The Market Trumps All Else

My biggest start-up lesson, a year after Freshdesk acquired us

“It’s just been a week, and yet it is all so clear to me. The market trumps all else!” said Tark, VP Engineering at Freshdesk. We had just launched Freshsales, our CRM product at Freshdesk, and it was already taking off like a rocket ship. Tark, like myself, was an ex-entrepreneur. He had spent over four years running his own start-up Chatimity, which saw its fair share of ups and downs before the team and technology were acquired by Freshdesk.

While I nodded in agreement with him, my thoughts went back to my own start-up and the market we played in. Konotor, my start-up, was a mobile-first customer engagement platform launched in late 2013. While running Konotor, I’d always thought to myself, “With a great team and product, I can educate and create the market, and make it all happen. It’s just a matter of time and perseverance”. My mantra to win was “Be patient, and yet, act with urgency”. I would always proudly say I was playing the long game.

You’d be right to think there would be many entrepreneurs like myself — trying to innovate and create completely new products, going after nascent markets that may or may not exist, sometimes even waiting for the market to happen. I’ve met many myself!

Is playing the long game right for your start-up?

We’re hungry and foolish. So for how long should we keep it up?

Entrepreneurs are an optimistic bunch. We need to be! If you can’t convince yourself that you are in a large market with great potential, how’d you convince employees, or investors ?!

If you believe you have a big market, and you are going to make it happen, or it’s just about waiting a while, take a step back and re-evaluate how good your market really is.

Not that no one’s played the long game and won. Just remember those are exceptions and really need the right conditions to succeed. As someone who has been in a hard market, and managed to have an optimistic frame of mind for a good four years, I can say with conviction that it is hard, but still possible to keep going without real proof of winning big when the business doesn’t grow as fast as you’d like. We do always manage to keep our team enthusiastic about what we’re building, celebrate every win along the way, and have many an opportunity to tell our story of how we’re ahead of the pack and building for the future.

A “traction” slide from our pitch deck for Konotor in 2014

“We may have only a few big customers today, but we see all the signs that the market is changing. Customers are beginning to see the need to transform their customer experience for mobile — for their loyal customers who use their mobile app. And of course, we’re the best mobile-first product in the market for in-app customer support”.

That was my spiel. I believed this, my employees were on the same page, our investors had trusted the same message, and our CEO (post acquisition by Freshdesk) understood all of this as well.

But of late, I’m singing a different tune to other B2B business founders I meet and engage with, or even employees looking to join early stage start-ups. There is this something I’ve come to believe in from the success of Freshdesk, and I’ve been paying real attention to it. This something is market momentum.

Before moving on, a couple of notes:

Note 1: I acknowledge we’re all more passionate about solving certain problems, or sometimes “creating a new market”. But if that’s your path, be very very aware your chances are slim and you are putting yourself through a hard journey. Be sure you really do some analysis that the market will grow or turn out to be huge if you do succeed, and that you have the right conditions — geography, capital, timing, etc — needed for success. If you are spending precious years of your work life on building a business, betting on it succeeding in a big way, why would you pick a something with a lower chance of success or a chance of a smaller success?

Note 2: I’m not writing this to discourage folks going after a hard problem or creating something they believe in. I am writing this to get them thinking about the momentum they are seeing, and to make sure they aren’t sticking on to their current product and market just because of the “sunk cost” of what they’ve invested energy on in the last few years!

Market and Momentum

We’ve all read Marc Andreessen’s post on product-market fit, I’m sure. The importance of “market” has come up many more times as well, with some evergreen posts by Jeremy Liew (this post), Kirill Sheynkman (this one), and this one I really liked by Ameet Ranadive. All of these posts drive home the point — while product, team, and market are important, market is most often the one that REALLY decides your fate. But we still find this doesn’t often stay with every start-up entrepreneur — we’re blinded by our belief in our own abilities and that of our teams.

Or maybe, some of us aren’t able to recognize when we’re in a “hard market”!

From the cohort of companies that started alongside my start-up in 2012–2013, I’ve seen so many of them fold up and very few emerge successful. Almost all of them had very smart founders — some had been part of start-ups before, some had great credentials or experience building good products, and they ALL persisted real hard.

When they played in a fast growing market (a “rising tide”), the teams grew, customers grew, the team was winning, the right product was pulled out automatically, the team was happy together. The momentum matters and creates a virtuous cycle. “Success breeds success” really rings true.

When you are winning, you have the capital, brand, and wherewithal to go after harder markets. Freshdesk was winning in the cloud-based customer support software space and had grown large enough to then pursue emerging markets and innovative ideas for the future.

Winning in a good market enables you to go after harder markets and try out experiments in new markets as well.

Now let’s consider hard markets.

Very nascent and evangelistic markets, slow growing markets, small markets, or shrinking markets — where companies can see some misleading initial success. The early success usually comes from founder hustle, known customers, from growing fast to saturate a small market (e.g.: mobile-app only SaaS), or from success in a market that is in itself seeing rapid dramatic change (e.g.: the feature phone market in 2012–13).

