Myths about product/market fit, and how to find it | David Hsu & Bryan Schreier

foreigner thanks for being here this is the last session and then the night sessions start I guess I'm Brian Schreier from Sequoia Capital, this is David Sue from retool, we're really excited to take a little break from the In the last session, it was great to talk about the future and how to navigate this coming winter, but you also mentioned restructuring for that and we'll get into some of that in this session, but it's really going to be about

product

market

fit and dreaming and creating I'm really excited to talk about that. with all of you.

In fact, I started my tech career in Europe at Google, where I worked for six years when we opened our first European headquarters in 2004 and then more recently I was at Sequoia for 14 years. We've been quite active in Europe since I started at Sequoia, partnering with companies like Unity uh uipath karna from the beginning and we have a team that is live in London so we are very excited about the ecosystem over here um David actually also did his studies in Europe went to Oxford in this combined specialization or not I'm, what's the name of Oxford?

You wouldn't call it specialization, would you? Would you call it a subject? a topic, Oxford subjects, computer science and philosophy, which makes for really interesting conversations, he founded retool, we met in 2019 and the company has scaled 50x 50x since we met and partnered on the series, so , we have already done it. I've seen David do an incredible job taking a new tool from just getting to

product

market

fit and really scaling it to a large business that also serves very large customers, so with that introduction I'm going to hand it over to David. to tell us all what retool is and how you got started, yeah, so retools is like Legos for code, it's a quick way to build internal tools and the way we actually started was that we built too many internal tools ourselves.

Lazy engineers, we thought there had to be a faster way to build all this instead of coding from scratch, so that's what started retail and when Brian and I met, I think we were four people at the time in the one we were outside. a million dollars, yes, yes, we were three or four people working with a million dollars in AR. I think at the time we didn't think we had product market fit, um, but we're talking to Brian. We had to somehow convince Brian that a great company and I thought he had worked since then so it was a fun experience, cool, well you convinced me that you had product market fit so this will be a conversation interesting, so tell us how you define which product.

Market fit is and if you didn't have it then, then you know, do you have it now? Yes, before starting a new company, he had been quite interested in startups and most people had referred to a product market fit as something like oh. You'll know it when you get it, it's almost like hitting a geyser or something. We went through the white and YC combinator. One of the talks was by the founder of the segment, Peter Reinhardt, who is now also a ritual investor and Peter at that point was saying that it's so obvious that when you have a product market fit, you're going to feel like rolling a rock downhill in Instead of rolling a rock uphill and I remember when we were probably at three, four or five billion ARR, I was still wondering to myself that it still feels like we're pushing it uphill, like it's ever going to be downhill, huh? , and then, for us, the feeling in front of art was never zero or one, never black or white in that.

In a way, it was kind of a process. I think at one point we looked around and I think we're around 10 million ARR, maybe around 20 people in the company, maybe 30 something like that and we thought maybe now we have product market fit. and it seems that customers are buying this so I suspect we will make a market fit product but in reality it was very difficult and even today I would say that to some extent it is still pushing a rock uphill hmm um it's refreshing to hear to a company. That almost went from one to ten million ARR by surprise or accident, so I like how easy you make it sound.

This is not the case for all the companies I have known. You guys did a lot of hard work. One of the things that has been said is that David, you have a formula for

find

ing product market fit and I would like to write it very well. I think for B2B SAS companies that finance fit-to-market products, it's actually quite formulaic for the consumer. totally different, but for B2B SAS, our thinking was always that sales was the best way to

find

product-market fit and when we started the ritual, we had the core idea of ​​restructuring, but to be honest, we hadn't had it yet. a pitchfree tool uh, it was kind of an interesting piece of technology, if the world that we had built in the first step that we launched is sold on Hacker News and I think the hacker whose title was called something like Excel, all but with primitives and people of higher order. we were very confused about what this was, I think you know, no one really understood what they were actually sending outbound emails with that title and no one responded, unsurprisingly, so we pivoted a little bit and thought, well, you know, maybe that one type of messages. it doesn't really resonate, we kept the product exactly the same as saying Hey, what if we focused on, say, internal tools specifically because actually some companies build a lot of internal tools and so we rotate the messaging and that kind of thing.

