Alex Frenkel of Kai on cheap installs, unit economics and a pivot

Alex Frenkel 00:30

Hello Etgar, happy to be here, excited for our conversation.

Alex Frenkel

My journey is not the standard one. I started by majoring in clinical psychology and worked as a therapist in clinics, private and public schools, diagnostics. Then I switched to high-tech by starting my first startup company, many years ago, using AI for gaming, working with companies like Zynga and Disney, and that helped me learn how company building, user acquisition and company growth works. I was super fortunate. After my first startup, instead of going back to the clinic, I went to work for other companies: [unclear @ 01:22], [unclear @ 01:23], an Uber-style mobility company, for Sears on social e-commerce, and at two blockchain companies, [unclear @ 01:27]. I learned a lot by working for other global organizations.

We started working on Kai a bit before COVID, leveraging conversational AI, LLMs, before anyone knew what LLMs were, with human therapists, to provide emotional support at scale and make it accessible to many people who need it and can't receive support in the traditional modality. So I can say that Kai is a therapist chat with older credentials and approval. Kai is much more than that. Kai is a platform that clinicians and clinics can use. It acts as a co-pilot, as an extension of the human team, and it can provide conversational support for the patient, but it also provides monitoring, triaging and ongoing updates for the therapists in the clinic. So it's a superpower that allows the same number of clinicians to provide support for many more people than they can currently. So it makes every therapist a super therapist.

Alex Frenkel

I came from that. I did one or two campaigns in my life, that's it.

Alex Frenkel

For us it's been a long and interesting journey. We started as a direct-to-consumer company, and we were super lucky because we were three co-founders. One of my amazing co-founders is a CTO, and the other is a growth hacker. [unclear @ 03:39] is really amazing, and he led all our initial user growth. We reached hundreds of thousands of people through his leadership, so it was definitely co-founder-led initial marketing growth. We got some help with the brand, some help with design, obviously, but most of the work was that co-founder engaging on social media. People were joining Kai from TikTok and Snapchat. One of the turning points was a very large Discord community we created for young people, and they started to share Kai with each other. So the beginning was very rapid and internal, with our in-house team. Then we added a wonderful marketer in Boston, in the US, focusing specifically on young people and Gen Z, and it was a very important phase because it allowed us to validate the product, publish research and receive some PR. We learned a lot from this phase.

One of the key learnings was that our technology works better, or is more suitable, for a B2B2C type of model. And one of the key turning points was when the war in Ukraine started: employers asked us to provide support for teams in Ukraine, and it was a very different type of work. It got us some [unclear @ 04:44] coverage, and it allowed us to operate our own clinic, and this is something that prepared us for the situation in Israel in the last couple of years. In Israel, like in any other country in the world, there are not enough therapists, long wait lists, a lot of load on the clinics. We partnered with [unclear @ 05:16], localized [unclear @ 05:18] to Hebrew, and started working with universities and employers, providing support for students and employees, many of whom went through different levels of exposure to the war and the situation in Israel, and this was super important for improving the platform. Today our marketing is very different. We're focusing on partnering with providers and clinics, large networks of clinics, and we enable them by providing an operating system, a platform they can manage themselves. So we really switched from a direct-to-consumer model, hyper-growth, the classic hockey stick, mostly growth hacking, to a B2B2C model, providing a SaaS platform. So many changes along the way.

Alex Frenkel

Thank you.

Alex Frenkel

It's definitely the numbers, the unit economics. When we were working with young people, direct-to-consumer, we were able to reach very low CACs. You're probably familiar with regular CACs for app installs: app installs would be dozens of dollars for one new user. A big difference with Kai was that Kai works not only as an iOS and Android app, but it works directly on messaging, so Kai is a contact on Apple Messages, WhatsApp, Telegram, Discord, which was very important for us, and the CACs were very low, so we were able to grow rapidly with a very minimal budget, a lot of word of mouth, and that part was exciting. The part that didn't work was the LTV. What we figured out is that people are not ready yet to pay significantly for an AI-focused report, and we understood the current market isn't there, it works the other way around: the only thing that organizations, insurers and other companies are willing to pay for is a human team, and that was a big part of our pivot, understanding that we needed to enable a real service, a combination.

It's not an AI coach or an AI companion, it's a human team leveraging an AI co-pilot to provide emotional support at scale, and this really unlocked the revenue. It allowed us to sign contracts for hundreds of thousands of dollars, and really changed the flow. So now, instead of very rapid growth, very low, but lots of challenges generating revenue, we have a much longer cycle of sales, a much longer process of validation, piloting, legal, but the contracts pay much better, more significant, and we see a way to scale like that. Another important thing is that the organizations we partner with have people who are in need, who actually ask for help or support and are waiting, or not receiving support any other way, or maybe the modality of physical meetings or Zoom therapy sessions isn't the best modality for them. So they're able to bring a super relevant audience that our platform can help and support. So the data was key. Looking at the unit economics, CAC, LTV, made it very clear that if we continued in the hyper-growth but very low lifetime value, we weren't going to succeed, and we had to pivot.

