David Cancel (Drift) & Hiten Shah (Quick Sprout) on Illusion and Reality in Product Market Fit

Hi. Welcome, everyone. So my name is Alison Wagenfeld. I'm an operating partner at Emergence Capital venture firm focused on enterprise cloud companies. I'm excited to help MC moderate a fantastic session that we have now about product market fit. What that looks like, what it means to have elusive product market fit. What is real product market fit? And we'll. We have two great speakers and then we'll have time for a couple of questions at the end. And I wish I could say that there were seats in front, but they're not. Unless you kind of want to sit down up here. Sorry about that. So let me start by welcoming our two fantastic people with extensive product experience. Heaton Shah is going to come on up and David cancel. Heaton, you might know, because he writes a fantastic blog about sas and so you've probably seen that, or if you haven't, you should follow it. David, previously of KissMetrics, but he's going to walk you through his background. David, cancel in from Boston, background, previously at HubSpot, but now founder and CEO of Drift, and he can walk you through that. And so after they both introduce themselves, we'll dig into questions related to product and then we can have some time to talk about competition. I learned a few minutes ago that they actually previously competed with each other and then we might have time a little bit to talk about funding environment because they both have different perspectives on how fundraising impacts. Search for product market fit. So with that, I'm going to turn it over to Heaton, who's going to give us some background about himself. Take it away.

My turn?

Yes, your turn.

Oh, hi, everybody. I've built a whole bunch of SaaS products. There's a few you probably know, crazy egg, about 11, 12 years ago. And then KissMetrics, we started about eight years ago. And then I just recently started a new company called Quicksprout. They've all been SaaS. And probably built myself 20 different SaaS products with our teams over the last, I guess, about 13 years.

David.

Hi. David, cancel. And I want to show this slide to my friends at Matrix. Because. Because it says I'm a GP at Matrix.

Oh, you're a VC now. I didn't know that happened. Congratulations.

Thanks. So I'm on my fifth company now. Started, it's called Drift. And before that I started, my first company was called Compete, which started in 2000, got acquired, I started a company called Lookery, and then later a company that's actually out there kind of presenting in a booth called Ghostery. And then right after that, A company called Performable, which was acquired by HubSpot. And I went to HubSpot and ran product engineering, design, and all that stuff for three and a half years. Left there to start my latest company. And Heat and I used to compete at one point.

That's right.

So before we kind of get started on some of the topics, by show of hands, how many of you head up a product organization within your companies? And how many of you are founders? Okay, great. Thanks. That's helpful. So let's start on the positive side. When do you know, David, maybe you can lead us off. When have you kind of really felt that you've hit product market fit? Maybe give us an example from one of your companies. What were the signs that you looked at to get that sense?

Sure. They're elusive. So I'd say the easiest thing, all my companies have been in B2B world, so it's a lot easier to determine fit. And for us, it's been. It's really been revenue. Right. Revenue has been our measure. Not really number of customers, but when we're getting repeatable, revenue over time has been kind of like that moment of realization of saying, like, we're onto something here. It's repeatable, we're getting revenue. It's becoming easier and easier. And so for us, it's always, it's easy, it's money.

How much revenue doesn't matter.

You know, in some cases, in some of my companies, we would do things for ridiculously low revenue. So we'd say just getting someone to. The difference for me is like getting someone to use something for free versus getting them to give you $2 is a big. Actually a big chasm. Right. Not a lot of people want to cross that. And so for us, it could be as simple as getting $10 a month from them from a SaaS perspective, just making sure that they were willing to pay.

Got it. Okay. So willingness to pay is kind of up there as number one. Keaton, what about you?

