How to Build a Product that Scales into a Company

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what we're going to talk today about is
how to build a product that scales into
a company it's a you know it's it's
super it's super
common that when you start a company you
start with the product so for those of
you starting companies did you have a
bolt of lightning where I've got a
product idea and that was the Genesis
for starting the conversation ordered or
did you spend time deep in an industry
where you understood a problem and
decided to explore different products
who who started their thinking with a
product as opposed to
as opposed to a market by the way most
people do that's not just I'm not trying
to I'm not trying to imply that that's
not the right way to do it it's the
right way to do it
um but it doesn't always scale into a
company and so what we want to talk to
about today is about how you take that
product idea and how from the beginning
you can build in things like thinking
about go to market thinking about
pricing all the stuff that turns it into
a big company as opposed as opposed to
just thinking straight about the product
to the agenda today is to talk about
something that we call the the company
Gap
um and then talk about how we actually
design products from the get-go to span
to span that Gap and that involves both
designing for product go to market fit
and by go to market I mean you can
actually design products to make them
easier to sell and that's super
important and then you can architect a
business model on top of that which
helps you scale your selling so pricing
and all of that stuff so we're going to
talk about talk about all that stuff
today
so the problem
you've heard the term minimum viable
product you've certainly heard the the
term product Market fit
um you know but it often doesn't get
enough momentum to build a lasting
company product Market fit so in the VC
business one of the things we're seed
investors at underscore and one of the
markers we look for when a company is
getting ready to a question number one
do they have product Market fit so I do
not mean to imply that product Market
fit is bad it's just not enough to build
a big company so when you're going out
to raise a series a we want to see a
little bit of Revenue we want to see a
class of customer at least a minimum
viable segment we'll spend a much time
talking about that for which that
product works and so you've repeatedly
sold that product a couple times but
there's a lot more that has to happen to
get to the next round of funding Beyond
just that product Market fit so product
Market fit is just one step just one
step along the way
so the the challenge is something we
call the The Product Company Gap and I
figured I'd you know since I I actually
started a company I figured I'd tell you
about a company that actually failed to
get across that Gap um and that might be
useful I started a company called
padient um it was a mobile payments
company QR code payments before it was
happening in China and Korea like we
actually had to write we had to code our
own QR Code Reader we hired a satellite
imagery engineer to build our own QR
Reader from scratch the idea was hey we
could use QR codes instead of credit
cards to pay for stuff
um we knew like we had we started
companies before and we knew that it was
going to be hard to build a company a
direct a consumer company how are you
going to get millions of people to stop
using their cards and and start using QR
codes so we took a different strategy to
try to address what I call this Gap to
take it from a product idea to something
that we can actually deploy at scale in
the marketplace and so we decided to go
out after huge retailers we had success
signing Best Buy in Walmart and big
retailers like that that would use our
technology but build it into their own
app so we were like okay we're going to
use a partner and they're going to be
the ones that deploy it for us so we
don't have to do the whole
direct-to-consumer thing
the problem was we didn't we had no idea
how hard it was to get an I.T department
at Walmart or at Best Buy or Target to
actually deploy this stuff and do the
work
see that little payment terminal right
there that is a 10-year replacement
cycle doing anything on that payment
terminal is like brain surgery for a
retailer and so although we ended up
selling our company to PayPal because we
had good kind of core technology we it
never got it never turned into a huge
company we got a choir we were doing
like 10 million in revenue and even at
PayPal with all those resources we
couldn't get across the gap into it
being a scalable company easy to deploy
millions and millions of users using it
on the other hand so not all not all
kind of bad news here's an example of a
company that did get across it so
YouTube
prior to Google it's founded in 2005 or
so in one year they're one of the
fastest growing sites on the internet 20
million 20 million uh users a month
absolutely crazy and in less than two
years they require a Google for 1.65
billion dollars which in 2006 was just
an absolutely astronomical amount of
money they were growing so fast before
they were acquired the platform was
falling down it was getting way too
expensive to run there was no economic
model whatsoever and there was no prayer
of getting across this Gap without
someone like Google to come in and what
changed they figured out how to monetize
it with advertising and YouTube alone
within the Google ecosystem is going to
be like a 30 billion dollar business
this year so there's it is possible to
get across that it doesn't have to be
Google but you need to think about it's
not just having the best YouTube was
amazing it was one of the best product
in the world it was one of the fastest
growing internet sites but just having
the great product isn't enough to get
across this Gap so the whole point of
today is to talk about the The Product
Company get
so it's a it's all about the product
right you know it's funny I'm showing
the iPhone here Steve Jobs is
I don't know maybe you guys disagree but
he's probably the greatest product
manager that ever lived period right
he's all about the design all about the
Aesthetics of the device so what do you
do in this little we're going to try to
get a little interactive here and by the
way feel free to interrupt me raise
hands
what was the big innovation for the
iPhone
anyone I mean odd uh the touchscreen
touch screen touch screen so the second
thing you said so touch screen clearly
the hardware form factor was Innovative
they went for a full screen the device
was gorgeous coming out of the gate it
was the thing to have it was like a
luxury item it felt beautiful that it
was packaged beautifully
but I'm with you the real Innovation was
the App Store the ability to have tons
and you know tons and tons of apps so
that your device could be completely
customized to you and not just the App
Store one year after the App Store
launched you know what they did they
they introduced in-app purchases so the
ability to and we're going to talk a lot
about this notion of pricing your
products or making it very easy to
deploy products this notion of hey I
download an app it's totally free but
then you can upgrade and you can make an
in-app purchase and they get 30 of all
of that so it's not always just the
product it's not just Steve Jobs
thinking of this you know beautiful
aesthetically beautiful device it's also
the go to market and the pricing and all
of that stuff that turned it into what
of course is just absolutely Blockbuster
business
um
so here's something here's something
maybe it's surprising for you maybe it's
not so you guys are early in your
journey how many of those of you who
have started a company how many of you
are like actually starting to write code
and kind of doing all this stuff
anyone writing software yet
okay so in the early days of a software
company certainly you spend all your
money on development it's you know maybe
one founder is a technical founder one's
a business founder but the first five
hires are going to be more technical
people to kind of build out the product
and start to do it but as you scale the
company you end up spending way more
money on sales and marketing than you do
on on the product and I'll share some
share some data with you that kind of
