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  • Nov 16 2020

Podcast: Product-market fit is a broken concept with Rand Fishkin

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Rand Fishkin is the Founder of SparkToro. Previously Founder and CEO of SEO software platform Moz, Rand is a seasoned entrepreneur and founder, as well as the author of Lost and Founder.

Rand has observed just how much the startup ecosystem loves to hype the concept of product-market fit, but also seen first hand just how broken it is as a concept. Rand recently wrote a blog post by the same title, and so we invited him on to the FINITE podcast to talk through it with FINITE Founder Alex in some more detail.

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Full Transcript 

Alex (00:07):

Hello everyone and welcome back to the FINITE Podcast. My episode today, I’m super excited about, because we’ve got Rand Fishkin on the show. Rand, you may know from his days as the SEO expert, the founder and CEO of Moz and the SEO platform, but he’s now founded a new product called SparkToro, a really cool market research and audience intelligence platform, which I definitely recommend you checking out. 

But the reason I invited Rand on the show is to talk through a blog post he wrote recently around product market fit. He wrote a post describing why he believes product market fit is a broken concept. That really resonated with me and I’m sure it will do the same for you. So I hope you enjoy this episode.

FINITE (00:45):

The FINITE community and podcast, are kindly supported by 93x, the digital agency working exclusively with ambitious fast growth B2B technology companies visit 93x.agency to find out about how they partner with marketing teams and B2B technology companies to drive digital growth.

Alex (01:06):

Hey Rand, thanks for joining me today.

Rand (01:08):

Yeah, thanks for having me Alex.

Alex (01:09):

I’m looking forward to talking. I think you probably, of all of our guests, one of those people that doesn’t need that much introduction for a lot of our audience. I think many people will know you as the SEO guy in some way or another, but you’re obviously working on some really interesting stuff now. 

I will let you, as we always do introduce yourself and tell us a little bit about your background, but also what you’re working on at the moment.

Rand’s background in B2B tech and his current role 

Rand (01:30):

Sure, sure yeah. So I’m a few years out from the SEO world now, although I think you’re right, I am mistaken every day on Twitter and in my email for being someone that you should ask SEO questions to. And that is because I started a company called Moz, which was big in the SEO space for a long time. 

It’s a very big content site and blog. It started as a consultancy and then became a software company and raised a bunch of rounds of venture, grew to somewhere around $50 million in revenue. It’s done some acquisitions. I was the CEO there for a long time, sort of the first seven years of high growth and then stepped down from the CEO role. I was there a couple more years and then I transitioned out and in 2018 raised this very unique round of funding and started this new company SparkToro, which is also a marketing software company. But in the audience intelligence and market research space as opposed to SEO. 

And so that’s been my focus and field of specialisation for the last few years, spent a lot of time doing the classic things, interviewing and talking to customers and getting a product ready for launch. And we launched in April 2020, aka the worst time to launch in a hundred years. But have managed to do okay. September was actually our first break even month. And then October was a little better and we’re hoping that growth continues. So it’s going okay despite the terrible year everyone’s having.

Alex (03:10):

Yeah. It’s a very cool product. I must say I’ve used it and it’s pretty cool what it can do. So, yeah, and I guess although April may not be the best timing, maybe like a really good period for marketers and anyone else using the tool to really think deeply about who their audience is right? At a whole other level or needing to do so given the state of the world.

Rand (03:31):

Potentially, yeah. I think there’s so much upheaval and so many challenges of people switching where they work and how they work and who they work with. And the marketing industry had a massive amount of layoffs in March and April. I think it’s actually somewhat recovering, but we could see with our email list, we had this big invite list of maybe 15, 16,000 people who had basically signed up to get notified when the product launched, which I would strongly encourage every other company to do. 

I think those launch lists are really powerful, but we started sending those out in buckets of a few thousand every week, basically starting at the end of February into the beginning of April. And what we discovered, ‘reply to’ address was my personal email. So every morning I would wake up to a hundred out of office messages, but they weren’t out of office. They were so-and-so has been laid off, so-and-so has been let go, so-and-so is no longer with the company. It’s like, oh my God, right? Just brutal to watch real time in your inbox. I think it made me panic even more so than the news did.

Alex (04:45):

I can imagine, yeah. And actually another tip in there, I think I’ve seen you get some good feedback and praise in having your email addresses as the reply to. I think that’s something that a lot of founders or anybody else wouldn’t do.

Using email to create a personal connection 

Rand (04:56):

Yeah. I really dislike almost all the mainstream startup launch advice, especially in sort of VC tech world. I think a lot of the indie startup advice is great, but one that I really do like is do things that don’t scale. I think that is excellent advice generally, it’s a competitive advantage. 

And for me, email and a personal connection is one of those. And I’ve built tens of thousands of relationships over the years through that. And I really enjoy it. And I think that people I’m interacting and engaging with do too. And I’m pretty fast at email. So I don’t have other communication channels as a result, right? In order to be really good at email, what I have to do Alex, is focus really deeply. 

And I think that’s another challenge for many founders is to be able to find that thread and not feel overwhelmed by all the channels that they could pay attention to or do pay attention to. I don’t have a separate task list, I don’t use Slack, I don’t use messenger, I have like two phone calls a week with Casey, my co-founder. Really, everything comes through email and calendar. If my email is empty and my calendar has nothing on it, I can go play video games, like I’m done. I’ve basically finished, granted that rarely happens, but still.

Alex (06:19):

Yeah, yeah, yeah. Good tips on focus. I can definitely relate to that feeling of just endless Slacks and things to monitor, but good advice. So the reason we’re talking today is to dive into this topic of product market fit in a little bit more detail. 

I said to you before that you wrote a blog post on the SparkToro site, diving into why you believe product market fit as a broken fit is a broken concept. And how there’s a better way. And I think I saw this traveling across Twitter and getting shared and it looked like you had some pretty good engagement. 

And as I mentioned this, I’ve been looking for a chance to get you on the podcast for a while. And so I thought this is the one that pretty much every marketer listening will be able to relate to in some way or another. So I guess let’s set the scene first. What really prompted you to write the blog post to begin with? 

Why product-market fit calls for criticism 

Rand (07:11):

I think two things, one was obviously we are incrementally growing SparkToro’s customer base and product. And also I had seen, I think it was just a bunch of hacker news threads, right? That were just this obsession with product market fit and VC Twitter, which for some reason, Twitter is convinced that VC Twitter is what I want to pay attention to even though I swear.

