Before we start, I know that Saul and others soured on the company because Lawson once made it appear earnings were more organic than they were. But after watching many hours of his interviews and reading his articles, I find him to be a man of the highest character and and ask you all not to give this investment the death penalty for a speeding ticket.
This is not really a post. It’s more of a very long draft of a full-blown research report. Apologies for any lack of readability as the limited formatting here is less than ideal. I hope the headers make it easy to skim and scroll to what interests you. In the end, this post may ultimately serve as an encyclopedia of info on the company. But after weeks of long hours of hard research I’m making the tough decision to err on side of including it all.
My plan is to do a follow-up post where I strip this sucker down to 10 key, powerful reasons I think Twilio is the best run company in the world.
QUICK TAKE
Twilio has a clear, simple, authentic story, world class CEO, is top dog in a mission-critical space (CPaaS or Communication Platform as a Service), fueled by smart, coherent acquisitions, has a humongous TAM, powerful moat, strong culture, deep bench, killer messaging, an actual heart and a marketing plan backed by a ten million-strong army of developers. For these reasons I consider Twilio to be the best run company of any we follow and if I could only keep one it would be them. This is not to say I think it will grow the fastest or perform best, simply that it’s the best run. And least likely to suffer a catastrophic and permanent loss. Eventually my goal as a Narrative Investor is to work with tech/financial analysts to include everything in a coherent narrative but for now we’ll stay focused on the intangibles, those things that can’t be easily quantified on a spreadsheet.
NARRATIVE ANALYSIS
This is a deep dive into the Narrative. The goal here is to more accurately predict the future by studying the x-factors - who these people are, how they think, what they do, what they value, how they work, how they market themselves, run their culture, and to shape it all into a story whose ending (the stock will rise, fall, stay flat) we can can guess.
NARRATIVE AS LEGAL ARGUMENT
Great stories work on two levels – emotional and logical. Emotion is important to investment theses as companies are simply groups of people and human beings are fueled by emotion, inspired by purpose. But to get the structure of this Narrative-driven post/report, you have to understand how story works.
By this I mean when you get to the end of a story you literally become a prosecutor. Your mind races back through the story questioning, analyzing every event, character, bit of dialogue, clue, etc. to see if you buy the ending. If you do, you find meaning in the story and feel it was valuable. If not, you call “BS” and your brain tells you to dismiss it as irrelevant.
So, for example, when Rocky pulls a miracle and goes the distance with Apollo Creed in the first film, your mind races back through the movie and it sees how hard he worked, how desperately he needed to win, how he find true love in Adrian and that gave him someone to fight for, how Apollo was distracted, how Rocky could have been a good fighter but became a “leg breaker” for a local mobster and when you stack up all these things (there’s much more), you believe he could be standing at the final bell and that a man can find redemption.
With investing, we’re modeling outcomes, and the outcome of any story can really only be positive, negative or mediocre – not too bad not too good. So, our goal is here to start with a desire outcome in mind – the stock price rising to an acceptable degree in a given time frame and guess if the “heroes” of our Story, Lawson et al, can do enough to justify our desire stock price. I’ll add specificity to this later. This is what we call in Narrative, the Central Dramatic Question, Can Rocky go the distance? Can Frodo destroy the ring? Can Marlin find Nemo? Here it’s, Can Jeff Lawson lead Twilio to X stock price by Y date?
I hate to spoil the ending, but I am as certain that he will as one can be, though I humbly respect that of course anything can happen. Below I’m going to lay out as many elements as I can to add concrete to the foundation of this argument.
COMMUNICATION IS ESSENTIAL TO BEING HUMAN
As we whittle down our lists into concentrated portfolios, one key factor I use is the essentiality of the company’s service is. Communication is as essential as it gets. Every company in the modern world must have a digital front and connect with people. This means effectively using texts, calls, video and email on apps and sites. In this 2019 interview with Om Malik,
A Conversation with Twilio CEO Jeff Lawson on the Evolution of Communication
https://omshow.libsyn.com/a-conversation-with-twilio-ceo-jef…
Lawson discusses two things that make human beings unique: our ability to use tools and communicate. He differentiates between communication and media. The difference is that communication fosters actual human connection, while media provokes emotion, even chemical dependence as our brain chemistry changes when we’re in heightened states – when big media pushes our buttons.
So, for Lawson, a purpose-driven CEO if ever there was one, his life’s work is devoted to creating tools that make it simple for human beings to connect. Because he’s working on something so essential, we know he’s in it for the long haul.
Let’s make this personal.
To better appreciate Twilio, on a gut level, think of someone you love and someone you can’t stand. Really do this. Now note that this is almost certainly because of how they make you feel. The person you love makes you feel special, appreciated, heard. And the person you dislike is self-involved and checks out the minute you start talking.
Now let’s move this feeling into business.
A Tale of Two Businesses – Morty and Schmuely’s
You’re Jonesing for good deli – some matzo ball soup, a triple decker club sandwich or fat knish smothered in mustard. Mm. There are two delis near your house people say have great food, Morty’s and Schmuely’s.
You go into Morty’s, and the hostess greets you with a smile, remembers your name, what you ate last time, asks how your job is going (she remembers what you do), how your kids are doing (she knows their names), and lets you know cook just made your favorite kugel. She finds a table in the spot you love. After you’re done the manager asks if you enjoyed your meal, and hands you a coupon for 10% off your next one, then wishes you a great night.
You go into Schmuely’s. No one greets you at the door. You wait. And wait. And wait. Finally, a host comes over and coldly shows you to a seat you don’t love. Your waiter takes forever to take your order, and later, no one asks about your meal or says goodbye. The food was good, maybe even a little better than Morty’s, yet you leave feeling bad.
