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In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to launch a product into a mature market. They give a definition of what a mature market is, list some examples of established players in different markets, discuss how to tell if you should enter a particular market and how to execute on it.
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Rob: In this episode of Startups For the Rest of Us, Mike and I discuss how to launch a product into a mature market. This is Startups For the Rest of Us episode 425. Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs to be awesome at building, launching, and growing software products. Weather you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike: It’s the end of the year, so I’m just doing a lot of end-of-year paperwork that’s—mostly required government filings and getting ready for taxes and stuff like that. I had to submit, I think it was a affidavit of eligibility for my health insurance and it had to be done before the end of this year for my health insurance to be able to be renewed in April or something like that. It’s like, come on, you have to be kidding me. This far and advance and at the end of the year they’re requesting it but whatever you have to do it.
Rob: Yeah, that’s fascinating. The end-of-year stuff is always a pain in the butt. Because I’m always taking this time off. I take a week off, sometimes a week and a half off but it’s not fully off. I’m recording podcasts and doing a few calls here and there but a lot of thinking and planning scheming for the next year, and so it’s a bummer to have to think about government filings and that kind of stuff during this time.
Mike: How about you? What’s new with you?
Rob: Well, you probably hear I’m a little sick right now. Happy New Year everyone. This episode goes live on New Year’s Day. I hope your hangover is treating you well, and that Mike and I can be there for you. And for me, it’s another year, man. My birthday is December 28. So I turned 34 this year.
Mike: Did you say 34?
Rob: Yeah, I’m glad you caught that. Good. So listeners may or may not know how old I am. But everyone knows now that I’m definitely not 34.
Mike: I’m surprised you didn’t try to shoot for like 29.
Rob: Yeah, now that would have been good. I still get carded here in Minneapolis. So they’re funny. In California, they don’t card you very much at bars once you look old enough, but they still card everyone here. So it’s kind of not. It’s something you say, like, “Oh, I still get carded.” But it’s like, everyone kind of gets carded here.
Mike: Yeah, certain places I’ve seen where, like it’s just as a general rule. They’re like, hey, it doesn’t matter. Like, you have to card everybody. And depending on where you are, certain states or jurisdictions, they’ll say that if you have a violation of any kind, like you immediately lose your liquor license, and then, like, your entire business is gone. So I think that’s the case of the next town over here in Massachusetts, and they’re like, they’re not willing to take the risk. So there’s like, “Yup, we card everybody and if you don’t have ID, too bad.”
Rob: Yeah, that’s funny, you know, I found a retreat in California, and I walked into a bar and they carded me and when I walked an interval said they didn’t card him and was just laughing and laughing because they were like, “You look so old dude,” and he went with it but I think that’s funny when one person in a group gets carded and it’s kind of obvious you’re all the same age and I believe he’s like a few years younger than me as well.
So we have three new iTunes reviews. Three Mike, three in December. This one is from MJ SFS, says best Startup podcast. I’m on my fourth software, venture to battlemaps.co, and this podcast has been invaluable. Keep up the great work guys.
Another reviewer says a podcasting masterpiece filled with actionable product focused insights. It’s never moved from the top of my podcast list. Robin Mike are always full of enthusiasm, insights and great knowledge acquired from years of actually building products.
Thanks so much for those five star reviews. If you have not left startups for the rest of us a five star review. I would invite you to log into Stitcher or iTunes and help us get a few more listeners help us stay motivated and help us on those long, lonely winter nights when we’re sad and considering crying ourselves to sleep, and instead, we actually read our iTunes reviews to make ourselves feel better.
Mike: Because we’re not actually 34.
Rob: That’s because we’re not actually 34. So this week’s topic is interesting. I was going through our listener questions and there was a question that I felt like almost warranted an entire episode. So, I started just hammering out a quick outline. It turns out, it’s at least an entire episode and could probably be a book chapter. But the question asked, his name is Eric Roberts and he’s asking about how to launch into a mature market. He says, I know from listening to you guys, the competition in place is a good thing. But what about an overly mature market? How can you tell if a market is primed for a new solution to an old problem? And I think there’s a lot of nuance to this. I mean, there’s the idea of, what is a mature market, then how can you tell when you should or should not enter one, and how do you execute on that those are kind of the three angles that I was thinking it through. And so, that’s what we’re going to talk about today.
Mike: Cool. So where do you start?
Rob: Let’s talk about, what is a mature market, a give a little definition and some examples. So when I think of a mature market, I think of a market that has established players that are well known. So, think of examples in CRM, it’s definitely mature market, there is Salesforce, there’s HubSpot, there’s Base, there’s Pipedrive, there’s a long list Trigger, CRM, long list of folks there.
In addition, I think in a mature market, there tends to be maybe two or three really obvious choices. So if I say CRM, a lot of people think of Salesforce, HubSpot, maybe Highrise maybe Base or Pipedrive, in email marketing, in ESPs, people think of MailChimp, they think of AWeber, they think of Infusionsoft. I mean, there’s this kind of short list, it’s the opposite of the long tail, it’s the fat head, it’s called where there’s a cluster of companies, be it one, two, or three that have the vast majority of the market and kind of sit at the top of the market share. In addition, I think the third piece of that is that there are these product norms that have developed.
So if you think about CRM, there’s this nomenclature of leads, and deals and contacts. And if you think of ESPs, there’s this, these norms that are developed, like lists and subscribers and forms. And so, while this may not be an exhaustive list of everything that defines a mature market, those are the three pieces that I think of, in my mind, that kind of defined it, that’s having established players, it’s having two or three obvious choices, and then having kind of norms or nomenclature that have developed through those products – and then in the other products that are also entering the space.
Mike: I think the easiest way to recognize whether or not something is a mature market is if you go out to a handful of people and say, “Hey, do you know of any companies that are in this particular software vertical, whether it’s you know, CRMs or mailing lists,” like if the people that you know, or who are in your circles who have any familiarity with that can name at least two or three or four different companies that are in that space then it’s probably a mature market, obviously, like if they’re if it’s a not well-known industry, for example, let’s say like virtual tabletop software. If you talk to a bunch of people who are in that particular industry, they’re going to know very well like who the players are. But it doesn’t necessarily mean that it’s a mature market.
Rob: Yeah, I think that’s a good point. I mean, anytime you see a forum post that’s like, what do you use for CRM, you know, and then you’ll get dozens of responses and almost everyone’s using a different one, or what do you use for your to do lists? And, you know, there’s, there’s dozens and bug tracking and issue tracking and all these things. So what’s interesting is, I don’t think, you know, a mature market doesn’t necessarily mean it’s a big market.
Mike: I was just thinking that.
Rob: Yeah, because to even think about like more aware software where they have a mature product in a market that has been around now for more than a decade. They build a SaaS app for countertop installers. People who install the actual physical tile that goes in a kitchen or bathroom and that’s not a huge market, right? That’s not a $100 million market. And yet if you were to try to enter that now they are so far ahead, the market has matured because they launched in, I don’t remember what it was like 2006 or 2007. And they’ve just kept adding things in and maturing the market during that time.
Mike: Well, I guess it makes – tt begs the question like, is it considered a mature market? Or is it like mature players in that market? How do you differentiate between those two things like CRM, lots of people use it so by definition you could call that a mature market but for table countertop installers, they are more aware as is very mature player in that market. But the market itself is small. So do you consider it a mature market? Because it’s not like there’s a lot of competition or a lot of people in that market? So like, is that a mature market. Do you consider that?
Rob: Well, I guess by my definition, I have three points or is there an established player or players in the countertop installer market? Yes, because there’s more aware. Is there one, or two, or three obvious choices? Yes, there’s more aware and I think they own most of the market, but there’s obviously at least one other competitor and have they developed product norms that may not have existed before software into the space. I don’t know their space well enough, but I’m guessing that there’s nomenclature in things in their product that they came up with that that didn’t exist before then.
