Peter Reinhardt on Finding Product Market Fit at Segment | Transcription

Transcription for the video titled "Peter Reinhardt on Finding Product Market Fit at Segment".


Introduction To Segment

What is Segment? (00:00)

The average person probably doesn't know what segment is. So could you explain? For sure. So segment helps companies Give their customers a better customer experience and we do that by helping them organize all of their internal data about All their interactions with the customer. So for example, if you go to the bank They interact with you at the ATM at the teller Via a phone call center. They have a web a web app a mobile app. They send you emails. They're interacting with you across this huge surface area And they need to be able to coordinate that interaction right they need to know that if you encountered an error on the ATM the teller needs to be able to say like I'm so sorry you encountered an error. I'd love to be able to help you and so What we do is we help sort of bridge that gap of having a single record of all those interactions with each customer Because previously companies would build all this in-house or not at all maybe yeah There's there's sort of two worlds one is they would build it all in-house exactly and there'd be a rat's nest of data pipelines from one place to another And so the engineering team would spend all their time building these data pipelines rather than actually Building things for the customer. That's one world. The other world is one where it really used to be a one-on-one relationship with a bank branch manager for example and They might keep the information in a CRM right, but if you are Someone would be an optometrist right you go in they have your past orders, etc But now the world is moving much more to a Warby Parker kind of world where you're not interacting with a person So a CRM doesn't even make sense. It's like not the right technology for Understanding what interactions you're having with a customer and instead it's all these different digital channels So that's where we come in and your first customers were they large scale companies like banks or who did you get in the beginning?

Segment'S Journey And Product Development

Segment’s first customers (01:30)

At the very beginning we actually launched as an open source library on hacker news. Yeah, and it took off their Blue up basically overnight So it's so yeah, it was kind of like the long road That's not the year and a half of dark times. Yeah, yeah, we shouldn't we shouldn't totally go over that, but okay Yeah, so anyway you you blew up overnight on each end once it went live on a gen it blew up overnight And so our first customers were the folks hanging out on on hacker news. It was Basically small companies for the most part founders who were looking for better ways to instrument their web applications and mobile apps with this Sort of analytics tracking and so the initial growth was that was just completely unpaid customers, right? So they're just using the open source whatever you put up on github, right? So the strange thing about the open source library Which is sort of this data router so you put in one piece of data Customer did X and then we turn around transform it and fan it out to all different places downstream And what's funny about the library is if you want to turn on a new tool If you want to send the data to a new place you need to recompile the library and redeploy it to your website So it doesn't actually remove the open source library doesn't quite actually solve the problem Which is really a marketer a product manager wants to use a new tool So what happens is you really want to use the hosted version. Yeah, so almost no one actually uses the open source version as That design no, no, this is completely accidental really. Yeah, there's just no way to make a good open source product around it Yeah, that's crazy.

Their YC application (03:05)

So okay, so what did you apply to YC with? We actually applied as a classroom lecture tool so the idea was to give students this button to push to say I'm confused and Did professor forget this graph over time of how confused the students were? Okay, we thought it was a really cool idea. We were college students at the time and We had a bunch of professors who were excited about it at MIT and elsewhere I'll never forget our in our YC interview We were pitching this and and PG was getting pretty excited and then he he turns to professor Miller from MIT who we had talked to and had given us the original idea for it and says hey would you use this and Professor Miller says no probably not We just rolled with the punches and said yeah, well, you know, we talked to like 20 other professors and they were all excited about it Oh, man, but then you went through YC with this. That's right. Yeah, we're building it out, right? We went through the whole whole YC with this idea Built it out hundreds of thousands of lines of code super complicated classroom lecture tool product had like presentation view and people could ask questions is very complicated We were actually even raised money at demo day with this idea about 600k Finally we deployed it in the classroom as the fall semester got started after demo day It was just a total disaster all students open our laptops and then I went straight to Facebook So the way we discovered this is we were standing in the back of the classroom Just counting laptop screen So it'd

Going through YC (04:00)

be looking over the shoulders of the students and one two three and yeah We discovered at the beginning of class about 60% of students were on Facebook and by the end about 80% were on Facebook In other words, they were supposed to be using your desktop app the whole time That's right in the professor at the beginning class had been like can everyone please get out their laptops We're going to use this new and all of a sudden all these students are distracted by Facebook So we had accidentally sort of put in a tension attention bomb if you want. Yeah, and you hadn't Brought on any users during what so you were in the so wait. I wrote up you were in the summer 2011 bat That's right summer 2011 and you weren't testing during the batch We tried testing but there's not that many classrooms that are in session during the summer Right the school year starts in September So we had beta tested in a few summer computer science classes at both Stanford and Berkeley Yeah But there was always technical difficulties and other things that sort of prevented us from getting like a real sense of what was happening And oftentimes it's pretty yellow. I don't know It just we didn't really get tests rolling until right until the fall Okay, and so what was the like the come to Jesus moment where you realize you had to change the product?