Alex (07:37):

I’m the same, just you can’t. Yeah. I know what you mean, it’s overwhelming right?

Rand (07:42):

I think there’s something to do with, if you follow indie startup stuff, they assume you must be chasing VC as well or the algorithm does. So in any case, there’s just a ton of conversation about who has product market fit, whether they have it, when they had it, whether they lost it, how to get to it. 

People who are foolishly trying to scale or do marketing before they find product market fit, all this kind of junk, and the realisation as a multi-time founder and a marketer with a reasonable reputation and historically a lot of success, right? I mean, Moz obviously did not get to the exit that our investors would have wanted, but it’s not a horrible company. 

And the reality is that the more I thought about it, the more that product market fit struck me the same way that generations in segmenting human beings strikes me, which is it’s a useless concept that persists only because it is popular and well-known. And I think it sort of slides into those mental models of, I believe this because it’s easy to believe and I haven’t critically thought about it. 

So just as an example, technically I am gen X, I assume technically you’re gen Y/millennial? I don’t know how old you are, Alex.

Alex (09:15):

I’m 27 so I don’t know where I fall.

Rand (09:17):

I think that’s either millennial or gen Z, something like that, right? But the real question is, is there a, is there a massive cliff of a gap in some sort of statistical data about people who were born after January 1st, 1981 that is massively different from people born before December 31st, 1980. And I can’t see it, right? There’s no stats that suggest this. 

It’s an arbitrary cutoff. People from those age cohorts don’t behave in certain ways. Some age cohorts, like the greatest generation and baby boomers are 20 year cohorts. But then gen X is 15 and then millennial is 20. And I think gen Z is going to be 15 again. Why? It’s all completely arbitrary, there’s no rhyme or reason to it, it’s not a useful shorthand. Why do you want to describe people in 15 year age gaps or 20 year? 

Anytime you see that in an article, you should say to yourself, aha, here’s a person who does not know what they are talking about, or who chooses not to think about what they’re talking about.

Alex (10:24):

It’s easy. Right? We can just force everything into some kind of two by two framework. I mean, wherever you look across business marketing it’s everywhere, right? Easy concepts that go viral on forbes.com and those kinds of articles that make things too simple. So I guess the ease of understanding may be one side of it.

Rand (10:43):

Yeah, and this is my challenge, right? It is easy to understand, right? You’re born before 1980 you’re this, you’re born after 1981 your that, but what is it good for? What purpose does it serve? Like what intelligent decision did you make about your marketing segmentation or your cohort targeting, or your audience intelligence? I don’t know, persona building or whatever it was, what intelligent decision did you make by using that language and that specific age range? If there wasn’t one, why are you doing it? As a shorthand for something useless? I don’t get it. 

So product market fit to me sits in that same bucket of inapplicable relatively useless terminology that is popular mostly because it’s popular, right? And so we can break down all the different things, right? Cause what I’m excited about is I’m sure there are listeners who are listening, who are going “he’s full of crap. Product market fit is hugely important because before product market fit, you do this. And after product market fit, you do that. And if you don’t find it, you can never do the thing that you’re supposed to do after.” 

I’m sure there are people who are angrily thinking to themselves, “no, it’s so useful for me.” But I don’t think it actually is. So let’s dive into that.

Alex (12:06):

Yeah, let’s do it. So I guess you’re saying that the key issue with it is more that it’s presented as binary, it’s black away, it’s a one or a zero, it’s done, or it’s not done. Whereas in reality, it’s more nuanced than that. And it’s not as simple, it’s not a cliff. 

There’s not a turning point at which it suddenly has happened. You could be at various points on the journey, but actually, maybe there’s a completely different way, we should throw it out completely. And just look at all of this through a completely different lens.

What is product-market fit and why it doesn’t really exist 

Rand (12:35):

I’m much more in the latter bucket than the former, right? So my suggestion is not, product market fit is a nuanced concept with a sliding slope and there’s a range of outcomes. That’s not true at all. I don’t think it exists, I don’t think it’s useful. I don’t think almost any startup should use the core concept behind it. 

So for those who aren’t familiar, or might not be familiar, right? The idea of product market fit, which was popularised by Eric Ries in The Lean Startup, is that there’s a period during which you are building your product and discovering through R and D, through interviews and surveys, through maybe some amount of market traction, whether you have a product that can scale to whatever, an outcome that your investors will be excited about, or that you’ll be excited about if it’s just your company. 

And that before, you know whether you’ve hit this mark, of which the metrics are some combination of unknown, unknowable, arbitrary, or set in stone by some investor but malleable. They can change the goalposts at any time, before you’ve reached that whatever goal post it is, you should not be investing in sales and marketing, in scaling up your team and your customer attraction, because you might not have a product market fit product. What that means is arbitrary and so I won’t try and explain it because I don’t think anybody ever does. 

But after you’ve reached this arbitrary metric, right? You’ve crossed some sort of threshold or line, then supposedly your job is to iterate on the product, but not change it massively because you’ve found a product-market fit and your customers are sort of happy and delighted. 

And so now your job is to scale, right? Grow marketing, grow sales, grow the capability and capacity of the platform, the product that you’ve built. Grow your infrastructure, raise money, and go to market, all those kinds of things. And don’t do those things before you find this arbitrary thing. 

And my contention is that there’s no such thing as product market fit. And if you go into startup building, product, building product, scaling with that mindset, with this idea of a finite line, or even a range of things where you shouldn’t be scaling and marketing and branding, and sort of building excitement around your product. And we’ve reached some arbitrary metric and now we should do those things, you’re going to have a bad time. The core concept is not just useless, it will work against your goal of having a company that can do well.

Alex (15:27):

And your blogpost breaks this down into everything you’re talking about is the impact can be organisation-wide, but you look at this in terms of the objectives of the product and a product team, and then marketing too. How do you think this negatively impacts a product, people, product teams, and then marketing, marketing people?

How product and marketing teams are hurt by product-market fit 

Rand (15:45):

So I think product and product teams are really hurt by this because very often when I see this, what I see is a concept of, let’s chase this particular audience, we’re going to get a few people in and we’re going to try and build the product for them. And only after will we realise whether there were indeed as many of them as we thought there were, and whether they all behave like these early customers and whether we could get marketing traction with it.

