Don’t make revenue the enemy 🙀🧛♂️
(Still) THE north star metric, how even thorough user interviews can amount to nothing, and reaffirming the understated opportunity of acquisitions.
Welcome to the 60th edition of The SaaS 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 (curated with 💛 at Chargebee) and the interwebz. So, stay tuned!
In this edition, you’ll find the following instructive and inspiring pickings:
#1: Equals’ co-founder and CEO (previously Intercom’s Sr. Dr. of Finance and Analytics), Bobby Pinero, summons nuanced resistance against the propulsive data trend of locating north star metrics far, far away from revenue.
#2: Correlated’s co-founder and Head of Product, Diana Hsieh, on how user interviews can often muffle essential signals by design and what to do about it.
#3: BreadcrumbsIO’s (previously AdEspresso’s) co-founder and CEO, Armando Biondi, having sold his previous venture to Hootsuite, considers (and argues for more founder interest in) the high-stakes yet relatively undocumented subject of acquisitions.
🗞 Recently on Relay:
Heuristics and Hunches — The Mechanics of Commercializing and Scaling an AI-First, B2B Startup with Thematic’s Co-Founder, Alyona Medelyan
The tricky part for technologists is to find people who will pay money for the solution. There are a tonne of “interesting” AI applications that people are willing to talk about but not pay for.
Heuristics and Hunches — Designing Thoughtful Workweeks, Decisions, and Feedback at an Async-First Workplace with Panther’s Co-Founder, Matt Redler
The first thing I’d highlight is committing to a lot of public communication. What we attempt (and we’re not perfect at this) to do is that we avoid making decisions in private, direct messages.
#1: “Revenue is the best north star metric”
(From: Equals’ co-founder, Bobby Pinero) (Source: Wrap Text)
Many data teams will die on the hill of “let’s measure something other than revenue.” There’s no faster path to “the data team is too academic” and “the data team isn’t focused enough on business impact.”
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To data teams I offer something else; a path of less resistance. Don’t make revenue the enemy. Embrace it. Instead of building arguments internally on why to focus on a metric other than revenue, help drive a clear understanding of how revenue comes to be.
What would have been a north star metric, present instead in terms of an equation for driving long term revenue. Help connect the dots for those who don’t understand revenue. Come to the table with ideas for how to maximize revenue, presented with short term and long term tradeoffs in mind…
Revenue isn’t only a lagging indicator. Yes, revenue comes after a customer gets or perceives value (which is often multi-faceted), but revenue is the ultimate quantification of that value.
The fastest revenue growth segments and highest expansion / ACV customers almost always illuminate interesting, new ways customers get value from your product.
Even short sighted things like price increases are ways to test the ways in which you might be over or underestimating value. And for the earliest of startups, building revenue tests whether they’re on to solving real problems for users.
To think we can understand value without revenue feels backwards.
Remember, north star metrics were popularized by companies like Facebook, Twitter, and Spotify whose business models put at odds user value and revenue (e.g. more ads takes value away from the user).
For the rest of us, our goal as businesses is to align price (revenue) and value. The goal of a data team should be to drive that same alignment and understanding internally.
#2: “Why user interviews can fail you”
(From: Correlated’s co-founder, Diana Hsieh) (Source: Startup Monlogues)
So you want to start a start-up and you have a general sense of what ideas you want to go after… what do you do as a product manager when there’s no product to manage?
Age-old advice is to start interviewing a bunch of people - in some cases, there are stories of founders interviewing hundreds of people to hone in on what they are trying to solve. I’ve personally found that taking it too far results in wasted work, repetitive interviews, and definitely worse, incorrect conclusions.
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Take-away 1: It’s really hard to avoid bias in user interviews
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The problem is, there are a lot of ways bias can inject itself into the process:
- The people you initially interview are likely friends of friends, and are unlikely to sh*t on your idea
- Despite starting with open-ended questions, you’ll inevitably follow up with leading questions that validate your own assumptions
- Starting a company is really personal, and it’s hard to separate your emotional attachment to an idea from actual feedback
Which means that you can’t overweigh the findings you get from your user interviews because it’s likely that you’re simply suffering from confirmation bias.
Take-away 2: Users have a lot of trouble envisioning a solution and providing actual feedback. Instead, focus on understanding the problem and developing user empathy.
If you (like I did), try to pitch a solution to a customer, you will almost inevitably NOT get the feedback you want. The reason is that it’s really hard for a customer to envision something completely new.