I think willingness to pay is great. Many of you might be wondering, what do you do if you're not asking for payment yet or if you're like me and you like building like free freemium products or you're in an early access period. You're trying to get to product market fit without charging. And the thing I look for is on product, usually you've built. You've created something with a bunch of criteria in mind about how it's going to solve a problem. So the first thing I actually look for is inbound emails tweets and things like that that reflect that we are solving the problem. So back in the day with kissmetrics, we created a new way to visualize funnels that was retroactive. So it took data from the past and you could build the funnels out on the fly. We didn't even use a lot of that language in our product. But the tweets we would get once we felt like we had product market fit were all aligned around that value prop that we were hitting. And there was like literally so many of them, it was hard to keep up at some point. And so that was the first time that we really looked for that. I would look for an indicator, which is basically some unsolicited feedback, word of mouth, Twitter, Facebook, even support requests and emails coming in with love and alignment of solving the problem that your product is supposed to solve.

Got it. David, I've seen a quote that you wrote about, like, when thinking about product market fit, assume that you're wrong.

Yeah, I think so.

Expand on that. What do you mean by that? And kind of how does that manifest itself inside a company?

Yeah, so I think about that in all ways. Creating products and even creating companies. Right. For us, it's always been this having the. Putting the ego to the side, having this humility to recognize that most of the things that you're going to build from a feature product, even company standpoint, are wrong. And what you're trying to do is get out there as quickly as possible to validate those things. Right. And that doesn't stop once you hit fit. It continues every time you're building and adding to your product. And so we want to get everyone on the team trained around. Like whatever we're thinking, we're wrong. Right. We may be 5% wrong or we might off or we might be 100% off. So let's get into market as soon as possible to test this thing.

Got it. Okay. And what is something where you've truly been wrong? Give us an example.

I'm wrong almost every day.

Okay, so give us an example on the product where you just kind of. We'd missed the mark.

Yeah. So I'd say back in performable, we started out on kind of landing page side and we kind of. We were really wrong on who we thought our buyer was going to be. And so the market was. We were going more SMB, non marketer. And it turned out that the Persona was wrong, that it was really a marketer. Right.

Okay, so how did you figure that out?

Painfully so. You know, at one end, back to what Heaton was saying. Just the things that they were saying that we were solving was different from what we thought we were going to solve. Right. And then it was painful from a support standpoint, painful from lots of different areas. And so. And then we had some marketers who used it by accident. What they were saying back to us was what we thought we were solving. And so it kind of led us that way.

Okay, interesting. And Heaton, how about for you, is it a time where you kind of haven't hit it?

Right.

And how did you know? And what did you do to switch?

This one was painful. So at KissMetrics, we invented a new way to do funnels that's very popular now. And it was right. And we couldn't see past that. And then David came around and said, screw your funnel. Here's a better way to do it. And the reason I say that we were wrong is because this is one of the things about product market fit, that it changes as new things come into your market that are solving problems for your customers. So the illusion that we had it, we had it. Then it ended up being an illusion that we had it. Once something better came in and. And started cutting at our customer base because they started using kissmetrics and performable at that time for very similar use cases, performable in certain categories was actually doing a better job than we were. So for us, the biggest learning is that it goes away. And paying attention to the market and what your customers are switching to and switching to and from your product is really important. And once we noticed that, I personally had a terrible time because I don't want to ever compete with him.

So did you, David, when you were building performables, were you trying to take on Kiss? Like, were they in your sights and how you're building your product?

A little bit. I'd say, you know, we. A little. We try to obsess. You know, my version of the story is I try to obsess around customers and not competitors. And so we were just listening to customers saying that their funnel wasn't linear, Wasn't this thing that you could just predefine and preset up. And so we really focus on. On events and being able to have things that happen in the natural world. Right. You have different entry points and exit points. And so how do you stitch those things together? So we were really. My version is customer driven. Although, yes, I was looking at heat in a little bit.

I mean, they were hiding features from us because we're friends. So this was very friendly competition. There were features they were hiding. We would go get on once every six weeks on a sales call with some company or friend that's talking to performable so we could understand what they were doing. We weren't obsessed with them as a competition. We were obsessed with what he said. He tends to focus so much on the customer. He doesn't care what he has to do as long as it's solving customer problems. And that's scary because it's hard to focus on customers all the time. He has to assume he's wrong and all this kind of stuff. At the time we didn't know how to do that as well. And the way we had built our product was solving a big problem that funnels had. And so we couldn't see past that very easily because we were actually at product market market fit at the time. And then he came in almost sideswiped and we weren't as focused on the customer truthfully as he was. And that's why I say it's scary to compete with him.