Odds are you’ll never go back to Schmuely’s but become a regular at Morty’s. If these delis were mobile apps or websites, Morty’s communication would be powered by Twilio. That said, the analogy doesn’t go far enough as Twilio can help you avoid lines, learn about the food, know exactly when you’ll eat, protect kids from allergies and more.
THE SIMPLE INVESTMENT THESIS
Communication taps into a primal aspect of being human and is essential to modern business. Since it must be secure, and all businesses are under siege from bad actors, the TAM and tailwinds are tremendous. In fact, Lawson feels the addressable market is so big they can skip China all together, which will save them a great deal of time, energy and God knows what other meshugas.
So, what you have here is a focused, elite company dominating a space that’s a pillar of the modern digital economy. Common sense dictates they should expand their lead – or at the very least cement their position as one of the leaders - as they leverage their experience, relationships, data, proof-of-concept and offering to innovate and grow at scale for years to come.
Though competition is big, fierce and comes from every angle, Twilio’s management is, to their credit, hyper-focused on their customers – building what they need and making sure it works. This is actually a very Saulinian attitude. Lawson and acquired CEO, Peter Reinhardt of Segment talk often about focusing on what IS, not what could be. They let the market, their customers, tell them what they want and relentlessly experiment, iterate, monitor features, and do all they can to write “the code that counts” – software customers love and more importantly pay for.
Okay, onto business. Forgive some repetition as we make the case in full.
TWILIO: THE NARRATIVE THESIS
To get the full picture we’ll look at:
The Mission
The TAM
The Leader
The Management and Culture
The Acquisitions
The Products
The Marketing
The Moat
The Track Record
The Challenges
The Ending
THE MISSION
From Twilio.Com
https://www.twilio.com
Twilio’s mission is to help companies, “Engage customers on any channel, any time.” And to do this, “From first interaction to lasting connection.”
By “Engage customers on any channel, any time” they mean, “Connect with customers everywhere they want to interact with you-from text messages to emails, phone calls to video, intelligent chatbots and back-within a single powerful platform.
By, “From first interaction to lasting connection” they mean, “Strengthen your customer relationships by uniting communications across your entire business, from marketing to sales to customer service and operations. Personalize every step of the customer journey with solutions like intelligent chatbots, custom account notifications, a completely programmable cloud-based call center and more.”
This is pretty much all the text on the home page. That’s excellent articulation of exactly what they do and why it matters.
THE TAM
On the podcast,
Business Breakdowns – Twilio: Messaging, Margins, and Markets
https://www.joincolossus.com/episodes/50437644/nagpal-twilio…
Ro Nagpal, a Senior Investment Advisor at Holocene Advisors, says, “The TAM is kind of like the cost of goods sold of every business on the planet everywhere, that wants to have a digital front end.”
He discusses how, in SaaS models TAM is limited by the number of “seats” or workers using the software. But Twilio is usage based. So, every company could use the product and there are no limits to how often. If a company finds that sending texts, initiating chats and even hooking sales reps up with customers drives more sales their communication center could, in theory, grow exponentially, without limits.
An enormous TAM with no limits to usage is exceptional, but of course attracts the most savage competition. This helps explain why trillion-dollar behemoths are coming hard.
THE LEADER
I rank Lawson as the best CEO in the world. And I don’t say that lightly. I say this because I think he’s that rare genius who understands psychology and human beings. As a leader he checks every box: track record, authenticity, passion, vision, grit, warmth, ambition, and ability to think in terms of process, systematically and for the long haul. A few of the many things worth noting about him:
Early in his career, he was personally recruited by current Amazon CEO, Andy Jassy to work on AWS, the fastest growing enterprise software program ever made. At Amazon he studied Bezos and the culture he built and brought these lessons to Twilio. In fact, Twilio’s business model was inspired by AWS.
Lawson’s passion for the magic, art, practical value and scalability of software is authentic and radiates from his every pore. His book “Ask Your Developer” and a famous billboard he once put up have built him a cult-like following among developers. No one has done more to dignify and improve the working lives, productivity and appreciation of developers than Lawson.
He is a visionary who created APIs that simplify software code at the dawn of the mobile, app driven economy. And focused on winning hearts and minds of developers which many VC’s, early in Twilio’s life, insisted the strategy would fail.
Despite all his achievements (working on AWS, CTO of StubHub, launching extreme sports company) he is only 44 years-old, in his prime. He has an impressive constitution and is a tireless evangelist for software, developers, communication and technology in general. He seems to cherish the role of CEO in that it allows him to facilitate the creativity and brilliance of an elite army of technologists and engineers working at Twilio. He’s studied processes under Bezos, has discussed studying Jobs’ legendary presentations, gives his workers structured freedom like Netflix’s Reed Hastings gives to filmmakers, admires Salesforces’ Mark Benioff’s building goodwill by being a good corporate citizen and we’ll discuss his successful handling of acquisitions below.
Of note he studied film and video production at The University of Michigan as well as computer engineering and made money in high school videotaping events. Point being he has a real flare for marketing and passion for all the tools of communication. He’s also clearly found his tribe in Silicon Valley and has a real passion or the city of San Francisco. His deep entrenchment in the community and relationships must play a key role in locating coming disruptors, recruiting talent and getting deals done. For example, consider the fact that he worked at AWS, was recruited by the current CEO. Surely that must help keep that wolf at bay. At least as much as possible.
THE MANAGEMENT AND CULTURE
The executive leadership team is powered by elite people with exceptional resumes and vast experience at relevant companies like Salesforce, Verizon, GE, Apple and former titan Palm, at major nonprofits, for Presidential administrations and were educated at top schools like MIT, Harvard, Stanford and the US Naval Academy. These are ultra-elite people running the show with long prestigious track records working in both the old school communications industry with deep expertise on hardware and in the c-suites of the giants of software.
