Retooling for Reality

The coronavirus pandemic has rendered us reliant on technology for nearly everything we need to do these days. While that’s made a lot of us more appreciative of technology, it’s also bringing our attention to places where it could be better – or places where it doesn’t even exist yet. From audio visual technology and collaborative software platforms that could make remote working, (and learning, and socializing, and everything else) closer to the real thing, to tools that enable organizations to become more efficient and resilient (particularly in stressful times like today), now is clearly a time for innovation. But how should entrepreneurs think about product development at critical moments like now?

Greylock partner David Thacker sat down with Greymatter to share his thoughts on the current environment, and why now is a challenging yet opportunity-rich moment for technology entrepreneurs. David, who joined Greylock earlier this year, previously worked in product leadership roles at major tech companies such as Google, LinkedIn and Groupon.

This episode is part of our #WorkFromAnywhere podcast series. You can listen to the latest here.

Why is now a good time to build new products (and companies)?

“It’s been a huge accelerant for adoption of technology for both consumers and enterprise, both for startups and for large incumbents. I think it is making everyone much more open-minded about new tools in ways that they wouldn’t be before.”

“Recessions and other moments of uncertainty can be a great time to build out your product, because as a startup (especially at an early stage) you’re somewhat immune to the larger macroeconomic cycles. And there are a lot of other advantages – there’s high unemployment, so it’s generally easier to recruit and retain talent, and it’s easier and cheaper to find office space (if you need it at all). Plus, you are in the business of selling solutions to larger organizations that help them solve problems and give them new capabilities at a time when they need it most. If your product is creating more efficiencies [for customers] and eventually saves them money in the long term, they will be very receptive to you.”

“It’s a good time to iterate. You can power through a recession or a pandemic and continue to grow and perfect your solution and make it better. And then when the economy starts to normalize or come back, you’re really well positioned to start scaling up fast and taking market share.”

“Economic downturns almost always produce outstanding companies. If you go back in time to about 12 years ago, you’ll see that was when we had a number of the most successful startups in Silicon Valley, and that was true both for consumer and enterprise companies.”

“As a startup, you’re better positioned to acquire new users with paid advertising. Most advertising models are now auction-based, and in economic cycles like the pandemic, the big advertisers pull back on their spending so there is less competition for impressions. That means rates are going to be much lower, so as a smaller company you may be able to acquire users cheaper than you ever could before, and with less of a fight for attention.”

What kind of trends are you seeing today that necessitate the need for new tools?

“There are still a lot of legacy on-premise tools and solutions, and those tools don’t work well in this modern working style. I think you’re going to continue to see the trend of every tool being real-time, being collaborative, and it will work just as well on mobile as it does on web or on desktop.”

“Even before the pandemic, in the last few years there have been a lot of shifts in the way the business world works. Professional work now is much more about project teams: a diverse set of people coming together to accomplish something discrete. This could be a short-term thing they need to create –  say a sales presentation, where you might pull together a bunch of people for two or three days –  or this could be a long running project that spans many years and perhaps includes a new product launch. But the main point is that the people working on these projects can be from different functions, different departments, different offices and locations all around the world. Oftentimes they may have teams that are composed of people inside your company, but it’s not uncommon for teams to also include people outside your company, whether that’s contractors or third parties or customers. One of the most popular features now on Slack is something called shared channels, which is the ability for two different organizations (or companies or multiple organizations) to have a shared working space and communication channel. So you’re seeing more and more work across companies, and I think that trend will persist post-pandemic. You need the right tool sets that will support this way of working.”

“Eventually, when people can go back to physical offices, people will still have to have in-person meetings and that will displace video (as the default), but I do think that people will become much more likely to converse via video when they have the choice of that or a phone call. I also think you’ll see communication via asynchronous video chat tools like Loom starting to displace email. In some cases, like if you are trying to give feedback for product design, it’s just a better format. There are a lot of instances where recording a video in a screencast and then sharing it with someone else later is a better mechanism for communicating multiple types of information.”