On a few minutes, we'll talk about each of your new companies so you can project about are we competing no longer competitive, right?

No, no, not at all.

So now you can go share liberally.

Thank you. Please don't compete.

So one of the challenges that comes up about looking at customers that pay you as kind of evidence of product market fit is that are these customers really arm's length agreements? Are they customers that know you or are they kind of, how kind of? Many kind of, I don't know, concentric circles away from you? Are they, how do you think about that so that you have confidence that these are just not like kind of friends and family and other VC backed companies and people. Not that there's a lot of people in this room. So these could probably be great customers. Thinking about that.

For us, we've done it the same way last couple times, both for formal and drift, where we kind of know a lot of people. We have like a big waiting list. Those are all kind of friends, you know, the kind of people that you're talking about. And so we end up going to market, actually ignoring that, that almost becomes the ignore list. And we go into market with a very different customer and then later on kind of bring in those folks. So we actively try to avoid those people and we go to try to find someone else who we think is the true customer.

Okay, great, that's helpful. Hayden, how do you think about that?

I think there's a lot of bias in friends. Just like David was saying. So one thing I'll say is I don't mind having a friend use our products. Having them pay for it because they're friends is kind of a problem. Right. So I think your strategy on avoiding it is great. For me, though, like, I tend not to. I actually don't focus on revenue as a product market fit indicator early on, I focus on retention as a product market fit indicator. But the kind of businesses him and I make tend to be a little bit different from a SaaS perspective. So the money question, usually when we already have retention and then start charging for it, naturally it's people that are already using it, regardless of who they are. And also purposefully tend not to kind of do the same thing, which is just don't reach out to friends unless they reach out to us when they see some of the stuff we're doing.

Unless they want to tweet really nice things.

But then it's like theater. So that's dangerous. But yeah.

So let's dig into a little bit. Your current companies. You both have started new companies, kind of taken a different fundraising path. Maybe start by giving an overview, David, maybe give an overview of what Drift does, why you started the company, what the vision is, and then we'll kind of go in from there.

Yep. So we started in very different ways. So I started a company after leaving HubSpot, raised the Series A that was large, $15 million. No product, no slides, no nothing. And then when.

Tell us a little bit more about that than before. How did you do that?

Well, he's. David, cancel.

Yeah.

You were working at Matrix.

I was working at Matrix. I stole some money. Some of the people that I had worked with in the past who had funded my last couple companies, compete and Performable, you know, approached me. And then some folks who had funded HubSpot approached me and kind of made me an offer I couldn't refuse, gave me a check. Right. It's not normal. That hasn't happened in the past. Right. So, you know, that's how we started it. We focused on really just building the team in the beginning and then experimenting from there. Heaton takes a totally different path, but at Drift, we're focused on kind of the everything that happens after the stuff that we were doing at HubSpot and Performer, which is like all the go to market stuff, whether it's marketing or sales, Drift is focused on what happens after you sell someone. So from a customer standpoint, how do you communicate to them? How do you organize communication across multiple groups? And our vision is to Help every company on earth know, grow and amaze their customers over time.

Who's your buyer?

So our buyer tends to be. We started, you could start in a lot of different places because of the customer. We started in product. So product, product marketing and growth, you know, depending on the company. It's one of those kind of people.

Those titles and how far along you right now, how many.

Super early. We just went basically going to market. We went into market in January, so early, you know, right at the beginning.

One month in.

Yeah, one month in.

So you'd be happy for a lot of these people to be your buyers?

Yes, yes.

And Hiten, how about you? What about your new company? Tell us a little about it.