So I would say yeah, I would say even a small market I understand your differentiation of mature product versus a mature market but I feel like once there is a mature product or two in a market the market becomes mature at that point yeah.
Mike: I was just kind of thinking about the product norms piece of it because if there aren’t a large number of products in that market and obviously like there’s room for that software to grow and for the products who are already in place to grow that’s fine but do the majority of countertop installers know about them? How many of them are actually using software of any kind or how many of them are looking for it? Do you see kind of the direction I’m going with that because like if there’s 100,000 countertop installers, but only 500 of them are using software of any kind. Does that establish a product norm, because that’s only five percent.
Rob: That’s a good point, yes, and imagine if they’d been around for, you know, if you’ve been around for 10 years. So you’d say, “Hey, this is a pretty mature product. There’s a lot of features, it’s stable,” all those things, but you only have five percent market penetration. Is that a mature market? I don’t know. I don’t know that I have a good answer to that, other than that either means that they’re not marketing very well. And we’ve now removed from more of our software that we’re doing a hypothetical at this point. But in that hypothetical where this company has been around for 10 years, they only have five percent market penetration, and there’s really no one else, it’s only five percent of market is even using software, then either that’s a really tough market. It’s a market that is highly resistant to technology, or that company is not marketing themselves very well, right? They’re not penetrating the market past five percent.
So I would then ask myself – If I wanted to enter that market, which of those is it, because if they’re not marketing very well, we’ll come in and out market them. But if the industry is just highly resistant to it, then that’s probably not a good market to throw yourself into.
Mike: And I would say that that’s probably a general rule. If it’s hard to get into them, then it’s because they’re resistant to change and resistant to adopting technology, then I would probably would avoid them in general. But it’s a very different story if they’re not marketing themselves very well. And you just trying to make a name for yourself there.
Rob: Right. And I think, that’s a good point. Because the kind of the second point that I wanted to cover, this question I want to answer is, how can you tell when you should or should not enter a mature market? I think we’ve just touched on one.
If you determine that, boy, this market is mature and really no one else wants to use software in it and I’m just going to have to be pulling from the existing competitor who only has five percent of the entire space that would give me pause, that tells me about the customer type and about the how they don’t want to change, right. So then that means that even getting them to switch from a competitor is going to be really difficult. I think also entering a mature market, I personally would not do that as a first time founder without money. One example that I kept coming back to of course is the one that I lived, entering a mature market with the drip, becoming an ESP and then becoming a marketing automation provider.
If I had not had the experience and the past successes that I had and did not have the self-fundability, you know, I was pulling money off of hit tail and other apps that I had, I don’t know that we could have made it. I don’t know that Drip would have survived because the market had so many mature players. Again, MailChimp, AWeber, Infusionsoft, and others – and it cuts both ways because, obviously, that’s what made it possible to grow Drip so quickly is that the market was – it did have opportunity. But if you’re a first time founder and you’re not going to raise funding, I would seriously reconsider trying to enter a mature market because these are the ones we can get a lot of success but these markets are very, very hard to penetrate, if you don’t have the right tool set.
Mike: I just have a quick search for, something kind of running through my brain is where we’re talking about what constitutes a mature market and there’s terms like total addressable market and then serviceable available market, which to me it seems like going back to the example of, if there’s a total of 100,000 countertop installers but only 500 of them are actually using that type of software then maybe your serviceable market is only about 1000 or maybe it’s 750 or something like that versus the total market which is 100,000. And you can look at that and say, well, if the established players have 50% or 75% of the serviceable market, which again is only 750 or 1000, then that’s a fairly significant chunk of those people. And it’s because those types of people are resistant to adopting technology or adopting software solutions for that. And maybe the delineation there is like, are they established players? Do they have most of the addressable market or the serviceable market?
Rob: Yeah, I think that’s a good differentiation there. As I think through this, when I think of mature markets, where there is a lot of adoption. So let’s flip back to the ESP or the CRM or markets where total addressable and serviceable are approximately equivalent, or at least 80%, 70% of the total addressable is already using some type of software and is able and willing to pay for this, I don’t know that I can think of a really good reason not to try to disrupt one of these markets if that’s your ambition.
Like, disrupting an existing market is where that hyper growth comes from and hypergrowth for us bootstrappers might be getting to seven figures in two years and hypergrowth for AirBnb and Stripe, maybe was getting to seven figures in six months, you know, past the point of product market fit. Because you think about AirBnb, did they invent a new market? No, they really essentially disrupted the hotel market. It was an existing place where people were already spending money on these things and they figured out a different way to implement it.
Stripe is the same one, I have them as an example later in this episode. Did invent a whole new market? Did payment processing exist before them? No, of course not. There was Off.net, there was PayPal Web Payments Pro. There were all these gateways and all these services that were really a pain in the ass to use. And Stripe came in and just made it a heck of a lot easier. And even, Drip is the same thing, I think about – there were already ESPs, there were already marketing automation providers. But that made it that much easier to basically pull existing people away who were unhappy with the current state of affairs.
That’s what I think you have to find, is if everyone in the market is using a product and loves it, then maybe you shouldn’t enter that market. But I don’t know of a mature market where people aren’t disgruntled and you think of QuickBooks. Everybody hates QuickBooks, but everybody uses it. So is that right for disruption, you think of Slack, everybody uses Slack but now we see level.app from Derek Reimer, there’s a couple other apps in that space as well.
The more I think about—if that’s your ambition, and you’re willing to really go to the mattresses because it’s going to be a hard fight. I don’t know that there’s a good reason not to try to disrupt. Honestly, if you want to build a little niche lifestyle business and generate that low six-figure income and have it on autopilot and be able to work five or 10 hours a week, then don’t go into a mature market. That’s where I would say, think twice about it, because I’ve had apps like that and they don’t have the great single channel of traffic, and they made whatever it is maybe $1000 a month, and maybe it was 10 grand a month. But there were these awesome little niche products. I mean, they were not—they were in these very nascent markets in these very tight niches and you could autopilot them, but they would never grow past that.
And so, I think that’s the thing to think about, your personal preference. Does it sound interesting, fun to do the hard work and the stress of going after these mature markets? Because I think my hypothesis is that, like, most mature markets right now are ripe for disruption in one way or another.
Mike: Now, one question I have about everything that you just said there is that, it feels to me like a lot of what you talked about relates to the product itself and not necessarily the channels at which those markets are accessible. And something that really comes to mind is enterprise sales for certain types of software, so anything that’s installed across the entire organization, whether it’s 500, or 1000, or 50,000 endpoints in that environment, it feels to me like those are cases where it’s probably a mature market already. You probably can’t start there on day one, you’re going to have a really hard time going into those and being able to offer something that is going to compete with existing solutions. One, because they’re so far ahead of you, but two, also to be able to have the resources to walk in the door and do that at 10, 50, 100 different potential customers, because you don’t necessarily have the time. So, I feel like the channel that you use, that you’re going to get in front of these customers has to come into play here.
Rob: Yeah, no, it absolutely does. That’s where bootstrapping versus raising funding comes into play. If you’re going to bootstrap then your point is dead on. Don’t go after enterprise sales and a mature market because you’re just not going to have the cloud, you’re not going to have the logos, you’re not going to have the time to execute on that.
I have a good friend here in Minneapolis, who has worked for two different companies over the past few years. Both of them were heavily, heavily venture funded and both were going after these massive and mature markets. One was like data storage and the other one, I don’t even really know exactly what it is. But it’s deep-tech stuff. It’s stuff that kind of competes with like parts of AWS, or it competes with stuff that HP or HPE has, or launches or whatever. And yes, they were upstarts but they had to raise buckets of funding in order to do that and build out a team in advance of having any real revenue. And if it works, then they’ll take part of this huge deck of billion dollar market, but that’s the gamble. If it doesn’t work, then they’ll burn through their funding. If they have enough traction after 18 months, they won’t be able to raise the next round.