Realizing their first product didn’t work (05:30)

Standing in the back of a BU classroom Anthropology class and I remember arriving at the 60% and the 80% and We went up and apologized to the professor and and walked out And so at that point you're just like, okay, we got to kind of shut this down or figure out what to do with the money That's right. Well, we had just gotten wires for these for these checks for for the money like literally a week before right? So we called back all the investors and we were like well, it turns out. This is a terrible idea So what do you want us to do with the money? And almost all of them said well, you know, we invested for the team so so go find something else, okay? And okay next day next day we're like well, what are we gonna do? And we realized we should have been able to figure out some of this Analysis by not just standing in the back of the classroom like we should have been able to see some of this digitally You couldn't see it in the analytics metrics at all So we decided hey, let's build an analytics tool. Let's build a better web analytics mobile app analytics tool to compete with mixed panel and Google Analytics The idea was to give really advanced segmentation because we also wanted to understand how Some computer science classrooms at MIT were using it differently than anthropology classes at BU etc And we couldn't do that analysis in the tools we had so that was the idea was to build an analytics tool We spent about a year building the infrastructure necessary to do the analytics and Really we're not succeeding in getting any customers during that time frame So you had I mean did you have a whole onboarding process was it like a landing page? What did it look like? Oh, yeah, we had a landing page. I was going on little sales trips. I was meeting with people. Oh, yeah, so you were trying Oh, yeah, we were trying. Yeah, but it was it was not going well Basically what would happen is people would say well, I already have this other analytics tool installed so like Not that interesting you definitely you at the time you were not 10x better than good one. No, no, yeah Yeah, were you at parody? We were at parody in certain dimensions And we were exceeded in other dimensions, but they just weren't the dimensions that mattered apparently, right? Okay, so you just kind of like blow up overnight with Hacker News and that like this is also Positive we're not even this is just the analytics tool which we realized in December 2012 was failed So we're like well over a year into the analytics tool We're now have tried two ideas both have failed neither is clearly gonna work at all. Yeah We realized that we're screwing up so we decided to have office hours with YC again I would come back walk around little cul-de-sac by YC with with PG It's already comes the estoppin says so just to be clear you spent half a million dollars and you have nothing to show for it a grilpy moment Yeah, yeah, I guess that's true and it was a good sort of come to Jesus moment though and You got a pause there and then rewind all the way back to the first week of YC and It was in that first week that we'd been like what we should have analytics tools on our classroom lecture tool So we've Googled it analytics and we found Google Analytics mixed panel and case metrics And we're looking at them We're like we don't know which one of these things we should use right like they're kind of all similar But Google Analytics is a little more marketing e-case metrics is a little more revenue e-mix panels a little more product e in terms of the sorts of insights they can give you and At the end of the day though, they all collect the same data. They all collect basically. Who is the customer and what are they doing? So we decided to write this little tiny abstraction that could send data to all three It was like 50 lines of code among the hundreds of thousands for this classroom lecture tool And then we decided we'll just send it all three We'll look at all the tools and we'll just pick the one that we need so it'll give us a lot of optionality basically for free Yep And then we forgot about it for like four months Formants later we clean it up a little bit more formants later it cleans up a little bit more as I mentioned now We're struggling at that point. We're struggling with this question of well. I already have mixed panel installed So I don't really want to use your analytics tool. Yeah So my co-founder Iliya has this idea you say remember that little library wrote that sort of abstracted away the differences between these tools and let us send data to all three What if we added ourselves as the fourth set it gets and data to you and then every time someone has that objection We hit them back to the open source library that they can use to send to us and them I got that seems like a clever growth hack it like gets us around this problem So we did that cleaned it up open sourced it and People started replying like all this library is great. We'd love to use it a couple weeks later We'd follow up and be like hey well we saw you're using you know the open source library But all you have to do is copy paste our API key so that you can use our analytics tool Could you just copy paste the API key? Yeah, no like yeah So we started just feeling like there's some traction on on this little routing library Which is maybe up to like 25 stars on github or something like that like not not much But some people are issuing pull requests and it's the first time we've ever felt sort of like pull Like it if you all is we weren't just pushing a boulder uphill. It's just a little different, but subtle We had this conversation with pogram the next day. We sit down. There's our second time with this We're like okay. We have a hundred K left in the bank. What's our final shot?

Launching Analytics.js (10:30)

I go found her Ian is like you know what I think there's a big business behind analytics JS, which is this routing library Like that is literally the worst idea I've ever heard like it's 500 lines of code to grow a little bit It's 500 lines of code and it's already open source. I have no idea how you build a business around that. Yeah And so we fought about it all day long It was four of us. I was the most skeptical I think just literally like brutal brutal fighting I went home and I was trying to figure out how to kill the idea So wake half the night finally figured it out came in the next day I was like all right guys here's what we're gonna do we're gonna build a beautiful landing page really gonna pitch the value of this analytics JS open source library and It'll have a sign up form at the bottom so that we can get people to sort of express interest put it up on hacker news And we'll see what happens and I was thinking like this is totally kill it right? I think that's well in hacker news, right? So we build a landing page put it up on hacker news and this is when we have this You know you're in half in the making overnight explosion Yeah, and that kind of segues into your whole start of school talk right about like that basically Real product market fit. Yep, and up to that point in your life had you launched anything where the the market I mean this is a mark in recent quote because he kind of coined the term it pulls it out of you, right?

