First Customers: He Lived in His Customer's Basement

Summary

The SaaS Podcast: Build, Launch & Scale Your SaaS

Episode: First Customer: Living in His Customer's Basement to $100M | Qualia

Host: Omer Khan
Guest: Nate Baker, Co-founder & CEO, Qualia
Date: January 22, 2026

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Episode Overview

This episode delves into the remarkable journey of Qualia, a software platform for title and escrow companies, from its unconventional early days—literally living in their first customer's basement—to scaling past $100M in ARR. Nate Baker recounts how a risky, academic approach to market selection almost led them astray, the critical lessons learned from their first customer, and how an initial blind spot in sales threatened their growth until a pivotal shift transformed their trajectory. With actionable details on how to secure early, upfront contract revenue and overcome objections when entering complex markets, this episode offers a playbook for early-stage B2B SaaS founders on finding product-market fit, scaling revenue, and staying deeply connected to customer pain.

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Key Discussion Points & Insights

1. Origin Story: Picking an Unsexy but Critical Market

• Academic Market Selection:
  • Nate and his co-founders wanted to avoid flashy consumer products and focus on B2B verticals with enduring value.
  • "I put together a list of 10 selection heuristics to identify the market that we wanted to go after... things like, you know, we want to build a platform, not a feature, something with network effects..." (08:14)
  • Finalists: Life insurance broker software, insurance adjusting, and title/escrow (Qualia won).
• Warning About Pure Research Without Customer Validation:
  • "It was entirely academic... I would actually caution against that. I think we got very lucky." (10:57)
  • Even core business model assumptions turned out wrong.

2. Building Before Talking to Customers (and Why That Was a Mistake)

• Started Coding Without Validating Real-World Pain:
  • "We then just started building... which is kind of the opposite of what I would recommend to everybody." (12:07)
  • "Probably wasted a solid like three or four months... before we actually found customer number one." (12:07)

3. The First Customer: Barry Feingold & Full Immersion

• Serendipitous Meeting Leads to Game-Changing Partnership:
  • Barry (state senator & real estate attorney) approaches the team at a conference.
  • "Barry walked up... 'Do you go to Stanford? Yes. Are you software engineer? Yes. Okay. I'll be a customer.'" (15:55)
• Extreme Proximity: Living in the Customer’s Basement:
  • For two years, team members rotated living in Barry’s basement to deeply understand the customer's business and workflow.
  • "I probably spent a total of a year living in his basement... onboarding... You’re gonna have meals with his family. You have to tutor his kids in math. That's part of the deal." (18:08)
• Why It Worked:
  • Critical domain understanding and trust accelerated development.
  • "To actually understand what your customer does, you just have to be so in it." (18:53)
• Crisis Spurs Progress:
  • Barry’s prior software vendor found out, cut off access overnight before Qualia was ready.
  • "It became kind of the most productive month in the history of the company because we had to be there for Barry." (19:34)

4. Early Revenue & Go-to-Market Strategy

• Ultra-Focused Geographic & Customer Wedge:
  • Focus on Massachusetts, then gradual geographic expansion.
  • "We basically focused exclusively on Massachusetts as our first market." (22:33)
• Worried About Market Size?
  • Expansion path (products and geography) was always planned.
  • "We knew the national expansion was built in... and we were trying to be really, really, really efficient." (24:05)
• Staying Lean:
  • Team paid very little, incentivized by equity.

5. Selling Before the Product Exists: Securing Multi-Year Upfront Contracts

• Asking for Real Commitment Early:
  • Multi-year, upfront contracts provided development cash and mutual buy-in.
  • “The best tool for early stage SaaS founders... is annual upfront contracts or multi-year contracts upfront, like all the cash up front.” (27:32)
• Tactics for Closing Early Deals:
  • Position the offer as a heavily discounted multi-year deal (“probably more than an 80% discount versus what they were paying...”) (33:39)
  • Leverage social proof—Barry made introductions to competitors.
  • Hyper-local sales: "We actually had more salespeople in Massachusetts than we do now." (29:51)
• Objections & How to Tackle Them:
  • Trust (“Are you going to be around next week?”) was mitigated by local focus and customer references.
  • "You need to be building for [real pain] as fast as possible... But we sort of had a view early on that... we'll divine the correct answer here. It just... wasted time." (12:07)

6. From Engineer Mindset to Respecting Sales

• Realization of Missing Sales Capability:
  • Early belief: “The product would speak for itself, but it didn’t.”
  • Post-inflection: “We hired a VP of sales... and he said to us, 'I've never seen such a gap between great product and incompetent sales execution.'" (32:10)
• Inside Sales Motion Drives Growth:
  • Within 12 months after focusing on sales: 45k ARR → $3.5M ARR.
  • Scaled quickly: 30 reps in four months.

7. Overcoming Objections & Expansion Tactics

• “You Don’t Understand Our Market”:
  • Each state had unique legal and process requirements. Founders responded with deep dives—spending weeks/months in each new market.
  • “It’s an incredibly large lift to get over the regional nuances... we had a customer in Texas... churn because we didn’t understand Texas... Came back recently and are a happy customer now.” (35:49)
• Strategy: Relentlessly focused on understanding local specifics before scaling.

8. Product-Market Fit: Evolution of Confidence

• False Early Confidence:
  • "At the beginning we were unreasonably confident... We really didn’t understand the scope of the problem..." (41:06)
• Realization:
  • True product-market fit took far longer and required much deeper execution than anticipated.