Obviously, we tend to talk to more to bootstrappers and folks who are listening to this podcast or probably on that side, but it is possible it’s just a whole different playbook if you’re going to do that.
One other exception I can think of when I would give it a second thought as to whether or not I wanted to enter a mature market is if there are other startups also entering that same space who are getting traction. To me, I’m more scared of other startups than I am the big, lumbering, 800-pound gorillas in the space, right? I’m less scared of sales or competing with Salesforce and I’d be more concerned of competing with Pipedrive or one of the other like, smaller, more agile CRMs that I see kind of innovating and things.
Mike: Yeah, I would agree with that. Although there are certain times where if your features start to show up in Gmail or something like that, like you probably want to be a little concerned.
Rob: Yeah, I agree. That’s just Gmail or Salesforce is going to move so much slower that it’s almost by coincidence. I feel like, if you build a feature and one of them, build it within a few months, they’ve probably been working on that for six or eight months. They don’t move fast enough to copy a little upstarts, until you become not a little upstart.
Mike: Yeah, for sure.
Rob: The other thing I would think about perhaps not entering a space, is if you find a space that doesn’t have early adopters. So you find a market – because that’s what you’re going to need, right? You’re going to need, you’re going to need early adopters to basically jump ship on existing solutions who are willing to switch. If you found a space where there are no early adopters—we could go back to that example where we had the company who only had five percent market penetration, and it took them 10 years to get that, it’s pretty obvious no one wants to change. And so, there really aren’t going to be, early adopters.
I can’t think of another good example. I mean, maybe I think of like, the legal space. I know that, when I was a consultant, I worked for a guy who launched a product and legal space. I remember, he just had a really tough time getting traction, because there were not many early adopters in that space. So that could be, I don’t know, that space today and maybe there are more early adopters, but it’s spaces like that that I think are going to be hard to compete with where, the person’s motto is, “Well, I never got fired for choosing IBM,” or “I never got fired for choosing Salesforce.” If that’s really the mantra of everyone, then it’s going to be hard to penetrate.
Mike: I think the other consideration there is whether or not you have to essentially build something that is going to completely replace an existing solution, or you’re just solving an extreme pain point that an existing solution doesn’t solve adequately. And if people are angry about it and looking for a solution to that and they’re willing to plug your product, in addition to whatever it is that they already have as kind of a stopgap measure because it’s so painful versus you have to—it’s the difference between implementing two or three features versus implementing 250 because you have to completely rip and replace that entire product.
I think you have a lot easier time if you only have to implement a couple of things. And if you execute on them really well, people are willing to spend a little bit of extra money to get your solution in there because they’re in such a huge amount of pain.
Rob: So the third part that I want to cover is if you decide to do this, how do you execute on it? I think the thing that – maybe the common wisdom is you have to be 10x better in order to get people to switch. I would say yes and no to that. I don’t know that you need to directly build a 10x better product. I think you do need to build a better product. But I think there’s other things that you can improve upon that are not just product basis, not just a feature race or usability race. So I want to talk about three or four ways that I feel like you could be two-x better in each and perhaps they multiply together to give you more than more than 10x and this really comes out. I mean, the more I wrote this down, this just came out of the Drip playbook. It’s the playbook that I executed as we as we built Drip up and it was these four places where we innovate.
There may be more but this is what comes to mind. The first is, price and if you’re in a mature market and you have a huge player, they often have pricing power where they their brand name and they can charge a lot more than everyone else and you won’t be able to without that brand name. And not only can you not charge that much but you can use that strength of that player against them. And if your product—It’s easier to use and you’re cheaper, you can get these early adopters to start switching
Now, you and I’ve talked a lot about Don’t be the low cost provider. The point is not to be the low cost provider forever. It’s long term to raise your prices. But in the early days trying to price match a large competitor with a brand name, when you don’t have the feature set that they do, it’s going to be difficult.
And so, either price innovation, where you’re innovating on the pricing model itself, that’s risky, but you can think about it or just being cheaper. Again, it cuts in multiple directions. It can bring people who turn or who are more price sensitive in all honesty with drip. I mean, we were priced against Infusionsoft, and Infusionsoft was $300 a month to start and it had a $2000 sign-up fee that you paid right at the beginning.
And that was easy to be cheaper than them and still turn a heck of a profit, right. But we could start at $50 or $100 a month and still not have people who were super price sensitive because if you’re paying $50 or $100 a month, you still have buy-ins, it’s not like we’re going down to $20 a month or something. And so, that’s the kind of pressing I’m talking about, right? Or Salesforce, I believe, is $125 per seat per month, if I recall.
Think about being able to innovate on that and charge $20 or $30 a month per seat, that’s still a nice revenue stream as you’re getting started, and you’re not bottom of the barrel, you’re not a B2C pricing, but it is and can be a competitive advantage, especially in the early days.
Mike: Yeah, I think what you’re kind of referring to there is not using the price as just the sole way to get in the door and be cheaper like because, obviously, you don’t want to do that long term, but it’s really to unlock that the unwillingness to move by having the cheaper price and get them to take that step. You reduce the friction enough by lowering the price to be able to get them to say, “Well, you know what, I’ll give it a shot,” versus if you are priced exactly the same and you have an identical feature set or they have a much better feature set because you’re just not there and they’re mature in the market, then it makes it easier for them to justify giving it a shot. Or even just like saying, “Okay, you know what, I can’t buy into all that stuff because I can’t afford it right now.” Or I’m not even using 90% of it.
I’ve seen a lot of mature solutions out there where they will throw every feature under the sun into the product. And eventually it just becomes this model with that is difficult for some people to adopt. Because they know that they’re not going to use 80% of it. They’re like, “Well, why am I paying this much money for something, I’m only using 10% or 20% off.”
Rob: Second place, I feel like you can innovate and outmaneuver your bigger competitors with the sales model. Oftentimes, you’re competing against enterprise-ish sales models where they have high-tech sales process. You can’t sign up on the site, you have to see a demo. There’s often setup fees to pay the hefty commissions they’re paying to the sales processes. And so, if you bring them and make them, either no touch, or low touch, or even medium touch, you can innovate on that process.
Again, coming back to Salesforce, it’s very hard to go to their site. I don’t believe you can just go to their site and sign up for an account. You have to go through this long process. Whereas with Pipedrive, you can go and sign up for it. Same thing with with Infusionsoft versus Drip, that was always a differentiator, is that you could come and try Drip out, there was a free trial. Infusionsoft, you didn’t even get to see the product unless you were on a demo. They didn’t want to in there playing around with it. So that can be another way to, basically, bring your innovations to the masses and outmaneuver folks and it’s not a product, it’s not just a feature, usability, it’s actually implementing a different sales model that can be more conducive to bring on early adopters.
Mike: I would say that this cuts the other way as well. Because if there are products out there that don’t offer like the ability to get on to a demo because they’re trying to be mass market and they’re trying to have a low-touch sales process. If you go the other direction, then you can have a lot of success there because you can get those people who have given those solutions to try and they got confused or lost and they just said, “Well, how do I get on a demo or have somebody show me something.” And if that company doesn’t offer it and you do, then you can get them on a call and you can – I won’t say gloss over the things that your product can’t do but you can essentially offer to do those things for them and do that high touch onboarding process and thereby justify a higher price tag for your software.
Rob: The third area where I feel like you can outmaneuver the big competition is in product and this one I it’s really hard to do. But it’s pretty straightforward to describe it. You make it way easier to use, which doesn’t tend to be that hard when you’re dealing with larger clumsier companies with 10 or 12-year-old code bases, you ship faster—so you have a better shipping velocity of new features. And it feels like products are constantly improving versus there are once or twice a year launch cycles and you build a unique feature, or two, or three that no one else has for now. You try to figure out a way to go back to first principles and innovate on something that is really hard for them to do.