In an interview with Patrick O’Shaughnessy, on the Founder’s Field Guide podcast entitled,
Peter Reinhardt – Learning How to Sell
https://joincolossus.com/episodes/54216780/reinhardt-learnin…
Said something impressive about Twilio’s management,
“It is next level of getting inspected by George or getting inspected by Khozema the CFO at Twilio. Both are just wicked sharp in terms of isolating what the actual business problem is and driving accountability … How do you hold accountable and operate at the right level of altitude is something that I’m really excited to be learning from George and Khozema.
This man – this kid - is the young co-founder, and CEO of Segment, now Twilio Segment, who was a straight A student at MIT where he studied aerospace engineering and, with his equally impressive roommates built a multibillion-dollar company. He was backed by Y-Combinator, a top Silicon Valley venture capital firm. So, when he calls George and Khozema “next level” that carries additional weight. He’s declaring them the very best of the best. This the Twilio COO, George Hu and CFO, Khozema Shipchandler. And I love the term, “Get inspected by” – it sounds harsh. He also talks about a concept called “hierarchical unpacking” in which you breakdown, in minute detail every single thing that is required to achieve an objective. And makes clear that one had best have their A-game when going before the big dogs, or you will get your arse lit up.
Lawson invests a great deal of time and energy discussing culture, how essential it is to infuse Twilio with actual values – not just vapid cliches – that drive decision making across the organization. He knows humans are tribal – we love our colors, logos, slogans, rituals. We rely on these things to feel part of a community, to feel our lives have a greater purpose. Lawson insists they do a company photo every year and have bagel night every Wednesday.
There’s no doubt this is a real competitive advantage that reduces turnover, which is a real killer. Look at our little board, the better we know each other, the more value we get from each other’s posts and decisions. For example, you gotta know how Bear and Saul differ to analyze the way each man responds to a big run up or huge drop in our stocks. When Bear sells a position, he may just feel it’s temporarily overvalued. When Saul sells one, he’s likely not coming back any time soon. The better you understand each man’s temperament, thought process and style, the more effectively you can leverage their wisdom. By reducing turnover, especially in the C-Suite, the benefits accrue, exponentially, over time, throughout an organization as it grows to monstrous heights.
Look at this
About page
https://www.twilio.com/company
It has a simple, unaffected enthusiasm. Lines like “Millions of developers around the world have used Twilio to unlock the magic of communications to improve any human experience” radiate authenticity. Lawson’s love for the power of software is legit and understandable. In countless interviews, for years, he has marveled about the impact a well written piece of software has at global scale.
Here’s the page discussing their Values
https://www.twilio.com/company/values
It reads, “There’s a unique spirit to Twilio, manifested in who we are and how we work together.” And, “These are the principles we use to build an impactful, high-growth business while staying true to ourselves.” Note that there is humanity here but no lack of clarity about the fact that Twilio is a business with shareholders who demand “high growth.”
Here’s their Brand page
https://www.twilio.com/company/brand
It reads, “Our logo is often the first and most memorable interaction someone will have with our brand. It has been precisely drawn for optimal visual balance. It is critical that the correct logo file be used … “ and adds, “Color is a strong identifier; it provides contrast and helps define hierarchy. We believe that color should be used boldly, but not wantonly.”
Here’s Lawson doing a presentation entitled,
Articulating Company Values & Living them Authentically
https://www.youtube.com/watch?v=0CKI8Jah-Po
The pride and joy the man exudes is one thing, but it’s backed by enough actionable common sense to make Charlie Munger do a backflip.
And lastly on managing individuals and teams Lawson does an excellent job of focusing on a few, key core ideas. For example, he believes there are three things individual workers want: Autonomy, Mastery and Purpose. We hate being micromanaged and need freedom to solve problems in our own way. We want to develop expertise in our craft. And to serve a higher purpose to fight for something bigger than ourselves that gives our work meaning.
When it comes to teams, he’s a devotee of the Jeff Bezos “Two Pizza Rule” that says if you can’t feed a team with two pizzas it’s too big. This means there must be no more than 10 people and one must be responsible for performance. So, no one gets to coast, as they can in bigger groups and the buck must stop with someone so that decisions get made and someone is held accountable. He is adamant that management focus on serving customers, building what they ask for, what experiments show they’ll pay for, and developing clear metrics to judge how well they’re doing.
And Lawson brings this same mentality of serving customers’ needs to his management style. For example, in this interview with McKinsey he talks about how important it is to let people work how they want to work – some remote, some in-office, some coming in to “hotel” near the company. And he works hard to make sure each team is built to support the styles of their members.
In another interview, he talks about how a coworker he knew from Amazon talked about working at the company when there was less than a hundred people and then returning years later when it had grown past 75,000 workers. He marveled at the fact that by keeping teams small, they managed to keep their spirit of innovation. That made a deep impact on Lawson who has tried to do likewise with Twilio as they move past 5,000 employees.
Lastly, on culture, Lawson doesn’t like the abundance of perks – craft beer, arcade games, fancy cafeterias – that are popular in Silicon Valley as he doesn’t want people who care about that stuff. Though he often can’t match salaries at the mega-giants, he’s able to attract top talent by assuring developers they’ll make an impact. At Twilio. And for their customers. The best human beings are driven by a desire to do great work, not scarf down lobster bisque after a game of Frogger at the company arcade.
I love all this. Stanley Kubrick was once asked why he works so hard and puts so much detail into his films. He replied, “Either you care, or you don’t.” Twilio does. And the closer you study the company the more authentic and omnipresent this care seems.
THE ACQUISITIONS
I’m going to get into the weeds a bit here as acquisitions are very important to the Story. Stay with me ‘til the end of this section. It’s really important and there’s a surprise guest star. Actually, a superstar.
In the past six years, Twilio has spent roughly eight billion dollars (not all amounts were disclosed) buying 11 companies. These include Authy, Tikal Technologies, Beepsend, Ytica, SendGrid, Core Dynamics GmbH, Electric Imp, Segment, Value First, Zipwhip and a large minority stake in Syniverse.
