David Rusenko - How To Find Product Market Fit

so our next speaker and I have something in common we both started businesses to allow people to create websites the difference is that David's business was massively successful davidenko is the founder of Weebly which early this year sold two square and he's going to give us a talk about how Weebly found product market fit Thanks thanks Jeff I'm really happy to be here I'm actually very impressed with how full the room is given it's right after Burning Man did anyone go this year oh not too many attendees all right we got one over there okay so so just my quick way introduction a little bit by myself if you haven't heard of Weebly Weebly is an easy way for entrepreneurs to build a website or an online store before Weebly got started the only way to do that was to learn to code yourself and now there are plenty of tools and services to allow you to drag and drop and build a site I wrote the first line of code in February 2016 so a little over 12 years ago now grew that company to 50 million users and around 350 employees sold the square in May of this year for three hundred sixty-five million and probably one of my favorite stats is that half of the US population visits a Weebly site every single month the reason it's my favorite is is because it's reflective of the success of the entrepreneurs people building the websites themselves and actually having success and seeing those results so I'm here to talk to you today about how to find product market fit it's a you know the top problem that any one deals with I'm gonna try to keep it fairly practical not theoretical because I think finding part market fit is really about the the practical nitty gritty the hustle so I I want to just preview real quick talk to you a little bit about our journey like I said I wrote the first line of code a little over 12 years ago which which sounds really weird that has been that long this is what it looked like this is a photo I took from February 2006 it's where I was to be a Beaver Stadium at Penn State when I wrote the first line of code just kind of gives you the setting but but in college in August of 2006 so this has been six months we should introduce this graph so this is a graph of the new users per day signing up for Weebly so non-cumulative just whenever someone signs up you know you get a one and this is six months in so we still hadn't launched six months in we're Dan Chris and I we're all doing internships that summer you can see here are our massive record signup day was twelve users I think we just create accounts for friends and family so six months in we still hadn't launched right just to give you an idea of how long it takes we worked for six months and hadn't launched in October of 2006 this is eight months later still hadn't launched we were hustling for buzz on forums we had create a sign-up link you can see here now we had 30-some users that signed up on our record day but eight months in and still hadn't launched in October of 2006 I read about Y Combinator on slash dot the deadline was about three hours ago so I think it was about 1:00 a.m. Eastern when I read it the deadline for application was midnight Pacific so I had about two hours to go to create it to create a YC application I didn't have time to call up Dan and Chris my co-founders and asked them if they want to drop out of school with me and moved to San Francisco so I took a guess my guess was that Chris was gonna drop by school and Dan wasn't going to I called Chris up first the next morning and said hey Chris you want to drop out of school with me moved to San Francisco and just on the spot he's like hell yeah let's do it I caught up dan I said Dan you want to drop out at school with me and moved to San Francisco he said you know what this sounds like a really promising idea let me call my parents I'll call you back in two hours it was a much more responsible approach but but but I applied with less than an hour to go we drove up interviewed and got accepted actually funny story we got finally were able to get on TechCrunch the day of our YC interview so I'm sure that that didn't hurt at all this is what that looked like this doesn't isn't actually what a normal press bike looks like you'll see a normal press bike later but in this particular case we only had two servers and we really worried about our servers burning down an AWS didn't exist back then so we we basically decided to allow you to sign up and then say hey you're on the wait list we'll contact you once you're able to access your account which is why it's spread over a few days but the first tech crunching now this is much more normal of what it looks like after a press spike you see it kind of goes down pretty low it's kind of hovering around the same level if you're observant you'll notice here one day we had zero users that presumably means that we were the whole site was down which is great but uh but in January 2007 eleven months in we dropped out of school packed up all of our servers in my car I drove cross-country to San Francisco would not recommend driving 80 in January got stuck in Wyoming for three days but finally made it out here and this is 11 months in so 11 months after writing the first line of code we're working on full-time in San Francisco as part of the YC program here's what that looked like it's still shocking to me that at one point this TV was current technology because it just looks so old now but but here we are we we went rented a one-bedroom apartment sorry two-bedroom apartment in the why scraper we pushed three desks together and we pretty much just worked all the time we work 24/7 our only rules we take Saturday's off but other than that we would work until we were tired we'd sleep until we weren't we'd work until we're tired we sleep until we weren't and just kind of repeated that process here is a second TechCrunch press bike that we got in January this one's much more normal this is exactly what you should expect if you get on TechCrunch or any press it goes straight up and it's really exciting that day and then it goes straight back down the next day and but at least settles a little bit higher in April 2007 this was 14 months in now you notice we had a couple other press mentions what you'll notice here these are going in the wrong direction you know the number of new users per day is actually declining declining declining both of these are heading in the wrong direction means we didn't have product market fit yet we're 14 months in it's over a year and we still don't have product market fit this was kind of an interesting moment in our history because we found ourselves with less than $100 in our bank account and I see demo day was coming up soon and we were you know we kind of had some excitement and thought you know talking to investors maybe we'll be able to raise money but we certainly weren't sure of that we had just gone to Costco so we had lots of food for a couple weeks but rent was coming up and as everyone knows rent in San Francisco isn't cheap so about a week after this I came to this very room pitched a whole bunch of investors at demo day and we were successful in raising a 650 K at the time that was called a Series A today would probably call it a precede round of funding 14 months in this is what a price for on Series A paperwork looks like just to give you a perspective to on a little bit how crazy things have gotten out here we raise 650k on a two million dollar pre-money valuation so two point six five posts that was considered above average slightly above average we were all very jealous of Dropbox who had raised it a five million