that kind of backs that up what will
actually happen is that your expenses
will flip so in the early days you've
got your team you hire five or six
Engineers certainly as seed investors
when we invest in when we invest in seed
companies very often it's you know one
maybe non-technical person and the rest
of the folks are Engineers for example
no marketing people no director of sales
no customer success people
but what happens is as you start to
bring your product to Market and you get
past this kind of MVP and what we call
founder-led sales where the founders the
one Founders the one sales person and
they go out and close all the deals as
you start to get past that what happens
is it flips
you start to have to spend much more
money on on marketing than you do on
development now what actually happens is
that there's there's in the SAS business
and I'm maybe not all of you aren't
creating SAS businesses
um there's rules that have started to
emerge about how you Benchmark companies
that are doing this thing there's a rule
called 40 20 20 where for mature mature
companies in a mature line of business
forty percent of the revenue is on sales
and marketing 20
um is on product and research so it's
actually sick it's actually 60 it's
actually uh 60 to 20 60 to 20 in in from
SG a compared to r d for a mature
scalable product and this is literally
these are literally benchmarks that
people use to to more and more these
days too especially since valuations are
compressing and everyone actually cares
about metrics again these are benchmarks
people use and certainly investors use
to Value companies decide how much money
to invest in it this is data and I put a
link down here it's actually worth kind
of digging into
um crunchbase did a survey across all
kind of software segments but SAS was
one of the biggest ones but social
networks and others where they looked at
how the expenditure change how the
expenditures on R D changed as a company
approached a public offering and if you
look Salesforce and log me in to kind of
put classic public company SAS
Salesforce in fact invented the SAS
business model and if you see you have
their their products spend as a
percentage of Revenue changes as they
approached IPO
just what I was saying right it's
starting to go down both of those
companies are profitable you look at a
more recent IPO mongodb
they're not profitable even so heading
into the IPO they're kind of trending
towards trying to get to that 20 percent
but perhaps part of the reason they're
not profitable they're still spending a
ton on R D and then when you look at
someone like Twitter
um huge in the early days huge kind of r
d expenses generally trending down one
of the ones I found super interesting
though of course was meta so as meta was
getting ready to go public they were a
super efficient product organization
right the expenditure of Revenue 10 10 7
10 as a percentage of Revenue
when you compare it to what's going on
now with like the metaverse like these
guys that you probably you know you've
probably read some of the stories the
stocks tanking and all this they're
likely to spend 30 of their revenue now
on just the metaverse product and so
that's an example of a company that was
maturity
had kind of r d spent expenses in a more
appropriate place but as they invest in
a new product line you will see those
expenses go up so it's not that it's a
hard and fast rule but on a per product
line and certainly when you're just
starting up you have to be prepared for
the fact that it's going to flip as you
start going forward
any is there anything surprising there
you what's you have a question question
on your last slide I think you have
something called
a g a yeah uh General General and
administrative expenses
yeah it's just kind of back office stuff
so I'm sorry I should have I should be
careful with my acronyms you're very
right so it's software as a service
and so it's it's the notion where you
software lives in the cloud typically a
subscription-based revenue model
um it's generally the most popular
software pricing model now very few
people actually sell software that you
install on on premise and subscription
revenues are great for predictability
and all that other stuff all right let's
keep going okay so the purpose of this
session is how do you think about this
stuff up front and how do you build that
in to the products the products that
you're creating so let's so what we're
going to do for the rest of the session
today is this is kind of the agenda of
the things that we're going to talk
through to kind of guide us through this
this this forethought of building
products for delivery really we're going
to start talking about um just the
design in the design stage of the
product how you actually design a
product for go to market fit not just
product Market fit but go to market fit
we're going to talk a little bit about
value prop
um a little bit but what we call minimum
viable segment and then how you build a
build a repeatable product
so when we talk about designing a
product for um product Market fit the
first thing you do when you're building
you know a product is you build an MVP
it's called minimum viable product
um this will be a little bit of review
just a couple slides I promise we won't
we won't harp on it too much
um but it's super important you triple
check your value proposition before you
do anything before you spend any money
before you hire Engineers because if
you're not solving a valuable problem
nobody's going to pay for it and you
won't you won't build you won't end up
building a a valuable company and viable
viable just means you can kind of build
it and deploy it and the software works
it doesn't mean people will pay for it
so it's important that you really double
and triple check that value proposition
before you spend even a dime so you have
that you have confidence in it this may
look familiar to you this was part of
the stuff that was discussed in that
previous session two weeks ago you know
this is the framing that we use to talk
about kind of to value proposition
but is is this a product that addresses
a need is there an unworkable
unavoidable urgent problem or an
underserved Market we call it the four
use and then there's the 3DS is the
solution the product that you've built
is it discontinuous is it defensible is
it disruptive and again um I know this
is a little bit of a little bit of
review and we do those of you remember
we did we talk about something called
the black and white framework is is the
product you know on that you kind of you
get we have a nice two by two here where
we talk about blatant latent
aspirational and critical
good example of latent and aspirational
Gucci
it's it's obviously aspirational
generally speaking you see products that
look like that more on the direct the
consumer side consumers like it you can
build gigantic multi-billion companies
with something that's latent and
aspirational so that doesn't mean bottom
left quadrant is bad at all in this case
um but it's not it's not um it's not
blatant and critical on the other hand
um those of you who are old enough or as
old as me remember when the cell phone
came out cell phone was a status symbol
for a long time at first it was in the
car you had cords and stuff there was no
good reason to do that other than to
flex on your friends and especially when
you know the phones were like this big
and you had to hold them hold them with
two hands it didn't take long and the
iPhone and the maturity of android
devices really really changed it before
it became absolutely blatant and
critical it's critical you know I have
kids like kids get phones when they're
10 11 12 because you don't even know how
to pick them up at the bus it's blatant
and critical for consumers it's blatant
and critical for business so it is
possible for products to move from
latent and aspirational up as they
mature and then I thought I'd just give
a you know a little example of another
one so
Oculus or VR glasses any of you play VR
games guilty
um it's latent and aspirational now it's
literally a toy
um or or is it
it's not this is an example of something
that right now you might argue is still
sitting in that lower left quadrant as
an aspirational product it's clearly
going to move up up into the right and
not just because of what meta is doing
with the metaverse but because of