9. Future Vision & The Role of AI

• Big Opportunity Still Ahead:
  • Home-buying is still a painful, expensive process—huge scope for improvement.
  • “We are the correct delivery mechanism for all this AI stuff that’s coming out... AI-enabled B2B use cases are seeing incredible growth rates.” (42:47)

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Memorable Quotes & Moments

• On Living in the First Customer’s Basement:
  “If you signed up to be a new team member... here’s some plane tickets. Your onboarding is actually in Andover. You’re going to live in Barry’s basement for the next two weeks. He’s going to teach you title. ...You have to tutor his kids in math. That’s part of the deal.”
  – Nate Baker (18:08)

• On Sales Blind Spot:
  “I’ve never seen such a gap between great product and incompetent sales execution.”
  – Nate Baker quoting Qualia’s first VP Sales (32:10)

• On Overcoming State-by-State Complexity:
  “The number one thing for us was always like, ‘You don’t understand Tennessee, you don’t understand Texas’... we had a customer... churn because we didn’t understand Texas... they came back recently and are happy.”
  – Nate Baker (35:49)

• On Asking for Upfront Multi-Year Deals:
  “The best tool for early stage SaaS founders... is annual upfront contracts or multi year contracts upfront, like all the cash up front ... The cash flow was meaningful... The customer liked it because they got an amazing deal for the next five years. It was a vote of confidence.”
  – Nate Baker (27:32)

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Segment Timestamps

• [04:59]—What does Qualia do?
• [06:23]—Company size, revenue, products, and new ventures
• [08:14]—How and why Nate picked their initial vertical
• [10:57]—Warning about relying on “academic” market research
• [12:07]—Risks and waste from not talking to customers early
• [15:55]—Finding first customer Barry Feingold
• [18:08]—“Living in the customer’s basement” for deep immersion
• [19:34]—Crisis when Barry’s old vendor cuts off his software
• [22:33]—Geographic focus and lean, efficient early operations
• [24:05]—Thoughts on initial market size and expansion plan
• [27:32]—How Qualia secured multi-year upfront deals and handled objections
• [32:10]—The transformative impact of bringing in a professional sales leader
• [35:49]—Objection: “You don’t understand our market” and evolving the product
• [41:06]—Refined understanding of product-market fit and scale
• [42:47]—AI as a driver of the next era of workflow SaaS
• [45:40]—Lightning round (business advice, book, personal habits, and fun facts)

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Actionable Founder Takeaways

• Ground yourself deeply in your customer’s world—literally, if necessary.
• Don’t rely on ivory-tower research alone; validate core assumptions with real customers ASAP.
• Secure upfront, multi-year revenue via discounts to fund development and strengthen mutual commitment.
• Embrace sales as a core competency—even if your product is amazing, you need process and talent to close deals.
• Respect local complexity—winning early in niche or regional markets enables deeper understanding, social proof, and expansion.
• Stay scrappy and focus on customer value—make your customers money.
• Prepare for expansion by planning for both product and geographic scalability.
• Adopt the best-in-class tools and approaches (including AI)—the landscape is shifting fast.

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Quick Reference

• Qualia: https://qualia.com
• Contact Nate: [e-mail]

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This episode tells the story of how grit, humility, and relentless customer immersion fueled Qualia’s rise, offering founders a practical map for their own vertical SaaS journeys.

Transcript

[Nate Baker]

Foreign.

[Omar Khan]

Welcome to another episode of the SaaS podcast. I'm your host, Omar Khan and this is a show where I interview proven founders and industry experts who share their stories, strategies and insights to help you build, launch and grow your SaaS business. In this episode, I talk to Nate Baker, the co founder and CEO of Qualia, a software platform for title companies that helps coordinate the complex process of buying a home. In 2015, Nate was 21 years old and decided to build software for the real estate industry. He had no experience in that space. He didn't talk to any customers. He just did some research and decided that was the thing he was going to do. Then he started building, still without talking to anyone. Looking back, Nate admits this was a mistake. He and his co founders got some key things wrong about how the business would work and they wasted months building things that they eventually threw away. It wasn't until they found their first customer that they started making real progress. And that first customer was a guy called Barry Feingold, a state senator in Massachusetts who also ran a real estate law firm. Barry believed in the founder's vision, taught them about the industry, made introductions and help them understand what actually mattered. But then Barry's existing software vendor found out that he was working with Qualia and shut off his access overnight. Nate and the team didn't even have the core features built yet, and so they had to figure things out fast. It became the most productive month in their company's history. Still, growth was pretty slow at 45k in ARR. Nate and his co founders were engineers who cared deeply about building a great software product, but they didn't see sales as a real skill. They thought the product would speak for itself, but it didn't. Then they had a wake up call that they needed to finally take sales seriously. Today, Qualia generates over 100 million in ARR. With a team of around 600. They've raised more than 200 million and handle millions of home closings each year. In this episode, you'll learn why Nate's approach to picking a market nearly backfired and and what saved them. How they were able to close multi year contracts paid upfront when they had almost no revenue. What their first customer did for them that most founders would never expect, and why it accelerated everything. We talk about how they went from 45k in ARR to 3.5 million in just 12 months after realizing that they had a massive blind spot and how they dealt with the number one objection they kept hearing from prospects, which was, you don't understand our market, so I hope you enjoy it. I talked to a lot of founders stuck in the same spot. They've got a clear vision. They just need the right team to build or scale it. That's where Gearhart comes in. They're an AI powered product development studio that handles the entire technical side of building your B2B SaaS platform or AI agent. Built by serial entrepreneurs, they understand the unique challenges of startups and can plug into your team to accelerate growth. That's They've built over 70 successful products, including SmartSuite, which raised $38 million and is used by companies like Capital One. Right now, they're offering our listeners the first 20 hours of development for free. Just book a call@Gearhart IO. That's Gearheart IO. I've interviewed over 450 B2B SaaS founders on this podcast. Success leaves clues. And, and I've been taking notes. Every week I send out the shortcuts, the blind spots, and the tactics that actually work so you don't have to learn everything the hard way. Over 5,000 founders read it. You probably should too. Sign up free at SasClub IE newsletter. That's SasClub IO newsletter. You're putting in the hours, but your SaaS isn't growing. It's not your product.