Alex Frenkel 10:50

I think a key lesson for us was making sure we work with a good, strong marketer, or a marketing team, that is local. When we were focusing mostly on the US, and bringing users from the US, having the marketing team in the market, really familiar with the potential clients and users, was super important. When we turned on the operation here in Israel, it really changed, and it was much harder for someone from the US to understand how to create the leads and relationships here. And the methodology really changed too. We started by counting how many new people joined Kai every single day, every month, every week. The growth week over week was a key indicator of successful marketing campaigns and brand awareness. But now the focus has changed and it's more B2B leads. Marketing is helping us bring inbound leads, setting up meetings with relevant potential partners and clients. So the KPI really changed. Today we're mostly focused on high-quality leads that can convert to paid pilots or paying customers.

Alex Frenkel

I think my very straightforward answer is that I'm the first sales person, as the CEO. Even at the beginning, all the initial leads were leads that came from our very close network, and only by doing that myself, by taking the meetings, trying to convert, signing the first partners. I think we're at a stage where we can think about what are the right materials, what are the right channels, the ICPs, and how the sales process happens. But the first sales were the core team. Our amazing head of psychology joins those meetings, to provide more trust in the scientific elements of our platform. So I don't see a real shortcut where at the beginning, yes, we're receiving help from marketing, with creating the material, with maybe bringing the leads, but the core team takes the sales process directly, especially the CEO, and only then can you try to bring in another salesperson who isn't the CEO. So for us, we're still heavily based on me doing the sales, taking most of the meetings, and working very closely with marketing, and providing immediate feedback: hey, this messaging didn't work, they didn't understand what our offering is. So it's working very closely with the marketing team, and being personally involved as the CEO.

Alex Frenkel

I think hiring, especially the first people, is key to succeeding. I feel that for us, trying to hire entrepreneurs, people like yourself, who went through the journey, worked on building their own company, learned a lot by doing almost everything, as part of their entrepreneurship journey, is a very strong potential quality to be a good fit at this early stage. What we discovered, not only with Kai but also in other companies, is that sometimes you bring in a very experienced corporate marketing person, and the startup mode wouldn't work for them. They know how to activate the playbooks they're familiar with, but the startup is messy: you try this direction, it doesn't work, you need to pivot, you need to change other things. So an entrepreneurial background, an entrepreneurial mindset, is a quality that matters a lot to me. The other thing, obviously, is a deep connection with the mission. I think Kai is very unique, because we're leveraging technology to help people, to provide emotional support at a very large scale. Having people who are very connected and excited, passionate about our mission, the impact we can create in the world, is super important. It's not just the position, here are the requests or the needs, here are the CV lines, and there is a good fit.

You have to have this extra: your mission is something I connect to, and here's why. It's not only saying that, it has to make sense with the actual candidate. And then, I really feel that speed and the ability to learn and iterate very quickly are super important for us. What I learned over the years is that you take a bunch of very smart people, you put them in a room, they work for weeks, they generate something, share it with the world, discover that it doesn't work, and you've wasted a lot of time. It's very important for me to work with people who are very smart, but who can also work in a very agile way: create something initial, it's not perfect, it's an MVP, even if it's marketing materials, let's test those, see how it works, what are the conversions, what are the feedbacks, and the willingness to throw it away, do it again in a different way, or just iterate and improve it a bit based on feedback. So I'd say those are three very important qualities: the entrepreneurial mindset, the passion around the mission, the specific impact we want to create in the world, so that's values alignment, and this agility, or capability to work in a build-measure-learn startup mode, which needs a lot of flexibility and smart, fast people.

Alex Frenkel

Two thoughts come to mind. I had a meeting earlier this week with the head of product at another startup, an Israeli company, and he gave me a tip I really believe in deeply. He told me, listen Alex, if your market is in the US, one of the first things you need to focus on is building a super strong advisory board. It can be investors, it can be potential connectors, and making sure you build this advisory board creates a situation where you can get help. We're super fortunate, we have strong executives from [unclear @ 19:41] and Discord and other companies, and I've used their help many times, both in sourcing or connecting potential marketing candidates, but also for interviewing, for meeting and providing more input.

That was super helpful, and I'd really advise, especially for Israeli entrepreneurs, to make sure you work not only on hiring and building the strongest team you can, but you also identify and bring in a very strong advisory board in areas relevant for your business line, from companies relevant to what you're working on and trying to build. So that would be one thing. It's not only my opinion, I received better initial candidates and a lot of feedback on the process that's US specific, because you're right, for us it's harder to understand who is a very strong candidate and who is just very strong at presenting themselves. The other thing that works for me over the years, and this is true for any position, is building a relationship with the candidate. So it's never just, I have this structured hiring process, they pass different tasks or different stages, and then we decide whether to hire or not. It's really building a relationship, it's flying to meet, doing coffee together, going to lunch, doing some walking meetings, to build a connection that isn't only based on the CV, or on a presentation that's very structured. Especially at the first stages, the first hires are so important that if you get a hire wrong, the damage can be hundreds of thousands of dollars, or even worse, many months.