I’ll post links on all in the Appendix, but they are part of a coherent strategy to build the ultimate communications platform. They strengthen security, underlying technology, software, some hardware and add talent. And all relate to key facets – support for the Internet of Things (Core Network Dynamics, Eletric Imp) texting (Beepsend, Zipwhip), email (SendGrid), video and streaming (Tikal/Kurento), along with tools to analyze and leverage all the data they generate (Segment).
There’s a Berkshire Hathaway vibe here. Lawson consistently makes clear that he doesn’t buy companies to “absorb them into the Borg” and stifle what made them worth buying. His goal is to support their work, help them innovate, grow at scale and contribute to a grander vision. Their companies often keep their branding, leaders keep their titles but hyphenate with Twilio. For example, Peter Reinhardt is now CEO of Twilio-Segment, Value First’s, Vishwadeep Bajaj remains CEO of Value First, A Twilio Company.
Lawson is more secretive about some acquisitions than others, but usually raves about the teams, the people he’s joined forces with and makes a point to warmly welcome them, note things about their culture and rave about their past success. In all these acquisitions you see consistent themes:
Lawson pursued the company hard. It’s a mistake to think that founders take big money easily. They’re already wealthy and have control. And Twilio’s never their only suitor.
Lawson and the acquired CEO have a legit passion for solving complex problems and building cultures that foster experimentation and iterating to excellence. The importance of this can’t be overstated. Software developers are creators. They have artistic temperaments. The build things that never existed, that have a massive, positive impact on the world. When you think about the hours these guys put in, you realize that they are hunting bigger game than money. Of course, they’re human and want fine things. But I believe the guys I’m studying would rather invent amazing things than add Ferraris and summer homes.
The acquired companies have notably warm vibes and enthusiastic workers. For example, you look at Zipwhip’s all-hands photo and the workers look damn near ecstatic. In one article, there is a photo of the CEO before some silly invention he made to serve beer. The home page for India’s Value First reads, “Conversations, made joyful!“ And the CEO looks like he really walks the joy talk – just looks like one joyful SOB. They claim to be “400 free-spirited souls across the globe who are obsessed with technology.”
And more importantly, you feel a real passion for doing two things: delighting customers and a commitment to simplifying complex hardware, software, processes for developers.
Acquisitions are always a risky proposition. Lawson puts deep thought into targeting companies whose work is essential to his vision and culture aligns with Twilio’s culture. How you know this is not horse chips is many of his CEO’s stay. And according to Ro Nagpal in the podcast linked above, Business Breakdowns, he says that most of them wanted stock in Twilio and keep. Let that butter melt into your muffin. As an investor you’re riding sidecar with the people who know the story best.
Again, just listen to how excited Segment’s CEO seems about joining forces with Lawson.
Peter Reinhardt – Learning How to Sell
https://joincolossus.com/episodes/54216780/reinhardt-learnin…
This is not like when Teladoc acquired Livongo. Remember when the two CEOs crowed about their shared vision for revolutionizing health care only to have Livongo’s CEO grab the cash and race out the door like a gigolo hearing his client’s hubby put a key in the lock? Do you want to invest in the Justice League with Batman and Superman both having oars in the water or going their separate ways?
Of note, Reinhardt comes off as an exceptionally decent, honest, humble and intelligent person. He talks openly about nearly suffering a nervous breakdown in the early days of building Segment, and getting into nasty fights with his partners, who were roommates and best friends. They decide that ultimately what mattered most was their friendship and working together. Again, friendship is a competitive advantage. It was friendship that led them to weather a brutal storm of setbacks. And he notes that many other companies crack under the pressure, and the top dogs turn on each other though they may actually be close to breakthrough moments. Just consider the human story there, how easily they could have broken up and never become world-changing entrepreneurs wealthy beyond their wildest dreams. When it comes to culture, make no mistake, like attracts like. That Lawson pulls in, and inspires, this caliber of human being is important. But it gets better.
Now, here’s the hidden guest star. Get a load of this guy, Hugo Fiennes.
Computer History Profile – Hugo Fiennes
https://computerhistory.org/profile/hugo-fiennes/
“… he worked on many generations of MP3 players at Rio before joining Apple to lead the AP hardware team through the first four generations of the iPhone. Fiennes later went on to design and architect the hardware for the Nest Thermostat before co-founding Electric Imp which makes secure IoT look a lot easier than it actually is.
Orville ****ing Redenbacher! The man helped design the iPhone and lead it through four generations.. He worked with Apple’s legendary, Sir Jony Ives, the greatest industrial designer of our age. And Fiennes built Google’s Nest. Now take a breath. Relax your sphincter. And read this next line: A man of this caliber sold his company to Lawson and holds the title, Senior IoT Architect at Twilio. Here’s Fienne’s blog post on the acquisition,
Twilio and Electric Imp Come Together to Solve Tough IoT Challenges
https://www.twilio.com/blog/electric-imp-is-now-part-of-twil…
There’s so much to like here, notably how Fiennes gets to the heart of what Twilio does: simplify complexity. This is in Twilio’s DNA. And note that Fiennes says of the decision to join forces, “in our regular conversations we acknowledged how complementary our offerings were, and also how alike our approaches were”. Again, this not just lip service. If you watch videos of both Lawson and Fiennes, from years ago, they say the same things about how technology should work.
I think what happened with Fiennes is this: he was a superstar at Oracle, then at Apple. He was recruited to Google, and there he built the Nest thermostat, but the company failed to properly facilitate his vision to go beyond thermostats into revolutionizing the fundamental, underlying architecture of the Internet of Things. So, he left to form his own company, Electric Imp. Then, as a visionary with a real passion for building world-changing things, he tired of the limitless stuff you have to deal with in running and taking a company public. In what few video presentations you can find, it’s clear his gift is not for public speaking. Just the fact that there are so few videos of in this day and age make that clear. Lawson, like The Trade Desk’s Jeff Green has a great passion to be in front of an audience and to spread the gospel. So, it seems clear he convinced Fiennes to join Twilio where he could focus exclusively on realizing his dream of building the ultimate development platform for IoT developers.