Industry
um you know the ability to check this I
think one of that screenshot at the top
was the ability to kind of check the
skin of an aircraft with VR goggles that
can kind of detect stuff that you can't
with your eyes to operate Factory
machinery and you know not a pleasant
subject but every day on TV with what's
going on Ukraine you see what's going on
with drones and everybody is wearing VR
goggles to Pilot those drones it's now
it's now a absolutely common part of War
fighting question
in India we have a defense incubation
Center called uh Forge okay and the
weaponizing Drone part is something that
that is so deeply rooted with arvi and
uh and uh and camera with his drones is
it's so critical that at any particular
point of time there is a pilot flying
that Dune and he or she is supposed to
neutralize some targets and even a
latency lag of a microsecond can
can result in someone else being shot so
this is how critical it is becoming
literally literally life and death yes
literally life and death literally life
and death and it's you know and look not
everyone's building kind of you know a
hardware product that that evolves and
maybe you are that evolves in that way
the broader point is to think about how
your product fits in this Matrix in the
late and aspirational blatant and
critical Matrix as part of your
envisioning your value proposition so
you understand whether you're building
something that's valuable and that may
be even more valuable as you as you kind
of grow into it so when we talk about
bringing an MVP
um to Market
minimum viable product
you've built and I'll I'll continue to
do software examples just since that's
my word and I apologize if you're You
Know You're Building you're building
something else or a piece of Hardware
but you build something small typically
you're building a fraction of your total
vision and you and you've got an idea of
the people that you want to sell it to
but the most important thing is to be
able to sell it to somebody repeatably
and to be successful when you do that
and that almost always means you need to
find what we call a minimum viable
segment and what do I mean by that
what it means is of your Grand Market
where you have a dream of you know
building a deck of corn that could you
know sell all of your stuff to all of
these people you find one segment of
that that has consistent needs either
based on the four U's and and the 3DS
and stuff that we talked about but it
has consistent needs that you think you
can take your small product solve a
problem that's important enough for them
and do it over and over again because
one of the most important things when
you're when you're starting a company is
to be able to prove to yourself and
prove to eventually your investors that
you're solving a problem that's
important enough even if that first
segment is relatively tiny is not enough
to you know do 100 million dollars of
Revenue at scale
prove that your first idea either works
or doesn't for a minimum viable segment
before you try to blow it out and create
something much much bigger it's
absolutely critical to think that way
and so you find the MVP you fit it into
these needs and by the way you ignore
those other segments for now you've got
your minimum viable segment and all you
want to do is make them successful
question
was the size of the minimal by all
segment it depends on what you're
building ideally you want to be able to
generate some Revenue in there but what
but as investors we don't when someone
talks about a minimum viable segment
we're not we don't ask about the Tam for
a minimum viable segment so the way we
think about it is that the segment is
small enough that if you're right
for the problem you're solving you can
dominate you could actually dominate
that market so you've kind of you've
carved out a space that's like okay
maybe there's not 100 competitors I'm
going right after this thing I'm solving
a very particular problem and I can
absolutely dominate it and by dominating
it it's viable you've proven you can
succeed in this market with your first
idea and by the way doesn't matter if
it's your first idea because you might
try you might try it it might be a
second it might be your third iteration
but it's small bets you're not making
you're not betting the whole house kind
of right out of the gate but you want to
make sure that there that it's a
combination of pain points budget
product use case Channel How would you
sell into them how would you sell into
that customer profile and the the center
of the Venn diagram is your your MBS
cluster of demand that was actually uh
actually coined by a um as trainer the
founder of intercoms of deca corn out on
the west coast
um and so and that's important right
because what you've done is you've
simplified the problem there's only one
channel you're only talking to one
department for their budget it's a
simple product use case but you want it
to be you want it to be big enough that
you can prove those points but it's not
about at this point it's not about
Revenue it's about showing that you that
your basic idea and then
you repeat it and that you can
repeatably sell it so you've got it
you've found a couple customers that
want to take this product and then you
find five more that look just like them
and you're able to do that then you have
something and then you know you can put
the pedal to the metal and be like okay
I've got this like I'm dominating and by
the way sometimes you can actually go
out and raise money just by if the
segment to your point if that minimum
viable segment is small enough and
you're getting just traction and and
we'll talk about business models in a
second if you've got a plg product LED
growth where it's free to try and all of
a sudden people just order start coming
in sometimes you can raise money on that
first shot because you've proved you've
got something going especially if you
have the vision the expansion Vision to
go along with it
so here's an example um this is an
example from our our portfolio
um a portfolio from a company that first
did it the wrong way and then switched
and figured it out so it's a company
called the ploy
um and when they started what they do is
they're um they're a health care hiring
and onboarding platform nurses doctors
um you know a physician's assistant Etc
all of that stuff but they had a Grand
Vision for what the platform was going
to do they had 20 different features
they were going to have nurses doctors
Skilled Nursing Home Health Care senior
centers vets like everything
spent a lot of time trying to build the
product across it and did not do well
they struggled struggled to raise money
struggled to kind of get off the ground
they peeled the whole thing back and
said you know what
hiring nurses nothing else
and they had Tailwinds from the pandemic
but they did this they've been they made
that switch before the pandemic the
company started going like this and now
if you go to their website guess what's
back
Home Health Care Senior Living
veterinary care because they prove to
themselves prove to their investors that
they were onto something honed the value
proposition then expanded tried to do
too much at first went for the minimum
viable segment boom and now they're one
of the best performing companies in our
portfolio question yes the question I
have how do you you determine the price
for your MVP so we're gonna we're gonna
talk a little bit about pricing so let
me I promise you we'll get we're going
to do a whole little chunk on on pricing
because it's it's it's really important
um
so pause that and then you've hit me up
if I don't get it right is there a
question in the back how do you balance
simplifying the problem and going
through the small segment
um with I guess like pigeonholing
yourself into one like solving one
problem when versus the multiple that
you may have in your longer term Vision
yes so I'll put on the investor hat so
when we really like to see people that
in there because then seed investors so
we're usually like the first real check
into a company and so we re we're
betting on two things we're betting on
you and we're betting that the vision is
big enough to build a big company and so
the vision is absolutely critical an
understanding of what you want to become
how big it is how you could that's what
you know that's when you get the