The ability to sort of, would they spread it would they talk about it? Would we have ways to reach this audience? Would it be profitable in terms of how we scale it? What if the next set of customers need different features or positioning or different things resonate? 

Then we’ve passed the point of R and D and it’s not that you can’t go back, but when you set your mental model for this, then you assume two things, two terrible things happen, right? One is you set your product people up for failure, right? For this idea of we’re going to find this, there’ll be a fine line. Once you find it, then golden goose is coming and you also set up your marketing people for failure, right? 

Because it’s basically wait, wait, wait, wait, wait, wait, wait, okay, fine line crossed, now go, now go market. And both of those are broken. Both of those will harm your team and your product’s potential. So, as I’ve built products over the years, as I’ve seen many, many successful products, because a lot of people ignore this advice, they never try it, they don’t do it. And that’s a really good thing, right? 

And so what happens is instead they try and do marketing around the problem space, around their brand, company, personal brand, areas of interest, talking about the field that they’re in, helping people in that field. 

And so they build up this marketing capacity, which is essentially like lots of people who follow and listen to you, who think that Alex’s podcast is amazing and so they listen to the FINITE podcast and then eventually a product comes out, and maybe it’s not the perfect product for them, but that product gets better over time and the marketing keeps growing around it and the community around it keeps growing and the community helps the product and the product helps the community. And it’s a wonderful flywheel that you build. 

Or you could separate them entirely and get none of those knock on effects. And the effects of those two working together. I think that’s relatively crazy.

Alex (18:26):

In the blog post you dive into what you carefully described as four dumb things people do, because they believe in product market fit. I think we’ve maybe touched on number one in terms of product builders taking a different approach based on before. 

And I guess marketers too, but this first point is around product builders not viewing product development as a consistent process. And yeah, I guess taking one approach before they’ve hit this arbitrary point and then another one. I mean, is there anything else to add to that point?

Product development as a continuous process 

Rand (18:58):

Well, if we move further in the process, right? So let’s talk about product people and the product process, product people are often just the founder or founders of the early stages, but then you might hire a team and all that kind of stuff. 

All along the way, especially in software, but this is also true in hardware and it’s especially true in anything tech related, it’s barely a belief, my experience, I think what all of us have seen is that there is no, you find fit and then you never lose it. I’m trying to think of one, what’s the example that VCs always use? 

It’ll be like, Airbnb is the example of, you find product market fit, and then you scale. And yet, you know, I’ve spent some time with the founders, that never happened! It is all, pardon my language, but frankly, it is bullshit if they’ve described their journey publicly that way, I’ve never heard it. Privately, they certainly don’t. And anyone who puts that on them, I think is cherry picking examples, right? 

Because what happened was, the early iterations of the product were nothing like what Airbnb is today. They’ve continued to add features. Everything from here’s how to structure trips to, we’re going to have lux. And we’re going to have a plus, and we’re going to have this separate hosting style. And we’re not going to deal with regulations. Oh, never mind, we are going to deal with regulations. We’re not going to allow any hotels on a platform. No, never mind we are going to allow some hotels on our platform. 

Just everything sort of has iteratively changed over time. And that is because they refused to believe this false myth that you find product market fit and then the product changes or iterates very little as you scale, right? It was a constant process of let’s keep learning about markets and changing things and scaling. 

Google is another great example. There has never been a year in which Google has made fewer changes to their search engine than the year before. It’s always more right? They are always iterating on the product as though the product were relatively early stage, brand new, and they hadn’t yet found product market fit. 

But on the marketing side, it’s the opposite. They pretend that they found product market fit the whole way. And that is exactly what Airbnb did, right? They ignored the idea that there was a R and D phase and then after that, there’s a scale phase. They scaled from day one and they kept iterating on product long after they were past what an investor would call a product market fit moment. 

I think you can do this with companies from B2B like HubSpot and Salesforce and ExactTarget and Marketo, and you know, Microsoft, anything you want. I think you can do it on the consumer side with virtually every product out there that’s had success, depending on your definition of success, right? I worry a little bit about the classic let’s talk about WeWork and Uber, and I don’t know if those are the greatest ones, but I think that this is also true. 

The only place Alex, where I really found it to be accurate and applicable was with consumable brands that have achieved some level of an association that is almost nostalgic. So a Snickers bar. Like Snickers bar probably right? The Mars company probably should not iterate too much on the product of the Snickers bar because people have a taste association and a texture association and a flavour. You can see what happens when some of those classic products are messed with and it doesn’t go well. 

There are counterexamples of a few of them, but I think that’s maybe the only area I can possibly think of, which is so funny cause it’s so far from VC invested tech. And yet that’s the only thing. But it’s very challenging for me to think of anywhere else where it’s truly applicable.

Alex (23:13):

The marketing side’s really interesting. And obviously with our audience mainly being marketers, the way you phrase it in terms of point number two, around marketers taking your hands off, or kind of brand only approach to marketing before so-called product market fit taking place, I guess playing devil’s advocate, the response might be, we don’t want to invest loads of money in marketing until we know that we’ve got something and we know that it’s going to scale. So what would you say the response is to that?

When should you invest money in marketing as a startup 

Rand (23:38):

I 100% agree. I am very passionate and I love the idea of, we don’t invest money in marketing, we invest time and energy and effort in marketing, but in primarily organic and free channels, right? So we build up community or content or a social presence or relationships, or we invest in SEO, or we invest in email marketing. 

Like all these other organic channels produce 90+ percent of all web traffic anyway. That’s a great place to invest in the early stages. And then as you prove to yourself, with your own metrics, we’re now making money, if we spent $5 per customer conversion or $10 or $50, we would still be quite profitable. 

Now it’s time to, let’s mix some paid in there and see where we can get to. And I think maybe you have significant opportunities. That’s great, I’m not telling you to pour money into a product before you’re ROI positive or before your cost of customer acquisition can be relatively high and still affordable and profitable. 

I would say that’s divorced from the conversation about the product market fit fine line, or even the range of product market fit things. The only way I could really say like, okay, I see some value in this idea is that, over a very long time span, is it true that as a percent of company effort, like you’re two founders or three founders, are you spending a higher percent of your time on R and D in early stages than you are on marketing and brand building? And depending on the company that you are, that might be true. 

