Rippling founder Parker Conrad on the opportunity in building “compound startups”

The classic startup advice is, you know, do one thing and do it extremely well. You came up with this alternate term that I think describes rippling pretty well. It's the compound startup. It's not merely just this one thing. It's not just laptop leasing and isn't just identity, it isn't just, you know, payroll or benefits or it's all of these things working together. Yeah, and there's something very sort of almost heretical about, you know, American startups tend not to do this. This almost resembles Asian startups.

Oh, interesting. Yeah, no, I've heard that before. I think it actually resembles a lot of software companies that were built like maybe more than 20 years ago. And so if you look at, you know, companies like SAP and Oracle and Microsoft, they actually look like compound software businesses, maybe you know, Salesforce to a certain extent as well. And what happened is I think there was this moment in time where it really was possible to sort of do this one narrow thing because you know, there was just so much greenfield territory in software when sort of everything shifted from on prem to the cloud and you could go out and you could do this really narrow thing and turn it into a SaaS company. And, and you know, it turns out that almost all of these things ended up, at least for a period of time being worth low single digit billions of dollars. And it was really easy to find like a niche. And the problem is that it's not the sort of ultimate sort of optimum strategy. And eventually all of these markets got crowded with companies that were just doing this one narrow thing. Point solutions, point solutions we call point SaaS. And, and then you know, and actually there are a lot of disadvantages to that approach and one is like the types of problems that you can solve for customers tend to be much more limited, you know, if you're so constrained to this one narrow domain. And a lot of the bigger problems that companies have end up being problems of like business process management and decision making and coordination within the company. You can actually just wipe out a lot of work and make things work function much better if you can take on a whole host of sort of to related applications and build one comprehensive solution. And also point SaaS companies can't afford to invest in the sort of deeper types of research and development. Like you know, Rippling spends an absolute fortune on R and D and it's on things that sort of cut across any one category. It's like, you know, analytics capabilities and approvals and permissions and workflow automations that ended up, end up being useful across all of the applications that we build. And most of our competitors just can't. They can't go as deep on that stuff. And so there's the theory of like the compound software business is that there's this island of product market fit that's kind of over the edge of the horizon line that's sort of harder to get to. But if you can build, you know, multiple parallel applications at once, you can get there. And it actually ends up being a much more powerful type of product market fit that's much harder to displace at that point. But I'm not sure that it's like, good advice. Like, there are a lot of companies that reach out to me. They're like, hey, where you want to build like a compound startup? It's actually, I think, a deeply cynical view of software markets because, like, I think it's possible that compound software businesses are the wave of the future. And also like, there will be three of them, you know, and there's not. It is actually an argument for many fewer businesses, but much larger and more successful ones. If that's like the shape of software markets in the future.

I remember, I think your very first pitch to me for rippling there was the kernel of this in that you didn't want to be just one particular part of the software stack. And if anything, I remember you were writing memos already right off the bat. And one of those memos actually involved saying, like, you know, if you're only one of these things, you know, you're 10, $15 per user per month. But if we add all of these things together, it adds to, you know, not just tens, but hundreds, you know, many hundreds of dollars.

You just capture more wallet share.

Yeah.

Yeah. One of the arguments I think in favor of this approach is that, you know, there it's just sales and marketing has gotten harder and harder and more expensive and less efficient for software businesses. And you see this as at every stage. But you know, in the public markets, you know, over the last five years, public companies are spending 50% more on. On sales and marketing, but they're adding 10% less in new ARR. Like with that increase in spend. And so there's just like fundamentally the business model for a lot of software is just broken. It's like the competition, you know, there's like too many businesses going after.

There's too many businesses and then there's infinity AI slop. So some people say AI SDRs are going to replace everything. Some people say AI SDR, SDR is actually gonna destroy SDR right now.

I think AI SDRs are mostly, like, don't work. You know, they're sort of tantalizing hints, but, like, they can't actually do the job well. But the second that it flips and they can, it won't have the impact that people are hoping it won't. It won't be that, like, oh, wow, now sales and marketing is easy. What'll happen is it'll just destroy Outbound as a channel. It will cease to work and cease to function because it'll just get so overwhelmed at that point.