You can’t be sure if you are actually delivering value that matters to the customers, or if you are just a nice to have that will never be a priority. You can’t be sure if you can continue to grow at your current pace (and for how long?).

For each successful start-up, there are probably 50 I can think of that in hindsight played in a hard market.

When you are in a hard market, it’s a vicious circle. Post some initial success, you don’t know if it is sales not working or the sales person, it is harder to keep folks motivated, and there are questions hanging in the air about people doing their jobs right, and about the decisions being made. The overall lack of continued momentum can cause rifts in the team, further making things worse for the start-up.

I’ve made the same mistake

I’ve worked on building products for almost 10 years now, and with start-ups for a good 60% of this time. I’ve read many many posts on product-market fit, on product management, participated in discussions on Quibb, followed threads on Hackernews. I should have known better, but I was blind to our own market problem with my start-up Konotor.

I’d been at it for over three years — evangelizing the benefits of in-app support, and hearing back an array of excuses, even after top management and product leaders express they really want to make it happen. The internal champions at companies I engaged with always had many battles to fight: — “the service team is not ready to handle an additional new channel” — “the product team has fixed its road map for the next quarter” — “there’s a new revamp of the app coming up and that may be the right time to introduce the feature” — “customer service wants to use one tool across web and mobile even if it isn’t the best experience” — “the dev lead isn’t ready to add another SDK at this time”

I’ve heard every excuse and told myself it’s a matter of time before people see that all they spend on acquiring new app users is wasted without a great way to retain and engage these users. After all, we did have some great customers and brands to show, and growing revenues as well. One may feel it was not fast enough at times, but it was all there to see.

Ambitious plans for 2015, from our investor pitch deck

“2015 will be the year when this all changes”, I had said to myself. “Our time has come”. Later I even understood that adoption did not really increase for products in this space because of a “multi-stakeholder” problem as well. People really liked what they saw, but there was no urgency to implement this — it could reduce their customer support costs in half, it could help them grow their happy and retained user base 2x, but there was still inertia to move to what was an obvious “must do” to me.

The question that I ended up asking myself often was — do we have the patience to wait for it to happen? Do our investors have the patience? Does our team feel they are winning by just building the best product out there? Are they motivated to build more and more features for a customer base that isn’t growing fast enough?

After many years, it finally hit me. Mobile was a wave, but mobile support wasn’t a wave.

You cannot be a perennial optimist waiting for your time. The hard truth was that we were surviving, not thriving.

Outcomes matter. Momentum matters. Both of these are mostly a function of the market. The market matters. Period.

You either need to figure a way to make the whole market wake up to you — that usually takes a lot of capital, patience, and a strong brand. Or you need to change your market to one where people are looking for solutions, build momentum for yourself, and then top it up with your innovation. Not creating a new market does not mean you need to build a copycat product.

My own story had a happy ending — we lived through this, pivoted, and subsequently joined hands with Freshdesk (we were acquired), and strategically pursued building for the right market with Hotline.io, with the backing of a strong brand and capital.

So how do you know if you are in a Great Market or a Hard Market?

How do you know you have a wave backing you?

Let’s leave alone those who are “obviously” in a really good or really bad market. How do you as an entrepreneur running a startup that is doing OK — growing (but slowly — no hockey stick), having customers who really like your product — identify whether or not yours is a great market or just an average or hard market?

Vikram Bhaskaran, an entrepreneur friend of mine had this to say from his own experience, and I can’t agree more

As innovators, we all want to make something new — make something that generates a 10X, 100X wow. And that’s where I think we start falling into the rabbit hole — when we go after the “new” — something which has low competition. We want to build something that adds insane value to the user, AND that has relatively no competition at that level of the game.

On the competition front, we are smart enough to stake out an uncharted territory and lay claim to it. Now does this add “insane value”? That’s the tough part, because (a) when we are neck deep BS-land, perspective is rather hard to come by, and (b) as eternal optimists we are great at finding more plausible reasons.

While I don’t have a playbook to go by that will give you all the answers, I have spent quite some time in this space myself, and have had insightful conversations with investors, other founders, and sales folks in the B2B space. Perhaps you may need a very different line of thought to figure the same for B2C companies.

Here are some thoughts on some of the symptoms of a hard market for B2B products

Signs you are too early or there isn’t a real strong need (vitamin vs painkiller) yet

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  When it’s an average market, it isn’t clear if you are losing some of your deals because of the product features or the market itself. You may find many customers exhibit great enthusiasm but ask you to come back with another feature that will “seal the deal”. And then another feature. In a great market, your customers “buy” and also help “pull the product” outIn a hard market, all you get is feature requests. Don’t mistake this for “market pulling the product” unless there’s a purchase order involved :)

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  In an average market, you often need to explain why the customer needs your product at allIn a great market, your sales team is spending time differentiating your product or approach to solve a problem from competitor products or approachesIn a hard market, your sales team is (sometimes unsuccessfully) pitching why the customer even needs such a solution

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  The easiest check if there are already giants in your space — it’s a great thing if customers have already demonstrated willingness to spend on whatever it is you are selling. Lack of this does not make your market hard. But hey, I can’t imagine why there aren’t other fast-growing competitors in your lucrative space ;)In a great market, there are multiple huge companies built in your space, who are also still continuing to grow. Probably there are also a few companies with really bad/legacy UX that are still making tons of money!In a hard market, you can find either very few companies of significant size (customers, funding raised, etc), or even the larger companies are seeing slow growth / struggling for adoption. Typically you’d also see lower “search volumes” for products that are slow growing — that’s an obvious way to assess the rate of growth.