Experiencing product market fit (11:45)

That's right. I think I think that's an app description. I think that's an app description I had never experienced it before and it feels very much like losing control right like Previously you're like building a thing and you roll it out and you're building a thing and you're pushing it out And all of a sudden you like put a thing out there and people start running away with it and using it in ways that you didn't Necessarily expect and you're sort of like whoa whoa whoa whoa, it's just in it's just in like stop stop Like we need to fix these other things because otherwise So it's like this feeling of losing control and almost like The market is dictating to you now what the rules of the road are and what needs to get built. So would you're a different feeling? Yeah, would you differentiate that from overwhelming demand for one particular feature Versus like we're just gonna take this and use it however we want but there's a ton of demand there Would you separate those two things? Not really I think There's people always want more features. Yeah, but the thing that flipped was people would previously tell us they wanted a feature But not use it whereas now people were using it and they would want a second feature And the it's a super important distinction I think a lot of founders get caught in this sort of like all the the death spiral of user feedback Yeah, where they keep going and showing someone their product and asking them for feedback They give them you know some feedback about how they could make it better But they don't use it and then they bring it back with those fixes and they ask if this is better And it's just like death spiral where it never gets anywhere But once someone starts using it they'll have more requests and that just means they're gonna pay you more over time right Yeah, I like how you put it in the lecture where you basically if you have to ask yourself. It's not product market Yeah, it's you really can't miss it. Yeah, and this was now six years ago Five six years almost almost six years ago. Yeah, right and you're still feeling the same way Yeah, yeah, and since then we've had a few more sort of secondary product market fit moments like what? About two years in We discovered that all of our most valuable customers were sending their data to an s3 bucket Which is basically they were keeping log files of the raw data Which was a little weird because typically what people were using the data for was to send to an analytics tool An email marketing tool and a CRM and help desk like places where a business person is deriving value log files is a little different That's a little weird. It's unclear what the use case is So we went on this sales trip to New York myself and our first salesperson Raph We met with five customers that were using this s3 bucket And we just asked them like oh, what are you doing with the s3 bucket the first customer was like well, you know We have a data engineering team that's taking the data out of the bucket and converting it into CSV files And then they're uploading it to our data warehouse, which is a redshift cluster So basically they were using it as the initial endpoint input into a ETL pipeline We're like, oh, that's interesting, but man Yeah, to the next meeting second customer is like well We have a data engineering team who's taking the data out of s3 converting a s3 Okay, drop the and that's interesting And then the third fourth and fifth ones all said exactly the same thing and that was the point of which I started becoming a conspiracy theorist Yeah, it seemed like some pre meeting had happened, but they were all doing exactly the same thing. So it was really obvious We just built a Way to load data directly from segment into a redshift cluster. Huh? And that was a huge thing like you you really felt that it was product market fit again. Yeah, it was very explosive So we you know, we'd grown revenue from zero to two and a half million in the first Year and then we launched this redshift connector and the next year went from two and a half to ten People weren't asking me for that. That's right. It was one step too far for them to realize that we could do it easily Yeah, their mentality. I think was that segment is a way that I integrate marketing tools and so a data warehouse is in a marketing tool It's a BI tool. Yeah, surely segment can't integrate that. It just didn't click So I had to go find by asking hmm interesting and your growth how How's how does that happen? Is it has it come through developers? Our go-to-market model is primarily through through engineers. Yeah, we Talk a lot about sort of the way that we've built our infrastructure over time We obviously process a lot of data. So there's a lot of interesting infrastructure problems I think now we're processing, you know hundreds of thousands of user actions per second So there's a lot of data going through there. We write about that That's generally interesting to the to the hacker news and engineering crowd and Yeah, typically an engineer is the one that brings us brings us in sometimes a really technical product manager But it's someone who's like Yeah, this is gonna solve this weird rats nest data pipeline problem that I've got whoa And how much of it is open source still a? Good portion of it is open source But most of the value that we deliver is actually by running the hosted version right because it's like at the end of the day It's not just the develop like you're you're saving the developers time But it's these business people that really need it Yeah And frankly most of the complexity is hidden away and how you actually operate and scale a data pipeline that is processing the data Yeah, so you know our JavaScript libraries open source ROS SDKs open source or Android SDKs open source You can sort of collect the data from anywhere and those collection Libraries are our open source, but that sort of core infrastructure pipeline is not okay And so right before you guys launched on hn or this like small tiny micro launch or whatever it might be Were there other?