For Casey and I it wasn’t, I was spending almost a hundred percent of my time on marketing and community building and like 10%, I dunno 15% on product iteration and Casey was the opposite. And now that we have a product and it’s doing somewhat well, has that changed? It has not changed. I think that’s probably right for us, but there may be companies where the founders should spend all their time on R and D until they reach a certain point and then they should start balancing it out. And then okay, now we’re spending more time on, maybe Airbnb’s marketing division is bigger than their product divisions at this point. Sure, fine. You know, don’t come to me with an arbitrary product market fit, there’s some marker, and then things change on one side or the other of it.

Alex (26:12):

You’ve talked already about investors, but we can’t have this conversation without having to talk a little bit about VC Twitter in some more detail. You mentioned some of these models that they create. I mean, I think you alluded to the fact that in some instances you feel as though these intangible metrics are just quite an easy excuse to turn some companies down and they they pick and choose them as and when it suits them, but they themselves probably don’t even know exactly what they mean or when they should be using them.

How product-market fit started as a tool for investors 

Rand (26:41):

And I think worse than that, the entire concept was created as a shorthand excuse. So it’s frustrating to me that it was picked up and then believed by entrepreneurs. So I think generally, if you go back in the history of like, you know Silicon Valley tech world, where did this concept of product market fit come from? 

And it was basically, it started as an investor, I’m not going to say excuse because I don’t mean to make it sound like they meant it as a way to get out of investing without giving a real reason. I do think that there’s a real reason behind it, which is that these early investors, they looked at many companies and products and said, you have not yet reached a point where we think our investment will make sense. You haven’t proven, I don’t feel convinced by whatever progress you’ve made that you have the billion dollar company that I want to invest in. 

But that’s a very different thing to say than, there is an unassailable, arbitrary mark that is distinct and definable that all people would agree on. And it is not an opinion of mine, it is a fact that you haven’t reached this status and that is almost never true, right? 

So they basically took the one concept, the truth, which was it’s my opinion that you’re not enough of the way there to prove to me. And they turned it into a, I don’t have the chutzpah to call you out in that way or to own my own opinion, so I’m going to create some arbitrary metric or guideline. My opinion is that sucks. 

They should own the reality of it. 

That’s far from my top complaint about venture capitalists or the asset class as a whole. I actually don’t think the people in there are all that bad. I think much like politics, it’s just the incentive structure. And the system is really broken.

Alex (28:44):

It sounds like we’ve got a whole another episode on that at some point.

Rand (28:49):

Incentives govern behaviour, right Alex? So this is fundamentally, I think as marketers, you know this more than anyone, there’s no one in marketing who doesn’t understand that incentives govern behaviour, that branding changes behaviour, that positioning is a huge part of how people think about things. 

And so just make sure that you are reflecting that back on yourself, right? Why am I making decisions? Am I making those decisions because they’re the most logical and right ones, or have I been biased and sort of conditioned in my environment from investors, from Silicon Valley tech world, from the press and media, from reading hacker news, from following all these people, that I believe these things, which on reflection may not be true and I should question them.

Alex (29:34):

There was a question that came up for me from the marketing perspective, which was, I don’t know whether this was the case, but it’d be good to hear your view on, was whether there was an implication from this that a lot of businesses should be doing marketing in air quotes, but doing marketing earlier than they might do otherwise. 

I mean, you’ve mentioned some of the organic channels and how much opportunity there is around some of them at relatively low costs in the grand scheme of things potentially. But, I come across this a lot where not much marketing is happening until a certain point, and I’m not saying that’s always a product-market fit from a founder’s perspective, but they’re waiting for something before they start doing marketing. Is that kind of what you’re getting at?

Why a good product does not determine success 

Rand (30:13):

I almost always agree, not always, but I almost always agree that most startups I’ve talked to start doing marketing too late and that most of them would find massive benefit if they invested earlier, built a flywheel, a marketing flywheel of some kind, whether that’s press and PR or that’s a content flywheel or an SEO flywheel, or a paid media flywheel, social media marketing email, I don’t care. 

But at the core of that problem, I think there’s a misunderstanding or misconception that products are judged on their merits alone. Right. That when you pick up that Snickers bar, you are saying, is this good quality chocolate? And do I like the crunchiness of the nut? And do I enjoy how creamy the caramel is and whatever. And is it salty enough? And dah dah dah. 

And in fact, my friends, what’s really going on is that you, your taste buds, your mind, your product consumption cannot process that Snickers bar separately from all of the branding and marketing that’s been done to you around it. 

And there’s a false belief that is so heavy in Silicon Valley tech world and the ecosystems far beyond that geography that it’s influenced, that people choose the best product, that the best product wins. That if you get a better product, you will have more success, when in fact this is provably false. 

I’m just going to say two words. And I think you will agree with me after this. You know, people say the best products tend to win out in the end, Adobe PDF. It’s a totally crap product, it has been for 25 years. It’s awful, it’s clunky and cloogy and ugly to use and problematic in a million ways. I don’t know if you’ve ever tried using the PDF editor. I bought a license to do it. Everything about it is such garbage. It’s so bad, it’s so bad as a product. And yet it has dominated its field such that it’s hard to even name a real competitor. 

I think this is true for dozens and dozens and dozens of fields, but a combination of traction and marketing and community, and brand presence and influence that Adobe has over other things, ecosystem involvement, partnerships and connections that they built, right? All these sorts of marketing and marketing related things that were done, and sales things, over the past 20 years have ensured that product remains its market leader. It became and remains its market leader. 

And I think that we would do well to learn from Snickers, from Adobe PDF, from a lot of products that it is far less about the product’s features and quality than it is about the complete ecosystem that surrounds a product, which includes its sales and its marketing and its partnerships and its branding and its positioning and everything else around it. 

When you take that to heart, I think the only conclusion that a reasonable product builder or founder could make, or CEO could make is I should never be investing only in product, because product is not just product. 

Product is marketing. Product is branding. Product is positioning. Product is sales. Product is channel. Product is partnerships. Product is repetition. Product is way more than product. So maybe if you want to have a we should invest in product early, just think about what that really means and all the ways that you should be investing.