[Nate Baker]

It's.

[Omar Khan]

It's not your pricing. It's the way you're wired as a founder. And once you see it, everything changes. Every founder has a blind spot. The builder ships great code but forgets to sell. The visionary chases big ideas but can't execute. The optimizer tweaks endlessly instead of finding customers. Which one are you? I created a free quiz that identifies your founder archetype and gives you a specific playbook to fix what's holding you back? Take the Quiz at Sasclub I.O. quiz. That's Sasclub I.O. quiz. All right, Nate, welcome to the show.

[Nate Baker]

Thanks for having me.

[Omar Khan]

My pleasure. Do you have a favorite quote? Something that inspires or motivates you?

[Nate Baker]

I don't have a quote for you. I'm sorry.

[Omar Khan]

That's a good answer. We'll take that and move on. So tell us about Qualia. What does the product do? Who's it for? What's the main problem you're helping to solve?

[Nate Baker]

Quality is a software company for title businesses. So if you buy a house, title company is organizing escrow, all the documents and really facilitating the transaction between the real estate agent, the lender, the buyer, the seller. That's our customer and we're core workflow software for them. Crazy stat about this market is half of people cry during the process of buying a house. So it's like when you think about the NPS score of the service that our category provides, it's quite low. And so we're building tools to make that better.

[Omar Khan]

You're building tools to help people stop crying?

[Nate Baker]

Yeah. And I think that if you've bought a house before, it's inherently emotional and complex and I think there's a limit to how good it can be. But it can be a whole lot better than it is today.

[Omar Khan]

Yeah, I mean, we just bought a house, moved across the country like nine or ten months ago, and incredibly stressful process, like right down to the end when we were like moved out of an Airbnb, ready to move into the house. And we get a call saying, yeah, this might not happen today because something didn't go through. And you're like, what the hell?

[Nate Baker]

You know?

[Omar Khan]

Anyway, that's another story. So give us a sense of the size of the business. Like where are you in terms of revenue, customers, size of team?

[Nate Baker]

You know, we're over 100 growing quickly and 600 people. And yeah, and yeah, just trying to do a lot of really cool AI stuff right now. We just launched a product, Qualia Clear, which we're excited about and generally trying to build on top of the platform that we've built.

[Omar Khan]

Great. And I think you've raised north of 200 million so far, including a Series D. Yeah. And if that wasn't enough, you also have another venture you're working on, which is called Fractal.

[Nate Baker]

Yeah, yeah. So five years ago we basically started a business called Fractal to launch vertical SaaS, companies in industry, basically America's most important industries that are, in our view, underinvested in and need better software. And, and so We've launched over 145 companies now in all sorts of niche categories like scrapyard software, rehab clinic software, things like that. And yeah, it's been going really well, but it's modeled off of the type of stuff Qualia has done.

[Omar Khan]

Got it. And you were telling me you have a CEO running that business, so it's not like you're kind of jumping between the two every single day.

[Nate Baker]

Correct. Yeah. Qualia is my full time thing.

[Omar Khan]

So I think the business. Qualia was founded in 2015 and you went through an interesting process to decide that this was the industry, this was the problem that you were going to go and solve and you didn't have any real estate experience and you were, I think 21 at the time. How did you come up with the idea? How did you decide this was the thing you were going to work on?

[Nate Baker]

Yeah, I mean, that's the number one question we get in the industry and with new hires is how on earth did you end up doing title software? I had started a company in college at a very small scale and through that ended up working at 8 VC, which is a venture fund. And my boss there at the time started Palantir. And so we were spending a lot of time trying to answer the question of what is a. What's like the best. What is the best category you could go after to go build a enduring software business. At the time there were a lot of Snapchat and stuff like that growing really fast. And it was annoying to me and my co founders to be focused on all these kind of more. It felt like consumer products where you weren't sure if you put all this work in, if it would, you know, produce value for anyone. So we were really oriented around B2B workflows, where there's actually a significant amount of pain in how that workflow is done and trying to find things that had a lot of good properties. So I put together a list of 10 selection heuristics to identify the market that we wanted to go after. And they were things like, you know, we want to build a platform, not a feature. You know, we want to build something with the potential for network effects, something where you can continue building more and more value over time because you're in the flow value, things like that. And we narrowed it down to three finalist ideas. Life Insurance Broker Software, Property and Casualty, Adjusting Workflow software and qualia, which we obviously picked. But they all have the similar property of being an industry that most engineers don't wake up and decide to do. They're kind of like boring sounding, but fundamentally quite important. There's an emotional aspect of buying those products as a consumer. They're really difficult and just like not optimized. There's principal agent problems in the distribution channel for all these products. And so we were looking for things that had that type of characteristic. And ultimately that led us to qualia, where I think the competitive set was also more interesting than the other categories.