This is a good article from TechCrunch on the acquisition,
Twilio acquires Electric Imp to bolster its growing IoT business
https://techcrunch.com/2020/07/09/twilio-acquires-electric-i…
Again, note here the passion Lawson exudes for confronting a difficult challenge, his love of the process and confidence they’ll solve the problem. He says,
“…The IoT industry doesn’t seem to attract innovation at the same rate as software. One possible reason is that experimentation — real experimentation — that is, testing real business models in the wild — remains difficult. By democratizing access to cellular IoT connectivity, we’ve been able to help move things along, but many of the hardest infrastructure problems remain unsolved. With the Electric Imp acquisition, we gain the team and technology needed to make a bigger dent in the problems facing future IoT developers.”
He is an elder statesman, someone who has the expertise to understand technology but the management skills to lead the very best of his tribe. Not only is Lawson the star QB of Twilio he’s also like Gene Upshaw. Upshaw was a superstar offensive lineman for the Oakland Raiders who later led the NFL Players Association. Quarterbacks get all the glory. But it’s the linemen who fight in the muck that make miracle throws possible. Lawson is both QB and star lineman, the ultimate facilitator, willing to take on the necessary challenges of leadership in order to help other elite minds excel.
Here’s the key point: If Twilio at a mere $65B market cap is going to win the CPaaS war, and defeat the likes of trillion-dollar, marauding, monopolistic savages like Amazon and Microsoft this is the only way they can do it – by attracting, keeping and inspiring the best people. Lawson has the intelligence, psychological sophistication, temperament and evangelical skills to get this done. That’s a big deal.
THE PRODUCTS AND SOLUTIONS
The point here is to give a simple overview of what the company sells and help us appreciate why the offering is so impressive. But if you want some real red meat on this stuff, Peter Offringa, the brilliant tech writer, and my brother in extreme post girth, did a write up on Twilio’s most recent earnings here,
Twilio (TWLO) QQ 2021 Update (June 9, 2021)
https://softwarestackinvesting.com/twilio-twlo-q1-2021-updat…
Before we look at these, note that Lawson is fiercely devoted to some core ideas. And he articulates them well here, in this interview with McKinsey,
Unleashing developer’s full talents: An interview with Twilio’s CEO
https://www.mckinsey.com/industries/technology-media-and-tel…
Lawson finds the idea of building anything without close consultation with customers “offensive.” You never build software unless you are certain there is not just a need for it, but that they will pay for it. The term they use for this is, “the code that counts.” And that code must be high quality, reliable and secure. He often expresses his ideas in threes and insists that teams think of 1) the customer 2) the mission/purpose 3) metrics. So how does the product help the customer, why are you doing it? Is it line with your team and company’s goals and exactly how do you measure success? This lines up well with what Twilio-Segment CEO, Peter Reinhardt said in his interview with Patrick O’Shaughnessy about being “inspected” by Twilio’s “next level” CFO and COO as they take him through “Hierarchical unpacking” – breaking stated goals into extremely detailed, actionable steps so you’re certain you can weed out fantastical thinking, spot problems before they lead to costly mistakes and instill confidence you’ll win.
Again, this elite execution is not a given or even common. I was just talking to an exec at a Silicon Valley-based high-tech company who was an emotional wreck because she knew her CEO was literally just making up numbers. And pitching nonsense to investors as they try to raise more money. This company struggles with high turnover of key roles. They’re losing a major person as we speak.
And this gets to the very heart of Narrative Investing. The CEO designed great tech but has no clue how to run a company. When top people keep leaving there’s no way to generate momentum. Anxiety ripples through the entire organization. And distrust spreads because exiting execs must hide their intentions as they plot escape. You can easily guess how the story will play out – they will be acquired, for the tech, for many millions less than they could have been with superior leadership, the kind Lawson articulates day in and day out.
Now let’s look at Twilio’s Products and Solutions to help us get a simple overview of what they actually sell. Of note, before we start, they provide the code, can help support developers and have deals in place to set up customers with consultants at big companies like IBM.
There are two categories, Products and Solutions.
The Products link is divided into three categories with lean, simple descriptions of each sub-category. There are:
- Channels (Messaging, Programmable Voice, Video, Twilio Live and Email)
- Applications (Twilio Flex, Marketing Campaigns, Twilio Frontline, Account Security and Twilio Segment)
- Connectivity (Internet of Things, Elastic SIP Trunking, Phone Numbers and Short Codes)
The Solutions link is laid out the same way. There are three categories:
- By Department (Marketing, Operations, Customer Service),
- By Industry (Financial Services, Retail, Hospitality, Real Estate, Healthcare)
- By Business (Enterprise, Startup, Nonprofit)
It’s a lot of information but beautifully organized. It gives a clear picture of what they offer and for whom. “Speed of thought” is a term soccer coaches use to analyze how fast players know what to do with the ball and it’s relevant to business. Read “Blink” by Malcom Gladwell. When a prospect or person thinking of upgrading their system registers this, they instantly form a positive opinion as they sense that these folks have their **** together and excel at what they do – simplify complexity.
This reminds me of the time I first read Nutanix’s website. I just remember pictures of motorcycles and a story so complex it made you long for the simplicity of Proust. Sadly, I didn’t sell immediately, upon recognizing the mess, and wound up taking a 50% haircut, though the evidence of a muddled story was right there on the site.