dollar post-money valuation and and and today I think that number would probably be fifteen maybe twenty so it just gives you a little bit of perspective on how you can still be very successful even if those valuation numbers today might seem low or you might be angling for a higher one but but really puts it all in perspective this is May of 2007 so we got feature in Newsweek magazine which I don't even think is in print anymore but you can see here the spike goes up it comes back down it settles at a higher level which is great but look it's going in the wrong direction again right so this is now 15 months in still no product market fit in August of 2007 here's 18 months and we got featured in Time magazine this time and again it goes up but now it's coming back down now it's totally in a higher level which is good but again this is 18 months in we're 18 months into the journey and we still have no product market fit so just to give you an idea of how long it can take before having something even as basic as just having users that enjoy using your product and are coming back 18 months later we still didn't have it now now to skip through a little bit of of the rest of story here here is October 2007 so now 20 months in you kind of see we had this moment and then boom it turns around it turns around and starts picking up and now all of a sudden you can see every single day we're getting almost a thousand people coming to our front door which is more than we were getting featured in Newsweek magazine or or on TechCrunch first rail traction that we got fast-forward again at February 2010 four years in and now you can see we're off to the races so I wanted to give you a little bit of snapshot of what it looked like for us to get product market fit in the early days before diving into some of the basics so so let's start with a definition on what is product market fit so you've probably all heard Y Combinator's mantra which is there we go make something people want I actually if I was a modify this I would say make something a lot of people want because that incorporates a little bit about the market but we'll talk about that so first we'll go over the stages of a company so obviously you start off with I have an idea and everything is really exciting and you're telling all your friends about the idea this is the very birth of a company let's go through some of the Fage phases so this is roughly all of the phases of a company it starts with idea you get to prototype phase you then get to launch traction monetization and growth I put monetization after traction because oftentimes that's the way it goes and actually getting going from launch and getting to traction is product market fit monetization is actually a much easier problem than product market fit this these are the this is sort of the initial product market fit search initial product market fit search is between idea and traction so getting from idea to traction is probably the hardest thing and the thing that kills the most companies all right here we go one thing not to forget is that when you're in this phase two you're still refining product market fit a lot of companies forget that they they get so focused on scaling and so focused on you know continue to grow the business and they completely forget that you're still refining and still building product market fit at this stage so really important not to forget this all right so what are the hardest things at a star and I'm convinced that there's basically only two hard things number one is finding product market fit it's really really really hard most companies will not be able to find product market fit it's incredibly challenging number two is hiring and building a world-class team that is also incredibly challenging it's very unintuitive and it's very very difficult to sort of grow through that rapid growth phase and to and to emerge on the other side with sort of an enduring long-lasting company and culture making money I put is a very distant third it is usually a lot harder to build a product that a lot of people really really want than it is to figure out how to make money from that product so I would say that's usually a distant third you could have lots of ideas how to make money I'd say definitely try to make money experiment learn but it's a lot easier to figure how to make money if you've already got people hooked and then the fourth one we won't cover this too much but but to scale to a to a really big long enduring company you need to build an organization that's scalable and repeatedly launches great products and that's really really hard because it's not just going to be about the founders anymore it's about the organization doing so scalable and repeatably one one other sidebar is that the best companies will create a market so if you look at sort of what we Blees done if you look at what air B&B is done if you look at what Dropbox has done all all companies have created their own market I say this because by definition here market research is not going to help market research is research on existing markets right and you're going to create a new market so how do you do that what does that look like so first of all you need to find a hidden need so there's a need out in the market that a lot of companies or a lot of people don't realize exists and if people realize it exists if it was obvious then everyone would be doing it and so so so the hardest part is finding this hidden need and everyone is going to tell you that the idea is dumb everyone's gonna tell you it's stupid I remember in in the summer of 2006 after writing that first line of code I went and pitched we believe at the New York tech meetup and it was a thousand people it was we were kind of alpha stage at that point and it was in front of a thousand people and I gave a demo five-minute demo and then Scott the founder of meetup comm came on stage and just said he thought it was the stupidest idea that he'd ever heard and that no one need to make websites and that people who need to make websites already could or people´s had to learn to code and from a thousand people told us that it was we had the stupidest idea he'd ever heard so that the point I'm making is if it's obvious then everyone will be doing it so you're kind of finding a new reason now the hidden need in in this particular case was that there was a lot of people who need to make a website themselves and that was really hard because a lot of the tools at the time were geared towards people who were who were hand coding the websites basically like front-page and Dreamweaver we were able to realize that people wanted to do that and build a service that enabled people to do that but figure out what are you a substitute for what need are you serving better what job are people hiring you to do if you know the jobs would be done book and framework that's really helpful to think about what are people trying to do people aren't trying to make a website people are trying to launch and grow their business right so understanding what's the job people are trying to do and then what substitutes are there for that job and so when you think from that mindset you might think well there's a website you can also create a Facebook page you could also there's lots of different substitutes for that job I think a really important one is understanding where are you getting pulled where are your customers pulling you as you shouldn't be pushing your customers towards a solution when you when things are working your customers are beating a path to your front door and they're pulling you in saying no can you need to do this and you're saying yeah