Personal blog of Yzmir Ramirez

Customers have been “experiencing” business since the ancient Romans browsed the Forum for produce, pottery and leather goods. But digitization has radically recalibrated the buyer-seller dynamic, fueling the rise of one of the most talked-about industry acronyms: CX (customer experience).

Part paradigm, part category and part multibillion-dollar market, CX is a broad term used across a myriad of contexts. But great CX boils down to delighting every customer on an emotional level, anytime and anywhere a business interaction takes place.

Optimizing CX requires a sophisticated tool stack. Customer behavior should be tracked, their needs must be understood, and opportunities to engage proactively must be identified. Wall Street, for one, is taking note: Qualtrics, the creator of “XM” (experience management) as a category, was spun-out from SAP and IPO’d in January, and Sprinklr, a social media listening solution that has expanded into a “Digital CXM” platform, recently filed to go public.

Thinking critically about customer experience is hardly a new concept, but a few factors are spurring an inflection point in investment by enterprises and VCs.

Firstly, brands are now expected to create a consistent, cohesive experience across multiple channels, both online and offline, with an ever-increasing focus on the former. Customer experience and the digital customer experience are rapidly becoming synonymous.

The sheer volume of customer data has also reached new heights. As a McKinsey report put it, “Today, companies can regularly, lawfully, and seamlessly collect smartphone and interaction data from across their customer, financial, and operations systems, yielding deep insights about their customers … These companies can better understand their interactions with customers and even preempt problems in customer journeys. Their customers are reaping benefits: Think quick compensation for a flight delay, or outreach from an insurance company when a patient is having trouble resolving a problem.”

Moreover, the app economy continues to raise the bar on user experience, and end users have less patience than ever before. Each time Netflix displays just the right movie, Instagram recommends just the right shoes, or TikTok plays just the right dog video, people are being trained to demand just a bit more magic.

E-commerce is booming as retailers race to transform their brick-and-mortar footprints into online storefronts. By some counts, the market grew an astonishing 42% in 2020 in the wake of the COVID-19 pandemic, and estimates show that online spending in the U.S. will surpass $1 trillion by 2022. It’s a bonanza, and everyone is figuring out this new terrain.

Consumers are likely familiar with the front-end brands for these storefronts — with companies like Amazon, Shopify, Square, and Stripe owning attention — but it’s the tooling behind the curtain that is increasingly determining the competitiveness of individual stores.

Klaviyo may not be a household name to consumers (at least, not yet), but in many ways, this startup has become the standard by which email marketers are judged today, triangulating against veterans Mailchimp and Constant Contact and riding the e-commerce wave to new heights.

Founded in 2012, this Boston-based company helps marketers personalize and automate their email messaging to customers. By now, most people are intimately familiar with these kinds of emails; if you’ve ever given your email address to an online store, the entreaties to come back to your abandoned cart or browse the latest sale are Klaviyo’s bread and butter.

It may seem obvious in retrospect that email would grow to become a premier platform for marketing, but this wasn’t the case even a few years ago when social ads and search engine marketing were the dominant paradigm. Today, owned marketing and customer experience management are white-hot trends, and Klaviyo has surged from a lifestyle business to a multi-billion dollar behemoth in just a few short years. Its story is at the heart of the internet economy today, and the future.

TechCrunch’s writer and analyst for this EC-1 is Chris Morrison. Morrison, who previously wrote our EC-1 on Roblox, has been a writer and independent game developer covering the video game industry and the marketing challenges that come with publishing. As an analyst and a potential user, he’s in a unique position to explain the Klaviyo story. The lead editor for this package was Danny Crichton, the assistant editor was Ram Iyer, the copy editor was Richard Dal Porto and illustrations were created by Nigel Sussman.

Klaviyo had no say in the content of this analysis and did not get advance access to it. Morrison has no financial ties to Klaviyo or other conflicts of interest to disclose.

The Klaviyo EC-1 comprises four main articles numbering 9,700 words and a reading time of 43 minutes. Let’s take a look:

• Part 1: Origin story “How Klaviyo transformed from a lifestyle business into a $4.15B email titan” (2,600 words/10 minutes) — Explores the rise of Klaviyo from a database for e-commerce data into a modern email powerhouse as it successively learned from customers and bootstrapped in the absence of funding from accelerators and early VCs.
• Part 2: Business and growth “How Klaviyo used data and no-code to transform owned marketing” (3,000 words/12 minutes) — Analyzes Klaviyo’s recent growth and how marketers increasingly focus on owned marketing channels and customer experience management.
• Part 3: Dynamics of e-commerce marketing “Marketing in 2021 is emotional and not just transactional” (2,200 words/9 minutes) — To fully understand Klaviyo and this new world of martech, this article contextualizes how and why marketers are increasingly trying to personalize and build deeper emotional bonds with their customers outside of social media channels.
• Part 4: Lessons on startup growth “Drama and quirk aren’t necessary for startup success” (1,900 words/8 minutes) — Founders shouldn’t have to keep learning the same lessons over and over again. Klaviyo offers a number of tried-and-true tutorials to understand how to build a competitive startup and not get bogged down in finding product-market fit and scaling.

