A horizontal gamble 🎲
Why vertical focus isn’t always extendable, purposeful ops, and treating culture as a 1-way decision.
Welcome to the 79th edition of The SaaS Baton.
A fortnightly newsletter that brings you hand-curated pieces of advice drawn from the thoughtful founder-to-founder exchanges and interviews taking place on Relay (curated with 💛 at Chargebee for Startups) and the interwebz. So, stay tuned! And thanks for reading!
In this edition, you’ll find the following instructive and inspiring pickings:
#1: Persona’s co-founder and CEO, Rick Song, recounts how their horizontal bet necessitated at first by market timing and then by a need to differentiate from competition (bent on following a well-advised, niche-first path), turned into a powerful moat.
#2: Ada’s co-founder and CEO, Mike Murchison, on business goals that spread, when an exec team becomes an exec team, rabbit hole cards, and staging decisions like code.
#3: Miro’s founder and CEO, Andrey Khusid, reiterates how it’s easy to revel in capital’s deceiving validations and argues for a restrained, one-learned-step-at-a-time approach to scaling, no matter the stage of the business.
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#1: A horizontal gamble 🎲
(From: Persona’s Rick Song) (Source: Engineering Founders)
In 2018 (this is the era of countless data breaches)…enterprises were having major personal information data breaches. Simultaneously, there was this huge wave of regulatory changes. GDPR, for example…
The impact on us at the time was that pretty much no company that is of decent size would want a startup, much less a very early stage startup to deal with personal information.
3-4 months in, we had this existential crisis, where we [realized] we can work with very small startups but that’s it. ‘Do we have to just hope one of them takes off?’
There’s obviously some fantastic companies that have been founded with that, but this was a riskier kind of strategy. Because it meant a lot of times, you wouldn’t have much control over your destiny, you’d have to hope that one of the folks you’re working with are good.
Not to mention, for us, the space was hyper-competitive.
We weren’t the only startup. There were tonnes of incumbents, too. To navigate through that, the big thing that we decided to start really pushing on was: we have to be less ambitious, if we’re going to upmarket, on what kind of use cases we’d want to tackle.
Everyone wants the onboarding use case. Everybody wants the high-volume, high-transactions, high-criticality use cases. Some degree of self awareness and humility made us quickly recognize that’s not going to happen.
Instead, we’d have to prove ourselves.
We’d probably be working with companies on incredibly low-risk use cases that are [still] high value, challenging, and [have] really long sales cycles. Just to prove that we’re kind of a good company…and after that hope that they’d scale up with us, see the value of what we’re building and use it in other places as well.
That became a key part of our strategy. 4-5 months in, the whole dogma for us was, [find] the lowest risk (and highest pain point) for the business to target those as our entry point.
…
I often times like to make the comparison that Persona in a lot of ways is much more similar to businesses like Zoom or Snowflake. In which, neither of them are creating something completely new. There’s new technology for sure. But the use case itself is still the same.
Once you’re entering a competitive market like that I think it’s important to understand the existing dynamics…One of the existing dynamics that we saw in the identity space was this idea of almost vertical concentration.
Everyone was effectively saying that we’re going to vertically concentrate and then go horizontal. Which, again, matches the advice that you generally receive, of fitting a niche.
But with that vertical concentration what ended up happening was that…very few of them were able to grow large enough. Because over time what happens is they specialize more and more. The niche becomes smaller to a certain degree because of all the competition. And then they can never generalise outward…
…
What we ended up thinking at that time was, ‘let’s just go universal first.’ We’re already on this high pain point thing. Let’s just really go all out on this and say. ‘Not only are we going ]after] high pain points, we’re going to actively try to find one customer in every use case.
The moment we have a decently sized customer in one use case, we will actively no longer go after any more customers there. What ends up happening is, once you get 1, then 2, and then 5, and then 10, you start over-dedicating resources towards it.
Soon, you have goals to meet.
…
The moment we got the age verification use case. We immediately pinned down a fintech use case. The first person we hired, who was focused on sales and growth at the time, [keeps telling me], ‘you don’t understand how insane of an idea that was!’
‘Pretty much the moment I learned about any industry, you were telling me, “now forget everything you’ve learned, go try something else.”