Yeah, so our story is we've had. My co founder has been writing a blog, it's called Quicksprout and it's pretty popular. It gets over half a million visitors a month. And we've been monetizing it through like lead gen and ebooks and stuff like that. And it's just been sort of a side thing, but it has a tremendous amount of traffic. And we decided to build software. And he's been blogging a lot about marketing, specifically content marketing, SEO and things like that. And so we're essentially building content marketing software to help people write better words that get more traffic and conversions. So our customer tends to be either. Oftentimes it's a personal blogger who just wants to write better content and understand how it's performing. So that's still a big customer base for us. And then on top of that, it would be anybody running a blog that wants more traffic or conversions. B2B, SaaS blog, consumer blog, even companies like Buzzfeed could be using our product. And our goal is essentially to help you create higher quality content, help you create better content through the use of software. Software super early. We announced the company in January and we have early access customers or users right now and we'll be going more public over the coming sort of months, so to speak.

And how about your fundraising strategy? Opted not to raise so funds.

Yes. So our goal, and I've written a little bit about this, but our goal is basically fund the business using the cash flow from the business that can fund enough people so some single digit amount of people or a little bit more until we get to product market fit and then basically depending on what that looks like, determine whether we're going to raise money or not. And our goal is to get to product market fit at least the first pass at it and then raise money. Basically right after that. And raise it for growth, not raise it for seeking product, market fit. Because what I like to say about David is he's grandpa, he's been building software for 20 years. I've been building software for about 13. So he's definitely got that on me. And I can't raise money like he can on no deck or anything like that. Most of us can't.

Maybe in seven years.

Yeah, maybe in seven years. Right. And I'll be grandpa and I don't know. You'll be dead, right?

I'll be dead, yeah. I'll be dead in 2023.

You can tell us.

Yeah.

Is this not the last saster I have to find? Like move to Moscone or something? So, David, you have a lot of money. How does that impact your kind of focus on developing product and what are you doing differently this time? Because presumably the last couple of companies you started, you did not start with a $15 million bank account.

No. So, you know, I started perform with $3 million and compete with six. So a lot different. And so, you know, it gives you an opportunity to make more mistakes. Right. Because you have this money. And so we've been really kind of strict about operating like we're bootstrapped, not spending money, just having this access to money, you know. And our strategy, of course was we rose, we raised this money pretty early. We thought we were going to need access to capital because we all know how SaaS models work, right. So we're in a SaaS business. We're going to need money and you know, we can control, you know, how we build the product, we can control costs within the business. What we can't control is the macro and kind of raising, you know, how the funding environment is going to change. So, you know, don't kick a gift horse in the mouth. Right. So we took the money and has basically pretty much sat on it. You know, I think our investors think, you know, joke around like that we're like the 10 year burn, you know, at this point. So we will use the money to accelerate, but we're still early.

Got it. So both of you are production founders. You know, it sounds like a lot of people on here. Are you hiring product people? And you're. Let's talk a little bit about your product organization. And then I'm going to, in about five minutes, we'll open up for questions. So start thinking about any questions that you might have. But what does your product organization look like and what are some of the things that you hire for yeah.

So we're both product guys. I've. All my companies have pretty much been the same, where it's like most of the early team is just product people, largely engineers, few maybe designers, and maybe another one other product person besides myself. And then we, over time, as we're getting to fit and we're understanding how the model works, then we're bringing people on the marketing and sales side if we need it. I'd say, you know, one thing looking back is, like, I always. I think I brought in marketing and sales. I should have brought them in earlier. And, you know, that's probably our blind spot as product people is just to always hire more and more engineers. And just because bringing them early, it wasn't even a revenue thing. It was more of, like, a different set of eyes and different learning that you're learning from the market when you have people talking to a different audience in a different way and maybe talking to more people each day. And so at performable, we figured out, we did this test where we went to market as a freemium product. Most of our customers are freemium. And then I hired one salesperson only as a pure experiment. We knew what the model looked like from a freemium standpoint. I said, like, I don't know anything about inside sales. I had done enterprise sales before. I said, let me hire one inside salesperson if she. Maybe she works for two to three months, and maybe there's nothing there. She was amazing in that we didn't have anything right. We didn't have, like, leads for her, you know, materials. We didn't have any. She just walked in, and I thought it was the best thing ever. It worked from an inside sales perspective. But the reason that I thought it was great was just, like, it accelerated our learnings because she was having 50 conversations every day, and we were all sitting in one room just hearing what she was saying. And what would work, like, what would get someone to stay on the phone? What would cause someone to instantly hang up? And then we started to change our messaging and positioning based on the exact words that she was. Was using the hooks that were working. And we were kind of like most product people and engineers obsessed about a B testing. We built an a B testing product obsessed around data. But, you know, sample size takes a long time to get to anything significant. And we were able to hack that by just, like, listening to her work on the phone.