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  Clarity on budgets, stakeholders, decision makers to purchase your offering or pay for your service could be unclear in an average marketIn a great market, there exists a clearly defined budget from a specific department, and process in place to purchase a product like yoursIn a hard market, there could be multiple stakeholders involved with no clear decision makers, or lack of a budget for your product. ROI being hard to calculate/showcase is another sign.

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  Slow sales cycles are typical of bad markets. You’d need to evangelize the problem, and your solution, with multiple stakeholders In a great market, the problem you solve is a priority and it isn’t unusual to get to a pilot or trial within a monthIn a hard market, there is no urgency in adopting your solution. Sometimes it could be hard for you to help them prioritize adopting your product (even a free pilot), and there are excuses — roadmap is set till the next quarter, something important came up, there’s a new feature that is needed, etc — even when you sense they really like your product.

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  There’s probably a tussle around what features you need to build in the short run because customers are pulling you in different directions. In a great market your product team will deal with homogeneous feature requests at the core of the offeringIn a hard market, the requests would pull you in different directions, making you constantly question which one is the right kind of customer

Here are a couple of ideas to identify if your market is small. If you can find a way of getting a named list (in the thousands to tens of thousands) of serious potential customers you could ever have, then look at the following factors to understand where you stand:

• If you solve only one piece of a larger puzzle for these enterprise customers, you probably will run out of TAM as a standalone offering
• If the customers in this named list aren’t each seeing real “enterprise value” (>75K$ ARR deals for SaaS) in a very well measurable manner you can never extract the full value of your offering

On the other hand…here’s something for those in hard markets

We keep hearing that the next big thing would begin with looking like a toy today. There are also examples of companies that have created entire markets (e.g.: VMWare in pmarca’s post).

But the point to remember is — this is not the norm. Creating a market needs a tremendous amount of education to happen (and hence a lot of patient, believing money behind it), or needs a ridiculously innovative product that has a very strong value proposition to solve a problem everyone has but hasn’t recognized before. This may work better if the market is an extension of a larger existing market and is offered by an established player in the existing market. You need to turn enough heads and be taken seriously to evangelize successfully.

If you need to really “create a market”, go the whole hog. Make enough noise, and make the tide rise!

I have an example of a company that does this well. Branch.io

If you are into product management or marketing for a mobile app, chances are you’ve attended an event called “Mobile Growth” by Branch Metrics.

Their approach is to create a wider top-of-the-funnel through their events that actually focus just on growth, not on branch.io. Growth interests product managers, growth hackers, marketers, developers, and business owners. Growth is important to startups and large businesses alike. So it’s a great idea to bring together a community of smart people to share their experiences with trying to grow their mobile app business.

Branch does this event EVERY MONTH in multiple cities across the globe. THAT is what I’d call “educating customers at scale”. Branch’s product — software/tools for deep linking — wasn’t really in a market that existed in a meaningful way. Very few understood the need to enable deep linking in their app or why they’d need a third party service to do deep-linking right. But after years of toiling in the market, hosting lunch and dinner meetings, and hosting event after event after event, everyone knows branch, what they offer, and many many global large apps are using them already.

I also asked Alex Austin, CEO of Branch, about what he thought about product-market fit and what else helped them in their journey. Alex shares:

“I think product marketing is all about being the answer to a question or intent. Your product has to be the answer to a question being asked by someone with the power to use it. For example, one of the intents we focused on the problem of passing referral data through the app/play stores. We knew that Branch had a powerful solution and the person asking the question had the power to implement our tools. Over time, we’d try to find more and more of these pain points and make sure we were the answer to these intents. There’s no better definition of product market fit than that.

To leverage this for growth, we had to make sure that everywhere a potential customer went to ask one of the above questions, Branch would be found as the answer. As an example, in the early days, we had some internal rules where all engineers had to answer 5 Stack Overflow questions per week around the subject of passing data through the app or play store or a tangentially related subject. We would answer truthfully how to build the solution itself, with the caveat that it was very complicated and that we worked at Branch.io which solved this problem well. It was a genuine attempt to help propagate the solution but allowed us to be discovered in every corner of the internet as the solution to a key problem our users had.”

So go out there and ask yourself if you are in the right market. Are you going to benefit from a rising tide and grow rapidly? Do you have the wherewithal and ecosystem to support making noise and evangelizing something new and lifting the entire market? WAKE UP to the reality of your market.

We’re all in it to win, and getting your market right is probably the most important piece impacting your chances of winning. So go get some tailwinds behind you and start winning!

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About me: Product Manager (Verizon, Start-ups) turned entrepreneur. Sold my start-up to Freshdesk in 2015, and continue to build and learn at Freshdesk. Reach me at [email protected] or @srikrishnang for conversations on start-ups :)