but that's not what our product does they say well I'm going to kind of hack it to do that anyway when you find people hacking your product to do something that wasn't intended to do pay attention to that and double down on that and then often what you initially create will seem to fit into an existing market but with less functionality right so is the same thing with the iPhone it's the same thing with Weebly oftentimes it doesn't have 3G it doesn't have apps it doesn't have any of these things initially but what it does do is it enables a whole new market whole set of new entrants to come and use your product and so the success of the iPhone wasn't that it's successfully competing in smart phones it sure looked like a smart phone but it wasn't competing against any smart phones that were out there because what happened is there was maybe at that point in time I was a heavy Palm Treo user there is maybe a couple million smartphone users in the United States what the iPhone did is made everyone a smartphone user and so there is all send a whole bunch of new entrants and then over time it also cannibalized the existing smartphone market so a lot of times people may sort of mistake you for incumbents when you're creating an entirely new market so the next is on building a remarkable product so what does this process look like and I'll try to break it down into very literal steps about exactly what you should be doing so everyone knows this right step one have a great idea step two talks customers step three something happens there and set for profit right everyone knows this but what is step three right because that's where everyone's plotting around in the desert like trying to figure out what the hell to do and nothing's working so let's talk about step three so step three is literally this list of things so you talk to customers and develop a market thesis try to understand exactly what their pain point is what's that job they're trying to get done and how can you help them get it done faster or better this is really important listen to their problems not their solutions so customers will tell you the pain that they're facing listen to that when they talk about the solutions they're proposed solutions you could just completely ignore that because they generally aren't that great number three go through a rapid prototyping and user testing phase number four you build a solution to their problems number five test the solution with them number six did it work go to one repeat and then number seven by the time you've sort of looped on points one to six you probably looped about twenty seven times and that has some interesting implications but no one ever gets it right on the first shot no one gets it right in the first shot so there's some implications there so so let's take enough on a few of them listen to their problems not their solutions I like what did Michael touch on this earlier too about the real Steve Jobs and fake Steve Jobs there's this meme out there that Steve Jobs just didn't to customers and would just like produce the magical product that the world needed like in one shot just straight from his imagination that's not how it worked here's a quote some people say give customers what they want that's not my approach I think Henry Ford once said if I'd asked customers they wanted they would have told me a faster horse people don't know what they want until you show it to them that's why I never rely on market research that is all a hundred percent true don't listen to people's proposed solutions a market research is probably not going to show you the way right but what he didn't say is that he never talks to customers he didn't say that he never listens to their problems he didn't say that he never iterates because those are all things that Apple does a whole lot so it's absolutely critical talk to customers understand their pain no solution was ever delivered perfectly in a vacuum number three rapid prototyping and user testing so I think this is a really important point building a fully that we made this mistake a whole lot early on building a fully functional product just to figure out if it's going to work or not is a really really expensive way to test the hypothesis um so you could get caught up in this loop of like build the product launch it doesn't work scrap repeat build the product launch doesn't work and especially like Michael was saying if you're always searching for that homerun and it takes you three months to build that product that is a really long time to keep iterating the best thing you can do however you end up doing it is focus on getting to a functional prototype as quickly as possible so that might be there's a whole bunch of tools now that allow you to take mock-ups and make them clickable and make them feel a lot like an app you can do it by just writing throwaway code and just getting something really really quickly out there there's a whole lot of ways to write to write functional prototypes but but get in front of users don't worry yet about scaling I know we were really obsessed about writing code that was going to scale because the underlying assumption there is that as soon as we launch it millions of people are gonna be dapat to our front door it doesn't happen not gonna happen so don't worry about scaling until you need to I would say initially don't worry about monetization either you want to focus on making sure that the product experience is right don't shy away from monetizing your products don't shy away from charging for them but initially you need to make sure that your product is working for people and then expect it however many iterations you think it will take expect it'll take about ten times that many iterations so what are the implications of that and these are really important number one keep your burn low because if you only have enough cash in the bank for two to three iterations and it's going to take you 20 to 30 then that's not gonna work and number two build a team that can do this really quickly so this is I think one of the primary reasons why outsourcing the coding in the early days generally doesn't work it's because when you outsource a project that's one shot well if it's gonna take you 20 to 30 shots not gonna work you need to build a team that can very very quickly iterate rinse and repeat okay this is another important point tests a solution with customers so here are your here you are your there's some helpful tools here but the most important rules are number one make sure you're talking to a target customer so it's not helpful to just talk to anyone make sure it's one you're targeting but make sure that you are super flexible on changing your view on who those target customers are so when you talk to someone and it seems like hey this isn't my target customer but then also there's a whole bunch of them showing up and they're hacking and doing really interesting things with your product you should pay attention to that and potentially change who your target customer is number two don't overthink it I think this is a problem a lot of smart people can have you obviously you want to rely on data you want to rely on market research you get really really into the weeds and the strategy and you super overthink everything don't overthink it anecdotal is okay just getting in there and building and launching something and trying it out and iterating is the most important thing you can do doing all of your homework all of your research you know looking at the market looking at the strategy it's gonna be the perfect stretch it's gonna be the perfect strategy but no one's going to use your product so