Being "enterprise-ready" can wait đ˘ đ¤
How founder-market fit works (even better) the other way around, not waiting too long on that second product, and focussing on the (enterprise) present.
Welcome to the forty-seventh 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!Â
In this edition, youâll find instructive and inspiring pickings from the brains of Eduflowâs David Kofoed Wind, HubSpotâs Dharmesh Shah, and Contendaâs Lilly Chen.
Recently on Relay:
Heuristics and Hunches â Pivoting Despite PMF, Why You Donât Need Top Talent across Functions, and Other People-first Insights
Heuristics and Hunches â Why You Donât Need to be âEnterprise-Readyâ or âScalableâ as Yet and Other Notes on Crafting B2B Software
AMA (upcoming) â Tomorrow, weâre really looking forward to hosting Referral Rockâs founder and CEO, Josh Ho, for a Relay AMA. If youâre not on Relay yet and are keen on joining, please request an invite, here.
#1: âWeâd rather make things weâre good atâ â Eduflowâs co-founder and CEO, David Kofoed Wind, floats a new, hopeful corrective to the (mostly misunderstood, youâd say, after reading it :)) idea of founder-market fit. (Source: Relay)Â
A core philosophy of ours has been that we donât want a large team. It springs from the fact that none of us likes managing a lot of people. Weâd rather make things weâre good at.
This directly informs our product choices. We have a freemium product where users can play around, try out the first few things, and reach out to us only when theyâre ready to buy. And we can help negotiate pricing terms and help set up more sophisticated configurations.
Whereas a more traditional product will require many customer touch points from onboarding to closing a deal, which wouldnât be entirely feasible for our small team.
So, we do have a fairly long sales cycle, but we only participate towards the end of it. Otherwise we will exhaust ourselves dealing with enterprise bureaucracy.
This self-drawn constraint isnât perfect. We do limit growth because weâre not actively going out and knocking as many doors as we can. But it makes us incredibly profitable in terms of clean margins; a small team that does fairly large deals.
This mindset also informed our pivot three years ago. Before Eduflow, we had built Peergrade, a peer-to-peer feedback product. With very promising PMF signals that last until today (I talk about this aspect below), we found ourselves in a category-creation scenario. Ours was the best product for sure, but we had to drum up demand from scratch.
Eduflow, on the other hand, is a corporate learning management system. Tons of (legacy and new) competitors. And we deliberately chose this space, because weâre a great product team, not a great sales/marketing team.
We arenât the team thatâll create a new market, but one that can out-innovate alternatives in an existing market. Here, too, growth will take time. Itâll be frustrating. Almost every customer says theyâre evaluating us among four other products. But we believe weâll win in the end as we continue to compete on our strengths.
#2: âThe worst time to build a second product is at a time of desperationâ â HubSpotâs co-founder and CTO, Dharmesh Shah, surfaces salient whys behind the much-raised âwhenâ of launching a second product. (Source: OnStartups.tv)
So when should you create your second product? And what are some tips for doing it well? So letâs first answer the question of when. And, in order to do that, we have to first answer the question of why.
Why are you considering creating product (n=2) when right now you have product (n=1)? There are several buckets or motivations you might have.
The first one is youâve been successful with Product 1. Sales have been getting easier and easier. As your market share grew, more people knew about you; more people trusted you.
But now youâre kind of seeing this flattening out. Not that you are completely saturated, but most companies have either bought your product already or have decided not to buy your product for whatever reason.
Not that things have stalled completely, but youâre seeing that itâs getting harder to make sales now. Maintaining the growth rate that youâve been accustomed to is getting harder because youâre kind of hitting the upper limit on your existing category.
Thatâs motivation no. 1. Hitting that ceiling.
Motivation no. 2 is that the category that Product 1 is in, is itself declining. âŚYou were having great growth. But now that category has been supplanted by a new category, so the existing product isnât selling as well.
And motivation no. 3 is when you have a natural adjacency where thereâs another product or product category that fits really, really well with your first one.
A good example here is HubSpot itself. When we started, we started in the marketing software category. And there was and still is a natural adjacency with sales and CRM software.
Those two things go really, really well together, to the point that most customers that buy marketing software will have a CRM system in order to put those leads in.
So we made a decision that that adjacency was strong. Better for customers. It was also strategically important for us that in order for us to achieve our long-term ambitions.