Alex Frenkel

I can say this is something we did at Fixel, my previous startup, having a great advisory board, an active advisory board, not the kind that's just for presenting to investors, but the kind you can pick up the phone to when you need, and say, hey, I have two final candidates, can you interview them, who do you think is a better fit for what we need. The feedback was definitely valuable and helped us make some very good hires.

Alex Frenkel

So my experience with marketing, or hiring the marketing team, is almost only with a standard compensation package, a salary and, obviously, an options package. We try to make sure we're at industry standard for compensation, and we allow an option where the salary is lower and the option package is much higher, so that would be the preference. I see a difference with sales positions, that are heavily performance-based, it's percentages from deals, or actual deals closed, with very generous bonuses. But for the marketing team, my experience is a standard salary, with some balance between how many options and the actual salary, especially in early stages, where you can't pay like the huge companies, so the option package is the upside, and the mission, of course.

Alex Frenkel

I've seen situations where the CEO decides they want to level up marketing, and they try to bring in a superstar who would be very expensive but has an amazing track record already, and I've seen, more than once, that it was too early for that senior marketing executive, because everything else wasn't in place yet. A very experienced, senior, very strong marketing lead needs a team to work with. It's been a long time since they created stuff with their own hands, and they expect budgets, they expect headcount, to actually provide the impact they can for sure provide, and did provide, in other large companies. So I see this transition, the timing, when you go after a very skilled and experienced marketing lead, as a potential mistake I've seen more than once.

Alex Frenkel

I find myself speaking with many entrepreneurs, especially first-time, young entrepreneurs, and a common misconception, I think, is that they're searching for this amazing, unique idea, and they're building this prototype, trying to validate it, and I find myself, many times, telling them, listen, that's not the right order of things. Start with the people first. Who are you going to go on this journey with? Choose your co-founders. It's something I saw with very successful entrepreneurs: after succeeding with one company, they first invest a lot of time in co-founder dating, meeting different potential co-founders, and only then work together on the actual problem, and at some point, on the actual solution.

26:17 So that's key advice I give again, for entrepreneurs: focus on the people. The other thing is that working with amazing people is very hard, and this is something I saw again and again: to be able to work with someone you really want to work with, you have to build a long-term relationship and trust. It took me more than a year and a half to hire our chief psychology officer, because the timing wasn't right for her, but we stayed in touch, we talked, I updated her about our progress, until timing was right. I see many CEOs and founders not willing to dedicate so much energy and work, but the successful ones I've learned from can work more than a year or two to find the right timing and bring in an A player, and it makes all the difference.

So it's a cliche, but you can hire five B or C players and they wouldn't be as effective as one A player, and I see this again and again. So invest a lot of energy, not only in finding the right partners, but also bringing in amazing talent, being willing to date and follow up and update, for a while, until the opportunity to bring someone strong is there. And maybe the last thing, and it's an obvious one: don't fall in love with your first idea, and be willing to throw it away, start again. The amount of times we pivoted at Kai is very significant, strategically at least three times, but I think our story is the more common story. So this flexibility and willingness to not fall in love with the initial idea or direction, and to look at the numbers, look at the unit economics, look at other indications, and be willing to listen to what works, is super important, and that would be my third advice.

Alex Frenkel

I think that for us, at Kai, when we started, it was before ChatGPT, before LLMs, and I think the technology was very very hard to work with, and maybe it's just having patience, being willing to stay on the journey, not give up or retire or do something else. Just persevere, that's definitely advice, I don't know how effective it is, but it's something I did receive, as a first-time entrepreneur: it's a very hard journey, many things will go wrong, that's normal, if things don't go wrong, you should be very worried, and persevering has its own strength. I see many different companies that started around our time, and they didn't survive, they didn't adjust, they didn't make it through the economic changes and the technological changes. This willingness to stay in the game and be flexible, to persevere, would definitely be advice.

Alex Frenkel

It's funny, I was thinking about how many times we changed our homepage for Kai, and it's not only the brand changes, it's really the direction, and I think this is very important, in the relationship between a founder and a marketing team: this willingness to change the homepage frequently, and learn from every change, be willing to admit mistakes, and even go back, sometimes, to something that worked in the past that you didn't fully commit to. That's definitely important. So how many times we changed our homepage for Kai, it would be probably more than ten, which seems to be reasonable, not easy, but reasonable.

Alex Frenkel

Thank you for inviting me, it was a real pleasure, lots of fun. Thank you. Bye. Bye-bye.