How to Find Product Market Fit | Allan Wille, Founder of Klipfolio

Allan (Guest) 0:00 When you think about product-market fit and selling to your best fit audience, usually they reach out, they're driving the conversation, they're driving the timeline, they purchase relatively quickly. There's very little negotiation. Intro 0:13 Welcome to the Product Market Fit Show, brought to you by Mistral, a seed stage firm based in Canada. I'm Pablo, I'm a founder turned VC. My goal is to help early-stage founders like you find product-market fit. Pablo (Host) 0:29 Today we have Allan, the co-founder and CEO of Klipfolio. Klipfolio is a lightweight business intelligence tool that helps companies build real-time dashboards, so they can see what's happening across different parts of their business. Klipfolio is based in Ottawa and for context, they have about 60 employees, and have raised almost $20 million to date. The topic of today's episode is how to find product-market fit. Allan, it's a pleasure having you here. Allan (Guest) 0:54 Hey, how you doing, Pablo ? Pablo (Host) 0:55 So, maybe let's start at the beginning. How exactly did Klipfolio get started? Allan (Guest) 0:59 There was this brewing idea that we had, myself and Peter, my current co-founder. And this was around... there was sort of market movements where XML and RSS were coming into fruition. The internet had more and more information on it and what we were finding, and we were doing this ourselves, we were going from website, to website to website, checking up on things. How are my stocks doing? What are the latest sports scores? What's the weather? And every time we did this, we were only sort of getting a little snippet of data. The essence of this idea was there's gotta be a better way of monitoring this data on a daily basis. So, the essence of where Klipfolio started was actually on the consumer side. We were trying to solve a problem of how do we make it more efficient for an individual to monitor all the things that they care about. And that's what we built. I mean, that's how we started. So, there's interesting product-market fit lesson in that as well. We built this consumer tool, and we made it sort of that people could build little clips as we called them that would connect to The Weather Network or connect to CNN. And we had thousands of these people building these clips. And we actually had thousands of people downloading our little dashboard, our little news aggregator as well. But we couldn't find anybody to pay for it. So, on the one hand we did actually have this huge consumer group that was really interested in the app, but we were really struggling with where's the revenue going to come from? Pablo (Host) 2:36 Do you build a product and launch it? Do you start validating it with other people and just seeing if it's a real problem? Do you go through some formal customer discovery? Allan (Guest) 2:46 We sort of jumped fairly early. So, we started mocking up some things, and writing some things down. We sort of validated some of that thinking early on with friends, with other colleagues. So, I think that helped, but we actually started building relatively early, and then testing that entire idea. Now there was a lot of people in those early days that again said, "no, it's not a good idea. It's not going to happen. Or it's too risky," whatever it was. There were a lot of hurdles along the way that we, again, had to overcome. But we jumped fairly quickly into the new company. And I'm actually, I'm a fan of that. I do tend to see too many founders who have the comfort of a current job who are not diving off the diving board, and it changes the way you approach everything. There's a certain comfort that doesn't allow you to really fully commit to what you're building. Pablo (Host) 3:50 That makes total sense. I can definitely see jumping in with two feet, just the drive, the amount of time you have to devote to it totally changes. Now let me ask this piece. You seem to say that you jumped off, which I totally get, and then you went pretty quickly into kind of building and launching a product. Now, this is a while ago. Now, these lean startup ideas are super popular and customer discovery, with Steve Blank, and all that, but it's hard for a consumer product. B2B is easier to really validate and get contracts signed and all these sorts of things. When you think back to that, do you say to yourself, "I wish we would've validated things more?" I know you pivoted away from pure consumer. Or do you think that was the right thing to do? Build something, put it out there, see what happens. Allan (Guest) 4:36 I'm actually really happy. I'll tell you sort of the next chapter and what happened, and that chapter could not have happened if we had not chosen the path that we did. Now keep in mind, my background is industrial design, and as sort of UX professional as well, testing and user validation and user testing has always been something that has been close to