Yeah, that sounds valuable. Super valuable. How about from your standpoint in terms of building the product organization?

Yeah. Early stage, I think I would hit on one of the main things David said, which is we're designed around learning. So today, every day I'm personally working with our product designer because it's very early to figure out what this product needs to be what we should be doing. The copy, the flows, the kind of thesis around it all maximize around learning. So we've thrown out probably 30, 40 experiments already in all different ways to figure out kind of what we need to build. So the criteria for us on product teams early on is product designer, really just what most people would call a UX UI designer and at least one or two engineers, but those folks are mostly more generalists than specialists so that we can rapidly iterate. So like I said, we've thrown out dozens of of little experiments like whether it's like a little survey on the blog to understand something about our market or some landing page to test a value proposition. But the big goal is always about learnings. And we found it that early on when you don't need to scale product, meaning you don't need to hire more engineers or build more features because you don't know what to build. Keeping the team super small and very generalist specific has been great. The one difference between I think David and I is I'm essentially a marketer first and so is my co founder. And I've learned how to be all about product. And I would say that I'm always learning, but the marketing things and stuff like that aren't of much interest to us to bring on because my co founder and I are pretty good at that and we have a bunch of traffic and all that. So we tend to augment ourselves with engineers and designers because neither of us do either of those things at all. And that's been really helpful. But the key learning for us is even as you grow, you want to optimize your team around learning and staff it accordingly. So for example, if we discover that, you know, I'll give actually a really good example here. I consider customer support product early on. So in all of the products that we've built, I've run support myself for the first who knows how long. So the shortest time I ran it was about six months at kissmetrics. At Crazy Egg when we built the product, I ran it for two years. The reason is I'm head of product, I have to go make sure everything's working right and I understand the learnings and that was the fastest way to get it because most of them early on came in from support and now there's a whole bunch of great tools to make all that easier, including drift. So you can have chats, announcements, all kinds of stuff all in your app. And so we tend to use those tools so that even though I might be founder, CEO and doing a lot of product stuff, I'm still able to answer all those support requests, usually on my phone.

Yeah, we've done the same thing, which is like whole company support. Everyone does support, so. Including especially the engineers. Because that's how things get done the quickest. Right. When engineers are actually hearing the problem three times, it gets fixed versus he and I trying to convince them to drug deal our way into getting them to do something.

Yeah, and when we were competing, it was one thing I learned from him. Our engineers weren't doing support and I believe he was able to solve customer problems faster with the team he had with that philosophy than we were. So then that's when we started shifting some of that stuff. So that's a critical point.

That's great. So now let's open it up for questions. I think there is some floating mics. I see a hand over there, so I'm going to start over there.

Hey guys, before you've reached product market fit, how do you know how long to persist in continuing with your vision and versus pivoting or deciding that this.

Is a failed experiment?

I don't know if everybody heard the question. Yes, how long before you reach product market fit? How long do you continue to persist before pivoting or just kind of calling it a day?