We’re always iterating on the EC-1 format. If you have questions, comments or ideas, please send an email to TechCrunch Managing Editor Danny Crichton at danny@techcrunch.com.

Startups are stories of feverish dreams and obsessive fears. Short of hearing it from the source, a glimpse into the inbox of a founder would be the best way to experience the travails they endure on the way to building a business. A customer finally makes a purchase, a VC invests or walks away, an employee signs their offer letter — all of the major and minor milestones of a startup are communicated via that now-ancient medium of email.

Email’s ubiquity is only part of the story, though. It’s also a symbol of freedom: The last social platform that remains relatively open and free from the clutches of a single monopoly owner. It’s a market rife with entrenched incumbents, but one that simultaneously continues to invite founders to find some new take on this venerable communications channel and make it better for everyone.

That was the mission that Andrew Bialecki and Ed Hallen undertook when they founded Klaviyo back in 2012. What they perhaps didn’t bank on was just how long of a route they were about to take — or how many rejections they might find in their own inboxes from accelerators and VCs who never thought a new generation of email service providers could make it.

So they bootstrapped, kept things lean. They debated canceling dinners to pay the bills when customers churned. And along the way, they built a special startup that is today valued at a whopping $4.15 billion. Klaviyo is the story of how two scrappy, inexperienced entrepreneurs set out to build a lifestyle business — and ended up creating an email titan.

Racing to the starting line

Klaviyo’s origin story sounds a bit like the generic advice given by every book on entrepreneurship. Andrew Bialecki — he goes by AB — had a need that no existing company filled. So, he started a company to address that need.

It began with what he calls a side hustle: a website devoted to cataloging the dates and locations of running races. Bialecki had the technical chops to build it, but the data wasn’t already available online and he needed race organizers to provide it. That, in turn, meant he needed to let them know his site existed and constantly follow up to make sure they were using it.

“I realized I’m on the phone with people and it’s never going to scale. After a while, I was working on that while I was at another startup, and I said I have two options here. Either I can go all-in on road races, or all-in on the problem: ‘How do we help these businesses connect with the people using their software or products?’” recalls Bialecki.

By then, he already had a co-founder in mind. Bialecki had been a student together with Ed Hallen at MIT, but the pair actually met while working at Applied Predictive Technologies (APT), a Washington, D.C. tech consultancy.

“I’d read all those books on, hey, when you’re looking for someone to start a business with, you want someone with similar values who’s also complementary,” says Bialecki. “I’d known he was kind of interested in starting a company, and we had really complementary skillsets. I loved the engineering and design and product, and he was a big product guy too, but was used to working with customers and clients.”

An email company that didn’t (initially) do email

Current Klaviyo users may be surprised to hear that email was not part of the product that emerged. Instead, Bialecki and Hallen built a database to collect all the e-commerce data that was falling through the cracks.

“Once we really talked to a lot of e-commerce people, it was clear there were long-standing problems,” says Hallen.

Bialecki adds, “There are facts you know, like their name, their email address, their favorite color or something they told you about their birthday. But some of the harder stuff was, jeez, how many times has this person visited my website, bought something from me, what products did they buy and how is that trending over time? Were they a really frequent customer that dropped off the face of the Earth?”

As they spoke to customers, the founders realized that handling customers’ data and making it useful to them was going to be critical to Klaviyo’s success. It just so happened that gathering data matched well with their experiences working at APT.

“We had a ton of experience stitching together data sources,” says Hallen. “We took that expertise and put it as our foundation. What’s the most broken, largest market, and let’s really tie data to it, not as an afterthought.”

Klaviyo’s two co-founders Andrew Bialecki and Ed Hallen in July 2012. Image Credits: Klaviyo

What that required, in practical terms, was spending the initial months building a custom database to store the disparate data types that come up during e-commerce transactions — events, documents and object data models. Conor O’Mahony, who joined the company in 2018 as chief product officer and departed this month to become an advisor, says that the company’s early time investment in its database laid the foundations for its later success in scaling up.

Email is the communication medium that refuses to die.

“Eventually, every technology is trumped by something new and better. And I feel that email is ready to be trumped. But by what?” wrote the venture capitalist Fred Wilson in 2007. Three years later, he updated readers that other forms of messaging had outgrown email. “It looks like email’s reign as the king of communication is ending and social networking is now supreme,” he said. (To be fair to Wilson, his view was nuanced enough to continue investing in email tech.)

