A behind the scenes look at Merge
On May 17, 2023, Contrary Research hosted a panel about how Merge was founded. Shensi Ding, Co-Founder and CEO at Merge, and Ben Fletcher, Partner at Accel, were joined by moderator, Kyle Harrison, a GP at Contrary. Here's the video and a lightly edited transcript of the conversation.
The Merge founding story
We really wanted to solve this problem of product integrations
Shensi: "Gil and I were both at startups in San Francisco and I really think that it is the best way to find ideas. Both of us were working in early-stage companies that had a lot of things that were really problematic. I think it is much harder to go to a big company where everything is already solved."
Shensi: "One thing that both of us ran into was integrations. I was at a cybersecurity company called Expanse, later acquired for ~$1B by Palo Alto Networks. We needed a lot of ticketing integrations. In 2018, we didn't have any integrations. We thought we were OK. It wouldn't matter because we had the best product in the market."
Shensi: "Our sales team quickly realized that it did matter. The onus of having integrations is increasingly on the vendor being purchased. Previously companies would purchase two SaaS products, also purchase a workflow builder, and they would build a bespoke integration between the two products. The software buyer would just have to deal with that."
Shensi: "But now, if you didn't have these integrations built-in, you couldn't sell your product. To compete at Expanse, we had to hire a ton of engineers completely focused on building integrations. It took a really long time. Not only was it difficult to build the integration and get access to the APIs in the first place, but maintaining the integrations was really expensive. It was an ongoing problem that you could never let go of."
Shensi: "We really wanted to solve this problem of product integrations. I was fortunate that Gil was running into this same exact problem but in a very different category of software. It allowed us to think holistically of how to solve this problem from an entire market perspective, rather than a vertical industry perspective."
How has the changing SaaS landscape made it possible for Merge to succeed?
But the more that I worked on Merge the more conviction I've had that this is a bigger and bigger problem.
Shensi: "When you're building a company you may end up losing conviction because there are customer issues or competitors popping up. But the more that I worked on Merge the more conviction I've had that this is a bigger and bigger problem. Every SaaS company that is currently being formed needs to solve the problem of integrations."
Shensi: "Before, companies like Oracle and Workday and SAP could not provide a great experience and their buyers would just have to deal with it. It was so hard to start a SaaS company that buyers would have to buy an entire suite of products from a single vendor. Now that it is easier to start a company, SaaS products can be the best at one specific thing that is a true pain point."
How do SaaS companies differentiate when integrations become table stakes?
You've got to have a great product.
Shensi: "You've got to have a great product. You can no longer just say you have the most integrations and not also have great customer support, ease of use, and development velocity."
Shensi: "With Merge, SaaS companies are able to focus on other things. An analogy is how companies used to maintain servers in-house. Up until AWS and GCP and Azure, you had to maintain infrastructure yourself. But there is no reason that every company should have to build the same thing over and over again. It is the same thing with integrations. Our goal is to abstract away all the work from integrations so every SaaS company can move a lot faster."
What convinced you to invest in Merge?
I like to look for what we call 'ditch digging'
Ben: "I like to look for what we call 'ditch digging' that has occurred in a market where we are going to partner with those founders. These companies are very difficult to replicate. We led the Series A in a company called MessageBird, an API for international communications. The founder flew around the world and signed 250 carrier agreements. That's something very difficult to replicate."
Ben: "As we have followed that theme, it's interesting to see where that can be applied to different areas of software. When I met Shensi and Gil, I noticed that they are incredibly tenacious and aggressive in how they run their company and tell their story. But they are also incredibly kind and great people. For me that is so important because it is going to be a 3-year, 5-year, 7-year, 10-year partnership with these founders. It's really important that you get to work with great people."
Ben: "We looked at Merge's competitors and no one had been able to replicate it. In this, I saw very similar signs to other successful companies."
Why take on multiple market categories at once?
If you want to build a big company, you need to do something really difficult that's a huge pain in the ass.
Shensi: "The TAM (total addressable market) isn't big enough. If you want to build a big company, you need to do something really difficult that's a huge pain in the ass. That's when we realized that this is going to be hard to build both technically but also operationally. And when we solve this, no one else will be able to replicate it because it is so hard to do."
Shensi: "Integrations are a very unique thing to be so passionate about. And I love it, but it is really, really hard to do."
Shensi: "We planned ahead to be cross-category, and that planning allowed us to invest up-front in building a scalable product."
What does the future of Merge look like?
Any time a company thinks about offering integrations, they just use Merge.
Shensi: "Any time a company thinks about offering integrations, they just use Merge."
Shensi: "In the future we want companies developing their own APIs to look at Merge and copy the schemas, because they want all of Merge's customers to offer them as an integration. That would be the dream."
What are you most excited about AI?
There is real ROI being created and the use cases are incredibly tangible.
Ben: "The thing that gets me most excited about AI, and specifically generative AI with transformer models, is that there is real ROI being created and the use cases are incredibly tangible. Every board meeting I'm in we're talking about how we can use AI within our product or how we can use AI to accelerate some of our back office functions—software development, chatbots for customer support, personalized sales outbound. We look for AI companies where the use cases are sound and the capital can help accelerate their development."
Ben: "Our view at Accel is that every company is going to have to define how they want to use AI. They need to be very opinionated about the use cases AI can solve for their company."
Shensi: "At Merge, AI is relevant both for documentation and back office functions. In addition, AI companies need a lot of data. Where better to get data from than integrations? We've seen a lot of AI companies naturally gravitate towards Merge because they need these integrations to provide a layer of value to their customers. We are always surprised by how these companies use Merge and the use cases that pop up."
How have you thought about defining the culture in your company?
Pre-pandemic San Francisco was magical. Every company was heads down building.
Shensi: "We started in June of 2020 in Gil's apartment and all we were doing was coding. The first two team members, founding engineers, were also in San Francisco. We realized from working together that it was just so fun. We were able to get so much work done and to collaborate. Early-stage building is synchronous, not async. You have to bounce ideas off each other. You're building a team."
Shensi: "We started in person and ended up continuing to add team members in person. As we added team members, we decided that we were going to take the hard route to increase the chances of success as much as possible."
Shensi: "Pre-pandemic San Francisco was magical. Every company was heads down building. I remember going to the Dropbox cafeteria and going 'oh my god.' And all that is now gone. Building a company is really about building a community that is attached to what we're building, and I think that is lost with remote work."
Ben: "The companies that do culture the best are ones that are very opinionated and define the company from the beginning."
How do you build user love and user community?
The bones have to be right.
Shensi: "You have to have a good product. Everyone can tell when the emperor has no clothes. One thing I learned from another founder is that you need to create discourse around your company that you have the best product. But then you actually have to have the best product."