Jan. 15, 2023
Adrian Camara, Founder of Athennian | How to do Customer Discovery
Every founder knows before you launch, you have to build an MVP. They also know that to build an MVP, you should do customer discovery. But few understand how to properly do customer discovery.
Before startup mode, there's research mode. And most founders don't do it right. Failure to do so is why most founders end up solving fake problems. If you want to avoid the fake problem trap, you need to spend a lot more time than you might think on research and customer discovery.
Before launching the product, Adrian spoke to hundreds of paralegals. He hosted in-person focus groups in multiple cities. It was critical to his success and it's how he learned exactly what the problems were and exactly what to build.
If you want to learn how he did it, check out the episode.
01:28 - The Idea that Birthed Athennian
05:55 - Focus Groups and Gaining Traction
07:45 - Co-Development Partners
10:45 - Customer Discovery is Critical
13:31 - Mitigating Unreal Expectations
18:08 - How to get customers to pay
22:15 - Targeting the Mid-Market
26:53 - True Product Market Fit
28:26 - Recap
WEBVTT
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I raised that on the strength of a large logo co-development partner who then– the relationship literally dissolved 30 days after we had closed that half a million dollars.
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I had half a million dollars of investors that had invested on the strength of this logo co-development, and it literally fell apart 30 days later.
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Welcome to the product Market Fit Show, brought to you by Mistrial, a seed-stage firm based in Canada.
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I'm Pablo.
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I'm a founder turned VC.
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My goal is to help early stage founders like you find product market fit.
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So today we have Adrian, the founder and CEO of Athenian.
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Athenian provides a data management platform for legal and finance teams.
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They're based in Calgary.
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They've raised about$50 million and have over a hundred employees.
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Adrian, it's a pleasure to have you on the show today.
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Thanks.
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Good to be here, Pablo.
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So the topic of today's episode is how to sell into mid-market.
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I think there's, in the world of B2B SaaS startups a kind of sweet spot space, right?
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People oftentimes don't like selling enterprise because it's too slow, it's too chunky, and SMBs oftentimes don't really have the structure and size and capital to be meaningful customers.
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So this mid-market tends to be a sweet spot for many.
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I'm excited to dive into that with you.
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Maybe as a starting point, we can kind of go back a little bit and just talk about how you came up with the idea itself.
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So we're going back to like 2016.
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I was a lawyer at a large corporate law firm in Calgary.
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I'm originally from the Toronto area, so I moved to Calgary for that.
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What surprised and shocked me when I started working as a lawyer was just how hard it was for companies to provide basic information about their entities when we were trying to do a transaction.
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So any business of any material size, once you kind of get past SMB, a company is more than one entity.
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That's typically a handful or more, corporations, limited partnerships all stitched together into some type of corporate structure.
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We were up all night trying to figure out what the formal legal name of certain entities are.
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Companies just don't have that data internally.
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It got recorded on a spreadsheet one day, and it's being colloquial and abbreviated so many times.
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When you're trying to transact and do formal transactions, it's important that you get the accurate legal data point.
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Even basic things like just what the entity's name is is really hard for organizations to manage.
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When you get into more complex stuff like the ownership details, the control details, the tax details, international presence details, it just goes downhill from there.
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I really wanted to understand why this problem was so bad, why it was so hard for tax, finance and legal professionals who are all very smart and have lots of resources to keep all this organized.
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We really just discovered it was really just a data management issue.
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The systems to manage all this information were binders on shelves and then just tons of old legacy software spreadsheets.
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It was just a lot of pre-internet type of stuff.
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The problem is everybody needs this information, and so it just gets highly fragmented and just standard kind of business workflow, business data management type of problem.
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In about 2017, we started building into this space and fast-forward, here we are.
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Just to be clear, who mainly experiences the problem?
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Is it the legal firm, like a Gallings or something like that, or is it the actual client, the corporation?
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Yeah, so it's everybody.
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Everybody experiences it in a little bit of a different way.
