Optimizing for Impact
How Nathan Barry’s disruptive leadership has taken ConvertKit to the next level
This article also appears in the Oct 2017 issue of Hyperlink, a new magazine focused on the intersection of media, technology, commerce, and culture. Hyperlink is published by Winning Edits. To purchase the Oct 2017 issue, go to hyperlinkmag.com.
By Matthew Gartland
Nathan Barry founded ConvertKit over four years ago, but only became its CEO in 2016. Until then, as founder, he had been the de facto CEO responsible for vision, strategy, and product development. “My vision for ConvertKit is simple,” he says. “ConvertKit exists to help creators earn a living. In my time as a blogger and author, I needed better tools to earn a living from my audience. That need turned into ConvertKit.”
But like many startup founders as first-time leaders in the early years of their companies, Barry felt out of his skin self-identifying as the chief executive. According to Barry in his personal 2016 annual review, “For the first three years my title was ‘Founder and Designer.’ Officially I was the CEO, but I felt weird adopting that title. I didn’t feel or act like a CEO.”
Barry’s sense of leadership changed at the start of 2016. ConvertKit was beginning to make significant inroads within the highly competitive industry of email service providers (ESPs). At that point in its growth, ConvertKit was generating around $100,000 in monthly recurring revenue (MRR), up from a meager $3,000 MRR approximately one year earlier. While that revenue growth was impressive, it was also unprofitable. January 2016 closed with a minus–11.53 percent profit margin.
Something had to change.
The change materialized in a hardcore focus on profitability (versus growth). Over the next five months, Barry shifted more of his day-to-day work away from designing the core product to instead optimizing the core business. He led contract renegotiations. He analyzed spend and found areas to cut costs. He worked with his customer success and development teams to improve the efficiency of their standard operating procedures. And, eventually, thanks to constructive challenges from his directors, he hired a designer to replace himself in that role.
This hard, unglamorous work yielded positive results — and quickly. Profit improved to 31.97 percent in February, more than a 40-point swing from the prior month. Profit margins stayed in the mid-30s for the next couple of months and then experienced another breakthrough by June, when the company cleared the 50 percent mark.
That profit improvement became the enabler of the company’s first team-wide retreat that August. In his annual review, Barry reflected, “There was a ton to celebrate.” The company’s profit success was a major point of the celebration. After personal gifts were distributed to each of the twenty-one team members, Barry went a step further and passed out a card to each person containing individual profit-sharing bonuses. Of that moment, he wrote, “That’s the moment I felt like a CEO. Not just a CEO, more specifically, I felt like a leader.”
ConvertKit has continued to soar since that mid-2016 moment. Revenue growth has climbed and important performance markers have improved, all boons of Barry’s commitment to profitable growth and personal development. As of this writing (September 2017), ConvertKit is generating $791,000 in MRR with an annual revenue run rate of $9.49 million. Customer churn is a quality 5.5 percent (and declining). And cancellations are falling as upgrades climb. ConvertKit is proud of these metrics and its transparency of them, which can be viewed in real time by visiting its Baremetrics dashboard at http://convertkit.baremetrics.com.
ConvertKit’s successful rise from humble, obscure beginnings within the fierce ESP market is a wonderful underdog story. But is it also a story of true disruptive innovation within an established industry? That question is tricky. On the surface, the answer is yes. The company is a new, small challenger in the field. It offers a competitive product with differentiated features focused on a niche market (professional bloggers). Barry bootstrapped the company from day one. The team embraces new ways of working. (The staff is entirely remote.) The company has become wildly profitable at increased scale. And the team cares about its own story and content — they want to be more than just a technology company; they want to be a brand, too.
That’s enough to earn ConvertKit the “disruptor” label, right?
Not so fast.
Disruption is a defined term that many tech founders and tech pundits either forget, ignore, or were never educated on. The term, and its gold standard definition, comes from Clayton Christensen, the Kim B. Clark Professor of Business Administration at Harvard Business School. In Christensen’s words, “‘Disruption’ describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality — frequently at a lower price.”
ConvertKit matches that description in large part thanks to its focus on professional bloggers as its core segment. Since the rise of blogging in the early-to-mid-2000s, blogging has become less the rage and therefore less of a key driver of innovation. Blogging is now commonplace and, perhaps, even ho-hum. As such, innovative solutions focused on the blogger market seem to be declining in relative contrast to the proliferation of platforms and services targeting hot markets like teaming (e.g., Slack, Microsoft’s Teams), photo and video sharing (e.g., Snapchat, Instagram), online selling (e.g. , Shopify, Teachable), and artificial intelligence (e.g., LifeTracker, Clara). The effect: bloggers have become an overlooked segment ripe for a resurgence of innovative new technologies.
The case for ConvertKit as disruptive improves when the entirety of the ESP marketplace is examined. Giants like Campaign Monitor, Constant Contact, and Infusionsoft — which dominate the playing field — are optimizing their solutions for enterprise companies, not bloggers. Even MailChimp, an email marketing option beloved by many bloggers, is positioning itself these days as “the world’s largest marketing automation platform” that services “15 million customers, from small e-commerce shops to big online retailers” and can integrate with major ecommerce platforms like Shopify, Magento, BigCommerce, and WooCommerce.