Yeah, I'm going to start. I'm sure you have a lot to add, but if you're even question, if you're in a situation where you're questioning that, you probably haven't been deliberate about your learnings. So you haven't been deliberate about your hypothesis and what you're trying to prove or disprove. You probably aren't assuming you're wrong all the time. So the problems I see when someone's challenged with that tend to be they haven't been deliberate about what they've been trying to learn and they've just been building a bunch of product. So in that scenario, that kind of sounds like what you're describing. I'd go get research, so I'd go talk to existing users, customers. I'd go really try to double down on the learnings even if you didn't do them along the way. So you can really figure out how to move forward in some educated way or some learning based way instead of just blindly moving on.

Yeah. This is why I think having this idea or framework that you're always wrong is so important, because when I talk to most founders, they ask the same question. And what's behind that is that they've probably been going down some path for a long time before figuring out, like, oh, wait, something's wrong. And, you know, should we pivot or not? And most people look at the stuff that I've done, and they say, like, wow, you pivot a lot. And I'm just like, no, we're just like. Our approach is like, we're in a constant, every single day learning mode. And these are not like, pivots that we're doing. We're not working on something for a long time. We're like, we're almost, you know, you know, we're going zigzagging each day. Right. And that's. That's how we're learning. Right. We never get to this point, big epic moment that says, oh, we need to pivot every day. We're learning along the way.

Yeah. And we used to do it that way the old way where we would pivot it. And KissMetrics was built that way. But I'll give you a timeline when we changed. So the first product took six months, second product took nine months, and these were all two pivots. And the third one took 30 days to build. And then we went in your mode, which is like, build it in 30 days and then start iterating it. And that's actually when we hit it. Compared to thinking of it as massive. Big work in pivots.

Super helpful. Thanks. Other questions?

Hey, when you guys are developing, let's say you're in a SaaS business developing a market, and you've got a great sales team, great marketing team, you got that demand pulling in new customers, and those customers go live on your platform, and you're trying to figure out kind of their engagement, their activation, how much traction they're actually getting a sold customer's getting on your platform. How do you guys think about breaking out those activation numbers? Because I didn't really hear much about. I heard about measuring product market fit by revenue, but let's say that revenue actually comes before that first meaningful interaction. If you start thinking about the first meaningful interaction after that, after that sales event, how would you guys start thinking about, well, we're developing this market. We want what, 30, 40% of our customers to be getting a lot of utilization and maybe following a power law, there's. How should we be thinking about this if we're not kind of using Quick sprout to develop something we know is going to be a great market for you guys, but we're kind of pushing a new idea forward.

So answering about how engagement really factors in.

So my view is like it depends on the business and so it's almost like the last question. I think a lot of people hear about 30 to 40% or some number, some range and then they wonder why they sold something. We're not getting 30 to 40% kind of engagement and it depends on the business. I've seen businesses that are episodic, like a survey monkey, right. Where there's not going to be, it's going to take you years before you understand how your users actually use that product. We did a product that was email based that had no activation within the app because by design, I mean no usage in the app because by design you don't want to go log in. The way that you're using it is when you get an email, when you read that email. So my view is that it really depends on your product and you can't have some arbitrary way of measuring or benchmarking yourself on activation.

Got it. Heaton, how do you think about engagement?

Yeah, I mean if you're in a situation where you're able to get people to pay before they use, then it's okay. I mean you have great sales and marketing and all that stuff to get the sale. But then you're almost pushing the hard problem to they've already paid and now we're trying to deliver on paid value, right? On the fact that they paid and trying to understand how to keep them. So to me the answer is like figure out what makes sense in terms of retention on your business and start measuring that and start measuring indicators that lead to retention. And then there's going to be outliers. Like if it's a lot of email activity, then open rates are retention. If it's a longer term cycle like SurveyMonkey, then you kind of have to wait longer. So it's all about digging through the learnings and the sort of what are proxies for retention because essentially in a business if you can't retain people, whether it's free or paid, you don't have a business. You're not going to grow your business at all.

Well, thanks. So I think that's a wrap. So let's have a big round of applause for David and Heaton.