[Omar Khan]

And then so was this like just an exercise you were doing, like just researching online or were you going out and talking to people?

[Nate Baker]

It was entirely academic process, so it was not engaged with reality in an important way. And I would actually caution against that. I think we got very lucky by getting the right answer. Without that. But even I remember in the very early days after we'd started the company, some of our foundational assumptions about the unit economics and the business model just ended up being completely wrong. And so I think that One of the 10 things was that you want to pick something that has multiple paths to revenue so that you're robust to false hypotheses, because you're going to make fully wrong assumptions in some key areas. And yeah, that kind of helped protect us from some of those issues at that point.

[Omar Khan]

So you went through this academic exercise and identified that this business that you were going to build the product you were going to build the problem you were going to solve. Did you then go out and talk to people or did you then just start building something?

[Nate Baker]

We then just started building. So, yeah, it's interesting, and this is kind of the opposite of what I would recommend to everybody. And also what we do now with all the fractal companies is you need to have customers as fast as possible and you need to be building for them for the real pain, the real problem as fast as possible. But we sort of had a, a view early on that, okay, we're going to like, divine the correct answer here. And it just, I think as a result, we probably wasted a solid like three or four months in the beginning of the company before we actually found customer number one. And that's when we really started making good progress. During that time, we built some stuff we ultimately threw away, but we also started to interact more with the integration partners, the ecosystem of vendors, start to understand who's who. And I don't think it was truly wasted time, but it could have been a lot faster.

[Omar Khan]

One of the things that I came across when I was researching was that on the face of it, you would think, oh, real estate, maybe they're just not. They're kind of behind in technology and it's just about kind of automating what's there. And maybe that was true to some degree, but it sounds like the real problem that you identified and you were solving was this coordination with all of these multiple parties and stakeholders involved in the buying process. And it strikes me that initially trying to solve that problem with your V1 seems like a really difficult thing to. To do. So how did you decide where you were going to focus, what specific problem you were going to solve first?

[Nate Baker]

To start with, we just went with the core system of record. I think ultimately what we solve now and where we wanted to get to is more of this ecosystem of products that helps solve the communication Workflow across the entire transaction, which has many different constituents and many different, you know, people who are working on it. But our view was that to solve that, you need to start with the core. And so that's, that's what we did in building Qualia. We really started with the core accounting systems, the core workflow and document and all this, you know, the meat and potatoes of a lot of vertical software systems have some of these same constituent parts.

[Omar Khan]

But who were you building for at the time? Like, who was your initial icp or were you trying to like solve it for a bunch of different end users?

[Nate Baker]

We were solving for the title company. So the, the very first user is a title company or real estate attorney, depending on where in the country it is. It's the same, same type of business. And more specifically, we were solving for Barry Feingold, customer number one. And know, I think in, at that stage in the company, we were really overfitting for the, the first couple customers in a way which I think was appropriate, but also has drawbacks. We actually very nearly closed one of the very largest companies in the space as our first customer. And I think I'm so glad we didn't do that because it would have been a, a disaster. We would have overfit to this kind of super enterprise type of customer segment. And instead we started with more of like a mid market, call it like 50 employee type of customer.

[Omar Khan]

Okay, so tell me about the first customer. How did you, how did you find them?

[Nate Baker]

Yeah, so we found the first customer in probably July of 2015, so a couple months after starting. And we got extremely lucky with Barry. So one of our investors had told my co founder, Lucas, hey, you should wear your Stanford sweatshirt when you go to this conference. And we did. Or he did. And Barry walked up to him like five minutes in, was like, do you go to Stanford? Yes. Are you software engineer? Yes. Okay. I'm like, I'll be a customer. And so we were like, wow, this is so easy. This is just, this is going to be, this is going to be great. Everyone's going to want this product. And we really realized that Barry was singular. And because early on taking a bet to be like a core system of record, it's kind of like, yeah, it's like, hey, I started a new bank. Do you want to be a first customer? All you need to do is send me all of your money and I'll hold it. And you're like, what's the upside? There is no upside. Maybe in five years it'll be like a Better experience. And so that was really challenging in the early days because it's such a core system of record. It's complex to get it implemented. It's difficult, painful. And so we got really lucky in finding a customer who shared the vision of what could be done in this industry. And he made an investment in our seed ground, which helped, but it was really essential to find that one person.

[Omar Khan]

So Barry is a senator, but what was he doing at the time when you met him?

[Nate Baker]

So Barry's state senator in Andover, Massachusetts, near there. And he. Yeah, he has a real estate business and a title, like real estate law firm. And so he was kind of the perfect customer. So after. After Barry signed himself up to be a customer, the team basically rotated through living in his basement for about the next two years.

[Omar Khan]

What?

[Nate Baker]

Yeah, so it's. I probably spent a total of a year living in his basement. And, you know, if. If you signed up to be a new team member, if you're in, like, the first, maybe 25 people at Qualia and you're starting Monday morning, you get a call from me Sunday night, you're like, I'm so sorry, I forgot. But actually, you're. Here's some plane tickets. Your onboarding is actually in Andover. You're going to live in Barry's basement for the next two weeks. He's going to teach you title. He's gonna bring you to work. It's gonna be awesome. You're gonna have meals with his family. You have to tutor his kids in math. That's part of the deal.

[Omar Khan]

Are you kidding?

[Nate Baker]

Yeah. So that's. That's what we did. So. And we worked out of his office because I think that to actually understand what your customer does, like, you just have to be so in it. And I think where I've seen companies fail with. With fractal is that they're just, like, they're not sufficiently in it. And, yeah, that's because that's the only way you're going to actually make something better than it is.