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The way to think about it that is maybe more a little bitaccessible is if you're bookkeeping or accounting records were just a mess, and the data wasn't accurate and you have a spreadsheet with numbers in it, but you have no receipts or contracts to back– to evidence any of that, that's a problem internally for the company in various departments.
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It's a problem for the accountant; it's a problem for tax advisors.
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It's a problem for the CRA or the IRS, who's ever your tax authority.
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That's a really good analogy to the type of problem that we have here.
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To kind ofpaint a picture, when– the ah-ha moment for me, we had to do due diligence on a company that's now actually a customer with Athenian, when I was back to the law firm.
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On their legal structure, we went into a boardroom and there were 500 binders in banker's boxes around this boardroom.
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We had to flip through every single page of these 500 binders to find signature– documents that weren't signed by the board of directors confirming that shareholders had approved all the financial statements every year.
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Each binder was an entity in this company's corporate structure.
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It's constant rediscovery and re-validation of data that already exists just so you can take– execute a transaction or make some decision.
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That's felt by internal legal tax finance teams; it's felt by law firms, accounting firms, audit and tax advisory, anybody who's been in M&A, banking typically experiences this problem.
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So that's helpful in terms of the problem.
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So I guess my big question is what do you do at that point?
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I mean, you're a lawyer, right?
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Do you find someone and you start building this?
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The other side to that same question is the customers for this, like you said, are the more complicated– the bigger the better kind of thing.
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I mean, the small SMB doesn't really have this problem.
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It's more like the legal firms and the bigger corps.
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So where do you go from here to just get started on solving this?
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Yeah, so what I did was– and I do think this is one of the decisions that– one of the best decisions we made was I realized that this is not a problem.
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The management of this data is not something that lawyers or attorneys deal with on a day-to-day basis.
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It's what paralegals do.
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I wasn't a paralegal.
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I was a corporate lawyer at the time.
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The first thing I did was I started to talk to tons and tons of paralegals.
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Sorry, let's dive into that.
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I think that's a little important.
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How did you do that?
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How many paralegals are we talking about and did you just cold email a bunch or was it kind of in your network?
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How did you structure that?
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I cold emailed.
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Yeah, so I cold emailed.
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We we did city tours.
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So we went to Toronto, we went to Vancouver, we went to Chicago, and we literally emailed as many paralegals as we could.
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When we got a law firm, we got one of them to give us their boardroom and we literally sat down with them for three hours and just had 10 or 15 paralegals in a room and just listening, just talk and just try.
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Oh, wow, so it's like a focus group.
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Yeah, totally, just focus groups, right?
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I mean, a lot of those people ended up becoming our first customers that created a lot of commercial momentum for us.
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All those ten people went and talked to five friends that are also paralegals and said, listen, I think these guys are going to try to solve this problem.
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We met with them, et cetera and you just started to build that commercial momentum around we are a team trying this.
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We don't have a solution today, but we are trying to solve this problem, and you started to capture some of that attention.
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On those focus groups, how did you structure it?
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Was it very open-ended, hey, what are your problems, high level da-da-da?
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Or was it already kind of centered on this is a problem; how do you solve it today, and kind of a little bit more leading?
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We had a series of meetings and then we would meet with people one on one.
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In those formats, it's hard to get really deep into the details.
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You're trying to get variety.
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I mean, really, the outcome we were looking for is can we get ten people to align on the problem and how to describe the problem?
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That'll chew up two hours really quickly.
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Then everybody's tired during the meeting.
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What we did to get in the details is we found– through that process, we found some early, very, very, very early customers that we called co-development partners.
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These were some larger law firms.
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Some of them are customers today; some of them are not and they really wanted to solve the problem.
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What a lot of them did was they really unlocked a ton of resources for us.
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So they gave us paralegals that– and this is a little bit technical or how law firms or fresh services firms work, but these people have to bill hours.
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They have to account for the hours in their day.
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Anybody that understands this world will realize how important what this was for us.
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The firms gave some of these paralegals matter numbers to build their time to so it was like a matter number you assigned to a client.