my heart. So, this idea of going out with paper prototypes and asking for feedback is something that we did very, very early on. But we did build something, and we pushed a version one or a beta relatively early. And at the same time, we were also meeting with early angels, and CVCs, and every single one of them turned us down. There was absolutely nothing that they wanted to sort of get involved in. Pablo (Host) 5:30 Was this because it was the dot com crash, or was it specific to the idea? Allan (Guest) 5:35 So, you're right. You're right. There was not a single VC or angel out there that wanted to touch anything tech in 2001, 2002. So, there definitely was that. But even that sort of hardened our resolve and, I think, made us a little bit more focused, but we put the early beta or alpha product out there. And keep in mind, we have to sort of understand the context. In the early two thousands it was way harder to build software, way harder to sort of market your software. But what there wasn't is there wasn't as much competition. So, the playing field was a lot less noisy. And what we found is we put this product out and almost immediately there was this early adopter XML, RSS kind of crowd. That just totally... Pablo (Host) 6:34 I have to ask, by the way, sorry. What is putting a product out in 2001 look like? You put it out where? Allan (Guest) 6:47 This was a downloadable product. Almost overnight because of the lack of SEO noise, we were a player in this space, and we amassed very quickly through probably, our beta to version of one, to not even version two. We had 300,000 downloads of our little Windows application. So, there was enormous and immediate, user pull. The problem was, is that, our business model was that we were going to the access right to the user's desktop, to the CNNs of the world or the sporting news of the world. And, we thought that, "Hey, this is how you really get a captive audience, right on the desktop, in sort of a little alertable widget tray. So, cool idea, but selling to publishers in 2003, 2004, they were just scrambling to trying to figure out, what is our business model looking and selling. Pablo (Host) 7:51 The idea was what? It was free to users? Allan (Guest) 7:54 Free to users. Pablo (Host) 7:54 Publishers would pay to have the data on it? Allan (Guest) 8:00 So, we're going to get this consumer audience and publishers, you can pay us to sort of have access or promotional or brandability straight on the desktop. Here's where the pivot sort of happened. And again, it was purely, a happy accident. So, we had this massive user base, 300,000 users. And there were pockets. And Germany happened to be a really big concentration of users for us. And one day, and I remember banging my head against the keyboard, trying to figure out how we're going to turn this thing around and make money and put food on the table. And it's really hard. It's really hard when you've got a vision, and it's not working. But one day Lufthansa contacted me. So, I got an email from Lufthansa, and so he said, "we have a ton of employees who are using Klipfolio to monitor their German news and their football, their soccer scores." And we're, "oh, that's cool." And he says, "can we use Klipfolio as a way to communicate business metrics and business information?" And of course I said, "yes, of course you can." The conversation continued, the dialogue continued, and he said, "can you provide us with a quote and sort of next steps?" And at the time, nobody was thinking recurring revenue. And again, maybe this is sort of in innovation through not understanding what the norms were. I'm not a salesperson by default. Pablo (Host) 9:36 And this was at this point, you had a lot of users, but you mentioned the publisher strategy wasn't working all that well. Did you have revenue? Did you have funding? How..? Allan (Guest) 9:44 There was no funding. There was a little bit of early founder loans that we were getting, there were some shred dollars, some tax credits that we were getting. But there was no risk capital into the company. Pablo (Host) 10:00 And was there revenue? Allan (Guest) 10:02 Yes, there was a tiny bit. So, we had made some sales into some publishers, and they weren't bad deals, but it wasn't enough to say it's working. Pablo (Host) 10:14 I see. Allan (Guest) 10:14 We weren't delusional and thinking, this is the tip of the iceberg. This was hard. It was not working. When you think about product-market fit, and selling to your best fit audience, usually they reach out, they're driving the conversation, they're driving the timeline, they purchase relatively quickly. There's very little negotiation. So, all of those things, if I think about Lufthansa, were absolutely true. They didn't blink an eye when I said 35K annually. They started implementing this thing almost immediately. And they were one of our biggest cheerleaders as well. Not only that, but they also were happy to sort of tell everybody that they had