Duct tape vs building systems š§»š§»
Why blind comparisons against 'kind-of-similar' companies are dangerous, what drives Pipedrive's continued SMB scale, and the systems transition all startups must make.
Hi there,
Welcome to the twenty-fourth 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 onĀ RelayĀ and the interwebz. So, stay tuned!Ā
In this edition, youāll find instructive and inspiring pickings from the brains ofĀ Front Appās Mathilde Collin, Pipedriveās Timo Rein, and Customer.ioās Colin Nederkoorn.
#1: The unaccounted perils of benchmarking ā Front Appās co-founder and CEO, Mathilde Collin, grapples with the convention of comparing against industry yardsticks and clarifies what tends to blur in such standardizing. (Source: Medium)Ā
As a founder, I wanted to make sure my company wasnāt falling behind, so I always kept a close watch on these benchmarks and how we were doing against them. If we happened to fall far from the norm, Iād worry, and if we were right on it, Iād make sure we didnāt deviate.
However, Iāve recently come to the realization that this approach can be flat out dangerous for a growing company. Itās not that the ratios are wrong, but blindly comparing yourself against a pool of kind-of-similar companies completely fails to capture the specific nuances and unique traits that have allowed your company to grow and thrive up to this point.
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At Front we had a lot of unusual ratios. Weād look at the benchmarks and it was clear that we were off, and for the longest time, I saw these as inefficiencies that we were getting away with for some reason, but would have to fix eventually.
For the longest time we had 1 PM for about 20 engineers. Everyone kept raising their eyebrows when theyād hear of this ratio, so I naturally started to worry about it myself. Much later, it occurred to me that we could afford such a low ratio, because everyone at Front uses the product daily, which creates a lot of alignment internally: the specs donāt write themselves, but weāre all generally aware of what our users want, which makes the entire product process much more efficient.
Itās said that for Account Executives in SaaS to be profitable, they should bring in 5x what theyāre paid, yet at Front the ratio has always been closer to 4x. However, Front has a āland and expandā model, that leans more towards expand than land: the size of the initial deal doesnāt predict well the value of the account 12 months in; and of course, with no initial deal the value at 12 months is zero. Knowing that, itās OK for us to pay more than usual for new business, because weāll realize most of the value later on.
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In retrospect, I should have been more thoughtful about what part of the business was doing fine and what actually needed to be fixed, in the specific context of Front. The same holds true for other companies: the unique ways in which they should deviate from the ānormā are endless. And
I donāt mean ābeatingā the norm: even though, as a startup, youāre trying hard to beat the average, it wouldnāt be reasonable to hope to beat all the averages. You cannot have the best user engagement and the highest LTV and the most efficient sales force and the lowest CAC, all at once. Itās just not realistic.
Pick your battles and play to your strengths: accept that youāll be slightly behind in some areas, and make sure youāre top of the class in at least one dimension.
#2: Founder-market-fit and Pipedriveās SMB choice ā āIn hindsight, I would not do it differently,ā writes, Pipedriveās co-founder, Timo Rein, as he illustrates the necessity of deeply knowing oneās own āexperiences, instincts, motivations, and desiresā to find the right model. (Source: Relay)Ā
I think itās not only a good question but also a good and necessary reflection point for any founder. Who are you confident in targeting? Which approach will give you the best opportunities for growth?
I came into co-founding Pipedrive with more than a decade of personal enterprise sales experience, and so we could have also easily built a sales system and team with enterprise targets. Easier said than done, of course . Importantly, over these years, I also had learned the pains and needs of people in sales - salespeople lacked a user-friendly and actually useful tool while executives lacked a tool that would help them forecast results and control peopleās efforts.
So, based on these insights and other co-founders experience from attempting to build SaaS products, our decision was to
target salespeople (not executives) because thatās where we saw the gap in the market, and we didnāt think there was a quick and quality way to address the needs of executives without solving the needs of salespeople first.
approach the global market from day one (because the customers would be predictably small, volatile, and only a large number of them would result in healthy revenues for us),
and do so in the lowest-touch fashion possible (because that felt like the right cost-effective way to reach, generate and serve a global base of small customers).
The decision, while it surely was to take us into many unknowns, felt natural and hence, not too difficult to make. It caused weird feelings sometimes (i.e. ācan we properly grow without a sales team?, ācan we sustain growth without 100% of control of the sales process?ā) but those passed as we drafted and executed systems to attract and acquire customers in our own way.
In hindsight, I would not do it differently, given our co-founder team makeup - I think we were primed to build this product and execute this model. Could we have grown quicker with a different target/model? Possibly, especially early on (based on requests from larger companies were kept turning down), and maybe equally later on (based on a stronger brand awareness and reach).
So yes, there could have been a way to reach higher ARPA and expansion and lower churn, but we liked our chances with higher mass market potential, lower acquisition costs, and better WOM more.
Again, I think our path was better for our co-founder group, which is why I believe a good reflection of experiences, instincts, motivations, and desires is necessary to find and settle on the right model. Funnily, we sometimes, not knowing the makeup of our competitors, didnāt fully understand why they would go upmarket so early on their journey. Then again, that might have suited their makeup much better.
#3: Duct tape vs building systems ā Customer.io's founder and CEO, Colin Nederkoorn, with a simple reminder on a fundamental of startup-scaling.Ā (Source: Alpha Colin)
In the early days of a company, itās really valuable to just be able to get things done with duct tape and glue. A critical mistake a lot of businesses make is they build an elaborate system for how things will work when they have customers ā¦. before they have any customers.
If youāre lucky, duct tape will take you to a degree of success without over investing in that donāt matter. The challenge with that approach is durability. Duct tape can paper over a lot of what youāre missing but itās not a long term solution.
At one point we were running our business using duct tape and it was hard. Companies built with duct tape arenāt fun and theyāre not sustainable. Everything was always on fire and John and my stress levels were turned up to 11 šØ.
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For us to improve the way we work, we need to build systems ā not computer systems, but rather ways of handling the work that we do across the business. Systems make that work more predictable and sustainable for the people who do it.
System building is Brian testing out squads before rolling them out to the whole company.
System building is Jon evolving our approach to paid marketing by isolating each part of our funnel and running experiments to build knowledge and experience as we ramp up our spend.
System building is our CSMs testing success interactions, and learning from initial customers before formalizing how weāll work with the rest.
Building systems forces people to think methodically. It turns you in to a scientist. You run experiments. First, you build a foundation usually from a place of experience that will support the system.
Youāll see system builders creating their system in layers. They try something new here, or evolve a process there. Very rarely do they tear everything down and start from scratch. It requires focus and dedication and itās different than duct tape and appropriate for a different stage of a business.
From the archives:
What am I missing: How do you create a satisfying feedback loop for your users? (Featuring founders from: Notejoy, Typeform, VideoAsk, ProdPad, EnjoyHQ, Intercom, and Geckoboard. With in-depth thinking on: feedback rivers, building āface-to-faceā relationships with beta users through Slack, benefits of open roadmaps, and more!)
Until next time,