Now, again, they have 10,000,000 developers building things underpinned by their software. So, consider Twilio Live, currently in Beta. Here’s the link,
Twilio Live
https://www.twilio.com/live
It encourages visitors to create custom streaming experiences, engage with a massive audience (at “Internet Scale”), using Twilio’s trusted cloud-based infrastructure. This means creating live audio/video streaming for new social applications, marketing events, showcasing products, doing fitness, education and training and straight up entertainment.
So,Twilio helps can help companies disrupt Peloton, Facebook, TikTok, Master Class, etc.
And how massive might the Internet of Things get? What if Fiennes, Lawson and their gang solve the security, privacy and functionality challenges and power the platform that facilitates conversations between a large percentage of the world’s talking things. Here’s a video on Twilio-Signal’s product, “Microvisor”…
Introducing Twilio Microvisor
https://vimeo.com/460695517
And again, note how passionate, unaffected, knowledgeable the presenter, Twilio IoT GM, Evan Cummack is as he articulates the vision for the platform and puts it in historical context and the context of Twilio’s greater, overall mission.
Here I’ve only touched on Twilio Live and Microvisor, just two platforms Twilio’s developing. But consider the scope, the possibilities. If ever a company is positioned for upside surprises as their 10,000,000 developers invent things, it’s them.
THE MARKETING
Marketing is like photography. Every yukkel thinks they can do it. And to untrained eyes it seems like they can. But just like snapping a decent photo of a sunset doesn’t make you Ansel Adams, scribbling a few pithy words doesn’t make you a marketer.
Great marketing is fueled by authenticity, originality, intelligence, relentlessness and the ability to not just get attention, but mindshare. As in literally owning a piece of real estate in consumers’ minds when they think of your industry. Any imbecile can get attention – parachute naked off a skyscraper and get arrested. Gaining mindshare takes brilliance and epic endurance.
So, the fact that Twilio is the undisputed heavyweight champ in the pure-blooded Communication Platform as a Service (CPaaS) space and has a stellar reputation for quality puts them in a powerful position. We’ll go into this more below in the moat/competitive advantage section.
To achieve this Lawson, since forming Twilio in 2008, has done countless presentations, keynotes, interviews, established an annual Twilio conference, put up a famous billboard in Silicon Valley, written letters to shareholders, wrote a book, designed his websites, and infused a few core ideas into every single piece of communication. There are five core ideas:
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Software is a magic power that can radically, and instantly impact the world.
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Developers are problem solvers who must be properly integrated into companies, in order to write, “the code that counts” as in the one that customers love and pay for.
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Developers are creative people not the dorks portrayed in media. Kingpin VC, Marc Andreesen famously said, “software will eat the world.” So, it’s common sense that the people who write code are among the most important people in the world.
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Build or die. By this Lawson means that Twilio provides the infrastructure, but companies must customize the software to create unique experiences. The companies that do this will win and the ones that don’t will die. Even giants will be disrupted and put to death if they fail to create great customer experiences on their apps/sites.
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Twilio has an authentic passion to see what their customers build.
Great marketing is a combination of logic and emotion. It’s one thing to explain to people why your product works. It’s a whole other thing to do that and make people feel strong emotion as you do it. The need for human beings to feel respected is incalculably large. To feel ridiculed, stereotyped, depersonalized, as “computer geeks” have is distasteful to them in the extreme. That Lawson has been instrumental in raising their profile is a critical reason there is a 10,000,000-strong army of them using – and promoting - Twilio.
Again, what Twilio does is simplify code. This is the essence of the value they provide – simplifying the complex. They make it easy for other developers to embed communication into their software. Lawson knows this same quality is essential to his marketing. He is that rare genius – like Steve Jobs – who gets how essential marketing is. According to Beth Kindig his first hire was a marketer.
One of his first great moves is detailed here,
The 3-Word Billboard That Launched One Of America’s Fastest Growing Tech Companies
https://www.forbes.com/sites/carminegallo/2021/02/04/the-3-w…
Early in Twilio’s history they bought a billboard and hired an ad agency to figure out what to put on it. The ad agency hacks puked out cliches then Lawson pitched, “If you want to know what Twilio is, ask your developer.” He then cut that down to the simple, intriguing, thought-and-question provoking, “Ask your developer.”
It’s hard to describe how brilliant this billboard is. It works on every conceivable level. It strips down a very complex task – explaining what Twilio is into an actionable item that spurred legit conversation to explain to all what it is.
Almost a decade later, when Lawson wrote a book to further express his ideas on the importance of developers, he named it, Ask Your Developer, How to harness the power of software developers and win in the 21st century.
Writing a book is hard, hard work. You can’t fake this kind of dedication and consistency. And again, this man was a product manager who helped build Amazon Web Services, who was the first CTO of StubHub so he walks the talk.
Some links worth noting…
Here’s Lawson enthusiastically championing and giving a spotlight to developers back in 2012. He repeatedly cries out, “We are software people”
Twiliocon 2012: Jeff Lawson’s Keynote – The Future of Communications
https://vimeo.com/54799765
Uber’s CEO says they could not have built the company without Twilio. Though Uber would eventually leave Twilio, they did pick up Lyft.
Here’s a review of his book on ZDNet…
“Ask Your Developer, book review: How to prosper in a ‘build or die’ business landscape”
https://www.zdnet.com/article/ask-your-developer-book-review…
It includes these lines,
Here he extends the idea: ‘building’ is about more than building software – it’s about building everything from products to processes, to make them fit you and your customers better. The people who understand this are ‘software people’, whether they’re designing backend-processing systems or the minimal Square credit card reader. Seen this way, software is critical to making your business successful; it’s not so much ‘build or buy’, as ‘build or die’.
Note how easy it is for the reviewer to tell the story. This is what marketing expert Seth Godin calls “spreading the idea virus.” Lawson’s mission is so clear and expressed with such concision it’s easy to for marketers, salesmen, developers, partners, investors to spread the word.