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We literally sat down and deconstructed the existing legacy tools they were using screen by screen by screen.
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We probably sat down with paralegals that were billing their time into this project for, I don't know, probably four or five months.
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They would walk us through their– they would walk us through their legacy software.
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We would screenshot every page and they would narrate to us what they were doing in each of these screens and giving us the business context and jobs to be done framework and stuff like that.
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We really methodically essentially tore down status quo to really understand, and that was super key for us to understand the scope of what we needed to build.
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What we were going up against was it's about– the market's like 50/50 Brownfield and spreadsheets where Brownfield is legacy, really old legacy stuff that you have to rip and replace out of the market.
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It was important that we understood how the work was done.
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There's a lot of wisdom built in legacy systems.
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People dismiss them as old and clunky.
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At the time, they weren't, and at the time, someone went through a product process over years and years and years to build something, and there's tons of wisdom in those legacy systems.
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We tried to extract as much wisdom as we could out of both the system and also how the users were using it.
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I think there's also tons of wisdom in just the amount of time you devoted what you'd call customer discovery or prom validation.
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You were already a lawyer.
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I get you weren't a paralegal, but you were close enough to it that a lot of people might have, in your shoes, just started building and kind of made a few assumptions, maybe spoke to five or six paralegals and showed them product demos and gone from there.
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You went really deep.
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How important was that, do you think, to the ultimate success that your company has?
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Oh, critical.
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We have some competitors today that had a very similar origin story to me where corporate lawyers observe the problem.
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They missed that step of okay, we've got to sit down and spend six months with the primary users of this product and tear down their day-to-day at a screen-by-screen, button-by-button level, and understand the story and the business context behind every action they take so we can get the full scope and prioritize of how we build this.
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We have competitors that miss that step and they built it with the bias of how they look at the problem and you have this huge disconnect.
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This product's being built from the perspective of a lawyer, but you got paralegals have to use it.
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Creates an enormous disconnect, and then you obviously struggle from there, right?
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It was super critical for us.
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It allowed us to get– just running the process and showing those early customers the work we put in, that was my sales pitch.
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I literally brought up those Visio charts, which was just like a mirrorboard type of thing.
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That was my sales pitch for the first year.
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I sat down with prospects in a boardroom.
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This is obviously pre-COVID.
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You're pounding pavement.
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I put that up on a mirrorboard or Visioat the time and I pitched to them, I understand this problem.
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This is the work I've put in.
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That immediately establishes credibility with these users and with these buyers that you understand what you're talking about.
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Wen you're super early stage, you signal no credibility at all, right?
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You're a couple people.
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At the time, we didn't even have an office.
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You're trying to sell to these bigger organizations and you have to establish credibility.
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That was one of the ways that we did that, and it was really effective.
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Did you just– you started these focus groups.
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You went out to these paralegals to learn.
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It ended up getting you customers who pay these paralegals to help you build the product.
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Did you set out to get those co-development partners or was that basically organic and it just kind of started coming to you as you went through this process?
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Yeah, I mean, it started coming to us.
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I think probably what happened was when we realized the scope of this, we knew in order to get funding, we needed to get some commitment from these customers, cash commitments.
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Our first iteration of our first customers, they were contracts with deposits, but the balance was due on delivery of the product.
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When you're selling into mid-market or enterprise, that's super high risk because the definition– they can just extend delivery until they get every single button they want, which obviously creates a lot of risk for you.
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The way I think about it is if you co-develop, the upside is you get a lot of information and a lot of feedback.
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I think the downside is you risk turning your customers into product managers, right?
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There's a reason they're not building software.
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How did you balance that and what were some of the issues that came up?
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It was super hard.
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We had customers that had unreal expectations.
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We had customers, they wanted us to commit more than they were prepared to commit in terms of they wanted us to build all this stuff, but they didn't want to put down another 50 grand or a hundred grand.
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Investors don't wanna fund that.