don't don't overthink it here are basically three tools I think these are probably the only three that you need number one customer interviews you probably need about five to ten of these so basically what this is is it's talking to a customer probably for about an hour maybe a little bit longer whether it's on the phone or going into their place of business or going to where they are and just understanding everything about what motivates them what their problems are what their pain is and just getting that qualitative view of like what they're experiencing number two UX testing sessions you only need about three to five of these and and we'll go over how to run a good us testing session I think on the next slide number three metrics so metrics are obviously really important tracking the right metrics is really important the one thing I'll say is you'll never have as large of a sample size as you want even at Weebly scale today we still sometimes have difficulty with getting cisco significance for some of our tests be very careful about telling too many stories with your metrics that maybe aren't supported by the statistical significance so you'll oftentimes find this there'll be blogs writing about an a/b test and how you change the color from red to blue and increase conversions by 27% and it's like oh yeah how many people are there are 17 people that ran through your test like I'm not sure that I would pay attention to that okay UX testing sessions I think these are the most important thing that you can do it's really really simple but but but it can be really painful number one get someone to use your Proctor service in front of you in person whether that's on your phone whether that's sitting in front of a laptop or desktop get them to use it number two encourage them to give open and honest feedback they will not want to give you open honest feedback because it feels awkward telling someone that their baby's ugly but but you have to try your best to encourage open and honest feedback number three ask them to perform a task you are not allowed to touch the phone or keyboard you are not allowed to do anything once you tell them to perform the task number four and this is most difficult do not say anything it's really really really hard you will go through extreme agony as they struggle to figure out how the hell to do something really basic like sign up for your app and you'll go through all this pain and it'll probably take them two to three minutes and you'll get this visceral gut feeling you you are not allowed to touch or tell them to do anything until they successfully complete the task even when they ask for your help it's really really hard you only need three to five testing sessions I think you really only need three to be able to tell the most critical and important UX bugs if you will that you have I'll tell you one story on this we were about to launch a home page once and we want to get the sign up form fields down to as few as possible to reduce the friction of signing up to Weebly and so we figured well you don't really need confirm password so we got rid of that one and in fact you don't really need to confirm your email which used to be a thing and so we figured well we could just ask for email and password that'll be enough and in the off case someone missed types their password that just reset so their email and the chances someone missed types both their email and their password then I guess they're gonna had to create a new account but that's not that big of a deal so we so we so we put the signup form and it said sign up here in probably like hundred point font and then it had two fields it said email address password and we're about to launch it but we had the practice of doing this before we launch anything and so I got a couple people down they were just friends and I sat in front of the laptop and said sign up and and these were tech people and at about 45 seconds later turns I don't I don't know how to sign up how do you not know how to sign up it says sign up here in a hundred point font like what the hell's going on another side point people don't read so so and I said well why don't you know how to set up is right here and I said oh that makes so much sense well I just didn't look at that because I assumed email password as a login form obviously so wasn't the signup form as a login form so we added a gratuitous field that just says your name so we could have three fields and all sudden people saw it as a signup form which is incredible this is the kind of thing we would have never discovered if we hadn't done UX testing so I would recommend doing it all the time for everything you want you don't need that many sessions okay here's another question comes up when should we launch there's this whole Minimum Viable Product which i think is a lot of the thinking is is is good its new since we launched but I don't really like the word viable because it's kind of insinuating that you're gonna put like the like just the least crappy thing you can out there I much prefer the word remarkable so minimum remarkable product the product that is the the least you can build to be remarkable alright so this is a quote from Paul bhai that says launch when your product is better than what's out there I think this is really important because it basically incorporates this idea that that you should build something that's better than anything else out there and don't launch until you have that but as soon as you have it then go ahead and launch so I think that's a right time to launch prioritising okay I think this is another important point to make is how do you prioritize because in the early days it seems like there's an infinite amount of things to build and you don't have enough time to build any of them and and so how do you figure out what the hell to build next I think there's two important points on prioritizing number one there's only one thing that matters think about that startup journey from idea to grow stage focus only on the thing that gets you to that next stage don't focus on anything else don't go to conferences don't like write blog posts don't read the news now I'm telling this because like I did all those things it's impossible not to but just don't if you can't don't do any of them don't do any of the things that aren't getting you to your next milestone in this particular case next milestone being product market fit number two I think is a really interesting point I heard this from Astro teller who ran Google X and what most people prioritize almost everyone prioritizes their lists exactly the same way which is effectively some kind of spreadsheet of all the tasks you can do and then the difficulty of each and then the expected payoff of each how impactful right and so and then you may see sort by cost times benefit but instead I think when you're trying to make continuous improvement that's actually a pretty good approach when you're trying to make discontinuous improvement optimize for learning so basically ask yourself what is my biggest unknown right now what's the number-one thing that I do not know you know about my business that I need to learn optimize to learn that thing because when you do that it might not seem like the biggest thing it might be a low effort tasks it might seem like a low priority task but when you optimize to learn the most what do you do you rewrite your whole priority list because when you learn that thing that actually completely you throw out all your old priorities and have a new list of new ones okay how do I know when I've achieved product market fit this is another common question so I think there's