[Omar Khan]

So you got to explain that to me. Like, why would Barry want a bunch of tech folks living in his basement and eating out of his house? Like, how did that even happen?

[Nate Baker]

It is amazing. Um, and on one hand, like, he's. He's singular, but also, like, he's the type of guy who's always trying to do stuff. Like, he's really, you know, I. I, like, I want to be like Barry. You know, it's like he's. He's trying to be in the mix. He's trying to make things happen. He actually cares about his industry deeply and improving things. And he was. He's always just been irritated that he can't deliver an even better service to his client because his software is holding him back. And so, yeah, a lot of the energy came from him. And I think finding Barry is hard. But if you're trying to go build a software product for an end market that is actually revolutionary, you need to be able to find, you know, someone like Barry in your category who gets it. And I think that was the key unlock for us because once we were there, we had a. Yeah, we had a sufficient push to get live 1. One story you might find interesting is as we were getting close to getting live, the software platform that Barry was using at the time, basically got upset with Barry that he was working with us on building this new tool and shut him off. And they. They mailed him a thumb drive with all of his user data and shut them off on the platform, which is crazy. And we were. It was actually. It was. It was very scary because our software is title and escrow software, that's what people call it in the industry. But we did not yet have the title or escrow portions of the software built. But that became kind of the most productive month in the history of the company because we had to be there for Barry, because he was taking his bet on us and he needed us at that moment. And so we were able to get live. But that was really harrowing, and I think it ultimately was the most important thing in accelerating our progress.

[Omar Khan]

So how long did it take for you to eventually ship the first version of the product?

[Nate Baker]

It's kind of a difficult question because I would say maybe two years, something like that. But what that was versus like what it takes to get live today is so different because the landscape has just changed massively.

[Omar Khan]

And during that time, what were you doing? Were you focused purely on Barry as your one customer, or were you signing up additional customers and also going and living in their basements or something?

[Nate Baker]

We basically focused exclusively on Massachusetts as our first market. It was probably one of it. It's a good state to focus on, but it is a. Has a little bit of strangeness versus the rest of the industry for us. So it was. It was a good state to focus on. One thing which is interesting maybe for some of your. Your listeners, is we kind of were thinking about particular competitors that we wanted to compete against and using that as a way to pick a geographic wedge, which I think was. Was really helpful because there Were, you know, ways we could differentiate more easily. And yeah, we, we basically just stayed focused for pretty much a year. In Massachusetts, Betsy Kelly, the one person operation was our second customer and then Mark Canner was our, our first paying customer after that. And yeah, that was maybe six months after getting very live that we actually started to have a paying customer.

[Omar Khan]

So many founders are worry that when they pick a market they're going to pick, it's going to be too small. And how did you think about this when you had zero revenue and you're staying very focused on geography in Massachusetts compared to what it's turned out to be today?

[Nate Baker]

We knew the national expansion was built in. We also believed we could sell more products on top of the core platform that we were offering and build more of an ecosystem over time, which we've proven out. So we weren't that focused on it. We were also not spending very much money. We're trying to be really, really, really efficient. I think at the time the top paid person in the company was paid 80k a year and a lot of people were not taking, were taking a lot less than that. So it was a very lean operation. Even though we had raised a fairly significant amount of money, everyone was incentivized with equity and we were really going for it. Eventually we did start to make more of this national expansion push over the next year. We went down the east coast and then across the country and that starts to make the TAM math make more sense from an investor perspective. But yeah, we really still approached it very state by state.

[Omar Khan]

Walk me through some of those early customer conversations. I'm curious to know what were, what were title companies asking you for or problems they were telling you about and how, how close was that to what they actually needed?

[Nate Baker]

That's a very interesting question because in a space like ours, there's an infinite number of things you could build and if you sat with a customer, they could give you, they could describe to you a roadmap for the next hundred years with each customer. And so I think the, the real challenge that we had was trying to bridge, bridge that, you know, and figure out how do you actually deliver value. And so we were very focused on, you know, what, how do people vote with their money? Like what's, what's actually valuable to people based on what they're willing to pay for? Because that's just a very good signal for what's actually valuable. We built plenty of big speculative products that no one wanted and it was usually because of that we heard a lot of noise in the market. Everyone said they wanted it. We thought it was necessary because we also had a view on maybe driving a network effect or adding some expansion area and then it just didn't work. And so where we've had the most success, it's where we try to actually charge for something at the beginning of the cycle of building, you know, building the first version that product because then people are like, oh yeah, this is valuable, I want to pay for this because I'm excited about the direction you're building here. And so that's, I think that's how we've tried to solve that question.

[Omar Khan]

So if, if a founder is in that situation today, I know there's often this reluctance to ask for money, especially if you don't have anything to deliver yet. How would you, how would you suggest that they ask those questions, how they pitch this, how they frame it in, in a way where they can get some commitment while at the same time not you know, being, being transparent with the fact that they don't have anything right now.

[Nate Baker]

I think the best, the best tool for early stage SaaS, founders, particularly vertical markets and the fractal companies employ this really well and it was really important to quality early on is annual upfront contracts or multi year contracts upfront, like all the cash up front because you can go to a customer and say like I will build all this stuff, I'm really committed to you and I give you an amazing price but I need multiple years up front now and you're the value that you're getting. There's a kind of a maybe they pay five years but it looks like a cost of one year and the value there is that it actually makes it easier to get this mutual buy in and it's really meaningful revenue if you're pre million revenue. Like I remember we, we closed the contract when we had 45k of ARR. That was a 20k annual deal but it was 5 years paid up front. And that was actually really nice because the cash flow was, was meaningful to us at the time. The customer liked it because they got an amazing deal for the next five years. It was a vote of confidence. They believed in us, they wanted us to succeed and then we knew they were very likely to stick around. And so I think that those sort of incentives are underutilized.