You’ll end up getting lukewarm responses to things that are complex (but ultimately make a lot of sense and are differentiated), and positive responses to obvious solutions to a problem. Rather, I’ve found that it’s more useful to really understand the problem you’re trying to solve and work on that, rather than expecting users to tell you what to build.
That being said, there are cases where providing a solution and getting feedback on it are useful - this is typically when the product exists, you’re working on a specific feature, the problem is well-defined, and you’re talking to a user who would implement the solution themselves and are domain experts.
Take-away 3: Don’t be afraid to pitch an idea during the interview
So this contradicts what I described in Take-away 2, but I think the key is doing 100 interviews with users on the “problem” will only get you so far. At some point, you have to start pitching an idea.
Sure, the responses might not be right, and your gut based on developing user empathy might tell you to do something different, but you have to put yourself out there and start getting feedback. However, there are good (and bad) ways to do this, which leads me to…
Take-away 4: Start putting tangible things in front of users as soon as possible
Ok, so I mentioned that pitching an idea to someone won’t get you the feedback you need, but that you should also still pitch ideas anyway. However, I think the key is that the minute you have a general idea of what something might look like, you should get it down on paper.
Maybe it’s a mock or a wireframe, or a presentation, but you need to give people tangible things to look at in order to give you real feedback.
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To close out, some quick tips on user interviews and how not to waste your time based on my experiences conducting interviews:
- Once you hit around 20 interviews of the same persona, it’s time to either try a new interview script (like adding in a pitch, a wireframe, etc), or trying a different persona
- Find a friend (preferably your co-founder) to listen in on user interviews so that you can help each other avoid bias in the interview process
- Think of ways to make your product more tangible to your interviewees in the fastest way possible
- In the beginning, focus on understanding your persona and the problem you are trying to solve
#3: “An offer is a signal”
(From: BreadcrumbsIO’s co-founder, Armando Biondi) (Source: SaaS Fuel)
An offer is a signal that there is something in the market going on for which your type of company is appealing and palatable to a category of operators. And so it should open up the conversation.
If you find someone reaching out, proposing you to have that conversation, you should take that as a signal that there might be more people interesting in having that conversation…
The conversation to me should also include elements of:
okay, where are we today?
How clear is the path to 10xing where we are in the next ~3 years?
What risks are we taking? (It might be executional risks, it might be product risk, it might be market risk, it might be a [new] competitor coming in or being bought by a bigger company.)
How does that change the conversation?
And what would be the cost of that additional growth? Do you need more capital for that? What kind of investment are you talking about?
So, in some cases, it might be more interesting to decide and join a bigger organization which will have those kinds of resources, and materialize that upside…
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It’s one of these things that aren’t that well documented. Maybe the last of the things when it comes to startups and early-stage companies that is not very well documented.
Which makes sense because it’s always a high-stake, highly confidential type of conversation. And there’s a lot of time pressure there. There are a lot of question marks. And most of the leverage is on the acquiring company rather than the company that’s being acquired.
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Most founders have this idea of the billion-dollar company in mind, where they start with a ‘go big or go home’ type of mentality. Partially because investors ask them to and partially because the press talks about that stuff all the time.
There are few things that are not as well known. And I find myself mentioning them. Particularly no. 1 around the cost of doing a billion-dollar+ company.
On average in order to make a billion-dollar company you need to raise $250m+ as a founder, you need to take 9+ years, and even when you do raise the capital and do take the time, most founders end up high single digits, like 5-9% of the company.
And contrast that with M&As. There are about 2000-2500 such transactions per year in the US. 5 out of 6 are under $100m. On the flip side if you have like 40% of the company and it takes 3-4 years to get at that level, to have a conversation around the $100m mark in market value, it’s kind of the same as the billion dollar outcome 9 years after…
In that sense, there are a lot of acquirers that could explore that idea of a company in that market valuation range. That’s not necessarily a failure. Most founders will think about it as giving up. But it’s really not.
Particularly in some cases when there’s some risk around execution or market, or maybe the company is not profitable yet. Those are things that should go [into] the conversation.
One of the things that founders struggle with in these types of situations is that it’s very emotional, very high stakes type of conversation. For most people, selling a car or selling a house is already a big deal.
And you have 10s of thousands or 100s of thousands on the other side, and here we’re talking about 10s of millions if not $100m. For most people it can be the single biggest transaction they’ll do in their professional life. Plus it’s their baby. It’s their company…
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Until next time,