basically three key metrics you should be tracking number one returning usage number two NPS and number three paying customer renewal rates so returning usage is basically just look at people who sign up or come to your site or your app and look at the number of people who come back within a day within three days than seven days within 30 days right if you track that metric more than anything else that is the indicator that things are working in the early stages I remember handing out Weebly logins to all my friends and family and none of them came back and those are the people who liked you the most and those are the people who would really want you to be successful and if they're not coming back then no one's gonna come back and so I think number one tracking return usage is really important number two track NPS there's all kinds of tools to do this now here NPS some people say 40 I think about 50 oh it's above 50 then you probably achieve product market fit NPS if you've ever answered that question would you recommend this product or service to a friend that's NPS it's one question you rank from zero to ten basically the percentage of people who answer nine or ten those are promoters the percentage of people who answer zero to six those are detractors and people who answer seven or eight are thrown out so in the early days Weebly had in NPS of 80% that was basically 88% of people answered nine or ten eight percent of people answered zero to six and my math is Right 12% of people answered at seven or eight so you base take that 88% minus eight percent equals eighty if it's above 50 you're doing pretty well the way this metric is built it can get negative and that's probably where it will start and the number three paying customer renewal rate so when you have paying customers look at their renewal rates a quick sidebar I don't like the churn metric for looking at this a lot of people use that because it's easier to calculate but basically churn is not cohort base renewals cohort-based sojourn is just looking at number of subscribers loss divided by total active subscribers in any given period I don't like that because if your denominator is changing like let's say you're growing really really quickly you're in denominators changing faster than you Newman numerator the numerator is based on last year's denominator and so basically it's it's it could be deceptive as to what your actual churn is but your renewal rates are great cuz that's looking for the number the percentage of people who are eligible to renew and what percentage those people actually renewed and that's cohort based so I like renewal rates a lot better alright next metrics aren't included so number one metric that is not included is signups this is something that was not very well understood when we got started I would not pay that much attention to signups I would pay a lot of attention to active users if you have good returning usage and signups translates active users pretty well if you have bad returning usage then signups basically like completely drops off and you have very little active users in fact that number may even be shrinking even when your signups are growing if people are returning number to conversion rate if you're thinking of building a SAS business conversion rates they all start low they build over time I wouldn't pay a lot of attention to conversion rate in the beginning I'd pay attention to some of the other metrics I think it's the last point just how does it feel when you get product market fit you'll know when you achieved it when your customers are beating a path to your door when you don't have it everything feels hard it feels like you're pushing this huge rock up a mountain you're pushing your customers towards a solution they're too nice to tell you no but they're not really coming back they're not really using it when you have it the whole world is beating a path to your door everyone wants to use it the press is writing about it everything feels easy and every decision you make feels like you're a genius because they all go well you know spoiler alert it's somewhere in between it turns out that you know as you're scaling your business over time you'll discover you're maybe a little less smart than you thought you were but but but that comes later but I think this is what it feels like so if you're not feeling that you know sort of customers pulling you in a direction world beat you know beating a path to your door then you probably don't have it yet all right now a couple more points beyond prime market fit this is a little bit more theoretical I think the most important is just the very sort of tactical like how do you go and build a product just talk to customers listen to their problems not their solutions iterate its Huynh and then keep launching until you get something out there focus on a couple key metrics but a couple points I want to make number one there's there's fundamentally three things that a start-up needs to do in order to be successful and this is a little bit past just product market fit number one product needs to be meaningfully better than the alternatives I think this is sort of described in the Paul booth I quote of launch when what you have is better than anything else out there number two you'll need to learn how to acquire customers in a differentiated way that scales and number three you'll need to invent your business model without killing your attraction this gets into a little bit more than product market fit an expanded version here but basically product market Channel model fit and what this goes to show is like you can build a product that works really well for a market but the model is busted right your your your your the model the way that you charge people you know doesn't work maybe you're not charging enough maybe you're charging too much that has a lot of interplay with your channel this is how you acquire customers right so if your model if it for example if you're building a solution you're trying to charge $75 a month for it that's probably a pretty tough spot to businesses because you're gonna be in the middle you're not going to be able to afford a Salesforce right you're not gonna build afford actual people selling your product to the customers directly but it's too much money that people are gonna want to just whip out their credit card and start paying that right and so that's why often times you know between the model and the channel there needs to be a fit there as well because if you're gonna if you're gonna have a sales force you're probably need to charge people at least two or three hundred dollars a month to build afford the Salesforce and if you are can have a Salesforce and you should probably charge $25 a month or less this all of course plays with the product and market fit which is which is how this all works together so there's a essay here which the HubSpot growth framework which I'd highly recommend reading for a little bit more on this another sidebar is on scaling the team so I think this is a really important point to make don't scale the team until you have product market fit so I would not scale past about 20 people so around 20 people choose between about 23 and 25 is when everything breaks in the startup because you can no longer be just just you know completely flat if you look at any of the essays you know if you look at you know back in the day 37signals had this essay of like how big a perfectly flat company is amazing and no one ever needs to hire managers and it's like I could predict to within one or two employees exactly the size you are and it's about 23 to 25 and it turns out that was true