Two links to Twilio Segment worth noting…
The State of Personalization 2021
From nice-to-have to necessity for intelligent customer engagement
https://gopages.segment.com/rs/667-MPQ-382/images/State-of-p…
This one uses the term one-to-one marketing. That’s a wild idea that I think we’ll hear a lot more of going forward and it will be powered by Twilio-Segment.
It’s a survey of 3,000 businesses and consumers that makes clear how important it is to tailor user’s experience, based on information you have permission to use. We like that Amazon and Netflix give us recommendations based on our history.
Why first-party data is the key to data privacy
https://segment.com/resources/data-privacy/why-first-party-d…
Twilio-Segment helps companies generate first, as opposed to third, party data. This means data taken from us visiting sites, not bought behind our backs, without permission. There may very well be regulation that will affect others but not Twilio, strengthening their hand.
Here’s Jeff Lawson introducing the CEO of Nike in 2020, when the world is still fully immersed in the pandemic, at their annual convention, now called Signal.
Nike CEO shares how Twilio helped with their digital acceleration
https://www.youtube.com/watch?v=IqXyiBSbKyo
It’s fascinating to watch back-to-back videos of a business leader’s evolution over nearly a decade. Lawson here has a shaved head, is in better shape, has traded huge glasses for contacts and is noticeably more mature, more comfortable in his own skin, less forced. Surely some of this is due to the tone of the times but having watched many other videos, the change is notable.
Nike is one of the all-time great brands known for its tech marketing savvy. For the Nike CEO to credit Twilio with helping them not only survive but accelerate necessary digital transformation is marketing that you can’t put a price on.
If you’re a salesperson working with Twilio, how much easier does it make your job? How does your competitor top a rave directly from Nike’s CEO? And consider the bond that Nike and the other 200+ thousand companies that work with Twilio have. Twilio saw them through the plague.
We’ll wrap up this section with a quote from Andy Cunningham. She’s a consultant, and communications expert as well as the author of the 2017 book, “Getting to Aha! Discover Your Positioning DNA and Dominate Your Competition”.
She worked closely with Steve Jobs to promote Apple, so closely in fact she was, incredibly, fired five different times by the erratic and brutal Jobs. She is a brilliant and tough woman who said this in on the Brainfluence podcast,
Get to Aha! With Andy Cunningham
https://www.rogerdooley.com/aha-andy-cunningham/
She’s very passionate about the necessity of being authentic and adds,
… that’s one of the great things about Steve Jobs; once there was a narrative, he was relentless about pushing it not only through his organization, but also the influencers of his organization, and then the market in general. Just relentless, and it’s that relentlessness that enables you to take a pure thing, a pure position, and make it real in the world, because once is starts dissipating in the market, which they will do if you’re not relentless about it, then you lose that focus and then you lose that position.
No CEO, not even The Trade Desk’s Jeff Green, is as relentless as Lawson in spreading his gospel with such legit emotion and laser focus.
Lastly, FWIW, Lawson constantly mentions three companies – Amazon Web Services, Twilio and Stripe as being the great builders of infrastructure for others to then customize, to “build or die” off.
THE MOAT (COMPETITIVE ADVANTAGES)
Hamilton Helmer is the author of the influential book,
7 Powers, The Foundations of Business Strategy
https://www.amazon.com/7-Powers-Foundations-Business-Strateg…
Stay with me, this is important. Helmer’s bio includes running a consulting firm that’s done over 200 projects with the likes of Adobe, Netflix and Spotify. He teaches business strategy at Stanford, was Chairman of the Board of a public company, American Science & Engineering and holds a PhD in Economics from Yale. The introduction to his book was written by Netflix CEO, Reed Hastings who is arguably the greatest CEO of all-time.
The book was sent to Lawson by a Twilio board member and impacted Lawson so heavily that he asked his c-suite to read it. The book articulates 7 Powers, which are durable competitive advantages. They overlap heavily with the concept of a moat, made popular by former Morningstar analyst, Pat Dorsey. Put simply, they are:
Scale Economies - Cost savings that come from sheer size, so for example Netflix buying a film spreads the cost over a more subscribers than smaller rivals.
Network Effects - Adding customers makes the offering stronger, when Crowdstrike gains insight from one customer, they use it to defend all others. As the company gains data, insight, they make the offering stronger, which helps raise prices.
Counter Positioning – When the disruptor’s business model can’t be easily copied because the legacy company would need to blow up their own to compete. (Apple taking on Nokia)
Switching Costs – The cost for customers to quit is so high, it’s not worth it.
Branding - Having intangible assets that cause consumers to pay more because your brand makes them feel greater trust in the product or it just makes them feel good to ow, even though it’s not better than rivals.
Cornered Resource – A patent, a landfill, or Buffett’s famous only toll booth into town.
Process Power – Superior processes developed over a long time that can’t be replicated. (Toyota’s method for building cars.)
If you have just one of these it may be a lasting competitive advantage.
Here’s Jeff Lawson interviewing Helmer on a podcast, called the NFX (as in Network Effects) Podcast. It’s run by a venture capital firm with the same name.
The 7 Powers with Hamilton Helmer & Jeff Lawson
https://podcast.nfx.com/episodes/hamilton-helmer-jeff-lawson…
Two things worth noting from the end of the podcast, Lawson says you can’t just decide to have these powers but have to work to achieve them with intense focus, repetition for a very long time. And Helmer responds by saying that while the concepts are simple, gaining power, in a specific company and industry is very complicated.
Off the top of my head, Twilio has at least six. I’m not sure about Counter-Positioning. This means they are extremely powerful. But don’t take my word for it. Helmer, an old school businessman not prone to hyperbole finishes by gushing,
“Congratulations on the phenomenal thing that you’ve done in building Twilio… I’m just in awe that you’ve done such an amazing accomplishment, so it’s been my pleasure to be interviewed by you.”