So, adding automation into your ESP, when it takes everybody else a year to do it. Because the code base and they’re already at scale is one way to do that, or adding a lot of integrations that you know, that the early adopters will use that your competitors have not added. Because again, they just move slower than you do. So, you know, you look around and you say, “Oh, there’s this whole new ecosystem around Stripe.” And there’s there, Baremetrics, and there’s ProfitWell, and there’s Termbusters, and there’s Stunning, and there’s all this stuff, it’s like, you know, Infusionsoft or Salesforce, they’re not going to integrate with those tools yet, because they’re just not on their radar. But if you integrate with all of them, you could scoop up this early adopter, you know, the bootstrapper crowd the, the online business folks, because they use those tools. Gumroad is another one, but I want to, underscore that having those features is a short-term thing, because if they are successful, other folks will implement whether other upstarts or you know big competitors will implement them. But that’s how I think about, product innovation.
Again, easier said than done. But that is the playbook that I see working as, as startups try to attack these more mature markets.
Mike: Something else, I think that kind of falls under this bucket is just making your product look better. I mean, there’s products out there – I’ll specifically look at things like paychecks or ADP where, to log into them, you’ve got to have this weird looking JavaScript plugin on your website, that you load into the browser or some download that it looks terrible. It looks like it was built in the 80s because it actually was and they’ve never changed it. They’ve never updated it. And you end up with companies like Gusto that came out, which used to be ZenPayroll, and they just looked fantastic and just the look alone makes it feel like it’s in a more modern application.
Of course it is because it was just recently built, but the look and feel of it can go a long way towards making people feel like you’re responsive to the needs of the customers and you actually care about how your product looks and is presented.
Rob: I think that’s a great example. I think Gusto is another example of a company that entered a very mature market and through—I mean honestly, if you look at these points I hadn’t—so here’s a great example, because I was thinking about Drip, and Stripe, and others, when I wrote these four points of price, sales model product and marketing, which we’ll get into next. But gusto came in their price was cheaper than paychecks. I think I was using paychecks before at Gusto and Gusto was cheaper, Gusto’s sales model was so much better, it was all self served. I didn’t have to talk to people, it was a lot easier for me the product itself was easier to use. It was a better looking as you said, and they file, I don’t know, all my stuff. I guess Paychecks did some of that too, but the experience of Gusto in the communication is all via email, like click and do things like it is so much of a better thing and then their marketing, I would say that I really heard about it from word of mouth and the other three price sales model and product really drove that for me, but obviously their marketing to get into the hands of early adopters like us, I think was a pretty deliberate decision.
Mike: Yeah, I think the word of mouth marketing, if you have a good enough product that, I won’t say, it sells itself. But like if the customers that you have love it so much over the other things that they’ve tried then that word of mouth is really going to drive a lot of revenue for your new customers. And I don’t know how easy it is to recognize that that’s what’s actually going on. But I have seen that happen. And, there’s certain products that I’ve recommended where you look around and you don’t see a lot of marketing for them, but you’ve recommended them a lot to other people or other people have recommended those products to you. It’s just easy to see when those things are actually working.
Yeah. When you’re in a mature market, and the number one player is big, but everybody hates using it. That’s when word of mouth is huge. Because you will be you will become the thing that we’re all talking about, on our podcasts, at conferences on our blogs. I mean, think of Gusto or, again, ZenPayroll when it came out. Think of when Stripe came up, a ton of it was word of mouth.
Zenefits, it’s basically likes Gusto but for health insurance and other benefits. Drip had a really strong word of mouth in the early days. You know, there’s others. I’ll give another example, ready to wrap up, but we’re working on something that’s really hard to generate in general, and it can be a cap out, when people don’t know how they actually grew. I’ll often hear founders say – Oh just word of mouth, and it’s like, Yeah, I don’t think it really was word of mouth. You know, you just don’t really know, you don’t track your metrics. But in this case, like a mature market where you have this reviled number one player, I think getting in there, building a better product, better pricing, better sales model can really lead to word of mouth and some good stuff.
I think the other thing that they don’t mention about marketing in a space like this is you can take the approach of being the underdog, right? It’s easy to market against big guys when you can basically talk about being the anti them. So Salesforce had their – especially in the early days, no software, right. They had the circle with the red line through it and it said software in it because they were saying, no on-premise software, no massive installation and server footprints and stuff – we are just this thing in the cloud.
They were anti software. Less accounting was kind of the anti QuickBooks. I don’t know that they mentioned QuickBooks by name but I remember one of their headlines was about all accounting software sucks or sucks less. I mean, it was it was a good—It was a really interesting approach to it. Drip was the not Infusionsoft, what was my headline – lightweight marketing automation that doesn’t suck and I was implying that most marketing automation software sucks and listed the Marketos and Eloquas and the Infusionsofts that are just not fun to use and they’re not fun to be sold because the sales model sucks and they’re really expensive and here’s all the reasons that you don’t like them and here’s why we’re the opposite of all of that.
So, if you’re going to enter this market embrace market leaders’ strength and turn it into their weaknesses. I think it’s Jiu-jitsu, where if your opponent is really strong and he or she swings you do a parry and you let their momentum carry them through and that’s a big part of marketing against these really big players in established markets – is what is their biggest strength can be turned against them as the biggest weakness.
I feel like we’ve covered this topic pretty well. I think the one last thing I’ll say is we’ve given a ton of examples of people doing this, talked about Stripe, Gusto, Zenefits, Drip, and a few others. The one other example, I think, that’s doing a good job of it today is Superhuman and it’s that email client that—they’ve changed the sales model, they’ve actually gone from no touch the opposite direction, there’s onboarding, every person individually. Their product, from what I’ve heard, is easier to use and it’s amazing. Their marketing is, obviously – they’re doing a good job with it. Now, their price is interesting because they’re more expensive than any other ESPs. So that’s a whole that’s a whole other thing from extremely experienced founders that they’ve, basically, made a gamble to say we think we can build something truly 10x better and we’re going to charge for it.
I think they charge $30 a month, which if you think about it, compare Gmail to Superhuman, Gmail is essentially free. Although, I pay for it now because of how much storage I use, but, very different pricing model there. So they’re one example that’s doing it successfully today. And they’re not following, you know, the exact playbook that we’ve laid out here. But I they also have buckets of money. They’re three and four-time founders. So that’s where you can, in my opinion, you can start breaking rules because you know which rules to break.
Mike: Yeah, and that’s really a matter of like, certain types of people are in so much pain, that they are willing to be the early adopters and they’re willing to pay more money for it because it just makes their lives that much easier. And whereas no knock against Gmail because I use it as well but there’s certain things about Gmail that I wish were just a little bit easier and I’ve heard the guy who runs Superhuman spoke before and he’s talked about like, how the experience is really what they focus on and I’ve seen him commenting on Twitter here and there and showing pictures of all the different things that they’re testing. Somebody said, “Oh, why don’t you support this products on,” such and such. And he showed them a picture of like eight different laptops, where they were testing different variations of like the browser client, and he’s like, “We’re working on it but this is what we’ve got so far.”
It’s incredible because it partly tells a story, but it also explains or demonstrates how much pain certain people are in to be requesting that stuff and still willing to wait for it.
Rob: Yeah, and they worked on Superhuman, I believe, for 18 months to two years. It was a small team of developers before they launched. So they broke they broke a lot of “rules”. And again, it’s because they did have a lot of funding, they had prior exits. I mean, the guy had started Reportive and sold it to LinkedIn. And then, he had even another one before that.
When you get to that level, you’re just at the point where you can make some difficult calls and pivot out of the risk because of your experience in funding. Frankly, which is something I talked about earlier in this episode.
Mike: I’m sure Data had something to do with it.
Rob: Indeed.