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You're constantly trying to– you're kind of caught between three tension points of customer, team and investors because you're also running your team really hard during this period of time, right?
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There's tons of pressure, there's tight timelines, et cetera.
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Yeah, I mean, the customers end up wanting to become product managers and we had to fire a bunch of those customers.
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We had to walk away from the relationships and we said, listen, this doesn't make sense.
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You're asking us to build stuff that we don't think the broader market wants.
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This is too specific to you and even at an early stage, you're trying to learn from them, but you're also trying to teach them at the same time.
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Sometimes we found– we were lucky to find two customers where we could effectively create that cycle.
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I think it was also just risk tolerance in the customer, right?
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The one thing that I realized is if you want to do this co-development process with mid-market or enterprise, you have to find people in those organizations that are willing to take a lot of risk.
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I didn't realize this until I think a couple years later, but these people, these director of paralegal was typically their title, they were putting their necks on the line.
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They were prepared to get fired if this didn't work out because that's how big organizations work, right?
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You have a failed IT project.
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You spent a bunch of money.
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A couple people quit because they got burned out.
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You get fired, right?
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I didn't appreciate until a couple years later how much risk that they were taking at the time, and I do now.
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Yeah, I mean, this is the stuff.
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I mean, we were very fortunate.
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We had four and two.
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Two we cut paths with and the other two we kept working with.
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I do think that you do need to have multiple and it's more work because you have more projects you're trying to manage, but it helps you manage the risk.
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That makes total sense.
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These are all large customers that you're working with.
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You've got four of them on the go.
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Back then, were you bootstrapped or had you already raised some money?
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So we raised a couple hundred grand on day one, just from– I think it was$165,000, which in 2017 actually bought something.
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W used that to kind of fund, I would say, the first– like it was just a– it was a small group of us.
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We used that to kind of fund really early market analysis, really early conversations, things like that.
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Then we had some evidence that okay, we think there's a market here, and we raised half a million dollars.
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Then we started the co-development stuff.
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When it got time to actually, okay we have a product, we– these contracts are starting to produce some cash, customers are starting to pay deposit invoices, et cetera.
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Then we raised a$2 million seed.
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Timing that was was– it's really like threading a needle.
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I remember on our half a million dollar seed, we– or I guess that would've been a pre-seed, I raised that on the strength of a large logo co-development partner who then– the relationship literally dissolved 30 days after we had closed that half a million dollars.
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I had half a million dollars of investors that had invested on the strength of this logo co-development and it literally fell apart 30 days later.
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Was that tough to manage afterwards?
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Was there some outcry or not really?
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Well, I mean, you just need to figure it out, right?
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So I just went and I just found an equivalent amount of revenue opportunity and I backfilled and you just have to figure it out.
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Timing the capital to the co-development milestones to the customer commitments, et cetera, was super important, obviously, because you have to– you're burning an incredible amount of money to do this.
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How did you– what were the conversations like?
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At some point you have these co-development partners, but you have this deposit structure.
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It's not ideal and you decide these people really have to pay if they want to be customers.
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That's where, if I understand correctly, two of them churn.
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What were those conversations like?
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Can you give us some of the details?
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Yeah, I mean, the conversations at the time were very– I don't how to put this.
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They were like– they were not very sophisticated conversations.
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We essentially said to them you got to pay a deposit because we don't have any money type of– that was– it was very unsophisticated at the time.
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I think if I could do this again, I think what I would say is something along the lines of we're both taking risk here and there and we need cash commitment from you in order to justify us to take the risk of our time to invest in this area.
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I have my threshold if I ever do this again would be– I would not start cutting a line of code unless I can get six-figure order form deposits on the basis of a PowerPoint deck.
00:18:53.930 --> 00:19:03.200
If I'm unable to do that, I either have not identified a painful enough of a problem for the customer or I have not articulated a compelling enough solution to that problem.
00:19:03.930 --> 00:19:13.079
The minute you start this process and you start learning, and building spec, and writing code, you're opening the biggest can of worm of your life– can of worms of your life.
