Sometimes the most mundane projects can turn out to be turning points for your startup. Of course, you may not even realize the impact of some of those projects until months or years later.
Years ago I was just starting out as the product manager for a SaaS collaboration product when the founders asked me to take on a new project. The project was to analyze a large set of data to help “cross the chasm” of growth. If you’re not familiar with the concept of the startup chasm, I recommend you read Geoffrey Moore’s Crossing the Chasm.
The chasm is the point along the product adoption curve between early adopters and the majority. You don’t want to get stuck in the chasm. Getting stuck in the chasm is where startups go to die. Like Evel Knievel, you need to have enough momentum heading into the chasm to jump this large gaping hole.
We weren’t quite stuck in the chasm, but we needed to gain momentum to cross the chasm. I had no idea what kind of impact I was about to make on the company when I started.
Nearly falling into the chasm
We had gained significant early growth, raised our series A, and iterated our product features based on lean customer development. The business strategy was an early form of growth hacking. We were acquiring customers using referral programs, content marketing, and paid marketing.
The product was a SaaS collaboration product for small-medium sized business. Our early product thesis was that email was the worst way to collaborate. We sought to create transparency among teams and create new ways to work that removed communication as a bottleneck.
We built the company using a self-service SaaS business model. We offered a 30 day trial with no credit card required. We employed a few customer support reps who spent their free time contacting each trial via phone to introduce themselves. Our conversion rates were strong enough to keep customer acquisition costs within our target range.
After the 30 day trial we offered 5 paid plan options ranging from $49 – $249/month. This is the holy grail of SaaS, monthly recurring revenue. Pricing had a few levers including per seat and storage.
Everything seemed to be going well until our customer acquisition costs started to increase, a flood of new competitors entered the market, and new customers became more cost sensitive. Price was decreasing, costs were increasing, and thus our SaaS margins were being compressed.
To cross the chasm to the early majority, we needed to shift to selling solutions, not feature sets.
Analyzing product, customer, and usage data
I jumped in as the new product manager hell-bent on solving this business problem. Nobody in the company had done customer development. The growth of the company had come from being an early market entry to the market. At the time, we had already grown to around 3,000 customers and 250,000 users.
Goal #1: Understand our customer base
I wanted to understand who our customers were. Everyone had their own gut feel based on the names on new deal alerts, but nobody had sought to segment our customers and understand the who they were.
Remember we sold ourselves as “collaboration for small to medium sized business.” The SMB market is broad. For all intents and purposes we were a horizontal product. We had customers in many market verticals from architects, to lawyers, to virtual assistants.
I started with a list of customer account records exported from our proprietary provisioning tool. I sucked this list into a Microsoft Access database table. I then started sifting through the customer names. This gave me a few gut thoughts on where to focus.
There are excellent API tools out there for automating this process now, but I had to sift through each customer record and visit their website and understanding their industry. I created a rough taxonomy for classifying the companies into industry segments.
Goal #2: Understand their product usage
I then pestered our CTO for product usage data. Files uploaded, tasks created, tasks completed, number of users, anything that could be easily accessed with SQL queries. I married this data with the industry classifications to better understand which features were being used by various industries.
From this I learned that while we had a good number of legal customers, their product usage was primarily focused in file storage. Little to no collaboration was happening. This represented a churn risk and little room to differentiate against competitors and falling storage prices.
Goal #3: Understand their upgrade patterns
Of course, I also needed to understand their buying behaviors. Some segments may have high concentrations of customers, but low customer lifetime value. I brought this data into my database and started pivoting against it.
From the billing data I learned that while we had a strong number of customers that were virtual assistants who had strong usage patterns, their customer lifetime value was less than $500. This barely even passed our metrics for turning a profit on the customer. That market wasn’t going to work.
Testing and iterating hypotheses
Through the data analysis stage of the project, I formulated a hypothesis of markets we may be able to focus on: brand marketing teams, marketing agencies, and architecture firms.
My research then moved over to understanding the customer needs by doing research interviews with customers in each of those industries. I spoke with 3-5 customers in each group to learn more about their business, industry, and needs. From these calls, I was able to identify patterns and commonality in their vocabulary.
I built target buyer profiles for each industry and gave them to a few of our sales reps along with a lead list for each market. I monitored the metrics from this outbound sales efforts. I meticulously reviewed the notes from every call to iterate our pitch.
The trick was to modify the pitch week over week. Our product had the features we needed. We needed to craft a pitch that sold those features as a solution to their problem.
Pivoting the product strategy
After a testing the hypotheses over the course of several months, we learned a lot about each industry. We learned that marketing agencies had the greatest need, architecture firms needed heavy project management features, and brand marketing teams struggled getting budget approval.
Over the course of the following few months, we continued to sell into marketing agencies. We were receiving strong reception from the market and I began to prioritize my product roadmap around the needs of marketing agencies.
This pivot changed the course of our company.By pivoting our focus to marketing teams and agencies, we increased our average sales price from $3,000 to $35,000 with the same product. Yes, that’s 10x the sales price.
All we did was change who we were selling to. The same product packaged as a solution to a specific problem within a specific market vertical.
Are you struggling to cross the proverbial chasm? Struggling to understand who your users are? I can help. Visit TheStartupPM.com.