Overview of Growth Marketing Insights from Rachel Hepworth, Slack
Rachel is a very experienced marketer with a background spanning several high-growth startups, including Slack, LinkedIn and Climate Corp that sold to Monsanto for a little over a billion dollars about five years ago.
Here is what we learned from her talk. You can watch it in full in the video below this digest.
Business Model Fits
Rachel set out very clearly how to think about some key business model fits and how to find those fits, how to think about growth, the key growth tactics and strategies and measure them.
People talk a lot about product market fit. It sounds like a really easy concept, but one that’s really easy to forget when you’re in the midst of trying to build your company and your idea is fantastic. Rachel said she made this mistake at Climate Corp, where the founders had a vision: they built up the product and the company before asking anybody if they actually wanted that product. The hard reality was nobody wanted that product because they didn’t ask them. So they scaled before finding product-market fit, which was really painful.
How is product market fit defined? Rachel likes Marc Andreessen’s definition, who basically says:
“Product market fit means being a good market with a product that can satisfy that market.”
So if you break this down, what does this mean? Being in a good market means being in a market that is large enough to sustain your business. You can envision a world, where you have fantastic product market fit and your market is one person. Unless that person is Richard Branson and he’s going to buy your spacecraft or whatever it is, it’s probably not a good idea to build a company off of it.
And then a product that can satisfy that market is obviously a product that satisfies a particular need that the market has, but the key thing is that product market fit is not the only fit that matters and this is something that’s often overlooked.
Rachel elaborated on a very useful framework that Brian Balfour recently came up with. He called it the market-product-channel model fit and it’s about how you have to master all of these fits if you’re going to have a company that is successful and grows.
If one breaks it down, it looks like follows:
- The first is the market, i.e. who you are selling to and this is going to define your opportunity. Its size drives how big your company can grow. It’s not always easy because defining the market correctly is not always simple. In a classic example that people quote is Uber, where the market was taxis, but it’s actually not taxis, it’s basically anything that needs to move from point A to point B. In a market, one needs to think about who are the people, what are the challenges that they’re trying to solve, do they know they have those challenges (because it makes a difference if they realise they have them or not) and then do they care about them (because sometimes they have a challenge, but they just don’t care about it that much so it’s still not a particularly good market to enter).
- Product is obviously what you’re selling and then product-market fit is if you are selling something that solves a real need of the market.
- The next fit is channel – it’s about where you’re selling it. This can be online ads, this can be field sales, this could be a retail store – how are you getting that product to the market. Balfour’s insight is really that you can’t change the channel – you can only optimise your product to fit a channel.
- So as an example of this, if you have a high-volume transactional, quick time-to-value product – a good example is travel like Priceline – your channel can be online ads because people know what it is, they understand the need, they search for it, they buy it, they get the value from it right away, it works really well. If you have a low volume product that needs a lot of education online, ads is not going to work as well because people don’t trust you enough to purchase the product. If you have a product that is inherently viral, you can use social. So LinkedIn works really well. Priceline strategy if we’re going to go viral and that’s how we’re going to scale is clearly not going to work that well because the product isn’t built for that channel.
- And then model is inherently about how much you’re selling it for. So do you have a high-cost/low-volume model, do you have a low-cost/high-volume model and that’s going to influence the channel that you sell in. Because once again a high-volume/low-cost model will work really well in ads, but something that is a million dollars – good luck getting somebody to buy it online, without speaking to a human being! You probably need something like field sales consultative selling. That’s the classic enterprise SAAS model.
- And you can’t mix these up, so a classic mistake people have made is thinking that they have built a better mousetrap and now they can do an SEM ad for something that cost five hundred thousand dollars because their product is so amazing and people are going to buy and it’s the new way of working. This is not reality and Rachel tells us from her Slack experience that it was an evolution they had to go through. Slack now has a large field sales component.
- And then finally market-model fit. So again if your model is low-cost/high-volume and your market is five people, you fundamentally have a problem. So you have to make sure that your market and model fits. And the key is that all of these things need to work together for your business to scale successfully.