Mike: Well, I think that about wraps us up for the day. Thanks to Eric Roberts for sending us that question. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribes to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike: It’s the end of the year, so I’m just doing a lot of end-of-year paperwork that’s—mostly required government filings and getting ready for taxes and stuff like that. I had to submit, I think it was a affidavit of eligibility for my health insurance and it had to be done before the end of this year for my health insurance to be able to be renewed in April or something like that. It’s like, come on, you have to be kidding me. This far and advance and at the end of the year they’re requesting it but whatever you have to do it.
Rob: Yeah, that’s fascinating. The end-of-year stuff is always a pain in the butt. Because I’m always taking this time off. I take a week off, sometimes a week and a half off but it’s not fully off. I’m recording podcasts and doing a few calls here and there but a lot of thinking and planning scheming for the next year, and so it’s a bummer to have to think about government filings and that kind of stuff during this time.
Mike: How about you? What’s new with you?
Rob: Well, you probably hear I’m a little sick right now. Happy New Year everyone. This episode goes live on New Year’s Day. I hope your hangover is treating you well, and that Mike and I can be there for you. And for me, it’s another year, man. My birthday is December 28. So I turned 34 this year.
Mike: Did you say 34?
Rob: Yeah, I’m glad you caught that. Good. So listeners may or may not know how old I am. But everyone knows now that I’m definitely not 34.
Mike: I’m surprised you didn’t try to shoot for like 29.
Rob: Yeah, now that would have been good. I still get carded here in Minneapolis. So they’re funny. In California, they don’t card you very much at bars once you look old enough, but they still card everyone here. So it’s kind of not. It’s something you say, like, “Oh, I still get carded.” But it’s like, everyone kind of gets carded here.
Mike: Yeah, certain places I’ve seen where, like it’s just as a general rule. They’re like, hey, it doesn’t matter. Like, you have to card everybody. And depending on where you are, certain states or jurisdictions, they’ll say that if you have a violation of any kind, like you immediately lose your liquor license, and then, like, your entire business is gone. So I think that’s the case of the next town over here in Massachusetts, and they’re like, they’re not willing to take the risk. So there’s like, “Yup, we card everybody and if you don’t have ID, too bad.”
Rob: Yeah, that’s funny, you know, I found a retreat in California, and I walked into a bar and they carded me and when I walked an interval said they didn’t card him and was just laughing and laughing because they were like, “You look so old dude,” and he went with it but I think that’s funny when one person in a group gets carded and it’s kind of obvious you’re all the same age and I believe he’s like a few years younger than me as well.
So we have three new iTunes reviews. Three Mike, three in December. This one is from MJ SFS, says best Startup podcast. I’m on my fourth software, venture to battlemaps.co, and this podcast has been invaluable. Keep up the great work guys.
Another reviewer says a podcasting masterpiece filled with actionable product focused insights. It’s never moved from the top of my podcast list. Robin Mike are always full of enthusiasm, insights and great knowledge acquired from years of actually building products.
Thanks so much for those five star reviews. If you have not left startups for the rest of us a five star review. I would invite you to log into Stitcher or iTunes and help us get a few more listeners help us stay motivated and help us on those long, lonely winter nights when we’re sad and considering crying ourselves to sleep, and instead, we actually read our iTunes reviews to make ourselves feel better.
Mike: Because we’re not actually 34.
Rob: That’s because we’re not actually 34. So this week’s topic is interesting. I was going through our listener questions and there was a question that I felt like almost warranted an entire episode. So, I started just hammering out a quick outline. It turns out, it’s at least an entire episode and could probably be a book chapter. But the question asked, his name is Eric Roberts and he’s asking about how to launch into a mature market. He says, I know from listening to you guys, the competition in place is a good thing. But what about an overly mature market? How can you tell if a market is primed for a new solution to an old problem? And I think there’s a lot of nuance to this. I mean, there’s the idea of, what is a mature market, then how can you tell when you should or should not enter one, and how do you execute on that those are kind of the three angles that I was thinking it through. And so, that’s what we’re going to talk about today.
Mike: Cool. So where do you start?
Rob: Let’s talk about, what is a mature market, a give a little definition and some examples. So when I think of a mature market, I think of a market that has established players that are well known. So, think of examples in CRM, it’s definitely mature market, there is Salesforce, there’s HubSpot, there’s Base, there’s Pipedrive, there’s a long list Trigger, CRM, long list of folks there.
In addition, I think in a mature market, there tends to be maybe two or three really obvious choices. So if I say CRM, a lot of people think of Salesforce, HubSpot, maybe Highrise maybe Base or Pipedrive, in email marketing, in ESPs, people think of MailChimp, they think of AWeber, they think of Infusionsoft. I mean, there’s this kind of short list, it’s the opposite of the long tail, it’s the fat head, it’s called where there’s a cluster of companies, be it one, two, or three that have the vast majority of the market and kind of sit at the top of the market share. In addition, I think the third piece of that is that there are these product norms that have developed.
So if you think about CRM, there’s this nomenclature of leads, and deals and contacts. And if you think of ESPs, there’s this, these norms that are developed, like lists and subscribers and forms. And so, while this may not be an exhaustive list of everything that defines a mature market, those are the three pieces that I think of, in my mind, that kind of defined it, that’s having established players, it’s having two or three obvious choices, and then having kind of norms or nomenclature that have developed through those products – and then in the other products that are also entering the space.
Mike: I think the easiest way to recognize whether or not something is a mature market is if you go out to a handful of people and say, “Hey, do you know of any companies that are in this particular software vertical, whether it’s you know, CRMs or mailing lists,” like if the people that you know, or who are in your circles who have any familiarity with that can name at least two or three or four different companies that are in that space then it’s probably a mature market, obviously, like if they’re if it’s a not well-known industry, for example, let’s say like virtual tabletop software. If you talk to a bunch of people who are in that particular industry, they’re going to know very well like who the players are. But it doesn’t necessarily mean that it’s a mature market.
Rob: Yeah, I think that’s a good point. I mean, anytime you see a forum post that’s like, what do you use for CRM, you know, and then you’ll get dozens of responses and almost everyone’s using a different one, or what do you use for your to do lists? And, you know, there’s, there’s dozens and bug tracking and issue tracking and all these things. So what’s interesting is, I don’t think, you know, a mature market doesn’t necessarily mean it’s a big market.
Mike: I was just thinking that.
Rob: Yeah, because to even think about like more aware software where they have a mature product in a market that has been around now for more than a decade. They build a SaaS app for countertop installers. People who install the actual physical tile that goes in a kitchen or bathroom and that’s not a huge market, right? That’s not a $100 million market. And yet if you were to try to enter that now they are so far ahead, the market has matured because they launched in, I don’t remember what it was like 2006 or 2007. And they’ve just kept adding things in and maturing the market during that time.
Mike: Well, I guess it makes – tt begs the question like, is it considered a mature market? Or is it like mature players in that market? How do you differentiate between those two things like CRM, lots of people use it so by definition you could call that a mature market but for table countertop installers, they are more aware as is very mature player in that market. But the market itself is small. So do you consider it a mature market? Because it’s not like there’s a lot of competition or a lot of people in that market? So like, is that a mature market. Do you consider that?
Rob: Well, I guess by my definition, I have three points or is there an established player or players in the countertop installer market? Yes, because there’s more aware. Is there one, or two, or three obvious choices? Yes, there’s more aware and I think they own most of the market, but there’s obviously at least one other competitor and have they developed product norms that may not have existed before software into the space. I don’t know their space well enough, but I’m guessing that there’s nomenclature in things in their product that they came up with that that didn’t exist before then.
So I would say yeah, I would say even a small market I understand your differentiation of mature product versus a mature market but I feel like once there is a mature product or two in a market the market becomes mature at that point yeah.
Mike: I was just kind of thinking about the product norms piece of it because if there aren’t a large number of products in that market and obviously like there’s room for that software to grow and for the products who are already in place to grow that’s fine but do the majority of countertop installers know about them? How many of them are actually using software of any kind or how many of them are looking for it? Do you see kind of the direction I’m going with that because like if there’s 100,000 countertop installers, but only 500 of them are using software of any kind. Does that establish a product norm, because that’s only five percent.