00:19:13.080 --> 00:19:15.519
It just kind of spirals into five, six years later here you are.
00:19:15.520 --> 00:19:18.118
You really need to extract that commitment from the customer.
00:19:18.119 --> 00:19:20.640
That's really your evidence that this is a serious enough problem.
00:19:29.829 --> 00:19:32.559
I mean, especially, and I think founders often forget this.
00:19:32.560 --> 00:19:35.079
The larger customers spend a lot of money.
00:19:35.080 --> 00:19:36.559
That's the simplest way to put it.
00:19:36.560 --> 00:19:37.319
They spend a lot of money on stuff.
00:19:37.320 --> 00:19:40.160
I'm not going to go say a hundred K is a drop in the bucket.
00:19:40.161 --> 00:19:43.640
It's not, but at the same time, you're not the only thing they're spending a hundred K on.
00:19:43.641 --> 00:19:49.519
If they're spending a hundred K over here and over there and over there, but on you, they won't and they won't even spend 5K or 10K something's wrong.
00:19:49.520 --> 00:19:53.240
I's not like the next feature's gonna get them over the night.
00:19:55.160 --> 00:19:55.640
Totally.
00:19:55.641 --> 00:19:56.000
Yeah.
00:19:56.000 --> 00:20:01.358
I mean, if you're talking to a medium-sized business, which let's say medium-sized businesses, I don't know, is over 250 employees.
00:20:01.359 --> 00:20:06.480
For them to spend$25,000 on a deposit is not a lot of money.
00:20:06.480 --> 00:20:08.400
If it's over a thousand employees, call it a mid-market organization.
00:20:08.401 --> 00:20:13.759
A hundred thousand dollars and it's a real big enterprise, I'd be looking for mid-six-figure commitments from them.
00:20:13.960 --> 00:20:35.839
The reason is– and I think this is what you don't understand is as a first time founder is that the requirements to get your product into that organization and get cash flowing off of a contract, you have adoption, you have cash, you have payments on your invoices and so on, you have that cash flow cycle starting, it's very uncertain because the total requirements of the organization is like an iceberg, right?
00:20:45.269 --> 00:20:52.559
What they tell you is probably 30% at most of what you need to actually build to get that cash flowing.
00:20:52.560 --> 00:20:56.000
That 60 to 70% is that unspoken requirement of assumptions.
00:20:56.529 --> 00:21:00.880
They just assume it's going to have it.
00:21:00.881 --> 00:21:01.559
They're not technologists.
00:21:01.560 --> 00:21:09.920
They don't– they're not thinking about SSO or permissions, all these things they take for granted but cost millions of dollars to build in real life.
00:21:09.921 --> 00:21:19.039
Then there's all these people that are going to pop out of the woodwork from IT, or legal, or other business units and they require back-end infrastructure and security certifications and all these things.
00:21:19.040 --> 00:21:24.880
What you're being told is that what you need to build is that most 30% of total requirements, right?
00:21:25.779 --> 00:21:38.640
This is the risk where as a capital allocator, which is fundamentally a founder's job, you have to think about the risk of that and you have to think about what amount of commitment the customer's making to you to go through that process.
00:21:50.390 --> 00:21:53.519
That's a really good analogy,the iceberg one, and it makes a lot of sense.
00:21:53.520 --> 00:21:57.799
Partly is what you said and partly is also that they're potentially not used to buying from startups.
00:21:57.800 --> 00:22:01.240
Other vendors that they buy from do have all that stuff, and it's really about the 20%.
00:22:01.240 --> 00:22:02.680
There's a lot of reasons for it.
00:22:02.681 --> 00:22:05.319
You raise these$2 million; you have these two larger enterprise customers.
00:22:05.460 --> 00:22:11.880
Why do you decide to go a little bit down market into the mid-market?
00:22:15.118 --> 00:22:17.118
Yeah, I think it was really driven by two decisions.
00:22:17.119 --> 00:22:20.920
One was just efficiency, just go-to-market efficiency.
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