because about 23 to 25 it feels amazing it's completely flat just another couple people and everything breaks what you need to do is you need to start implementing your first layers of management and it turns out that that structure is not very good for finding product market fit it's not very optimal for that so keep your team small I would say it's okay to micromanage a little bit at this stage you should know everything that's going on you should know everything important there is know about your customers your product your market your channels you should know all of that what does that mean that helps you make really great decisions right because you have all this information it's actually a huge advantage once a company scales up then all this knowledge is distributed across people and it's really difficult to get all that knowledge to make a really good decision in one spot when it's scattered across a bunch of different people and takes a lot of different opinions to get something done so don't delegate anything important yet however once you've achieved product market fit and I think this is a mistake that that we made scale aggressively once you've achieved product market fit so at this point presumably you've either found or created a new market but it's likely you're not the only one you may not have heard of your competitors yet but there's probably other people out there doing the same thing you are in a race to capture this new market and advantages accrue to the number one player they always do even if there's not network effects in your business just having more people can build products faster that generates more Rev that attracts more financing that allows you to hire more people that generates more revenue so there's all these kind of flywheels and cycles advantages that accrue to the number one company be that company build a team aggressively but thoughtfully I think that you should probably never more than double the size your company in any given year so I don't think I know of an example of hyper growth that works out of companies that go from 20 you know 20 employees to 300 in a year and that works out because what would get up doing is you build a foundation on sand based on a really shaky soil and it all eventually it's all great while you're scaling and eventually the skyscraper comes crashing down and that always seems to happen you will need to completely change the way that you work I'm including a lot more delegating at this point and no more micromanagement after you do that so there's kind of this inflection point in scaling company I think it's really important to think about because I would not scale a company pass about 20 people before you have product market fit as soon as you found it go and scale aggressively as you can and then lastly I'll talk a little bit about building a brand because I don't think it's worth spending too much time thinking about but I think it's we're spending some time thinking about when you're in the early stages so great brands are built around a fundamental insight a consumer insight that some truth that's just not really acknowledged out there and ideally this is the same one that your product is built on so it's really really powerful if you could identify that insight early on know what you stand for and build that into all of your messaging build that through into your product and that becomes the foundation of your brand so let me give you one example I talked to the person who built Virgin America's brand and so so here was their story so when they got started they were they were doing a start-up airline there are lots of economies of scale in Airlines and so they did they went out and started talking to customers and they realized that there's only four reasons why people select one airline over another the reasons we're scheduled price so again if it was three dollars cheaper I'll select that airline it was destination so if you want to fly to our SFO or Oakland and it was frequent flyer programs and they looked at each one of those and said we're not gonna win oh we can't win it's impossible win on any of these so I said okay well what's our market thesis like what are we gonna do differently and then they went out there and talked to lots of people and they said you know what the experience of flying sucks the experience of flying really really sucks so why don't we create an airline where it's not gonna be a super premium airline but it might cost fifteen dollars more for that ticket but it's going to be an amazing flying experience that was their brand that was their product and their brand they built it in right from the very beginning and everything that they did revolved around that flying experience so that's why you make a decision to invest in the super cool lighting that doesn't make any sense financially right but that is exactly about the flying experience that's why you're gonna go and pay your staff more and they're gonna have a really great attitude as they're serving the fliers that's why for every single PR event that they ever did they did it on an airplane because they want to highlight that flying experience and they create a new reason for people to buy their tickets and they were very successful at doing that so I think it's one thing to understand is I wouldn't spend too much time overthinking this but to the extent that you can understand what is that insight it should be infused in both your product and that becomes the basis for your brand over time so that is it I think I'll take a pause there and that's it so any questions [Music] yeah so the question is I took 18 months fine product market fit and what motivated us and I like to say that it was just that we were young and stupid which is super helpful but I think I my theory on entrepreneurs is that a lot of people think that entres are risk takers I don't actually think most entrepreneurs I know are heavier risk takers I think they're calculated risk takers I think that entrepreneurs are really two primary qualities number one is they're optimists so they don't see risks where other people see risks and number two is they're determined so I just don't give up so I think you know generally speaking those are the two things your company only fails when you give up right and while you're still working on a by definition it's still going and so I think I think having that determination I wouldn't I wouldn't blindly plot on when all of the evidence shows that that this is not going to work out but but but I think just continue to be determined and knowing just having the confidence and knowing like this is something people need and just continue to work on it is is key [Music] yeah so the question is like common advice is targeting each audience were verticalized right which is which is another way to say that I think you know you're right we've been an anti-pattern you know kind of kind of runs counter to that pattern I think I'm not 100% sure why but I think it's because in our particular case the the verticals we're not deep enough to be able to support the pretty heavy investment that you need to make in the product and so basically every single person required actually a ton of functionality it was we need blogging we need e-commerce we need you know forms we need you know like a full CMS we need all these things and we need to be best class you know world class and every single vertical wanted that and no vertical was deep enough to fully support that on their own so the the the pattern of what happened to Weebly in just you know website builders or or e-commerce platforms in general is that we is that we all