questions on Tam and all this how big
like VCS will come right out and ask you
how big can this get sometimes they'll
turn you down and they'll be very blunt
and just say I'm not sure this can be a
big enough company so the vision is
critical
but when you start spending money and
you know hiring Engineers or other
people to build something or a factory
Etc
start with the small but always be able
to articulate the big story
is that is that helpful
another question about the town uh what
if you're doing
well sure like there's lots of ways to
do a company so
um the VC rock kind of assumes you're
going after a large market right but you
can still have a very successful
business you know making dollars a year
to be a smaller company
um but probably can't go to the BC Rob
for that I'm assuming right
so so 100 and if you and I were having a
beer together and you were talking about
starting company we'd have a very
serious conversation about whether you
want to build a VC backed company or
whether you want to build a different
type of business and the reason is
exactly what you said as Founders and
this just goes against the business I'm
in but as Founders you can build an
awesome business without taking VC money
you can do SBA Loans you can do grants
you can do all sorts of other stuff and
continue to own most of the company and
build a company that would not be
interesting to VCS but would be an
amazing outcome for you for your family
for what and lifestyle so it's an
important decision like you shouldn't
just assume that VC is the only I think
that's what you're getting at right
that's not the only like because because
I heard like a VCU might say no but then
like somebody might take that as a value
judgment of their company even if a VC
is not interested it can still be a very
good company right yeah totally agree
and you know and certainly I try to be
direct on nose and you know and it's and
it's worthwhile if you're having a
conversation with the VC and they say no
try to cut through
try to cut through the response
right try to try to cut through the the
kind of hand wavy response say no no I
actually would really love feedback I
love when founders do that and I will I
will flat out say hey
that sounds awesome that sounds like the
kind of company I would want to work for
here's how we think about investing in
businesses our business
we're venture capital is largely a hits
business you want to invest in companies
that can become very very large 100
million in revenue is kind of how we
think about it we're like we want to be
able to see a company that without
squinting at it could become 100 million
company therefore worth a billion
dollars or more and if you have
something that's a small a smaller
market and it's you know you and the
biggest company that's ever existed in
that space is only 50 million that's
okay especially if you've got a better
product but will tell you directly that
it's probably not a the word we use is a
venture scale business but that doesn't
mean it can't be an awesome business
totally true
how do you carve out which is the
minimum viable segment so in this case
of the upload they have Veterinary
Senior Living Healthcare nurses all
these like different segments that have
different needs and different features
for the product they're building how do
you choose one of them to start focusing
or if you're building a fintech you have
low income middle income unbanked
unemployed formal employees economy and
you can build a product and solo problem
like for a whole lot of customers but
depending on the segment your will look
differently how do you
what is your criteria to choose one
segment to start trying that MBS so the
best answer is will be very unsatisfying
but it it's talked to 200 potential
customers and in your universe so if you
look at if you look at go back to kind
of the big the big universe that we're
talking about
you talk to as many people in that
Universe before you do anything before
you spend a dime before you drop out of
HBS you talk to those you get on an
airplane you talk to those 200 you talk
to those 200 customers and you start you
start doing pattern recognition that's
the best way it doesn't cost anything
other than time which obviously has
value but doing that and understanding
where your idea resonates the most and
and you guys I'm sure you've taken tons
of classes on it but when you talk to a
customer you're not just saying hey what
do you think of my idea you're saying
how much would you pay for it or you're
saying what are the four most critical
things in your organization that if I
could solve them for you tomorrow you'd
be willing to pay for it's that sort of
q a you do this you know you go on a you
go on a tour and you talk to all these
customers and from there you start to
make some guesses of what it would be
and then you can do stuff by the way you
don't need to build a complete product
either to do this we would do it PayPal
as a PayPal for five years we can do
paper prototypes like we would literally
bring people into our our focused you
know with corresponsive focus group
sessions but it doesn't have to be fancy
you can sit in a Starbucks with paper
mock-ups with one of your customers and
kind of describe what you were trying to
build to get feedback it can be very
inexpensive it's it's like it's gorilla
customer research
but that's the way to do it is to
actually talk to them and then as if you
have a workable prototype or a clickable
prototype something that doesn't have
any code behind it then you can go back
and refine and see if your original
assumptions were right and wash rinse
and repeat until you feel confident
enough okay I'm gonna actually spend
some money on again in software real
software development
approach them with an idea and see to
which segmented resonates more or you
approach to them just to understand the
different problems they have to then
build an idea around them either it
depends on who you are and the type of
company you're starting and how you want
to start it's you know I asked everyone
to raise who started with a product idea
right that a lot of people think startup
is all about you wake up from a dream
I've got this product idea I'm going to
build this thing right lots of people
start companies by just going and
interviewing a segment like you might
have an interest I'm interested in
veterinary care or whatever just to harp
on a similar theme and rather than kind
of trying to invent the product I'm
going to have coffee with 200 vets and
ask them what their pain points are
that's even
ideally that's even better than kind of
dreaming up a product and going and test
it to them because it's even cheaper
does that make to make sense
how do you go about getting your 200
events
that's old that's old-fashioned pounding
the payment that's I mean there's
there's no there's no shortcut to that
you can buy lists you can get on
LinkedIn you can ask every single you
can walk into where you dog where you
take your dog gets taken care of and ask
them for introductions that's that's
largely old school I mean other than
kind of buying a list the nice thing is
that so much of that stuff's online it's
not super hard to quickly generate a
list of folks to talk to you show up at
a conference is a good one you buy just
a you buy a guest pass to a conference
of vets and you start walking around and
meeting people at the bar or whatever
that's I actually like doing that I just
think that sort of thing you start to go
to a conference I had a buddy who was
trying to you know was going and
starting to get into the contracting
business and he started going to
architect conferences that was it he
just bought a pass and he's not an
architect and he went and he just
started meeting people and realized for
this there was a segment that was
underserved in construction
okay minimum vile segment
crazy Venn diagram but what you're
really doing is simplifying the problem
before you start pouring a lot of money
into a hole it's not just about product
Market fit narrow your target segment it
by need really really focus your product
but this helps not just the product
building part of the equation it helps
you start to hone your messaging and how
you talk about it not just to potential
customers but to investors it lets you
start to think about packaging and