…
That became a really powerful thing for us,
It forced our platform to become very generalized. And that generalization, the hyper-flexibility that’s inherent within it, this idea of building blocks and constructing your ideal identity flow, that all emerged from that exercise. And that exercise became our moat.
It’s very difficult now to go off and continue to do that. Because it did take quite a gamble of a bet that we’d capture them and then later on we’d get more customers in that industry, but we’re not going to rush it. We’re going to take our time. Really build something right. And do that by getting as many use cases as possible.
#2: Business goals as memes 🖖
(From: Ada’s Mike Murchison) (Source: Supermanagers)
I love thinking about business goals as memes.
Because a meme is something that just travels. That people want to share. That is lightweight and very memorable. And I think the way clarity is achieved in an organization and a team is when it’s really easy to digest and people know what you’re actually going after, and why.
And so I like to think about the goal of goal clarity as being a meme-like state. And some ways that we’ve tried to embody this… One example is what we call SOAPS (Strategy on a Page). And this is a concept I learned from Sameer at SendGrid, Twilio and now at Bessemer.
What a strategy on a page is a single slide or picture that includes your company’s mission, your company’s values, the core health metrics that tell you your company is working well. And then your core company objectives and key results.
And we try to circulate that across digitally all the time. It’s pinned to the top of every key Slack channel. It’s a zoom background… It’s something that’s easy to digest and easy to share. And we try to make the actual goals themselves snappy and short and succinct and easy to remember.
…
One of the goals that comes to mind for me is 30 in 30. The goal was that we’re going to automate 30% of our customers’ customer service inquiries in 30 days or less. And this sort of drumbeat of our company was: ‘How are we doing on 30 in 30? Right now we’re 30 in 50.’
That was simple to say. Like a comms exercise. But the internal momentum that came behind 30 in 30, ended up translating into an external go-to-market motion for us that continues to be a part of how Ada sales it software, today.
Now, it’s something that our clients often repeat and becomes part of prospective client conversations. ‘Oh, 30 in 30. That’s cool! That sounds like quick result that are easy to achieve. Your software must make that relatively easy.’
I think you start to see the impact of goal clarity, actually manifest in your customers if you do it right.
…
[On what makes an exec team]
The core distinction between having a series of leaders who are heads of department and an executive team, I think, is best reflected in the answer to any individual team members’ answer to the question: Who is your first team? Which team do you belong to?
And if your head of marketing says that I belong to the marketing team, then you don’t have an executive team, in my opinion. The answer to the question is, I belong to the executive team. This is my first team. Which is, of course, the Lencioni concept that we embody at Ada and has been very constructive for us.
That didn’t really happen until Ada was at least a 150 people. For me, what what that felt for really the first time as a leader, where it really started to feel as though we had a decision making apparatus that worked.
Where there’s clarity around the decisions that are being made, there’s clear ownership of those decisions, and clear rationale around why they’re being made. That, to me, is just so core to what makes an executive team function and what leads to successful decision making in a company.
…It’s one of these things where you kind of know it when you actually have it. And it feels qualitatively different than a team dynamic, where folks are really making decisions on behalf of their department.
They’re now making decisions in service of the company first, and they feel true ownership over this executive team, first and foremost.
…
[On exec meetings]
There were a few things that I got wrong. The first was the agenda itself… What I didn’t do a good enough job of was that I solicited the right topics from the team, but we didn’t crystallize the topics into core decisions that needed to be made.
And I didn’t do a good enough job of clarifying for the team, and helping the team clarify whose decision specifically it was to make. So we ended up with this meandering, long winded conversations that really didn’t end and with any clear outcome.
That, by the way, has [since] evolved into this system where we now actually have these cards for every meeting. Physical cards that are given to everyone at Ada. And one of these cards is a Rabbit Hole card. And at any point in a meeting you can throw up that card and say ‘we’re going down a rabbit hole.’
It gives everyone permission to call out what they’re seeing. That’s been very effective. Today, most meetings at Ada don’t involve physical cards, more metaphorical cards that people are signalling.
…
[On staging decisions like code]
…Our executive team, we meet weekly. We have a weekly, synchronous, real meeting over Zoom. Prior to that meeting, 2 days before, we all commit to filling out essentially [an] exact team notebook, but it’s a list of, we call them staging decisions.