Debating whether to launch or build out the product (16:55)

avenues that you were considering pursuing like in that debate in the day before where you think about other stuff I Think the debate was whether to build out the full product and then test for product market fit by trying to sell it to people Versus this super super lightweight MVP landing page that we would put on hack and news to see if there was interest in the concept Yeah, and what what drove us towards the super super lightweight test was actually the fact that there was a skeptical divide among the founders and Since the founders couldn't agree The only way to answer the question was to go to customers ASAP and get an answer Okay It's tough like the the launching early thing is always a challenge because I think there have been instances where people are like We'll just launch this early But because they're like 10% off of what that product ought to be or they're not very good at communicating it They never really get the feedback that they need right like how do you how do you kind of balance that out? Like this is kind of like fully formed enough or we're communicating it clearly enough that we can launch it like how do you determine that? Usually that test is so cheap to run that it's worth running even if you decide that it was inconclusive and You should go a step deeper Mm-hmm But I also think that the way you framed it is actually an excuse that a lot of founders Use for not doing the cheaper early test when in fact they they should yeah I get the the same questions like almost every single podcast and actually be a little bit of a devil's advocate here But yeah, these are kind of like straw men arguments. Yeah, I think they're really big product market food Moments for every company are pretty unmistakable like the Dropbox founders have called a stepping on a landmine I just I really don't think you can mistake it. It really happens in a way that you you lose control It's very obvious every much metric goes haywire people are talking about it a lot It's not it's not Mistakable for like oh, you know this person said that it looked valuable and was really exciting and bubble-pot if they're not using it It's not there. Yeah, okay. Well, okay, so there's a question from Twitter It's clear that a bunch of people have watched your your lecture So this first one from Aaron Evan Farrell.

Evan Farrell asks - You mentioned in the SS lecture that you had to totally pivot to Analytics.js to find PMF, is it possible to purely iterate on something people kinda like to find PMF, or should it be clear from the outset if a new idea is something people want? (19:15)

He asked you mentioned in the startup school lecture that you had to pivot To analyze JS to find product market fit Is it possible to purely iterate on something like that to find product market fit or should it be clear from the outset if a new idea Is something people want? There's two versions of this I will say the Airbnb version of product market fit is much more iterative They struggled for years and years and made slight iterations and iterations and iterations and finally it caught on and obviously there They're run away success My feeling is that that's extremely rare and That again, this is a really dangerous place to be Because you can stay in this iterative mode for years Yeah, and it is unlikely that the iterations are going to get you to a good place So I remember very clearly early on being really inspired by the Airbnb story and it being a logical reason Why we should keep plugging away at a bad idea? And I think we abused the Airbnb story to just keep stringing ourselves along on a bad idea So I would be very very careful of following the Airbnb example I don't know many other companies that hit product market fit that way right and so how long do you give an idea at this point?

The importance of having a skeptic on your team (20:30)

Actually, don't think that it's quite the right frame to think about it in terms of how long to give an idea Okay, I think what you want is someone either yourself or someone else on the founding team who's a skeptic So someone who is going to have enough context with whatever the specific idea is and whatever the sort of regime or or Market you're in someone who's skeptical who will question and push for the fastest reasonable test So in other words if you have an optimist in a skeptic and they both agree on what a valid test is Then I think you actually wound up with a good test But if you have three optimists in a room who all agree on what a good test is I don't believe that that's a good test They don't have skeptics, but yeah, do you have you recruited skeptics or did you just kind of like luck into that? I think we lucked into it the first time. Yeah I do think we have some folks on the team at segment some early folks who are who are skeptics actually about Future product market fit moments that we've had and I think it's been enormously helpful. That's really interesting What how do you test for that like in an interview scenario? We didn't test for it. We just got lucky again, but yeah Okay, so not even just with co-founders like with early employees as well That's right. Yeah, how interesting like how hurtful can it be if someone is like well? I really think you haven't thought this through There's like these three things that you should really test ASAP because I don't really believe that you have product market fit here, right? That's what you want you want someone who's gonna be like pushing it and you're like well Hmm. Yeah, how would we and then who's willing to collaborate with you on how you should reasonably test whether those things are the case So the sorts of tests that we have run for example With this mindset recently and even in the past year. Yeah, where should we switch from a technical buyer to a marketing buyer? unclear how to test that well, so the this early skeptic who's amazing her name is Diana she Was like well, I'm just gonna go to a conference with marketers and I'm gonna try pitching a bunch of marketers Just flew to Florida and pitched a bunch of marketers came back. She's like, no Not a good idea And I read my own set of tests So like the the hacky ways to test these things I think are very valuable in it It comes from having skeptics who and different perspectives of people willing to go test those things Okay, and so I imagine these these tests from skeptics occur on a Maybe daily, but probably like at least a monthly basis, right in terms of you guys working on your products Yeah, I'd say maybe more on like a per idea basis So like if we're gonna launch a new product then it's really helpful to have a skeptical perspective of like here's why this might not actually be a good idea And do you rely more heavily on data or actual customer interaction like in the really part of the product development process? It's all qualitative. It's all talking with customers Okay, because this is the thing that bugs me more is like when people are just like putting up landing pages left and right and like thinking that they can like Kind of I forget what it's I will call it like What do they do it? Doesn't you? Oh, yeah, like imagine your your way towards like winding down this path to finding it In fact, you were inefficient with time. Yeah, they're just scared Yeah, and and when you actually go and talk to a customer if you have that conversation in the right way You'll learn a thousand times more from that conversation than you will from Then from putting up a landing page And I think ultimately we learned a lot more from talking to our customers after the hacker news landing page than we do for the landing page itself Yeah, totally.

