How Intercom rose from the ashes by betting everything on AI | Eoghan McCabe (founder and CEO)

Key Concepts

• AI disruption
• AI-first agent-based business
• Wartime company
• Founder mode
• Customer obsession
• Outcome-based pricing
• Culture shift
• Ego death
• First principles thinking

Intercom's AI Transformation: From Late-Stage SaaS to AI-First

The Problem: Stagnant Growth and Bloated Strategy

• Intercom, a 14-year-old SaaS business valued at multiple billions with hundreds of millions in ARR, faced plateauing growth and was nearing negative growth territory.
• Eoghan McCabe, the founder, had stepped down as CEO in 2020 due to health issues (mold toxins and a tick bite), during which time the company became "bloated" and its strategy "diluted and unfocused."
• The company was trying to be "all the things for all the people," leading to slow revenue growth in the low single-digit percentages.
• Five consecutive quarters of decline in net new ARR put Intercom on the brink of zero net new ARR.

The Catalyst: ChatGPT and the AI Opportunity

• The launch of ChatGPT served as a wake-up call. Intercom already had an AI group working on rudimentary bots and machine learning for customer service.
• Within six weeks of GPT-3.5's release, Intercom had a working prototype of Fin, its AI agent.
• The company recognized the potential for AI to disrupt the conventional SaaS model, particularly in customer service.
• Intercom's existing base of 30,000 paying customers, hundreds of thousands of active users, and billions of data points provided a significant advantage.

The Pivot: Going All-In on AI

• McCabe returned as CEO and declared Intercom a "wartime company," emphasizing the need to fight for survival in the face of AI disruption.
• He adopted a "hardcore founder mode," making top-down, aggressive decisions to reshape the company.
• A key decision was to focus on service, recognizing an opportunity to displace Zendesk, which was perceived as "strategically, energetically, culturally dead."
• Intercom allocated nearly $100 million of its own cash to AI development.

Cultural Transformation: A Sharp Knife

• McCabe rewrote the company values to emphasize resilience, high standards, hard work, and shareholder value.
• He implemented quarterly performance processes that graded employees on both performance and behavior against the new values.
• Employees who consistently fell below a certain mark were respectfully let go, leading to a 40% turnover rate.
• These changes were met with resistance, including a "soft coup attempt" and letters to the board.
• However, the resulting culture was described as "incredible," with highly entrepreneurial, brave, and aligned individuals.
• An anonymous employee survey 15-16 months after the changes showed a 98-99% approval of management, leadership, and the new strategy.

Pricing Strategy: From Abhorred to Innovative

• Intercom's historical pricing was widely criticized for being complex and unclear.
• The company had been "screwing customers effectively in every direction," eroding trust and leading to customer-unfriendly decisions.
• McCabe made the decision to "kill our old pricing and give away a lot of revenue," simplifying pricing and reducing prices for many customers.
• This resulted in a more predictable, fairer pricing model that fostered healthier customer relationships.
• Fin's pricing is based on outcome, charging 99 cents to resolve customer problems.
• Initially, this resulted in a loss of 21 cents per transaction (costing $1.20 to resolve a ticket).
• The 99-cent price point was chosen as the nexus between maximizing revenue and being palatable to customers, with the belief that costs would decrease over time.

Fin's Success and Growth

• Fin is growing at over 300% annually and is projected to pass $100 million ARR in less than three quarters.
• Intercom benchmarks itself against public software companies and is in the 15th percentile for ARR growth.
• In the customer experience category, Intercom is the largest by customer count and revenue, and is rated number one on G2.

The Future of AI and Agents

• AI is going to disrupt all categories in the most aggressive, violent ways.
• Customer experience (CX) is deceptively large, encompassing service, success, sales, and marketing.
• Any function that requires repetitive operational mechanical work will be automated.
• Future organizations will be a medley of humans and agents, with a complex mix of roles and responsibilities.
• AI will lead to epic levels of efficiency, deflation, and increased competition.
• There will be a shift in required job skills, with a decrease in repetitive CX and sales roles, and an increase in roles requiring human connection and trust.

Lessons Learned and Advice

• You don't have a choice: embrace AI or be disrupted.
• Roll up your sleeves and figure out what's going to disrupt you.
• Bring in actual AI talent, including young talent.
• Be prepared to work hard, as young AI companies are working 12 hours a day, 365 days a year.
• If you're not willing to work that hard, hire someone who is.
• There's a culture clash between the previous generation and the new generation of AI companies.
• Intercom is a fundamentally different type of late-stage company, operating as a large, old startup.

Eoghan McCabe's Personal Transformation

• 14 years of working in a startup has been a crucible.
• 12 years of therapy with Yosi Amram helped McCabe get to know himself, take time for himself, and remove counterproductive edges.
• Two years away from the company, during which he was sick and faced challenges, led to an "ego death" and the shedding of insecurities.

Intercom's Product Leadership Prowess

• Intercom alumni go on to become CPOs at a high rate, get promoted, and start their own companies.
• This is attributed to a product-focused culture, a sprawling strategy that gave PMs autonomy, and a deeply first-principles thinking methodology.
• Intercom hires "founder types" and encourages them to learn how great companies are built and then go on to start their own.

Conclusion

Intercom's successful transformation from a late-stage SaaS business to an AI-first company demonstrates the importance of embracing disruption, making bold decisions, and fostering a culture of innovation and hard work. Eoghan McCabe's leadership and personal transformation were critical to navigating this challenging journey. The company's focus on customer obsession, outcome-based pricing, and first-principles thinking has positioned it for continued success in the age of AI.