High praise from the premiere expert on building durable competitive advantages.
THE TRACK RECORD
I’ll give some stats from Lawson’s 2020 Annual Report, which, of note, celebrates builders and the word “build” or “builders” appears six times in the first two paragraphs, which are passionately dedicated to Twilio’s spirit of building, and celebrating what their customers build.
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They did revenue of $1.76 billion with a DBNER of 137%.
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Added over 42,000 new active customer accounts, ending 2020 with over 221,000. They added giants like JP Morgan Chase to join other giants including Delta, Comcast, Epic and Phillips.
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Powered over 1,000,000,000,000 interactions, including two days (Black Friday and Cyber Monday) where Twilio SendGrid sent over 5,000,000,000 emails in a single day.
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Added 1,724 employees
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Got over 32,000 registrants for Zoom Conference. I recall watching early one where he was saying they’d gone from like 100 to 250 to 1,000.
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Were named a great place to work by several orgs, built up their charitable organization and completed the acquisition of Segment, among several other notable things.
I said earlier that companies don’t get stupider when they add over a decade of experience, constantly innovate, iterate and improve the product and processes, analyze data and not only survive global crises, but thrive during the chaos.
Past success is, without doubt, the best predictor of future success. When Wayne Gretzky put up an awe-inspiring 212 points in the 1981-82 season, he was just 20 years old, in his 3rd year in the NHL. This was after putting up a merely incredible 137 in his rookie season and 164 in his second one. With his team, system, organization all firmly in place, what did he do afterwards? He put an insane 196, 205, 208, 215, 183 and 149 points, led the team to four Stanley Cup victories before getting traded to the Los Angeles Kings where he helped usher hockey into the sunbelt, rebuild that organization and lead them to the championship game.
That Twilio has dominated its space, powered 1T interactions, sent 5B emails on one day twice, added almost a quarter of a million customers in its first decade, built a 5,000 strong army whose product is used by over 10,000,000 developers is downright Gretzkyesque. And he’s added SendGrid, Electric Imp, Zipwhip, Value First and Segment to his team, seemingly inspiring all their top guys to stay and keep their shares of Twilio stock
And that Lawson achieved all this and is still only 44 is just… it’s just (expletive) incredible. The brother’s just getting started.
THE CHALLENGES
I’ll just list them out here and don’t have a ton to say about them. None keep me up at night. Either the likelihood of it happening is small or the company would recover.
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Big dogs go thermonuclear. Amazon, Microsoft or Google declare all-out war in the space, undercut on pricing, steal developers and out-innovate them.
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A smaller, equally well-run company invents a better CPaaS.
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Key Man risk. Jeff Lawson leaves or God forbid is unable to continue leading the company.
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Digital breakdown. A virus or bug plagues the Internet/cloud as a whole or the Twilio software degrades.
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Cultural degradation. Lawson loses focus, the acquisitions break into warring factions. His elite team breaks up as the company’s processes wither, they lose focus and wither.
THE ENDING
I started this report with this aggressive statement,
Twilio has a clear, simple, authentic story, world class CEO, is top dog in a mission-critical space (CPaaS or Communication Platform as a Service), fueled by smart, coherent acquisitions, has a humongous TAM, powerful moat, strong culture, deep bench, killer messaging, an actual heart and a marketing plan backed by a ten million-strong army of developers.
Since writing that, and carefully working out my thoughts on the key areas explored above, my conviction has grown stronger. From my angle, it doesn’t get better than this.
But a great story needs specificity. We’re tracking two narratives here – the company and the stock price. I’m certain of the greatness of the company. Now let’s turn to the stock.
In a great story, we must know exactly what the hero is trying to achieve – get the girl, win the big game, foil the villain’s scheme, etc. For our purpose here let’s return to the great tech analyst, Peter Offringa, who gives us an exceptionally well-reasoned price target.
In this post,
Twilio (TWLO) Q1 2021 Update
https://softwarestackinvesting.com/twilio-twlo-q1-2021-updat…
He wraps up with,
Additionally, when I initiated coverage of Twilio in November 2019, the stock was trading at $98. I set a 5-year price target of $320, anticipating TWLO would reach that price by the end of 2024. Roughly 18 months later, it has already hit that target. Therefore, I am raising my end of 2024 price target to $660.
The stock was closer to $350 when I started this report around 1862. But now, with it hovering around 400, $660 gets us a roughly sixty percent gain in three years.
So, they exceeded Offringa’s last target with ease and my guess is they do it again. I see the story playing out like this. Fueled by laser focused leadership, legit camaraderie, battle-tested excellence and raw intelligence, the acquisitions coalesce into a whole greater than the sum of its parts. The acquired companies strengthen each other’s offering and as each platform – for texting, email, streaming audio/video, and the Internet of Things – improves, customers build better things faster. As this happens, the value of Twilio becomes clearer, allowing them to charge more for the service, driving margins higher. 2,000,000 of the 10,000,000 developers using Twilio build rock solid things and a few of them shock the world by disrupting beasts we thought could not be disrupted. I’m looking at you Zoom and Facebook. The company has a major positive earnings surprise and the stock shoots up 20% that day alone.
If the stock gets hammered with a broader crash or rotation, or because of a temporary, fixable setback I will back up the truck.
If you’re still reading, seriously, thank you. I hope you found this report valuable.
) growth companies out there. But then again we just witnessed Google, Apple, Microsoft, et al post incredible growth at a much larger scale. And regarding the organic growth rate “lie” from Q3 2019. I agree with most that that wasn’t ideal and that Jeff could have mentioned it in the earnings release or at least in the prepared remarks. However, I think it is a bit far-fetched to call this fraud or lying. After all, Jeff made that acquisition happen, and the 75% growth rate was their actual growth rate, defined by accounting rules, in that quarter. Plus, the CFO did disclose everything in the prepared remarks of the call: