stands out. My first exit in life, clearly a life-changing moment. And then the first time I bought another company. So I think there are lots of— or the first time I wrote an investment check, actually, maybe that's not that formative. I can't remember the first company I wrote an investment check to, but the first acquisition, definitely, because that's a big risk. So I would say those things, very formative. There are so many examples, Fynn, honestly. We'll be here all day. People showing grace, me totally screwing up. And anyway, yep. Yeah, it's great.

Um, where can people find you or learn more about Harmony Venture?

Where can people find me? My happiest place is in my house, but please don't come to my house, which I have actually had happen, by the way. I've had people show up at my house. I don't know why somebody would do that. But I'm on the typical places, uh, On Twitter, I refuse to call it X, it just doesn't roll off the tongue. So I'm on Twitter, I think I'm @Sotolana on Twitter, and then I'm on LinkedIn as Shagun O on LinkedIn. So, and then I have my website, shagunotolana.com, if people want to find me there.

Thank you again, can't wait to get this episode out.

Thank you.