[Omar Khan]

Maybe walk me through like how you actually did that because in principle it makes total sense. You're basically pre selling the product, you're generating some revenue through customers, they're basically funding your development. But I can Sense like a whole bunch of objections. Are you guys going to be around next week? You know, five years seems like a huge commitment to make. What exactly am I getting? Like what were you showing them? So I'm just kind of curious, like if you were having, if you were kind of going through this process, pitching that to them, what were you showing them and what did you have to do to get them to a point where this became a no brainer to say yes to?

[Nate Baker]

Yeah, so you know, I guess with this particular customer, just to get really specific because it probably is more helpful. This is one of Barry's top competitors at the time. The office was maybe 10 miles away and Barry introduced us to his competitor, to his competitor. He, he, Barry and I would drive around and go knock on title companies and the just go do door to door sales basically. And so it was coming from a position of, you know, this is, this is what's going to happen in this local market. It felt competitively relevant because his main competitor had it. But it also was a bit more de risked because you know, he knew a couple other people that were using the software. And so that's why we were really focused geographically and we actually had, we had at that time, you know, for the first couple months more salespeople in Massachusetts than we do now because we were really focused on just this local ecosystem. And I think that's the key unlock because then you start to know everyone, you can get intros and you can be relevant in that local market even if you're small nationally and that. And then you also understand the competitive dynamics against selling against the local competitors or against the stuff they're using and how it works in their local market. And that was really helpful to us early on.

[Omar Khan]

So this one, this competitor, what was the pitch? What did you show them?

[Nate Baker]

It was as much a pitch about what we had as like a vision for the, where the company is going. I think it's actually at the time we were truly terrible at sales. It's interesting, we, we, we ultimately hired a VP of sales probably like a couple months after that. So when we were, we went from 45k of ARR to 3 and a half million in 12 months of ARR. And so that was like a very fast period of growth for us.

[Omar Khan]

Is that when you hire the salesperson?

[Nate Baker]

Yeah, we hired a VP of sales and then we scaled up to 30 reps in like four months. And but it was the VP of sales, it was his fifth role of that type. And he said to us, I've never seen such a gap between great product and incompetent sales execution. And I think that was really right because at the time we were a company of like software engineers all about the craft of software engineering. Even today, if you ask like what is Qualia's competitive advantage? It's we are a team of software engineers that respect the craft of software engineering that are building amazing software. But at the time we really didn't have sufficient respect for. You can be good at other things and you can be, you can like build a skill and an expertise and. Yeah, and we really figured out the inside sales motion at the time and it just, it just clicked for us.

[Omar Khan]

And did you sort of, did you anchor the pricing in some way with this customer by saying, you know, this is what we are going to be charging, this is what.

[Nate Baker]

Yeah, they understood they're getting a deal.

[Omar Khan]

But again even like 5 years seems like a long, really long time to commit. They got a re. There must have been something they really liked about you guys to do that.

[Nate Baker]

Oh, I think they were getting probably more than an 80% discount versus what they were paying. So it's like probably didn't. It probably felt like I'm going to pay one year of software and then I get four years free. But we didn't really have the ability to charge that type of price point at that time. And so it kind of bridges the gap and aligns the longer term incentives and then also just brings cash flow forward, which matters a lot at that time and then puts you in a position to. Then that guy wants to make intros, he wants to be referenced, he wants to help out. And that actually ended up playing out over the next few years. And yeah, it made a big difference for us.

[Omar Khan]

Did you get most of your leads through intros versus like the door to door or was it. Was it kind of not. Not like which. Which worked better. Which was the thing that you leaned into the most?

[Nate Baker]

I would say for your first 10 customers it has to be in network sales. Like you can maybe get a couple outbound cold calling but even if you outbound cold call someone, you're going to close them because of some network thing like oh, I know that person. We're working on this thing that you like. After that I think it's the volume and velocity of just like your typical inside sales motion is going to overwhelm the effect on the network side. But you do have to kind of supplement it with a lot of more network oriented and partnerships and channel sales and that sort of stuff, but the outside sale or the inside sales should overwhelm the efficiency in most SaaS businesses.

[Omar Khan]

Now, I know you mentioned you were grateful that you didn't land one of the biggest players in that space early on, and why it turned out to be a good thing. But as you started to move a little bit more upmarket with bigger targets, what were the objections that you were hearing over and over again?

[Nate Baker]

I think the number one thing for us was always like, you don't understand Tennessee, you don't understand Texas, you don't understand whatever state it was. The reality is in our industry, every state is wildly different, and it's like an incredibly large lift to get over the regional nuances. And so that was. They. The thing was, people were correct in saying that. And actually we had a customer in Texas maybe six years ago churn because we didn't understand Texas, and they were the first one, and it went really badly. And they were, I think, quite reasonably, very upset with us. They came back recently and are happy customer now, but it. It took that amount of time to really get things dialed in. And so as you go up market, you deal with more customers that operate in a more diverse set of jurisdictions with a different type of transactions. And so the complexity just goes up a ton. And, you know, like right now, our largest customer is Old Republic Title, which we just. We just announced a deal a couple months ago, and they're massive national scale, and so you have to be able to roll all that stuff up, which just gets more and more and more and more complicated over time to be able to handle that out of the box. But early on, we wanted to make it like a very simple to use platform that you can just turn on, and that's a little bit at odds with this enterprise extreme customization. Um, and so it's been an interesting tension of how do you make it sufficiently easy to use, but also sufficiently flexible.