Rob: That’s a good point, yes, and imagine if they’d been around for, you know, if you’ve been around for 10 years. So you’d say, “Hey, this is a pretty mature product. There’s a lot of features, it’s stable,” all those things, but you only have five percent market penetration. Is that a mature market? I don’t know. I don’t know that I have a good answer to that, other than that either means that they’re not marketing very well. And we’ve now removed from more of our software that we’re doing a hypothetical at this point. But in that hypothetical where this company has been around for 10 years, they only have five percent market penetration, and there’s really no one else, it’s only five percent of market is even using software, then either that’s a really tough market. It’s a market that is highly resistant to technology, or that company is not marketing themselves very well, right? They’re not penetrating the market past five percent.
So I would then ask myself – If I wanted to enter that market, which of those is it, because if they’re not marketing very well, we’ll come in and out market them. But if the industry is just highly resistant to it, then that’s probably not a good market to throw yourself into.
Mike: And I would say that that’s probably a general rule. If it’s hard to get into them, then it’s because they’re resistant to change and resistant to adopting technology, then I would probably would avoid them in general. But it’s a very different story if they’re not marketing themselves very well. And you just trying to make a name for yourself there.
Rob: Right. And I think, that’s a good point. Because the kind of the second point that I wanted to cover, this question I want to answer is, how can you tell when you should or should not enter a mature market? I think we’ve just touched on one.
If you determine that, boy, this market is mature and really no one else wants to use software in it and I’m just going to have to be pulling from the existing competitor who only has five percent of the entire space that would give me pause, that tells me about the customer type and about the how they don’t want to change, right. So then that means that even getting them to switch from a competitor is going to be really difficult. I think also entering a mature market, I personally would not do that as a first time founder without money. One example that I kept coming back to of course is the one that I lived, entering a mature market with the drip, becoming an ESP and then becoming a marketing automation provider.
If I had not had the experience and the past successes that I had and did not have the self-fundability, you know, I was pulling money off of hit tail and other apps that I had, I don’t know that we could have made it. I don’t know that Drip would have survived because the market had so many mature players. Again, MailChimp, AWeber, Infusionsoft, and others – and it cuts both ways because, obviously, that’s what made it possible to grow Drip so quickly is that the market was – it did have opportunity. But if you’re a first time founder and you’re not going to raise funding, I would seriously reconsider trying to enter a mature market because these are the ones we can get a lot of success but these markets are very, very hard to penetrate, if you don’t have the right tool set.
Mike: I just have a quick search for, something kind of running through my brain is where we’re talking about what constitutes a mature market and there’s terms like total addressable market and then serviceable available market, which to me it seems like going back to the example of, if there’s a total of 100,000 countertop installers but only 500 of them are actually using that type of software then maybe your serviceable market is only about 1000 or maybe it’s 750 or something like that versus the total market which is 100,000. And you can look at that and say, well, if the established players have 50% or 75% of the serviceable market, which again is only 750 or 1000, then that’s a fairly significant chunk of those people. And it’s because those types of people are resistant to adopting technology or adopting software solutions for that. And maybe the delineation there is like, are they established players? Do they have most of the addressable market or the serviceable market?
Rob: Yeah, I think that’s a good differentiation there. As I think through this, when I think of mature markets, where there is a lot of adoption. So let’s flip back to the ESP or the CRM or markets where total addressable and serviceable are approximately equivalent, or at least 80%, 70% of the total addressable is already using some type of software and is able and willing to pay for this, I don’t know that I can think of a really good reason not to try to disrupt one of these markets if that’s your ambition.
Like, disrupting an existing market is where that hyper growth comes from and hypergrowth for us bootstrappers might be getting to seven figures in two years and hypergrowth for AirBnb and Stripe, maybe was getting to seven figures in six months, you know, past the point of product market fit. Because you think about AirBnb, did they invent a new market? No, they really essentially disrupted the hotel market. It was an existing place where people were already spending money on these things and they figured out a different way to implement it.
Stripe is the same one, I have them as an example later in this episode. Did invent a whole new market? Did payment processing exist before them? No, of course not. There was Off.net, there was PayPal Web Payments Pro. There were all these gateways and all these services that were really a pain in the ass to use. And Stripe came in and just made it a heck of a lot easier. And even, Drip is the same thing, I think about – there were already ESPs, there were already marketing automation providers. But that made it that much easier to basically pull existing people away who were unhappy with the current state of affairs.
That’s what I think you have to find, is if everyone in the market is using a product and loves it, then maybe you shouldn’t enter that market. But I don’t know of a mature market where people aren’t disgruntled and you think of QuickBooks. Everybody hates QuickBooks, but everybody uses it. So is that right for disruption, you think of Slack, everybody uses Slack but now we see level.app from Derek Reimer, there’s a couple other apps in that space as well.
The more I think about—if that’s your ambition, and you’re willing to really go to the mattresses because it’s going to be a hard fight. I don’t know that there’s a good reason not to try to disrupt. Honestly, if you want to build a little niche lifestyle business and generate that low six-figure income and have it on autopilot and be able to work five or 10 hours a week, then don’t go into a mature market. That’s where I would say, think twice about it, because I’ve had apps like that and they don’t have the great single channel of traffic, and they made whatever it is maybe $1000 a month, and maybe it was 10 grand a month. But there were these awesome little niche products. I mean, they were not—they were in these very nascent markets in these very tight niches and you could autopilot them, but they would never grow past that.
And so, I think that’s the thing to think about, your personal preference. Does it sound interesting, fun to do the hard work and the stress of going after these mature markets? Because I think my hypothesis is that, like, most mature markets right now are ripe for disruption in one way or another.
Mike: Now, one question I have about everything that you just said there is that, it feels to me like a lot of what you talked about relates to the product itself and not necessarily the channels at which those markets are accessible. And something that really comes to mind is enterprise sales for certain types of software, so anything that’s installed across the entire organization, whether it’s 500, or 1000, or 50,000 endpoints in that environment, it feels to me like those are cases where it’s probably a mature market already. You probably can’t start there on day one, you’re going to have a really hard time going into those and being able to offer something that is going to compete with existing solutions. One, because they’re so far ahead of you, but two, also to be able to have the resources to walk in the door and do that at 10, 50, 100 different potential customers, because you don’t necessarily have the time. So, I feel like the channel that you use, that you’re going to get in front of these customers has to come into play here.
Rob: Yeah, no, it absolutely does. That’s where bootstrapping versus raising funding comes into play. If you’re going to bootstrap then your point is dead on. Don’t go after enterprise sales and a mature market because you’re just not going to have the cloud, you’re not going to have the logos, you’re not going to have the time to execute on that.
I have a good friend here in Minneapolis, who has worked for two different companies over the past few years. Both of them were heavily, heavily venture funded and both were going after these massive and mature markets. One was like data storage and the other one, I don’t even really know exactly what it is. But it’s deep-tech stuff. It’s stuff that kind of competes with like parts of AWS, or it competes with stuff that HP or HPE has, or launches or whatever. And yes, they were upstarts but they had to raise buckets of funding in order to do that and build out a team in advance of having any real revenue. And if it works, then they’ll take part of this huge deck of billion dollar market, but that’s the gamble. If it doesn’t work, then they’ll burn through their funding. If they have enough traction after 18 months, they won’t be able to raise the next round.
Obviously, we tend to talk to more to bootstrappers and folks who are listening to this podcast or probably on that side, but it is possible it’s just a whole different playbook if you’re going to do that.
One other exception I can think of when I would give it a second thought as to whether or not I wanted to enter a mature market is if there are other startups also entering that same space who are getting traction. To me, I’m more scared of other startups than I am the big, lumbering, 800-pound gorillas in the space, right? I’m less scared of sales or competing with Salesforce and I’d be more concerned of competing with Pipedrive or one of the other like, smaller, more agile CRMs that I see kind of innovating and things.
