Product-market fit & differentiation
💡 JC's Newsletter #158 - 2023-02-14
Dear friends,
In JC’s Newsletter, I share the articles, documentaries, and books I enjoyed the most in the last week, with some comments on how we relate to them at Alan. I do not endorse all the articles I share, they are up for debate.
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🔎 Some topics we will cover this week
What is product-market fit and what are ways to achieve it
Keeping the product communication simple
Building products people will actually want to buy
Offering free services to attract customers to the core business
👉 Airtable’s Path to Product-Market Fit – Lessons for Building Horizontal Products (First Round Review)
❓ Why am I sharing this article?
I like their definition of product-market fit even if it is a bit more complex that this
On the importance of building a lot of knowledge to be innovative and build meaningful products. You need to be passionate about your product/field.
How to prototype more, do more alphas and private betas for carefully selected members/customers on very big innovations.
Fight hiring in early stages.
How word-of-mouth and brand in segments is very slow until it is very fast.
Should we have better network graphs within companies about adoption of services?
Product-market-fit definition:
Product-market fit as the transition moment you feel as a founder when you go from "pushing" your product on people to them "pulling" it out of your hands.
Knowledge:
Brush up on the prior art: “We were intellectually excited about going down that path of this general space of software creation. So we spent a lot of time doing research. It was almost like being on a sabbatical, reading all this prior art of old computing pioneers, like Douglas Engelbart and Bill Atkinson, and even contemporaries, like Bret Victor. We played with old products, like HyperCard, that had flavors of software creation for everybody, and read a lot about how to visualize complex systems.”
➡️ Build knowledge. Read a lot.
Prototypes:
“The first version was trying to prove that we can make a database easy to use. It was like a prototype — a lot of smoke and mirrors.
We focused 100% on the UI and the interactions. We didn't really have a backend, it was just persisting to local storage and the browser — enough to make sure we could test the interactions and get to a point where people could play with it.
We wanted to put it in front of people and ask them to try to organize something and see if they could actually do it,” says Ofstad.
Go-to-market:
“Our strategy was to build a very horizontal product and then roll it out to more people over time. Very early on, we had a private alpha. It was invite-only, but you could refer other people, so that helped us get some organic growth, but not a ton,” says Ofstad. “After maybe 100 people or so, eventually we felt like we were in a good place.” This took two years, he says. “We had to build so many features to get to something useful.”
“It happened in a lot of different S-curves. We started seeing media companies where we spread word-of-mouth. Or the head of production would go from Netflix to some other company and they'd bring the tool with them. It was very slow, and wasn’t until 2018 or so that it started to really inflect,” he says.
“That functional and industry-driven word-of-mouth growth, combined with us building new capabilities that unlocked more use cases and having the organizational maturity to expand within companies, all layered together to cause pretty solid growth in the past five years.”
➡️ Word of mouth takes time.
“Once we started getting more adoption at larger companies, we built out these network graphs that would show how the product spread from individual to individual, and then team to team. That helped us understand the mechanics of the product and gave us an intuitive mental model of viral adoption.”
➡️ Should we do that in Spain?
Small teams:
In addition to delaying a public launch, this strategy also kept the team comparatively lean — avoiding the early-stage trap of overhiring.
“This work in the alpha phase would have been really hard to parallelize.
You can't hire a bunch of engineers to make that go faster.
It actually would've been counterproductive to try to scale it up a lot more because we needed to nail that foundation of the database.
Hiring a bunch of people would have made it harder to be nimble and change the direction of that foundation,” he says.
👉 An Interview with Opendoor CEO Eric Wu About Building a Marketplace in a Real Estate Slowdown (Stratechery)
❓ Why am I sharing this article?
Marketing: How to have simple marketing, that can be said in 140 characters
Competition: A good view on why I think most players will never do insurance themselves, and why we are the best positioned then to address the high margin products.
Marketplace: I love this idea to put your competitors on your own marketplace
Product & Marketing:
So we said, “Okay, what would it look like if we were building an experience that made it incredibly simple to sell a house?” And really, the thing that we said was that the product positioning must break through the clutter and must be able to be communicated in 140 characters of less. This is one of the things that actually we still press on in the company, which is we have to have a position that actually breaks through the clutter.
So we said, “Okay, let’s make it possible to sell your home in 30 seconds or less.” And what stuck out about that was we phrased it in two different ways, which is sell your home in 30 seconds or less or sell your home in a few clicks. But that felt interesting.
It felt differentiated.
And it made clear to the consumer through the dimensions of speed, less hassle, less complexity, and less process, that this was a different and better solution than listing on the market and dealing with all of the hassle.
High margin vs. low margin:
It’s hard to think of many examples where companies transition from being a high margin media company to a vertically integrated low margin platform
That’s part of the reason why starting with the bottom of the funnel and being very focused on the transaction layer and seeking out gains there gives us the opportunity to move upstream in a way that’s difficult to clone.
Marketplace:
You want to move to this marketplace model, and that’s been the vision for a long time. There was that slide in your seed round about this being the long term vision: starting with first party was a stepping stone to being a marketplace.
We have all these high intense sellers, coming to us every day, raising their hand saying, “Opendoor, help me sell my house,” effectively.
And so what we found is that it’s actually very high converting to say to a customer, “We can make you an offer, and we can simplify the transaction for you, ahead of listing. And on top of that we can go see if we have a buyer, that we work with now, that can make you a higher offer.” And so the seller can opt into that system.
And we found that that is very high converting.