“Business travel is only going to happen for really important moments, and in-person conferences aren’t happening any time soon. So the big opportunity here is to create tools that make virtual events and meetings just as effective as in-person. We need better communication experiences that are just as immersive as being in front of someone. There are plenty of problems to be solved there, and a lot of opportunities in that space.”

How do you think about introducing a new product to a saturated field, particularly when large incumbents are also working on it?

“Incumbents want to encourage extensibility of their platforms. They want their platforms to be the center of work for their users. They would love third-party tools to integrate in their platforms, so they have opened up APIs; they have extensibility and add-on frameworks. As a startup, you can integrate into these big platforms, and that is oftentimes one of the most powerful distribution levers you can pull.”

“If you become really successful, these incumbents tend to get concerned when they see a couple of things happening: if they start to see these third party tools taking significant user attention away from their products and gravitating towards something else, and if they see the budget dollar shifting.”

“There’s always opportunity. Obviously, companies that provide video conferencing tools have seen a huge uptick in usage. The biggest beneficiary of the pandemic has been Zoom. But when Zoom started a number of years ago, people thought video conferencing was already a solved problem, and we didn’t need another option. We had Cisco WebEx, we had Google Hangouts, we had Skype; we had a bunch of other tools. But there is always room for a product that is better than the existing incumbents, and a lot of time users don’t know that until they see it and experience it. What Zoom really got right is looking at it from the end user perspective.

“All the other video conferencing players at the time were really optimizing for the actual conference room, so if you were in a conference room with the right hardware and software setup and trying to call another conference room with the equivalent, you would actually have a good experience. But Zoom broke the mold of that by just focusing on making video conferencing accessible, no matter what device you were on and no matter what type of internet connection. Technology to make that happen is very complex and very difficult, but they did an amazing job with it and created this world class product that was very easy for anyone to adopt.”

“You might find yourself in a situation where the incumbent decides to build a native capability, a native feature, or a native product that addresses what you’re doing. And that’s not the end of the world. They’re not going to pull the APIs from you. Even if they create a native solution, they’re going to continue to support you because you have joint customers who like your solution. Plus, you have to remember that right now bigger tech companies are under increasing antitrust scrutiny.”

“Incumbents don’t have an incentive to make it more difficult for third parties to work with them. As long as you continue to prove that you can deliver a great product experience that’s better than what’s out there in the markets, they’re going to continue to work with you and support you. For instance, Zoom is tightly integrated with Microsoft’s productivity suite and Google’s GSuite, because customers love Zoom and they want it to work with Outlook and Google Calendar. So they both have a vested interest to support that.”

How do you know when the product itself is strong enough to build a company around?

“This is a tricky one because a lot of the best technology products look like features at first. They don’t even look like products, and they certainly do not look like companies. They are dismissed because of that. But there are a few things you look at: your products should provide a very clear value proposition, it should be obvious what it’s used for, and it should solve the user problem in a world class way. Initially, what you are trying to do is just get deep engagement retention from your target users. Ideally, this will compound over time as people use the product more. You can start to build a company around that.”

How have you seen the pandemic affect product adoption and strategy?

“People are more willing to try new technology. When I was still at Google, I worked on Google Meet. We’d launched it a few years ago, but the pandemic dramatically changed its usage rates. From the start of 2020 to the time I left the company in May, we saw a 30X growth in daily usage. It was several years’ worth of growth in the span of just a couple of months. When I left in May, we were adding 3 million new active users per day.  Early in the pandemic there were some days where we’d see spikes where we’d have 60% growth in usage in a single day.

“But just a few months before the pandemic, I was having conversations with CIOs of traditional enterprises and trying to convince them that video conferencing is a better solution for their employees than relying on audio conferencing. And there was a lot of resistance to that from some really traditional enterprises. But now everybody has seen how powerful video can be, and people are more receptive to other tools such as online learning platforms.”

How do you prioritize time and resources spent on each product?