Mike: Yeah, I would agree with that. Although there are certain times where if your features start to show up in Gmail or something like that, like you probably want to be a little concerned.
Rob: Yeah, I agree. That’s just Gmail or Salesforce is going to move so much slower that it’s almost by coincidence. I feel like, if you build a feature and one of them, build it within a few months, they’ve probably been working on that for six or eight months. They don’t move fast enough to copy a little upstarts, until you become not a little upstart.
Mike: Yeah, for sure.
Rob: The other thing I would think about perhaps not entering a space, is if you find a space that doesn’t have early adopters. So you find a market – because that’s what you’re going to need, right? You’re going to need, you’re going to need early adopters to basically jump ship on existing solutions who are willing to switch. If you found a space where there are no early adopters—we could go back to that example where we had the company who only had five percent market penetration, and it took them 10 years to get that, it’s pretty obvious no one wants to change. And so, there really aren’t going to be, early adopters.
I can’t think of another good example. I mean, maybe I think of like, the legal space. I know that, when I was a consultant, I worked for a guy who launched a product and legal space. I remember, he just had a really tough time getting traction, because there were not many early adopters in that space. So that could be, I don’t know, that space today and maybe there are more early adopters, but it’s spaces like that that I think are going to be hard to compete with where, the person’s motto is, “Well, I never got fired for choosing IBM,” or “I never got fired for choosing Salesforce.” If that’s really the mantra of everyone, then it’s going to be hard to penetrate.
Mike: I think the other consideration there is whether or not you have to essentially build something that is going to completely replace an existing solution, or you’re just solving an extreme pain point that an existing solution doesn’t solve adequately. And if people are angry about it and looking for a solution to that and they’re willing to plug your product, in addition to whatever it is that they already have as kind of a stopgap measure because it’s so painful versus you have to—it’s the difference between implementing two or three features versus implementing 250 because you have to completely rip and replace that entire product.
I think you have a lot easier time if you only have to implement a couple of things. And if you execute on them really well, people are willing to spend a little bit of extra money to get your solution in there because they’re in such a huge amount of pain.
Rob: So the third part that I want to cover is if you decide to do this, how do you execute on it? I think the thing that – maybe the common wisdom is you have to be 10x better in order to get people to switch. I would say yes and no to that. I don’t know that you need to directly build a 10x better product. I think you do need to build a better product. But I think there’s other things that you can improve upon that are not just product basis, not just a feature race or usability race. So I want to talk about three or four ways that I feel like you could be two-x better in each and perhaps they multiply together to give you more than more than 10x and this really comes out. I mean, the more I wrote this down, this just came out of the Drip playbook. It’s the playbook that I executed as we as we built Drip up and it was these four places where we innovate.
There may be more but this is what comes to mind. The first is, price and if you’re in a mature market and you have a huge player, they often have pricing power where they their brand name and they can charge a lot more than everyone else and you won’t be able to without that brand name. And not only can you not charge that much but you can use that strength of that player against them. And if your product—It’s easier to use and you’re cheaper, you can get these early adopters to start switching
Now, you and I’ve talked a lot about Don’t be the low cost provider. The point is not to be the low cost provider forever. It’s long term to raise your prices. But in the early days trying to price match a large competitor with a brand name, when you don’t have the feature set that they do, it’s going to be difficult.
And so, either price innovation, where you’re innovating on the pricing model itself, that’s risky, but you can think about it or just being cheaper. Again, it cuts in multiple directions. It can bring people who turn or who are more price sensitive in all honesty with drip. I mean, we were priced against Infusionsoft, and Infusionsoft was $300 a month to start and it had a $2000 sign-up fee that you paid right at the beginning.
And that was easy to be cheaper than them and still turn a heck of a profit, right. But we could start at $50 or $100 a month and still not have people who were super price sensitive because if you’re paying $50 or $100 a month, you still have buy-ins, it’s not like we’re going down to $20 a month or something. And so, that’s the kind of pressing I’m talking about, right? Or Salesforce, I believe, is $125 per seat per month, if I recall.
Think about being able to innovate on that and charge $20 or $30 a month per seat, that’s still a nice revenue stream as you’re getting started, and you’re not bottom of the barrel, you’re not a B2C pricing, but it is and can be a competitive advantage, especially in the early days.
Mike: Yeah, I think what you’re kind of referring to there is not using the price as just the sole way to get in the door and be cheaper like because, obviously, you don’t want to do that long term, but it’s really to unlock that the unwillingness to move by having the cheaper price and get them to take that step. You reduce the friction enough by lowering the price to be able to get them to say, “Well, you know what, I’ll give it a shot,” versus if you are priced exactly the same and you have an identical feature set or they have a much better feature set because you’re just not there and they’re mature in the market, then it makes it easier for them to justify giving it a shot. Or even just like saying, “Okay, you know what, I can’t buy into all that stuff because I can’t afford it right now.” Or I’m not even using 90% of it.
I’ve seen a lot of mature solutions out there where they will throw every feature under the sun into the product. And eventually it just becomes this model with that is difficult for some people to adopt. Because they know that they’re not going to use 80% of it. They’re like, “Well, why am I paying this much money for something, I’m only using 10% or 20% off.”
Rob: Second place, I feel like you can innovate and outmaneuver your bigger competitors with the sales model. Oftentimes, you’re competing against enterprise-ish sales models where they have high-tech sales process. You can’t sign up on the site, you have to see a demo. There’s often setup fees to pay the hefty commissions they’re paying to the sales processes. And so, if you bring them and make them, either no touch, or low touch, or even medium touch, you can innovate on that process.
Again, coming back to Salesforce, it’s very hard to go to their site. I don’t believe you can just go to their site and sign up for an account. You have to go through this long process. Whereas with Pipedrive, you can go and sign up for it. Same thing with with Infusionsoft versus Drip, that was always a differentiator, is that you could come and try Drip out, there was a free trial. Infusionsoft, you didn’t even get to see the product unless you were on a demo. They didn’t want to in there playing around with it. So that can be another way to, basically, bring your innovations to the masses and outmaneuver folks and it’s not a product, it’s not just a feature, usability, it’s actually implementing a different sales model that can be more conducive to bring on early adopters.
Mike: I would say that this cuts the other way as well. Because if there are products out there that don’t offer like the ability to get on to a demo because they’re trying to be mass market and they’re trying to have a low-touch sales process. If you go the other direction, then you can have a lot of success there because you can get those people who have given those solutions to try and they got confused or lost and they just said, “Well, how do I get on a demo or have somebody show me something.” And if that company doesn’t offer it and you do, then you can get them on a call and you can – I won’t say gloss over the things that your product can’t do but you can essentially offer to do those things for them and do that high touch onboarding process and thereby justify a higher price tag for your software.
Rob: The third area where I feel like you can outmaneuver the big competition is in product and this one I it’s really hard to do. But it’s pretty straightforward to describe it. You make it way easier to use, which doesn’t tend to be that hard when you’re dealing with larger clumsier companies with 10 or 12-year-old code bases, you ship faster—so you have a better shipping velocity of new features. And it feels like products are constantly improving versus there are once or twice a year launch cycles and you build a unique feature, or two, or three that no one else has for now. You try to figure out a way to go back to first principles and innovate on something that is really hard for them to do.
So, adding automation into your ESP, when it takes everybody else a year to do it. Because the code base and they’re already at scale is one way to do that, or adding a lot of integrations that you know, that the early adopters will use that your competitors have not added. Because again, they just move slower than you do. So, you know, you look around and you say, “Oh, there’s this whole new ecosystem around Stripe.” And there’s there, Baremetrics, and there’s ProfitWell, and there’s Termbusters, and there’s Stunning, and there’s all this stuff, it’s like, you know, Infusionsoft or Salesforce, they’re not going to integrate with those tools yet, because they’re just not on their radar. But if you integrate with all of them, you could scoop up this early adopter, you know, the bootstrapper crowd the, the online business folks, because they use those tools. Gumroad is another one, but I want to, underscore that having those features is a short-term thing, because if they are successful, other folks will implement whether other upstarts or you know big competitors will implement them. But that’s how I think about, product innovation.