We couldnât just stay in the marketing software business because over time whichever company was providing the CRM software would win as they would expand into marketing. And thatâs essentially what happened.
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Thereâs a big difference going from (n=1) to (n=2), and then from (n=2) to (n=3+). The first jump is a really, really, big jump. That adds an entirely new dimension of complexity to your business.
Because every decision, from the point that you launch the second product, every discussion gets harder.
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But, contrary to what I just said, you canât wait too long [either]⌠The worst time to build out a second product is at a time of desperation.
That you have no other choice but to build the second product, because someone else is taking over the broader product category. So you shouldnât wait too long. You definitely shouldnât wait forever.
Statistically there are vanishingly small number of companies that get to breakthrough scale by sticking with exactly one product through their entire history.
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So tip no. one is you have to know why youâre doing it.
Tip no. 2 is as youâre building out the second product, try to figure out what points of leverage are you going to get. There are multiple dimensions of leverage. You could say, âIâm going to solve the same sort of use case, but for an entirely new market.ââ
In that case, youâre getting leverage from your existing domain expertise. Possibly even your existing code. Youâre just taking it to a new market.
Maybe youâre going to sell a new product to the customers youâre already selling to. In that instance, youâre leveraging your go-to-market presence with your existing customers but youâre giving them something new to buy from you. A new product that solves a new issue.
So find those points of leverage.
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And no. 3, donât be too patient, in terms of how fast you expect that product to grow.
When you launched your first product, it was likely hard to get going. That initial, âuniverse is working against youâ as you get that motion going, getting the flywheel spinning is really hard.
When you launch Product 2, Iâm not saying it should be super easy, but it should be easier because you kind of leveraged some of the things that already exist.
#3: Why you can do without âenterprise-readyâ bells and whistles â Contendaâs founder, Lilly Chen, argues that most enterprise startups donât need to fret about scalability on day 1. (Source: Relay)
Enterprise SaaS startups, quite often, start to consider the scaling challenge too soon. Truthfully, most business software does not need to worry about scale for a long time.
Letâs take Contendaâs example.
Currently, we only sell design partnerships. We donât have general availability. Thereâs no public pricing page. Our design partnership recently has been going for $8k a month.
A design partnership gives customers early access to a solution for their biggest pain point, while also giving us a tighter feedback loop.
If you think about that price point for enterprise SaaS, $8K a month is just shy of a $100K ACV. That is a lot of money. So you only need 5-6 design partnerships, theoretically, to break even depending on your burn and where youâre located. Could be even smaller than that.
And you can support those handful of customers on entry-level infrastructure. You donât need to get fancy at all.
We use the Serverless framework, which is just AWS Lambda functions, for our backend. Itâs paid by invocation and by the length of time that the function runs. So if nobody is using it, itâs free. And if people start using it more, you pay more and scale it up.
But if youâre talking about 5 customers and their respective orgs, as far as approximate users are concerned youâre talking about maybe 500 or probably fewer. 500 active users isnât a lot.
Plus, usually there is a ton of work that needs to go into selling and building enterprise software if you have to go through a standard procurement process.
âEnterprise,â technically, should mean extremely large companies such as Meta. But I feel that the phrase, âenterprise B2B software,â has actually expanded to also include a lot of mid-market customers.
If youâre talking about selling to startups that are in that growth (series B/C) stage, you actually donât have to go through elaborate procurement procedures.
Procurement process means that you have to go through a security review. You need to go through multiple layers of hierarchies within different (finance, legal, etc.) departments.
With a scale-up, mostly itâs just the buyer who needs to sign off on it. The buyer is typically a VP, a director, possibly C suite, depending on what youâre selling.
But that person can usually sign the thing and as long as their CEO doesnât object, theyâll just pay the invoice and youâre fine. So unless your product legitimately only sells to the likes of Google, Facebook, and Apple, you probably donât need to be âenterprise readyâ and invest in developing bells and whistles such as single sign-on.
To add to that, itâs even okay if the platform doesnât yet do all the things youâve built in different places. Itâs okay for some of it to be self-serve and for some of it to be manual.
You can actually get away with that as long as the value that you bring is unique enough to your customer. And if they value that promise more than how much they get annoyed with the limitations.
Until next time,