#18: 10 Questions for Teasing Out Market Opportunities 🐀🐰🦌🐘
Unearthing unexpected market insights, how writing bigger checks breeds company inefficiency, and the dealing with the “tricky” business of product launches.
Hi there,
Welcome to the eighteenth edition of The Baton. A fortnightly newsletter that brings you three, hand-curated pieces of advice drawn from the thoughtful founder-to-founder exchanges and interviews taking place on Relay and the interwebz. So, stay tuned!
In this edition, you’ll find instructive and inspiring pickings from the brains of SavvyCal’s Derrick Reimer, Parse.ly’s Sachin Kamdar, and Userlist’s Jane Portman.
#1. 10 Questions for Teasing Out Market Opportunities —SavvyCal’s (formerly Drip’s) founder, Derrick Reimer, lists 10 simple thinking tools to aid the sifting exercise (gymnastics?) of understanding markets. (Source: Derrick's blog)
What successful companies are resting on their laurels?
What products have gone so far up-market that a broad base of customers can no longer afford them?
What successful products have critical flaws for a subset of users?
What products are people using for a different purpose than originally intended?
What popular products are extensible and could be augmented to work even better for a particular niche?
What inefficiencies can be solved by borrowing new technology and applying it to an older space?
What areas have a bunch of new people looking to join who are willing to spend money to succeed faster?
What popular products have been acquired and shut down, leaving a void of demand?
What companies have stopped listening to their customers?
What companies are unable to keep up with feature demands because of legacy?
#2. “Why We Said ‘No’ to a Lot of Money” — Parse.ly’s co-founder and CEO, Sachin Kamdar, impresses upon the unhealthy absurdity of a common VC insistence (“We wanted $5M. They offered $25M+.”) and shares a thoughtful alternative they sided with in the end. (Source: Parse.ly)
Despite strong, sustained business growth many told us they wouldn’t be able to invest in our next round. We scratched our heads: “why?” The answer was always the same: “You’re not raising enough.” West Coast investors said the same, suggesting we weren’t “thinking big enough.” We wanted $5M. They offered $25M+.
We were curious how serious they really were, so we went down the “how much can we raise?” rabbit hole. We found ourselves with offers for more than $40M, 8x what we needed.
The idea of deploying $40M was exciting, to be sure, but it was also a head scratcher. Why were these funds pushing for more than we needed?..
*We explored every angle for how Parse.ly could deploy $20-40M strategically. With each offer, we found ourselves spending time looking at how we could justify spending a huge amount of money rather than what would work best for our business.*
We’ve always considered capital restriction to be an exercise in focusing the company, and doubling down on what’s working. That approach has helped us prioritize and kept the company finances healthy.
Startup unicorns aren’t a myth. But, the idea that you need huge sums of money to become one is.
With profitability in place, we didn’t see a reason to put the company into a deep expense hole when revenue growth could be pursued efficiently. That’s the power of the SaaS business model; it’s predictable. We could see a near future where both profitability and growth were realized.
Taking a large raise would shoot our common share price up dramatically and employees would be forced to foot a large tax bill to exercise and might never recoup that; for an example there, check out what happened with Good Technology.
From studying the data, this much is clear: VCs are cash-rich right now, and it’s affecting startups. It pushes companies to raise more money than they actually need. Their viewpoint is, if VCs focus on writing bigger check sizes to companies that have a conceivable path to $100M in annual revenue, then they can put their capital to work “efficiently”.
But that efficiency is self-defeating: writing bigger check sizes doesn’t, in itself, put that capital efficiently to work. It might, instead, breed company inefficiency.
Note: Sachin’s reasoning was curated as part of a response to a founder’s question on deciding between raising funds and bootstrapping, once one has reached profitability.
It also features thoughts from Calendly’s Tope Awotona, Know Your Team’s Claire Lew, WP Engine’s Jason Cohen, and Yarno’s Lachy Gray. If, as a founder, you’ve deliberated over this decision, we’d love to hear from you. Join the conversation?
#3. "One of the hardest things with SaaS launches is…” — Userlist’s co-founder, Jane Portman, logs some essential to-dos (and balms) to consider when planning the “tricky” business of product launches. (Source: Userlist)
One of the hardest things with SaaS launches (as opposed to book launches, for example) is that impulse purchases are highly unlikely. It’s especially true for our product: adopting Userlist is a major business decision. It’s closely tied to product milestones, such as their own launches.
We had already observed — and embraced — this pattern with early customers, so there were no pink glasses on that side of things.
To prevent crowds from leaving and forgetting about you, it’s great to have a freebie on your website to capture their interest. We had planned for that upfront.
A few months ago we added a free lead magnet (email planning worksheets) as an integral part of our redesigned website.
Here are the principles we followed for an ideal lead magnet:
It should be easy to consume. Free books are not great, for example, because you would typically download a book and forget to actually read it.
It should probably not be a free email course. They’re so common in our niche, many people are tired of them.
It should be highly relevant to your product.
It should be extremely helpful, but also raise awareness for your product. Self-diagnose tests or checklists work great for that.
Ideally, it should encourage the visitor to do something practical, because that would mean investing emotions and time. We think worksheets are great for that.
In our case, worksheets are also solving one of the onboarding problems that new Userlist customers face — it’s much easier to get started with the app if you have already planned your tracking and sending upfront.
…
Launches are tricky.
One one hand, you get an enormous emotional uplift and community support. On the other hand, actual numbers can get disappointing. It’s true with any product, but it can be especially painful with a B2B SaaS. Such products have generally lower engagement rates than, for example, books or other impulse-purchase products.
We say, don’t let the numbers ruin your spirits! After all, it’s only the first day of your journey, and there’s many more to come. There’s rarely a SaaS success overnight. Quite the opposite, a large influx of customers can sometimes hurt your business — ask any founder who has run a deal on one of the popular websites.
Recently on Relay:
AMA: With Sleeknote’s co-founder and CEO, Mogens Møller
What Am I Missing: “How to Create a Satisfying Feedback Loop for Users?” — Lessons from Typeform, Intercom, Geckoboard, and others!
Heuristics and Hunches: “No one uses it to start a company” — Questioning the Utility of SaaS Industry Reports, Limits of Category Mania, and What Founders Should Follow Instead
Liking this fortnightly assemblage of founding heuristics and what-I-know-nows? Forward it to your SaaS friends, and let them know they can sign up here.
Until next time,