Customer interviews (23:30)

So what are your what are your tactics when you're talking to customers? Yeah, I'd say the main thing is most founders are not familiar with how a sales process is actually run and You basically want to run a sales process. So the sort of typical founder motion with running a sales process is the the commander and they say okay, I'm gonna give you a demo and you just like really shiny polished pitch and Then the customer decides at the end of that pitch whether they're interested or not That's not actually how good sales works at all. The way good sales works is you do qualification upfront So you have some method of understanding the customer's problem better than they understand it themselves And then you do the computation in your head as to whether your product is a fit for their problem And there's a lot of methodologies for this the methodology that we use at segment is is one called medic me D. D. I. C It's literally just a list of sales qualification criteria And this is this is what sales reps do if a sales rep comes back and we're like we're gonna close You know this this this deal the sales manager says okay, well, let's go through metrics What are the metrics by which this company is gonna judge whether or not the product works for them? And if the sales rep can't answer metrics economic buyer decision maker decision process The identified pain and doesn't have a champion if they can't have all six of those things Yeah, there's no deal and so when you're searching for product market fit you can just go through all those things By asking the customer a ton of questions, and you can grade whether or not you're actually gonna build a product that will solve their problem Right, well, this is it kind of ties into this like skeptic versus like optimist idea, right? you have someone who's like a champion of the product and in many ways I mean Maybe this is you like the optimist who just sees the world and they see this future and it looks awesome It's amazing, but you need that skeptic who sees the world as it really is That's right and a sales qualification criteria is is a way of almost putting the skeptic out as a like structured process That enforces some level of skepticism. Yeah, I think it's so dangerous when you're the octa I because I fall into this camp for the most part like When you get good at sales you can kind of sell many people on almost anything But if that product doesn't exist yet It's very easy to just kind of mold it in the way when you're reading someone you're like, oh I can totally kind of want it to be like this so I'm gonna kind of go down this path But then when you actually show them the product and they like like you said they won't even install it Then you see the world as it really is. Yep, and that's the thing And so we you guys are just like going out and have are you still having these conversations with people? Personally, sometimes yeah for sure. Yeah, yeah Because this is one of the things that like people I think in large part because they're influenced by your start of school talk They have so many questions about it.

Benjamin Liam asks - How did they know they have the right messaging to explain their product? (26:30)

So Benjamin Liam asked like, you know How do you even how do you find that you have the right messaging around your explaining your product? Oh, man? This is super hard. I'm not even the right person to ask about this Actually, I think I mentioned before in our VP marketing Holly Are the two people who have really refined our messaging over the years? And we're always trying to refine it So I don't know how you know that you have the right messaging you know That whatever messaging you can sort of test whether alternate messaging is gonna work and you can do that Yeah qualitatively in interviews with customers You can try explaining it one way and skip their eyes light up You can try explaining it another way and just sort of see what what resonates I think a really talented early salesperson will also have this sort of Pattern in their in their habit of how they pitch that they'll always be testing different ways of explaining the product That was definitely true for for the first salesperson that we hired He was fabulous. It just like constantly experimenting with different ways of doing it So I don't know if you there's you never know if you have the best messaging but you are constantly searching and testing for for different ways of explaining it, okay, but again Like if it if it's about you know really finding a good product market fit Yep, do you think that these like minor changes and how you communicate something? Well, we'll make the difference. I don't think I don't think minor changes Then it will make the difference now once you have product market fit then sure you can optimize the messaging Okay, so then we should talk about idea generation because that seems more important Yeah, and these like minor deviations.

Idea generation (28:00)