The window is 14 days. And the way it’s framed to a seller today is that we’re going to make you an offer, and we’re going to look for other offers that are going to be higher than ours. At the end of this window, we’re going to actually present you all the offers.
👉 An Interview with Midjourney Founder David Holz about Generative AI, VR, and Silicon Valley (Stratechery)
A product is not just a set of features, but it’s also a community and a brand and a vision
👉 Andy Rachleff (Wealthfront) - Building Something People Want to Buy (Join Colossus)
❓ Why am I sharing this article?
Interesting view on product-market fit, definition of the value hypothesis, the focus on the who you should target (more than the what) and how to then think about growth.
A methodology by which you would first test a value hypothesis and then a growth hypothesis.
The value hypothesis represents the what, the who, and the how of your business.
What do you want to build, for whom is it relevant and what's the business model to deliver that product?
Now what's different than what most people expect is that you don't iterate on the what, you iterate on the who.
Most people think that entrepreneurs start businesses by looking at a market, finding a problem and coming up with a solution. That leads to very mundane outcomes.
Back to the Howard Marks framework, that's right in consensus, anybody can do that.
The great technology entrepreneurs basically recognize an inflection point in technology that allows them to build a new kind of product.
Then the question is, who cares? So you might change the way you describe that product or technology, but you don't really change the technology, you change who might want that product.
The companies have to prove out their value hypothesis, then and only then, can they pursue a growth hypothesis, which is a way to acquire customers cost-effectively. And proof of the value hypothesis is exponential organic growth. So back to your question, what's product-market fit when you've proven your value hypothesis.
There's a rate at which people adopt new technologies. So there's a tremendous misunderstanding in the general public that if you offer something that's better, that everyone will beat a path to your door and immediately use it.
Nothing gets immediately adopted, except if it's just a better version of an existing product. When you create something new, it takes a while to get adopted.
👉 LVMH: The Civil Savage (The Generalist)
❓ Why am I sharing this article?
As shared in the Build from Tony Fadell summary: it is important we know where to spend our user research, and that we are ready to take risks on new products.
Taking risks doesn’t mean going randomly. It is having a set of our own assumptions on why it is going to work and test them.
You will never be able to predict the success of a product that way [through focus groups]. What a test shows you is limited: whether the product has a potential problem, such as with its name.
But these tests will never tell you if a product is going to be a worldwide success.
👉 Twitter new offers (The Information)
❓ Why am I sharing this article?
Because I believe (from experience and discussions with several product leaders) there is a big difference between what people say they will pay and what they will actually pay in the situation
Consider these results from an impromptu poll Musk’s venture capitalist pal Jason Calacanis posted to Twitter over the weekend (Calacanis is reportedly now listed in the company directory and is advising Twitter in some capacity, according to The Washington Post).
He asked how much people would be willing to pay for verification.
Of the 1.7 million users who cast a vote, 10.6% said $5, 2.4% said $10 and 5.4% said $15.
It’s worth noting that all those price points are lower than the $20 Twitter is reportedly planning to roll out, according to The Verge.
👉 An Interview with Ramp Founder Eric Glyman (Ramp) (Stratechery)
❓ Why am I sharing this article?
I love how they pitch customer savings.
How could we help our members optimise their health bills a lot more?
What could we give away for free to make our customers feel really appreciated?
The power of integrations. That is something we should explore a lot more.
Pitch & value proposition:
Ramp offers finance automation to companies. We offer the fastest growing corporate card in America with built-in expense management, bill payments, and accounting automation, and all of our products are fundamentally designed with the intent of helping companies spend less.
I think the key value proposition to customers in businesses that use Ramp is that we help the average company cut their expenses by 3.4% per year, and we help them close their books significantly faster, so we speed up month-end close by about eight times the normal speed for most finance teams.
In total, since launching publicly in February 2020, incorporating in March 2019, we’ve been able to help customers cut their spend by $135 million, automated away over four-hundred years of work.
But really it’s about just re-imagining core finance tools that companies use and helping them be more efficient.
Savings:
We show people when they’re on poor pricing plans. Maybe they’re on monthly, they could be switching to annual because they’re paying for it for five years. Maybe there’s other forms of waste. Next we show companies, we have a service called Procurement, we help the average company cut their software bills by 27% and so we can either do a managed negotiation
Ramp basically tells you the price you should actually get.
We see thousands of contracts for people and it turns out you’re not always getting the best price and, in fact, it turns out you’re often not.
You said you have trained negotiators. Does Ramp actually go and negotiate these deals?
EG: That is one of the services that we offer today. Yes.
Giving away services for free:
And is that a value-add service? Do you take a commission on that? How does that work?
EG: Today we don’t, it’s totally free. And a lot of the logic is, first, corporate cards are great business. The hard part is convincing that people should be working with you and so this is something we want to do to make our customers feel really appreciated.
Integrations:
We can also text cardholders the second that a transaction occurs. We have integration set up with Amazon, with Lyft, with Gmail so we can automatically pull receipts for companies that want receipts automatically pushed over. It means for the average employee at a company using Ramp, they save about an hour a month. Sometimes it feels like it’s intangibles, but it’s real.
👉 Introducing Brex Empower (Brex)
❓ Why am I sharing this article?
What kind of software Alan should build to keep helping HRs and Admins?
What integrations can we do to give the same magic feeling?
Today we’re announcing Empower, a new software platform designed to enable a culture of trust and financial discipline at scale.
By leveraging exclusive data from credit card networks, and integrations with hundreds of partners, we can gather receipts for many transactions automatically without having to ask employees for them, which is especially magical for in-person expenses at restaurants, hotels, etc.
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