chosen this new and innovative product. Product-market fit you have to find that customer that is just... they're really leaning in, and they love what they see. Pablo (Host) 11:09 All the indicators were there, but the question is, do you drop everything and say, "holy crap, let's go chase B2B"? Or, did it take a while, like, "well I love this consumer thing, this is what we've built"? What were the dynamics there? Allan (Guest) 11:20 Yes, it did take a long time. Here's where we made massive mistakes. We decided to have this sort of dual path strategy where you go to our website and on the one side, it says, "hey, if you're a consumer and publisher, go here." And then there's another path. I think we split it a 100% down the middle, 50% of the homepage real estate was enterprise and 50% was consumer publisher. Looking back, it makes no sense for any small under funded startup to ever do that. Pablo (Host) 11:57 Why not? Why not? Because I have my own thoughts on this, and I will agree high-level, but people will say, "well, it's the same product. I'll sell here, and I'll sell it there." Allan (Guest) 12:06 I know, but if somebody's going to reference you, and if somebody's going to be an advocate and if you want to really dominate a market and be THE player that everybody needs. Markets reference each other. And you have to build up that momentum to sort of say, "oh yeah, what does Klipfolio do? Oh." Boom. They do this for this kind of a company for this kind of a pain point. If you don't have that focus, nobody really knows what Klipfolio does. And if that's the case, you're not a specialist in anybody's problem. I think that's the problem that a lot of companies get into. They have this technology that can be applied to a lot of different things, and a lot of different technologies can, but they're not an expert, or they're not a trusted source for any particular customer or pain point . Pablo (Host) 12:55 So, in other words the focus, what you're highlighting is that one of the big benefits of focus is really a marketing, branding thing, positioning thing. You need to occupy a specific pace in some customers mind. And if you're doing two things early on, you'll get neither. Allan (Guest) 13:10 Yeah. And founders struggle with that all the time. And they struggle with it, not only because they're in love with the product, and the product can do everything. They also struggle because they're trying to make money, and the argument...and I've heard it a million times, the argument of, but money's money. If we sell it to consumer and publisher over here, it's still money. If we sell it to Lufthansa over here, it's still money. And it's hard because, when you're struggling to actually pay your bills, money is really, really important. So, there's a certain luxury that is required to allow you to do this, but at the same time, if you don't do that, you're never going to own and really scale within any market. Pablo (Host) 13:57 So, you start off with this dual approach, and you're tackling both markets. And as you said, that was high level of mistake, you should have just focused. But what was that like? What were some of the problems that took place that then led you to obviously, ultimately abandon consumer? I'm just curious how that all played out. Allan (Guest) 14:16 I think, we knew the problems. We knew that if somebody's looking at your homepage, they question, what do you guys actually do? Who are you guys actually going after, and are you going to satisfy my pain point? And tactically because we knew that, we started taking steps. So instead of having the homepage, that was split 50-50, we had subdomains so that the SEO would direct traffic to a page for consumers and publishers, and they wouldn't see the enterprise side. So, from a market and positioning point of view, we started segmenting that, and that helped. But from an internal point of view, you still have to sort of say, "okay, well, where are we going to put our road map dollars? Where are we going to put our sales dollars?" And even though we had split the external facing messaging and the position so that our customers weren't confused, we still had an internal dilemma of, well, the publishers want this feature, do we build it? Or the enterprise customers couldn't care less about that. So, eventually, that became so apparent. And again, with a small engineering team, with a small sales team, small marketing team, you just can't satisfy multiple industries. And even within an industry, if you can segment even more, and be really precise. I always use the example of, if you came to a website that said, "we've got a solution that is for people in Ottawa, that live downtown, who like to go out to restaurants in the evening, et cetera, et cetera." That is like, "wow, you know what? These guys are talking about me." And people that that's not for, they're not going to waste everybody else's time. It's as much about finding who it's for, as well as get rid