These are decisions that are sort of in this staging environment, waiting to be pushed to production. Everyone, if they have a decision to be made, they are putting it in there, and they are soliciting (making clear the outcome they’re really looking for from that decision). And they’re often soliciting input from the rest of the executive team.
It turns out, I would say, about 30% of all decisions in the staging environment, actually end up getting made before the meeting via a comment, a couple of Google notes….
The rest of them end up being typically debated. But we’re able to (there’s very little information gathering in the actual meeting itself) we’re able to hop right in. Everyone has the context. You’re able to hop right into the crux of the issue…
So the suggestion at Ada is to default to that way. And we really try to encourage folks to do that. Now, we’re not so prescriptive as to mandate that everyone work this way, 100% of the time. Because there are exceptions.
There are some times where you know, you and I, are working on a problem, you just feel right that we actually need to get together, we may need, we absolutely need to hop on a call just to work through something. I think everyone should be empowered to do that.
But we approach it from [the perspective of]: ‘most of the time you don’t.’ Enter the productivity unlock, and the collaboration unlock, and the equity and accessibility unlock comes from changing the default state.
#3: A scaling discipline 🚥
(From: Miro’s Andrey Khusid) (Source: The Scale Lab)
There was one moment in time when we got to this product market fit and we needed to scale. And there was a decision tree. ‘Should we go fundraise now and hire a sales team or should we do a small test without fundraising?’
They [angel investors] extended a bit more financing. I remember it was 120K for me to hire the first head of sales and couple of sales reps. I promised them that this experiment will last 6 months. And, in 6 months, we’ll make it break even. It was 1st of December, 2015. On June 1st, we’ll break even with that initial sales team.
That helped us scale without any external financing. For the next 2-3 years we were not raising any money and we scaled a profitable business.
…
I’d do it again, if I was to do it now. The reason is, you have product-market fit, but you need to have a channel market fit, you need to have a model market fit, and all of those things need to be figured out.
And when there’s a big inflow of cash in the business, what you’re committed to do, is, you’re committed to spend fast. But you don’t have time to actually figure out what would be the best model for you to go to market, what would be the best messaging that resonates with the customer. So, you have to spend and scale fast.
What we did is that we took 2016-2017, to figure out what our sales motion is and how we land deals, how we expand deals, how we activate users while they’re on enterprise, all those things.
Yes, it was slow at the beginning. You may hire 20 people right away but you will not figure out what’s the best model that serves you in all the nuanced details. And it also doesn’t allow you to build this break-even or profitability mindset…
..
I 100% would advise to stick to the discipline forever to be honest. When we got money, one of the key conversations we had was, ‘why we’re not spending millions on paid acquisition now?’
I was not in a position to do it because I know that it will be a shit show. Because we don’t have the right analytics behind it. We don’t have the right talent to scale and so on. So we were spending 100-200K to test waters, to experiment, to build infrastructure.
I think we did it for 2 years or so until we started to really scale paid acquisition. We wanted to build a whole nuanced discipline around this before we started to scale.
…
If you have money, you can get to a point where you think you can solve problems with money. And this is true in 2-way decisions… where you can reverse back quickly. But it’s not true in 1-way decisions.
For me, culture is a 1-way decision. And when you create a culture of ‘let’s spend millions of dollars on paid acquisition without analysing, it’s a cultural thing.
…
We’re not perfect in this, as with everything else. We continue to [make] some mistakes. But, in general, the belief is that you need to be confident in what people are proposing to you.
From my personal perspective, confidence is not an agreement. Confidence is: Are there all the right pieces in place? Do they know all answers to major questions?
If yes, you might not be in full agreement, this is where you’d say, ‘I’m confident you can sort it out.’ What I think and I’ve observed that quite [a few] times is, ‘hey, we’ll start doing something and we don’t have full understanding, there are some missing pieces in the strategy and we’ll go and do it and figure it out.’
I almost haven’t seen any successful stories around this in the company so far.
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Small-scale experimentation. Thinking through small details. Learning through experiences inside the company and from peers. Having the right design is critical. Especially in areas where it’s 0-1, where you have to figure out things, [say] no [to] scale dollars.
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Team Relay (Chargebee for Startups)