Yep. Where do you begin? Yeah, I think the best ideas that we've had come so there's a big difference between the first idea and The sort of like follow-on ideas and and the reason so the first idea meaning like the core product That's right. Then the individual features. That's right. Okay, and not just individual features. You might have entirely new products that come along But those are much easier Right the problem with the first Product and product market fit is that you can move the product and you can move the market because it's fit between these two things And so what's unclear and they move in some crazy multidimensional space and so what's the issue is that? To get them to both match up You can always move either one and in different conversations you in one conversation You might shift the product and you might in a different conversation realize you need to shift the market So that's super tricky. I don't think there's a repeatable way to do that. Mm-hmm. I think You just have to go very very deep into a particular market and understand the problems that people have in that market So do you you have a particular a process for idea generation? Or you just you get into something and you're like man super deep Yeah for that first idea you just have to go super deep You just have to understand the market and the ecosystem and the customers upside down backwards better than they do themselves Okay, so if you were booted from segment today Do you know where you would start? You'd have to start with something that was interesting to you personally and then you'd go dig in a deep direction I think that it becomes more repeatable when you are Finding a second product. So at that point you've mostly locked the market side, right? Because you already have a buyer you already have a go-to-market motion You already have like an area of interest which for us, you know is these sort of data pipelines and data infrastructure customer data infrastructure Then it's much easier Because you know exactly who you need to go to and you know roughly the like type of questions that you need to ask and then you can run a process Which is much a much deeper x-ray of the customer than you might be comfortable with At least was much deeper than than I was comfortable with when we first got started like as an example We we recently were testing product market fit for a product that we're gonna announce at our user conference in September and That's now in beta and it's doing really well but The initial way that we were sort of testing fit there we would go in and say like oh, hey Do you have you know a problem? with with data cleanliness and the person would be like oh, yeah, yeah, totally That's one of our big problems. I think I get cool cool. Like you know that is And we might ask like two or three more questions But like that was sort of the depth but the actual level of question needs to be like, okay Well, like what do you mean data like how do you do you currently invest in data cleanliness at all? They're like, oh, well, yeah We actually you know we have a team of like six people who do data QA all the time Like oh well those data QA people like where are they based or they're based in LA? Oh interesting So they have like real salaries and then I'll just like overseas. They're like real like us salaries like yeah Yeah, okay, so what like 80k a year 100k year? Yeah, yeah, it's about right So like okay, so you're spending you know like 750k year for this data QA team and like tell me more about their process Like what are they QAing exactly? Oh, well, they're clicking this button in the app and they're like well We which button yeah, and then are they like in the op what do they do when they find a bug? And so we would ask like literally 45 minutes of questions like this and Now we actually understand their problem We understand what they're doing we understand where their cost centers are we understand how they think and then we're like Oh, well, what if we did a product that did X? Yeah, which is exactly what they just explained to us for the previous 45 minutes and they're like that would be amazing So like okay now we now this is that was both sales qualification and discovery Yeah, which is a standard sales process But now it's being used for product development and that's such a good learning because people aren't gonna tell you know Like I think a lot of people just get scared to like ask these questions totally the customers will tell you yeah Especially if you if you take the champion part of medic the last one the C And you just start by asking like what's your vision for X thing that you do someone will tell you you're like oh we our mission is similar Because that's why you got the meeting in the first place that person is instantly aligned with you They'll talk for 45 minutes about their problems before you have to tell them anything Yeah, I think that's one of the things that most people don't realize that like many of the best sales people don't talk that much The best sales people at segment ask why to the point of uncomfortableness from everyone else on the team including myself Yeah interesting. Yeah, I wonder what the correlation is between sales and skepticism It's probably pretty high and people who are questioning things and I can see the angle yep Hmm all right next Twitter question So Danny Pearl first of all he says go Peter and his question is about a culture So he says what values and standards do you have in place for your team at segment?

Audience Queries And Discussion

Danny Prol asks - What values and standards do you have in place for your team at Segment? And how do you actively build that culture into your company? (32:45)

And how do you actively build that culture into your company? Yes, we have four values at segment that we're quite dedicated to The first is karma, which is we want to have a positive impact on the world and that manifests itself in a bunch of ways one of those ways is We really care about the customer having sort of getting value out of our entire process So you'll notice that all of our marketing materials for example are often like highly educational We have a really high bar for what an education piece of educational material looks like Even in the sales process we want to be helpful if we're not the right fit We'll tell you and sort of like refer you to the right places Separately we really care about Doing the right thing by the end user This is still within karma and that's from like a data privacy perspective So we're very interested in helping companies understand all of their own first-party data So all their interactions with their own customers within their four walls We're super uninterested in helping companies data broker data between different companies Sketchally we call it data gossip. It's gross. We don't want anything to do with it There are plenty of other companies out there that that do stuff like that. It's gonna go away and die eventually So that's karma we care a lot about that the second one is tribe which is A second we're all there to support each other. We're all there to accomplish the same thing and so What we expect is that and what we value is that people really support each other both when They may be struggling with something but also giving them giving them crit So really try to reward folks who are who are willing to go the extra mile to give crit when it may be hard could be giving Create across teams or up several levels or whatever. That's that's really something that we value. Mm-hmm. The third is drive Much more self-apparent. We like to get shit done We value people who are getting shit done and the fourth is focus Which is not just sort of the ability to sit down and get stuff done but more power through something but actually thinking carefully about prioritization We've done a lot of research around how to make the office an environment where you can actually focus So you check out our blog We've we've written about sort of sound accessible levels that we've measured around the office and how we've mitigated that did pretty well that piece did pretty well Right. Yeah, and it was a surprising result for us to discover the different parts of the office had very different sound levels That we're not correlated with people talking, but we're just correlated with the sort of acoustic Shape of the of the office and so just moving people around into different places helped a lot depending on how much noise they were willing to tolerate and sort of needed in their role. Mm-hmm. So anyway, those are those four values We they are literally the things that we value and so we push them into all the places where you would expect what you value to have an impact So it's who gets highlighted at all hands. We have a citrus prize, which is someone who's living all the values Promotions hiring we have a strict interview in the hiring process We have Performance when you use strict interview. Sorry. We have a culture interview where we literally have these four values in way specific ways that we're gonna test for them When we run performance reviews the performance of you is literally four values Are you strong like this is what we value and therefore it's what we test and measure by and I think ultimately It's that cycle of giving feedback and measuring by it that is what drives huh culture to stick And it has this been something that like came natural to you like building culture or did you have to learn it? I don't think so. I think we I think we learned it We got to about 25 people before we realized that it was something that we should write down and We went off site four founders went off site and we tried to synthesize the values out of What it was that we really liked yeah? That was already happening and what it was that we didn't like that we had already seen already happening And not just among the team but amongst ourselves - like what were we not proud of that we had done and what were we proud of that we had And that ultimately was what got synthesized into those four values Hmm, and so those were just interactions with other people are like literally product building No interactions with other people and and interactions with partners and customers and things that we were proud of hmm that we wanted to see more of right now So next question Ashman Doke asks how is GDPR impacted segments business model?

