Lean Startup: Flowdock's Journey to Product-Market Fit

Our journey to product-market ﬁt. Otto Hilska, Founder & CEO 1Otto Hilska’s talk at Scan-Agile: Lean Startup track.Discussing our own story on our long but entertaining journey to product/market ﬁt.

2Most of my professional life written software for others.Last 8 years: our own consulting shop Nodeta, specialized in Ruby on Rails.Built and sold a Ruby on Rails hosting company.

3One of the side projects we’ve built is APIdock.com, a social documentation site. 170k MAU.Didn’t have a business model, but turned out to be a great exercise in terms of driving trafficto our other projects, learning, gaining traction in the Ruby community.

4Every time we started a new project, we argued about the toolset.We learned that developers tend to live in a group chat - they use it all day long. Then there’semail, where you get thousands of automatic emails that you never read. There’s projectmanagement for tracking progress, and actual development also happens somewhere.This kind of workﬂow is very slow and error-prone.

5Flowdock is a centralized communication hub for your team. It’s based on the group chat,that everyone’s already using. Thus, we’re not another communication tool, but we’reimproving something you already have. But on the left you see a shared team inbox, that’sconnected to all the other tools your team is using.

6Traditionally work and communication were disconnected.Instead of forwarding emails around, real-time discussions now take place in Flowdock, withthe right context. Issues are solved in minutes instead of days.

7The lean startup principles should be easy to understand to all people agile. However, theconcept of measuring tends to be quite different: traditionally we just asked the ProductOwner if something’s ok, but when building a product for the unknown market, differenttools are needed.

8Product market-ﬁt: just like the name suggests, need to ﬁnd a match. Square peg in a roundhole.

Technology looking for a market 9

When a great team meets a lousy market, market wins. 10Sometimes you just need to understand that the market isn’t there. New markets can becreated, but it doesn’t happen every day.Doing market sizing was not the kind of thing I wanted to do when I started a company.

The only thing that matters is getting to product/market ﬁt. Andy Rachleff, Benchmark Capital 11So many companies die trying.My friends always wonder if someone’s not trying to scale the company aggressively.Wouldn’t burn much money before that.Searching for a business model is different from executing a validated one.

Problem: Time tracking 12Consulting at a major corporation, time tracking was a pain. Social time tracking, peopleknowing what others are doing.Ignored the idea before writing any code: 350 million search results. Weren’t feeling verypassionate about it.

Problem: Let’s build a platform! 13Idea evolved to social time tracking. What if everyone was present at a team hub, and timetracking would just happen automatically?Or what if time tracking was just one of the team hub’s features? Next we wanted to build aplatform for real-time collaboration widgets.Problem: the platform isn’t anyone’s problem, it’s just something that might be cool to build.No one asked for it...

Team Inbox with Chat 14Ended up building something for ourselves.At the time, we were randomly using IRC, Skype and Jabber servers for internal teamcommunication.

LAUNCH 15So after some self-funded experimentation we decided to launch. It wasn’t pretty, it lacked alot of functionality, but it demonstrated the basic concept.

16If you’ve ever launched anything, you know it often looks like this.Even my friends didn’t continue using the app after a couple of minutes. And then they juststop answering your calls.While launching was important, it probably wasn’t pleasant. Soft launches becoming popular.

MVP 17Term coined by Eric Ries. Minimum Viable Product, doing as little as possible to producevalidated learning.

Meg Robichaud, MinimumViablePants.com 18As extreme as running Adwords without a real product. Offering a plan that isn’t reallyavailable.

MVP ≠ cheap 19Confused with one day of hacking. Need to consider: what’s your assumption? When is itveriﬁed?Developing metrics is actually a lot of work, and it’s not a part of something people considerquick prototypes.

Validated learning? 20Our initial launch didn’t provide that much validated learning. We saw that it wasn’tskyrocketing, but didn’t have a great understanding on why it happened.

Leaps of faith Willing to pay? x Possible on web? Companies ready for SaaS? x Do teams use group chat? 21Turns out some of the assumptions could’ve been validated even without writing a single lineof code.

Vanity metrics: Total number of signups Number of visits 22It’s easy to look at the biggest numbers you’re able to measure. Unfortunately, they don’tgive a proper view to the performance of your business.

Real metrics: Monthly signups Conversion funnels Monthly Recurring Revenue Average Revenue Per User Customer Lifetime Value Churn Total time online 23These are just some of the metrics we ended up measuring a bit later. Some of them directlyrelated to money, and thus not applicable at very early stage.

However: thousands of feedback emails 24Considering how rarely I send feedback to app authors, I think we were doing somethingright when we started receiving thousands of emails from the users.We had a small Feedback button integrated to the app UI very early on.

Honesty with yourself 25It’s so easy to look at the good metrics, but it’s extremely important to focus on things thatDO NOT work, and ﬁx them.

How would you feel if you could no longer use [product]? 26One approach to measuring product-market ﬁt:Sean Ellis, marketing guru, asks this question from active users. He says you’ve got product-market ﬁt when 40% answer they’d be “Very disappointed”.

27When you’re nailing it, you’ll notice it.

28And when you don’t, you should be able to notice it as well.

New Money-making machine Churn users 29In the beginning churn and signups are easily about the same size.Your machine is leaking from behind, and spending a lot of money on customer acquisition isgoing to kill you.