of the noise. Absolutely get rid of the noise Pablo (Host) 16:21 At that point was that an easy decision? When you looked at your revenue, was it like 80% was already enterprise, and so it was a no-brainer, or did you have to really shoot yourself in the foot sort of thing? Allan (Guest) 16:33 It was an easy decision from a revenue point of view because the enterprise revenue started really pouring in. Pouring in for a small company. But it was very meaningful and very different than selling to the publishers. The problem was: It wasn't quite an easy decision. Pete and I started the company because it was a spark that originated on the consumer side. And there was something that we...our DNA didn't mesh with selling to enterprise. Selling to enterprise was relatively complex sales cycles. Selling to IT, dealing with legal, dealing with procurement, larger deal sizes, so a heavily sales involved model. Yes, it was starting to bring the revenue in and that was clear, but there was also another fly in the ointment. Somehow, this direction didn't feel right from a culture and a DNA point of view. And that's important too. I think founders can follow the revenue, and follow where the money's coming from, but at the end of the day, founders need to be so completely aligned. The DNA of the founder has to be so completely aligned with the mission, and why they're doing this in the first place that any kind of deviation from that, and you're going to have a problem down the road as far as scaling, hiring employees. Pablo (Host) 18:05 And was that hard to reconcile? I think about the... And I had this at Gymtrack as well. You start off with a given vision, you get attached to it. In your case, something around consumers, and access to data. And obviously with the most of the pivots, they don't take you somewhere totally away where you're selling chocolate or whatever. You're still within the same world, but all of a sudden, really you're helping enterprises run their business more efficient. It's pretty different. Obviously that was part of what took so long. How did you get, I don't know about over that, but how did you buy into this new vision and get excited about it? Allan (Guest) 18:42 So, the vision never changes. And I actually think that's one of the things, if you know what you're passionate about, and you're true to yourself, that actually remains throughout the life of the company. I think because we were selling to enterprise, and we were making some money, and we were scaling, we were sort of close to what we wanted to do, but we weren't quite on the right track. And again technologies are changing, the environment's changing, and people start investing more in cloud. And again, cloud is something totally separate from on-prem. Peter and I are super interested in this, and we're starting to sort of find that well, small businesses are probably more likely to adopt cloud than enterprise. And that was the case. Small businesses are way more or way closer to our mission and what we want to do as a company, than selling to enterprise. And then the third one was, if you looked at our entire corporate landscape or the competitive landscape, the business intelligence landscape was a total greenfield opportunity in the SMB world. You put all of those things together, and you've got a recipe that fully aligns with your DNA, and what you're passionate about. Peter and I both wanted to have something that would help as many people as possible. It was the same when we did the consumer side, it was quite similar. Now we're sort of helping small and midsize business be more successful with how they're running their business, how they're looking at risks and opportunities. So, that to us was, okay, that's the track that we want to be on. We pivoted from the enterprise to a cloud-based world, we changed our pricing so that we weren't selling something that was, 20 to 50K annually. We started pricing it at $20 per month per user. There was a massive risk there as well , where before I could sort of say, "okay, I've got this kind of a pipeline, here are the very stages. I think I'm going to close Ericsson now. I think I'm going to close Intel next month, et cetera . And I could sort of see how our revenue was going to be able to cover our expenses. Pablo (Host) 21:10 Besides understanding your vision, on the one hand, which is, hit as many people as possible, help as many people as possible. And this SMB and cloud trend on the other, did you actually validate this and get...did you see, oh, look, we actually have SMBs using the prem product, but it's not a great fit? Or did you just take the leap? Allan (Guest) 21:28 You know, I'd like to think that we did, but I actually can't remember if we validated this or not. There was lots of evidence suggesting that the market is moving in this direction. Certainly, there was more activity in the cloud, and a lot of excitement around that. But I'm not sure that we actually validated this. And