How Retool Became the Fastest Way to Build Internal Software [Pivot Case Study]

Venmo competitor → Internal tool builder

1. Original premise?

What problem was the Retool team solving? For who? What was the intended solution?

David Hsu’s journey as an entrepreneur started when he was pursuing a double degree in computer science and philosophy at Oxford. He had various side-hustles as a student, including earning a commission on the sale of passes to parties organized through a ticketing system he built. Fueled by his experiences at Oxford, David entered YC with an idea to build a Venmo competitor based in the UK. 

2. Warning Signs

What made them think they needed to pivot from their original premise?

David’s fintech startup was losing money on every transaction it processed. A few weeks before demo day at YC, the startup was losing $1,000 per day. David had less than 60 days of runway left when he decided that he had to pivot to survive.

3. Time to Pivot

How long after they started the company did they think about pivoting?

A couple of months. David entered YC with the idea of building a Vemo competitor and refined the idea for Retool (a SaaS platform that helps developers build internal software faster) while he was still part of the cohort. 

4. Initial Funding / Team

Had they raised money before their pivot? How much? How big was the team?

As a YC company, they had raised funding before Demo Day YC prior to their pivot and they did not have any other employees. 

5. New Opportunity

What were the key insights that drove their pivot?

With less than two months of runway left, David was forced to think about how the startup could pivot. While scouring for ideas he realized that he had built a bunch of internal tools to comply with fintech regulations (such as software to verify user IDs to comply with KYC and AML laws). He remembered spending a lot of valuable time building internal tools for his side-hustles in the UK as well. David realized that at the end of the day, all these tools boiled down to tables, buttons, and text-inputs — sparking the idea of a startup around making the process to build internal tools faster.

6. Pivot Validation

How did they validate those insights?

David tested a MVP of Retool on people in his YC cohort. He did not get good feedback — many of the founders told David that his idea would not work. This was back in 2017, when the idea of democratizing programming was in vogue, and some of them suggested he pivot to building a no-code platform instead. Interestingly, David stood his ground. He believes that as a founder you have to have differentiated beliefs about the world — if you have the same beliefs as everyone else, there’s no reason you will find success where everyone else has not.

Practically speaking, when David launched an early version of Retool at Demo Day, he announced that the company already had signed a pilot deal worth $1.5 million with an enterprise client; a good way to validate the need for a platform to simplify building internal tools.

7. Length of Pivot

How long did it take to get clear signal the pivot was working?

It took Retool less than a year to grow their customer base to include major startups like DoorDash, Allbirds, as well as Fortune 500s.  

8. Pivot Funding

Did Retool raise money during or after their pivot?

Retool has raised $141 million over 5 rounds, including a $45M Series C in June of 2022 by Sequoia Capital. Sequioa also led their Series A and B, with participation from angels such as Daniel Gross, Elad Gil, John Collison, Nat Friedman, and Patrick Collison.

9. Pivot Outcomes

What happened after the pivot? Did they ever get to product market fit? Where is the company today?

Retool got to PMF. It is a six year old company with around 300 employees and has raised $190 million. Retool has reputed investors like Sequoia, PG at Quiet Capital, and Greg Brockman from Open AI in its cap table. It is also cash flow positive.

10. Lessons Learned

What are 2-3 key takeaways from Retool's experience?

1. Find “language” market fit. Retool initially did not get any traction when the team positioned the platform as “an excel sheet with higher-order primitives.” Nobody knew what that meant. David recalls revamping this in a cold email, describing the company as a way to build internal tools faster. In just 15 minutes, he got a positive response from the CTO of a 1,000-person company. Messaging is everything — spend time on branding your startup in a way that appeals to the target audience.  
2. Lead growth with outbound emails. Retools initial growth was fueled by a straightforward plan of doubling down on outbound emails. David thinks this strategy is better than getting mutuals to intro you to potential customers because these orchestrated calls can be misleading — they are typically non-committal, vague, and can mislead startups into thinking they have PMF when they don’t.

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