started off Eric horizontal and build a platform and then over time once all that function I was built out then we started to customize the verticals so I think that that's what worked in our case but but building to a specific vertical is generally good advice yeah so the questions when you're creating a market what changed to tell to telling people like you have this new thing that they didn't know they needed I think I think the experience is is likely to be similar for everyone which is which is basically the first chunk so I'd say the first three to four years of weebly's history we were mostly just trying like I remember telling reporters like you just why they're like why do we need to write a story I was like you need to write a story because no one realizes this as possible right no one so the first three to four years where us just trying to convince people like no you really can build a website like this is possible cuz everyone I mean everyone assumed unless they knew how to code everyone assumed that is beyond my capabilities that's beyond my abilities so we spent four years probably just trying to tell people and then eventually little by little people try it people try it and then that's that's that markets great it's that kind of boom moment when else and people realize that this is possible you know I think another probably great example would be either uber or Airbnb right like Airbnb was something that I remember even early on I don't really want to stay with other people that sounds weird like I don't want to get in someone else's car like that's shady but then all sudden like you know the word just kind of gets around you try it once enough people try it once they really enjoy the experience word gets around once it does that's that that's that sort of that Big Bang moment right where the markets kind of created and then at that point your problems are completely different at that point you don't need to convince anyone anymore because people just think it's going to be inevitable but then your problems are more about scaling and you know continuing to find refine the product at that point can we talk about your key KPI is doing that 18 months off period what we're measuring to make sure that you are moving the right brake yeah so the question is on the key kpi's during that 18-month period the the the sad answer is we were not monitoring them we were not measuring them that's probably why it took us 18 months it probably could have been a lot shorter I think we were looking at sign ups which was kind of the thing that most people were looking at at that point in time and it's a very poor metric I think if you look at how our science would convert to active users that was very low if you would look at how our signups were trending sort of on a daily and weekly basis that was trending down so by all accounts we didn't have product market fit and we knew we didn't have product market fit it wasn't like a big surprise so so it's really just a matter of continue to iterate continue to iterate until you finally get something that that clicks sure so the question is I'm pricing what's a journey we went through I think people are a lot more rational about pricing today than when we got started because in in 2007 and 2008 the prevailing thinking in Silicon Valley was that you shouldn't actively not charge money you should actively be not making money that was the prevailing thinking it sounds really really crazy now but at the time the logic went that Twitter was the example that if you charged money then you would have revenues and once you had revenues they wouldn't be that big and then you just be valued on a multiple your revenues so way better to sell the dream and not show any revenues than to make money and then have your valuation come down so that's what people thought at the time and we we start up by not charging any money so it's just completely free from basically women launched in 2006 through the summer of 2008 we I'm not even kidding we had people who would just unsolicited just mail to check for hundred bucks cuz they were like you're gonna run out of money like you need I just gonna give you money and like and and we're like thanks but like it was a completely free product there's no way to money unless you mail us a check and and then we knew we're gonna run out of money from the round that we raised in around September of 2009 in G sorry September 2008 in January of 2008 we decided to try to make money because we figured making money was much cooler than raising another round so we worked for 6 months from January to June on on launching Weebly Pro which was the first version was four dollars a month it was the first version that you could pay us any money for we had all of our friends over in our in our apartment the night before we launched it and we all took bets on clearly how many millions of dollars we're going to be making the next day like it was like as soon as we pressed that button it was just gonna come flown in and and then we launched it the next day and then after a week we looked at the sales and it turns out that we made 10 times less than the lowest bet so it was like okay I guess it's not going to work out quite that well that fast but then we you know we kept iterating we kept growing from June of 2008 to December we almost ran out of money again but but had the option of cutting the founders salaries and so we're going we're going to be cashflow positive we basically became cashflow positive in January 2009 more or less we're through the rest of history of the company actually use it for three weeks tops so in that case how would you actually acted because yeah so the questions it's awesome that your Weebly user sort of how do you calculate active usage when people flake off I think you can still calculate the same way and I think it's so valuable metrics so there's a question with with with talking to inside baseball with website builders of are they successfully using your product even if they're not coming back every single day and maybe they come back once every six months I still think it's useful to look at the metric because because otherwise you're just flying blind yeah so so the questions around the the just the the word discontinuous improvement and like what does that mean and a lot of the writings about continuous improvement I think discontinuous improvement is is effectively when you're making a big leap not and and sometimes small incremental improvements don't get you to that big leap right and so I think you know imagine yourself starting with the palm treo right and you're trying to make continuous improvement right like what would you do like you'd improve the OS a little bit maybe you'd improve you know the way the apps can exist a little bit maybe you would take that keyboard and just like make the you know clicking a little bit better or the typing little bit better whatever it is but I think by definition if you're going to create a new market oftentimes it's discontinuous improvement and what that means is is taking a really big leap and taking a really big leap it doesn't often happen the same way as taking small steps and so I think you know again it's it's it's really about fighting that hidden need figuring out what people want and building that solution iterating really quickly on that front but optimizing for learning and I think optimizing for learning is sort of the key here where you say what's the biggest unknown that I have and how do I go about answering that question okay two more questions so how do you deal with a demographic split between purchasers and users like we're a hardware