[Omar Khan]

So often I see founders who maybe take a similar approach where they maybe target a geography, a local market, and then they want to expand. And that's where some of the challenges often come in. Do I do it this way? Do I kind of, you know, go this direction?

[Nate Baker]

And.

[Omar Khan]

And it sounds like you were getting similar challenges where the objections were, you don't understand Tennessee, you don't understand Texas, and so on. And so what was. What was your strategy for. For solving that? What did you decide to do? Like, just go deeper in Massachusetts or like, pick the next easiest market and try that? Or what did you do?

[Nate Baker]

We were very much selling we were at the time, I think, just trying to go boil the ocean and just try to get sufficient coverage that we could support each state sufficiently well and then really build up that. It probably would have been better if we had said, okay, we're going to only limit it to these 25 states and then go after that. But I don't know, at the same time you want to be able to support these national customers and so I think we had to go figure it out and ultimately you're going to be a national platform and so you just need to go do it. Yeah, we actually just, it was very time intensive ordeal going and staying with customers not in their basements this time around, but actually going and spending months with them to actually figure out what's different about this geography. And I think Texas is probably the one that took the longest, that was most complicated because it's like it has an entirely different regulatory framework and is, is generally difficult. Yeah, it's, it's our industry that the intersection of mortgage and insurance regulation. So it's kind of regulated by both, both of them. And as a consequence it's just like very detail oriented and very complex.

[Omar Khan]

Yeah. So how big was the company at the time? Like, were you the guy going in and going to Texas or were you able to have someone on the team take over on that sort of stuff?

[Nate Baker]

By that time we had a sales team that was doing a lot of the regional sales, but again that was inside sales, not on the ground. And then we had a product team that was primarily actually interfacing with the customers locally. I was lucky that my co founder, Joel, was extremely oriented on that exact problem. And so he was traveling a lot with our product team.

[Omar Khan]

You know, I mean, today, I don't know, like, how many home closings does Qualia handle? Like the total market? It's pretty significant, I guess.

[Nate Baker]

Millions. Yeah, a significant number.

[Omar Khan]

Yeah. So at what point did you realize that you had real traction, like product market fit? I'm just curious, were there some false signals sort of early on that felt like you'd found product market fit, but you hadn't?

[Nate Baker]

I would say our my confidence and concern. Like, I think at the beginning we were unreasonably confident, like we really didn't understand the scope of the problem, how long it would take. If you told me the trajectory of Qualia, then I would have been like, that's terrible. That takes way too long, way too slow. And so I think our expectations have moderated as we've built the business to be more real. I remember in our first board meeting, I was presenting to Joe Lonsdale, who had started Palantir and was my old boss. And he said, you know, if you hit these numbers, you'd be the fastest growing company of all time. And I didn't appreciate that he was trying to say, you're an idiot. But I think it took us a while to realize that, like, okay, you need to actually dealing with all this stuff. It's very difficult to build a business and you actually have to go out and build it incrementally. And so I would say now, looking out and thinking about forecasts and thinking about where we're going, I think we just have a more calibrated understanding of how difficult actually building anything is.

[Omar Khan]

So given where you are now with the business, compared to living in Barry's basement all those years ago, how has your outlook changed about the market and the opportunity ahead?

[Nate Baker]

Yeah, so I think that the reality is that process of buying a house, it sounds like you actually had a bad one yourself. It's, it's terrible. It's extremely expensive. It could be massively better. And so I think the opportunity is bigger and, and is as clear as ever. So the outlook for us is making the home buying process simple. And there's a huge amount of Runway on, on doing that. The thing that's changed tremendously for companies like Qualia is we are the correct delivery mechanism for all this AI stuff that's coming out. And we have some incredible products that are growing really fast. Qualia Clear is our AI platform, sort of like a Claude code style thing that can plan and execute on top of Qualia and all the systems our customers use. These are incredible opportunities for businesses in all these different end markets to build, like actually useful stuff at a rate that's never been seen before. And so I'm extremely bullish on not just Qualia, but just the category of workflow software businesses in general right now, because there's a really good starting point for deploying AI because you need to understand the nuances of the local market, the nuances of how does a scrapyard actually work and to be able to implement these tools and drive really, really fast revenue. But we're seeing across our portfolio and also just in the market, just incredible growth rates on all these AI SaaS. Businesses like really niche B2B enable or AI enabled B2B use cases. So, yeah, I'm pretty excited right now.

[Omar Khan]

That's awesome. It's like I wish somebody could do something for car buying. Like you've done for home closing, because that's another area that still just seems like a lot more painful than it has to be. So maybe when you're bored one day, one afternoon, you can go and solve that.

[Nate Baker]

That's a busy market. There's a lot of stuff going on in that market, actually. It's, it's interesting. Yeah. I think the next two years, this entire, this category B2B software is just going to be turned on its head. It's going to be really existential moment for a lot of companies if they don't react.

[Omar Khan]

Yeah, yeah. It's an exciting time.

[Nate Baker]

Oh, yeah. Best time ever to be building anything. I'm having a great time.