Ashwin Doke asks - How has GDPR impacted Segment's business model? (37:00)

So GDPR for those who don't know is a new EU regulation which basically gives end users a lot of rights about the data that's collected about them and First off, I think it's an awesome regulation both as a consumer, but also wearing my segment hat It's interesting in that it impacts the entire globe because if you are storing data about an EU citizen It doesn't matter what jurisdiction you run your company in you are still responsible to do that for any EU citizen The biggest impact broadly on the sort of overall ecosystem is it really negatively impacts third-party data and third-party data brokers because they have no real consent path to the user for sharing and buying and selling the data Because we help companies purely with their first-party data It's not like an existential threat to us in any way and in fact, it's something that we're really sort of aligned with For another reason as well, which is because we're routing the data out to all the different places we're using it So we're routing it out to an analytics tool to an email marketing tool to a data warehouse to a CRM to a help desk to add conversion pixels if That user shows up and says hey, I want you to delete me from your system Well, it's actually like 20 systems for most companies and we're already plugged into those 20 systems So it's actually now a feature of segment that we can go to those 20 systems and delete whatever user is requesting it and Clean up that record across all those different systems. So for us GDPR One is like aligned with our values philosophically two is actually an exciting new feature Sort of requirement that we can support and a sort of evaluate it. We can provide to our customers so we're huge fans nice that was a Unsus I mean as a perfect answer, but people have been stressed out about it. My friend Makes instant paper and they have a big issue with it's a big problem in publishing where they were lying on third-party day Yeah, especially these like little tiny products that are parts of really big companies Yeah, and they didn't necessarily know and yeah another everywhere Cool. All right. So next question Andrew Pecool asks any advice that you have on asking for more money Then you're comfortable asking for this is part of your startup school lecture where I guess one of your sales reps Was forcing you to ask for more a lot more?

Andrew Pikul asks - Any advice he has on asking for more money than you're comfortable asking for. (39:15)

Yeah, we had a sales advisor who is I gotta back up a bit. We were initially selling our product for $10 a month and You know $120 a year and we brought on a sales advisor and his first advice was well You have to ask for $120,000 a year I was like that's a thousand X. That's crazy so we were going to the first sales meeting me and him and this is with the company called Xamarin and I've since told not this story which he found amusing but now was the CEO of Xamarin and As we're walking up our sales advisor says okay, you have to ask for 120k in this meeting And I was like that's the most ridiculous thing I've ever heard I'm not doing it And he's like well if you don't do it then I quit as your sales advisor All right, I guess I'm asking for 120k so now we go in we have this you know demo and everything And he says okay, well, what's the price and I say 120k and I turned beat red and he says well how about 12k a year? I said okay. Well, how about 18 and He's like okay fine. So from his perspective. You know 85% off from my perspective. I got 150 X And it was it was a successful negotiation I think I think it's really hard to offend people with price at least if you're sitting in the same room or or on the phone It's probably not a good idea to share pricing information via email if you do that then it's really easy for them to hang up But if you're on a phone call or in person there's a bit of a social contract so it continuing caging Particularly in person you can recover So I would encourage you to not be scared of offending someone with a high price Yeah, but maybe just start in person Which is probably the most uncomfortable place to do it But gives you the most opportunity to recover right and the thing is like if it actually baddest for your business Then that's just what it costs. Yeah, you're gonna have you well and you have no other way of assessing the value. Yeah Yeah, and in fact what will happen is when they say that's crazy then you say why? And then they'll explain to you how they actually value the product and then you say okay And you value it according to their logic and you ask for that price and how long did it take you? Well, are you charging them 120 now? For sure. Yeah, we have customers to get way more value than that out of it now Yeah, exactly and so how many customers did it take you to reach that six figure amount? A dozen at most yeah, so it was amazing. Yeah. Yeah, cool One Carlos Garza asks how did YC help to get segment where it is right now YC was super helpful The most impactful thing early on is just demo day You're not gonna find a bigger concentration of investors who are excited about investing in startups creates a compelling event Structures the timeline is incredibly helpful for a first round of financing that can easily get strung out and waste a lot of your time Yeah, that's the first thing The second thing really is the is the founder network There's not only a lot of reasonably high-profile companies now that you can learn from or companies that are sort of farther ahead that you can learn from now, but There's companies at all stages.