Alex (34:04):

I think we’ve reached the point in the conversation where I have to ask the question, if we’re not talking product market fit, where should we be looking? And I know you wrap up your blog post with what you put forward as a new way of thinking and improving on the product market fit mindset with, I think what’s your own kind of what you described as the customer adoption spectrum. But this is something that you’ve put together yourself, right?

What should we do instead of product-market fit?

Rand (34:27):

Look, it’s not a meme. So I don’t think it’s going to have nearly the traction, but that’s okay. I think that smart, critical thinking folks will adopt not necessarily my version of it, but their own version of the idea, which

Alex (34:42):

It’s too complicated for VC Twitter, right? That’s what we’re saying.

Rand (34:46):

Worse than that invented by someone who doesn’t like VCs and is not a VC. And the not created here mentality of VC Twitter is pretty bad. So the concept that I presented around this customer adoption spectrum is that any given customer group for your product has some describable traits that separate them from other groups of customers, and that correlate with how much they like your product and how much traction you’re getting with them. 

And they predict how much they need your product, the value they’re getting and their behaviour, not perfectly, but you’re going to make these groups of customers. And then you’re going to say, how are we doing with group a? Are we doing pretty well? Is group a, a big market size? Do they have brand awareness of us already? What’s their conversion rate or success rate? Or how much are they buying the product and sticking with it and are they referring other people to it? All those kinds of things. 

No hard metrics here, all of this is a range of outcomes and you split it up by the types of customers you have. When you’re early, you may have only one customer type. That’s great. That’s very, you can focus on that, you can concentrate on that. I like that a lot. 

Now you can take, as you get more customers, you can say we have our customer groups over here, group ABC and their market sizes. Well, this one’s big, this one’s pretty small, this one’s medium-sized and here’s how much brand awareness they already have of us. And maybe in the early stages it’s pretty low, very low, this tiny group is reasonably aware of us, right? And then how are they performing in terms of signing up or whatever. 

And now you can do things like, what should we prioritise in terms of product investment? New features, improving capacity, improving whatever, whatever group a thinks is wrong. Cause they’re the most high opportunity group for us right now. 

And likewise, we can go well group B, we think they’re looking pretty strong, we just don’t have a lot of awareness with them. We need to do a lot more marketing to group B to reach them because look, their conversion rate’s good, we’re just reaching very, very few of them. 

That’s where marketing is going to focus their attention and brand awareness and yada yada, yada. That process is super useful, right? Like that is truly applicable as opposed to the product market fit concept, which just isn’t. It doesn’t guide your decision-making as an executive or a founder. It doesn’t tell you where to invest and with whom and how, and when, and it biases you to stop making certain kinds of investments and start making other kinds at an arbitrary point. And none of that’s good. 

With any given customer group, you’ve got some level of this thing is going at some certain pace. And that pace could be amazing, like we’re doing so amazing with this customer group. Well should we stop investing for them or should we keep investing? Well, let’s look at how big they are and how many of them we’re reaching and what level of success they’re having. Oh no we should just keep investing in this group. 

Like let’s not stop doing that and focus on a new group yet, because look we have nowhere near exhausted our opportunity. Or the opposite, this group is doing well, we’ve kind of exhausted our opportunity with them. Let’s move on to the next one.

Alex (38:09):

I think you’ve touched on something important there which I observe a lot, which is that, and I think it’s a founder trait too, an entrepreneurial kind of mindset where you want to go and take as big a chunk of a market as quickly as you can. 

But actually there’s a huge amount of value in doubling down sometimes even more into a niche tha where you already are. And I guess it’s going in a direction that doesn’t feel natural sometimes to an entrepreneurial mind, to say no to so much and to turn down so much and to narrow your market, can feel so counterintuitive, I think for certain founders.

Finding a niche vs. appealing to the masses 

Rand (38:40):

That’s a case where the backing of an institutional investor, venture, private equity, or whatever, really changes your behaviour. And it should feel unnatural to go very broad because you have to chase huge markets, and it should feel very natural to focus in and to serve one customer group extraordinarily well and to keep dominating in that one space and become very profitable. And that’s what I think a natural entrepreneur should do. 

And then there’s the unnatural behaviour that is biased by the need for massive, we’re either a billion dollar company or we die trying mentality. And frankly, this is what I hate about venture and institutional money as an asset class, is that I think it biases entrepreneurs and even people who just are sort of around that world to be like, this thing, which is totally unnatural and probably will hurt my odds of getting to profitability, staying profitable, being successful long-term, surviving for a long time, having a good survival curve. I need to do those things because that’s what it means to be an entrepreneur. 

If I could change that conversation, if we could change that conversation Alex, I would love that. I do not want this world to be the way it is. It is totally backwards and messed up. Look at it from a macroeconomic perspective, right? Basically what venture capital as an asset class has done over the last 40/50 years is build a few huge winners that have gone on to become dominant monopolies in their space that have then created all sorts of other problems in terms of a lack of opportunity for other entrepreneurs and other businesses, and contributed massively to income inequality, and done a ton of political lobbying that none of us like, and misinformation and disinformation and you name it. All of those things you can connect up to that. 

As opposed to when capitalism and democracy work really well, right? Assuming you want to keep those two systems. Or you don’t think that they can be changed. When capitalism and democracy work really well, you have tons of small and medium businesses and very few or no big monopolies, and they’re all competing, and they can all survive for a long time. 

And because you have lots of market competition, you have lots of innovation and you have lots of strength to survive recessions and depressions. And you have tons of people who are making good money, but very few billionaires and whatever Jeff Bezos is now. And that is the market that you want. 

If you’re designing a system, that’s the market you want that creates the most opportunity and happiness and productivity and innovation for a society. We can do that. We can do that by saying no to this idea of billion dollars or bust, and saying yes to how do we get to five-year company survival rates that look more like restaurants or better, right? The restaurant business, I think in the US has a five-year survival rate of just about 50% and tech startups, once you raise or attempt to raise venture, it’s like 20% or 18%. 

So what the hell are we doing? We are much less successful than restaurants, but we have a few billion dollar companies and so we think we’re hot shit. That’s pretty dumb.

Alex (42:10):

Yeah. That is pretty off balance. Well, I think for everybody listening we’re on the, I was going to say, it’s election day. It’s not election day, we’re two days after election day and we still don’t know exactly what’s happening. So there’s never a better time than now for a lot of what you’ve just been describing. I think there are admirable objectives and goals and how easy they’ll be to change, is another discussion.