Investors weren’t alone — marketers have also spent years anticipating the next big thing.

“It was SMS, it was YouTube, it was Instagram. Before that it was Facebook, then it was Snapchat and TikTok. I kinda feel like individually all those things are fleeting. I think people found: You know what? Everyone still opens their emails every day,” says Darin Hager, a former sneaker entrepreneur who is now an email marketing manager at Adjust Media.

Email has an estimated four billion users today and continues to grow steadily even as mature social networks plateau. Estimates of the number of nonspam messages sent each day range from 25 billion to over 300 billion.

Unsurprisingly for a marketing channel with so much volume, there’s voluminous competition to send and program those emails. Yet, despite the competition, Klaviyo didn’t just break into the market — it has also achieved an unusual level of excitement and loyalty among marketers despite its youthful history.

“If you’re not using Klaviyo and you’re in e-commerce, then it’s not very professional. If you see ‘Sent by Constant Contact or Mailchimp’ at the bottom of an email by a brand, it makes it look like they’re not really there yet,” Hager said.

How did Klaviyo become the standard solution among email marketers?

In Klaviyo’s origin story, we delved into part of the answer: The company began life as an e-commerce analytics service. Once it matured to compete as an email service provider, Klaviyo benefited from the edge given by its deeper, more comprehensive focus on data.

However, that leaves several questions unanswered. Why is email so important to e-commerce? What are the substantive differences between Klaviyo’s feature set and those of its competitors? And why did several large, well-funded incumbents fail to capitalize on building an advantage in data first?

In this section, we’ll answer those questions — as well as laying out the significance of COVID-19 on the e-commerce market, and how newsletters and AI figure into the company’s future.

A positive Outlook on email’s longevity

Email is one of the oldest tech verticals: Constant Contact, one of the most venerable email service providers (ESPs), was founded in 1995, went public in 2007 and was taken private in 2015 for $1 billion. By the time Klaviyo started in 2012, the space was well served by numerous incumbents.

Brands are emotions made physical. The clothes we wear, the media we consume, the devices we use — all signal not only to others what we value and see in ourselves, they also are a way to construct our very identities. Experimenting to deepen that bond has been at the core of the marketing profession for a century; its origins rooted in Freudian psychoanalysis.

There had always been one critical limitation, though: Marketers had to appeal to the masses. Radio, television and print media allowed brands to deliver only one message to everyone, no matter if their product conferred luxury or smart cost-consciousness.

On the internet, the masses have been shattered into ever smaller shards, shifting that marketing calculus toward targeted audiences and social network interest groups. Today, niche brands, large corporations and every business in between are reaching ever-narrower audiences.

Yet, advertising and social networks are competitive marketplaces. Over time, prices to reach niche audiences rise, and strategies that once worked become unviable. In 2021, these perpetual challenges are joined by two new factors: a fresh influx of new e-commerce brands and changing privacy policies on third-party platforms.

Klaviyo benefits from these secular trends. While the cost or difficulty of acquiring new customers may increase, as we looked at in the second part of this EC-1, the cost of emailing an existing one remains much the same. Marketers who become expert at personalization, especially for existing customers through owned marketing platforms like email, will hold an edge over their competitors. It’s no longer about marketing to narrow slices of audiences — it’s about building an emotional bond with an audience of one.

To a booming economy, now ad inflation

While 2020 was a banner year for e-commerce in the wake of the COVID-19 pandemic, the early months of 2021 have brought about a new problem: Customer acquisition costs are rising, sometimes to a worrying degree. For instance, one company interviewed by TechCrunch that did not wish to be named said it has seen its return on investment for Facebook ads fall by nearly half in the first months of 2021. Such inflation has also been predicted by firms like ECI Media Management.

There are two possible reasons for this increase. First, an unprecedented number of companies are moving online, spurred by COVID-19 and worldwide lockdowns.

Many of the stories in our EC-1 series tell tales of startups in the wilderness hacking out green field opportunities. Klaviyo is a different breed of company: One that went into an established market and challenged powerful incumbents, ultimately finding success with a new, more data-oriented generation of email marketers.

As such, the lessons that it offers are, perhaps, more subtle; its insights bordering on common sense.

But as the saying goes, common sense to an uncommon degree becomes wisdom. Here are four pieces of wisdom I’ve gleaned from Klaviyo’s story:

Lesson 1: Drama and quirk aren’t necessary for startup success

Silicon Valley has become a showcase for oddity. Ironically, we all enjoy “Silicon Valley” (the show) or “The Social Network.” Unironically, we toss around phrases like “the hustle” and “sweat equity.” Hot companies often stand out with stories of intense struggle and failure, a larger-than-life founder or a chaotic (and often toxic) management structure.

Drama and sizzle help companies stand out, undoubtedly. But are they necessary for success? Klaviyo’s story suggests otherwise.