Juan Carlos Garza asks - How did YC help you to where Segment is right now? (41:45)

So there's almost always a group of people in your area or in your Market that you can learn from and share from so all the there's tons of little groups that spring up You know like a group of enterprise founders that are all between like 70 and 100 people in San Francisco And you can have dinner once every two months. Yeah, and that becomes an incredible support group and Sort of way of learning about about what's going on Have you stayed in touch with people from your batch a few yeah like Zach's I'm from a good cat about them Yeah, I've heard of like these informal founder meetups happening quite a lot. Yeah, it seems to be great and It's a trusted network. There's no replacement for that. Yeah, I definitely didn't get that from college All right, one has another question In the early stage What's the thin line between ignoring a customer's suggested feature or moving a customer's requested feature to the core of your application or product?

Juan Carlos Garza asks - In an early stage, what's the thin line between ignoring a customer suggested feature or moving a customer requested feature to the core of your application? (43:15)

I think I think what he's trying to ask is basically like at what point do you say like hey This customer is requiring or asking for this feature and we have to kind of hold the line because we don't want to become a custom dev shop I think so should we integrate this or tell them to you know find someone else the best defense against that Is having a clear product vision for where your product is going to go long-term? And if you have a clear product vision for where it's going long-term is a very simple question of yeah is this thing in that picture long-term or not and if it isn't that picture long-term then you can prioritize it to Be sooner or later depending on whether a customer is gonna pay you forward or not. Yeah, and if it's not then it's not You probably shouldn't build it right. Yeah, I think that's like that the infamous customers You don't want scenario where you just have to let them go Yeah, so I guess the important thing is like imagine the entire timeline of everything you're ever gonna build Feel free to move things around we do this all the time we move things around based on like what customers actually want Because it's a reasonable signal of what's actually more important Yeah, but I wouldn't I wouldn't add major things or remove major things from it just based on one customer. Mm-hmm So since you've done what I see and it's been several years now Would have been the biggest learnings since oh my gosh so many a huge bucket or a huge area of learning for me This weirdest is finance like I mean I came from an aerospace engineering background and then we were doing software engineering for the first couple of years and so you just are completely unprepared for for the like business side of Things so I've learned a tremendous amount about about finance as we've raised money and and You know learned to manage a business with a

Biggest learnings since YC (44:45)

P&L and all those things Not that you should rush into it, but it's a it's a huge area that can be leveraged I think and you would have if you were to do it again hired someone earlier on who knew what they were doing in on the finance I actually think we did a reasonably good job of that So we hired a part-time CFO around the time there is there series a so we were about at about a million in revenue And we raised a fifteen million dollar series a we had had a bookkeeper up until that point But we were like

Critical Staff Appointments At Segment

Important hires at Segment (45:50)

I feel like we should have someone like you know point us as to what we should be doing with the money Maybe have like a plan or a model or something So that was definitely the right time to hire a part-time CFO and Jeff Brooklyn was super impactful over the years and try would have been the other big important higher shoe that I made like a huge difference Well, I remember the exact ever a whole bunch of people but it advisors maybe is an interesting category sure part-time CFO I think is in that bucket. We had an HR advisor who was really impactful We've invested more in HR than most startups. Yeah of our size and I think that was the right thing Okay, a lot of startups like uber for example Do not and end up with paying really high prices for this I think it's a challenge right because if you if you go around and start Googling like should I hire CM or should I hire CFO? Should I hire x y'd z? I think you can always find someone strongly advocating for any particular role But the challenge is like okay, you know You only have so much money and so much time and you can only find so many great people So like where do you and where and when do you decide to hire those like? Optimal people for this stage in your company, right? And so yeah, just kind of curious if there were any big turning point moments for you It was a huge turning point around 10 million in revenue when we hired the first two Sort of execs to the team. Yeah, one was our VP of engineering and the other was our VP of people they were the first people who had previously been managers and Our VP of engineering had managed a team of 150 at Dropbox So we went from literally zero management experience aside from what had been picked up along the way Yeah, I'm from zero to 50 people to having someone who really knew it or two people who really knew what they were doing That was hugely impactful and we should have figured out a way to do that earlier 50 people in 10 million revenue or whatever it was was way too late. Yeah, cool If you weren't working on a segment right now, do you have an idea of what you would? Oh, man, uh, I get to occasionally invest in YC companies nice and There's a lot of cool things happening there I was blown away by this like bread of things that are happening in the batch this batch There was a really exciting company building in space rocket engine and another that was doing industrial inspections by drone I just can't imagine a world where we continue to have people in harnesses hanging off of wind turbines That's I can't imagine that that continues for a long time. So that seems like an obvious market opportunity So flying things. Yeah, well, I have a background in aerospace engineering Cool man, so if people want to learn more about segment where should they go if they want to learn more about you Yes segment just go to segment comm or you can tweet at me on Twitter. I'm at Ryan PK Okay, cool.

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