Monopolies as a problem in venture capitalism 

Rand (42:31):

Well, this is the beautiful thing. You don’t have to concentrate on changing everything as a society and worrying about the venture asset class. If you focus, if we focus on building businesses that can survive for a long time and get to profitability and then keep iterating and iteratively improving, you can build massive businesses this way or tiny ones that make you a ton of money or anything in between. 

But if you focus instead on how do we become a billion dollar company or die trying, because the only thing that’s interesting to venture investors is, you know unicorns, you are going to have an awful time. Statistically speaking, I think it’s a 94%, 95% of venture invested businesses fail to return the minimum required rate of return. So that’s nine out of 10 at least, maybe eight out of 10 entrepreneurs who start a company who get venture, never mind all the ones who failed to raise, who get venture and have a terrible time.

Alex (43:34):

And I am one of them, right? Like I built a company that when I stepped down as CEO, was doing $40 million a year in revenue. And Alex, I made very little money, relatively speaking, very little money from that. I made my salary, I sold a little bit of stock in one of our transactions and used it to pay off my grandparents’ house. When I started SparkToro, I did not even have the capital to do it myself. 

Like I’m comfortable, I’ve got an okay deal. But if I had been a junior software engineer at Microsoft for all of my career, I would be so much richer, I would be so much richer. It’s pretty weird that we’re biased into believing if you do all these things that you’re gonna get there. So anyway, I just want to tell you, you don’t have to change the system. You only have to change your own behaviour, which is kind of beautiful.

Alex (44:32):

It is. And on that note, we should wrap up. I will say a huge thank you for your time, because I think you’re obviously very generous in sharing your time and your thoughts and I’m really excited to tap you on the podcast and sharing this episode. So thank you. I hope it’s been a welcome break from just refreshing Twitter and looking at updating election statistics, but I’ll let you get back to that.

Rand (44:50):

Yeah. I need to go back to Politico and just keep hitting F5. Alex, thank you so much for having me really appreciate it.

Alex (44:59):

Awesome. Thanks Rand.

FINITE (45:01):

Thanks for listening. We’re super busy at FINITE building the best community possible for marketers working in the B2B technology sector to connect, share, and learn. Along with our podcast. We host a series of online events, so make sure you head to finite.community to subscribe and keep up to date with upcoming events.

And once you’re done listening, find more of our B2B marketing podcasts here!

The FINITE Podcast is sponsored by Clarity, a full-service digital marketing and communications agency. Through ideas, influence and impact, Clarity empowers visionary technology companies to change the world for the better.

Find the full transcript here:

Jodi (00:00)
Hi Chris, welcome to the finite podcast.
Kris Rudeegraap (00:03)
Thank you, Jenny. Thanks for having me.
Jodi (00:06)
It’s a pleasure to have you here today to talk to about a topic that is quite close to my heart as a community leader. We’re talking about community-led growth. Now, you’ve been doing this loads at Sendoso. It’s been one of your main key strategies that has really been pivotal to your success and your growth. I can’t wait to hear more about that, but I think as we always do, before we get started, I would love to hear more about your background and experience to date.
Kris Rudeegraap (00:35)
Yeah, of course. So I started Sindoso about 10 years ago. Prior to that, I spent about a decade in software sales myself. While I was at my last company, I was seeing… just the efficacy of email and seeing that response rates were kind of diminishing. And again, this was 10 years ago. I thought email was going to slowly die out as the spam hit it so hard. and so I thought about, Hey, what are some of the other channels that are less saturated and can still grab people’s attention? And that’s where really direct email and gifting came to mind. And so I was doing a lot of it very manually. I was in the office grabbing swag, packing boxes, or on a call here at dog. bar, go grab a dog toy from Amazon and ship it out to a prospect. and all those things worked really well. It was just a nightmare to manually track it manually, expense report, manually click on tracking links and follow up. So I dreamed of a platform that could do all this for me. That’s where Sendoza was born. we’re the leading global direct mail and gifting automation platform where we do all of the worldwide procurement fulfillment, all of the marketplace of gifts and mailers you want to send and then the software and data layer to bring it all together. And so over the years, I’m scaling that company from an idea to hundreds of millions in revenue, learned a lot and done a lot with community as part of a growth strategy over the years.
Jodi (02:00)
Yeah, absolutely. Really exciting to hear all about your gifting business and the thought process behind that. I mean, I’m sure it’s a lot more than a gifting business, but we’ll go into that in a bit. I did hear from you some really, really great results about what you’ve done with community and what it’s done for Sendoh. So I think community is so kind of a little bit abstract for marketers. They don’t really know how it can kind of impact the bottom line. So I thought, could you please share some really great key results that you can directly attribute to community?
Kris Rudeegraap (02:36)
Yeah, would love to. Maybe for the audience, I’ll take a step back to share a couple of different communities we have, and that will set the stage as we talk more in depth about them. the first community I was a super sender community, there’s about a thousand members in this, and this is a user community of active users, power users on our platform. This community, we engage through a Slack group, through a newsletter, through a sendy awards, a user conference, both virtual, we’ve done some in person, and then we have some AMA office hours through this community. The next group is our cab or our customer advisory board. This is kind of a dynamic community. Usually there’s a few dozen people that we engage quarterly to share product feedback, to get market intelligence from. And that community we typically pull from supercenters, but they could be executives that are not necessarily in our user community. I’ve then built a personal advisory group community. There’s over a hundred members here. This is mostly execs. and people that I’m sharing more details on the business, but a lot of them are our target ICP. But again, it’s a group of individuals that have opened their networks, opened their insights on. And then nurture our alumni. And this is probably 100 plus folks in this alumni community where I feel strongly that even after you leave, you could still be a valuable asset or you could still want to still, you Bleed Orange, as I like to say. And so I engage with monthly updates this alumni community as well. And so those are the kind of the different communities we have. A few stats. So our Supercenter community of Power Users, one of the areas that we wanted to do was we really want to focus on training and educating this community. And so we have this stat where any Supercenter who completes admin certification will spend 71 % more on our platform. And so that’s really a critical area where we try to, first we try to qualify people into this super center community and then we try to get them into certifications. So that’s a big one for us. The next one is. You know, we know that people switch companies often. And so we track all of our super senders through a tool called user gems and we’re tracking job changes. And then we go out and outreach to them when they’re at their new company, reminding them that they should continue to use Sendoso again. ⁓ and we have over a 60 % response rate from that list, which is huge compared to typical, like cold outreach, which is like, you know, in the. you know, few percent response rates. So really we re-engage our community after they switch jobs. And then the last stat for this ⁓ personal advisory group community, we’ve generated over 7 million in pipeline from this advisory community through warm intros. And that’s been a critical lever for us as we’ve continued to scale the business.
Jodi (05:31)
very interesting and some definite impact there. I was wondering, this is something that I don’t feel like is talked enough about in B2B is people moving jobs, you know, and your database is based on contacts and their associated companies and when they leave, you know, all you get is bounced emails and tracking them is quite a laborious process if you have thousands and thousands of data points, like…
Kris Rudeegraap (05:42)
Mm-hmm.
Jodi (05:56)
Do you automate that? How does that work from a practical standpoint?
Kris Rudeegraap (06:00)
Yeah, 100%. So the tool user gems we use, we will monitor all of our users through supersenders. And then when they switch jobs every month, user gems goes out and looks to make sure they’re at the same job. And if they’re not and they switch jobs, then user gems flags that creates a new profile in our Salesforce links back to the old record because so we can have some history of like how they use this before. And then it kicks off some automated engagement through this tool they have called GEMI, where it’ll actually then do the outreach for us. So even before we let any human into this, we might already have somebody to raise their hand and say, hey, thank you for welcoming me. Will you then use Cendoso to send them gifts celebrating their new role? And that is all very automated.
Jodi (06:56)
Very cool. Yeah, I thought so. That’s great tips and great tool recommendation, but we’re just to say we’re not paid. is is totally just organic recommendation. Yep. Nice Cool. So I suppose I’m thinking, you know, what was it about Sendoso that made you think community strategy was compatible?
Kris Rudeegraap (07:04)
Yeah, that’s just something that I love personally.
Jodi (07:19)
you know, is community for everyone or is there something unique about when you were like this decision making process when you were founding Sendoso that led you to this?
Kris Rudeegraap (07:29)
Yeah, you know, it’s a good question. I’d say, I mean, honestly, at first, I’d say community as a strategy wasn’t necessarily a strategy was almost more of like survival, where in the very early years, you’re obsessed with your customers, you want constant feedback. So you’re really trying to engage them very frequently. And that ended up driving a couple things. One was, you know, our best customers were already becoming advocates themselves. They were already shouting out that they loved us. And so that was already happening. Two, we really realized that… you know, some of the original channels, like I thought, Hey, I’m starting this company because email is dead. Well, what are their channels can we leverage? And so kind of the community engagement as a strategy was really critical for us. Because if we built relationships, even if they switch companies, it was much easier to engage with them than just do a cold email outreach. So we thought, Hey, let’s build these relationships. So we really optimized for the kind of the long-term when starting this. But I think. For us, we sell into a lot of marketers, sales, and CX roles. Those are kind of our three core kind of personas. And I think that certain ICPs tend to have better success with community. I think for us marketers, they enjoy talking to their peers, they enjoy sharing best practices, they enjoy learning. And so that’s really helped us build a… community based on our ICP. I could imagine maybe some ⁓ ICPs maybe are less interesting for like a community strategy. But I think also because we were a cool new tool years ago, we were a new category where marketers didn’t fully understand like how do I leverage direct mail automation? And so having this community with education and peers lent itself to people wanting to almost brag about it and join a community to share more about it.
Jodi (09:20)
Yeah, absolutely. definitely seems like education is a big piece there and it almost seems like a lot of the more mature communities that exist in B2B now started with a forum of customers talking to customers experience managers troubleshooting and figuring it all out together. So actually did the start of your community strategy really look like? You’ve mentioned kind of advocates and maybe wanting to encourage word of mouth, when did it start to become more kind of structured and strategic and maybe measured?
Kris Rudeegraap (09:57)
Yeah, mean, looking back on it, think very early it was scrappy. It was these small dinners. was these, you know, more of an informal Slack group to get going that then was formalized as we brought on like a customer marketer. So no grand vision or, you know, fancy tooling, I’d say day one. It was just getting smart people in a room and getting them to talk to each other. We did have some fun early stories. So one that comes to mind was we had an early community event where I gave everybody fake prop money, like the money that they use in like Hollywood. And then I acted as an auctioneer and I made people bid on the features that they wanted us to build the most. That was probably my, one of my favorite community moments because it just got everyone so excited and the limited money made them really think about the trade-offs of which feature on our roadmap they really cared about most. And so I think bringing in some creativity and fun. You know, again, continue to make this community interesting. And I think that you need to bring interesting content or interesting initiatives into the community.