pricing because when you ask when you
ask someone you're on your tour for 200
you know 200 people you're trying to
figure out your minimum viable segment
hopefully your little 10 question list
includes things like how much would you
pay what do you have a similar product
today how is that packaged how does that
priced what do you like about that what
do you hate about that when you have
these conversations and you're narrowing
your target
you start to get answers to all these
questions doesn't mean you get it 100
right but you start to land on a place
where you've got something you feel like
you can kind of wedge into this this
minimum viable segment you start to
learn things like channels and
distribution Partners I'm going to talk
about all kind of all this stuff in a
second and reference selling Network
effects viral business alignment we're
going to go into all this stuff and
so this is just a agenda slide we kind
of Hit the front part we're going to go
into the back half
getting to Market
um
we're kind of trying around with this
this word product facilitation
um what we're really talking about is
getting facilitating getting your
products into people's hands so that
they so that they so that they purchase
it and you know what if you could
literally slip into the lead in your
minimum viable segment and so we've
created a mnemonic device here we call
it slip and we're going to kind of walk
through four key elements of this that
we think can really really help
um how you it's a good framework for
thinking about how you build a product
that will be very very easy to
distribute
um the four the mnemonic device goes
like this it's slip s is simple to
install and use
low to no initial cost instant and
ongoing value
and plays well on the ecosystem this is
very similar to and you can read all
sorts of books on the notion of
product-led growth and so you'll see
some similarities there it doesn't mean
it's not meant to replace it's more of a
mnemonic device that that helps you
think about the different components of
product-led growth
so simple to install
um you know one way to think about is
out of the box experience and I don't
necessarily mean I'm using that as a as
a metaphor it doesn't necessarily mean
there's a box but if there is a box it
does mean hey it's easy to open the
packaging it's easy to take it out it's
easy to assemble but if it's software
out of the box experiences hey how how
is this super super easy to install do I
have to even think about it is the
onboarding process really really really
really really easy
and you want it to be simple to use as
well it's not just simple to get going
but simple to use
complexity is almost always bad in kind
of an onboarding process of any sort for
software
um and the first and you need to think
about you know first principles
Advantage disadvantage
the true competitive Advantage is
a combination of innovation and
simplicity so you wanna you wanna
innovate but it can't be Innovative to
the point where it's so complex that no
one will ever use this thing because
then you then you just get tripped up
even even if you've been successful in
selling it right out of the gate less is
almost always more I know we keep I know
we keep talking about kind of Simplicity
Simplicity minimum viable segments and
all this stuff you look at you know
these two remotes one is clearly a
superior product easier to use and all
of that stuff and you know it's like
it's the reason why things like
software as a service like you know
Google Docs and all that stuff like you
know I don't know if any of you have
used word recently it's like it's insane
like the number of menus and the number
of features and all that stuff and
people have kind of pulled back from
that in general in the software world
and are really looking for products that
solve basic problems super super super
easy and this is just an obvious obvious
exam whoops wrong way obvious example
um and simplify it and see to simplify
it to your core value again this is just
focus guys
especially for this first kind of wave
of investment that you're going to be
making
keep it simple minimum viable segment
solve one or two maybe three critical
problems for this group that you've
identified that has a handful of needs
and nail it
oh the question Yeah question for you so
the introduces showed
what the the remotes yeah so you said
one is clearly the most Superior and
simple simple um to use but I don't know
I would say maybe you could say one is
more Superior
and the other would be more simpler
you're right I made a value judgment
you're you're totally right like there
in this in this particular case where
buttons versus control services and
stuff happens to be a fairly uh
subjective uh subjective uh design
principle
um Apple historically absolute leaders
in design they create a device that's
tiny the battery on that little thing
lasts a year
um
is it Superior design would you prefer
to use it rather than buttons you're
right it's personal taste I can't give
you like hard facts and data but I will
tell you this that the notion of instant
gratification in consumers has become
very very powerful
um you kind of started with the internet
and being able to get online instantly
you can purchase something with you can
purchase something with one click you
order something that's in your house in
one day like this whole this whole push
towards everything is one motion economy
of motion and then you get you get the
dopamine hit of your pet you know your
Amazon package showing up within 24
hours of ordering it that is a trend and
that's that's clearly happened
um there's also economies of economies
of scale and building simpler simpler
devices that do one thing incredibly
well
um especially with consumer devices
though it is it's consumer consumer
devices in particular are very taste
driven do I think that we're gonna you
know go back to a world of you know
giant phones with lots of buttons I
don't
um
I think that this this this
technological move into kind of simpler
looking devices aesthetic devices is
probably permanent
so is this framework part of testing the
MVP because what I'm struggling with
this
especially for Hardware products how to
use these framework because initially
you are going to start with something
over time it
well well not necessarily I mean so
you're a hardware person is that is that
why you're asking tell me tell me about
what you're working on I'd like to
like like one thing but
but are embedded in Furniture yeah oh
awesome right but then
the technology takes time to evolve but
we
so so I think I think what you're
referring to and correct me if I'm wrong
is that when you design something
on a hardware basis especially
electronic device you've got breadboards
you've got wires coming out all over the
place it's maybe bigger than you want it
to be at scale and all that stuff
there's the complexity of a prototype
um what I'm more talking about is the
complexity of the problem that you're
solving so you could have this crazy
prototype that looks like look you know
this rube goldbergian crazy thing that
kind of came out of the lab and looks
like it
but what you're really testing is if I
put a piece of cloth over it and I just
rest my phone on it that it instantly
starts charging and so it's it's the
Simplicity of the use case more than
especially in the early days of when
you're prototyping Hardware does that
make sense is that a fair answer is it
because it's not like is that because I
I'm what I'm if you had told me hey the
first device we have is going to allow
charging in an armchair and charging on
a refrigerator and it's going to have
it's going to have a connection for you
know Apple watches and and airpods and
all this other stuff I would actually
say why don't you just start with the
let's make sure the armchair works and
the consumers like it like someone a
Furniture maker because you'd probably
want to do that through Partners a
Furniture maker would actually embed
your charging pad your charging pad into
that get that question answered before
you start adding features to it that's
that's the Simplicity that I'm trying to
drive you towards does that make sense
is it okay all right yeah yeah one of
the questions how do you think about MVP
for such Hardware
projects because you don't want to
invest so much effort up front before