Rachel gave a great illustration of a real-life example of what happens when this goes wrong. A classic example of that was Climate Corp, which actually had a lot of these fits correct, but what they got wrong fundamentally was the market and what that means is there was a domino effect where everything else fails when one of your assumptions turns out to be untrue.
Climate Corp, originally called Weather Bill and rebranded to sound more adult and sophisticated, was built on this concept that weather impacts 80% of businesses in the world. So if you’re a ski resort and it’s too warm or you’re NASCAR and it rains, or you’re a grocery store and there’s a snowstorm and you can’t get your trucks through on time, there’s real financial impact from the weather and there’s actually no way to mitigate that risk at that time.
“wouldn’t it be a great idea if we build a weather insurance product that was highly customisable, you can edit it online, and you can buy easy contracts in just a few minutes to protect against weather risk, just like you do flood insurance, car insurance, whatever it may be and then you could have more predictable revenue. Market is huge because it’s 80% of all businesses, the risk is clear, financial impact is obvious, so we clearly have a winner!”And the answer was:
“we do not have a winner”!The reason for that is that nobody understands weather risk. The founders did because they spent years researching it, but if you ask your local bike shop, if they suffer if there’s one inch of rain or two inches of rain and what are the dates that that rain might fall, how much money they’re going to lose what if it’s super-hot, do they get fewer bike rentals on that day? They simple don’t know! So a highly customized model just meant many opportunities to select the wrong inputs for something you’ve never heard about before. And then hand over money to prevent losing money versus to make money. All things that make it particularly unattractive to a small business owner, but Climate Corp didn’t realise this at the time. They thought they were brilliant.
This market that we envisioned, this very large market did not exist, it wasn’t real. There wasn’t market in here that was real that we eventually did figure out and that is it’s a particular industry: agriculture! So who has weather risk and they really know it right deep in their bones – it’s farmers! What specifically is the agriculture that has the most risk in terms of revenue – it’s corn and soybean because it turns out that’s 80% of farming and they have very similar risks. Who’s willing to spend a lot of money to protect their crops? It’s farmers. So the market was there, but it was a different one than we originally envisioned and it also is very different from the thousands of SMBs that we pictured.So what happened? So Climate Corp got their market wrong and because they got their market wrong, they got their product wrong – they built a product that could be customised by anybody online, highly iterable, but not specific so you had to understand your own risk. They didn’t tell you what it was. So the product market fit wasn’t there, Climate Corp ended up creating a correct product market fit by deeply understanding the risk that the farmers had and then serving enough to them. So instead of saying “hey corn farmer, you got a lot of risk, go buy a contract, figure it out”, they said:
“Hey we know that when your corn is pollinating, if there’s low heat, it won’t pollinate, you’ll lose money. Here is a corn pollination heat stress – all we need to know is where is your farm located and how many acres do you have (which is something that people do have a great deal of confidence in), so you’ve removed that risk.”Because they had the market wrong, they had their channels wrong. So the founders came from Google (this was about 10 years ago) and they believed the world was going to be transformed by Adwords and all businesses would be sold through Adwords. As you know, they weren’t totally wrong, but they were a little bit wrong. Turns out that weather insurance does not work to be sold through Adwords and there are a couple reasons why:
- didn’t exist before so nobody’s searching for it,
- people don’t understand it. They land on a website and you’re asking you to give a lot of money to a company you’ve never heard of.
So you have a hypothesis, you don’t go all in, you test it, you prove it, you either iterate, because it didn’t work or you invest more deeply, which is a fundamental mistake that they made in the beginning of Climate Corp.
- The first two stages of customer development are really about building out those four fits that Balfour talked about a lot and the second are about scaling your business.
- So customer discovery is about understanding the problem your customer has and validating that it’s real.
- Customer validation is validating that you can sell to them so not only do they need to have a problem – they need to be willing to purchase a solution.
- Then company creation is about creating a scalable process to keep selling.
- And then company building is about operationalising that process so you can scale.
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