“One of the things that we had in the earlier days of Google was the “70-20-10” rule. That basically suggested that 70% of your resources (e.g. engineers, product managers, designers) should be working on their core products. Twenty percent should be working on what we would call adjacent product opportunities. And then 10% should be working on more long-term speculative, venture type investments – big innovation bets that may or may not pay out, but have a higher impact if they do. I’ve tried to hold to that focus whether we’re in good times or bad times. Having this portfolio of projects is very important yet is also where most companies go wrong, especially as they start to see some success. They lose focus on the core. It happens for a number of reasons: employees love to work on the next new thing – especially really bright, ambitious tech employees who are in startups. Working on the core isn’t as interesting; they’d rather create something from scratch. A lot of CEOs and founders get really excited and attached to the newer initiatives of the company – and can lose focus on the core.”

“It’s really important to understand it’s okay to shut down projects that aren’t working. You should give every new project or initiative ample time to sort of prove itself. But you have to realize when a product is not going to work because there’s a huge cost to having resources focused on something that’s not working. You’ve got to free up people and resources to apply it to the next new thing. And at the same time, you should double down on things that are working. Sometimes startups are surprised – maybe a product that you didn’t think would be successful turns out to be successful, or it has a use case that you didn’t expect it to have, or you are seeing usage or customer growth from an area you weren’t expecting. And sometimes you need to pivot and orient around focusing on that product because it’s a huge opportunity. It’s really hard to get growth and to get things to work and to find the product market fit. And when you find it, you really need to exploit that and focus on it.”

“It’s really painful to shut something down. While at Google I shut down Google Plus, the consumer social network, which was one of the products I inherited. And it was a massive product that a lot of people had been working on for many years – and millions of people still used. People have pride of ownership of the things that they’ve worked on and they’ve built. But if it’s not a strategic priority, or it’s not as successful as you hoped it to be, you’ve got to make that hard call. And oftentimes that disappoints a lot of employees, and it can also disappoint a lot of users. If you let these problems persist, the bigger the opportunity costs become and the harder it is to eventually shut it down. So it is incumbent upon CEOs and founders to make those hard calls. Employees and users and customers want that clarity.”

What’s a common mistake you’ve seen companies make?

“Most often, it’s pouring fuel on the fire before they’ve really perfected product market fit or figured out distribution. If you try to distribute your product aggressively, for example, through paid acquisition and you don’t have great product market fit, you’re going to have a leaky bucket. You’re going to acquire a lot of users that end up churning and that can be very costly. You can’t grow a sustainable business that way.”

“Setting prices too low. Especially in an economic downturn, your customers are hurting, so oftentimes you’ll see demand for your products go down. So there is a temptation to lower prices, especially if you’re a SaaS product. I would discourage that. When you set a specific price for a product that brings customers in, they anchor on that price and  it’s very tough to do price increases over time. What I recommend is to have a temporary discount or an extended free trial in this type of time period.”

How should product builders think about their end user?

“Now, the user is more and more who they are actually selling to. You’ve probably heard of the trend ‘consumerization of the enterprise’, which has been popularized over the last seven or eight years. If you look at the way things were 10 or 20 years ago, enterprise products were very clunky (and some of the legacy products still are). The reason for that is because the enterprise products were bought by the CIO and the IT team. And they chose a product to buy based on an RFP process – they’d have a bunch of checkboxes on what types of features a product needed, and whichever product checked the most, they would choose. They really didn’t think about user experience. And once it was chosen, the rest of the employees – the actual end users – were forced to use it. They had no choice. But this has totally changed. In most companies, employees can just download or start using software on the web through a browser. And most of the IT teams don’t block that today, so users have a lot of choice to gravitate to the best tools and the best products as a result. It’s totally changed the IT buying process.”

“Nowadays, CIOs and IT orgs run pilots with employees to see what tools they prefer, and they want to give their employees and their talent the best product experiences. And the employees demand that because they have these terrific products in their consumer lives. They have great experiences, whether it’s on a mobile device or the consumer apps they use, they want to see the same types of apps in the enterprise. And it’s become a big thing for hiring talent. People want to go work at companies that have modern tool sets and feel like modern environments. They care really deeply about that. Employees have grown up in school using modern productivity solutions and they expect just that in the enterprise workplace. They don’t want to feel like they’re going back in time.”

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