knowing whether there's a market already
right
harder harder and Hardware because so
again I think I'd go back to the same
thing again for
um for let's just use your example for a
hardware charging device I would
encourage you to find
find a Furniture maker that's you know
you know that's uh that's doing kind of
a you know a kind of a group a group
financed uh piece of furniture you find
someone in Etsy that's making something
or you you work with wood you don't have
something that gets covered with
necessarily has to be embedded in the
manufacturing process perhaps it's
something you could stick on you know a
chair an adhesive with a battery that
lasts four years or whatever it is but
again a simple use case as opposed to
trying to solve every problem that
you're envisioning you can tell the you
can tell the VCS that are going to back
you I'm going to solve this it's going
to be in everything that's going to be
in every Airline chair it's going to be
in every chair every public space and
all that that's the story you tell when
you're painting how big your idea could
be but when you're first getting started
if you could have that giant vision
but if you can't get a single furniture
manufacturer to agree to embed that
thing in there
it's not going to work and so you want
to prove that first
is that I'm not a hardware guy so
hopefully I didn't like step in it but
it's a
so let's why don't we do we thought we'd
do we thought we'd do a little
um a session kind of breakout with each
of your groups here
um one of the here's here's the first
idea and we thought that you could maybe
have a group discussion of what is one
way you can make your product super
simple to install and since we have hard
Hardware people I think you can think
about that expansively depending on what
your company is you know is it is it
simple to install is it simple to deploy
is it simple to use
but within your group have that
conversation and then you know we can
chat for five minutes is that we're
doing kind of five minutes ish and then
we can kind of get readouts from folks
on what they what they talk about it's
also a great way you saw everyone kind
of raise their hands I I'm sure everyone
doesn't know each other it's also a
great way just to hear how other
entrepreneurs think which for all for me
was always the most amazing thing so
all right let's do it five minutes or so
okay cool
I need one or two teams
that came up with something interesting
and unexpected in the conversation did
you learn something who wants to who
wants to share we're not going to do
everyone know we're gonna we'll pick as
we we've got a few of these so we'll
pick on other people everyone will get a
chance to talk but any volunteers to
jump in out of the gate
I explained my company and what I want
to get done and I don't think we talked
about like how we can make it simple we
just talked about how how it's going to
work so I'm sorry that we did not no
that's okay what's your company just uh
because that might be interesting for
everybody so my company is called the
pitch app I'm trying to design an app
um
that it's like a tender for
entrepreneurs and investors so you sign
up as an entrepreneur and you sign up as
an investor much like Tinder uh you
upload a 45 second video of yourself
pitching your idea and the investor is
able to swipe left or right and connect
you
um based on geo location and or category
I do think this could get bigger I
eventually would like to to go to like
music or actors so like if you're a
musician and you don't need a manager
um the app can connect them that way but
I think the MVP or what I learned here
with or my segment would be
um the investor entrepreneur
um around that I would take super super
cool super cool thanks for sharing
anyone else wanna we get one in the back
why don't we
so hi everyone my name is Bill Kirk so
my Venture is called foodie thank you
Leo right now we're in in the process of
interviewing restaurants so it's in the
food technology segment don't be stuck
with the name because name name is gonna
change so it's an um it's an app that
integrates processes at restaurant so
with the help of QR codes on the table
QR code as well
um you can it allow the app allows for
the customer to browse the menu select
their items edit their dishes place the
order and also make the payment and
leave whenever they want
so what we were thinking to make the
installment process simple is that
overthinking is that why don't we remove
the installment at all so rather than
starting with a full-on app proper ad
with a lot of features keep it as simple
as possible simple is good so we would
start with a web-based app in this way
the customer does not need to download
the app they will probably not even know
that it's an app or our company is
called foodie they're just scan the QR
code on the table which will take them
to the platform and they will just order
and pay and leave
exactly exactly what we were talking
about other things that came up actually
in the group discussion uh we need to
make the QR code process ex frictionless
as possible so probably uh put below the
QR code put the Wi-Fi code so everyone
has the access make sure that actually
the restaurant has Wi-Fi so we can uh
actually the app works it looks like
there's a question right behind you or
is it oh sure and I think you should
also talk about how you are going you
should also mention your awesome idea of
how you are going to integrate it
directly with the restaurants already
existing systems so the cooks immediate
immediately yeah exactly there was a
question whether we would have a second
dashboard in the kitchen and the idea is
for us to integrate in because in the
restaurants API or POS system so they
would automatically get
um the orders under one screen and they
don't need to follow two types of
screens or reporting
it's exactly the type of thinking we
want to be doing kind of at this stage
thanks thanks for being brave enough to
share
all right let's keep going all right the
second so we're just to Circle back to
the kind of simple to install was number
one s now we're getting to El low
initial cost
um and what does that mean it could mean
frictionless trials it could mean free
samples of textiles enough maybe to test
manufacture some stuff it means lower
cost of customer acquisition you can
identify prospects with the freemium you
know for everyone know what freemium is
it's free and then you upgrade premium
offering
um but be careful
because free often people will often
equate the value of a product with what
you charge for it and so sometimes there
are certain products that if they're
free forever they start to think of it
as value less and so generally speaking
a free trial period that emerges into
you know into something that people have
to pay for is is uh is preferable to
kind of just going full free all the
time
um because then also when it's free if
there's a like a free version you have
to you're constantly upselling to get
people to kind of to kind of uh to kind
of upsell and an example of this is
LinkedIn we all use LinkedIn it started
as a place to just upload upload your
resumes I mean to basically have an
online version of your resume quickly
became a social network but what these
guys have done a brilliant job of is
there's they built a giant they had all
the network Effects by having a free
product and they have just piled on the
the uh the premium products you've got
sales Navigator you've got in mail you
can buy extra inmail messages you can
have the premium version of of LinkedIn
and so it creates this virtuous circle
but they got the network effects get
everybody hooked on it with the free
product to start
so
low initial cost
I instant and ongoing value so you want
to reduce the pain and this is what I
think you were exactly what you were
talking about when you were talking
about you know your ideas and especially
in a restaurant setting reduce the pain
for customers to try and adopt it
pain is the single biggest barrier to
getting people to adopt your product and
so you need to demonstrate enough gain
quickly enough that you'll overcome
you'll overcome the balance and so if
you think about the game we talk about
it in terms of the gain pain ratio
you know this there's this thing that we
call a nurture risk which is in the
middle which is switching costs I've
already got something that does