[Omar Khan]

All right, let's wrap up. Let's get onto the lightning round. So I've got seven quick fire questions for you. Ready?

[Nate Baker]

Yes.

[Omar Khan]

What's one of the best pieces of business advice you've received?

[Nate Baker]

Make customers money. I think that that kind of gets lost. That's from my grandpa and, you know, he. People forget to do that. They're thinking about all this strategy and they're thinking about all this stuff. It's like, no, there's only one point you got to make your customers money. If you're a B2B business, what book.

[Omar Khan]

Would you recommend to our audience and why?

[Nate Baker]

Reading a really interesting book, which is a Tyler Cohen recommendation, recently called Peasants into Frenchmen, which I highly recommend. History of rural France and how it became like, branch interesting.

[Omar Khan]

I've got to do that more. It's just like I've got to this point where it's like, yeah, business books are great, but sometimes when you just go and read something completely different, it's like your neurons get rewired in a way that makes you think better. So it's pretty cool. What's one attribute or characteristic in your mind of a successful founder?

[Nate Baker]

I think that they need to be pretty aggressive in general on actually getting things implemented and get it. Making their view of reality actually happen. One of the, you know, we, because of fractal, we've seen 150 different CEOs now that we've hired and, you know, and CTOs and who's done well and who hasn't. A couple takeaways. They have to be in person in the same city 5 days a week. Huge statistical significance on outcome. PMs do a lot worse than finance people. And if you hire like PMs, they might have good ideas on, on what to build, but in my experience, looking across all our data, they actually are a lot worse at getting stuff done and making all the trade offs and driving the business and being more emphatic about making things happen. So yeah, that's maybe one of the hot takes.

[Omar Khan]

What's your favorite personal productivity tool or habit?

[Nate Baker]

I mean, recently I've been talking to ChatGPT all the time about all my ideas. And I mean that's a new one. But yeah, I'm just like five hours a day in Claude right now just doing stuff. And if you're not doing that, what are you even doing right now?

[Omar Khan]

Although my teenage daughter wasn't impressed, I went to pick her up and I was having a conversation with ChatGPT and she was like, oh my God, you're talking to ChatGPT again. That's so sad. It's like, no, yeah, absolutely. What's a new or crazy business idea you'd love to pursue if you had the time?

[Nate Baker]

I really think that there needs to be a better marketplace for small businesses to sell. You'd have to. The big reason this hasn't happened historically is doing the accounting kind of reconciliation. To standardize everything is impossible. And so it's like too much work. But potentially that barrier is coming down and all of the M and A diligence is just too much on a business that's only doing 5,500k of EBITDA. But if, if the fixed cost of that diligence shifts, you could actually unlock a marketplace for the first time. That would be amazing. And I think there's this generational transition that's happening. So yeah, I think things like that are super interesting right now.

[Omar Khan]

Yeah, I think it was maybe the book by Cody Sanchez, something about maintenance. I can't remember what the title of the book is, but there was something interesting there that a lot of these smaller businesses, because they can't sell or it's an easy way to do that, they just end up shutting down the business when people retire and nothing happens.

[Nate Baker]

Totally. Yeah. And I own a Dairy Queen with my dad and I'd be fifth generation the ice cream business. And there's just a lot of businesses of that type that are generational change. People are looking to retire and it's very hard to transact. Title companies are another example. There's a large number 800 title companies a year that sell and there's not an efficient marketplace for that.

[Omar Khan]

What's an interesting or fun fact about you that most people don't know?

[Nate Baker]

I love chess. I don't know if there's something like that.

[Omar Khan]

Play a ton of chess and you lived in Barry's basement, which I thought was pretty impressive. One that for a year. This is crazy. And finally, what's one of your most important passions outside of your work?

[Nate Baker]

I think aside from vertical SaaS, I'll just leave it with Chess and we can keep it there.

[Omar Khan]

Love it. Nate, thank you for joining me.

[Nate Baker]

I appreciate you having me on.

[Omar Khan]

If folks want to find out more about Qualia, they can go to qualia.com and if folks want to get in touch with you, what's the best way for them to do that?

[Nate Baker]

Nateolia.com Send me an email.

[Omar Khan]

Nice and simple. Thanks man. Wish you all the best. Appreciate it. Take care. If you're building an AI agent, a SaaS product, or stuck trying to scale, check out Gearhart. They can act as your fractional CTO and technical team, bringing AI expertise from projects for Meta and Google plus, strong Silicon Valley connections with founders and VCs. And since they're a Ukrainian born company, you get senior engineers with an offshore pricing model with offices in San Francisco and London and a distributed team of 40 experts. They've helped build over 70 successful products. Right now they're offering our listeners the first 20 hours of development for free. Just book a call at Gearhart IO that's Gearheart IO. The playbook that got you to six figures in ARR won't get you to seven figures and at this stage you don't need another course. You you don't need more content. You need clarity and you need people who get it. Because right now you're probably second guessing every decision, wondering if you're focused on the wrong things, working harder but watching revenue flatline. SaaS club mastermind is how you get there. A small group of founders all scaling to seven figures with Mastermind calls and direct access to me. Think of it as your board of directors without the drama. Apply at sasclub IO Mastermind. That's sasclub IO Mastermind. You've built the product, you've got a few customers, but 10k in MRR still feels miles away and you're not sure what to do next. That's the hardest part of the early stage. Not building, figuring out what actually moves the needle. SaaS club launch gives you a clear plan, weekly coaching and direct access to me. So you're not guessing anymore. Apply at SasClub IE launch. That's SasClub IO launch.