ConvertKit is seizing upon this marketplace disparity by first calling direct attention to it. Front and center on its homepage, the company states, “All the major email marketing companies are generic. From cupcake shops, to design agencies, to plumbing companies, they are trying to serve every type of business.” Then, it hammers home the contrast with a compelling punchline: “Instead of a perfect-for-you solution you wind up with a mass of features that aren’t a good fit for anyone, especially not bloggers.”
This marketplace landscape, and ConvertKit’s clear position within it, satisfies Christensen’s first of two requirements for true disruptive innovation: that it must originate in either a low-end market foothold or a new-market foothold. In ConvertKit’s case, its incumbency aligns with the former: a low-end market foothold, that of the blogger audience segment overlooked by the larger incumbents in the field as they look upward to enterprise clients with broader needs and deeper pockets.
However, whether ConvertKit satisfies Christensen’s second requirement is less clear. This requirement states that truly disruptive innovations are initially perceived by customers to be inferior to established mainstream options, and consequently that customers will not switch to the disruptive options until quality reaches parity with those mainstream options. ConvertKit is far from a low-quality product. And the company is not necessarily trying to erode the profitability and existence of mainstream ESPs by coopting large swaths of their customers (of increasingly non-bloggers) to itself.
Additionally, disruptiveness must be assessed within the context of time and business model. Regarding time, ConvertKit is not today an inferior product, and therefore fails that requirement. However, was it inferior when it entered the market in early 2013 compared to its incumbent competitors? If so, was it more disruptive back then? And as ConvertKit evolves in the months and years to come, will it become more or less innovative, and if more, in which way: disruptive or sustaining?
Regarding business model, ConvertKit is not doing anything radical. It offers subscription tiers based on numbers of subscribers. While other ESPs have different constructs for their pricing tiers, they are all rooted in the same core model. Conversely, truly disruptive innovations often attempt to completely rethink the target market’s conventional business model first, even before nailing the innovative technology.
Does the ConvertKit team care whether it fits the textbook definition of a disruptive company? It’d be hard to think so given their growth, success, and happiness doing things their way. And who in their right mind could fault them for that? Not Barry, the man whose opinion matters most: “ConvertKit is absolutely a disruptive technology,” he says without hesitation. “Before ConvertKit, creators needed to become experts in complicated technology in order to automate the sales and marketing for their work. Now you can set up this simple automation yourself, and pour all the time saved into teaching or creating for your audience. I want people to spend less time in ConvertKit and more time creating their art.”
Barry’s grown as a leader, and a disruptive one at that. Not disruptive, perhaps, in the academic sense, but disruptive in the leadership sense. He was willing to disrupt his own self-identification to embrace a new level of self-awareness about his motivations, role, responsibilities, and ability to generate results. For ConvertKit to continue to thrive, it needs not a pure disruptive technology but rather a leader devoted to disruptive thinking and decision making.
Moreover, Barry’s mindset shift and corresponding behaviors reflect the findings of the CEO Genome Project, a recently published study of more than 17,000 C-suite executives, including 2,000 CEOs, over a ten-year period with the goal of “identify[ing] the specific attributes that differentiate high-performing CEOs.” The study discovered a pattern of four critical behaviors that underpin the performance of successful CEOs. Those four, as summarized by the Washington Post, are: “reaching out to stakeholders; being highly adaptable to change; being reliable and predictable rather than showing exceptional, and perhaps not repeatable, performance; and making fast decisions with conviction, if not necessarily perfect ones.” Barry’s personal definition adds a fifth trait to those four: “I’d say persistence,” he says when asked what he believes to be the most important characteristic of a CEO and leader. “Persistence means that you’ll keep grinding away at a problem after everyone else has given up and moved to something easier.”
Barry has demonstrated those qualities in three significant, distinct moments during ConvertKit’s inception and growth to date: (1) by all but abandoning his multi-six-figure training business (creating and publishing popular information products on software design and online marketing) to go all in on ConvertKit and get it off the ground, a move of extreme career adaptability and conviction; (2) by inviting and accepting challenging feedback from his director team about being way too involved in the product once scale and, thus, business and leadership demands were surging, a level of awareness many creators shrug off with unconscious ignorance; and (3) by remaining steady and true to the course at hand — building a profitable company his way, in part by not accepting outside funding that could compromise his vision. That’s a recipe for growth and success whether the leader’s company is a true disruptor or not.
So, is ConvertKit a disruptive company? Today, on paper, per Christensen’s gold standard, it’s close — about halfway there — but no, it’s not technically disruptive. But is it doing exciting, challenging, industry-rattling things? You bet. And is Barry now a bona fide CEO? Absolutely. In fact, he’s more than just a CEO; he’s a chief disruption officer, a special breed of chief executive who not only cares about optimizing for profits but also, and perhaps more so, is devoted to optimizing for impacts. Such ambition requires unconventional thinking, constant self-examination, opportunistic decision making, and perpetual empathy for others. With that spirit, Barry’s and ConvertKit’s futures are bright, and bound to catalyze more innovation within the ESP market. Their stories are far from over. Their collective journey of innovation, and possibly true disruptiveness, has only just begun.
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