something similar it's kind of a pain in
the butt to switch doing nothing is
probably just an is easier than kind of
trying a new product or maybe there are
other Alternatives that are good enough
I don't want to risk I don't want to
risk a big license fee on a startup
there's kind of this this inertia that
can keep people from trying stuff so
your job
um is to create the value proposition
that overcomes that pain gain ratio
whether it's generating new Revenue
savings you're saving time you're saving
the cost of hiring people a competitive
Advantage reputation Etc
to overcome the pain that it takes
people to discover something try it buy
it implement it deploy it and own it
and if you can do this instantly it's
incredibly incredibly powerful
um you know we talk about instant
gratification I'll give you an example
of a company that I think does this very
well
um but in the Enterprise setting if
you're selling something to a big
company if you can we call we call it
time to Value if the time to value is
sub three months that tends to be great
um in the Enterprise world when you're
selling to big companies because it
makes it easy for people to do
um you know cost models on what it's
going to cost to do this and when
payback begins if it takes longer like
super long time to implement and you
know install it at the factory and all
that other stuff it's much harder to get
to get over the hump and so you want to
get this time to Value as short as
possible and the ongoing value again
make sure that you're delivering value
on an ongoing basis it's not just kind
of a one and done increases Revenue
reduces time drives competitive
advantage and in the consumer World
consumers just simply can't live without
it one one example this is an enterprise
Enterprise software company it's an
investment that I made it's called Ai
and one of the things that I like about
them is they've actually and before I
was getting set up to do this I didn't
realize they had kind of hit all of the
slips it was kind of baked into their
baked into their DNA and there's a
reason for that the guy who founded it
was one of the early employees at
Braintree which is a giant payments
company owned by owned by PayPal and
they basically decided to build a
company of all the
dozens of things that customers
complained about when he was at PayPal
but PayPal could never get around to
fixing they built a company that did all
that stuff and the interesting thing is
that these guys so basically what they
do is if you're a big e-commerce company
like Adobe or Ticketmaster or something
you've got 10 different companies that
process your payments all over the world
there's no way to analyze all that
payment data yourself they aggregated
all that payment data and do analytics
and all this other neat stuff but the
neat thing the sales guys
can onboard them in a phone call they
say hey give me the key to your payment
provider you know the encryption key so
they can get the data and they will
demonstrate their first demonstration
will be ingesting the all the data into
their product over the phone and they
get to see all their data in these
dashboards and so it's literally
instantaneous and so that means it's
easy onboarding and as you'll see when
we talk start talking about pricing
models low initial costs they do
something very close close to a freemium
model instant value creation because
people deploy it right away and start
saving money detecting fraud and all
that stuff and um and and it supports
all all of the payment platforms it
plays nice plays nice in the ecosystem
so if you're so here's a startup secret
self-proving value if your product is
about improving a process
provide proof as part of the product
um these guys pagos they Baseline all
the results of these payment processing
companies then when they install the
product you actually start to see how
you're performing against benchmarks
provide key metrics and visibility into
the progress so people like oh this is
working I can actually see so it's it's
almost self-documenting it in the
product itself proves that what you're
doing um what you're doing is actually
delivering value that means analytics
and surfacing reports that prove the
value kind of right right out of the
gate
so here's another quick exercise and we
may skip one or two of these just since
we're we have so many we had so many
questions and we're running a little
short on time but I think this is a good
way a good one because when we you know
I started talking to people about the
last question you know one was how can
you make it easier to install good
question well it's an app and apps are
easy to install and so we had a
follow-up in that another person shared
I'm building a textile product there's
no installation so we had it we had a
sidebar I think this particular one
um actually should work well against
kind of all the different types of
companies that we're talking about
if for the company that you're building
what are different ways that you could
streamline that time to value for your
first for your MVP and free for your
first Market segment so why don't we
take a quick five minutes on that and
then we'll hop back in and uh and and
get going
all right we got it we had our first
team talking here all right
I'm working on a book for uh parents
that have children with learning
difficulties and are having a hard time
to learn how to read
so the idea is that with this book that
we have actually developed and tested
but with professionals that work with
children with learning difficulties
um to turn it into a book for parents so
the things we were thinking of how to
make this instant value was maybe
coupling the book with an app so parents
can test their children to see the
progress and where they start so maybe
they can understand okay maybe my
children is not at the same pace of
reading as other children their age and
then see how they progress and that
would also give us evidence that the
book is actually working that is super
interesting bingo I think you nailed it
what do you guys think well done
all right we're going to keep going
thank you for that that's awesome
okay the last part of slip P plays well
in the ecosystem and I'm going to talk
to you a little bit about uh what that
means I'll just I'll use another example
this company tetrascience they're
they're local actually they came out of
they came out of Harvard uh Harvard
Business School they build a cloud for
the life sciences it connects all of the
research devices collects data from all
those research devices and builds a
cloud and if you start to look at the
ecosystem that they play in so we're
talking about playing nice with others
look at the complexity here and the way
they talk about it is we're going to be
this Cloud that ties all these disparate
platforms together and so they're part
of their explicit strategy is to play
nice in the ecosystem not only that but
be a Clearinghouse and a central point
so this involves you know Partnerships
with all of these different companies
technology Integrations but this is an
example of a company that explicitly was
about the ecosystem and being a player
in the ecosystem
we talked about slip I'm going to skip
that let's jump into pricing
um because I wanted to make sure we
spent spent some time on this how you
price your product is super important to
that early friction and you know I'll
show you an example that you'll all be
like oh yeah like every everyone does
this but the idea is if you can if
there's a way I'm thinking textiles
again is is there a way but I think
there's a way that you can provide
things like free free samples and other
stuff or make your platform free or
create developer kits for Hardware that
doesn't cost anything so that people can
start to use your product test it out
and then you have a way to step them
through increasing the value of your
offering and increasing the price that
you charge them and what is that what's
an example of that in this in the
software world and even things like
Airlines everybody does this
that's HubSpot that slack
that's Vimeo
that's WordPress you guys I should have
put JetBlue in there you ever seen what
the JetBlue pricing looks like it looks
like that too it's basically you get to
walk through there's a way you can get
in cheap and then there's a way that you