company and our primary purchasers are probably going to be Gen X they want an analog version because they believe it's more reliable and the primary users of the product will be Millennials and they all want touch screens which actually works better for us and so how do you deal with you know convincing people later on hey in the tech roadmap we'd actually like to even have you know maybe your old equipment back and we'll just give you a new one yeah so the question is hardware startup your purchasers and your users are different demographics and and they want different things yeah how do you make the transition smooth I mean I think I I don't have that much information I'm guessing education oh what coffee okay then I have no idea but I but if you want to come talk to me afterwards we could dig into it a little bit more oh yeah yeah that's a great question so on your way to product market fit when do you start the whole fundraising process I think so so I think the most helpful thing to me that I end up explaining to a lot of people is look at that slide on the stages of a company and most companies will not be able to raise money until they're at the early traction phase just entering traction now things may be different for you you may have some friends and family who may be able to kind of stake you early on you may get in a program like Y Combinator you you may be different that's certainly possible but most companies like when you look at those large early rounds that are raised and this company raised 40 million dollars that launching a product and you're like I can do that too you can't that that's what I thought it turns out that in all those cases are some kind of history it's you know the the founder or founders of that company have cred massively successful products before or maybe they're huge you know coming in some some part of the industry or whatever it is I think if your expectation is that you can trace it around until you get to early traction that's probably a realistic expectation and then at that point sort of what are the implications of that right so how the hell do you get to early traction without raising money right it's a chicken it's sort of this chicken and egg problem everyone solves it differently right like everyone wanted up solving it differently it's really really hard though and I think the key the way that a lot of people solve it is just you know effectively sweat it's just getting a few really smart people together who can build what they need to build without anyone else without outsourcing without hiring anyone else and keeping their burn really really low and basically locking themselves in a room and and continue to just build as quickly as they can until until they get to that point and it looks like you have a follow-up no no so so the question is lon launch when you have something is better than what's out there which which means a full-blown product no I I think you know maybe this is something I could add in here don't don't look at your product in terms of like a feature grid like a feature checklist if you think about it like that you can never win because you're behind and you can never catch up and especially if you're comparing to like I like this phrase of like customers over competitors because if you're looking what your competitors are doing right then you're inherently following because whatever they've just launched they started building three months ago right and so by the time you build that and you launch that then they're gonna be launching the new thing and it could be you know I remember one of our competitors I won't name them but but but they're from South Africa and they had raised 40 million bucks and we had raised six hundred fifty K and they things we're not going that great for them and so they completely ripped off our interface and they just completely cloned it and launched it and I was like we were laughing our asses off because we were about to launch an update where at the time that sidebar with the elements was on top and we were out to put it on we were about to put it on the left right we'd spent a lot of time building that and they launched like two weeks before we built it right and so I think you have to focus on your customers not your competitors and then it's not about to feature grit because there's gonna be one particular feature or one aspect of your product maybe it's the the ease of use and the usability that opens it up to a new market maybe it's one feature that people are just killing for that's gonna that's going to make up for the lack of the rest and so people are going to look at that and say well it doesn't have XYZ which I do kind of want in those other products do but this is the one thing that I need and they're gonna come and use your product for that so it's not that your product has more features than anyone else is that your product does that one thing that one job they're trying to it does that better than anyone else thanks guys okay that concludes today sorry that we ran a little late it's hard to constrain fantastic speakers from getting through their material and all the great questions you guys are asking next week Swee aldo she and Gustav Ostrom are from Mixpanel and Y Combinator respectively we will continue on our dive into product talking about measurement and growth two very important things and we'll also be posting another video of a conversation this week that adora is going to have with us Magog the founder of gobble and they like the bee gees are going to be talking about staying alive if anyone gets that reference all right thanks everyone [Applause] you

Channel: Y Combinator

Views: 390,181

Rating: 4.9425001 out of 5

Keywords: YC, Y Combinator, David Rusenko, Startup School, Weebly, Product Market Fit

Id: 0LNQxT9LvM0

Length: 58min 37sec (3517 seconds)

Published: Wed Sep 05 2018

Reddit Comments

[u/midael]

00:00: by founder of Weebly (acquired by Square)
01:20: first line of code written in 2006, sold in 2018 for ~300M
02:30: ~11 months to launch; in 18 months still no [mythical] product market fit; 4 years in to figure it out. (some stuff on mesuring)
09:30: definition of product market fit: Make something a lot of people want
10:30: starup phases: idea, prototype, launch, traction, monetization, growth (market fit has to be found between idea-traction)
11:50: it is MUCH harder to create a product that a lot of people want than to figure out how to monetize THAT product (and trying to monetize too early may prevent trying out things that would end you to a right product)
12:40: market researh wont help when market does not exist (new tech for not yet existing market!!!!!)
14:20: what is the hidden need you serve. What are people ‘hiring’ you to do that was done manually before
15:10: WHEN YOU FIND PEOPLE HACKING YOUR PRODUCT TO DO SOMETHING IT WASNT MEANT TO DO -- PAY ATTENTION TO THAT (USERS KNOW BEST!!)
16:53: Listen to customers problems, NOT about their solutions
19:00: When you’re small - RAPID prototype , move quickly, test, try again, repeat
21:00: Talk to your TARGET customers - BUT be super flexible changing your opinion who they mght be
23:14: product feedback: MAKE SOMEONE USE PRODUCT IN FRONT OF YOU. SEE HOW THAT WORKS OUT! Ask them to perform tasks, but do not help them.
32:29: how do you know you’ve achieved product market fit? You will when you do. Until then everythimg feels hard / pushing
35:45: Do NOT scale the team past ~20 *before* you believe you’ve hit product market fit (since after around that you cannot be flat structure)
38:30: Don’t try to scale company more than 2x / year (as in head count). Unless you do.