It turned out to be much more effective and then we just did sales for probably 18 months or something, it was exclusively outbound sales and I think the B2B SAS product market fit is quite formulaic when you do outbound sales in that way because, for example, at the time we had a group of investors that invested in us and we had actually tried to get some investor introductions, for example, to say, "Hey, could you introduce them to other companies that you may or may not have invested in?" be building internal tools that you know are all and a lot of people take this intro, but it actually wasn't very effective, it was like a very low signal intro, people always took the intro and they always acted. a little interested, but we wouldn't actually end up buying the product, so we thought we have to be tougher on this, what if we just did outbound sales and did it and through outbound sales we iterated a lot of the message, we repeat a lot the kind of profile that we present to you, even to the market, actually, so one curious thing about the Market fit product is that it is both the product and the market, just to jump in with a point, um one of What I say to What I often say about working with you is that most Founders come in one of two types: hyper-product focused, hyper-marketing, or sales-focused, and I feel like you've done both very well and really get both.

What I'm hearing from your response to the product-market fit formula is that there are a lot of sales there, which maybe is something new, maybe something that surprises people who come to found or create products more from an angle. technical, so can you talk a little bit more about how you think about sales and how to integrate that into the product? Adaptation to the market and creation of a business. Yeah I think Verizon as a technical yeah yeah I think plg growth has been really bad a lot of early stage founders know what plg means there are some no's out there so plg is leg growth Product development, the idea that you can build a software product or consumer wrapper and somehow sell itself without having to be driven by more traditional sales and marketing strategies, is very common in the developer space. , which is the market the ritual really sells to, and the reason product-driven growth is a space-specific strategy is because developers don't want to talk.

For sales and marketing people, I had a great sales role when I was at Google, so I don't feel bad about myself, it's the way you think about a company like GitHub, which was a wonderful result that they didn't have. The vendors who were calling engineers know that they were open source and they had a very large network of people using GitHub for code and they just adopted the service themselves, so that's cool and it's interesting to hear David say hmm, so Maybe it's not a big deal. Chase, yeah, I think Peel makes people optimize for very strange things and will probably kill the company, in fact today when I talk to founders, for example, a lot of founders will tell me, oh, you know, we don't have yet a lot of income, but it's okay.

You know, the reason we don't have a lot of revenue is because the revenue is going to come, we just have to create a great product and everything will work out eventually, that very rarely works. I think you are one of the first investors. I think in the seeds for Dropbox Dropbox is like a once in a generation company, it doesn't happen very often, chances are, if you think your Dropbox, it's probably not Dropbox, actually, uh, and for us, uh , we were always very sales motivated to say, hey, uh, currently we have this website we have this product everyone sign up but people don't pay us why people don't pay us well let's talk to them actually let's find out why They don't pay us so then we talked to them and we were like, oh, actually.

Actually, it's totally the wrong market, so a funny anecdote was, when we first started retool, kind of an idea we had was, oh, A pretty good market for retool could be FileMaker developers. to some extent in the cloud, so to speak, FileMaker is kind of an Apple product, from 20 or 30 years ago, and what happened is I ended up joining a kind of FileMaker user group on LinkedIn and I thought this It was going to be huge, you know? We're going to sell all these FileMaker people on the retool tool and let them know that we're going to find so many customers here and what ended up happening was I think we got a list of two emails chained together. from the LinkedIn user group and I emailed them all and I think we got three responses out of 300 or something and they all said, no, no, no, but one guy said, Hey, I'm actually happy to take a call. with and I'll tell you why it's such a bad idea and I was like, well, that's a start, so let us know, take the call and let's see what happens.

We took the call and he said, well, that's a terrible idea because FileMaker is good for ABC reasons. and you're bad for reasons In a marketing driven way we would have thought it's quite strange, there are a lot of registrations but no one uses the product, no one pays for it, why do you know you don't actually know, but when we did that in the sort of way outbound sales where people maybe feel more okay with being bad when doing outbound sales, so this tells you the truth in a more basic way and that helped us iterate a lot, so in the early days the kind of core The messages that we had were almost entirely driven by the outbound sales that we made and we were in a kind of text messages, we tested the prices, for example, how the price feels today, it is completely because we'd actually try like, hey, can we charge five dollars a seat? charge ten how about a hundred when we say 100 what's the facial expression they're happy they're sad if they're happy we're like wow now we learned that we charge 100 it still works and that's the kind of learning you can?