Jodi (10:58)
I’m interested because you’ve you really made it clear that there is kind of a bubbling excitement for your product and that that is interesting to me because it it almost seems like maybe third-party communities might be more kind of trusted or seem more objective in their recommendations for like tools or you know brands products and things like that. How did you engage customers to be brand advocates? How did you encourage that bubbling enthusiasm without feeling too salesy or like you were pushing Sindoso too much, if that makes sense.
Kris Rudeegraap (11:39)
Yeah, I think a few other things we did. You know, we, ⁓ we oftentimes had these office hours or AMAs where it was just the community, in these like, ⁓ zoom meetings. There was, and at some points we would have a customer market and they’re just to, kind of moderate or just to kind of chime in and help. But for the most part, it was community led. So I was, you know, one of our customers standing up saying, Hey, I’ve got a great story. I’ve got a successful Sendoso campaign I’ve done. I want to share with you what I did, what I learned and what I’m doing. And so it was really intentional for us to have them come in and share their success as a community member versus us coming in and saying, hey, here’s what you can do with our platform or, let’s teach you something instead. It’s like, hey, let’s let a peer teach you something. And so I think that was really strong. Even our Sendy Awards was that on steroids where we would award people for having success on our platform. And then the award ceremony was them sharing what they got their award for and what campaign drove that award. And again, I think that just goes back to feeling more real and authentic than having like some Sendoso member pitch.
Jodi (12:51)
Yeah, that’s absolutely makes sense. It’s, I feel like so many communities can mistake thought leadership or just kind of content strategy for community strategy. And really the heart of community is facilitated, facilitating those peer to peer connections and really encouraging those conversations between your, your audiences. And I can see, so that’s how you kind of, you’re not sales and you’re not blasting a message out. You’re really.
Kris Rudeegraap (13:11)
Exactly.
Jodi (13:19)
Yeah, encouraging those conversations. Is there anything else you do to encourage those conversations? I guess, you know, bringing your customers to events and you mentioned you’ve got a Slack channel. Is there anything else that you do?
Kris Rudeegraap (13:31)
One thing that we launched last year that I think is interesting too is we wanted to bring more customer conversations to the top of the funnel or earlier in the sales process as a community strategy. we really realized that customers love talking to customers. And then we also realized that a lot of peers or prospects wanted to talk to customers as part of the buying cycle. And oftentimes those were like back channels or harder for prospects to find. so, you know, one we are trying to that more prospects into this community. We don’t want it to become too prospect focused because you won’t have the value add yourself if you’ve never used Sindo. So, but one tool we recently rolled out was a company called Slash Experts. And what I loved about that is it really created a portal where we could showcase a couple dozen of our customers and then anyone could come instantly book a meeting with them. And so it eliminated us. feeling like we’re gating and only allowing prospects or customers to speak to people we’ve like purely vet first or purely say, hey, you want to talk to a reference? Here’s one person. Instead we say, here’s a bunch of people. You pick who you want. And that’s opened up more conversations. And I think at the end of the day, it all goes back to more conversations. And if people are organically talking to each other about you, it just spurs more engagement. so we’re trying to, back to facilitating conversations.
Jodi (14:55)
Absolutely. Yeah, that’s really interesting. And you’re lucky that you have so many kind of power users. Just out of curiosity, from a practical standpoint, how do you incentivize those advocates to kind of give up their time and promote or talk about Sendoso to prospects?
Kris Rudeegraap (15:12)
Yeah. So some of them do it because they want to have peer to peer network. And it’s almost like something that is context switching for them. It’s getting out of their day to day to, you know, talk to somebody else that’s interesting peer and share their success. It’s almost like brag, you know, being able to brag. for some of them too, we offer up like a thank you, or we’ll give them some compensation for their time. but it’s mostly driven by people that are raised their hand and they just want to, you know, celebrate their successes, share what they’re doing. And I think that a of people are in that boat where, you know, maybe their day-to-day job is, you know, something that they want to break out of and, and, know, do something a little bit different. so speaking with a peer randomly about a cool tool they’re using in their tech stack, ⁓ is something that they are willing to raise their hand for.
Jodi (15:56)
Yeah, awesome. Thank you for sharing that. I guess you are a gifting platform as well, so I guess, you know, it’s about recognition and it’s about, you know, rewarding that kind of advocacy. So I’m sure you do that as well. On gifting, how does that come into this? it?
Kris Rudeegraap (16:02)
Yeah.
Jodi (16:18)
impact your community strategy at all? Do you send gifts to new members or ambassadors? I think you’ve mentioned it briefly. Do you want to go into that a little bit more?
Kris Rudeegraap (16:27)
100%. Yeah, I think one of the best ways to engage a community is to ⁓ reward good behavior or just to surprise and delight. Because I think that goes a long way too. And so we will, there’s welcome kits, there’s things around ⁓ holidays, there’s thank yous, there’s life moments. So we try to track. know, life moments of our community. And if, you know, if they’re having a kid, they’re getting married, those are celebratory life moments that we can gift them. A lot of times we’re gifting swag items because again, they want to wear the Sendo so logo proud, proudly and go out and showcase to the world that they’re a super center or that they love the Sendo. So brand. I think swag plays a big part in, you know, gear that they want to wear and merge. but like you said, I think there’s different reasons why, rewarding good behavior tends to drive more good behavior. But I think the life moments is something that. some companies don’t think about, you we think about it because we’re, you know, a gifting platform, but it goes a long way if somebody, you know, has a big life moment and you step up and, you know, send them a nice little gift and that really helps build that relationship.
Jodi (17:41)
Yeah, I’ve never thought about that before. guess in B2B particularly, there is such a kind of boundary between business and personal life. know, I mean, we’re starting to cross it even more as B2B marketers use kind of consumer driven platforms like YouTube or even TV advertising. how do you kind of, how do you feel?
Kris Rudeegraap (17:48)
Mm-hmm.
Jodi (18:07)
Audiences react when a business kind of knows their personal life events and how do you see that line kind of maybe fading away in the future?
Kris Rudeegraap (18:19)
Yeah, you know, I think, for what we’ve seen is that that line is becoming blurred, especially since COVID where more and more people were working from home. And also people spend the majority of their day at work or working. And so if you can bridge the gap between what they’re doing for work and what they’re doing at home and or make that feeling, make them feel like you care about more than just their work. I think that builds the connection. and it builds, you know, if you have similar interests, you can build connections. If you, know, can, ⁓ thank people and, you know, at more of an emotional level, because I think a lot of business is transactional, and community, can really find people that care deeply about your brand. so if you can, you know, again, connect more emotionally with them, it tends to build that stronger bond and that stronger relationship, which then means. you know, when we do follow up after they switch jobs, they want to rejoin the community, you know, they want to feel a part of it again. And part of that is the warm and, you know, fuzzy feeling they felt when, you know, we sent them a gift, congratulating them on, you know, a job promotion and something that was a little different than just a, you know, or sending them a, you know, baby onesie with their favorite sports team logo on it. Things like that go a long way, even if they’re small.
Jodi (19:42)
I guess that’s another way that community marketing is described. It is one to many and I guess all one to few and that means that you are really making people feel special and like they’re being heard and like you’re not just some big brand hidden behind a website and fancy graphics. You are people behind that brand and you really are having those kind of one-to-one conversations. Would you agree?
Kris Rudeegraap (20:09)
Exactly. 100%. Yeah. And we’ve also done some stuff too, where we’ve, you know, we see actions where community members are talking with other community members and we’re rewarding that behavior too and thanking them for participation. So I think a lot of different ways you can use gifting in your community strategy.
Jodi (20:27)
All right, well, that’s all we have time for today. So thank you so much, Chris, for coming on the finite podcast. It’s been a pleasure to hear about community marketing from your perspective.
Kris Rudeegraap (20:36)
Yeah, thanks for having me on. What a fun conversation.

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