Customer score 30We have a free 30-day trial, and we needed to iterate faster. Can’t wait 30 days to see ifsomething’s working or not, so we introduced a “customer score” that helps us in guessing ifsomeone’s going to start paying.We could also apply some machine learning techniques the accuracy.

Conversion funnels 1000 Site visits 1000 3% Signup form 10% 15% Signups 30% = 4.5 signups = 30 signups 31The impact we got from A/B testing, website redesign, repositioning etc. was signiﬁcant. Andthe work continues. Naturally affects customer acquisition cost.Then there’s another funnel from signup to a paying customer.Changes made over a 6-month period. Churn rate dropped from 10% to 3%.

So who’s really active? 32Every startup needs to ﬁgure out, what’s the metric of valuing their users.Money brought by the customer is not the only thing. Also, viral coefficient etc.

33Asking for money was one of the best decisions. Customers took us more seriously, and westarted getting better feedback. Should have done it earlier.

Cohort analysis 1st week 2nd week 3rd week 4th week 4 weeks 25 23 21 20 ago 3 weeks 25 23 21 ago 2 weeks 29 28 ago 1 week 30 ago 34Once you’ve established your metrics, you don’t want to be looking at a single number.Instead, follow what’s happening over the time.

35First manual emails, then more and more automatic emails when patterns emerged.Also helps us to ﬁgure out why companies are leaving, or why they never got started in theﬁrst place.What they were doing before, and what they’re doing now with Flowdock.

36Looking at the conﬁguration, it became obvious that we need to help users get rid of some ofthe tools (Skype). We don’t want to be the Yet Another Tool.Sometimes it means that we features that don’t necessarily make sense in our originalcontext are still needed.Made us the must-have tool (painkiller) instead of just nice-to-have (vitamins)!

Who is the customer? 37As funny as it may seem, after you’ve spent a year coding, you still might not know who thecustomer is, who’s making the decisions etc.Automatic emails were a great way to extract that information.Also need to identify who’s getting the most value out of the app. Even if you have severalcustomer segments, there’s probably one you want to focus on.

38Initially didn’t want to limit the audience too much. Doing different landing pages is a goodway to test expectations about the audience.

39Today our customers have a face.At a pitching competition, the next guy started their pitch by saying how much they loveFlowdock. :)Someone emailed telling us that there hasn’t been anything to complain about, so theyhadn’t sent any feedback.

Marketing by Engineers 40 40My own background: technology.Turns out, marketing is great for technologists. Yes, some copywriting, but also lots ofmeasuring, understanding the users, tracking behavior.Since we’re targeting developers, my current opinion is that everyone in the company shouldknow how to code.

Product Management a.k.a. The Prioritization Hell 41So when you’ve got the attention of these wonderful people, you need to start prioritizingtheir feature requests.

42Failed feature: keyboard shortcuts.Hard even for vim users, probably requested by one user.Surprisingly hard to implement. Doesn’t work well with some browsers.Experimentation feature, though.

Amazing! 43Good feature: notifications and marking them read.Facebook marks everything read automatically. Not good for important business messages.GitHub requires you to mark all notifications read explicitly. Really annoying, I always have100+ “unread” notifications.Our solution: marking messages read when the user sees it. How Steve would do it. :)

1st iteration 2nd iteration 44To create amazing products, you must not stop at the ﬁrst iteration of anything. We did thisseveral times, for example: mobile web clientIt’s a tempting idea to go on with the huge feature backlog, instead of going back to the oldfeatures.

1st iteration 2nd iteration 3rd iteration 4th iteration 5th iteration 45Equally, UX will not always survive from several iterations. Courage to redesign.

Throwing it away 46Sometimes something you did a while ago is not needed anymore. We had a dashboard thatreally didn’t serve a purpose anymore, so we removed it entirely.

Feature 1 x Feature 2 47Great for testing: Features toggles. Facebook does this all the time, we just started.You don’t want to add features that are not wanted.

Premature optimization is the root of all evil. 48Wasted a lot of time playing with funny and really experimental databases. The best part ofdoing your own startup is that you get to choose the database, right?If you know Ruby on Rails and MySQL, go with that, don’t think about the scalability.

49Many experts recommend to avoid bizdev partnerships early on. We got to a great position bybeing the only chat-based communication tool that works together with all Atlassian’s majorproducts.Distribution makes or breaks a SaaS product.Heavy focus on partnerships wasn’t in our original plan, but it turned out to make ourproduct much more useful. Also, it ﬁlters out users who obviously aren’t willing to pay for aSaaS product.

50We’ve recently put a lot of effort to improving our API. Will be cool to see what the users willcome up with.Don’t really know what business developers do, but as Paul Graham said: APIs are self-service business development.Already some mobile clients in development.Question: should we have done it earlier?

Alex Rosen, Marten Mickos Gil Penchina IDG Ventures Mike Arrington, Naval Ravikant CrunchFund 51We bootstrapped for quite a while. The longer you can survive without external funding, thebetter.Raised funding from Silicon Valley. Great for entering a foreign market.

flowdock.com twitter.com/flowdock twitter.com/mutru otto@flowdock.com Otto Hilska, Founder & CEO 52This is just the beginning, and I’m constantly learning new things. 6 months from now thispresentation will likely be obsolete. :)Thank you for your time, let’s discuss.

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Lean Startup: Flowdock's Journey to Product-Market Fit

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