I only have it through sales and for that reason I think plg is actually a very dangerous path to go down or a trap to fall into when you think that, oh, you know, if I build it, people will come or customers will come. . actually, I think that's a very strange case, right, I think you and I were talking backstage, uh, you were sharing something counterintuitive or something surprising about the pmfs that Sequoia sees, oh yeah, well, I guess I think one One of the things that we see is that a lot of companies never really find product market fit, which is very hard to admit and I think what people tend to overlook is that it's not really a science, you know. , it's definitely more of an art, it's more of a holistic effort and as David was talking about his approach and his restructuring approach to finding product market fit, I think one of the things that I would love for the audience to take away is how much customer-oriented and sales-oriented was that effort for them and I think Since I started working with David from the beginning, I know that when he talks about that most companies talk aboutSales, if it's a larger company, are probably referring to the sales people you knew when talking about retail when there were two of you. or three people, the sales people, you know, the engineers were the founders, the product people were the founders and the sales people were the founders, whether you're starting a small business or you're building a new product line in a much larger company.

When you launch a new product or feature to the market, you will probably be more focused on the product and the final site, but you should also think like a marketer because that is how you will get feedback from the market. about the value proposition, how it works and what your customers really want versus what you want to build for them and there's always a little bit of give and take Brian, I'll ask you a spontaneous question, if that's okay, what percentage of Stage sequoia seed companies, do you think it is a good product? It fits the market.

Oh, that's a good question. I am not prepared to answer and scientifically. For my last comment, but I would say that at Sequoia, you know, we started with early stage companies. Around the world, in fact, we just launched our pre-seed stage and our Catalyst pre-seed stage called Arc in London this summer. It was a lot of fun and I would say that of those pre-seed stage companies, none of them have products. It still fits the market and for a typical seed company, I think a quarter of them would be lucky to find a product that fits the market.

It's really very difficult now. I think half of those companies probably think they found a product-market fit. and because sometimes you can paper over the cracks with a different type of sales and marketing that is just spending a lot of money to get people to start buying or using your product, and that's another common type of failure mode in this space that you want . Be careful what you think companies should do if they can't find product market fit. Wow, I think in a B2B SAS world, actually, the way I look at it is that there's always a path to a product market fit. to a certain extent in the sense that it's almost like a game of chess, I think when you think about no matter where a company like this is located, I think there are like eight moves that you can play that you will find that the product fits to the market in some way.

Now the question is. Basically, how do you make sure you're in those eight moves? You know it's kind of challenging, but I think being sales-driven, customer-driven, are probably the two main things, especially, actually, maybe, in some ways, being outbound sales-driven. especially because, once again, you know, as I mentioned, that your outbound sales-driven people don't lie to you. When I remember the happiest days we had at the beginning of the renovation was when we sent an email to this, actually, another Sequoia company based in Latin America. I called Rappy as a delivery company at the time, I think maybe a few thousand people or something, so I just called and emailed the CTO saying we have this quick way to create internal tools and I think in 30 minutes responded and said I love seeing a demo and I thought, great, how about tomorrow?

Who said how about today? And I thought, boom, like Prada Mark was in shape, so you know, to us, in that case, I was pretty much like this guy. I actually wanted the product because we had no relationship at the time, we are not a redwood company, there is no reason for him to respond to my email the fact that this product fits the market or the value proposition fits the market because I hadn't actually seen the product yet, yeah, so I think we're getting the value proposition really right here, yeah, and how getting it right can really inform your product development work, that's a good point.

I think probably the value proposition fits whatever you want to call it, it's probably number one. because for us, if I think about that sale, you're absolutely right because when we sold that, when we sold quickly at that time, our product was quite immature actually, what we were really presenting to them was that we had the solution to this problem. they had and the problem they had, we actually knew pretty clearly, uh, is that they have all these internal tools that they want to build because they are a very operationally heavy company, but they don't have the software engineers to build all these tools and that's why he was so interested in retool, but when he first saw the product, like the product itself had a lot of shortcomings, there were a lot of things we had to fix, for example, we didn't have a lot of the key features.

I think we could have built it on-premise actually, I think we built it over a weekend or something, like I said after you said you were interested in on-premise and couldn't use it without on-premise, for example, so I think You're right, I think he was very interested in the problem, but the fact that it was a stranger that we didn't know and he was so excited about the problem that we were solving that he would answer a call within an hour or two. yeah, like for us, that was gold, uh, that's something you could only get, I think through sort of pure outbound sales, yeah, and I guess you didn't have a lot of time, you know, to launch this was this email. electronic back and forth, or not? a phone call, I don't remember it was an email, we sent short emails, probably, although yes, I think another thing is that people, when you work on the value proposition, assume that you have so much space that in reality you have very bit.