Again, easier said than done. But that is the playbook that I see working as, as startups try to attack these more mature markets.
Mike: Something else, I think that kind of falls under this bucket is just making your product look better. I mean, there’s products out there – I’ll specifically look at things like paychecks or ADP where, to log into them, you’ve got to have this weird looking JavaScript plugin on your website, that you load into the browser or some download that it looks terrible. It looks like it was built in the 80s because it actually was and they’ve never changed it. They’ve never updated it. And you end up with companies like Gusto that came out, which used to be ZenPayroll, and they just looked fantastic and just the look alone makes it feel like it’s in a more modern application.
Of course it is because it was just recently built, but the look and feel of it can go a long way towards making people feel like you’re responsive to the needs of the customers and you actually care about how your product looks and is presented.
Rob: I think that’s a great example. I think Gusto is another example of a company that entered a very mature market and through—I mean honestly, if you look at these points I hadn’t—so here’s a great example, because I was thinking about Drip, and Stripe, and others, when I wrote these four points of price, sales model product and marketing, which we’ll get into next. But gusto came in their price was cheaper than paychecks. I think I was using paychecks before at Gusto and Gusto was cheaper, Gusto’s sales model was so much better, it was all self served. I didn’t have to talk to people, it was a lot easier for me the product itself was easier to use. It was a better looking as you said, and they file, I don’t know, all my stuff. I guess Paychecks did some of that too, but the experience of Gusto in the communication is all via email, like click and do things like it is so much of a better thing and then their marketing, I would say that I really heard about it from word of mouth and the other three price sales model and product really drove that for me, but obviously their marketing to get into the hands of early adopters like us, I think was a pretty deliberate decision.
Mike: Yeah, I think the word of mouth marketing, if you have a good enough product that, I won’t say, it sells itself. But like if the customers that you have love it so much over the other things that they’ve tried then that word of mouth is really going to drive a lot of revenue for your new customers. And I don’t know how easy it is to recognize that that’s what’s actually going on. But I have seen that happen. And, there’s certain products that I’ve recommended where you look around and you don’t see a lot of marketing for them, but you’ve recommended them a lot to other people or other people have recommended those products to you. It’s just easy to see when those things are actually working.
Yeah. When you’re in a mature market, and the number one player is big, but everybody hates using it. That’s when word of mouth is huge. Because you will be you will become the thing that we’re all talking about, on our podcasts, at conferences on our blogs. I mean, think of Gusto or, again, ZenPayroll when it came out. Think of when Stripe came up, a ton of it was word of mouth.
Zenefits, it’s basically likes Gusto but for health insurance and other benefits. Drip had a really strong word of mouth in the early days. You know, there’s others. I’ll give another example, ready to wrap up, but we’re working on something that’s really hard to generate in general, and it can be a cap out, when people don’t know how they actually grew. I’ll often hear founders say – Oh just word of mouth, and it’s like, Yeah, I don’t think it really was word of mouth. You know, you just don’t really know, you don’t track your metrics. But in this case, like a mature market where you have this reviled number one player, I think getting in there, building a better product, better pricing, better sales model can really lead to word of mouth and some good stuff.
I think the other thing that they don’t mention about marketing in a space like this is you can take the approach of being the underdog, right? It’s easy to market against big guys when you can basically talk about being the anti them. So Salesforce had their – especially in the early days, no software, right. They had the circle with the red line through it and it said software in it because they were saying, no on-premise software, no massive installation and server footprints and stuff – we are just this thing in the cloud.
They were anti software. Less accounting was kind of the anti QuickBooks. I don’t know that they mentioned QuickBooks by name but I remember one of their headlines was about all accounting software sucks or sucks less. I mean, it was it was a good—It was a really interesting approach to it. Drip was the not Infusionsoft, what was my headline – lightweight marketing automation that doesn’t suck and I was implying that most marketing automation software sucks and listed the Marketos and Eloquas and the Infusionsofts that are just not fun to use and they’re not fun to be sold because the sales model sucks and they’re really expensive and here’s all the reasons that you don’t like them and here’s why we’re the opposite of all of that.
So, if you’re going to enter this market embrace market leaders’ strength and turn it into their weaknesses. I think it’s Jiu-jitsu, where if your opponent is really strong and he or she swings you do a parry and you let their momentum carry them through and that’s a big part of marketing against these really big players in established markets – is what is their biggest strength can be turned against them as the biggest weakness.
I feel like we’ve covered this topic pretty well. I think the one last thing I’ll say is we’ve given a ton of examples of people doing this, talked about Stripe, Gusto, Zenefits, Drip, and a few others. The one other example, I think, that’s doing a good job of it today is Superhuman and it’s that email client that—they’ve changed the sales model, they’ve actually gone from no touch the opposite direction, there’s onboarding, every person individually. Their product, from what I’ve heard, is easier to use and it’s amazing. Their marketing is, obviously – they’re doing a good job with it. Now, their price is interesting because they’re more expensive than any other ESPs. So that’s a whole that’s a whole other thing from extremely experienced founders that they’ve, basically, made a gamble to say we think we can build something truly 10x better and we’re going to charge for it.
I think they charge $30 a month, which if you think about it, compare Gmail to Superhuman, Gmail is essentially free. Although, I pay for it now because of how much storage I use, but, very different pricing model there. So they’re one example that’s doing it successfully today. And they’re not following, you know, the exact playbook that we’ve laid out here. But I they also have buckets of money. They’re three and four-time founders. So that’s where you can, in my opinion, you can start breaking rules because you know which rules to break.
Mike: Yeah, and that’s really a matter of like, certain types of people are in so much pain, that they are willing to be the early adopters and they’re willing to pay more money for it because it just makes their lives that much easier. And whereas no knock against Gmail because I use it as well but there’s certain things about Gmail that I wish were just a little bit easier and I’ve heard the guy who runs Superhuman spoke before and he’s talked about like, how the experience is really what they focus on and I’ve seen him commenting on Twitter here and there and showing pictures of all the different things that they’re testing. Somebody said, “Oh, why don’t you support this products on,” such and such. And he showed them a picture of like eight different laptops, where they were testing different variations of like the browser client, and he’s like, “We’re working on it but this is what we’ve got so far.”
It’s incredible because it partly tells a story, but it also explains or demonstrates how much pain certain people are in to be requesting that stuff and still willing to wait for it.
Rob: Yeah, and they worked on Superhuman, I believe, for 18 months to two years. It was a small team of developers before they launched. So they broke they broke a lot of “rules”. And again, it’s because they did have a lot of funding, they had prior exits. I mean, the guy had started Reportive and sold it to LinkedIn. And then, he had even another one before that.
When you get to that level, you’re just at the point where you can make some difficult calls and pivot out of the risk because of your experience in funding. Frankly, which is something I talked about earlier in this episode.
Mike: I’m sure Data had something to do with it.
Rob: Indeed.
Mike: Well, I think that about wraps us up for the day. Thanks to Eric Roberts for sending us that question. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribes to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
> because if you’re paying $50 or $100 a month, you still have buy-ins.
What’s “buy-ins”? Could you explain a little bit more?
Good question. Yeah, “buy-ins” was not the right word there.
What I meant was that you still have someone who’s committed to your product. Who’s “bought into it,” so to speak. When someone is paying $99/month for 6 months the product is often pretty important to them. When they are paying $20/month it’s often a less necessary tool that they rely on less, so they are more likely to churn.
A generalization, but true more often than not in my experience.