can upgrade and in the world of startups
providing especially if you need if it's
b2c and you need lots and lots of users
or it's or it's or it's um or it's
you're selling into an Enterprise you
want to get them using your product as
soon as possible but you have to have a
way to kind of walk them up the value
chain and it's I think things like this
this is what we call product-led growth
in the software business which is you
can install the product it's free and as
soon as people start using it you start
doing cha-ching as they upgrade for more
seats and kind of all this other stuff
very very important
um and talking again just going circling
back to the ecosystem and playing nice
with others it's not you don't have to
just think about being the center cloud
of the ecosystem that's that's not
always what it looks like there's a a
local company called clavio that does
SMS marketing and
platform for SMS marketing and they were
kind of selling it to e-commerce
customers so you can kind of market and
send text messages to them and all that
stuff but in order to do that they
needed to have Partnerships both
Technical and business Partnerships with
all the wireless carriers so that they
could send text messages over over the
wireless network
but the thing that made these guys made
them into a billion dollar company was
their partnership with Shopify so they
started off as a feature in the shop if
you guys know what Shopify is the
e-commerce e-commerce uh platform they
started off as a feature and then along
the way Shopify blessed them as kind of
the the default standard the preferred I
think they call it the preferred
marketing and SMS platform boom unicorn
uh unicorn was born and so Partnerships
it's not just playing nice in an
ecosystem with the different Masters
that you serve and kind of a super
complex like that life sciences product
it's also picking partners that are part
of your product from day one that can
help you grow they're either on the
right side here they're necessary for
creating the business in the first place
or they can be provide leverage for you
to make the product product explode do
you have a question you're racing
comment about that I do a lot of
e-commerce Consulting with Shopify
customers yeah and I'm in a Facebook
group and in the group it's like a free
CEO paid at least two thousand dollars a
month to be on shopify's highest tier
and everybody in that an app provider in
Shopify pays
um so it's like a community yeah he paid
to be in the higher tier if you're in
this tier here's this group so like all
the users of Shopify who like the owners
of the companies they they're in that
highest tier they talk in that group and
that you could hear them always talk
about this tool plavia to each other
yeah they're like what do I use use
clavio I mean it was weird because it
was new at the time yeah
they somehow managed to get into that
like uh Word of Mouth well so they got
into word of mouth but then also so it
was a combination it was Rising Tides
right they were doing quite well and at
some point Shopify it became a tight
partnership but Partnerships can change
the trajectory of your business whatever
the whatever your business is you know
you could have a partnership with the
hardware manufacturer a partnership with
the furniture manufacturer you know
partnership on the on the textile
manufacturing side super super important
way to think about playing playing
niceness to pee on the slip playing nice
in the ecosystem so really good question
I'll just repeat it for everybody do we
so and I think what you're talking about
so one of the ways a partnership can
take place is you can actually sell
through Partners you could say here's my
product and the partner is going to do
distribution for you and they kind of
they end up being in front of you in in
between you and your customer
potentially or is it better off to kind
of just go it alone and kind of and and
launching your own that's actually it
really depends on the business and what
you're saying is true
um that said if you it depends on on how
much you think a partnership could
accelerate what you're doing and so you
have to kind of balance balance the the
loss of a hundred percent of customer
control if you have a selling partner
um with the acceleration of your
business one of the common ways to solve
for that is a short contract
if you really want to go it alone
because that's that's a so that's
exactly what my company we did we're
like you know we actually partnered with
big big companies that were actually
reselling our stuff and eventually we
were able we got enough traction that we
were able to switch over and kind of cut
the cut them out of it and go direct to
our customers because we had built
credibility
okay
we're coming to the the home the home
stretch here um so
let's let's let's do this I'm I'm set up
doing kind of a proper breakout I'm
going to just give you the chance just
to we'll do this kind of one in real
time but for each of you think of one
partner or two partners that you think
you should partner with for your
particular idea and I'll give you like
60 seconds and then I'll just start
calling on you randomly
you got one already
all right what do you got so so with my
app idea I think I would be able to
partner with LinkedIn and call it linked
up but I can just add a feature and
it'll be a feature to their product
that's already developed
so linked up for pitch pitch decks or
pitching swipe right swipe left admitted
LinkedIn I like it
so I think I can partner with curriculum
Associates so what was quickly what's
the business again so I helped um
classes diversify by bringing Experts of
color into the classroom yeah
um so now that everybody there's a lot
of conversation around uh diversity in
the classroom I could give the big
textbook companies
to use my products to help Pearson
MacMillan and like you know I was gonna
bring that diversity in the classroom so
they integrate my own product directly
into
um their own products now it's a great
idea super big companies and maybe you
partner with them in a way that it's not
in all their textbooks you become you
you do it on a smaller publication that
you can get them to pay attention to you
at first then you work your way through
the organization but you have to find in
these Partnerships you have to find a
champion that believes in what you're
doing and has enough pull to kind of do
something with it anyone else want to
share a partnership idea we don't
I think we can partner with POS systems
so toast is the market leader but the
market POS Market is extremely
fragmented even though toast is market
leader they only have 15 market share so
with any POS systems who are ready to
take down toast with us I think they'll
be interested in partnering with us plus
they're local you can just you can walk
over there and just bang on their door
if you want to you and I can have a
conversation an endless conversation
about trying to partner with pause
people by the way that's a super fun
anyone else
all right home stretch guys
um okay
so we talked we talked about Bridging
the Product Company Gap hopefully you've
kind of you understand how that's
different from just product Market fit
right you get product Market fit and
then you need to get over the Gap with a
product that has a good value
proposition
minimum viable segment keep it small
repeat it and then you can kind of go
broader and then we the second half we
talk about business model and you can
build you can be doing this thinking of
business model from day one it's not
something that comes later right you
architect your product for slip super
easy to install low cost Etc that can
all be part of day one planning it just
requires thinking it doesn't require a
whole ton of actual kind of work to do
it package it price it free to try for
actual pull make it very easy and make
it very easy for people to to adopt it
and use it
anything else I'll Stick Around by the
way if you guys want to you know pick my
brain I'm gonna drink a water and just
park for a bit if you guys want to chat
and we'll I'll make sure that you also
you guys I'll just send my email it's
Chris underscore.vc if any of you guys
want to reach out I'm happy to chat
happy to come on campus happy to spend
time or do a coffee hour or whatever
all right thanks appreciate it
[Applause]
[Music]
thank you