You usually have one sentence to really grab someone's attention and be able to get into a meeting in 30 minutes, like you really have to have it nailed down, which is pretty important. Yes, one thing I will say about that as well is that I experimented a lot with the messages, but the main product today was always the same. I think one mistake I see in early founder fish is that they don't have any central idea, they're like I don't know. I don't have an idea, let me try like Google AdWords and see what idea you know.

I have seven ideas and let's see which one is the best, just present the seven ideas. I called it outgoing email and will see what happens. very rarely works, I think maybe it's a kind of philosophy, if you like, what I have is that I think you had to have some strong and distinct opinions about the world, eh, so you go and try, but you can't just say that I have. there are no opinions, let's see what happens and in our case our opinions were something like we think the current way of creating software is stupid, we think there could be a much better way of creating software, of a much higher level, Like Legos. for the code basically and that was our opinion and that was a bit of a controversial opinion and the second controversial opinion that we had was that we wanted to sell that to developers.

I remember when we were a small startup a lot of people would come to us and say what's your idea, I'd say oh we're selling this drag and drop way of building apps to developers and people would say that sounds like a terrible idea. , you know, I'm a developer and I would never use drag and drop a product like this, you know you should close, you should go to something else, in fact, we had a YC batchmate who told us, oh, this idea, I tried this, you know, three years ago, it doesn't work for They are different from what other people believe and then you have to try. that in a very rigorous and commercial way, but you can't be too fluid with what you're testing because if we were testing seven ideas we honestly would have no idea what you know resonated or didn't, so I think it was that we had a central idea and a core value proposition, we would continually test the messages in that Valley proposition, find the message that resonated, which was building internal tools quickly and then working with a client to develop the product which I think is the formula to finding market fit. of products makes a lot of sense and retools have been very successful in terms of launching new products recently, so two over the summer.

I know there is another one to come. How do you think about product market fit when it comes to new product lines and maybe your supplies to people who work in larger companies with multiple types of product lines and what is a new additional tool, yes, it's difficult , I think a kind of curse of success, if you will, is that companies almost become less interested in taking on big things. risks, the more successful they are and in fact, I have long admired the Chinese or you know this like you know the Asian companies in this, for this reason is that these Asian companies really do everything if you look at, for example, 10 cents or if you look at WeChat, if you look at Alibaba, you look at grab, for example, these companies do everything I want to say on WeChat, for example, you can order food, you can send messages, you order a taxi, you can send money, uh, you can order food , you know, apparently this is Soon there will be Twitter, once yes, implement products, I think it is difficult for the Western world, but I think these types of Asian companies were so competitive that their eyes are so attentive that they say okay, we lost a product, that's great. we're not done yet, we want to launch 5 10 15 20 more products and that, to some extent, has also been some kind of thinking and restructuring, which is great that we have this product that now you know has found the front. from Market fit eh, but we don't want to be complacent, we actually want to build a lot more products, so today's ritual is kind of a quick way to build interfaces, we want to expand into backend storage backend logic mobile interfaces and probably like five or ten more product lines and it's actually quite challenging because figuring out how to invest in new product lines when you have a product that's already working when you have limited resources is difficult because you know if I introduce it, let's say you know four engineers for the core product, the ROI is actually quite positive as we can pretty easily quantify what the ROI is, whereas we could split it up, we could spend four engineers that you know for a year on a new line of products.

You couldn't really get anywhere, so today the way we think about creating new products is that we keep the budget very low, so we like to think that the kind of new products you can start with basically two or three people. For us, you know in ritual when we have about a million dollars in ARR, we met Brian, we're just three four people and that's the philosophy we had to start new product lines as well, can we take this product line to something like that? a million dollars an AR with the goal of two or three people and that means that you know it's going to be difficult, because those two people will have to do everything basically in order, they would have to do sales, they have to do engineering, they have to do marketing uh not making products everything but that's kind of so now we're applying the formula again so to speak to these two three new lines of Pro products that we're also launching but it's a lot. fun and I think part of the startup, part of the fun of doing a startup is being able to launch these new product lines, expand your product offering and find products in the market again and again, as well as scale the main product to nine or eventually 10 you know, I think it was an AR, so it's really fun, awesome, well, I hope a lot of you are working on product market fit and these were some helpful information guidelines to follow, but if it's Well, you're very lucky because like David was saying, you can literally wear all the hats and that journey to create something new and put it in the hands of your customers, so good luck to everyone David, thank you so much for the time and for sharing your experience. wisdom thanks brian