a lot of our enterprise customers were very much opposed and would say things like, "we're never moving to the cloud. IT would never allow it, legal would never allow it. There's no way that's happening." By making this decision, in a sense, we were abandoning much of the revenue that was coming in. Now, again, we sort of allowed that to feather out. Pablo (Host) 22:18 That's super interesting. Let me dig in with another one, which is, you could argue you had product-market fit with this tool for enterprise. The question is: How much of your decision to say, "screw that, let's go to SMB" and take this huge risk was around some vision? It's almost like a vision market fit. It wasn't there and the enterprise play, or was it trend related? And you're like, "yeah, we have PMF, but it's going to go away because this and that trend"? Allan (Guest) 22:46 Yeah. So let me go back on that statement. Let's just talk about product-market fit with the enterprise. Yes, I think we probably had about 100 customers. No big brand name customers, but I think we were right in that middle ground of, or not sure. Yes, we had customers. So, it wasn't a total disaster. We were selling product, and we were having meaningful conversations. But I wouldn't say that it was a runaway success either. Sales cycles were still relatively complex. There were still negotiations. There were still competitive threats. I think we were in that middle ground of, we have something that is covering our expenses and allowing us to grow, but I wouldn't say that we had a runaway scaling success. So, that factored into our decision as well to sort of say, "okay, we continue doing this, but we don't think this is truly it." Pablo (Host) 23:44 How do you rationalize that? It's a hedge, I guess it's almost make sure, how can you shoot a hundred customers away? Allan (Guest) 23:47 It is, and we didn't want to scare our existing customers into churn. Yet, we wanted to sort of dip a toe into the new space. Pablo (Host) 24:01 Did you have investors at this point? How much harder would this have been if you did, you think? Or would not have? Would've been just the same? Allan (Guest) 24:07 It's a really good question because I'm not a believer that money can solve product-market fit. I believe that that's something that comes from sort of the early founding team listening and really, really, listening. And doing things that you can't necessarily do with money. I think money can accelerate a lot of things, but it can accelerate most things after you've found what that PMF point is. I think pouring money on trying to find product-market fit it sort of almost goes in the face of kind of the creative or the innovative process. So, I don't know that it would've been harder or easier. I think it would've taken almost the same amount of time. Pablo (Host) 24:53 Got it. Allan (Guest) 24:54 But, what did happen, to that very point, when we did launch the cloud version, and again, we had a lot of SEO coming in. We continued right from the early days, and we still do, we continued to have this absolute SEO machine that allowed us to get a lot of traffic in the top. And that's valuable because it means that you can run tests, and you can find the answers relatively quickly. So, hey, let's, let's push this new cloud-based dashboard out, and let's follow the journey. And again, as a founding team, let's talk to as many people as possible. We did do that, but we launched it, started putting more traffic towards it, and we found that it had a much shorter sales cycle than the enterprise version. We found that some of these customers were signing up without us even interacting with them. They were starting to add users. They were starting to build things in the application and as much as we could, we interacted, and listened, and learned from them. And now that's there's a little sidebar note there as well. As an early stage or product-market fit company, I think that's the best practice, for your leadership team to spend time with your early customers. But you're going to get a false sense of churn from that cohort. That cohort is often so wowed by the fact that the founding team is spending time with them, and adjusting their road map, that their lifetime is artificially expanded. You always have to sort of look at that early cohort and say, it's better than the rest is going to be. But nonetheless, they're super valuable. They tell you things. We had them, not only help on features, but pricing, messaging, all sorts of stuff. And in some cases, some of these early customers would even pay for some features. We used that, we're pre-funding, and we used some of the revenue that people would pay us for as sort of a "okay, we'll give you maybe a three or six months exclusivity period on this feature. But after that, we're going to roll it into, the greater good for all customers." And our customers were quite willing to do that. They needed that feature. We were going to change the road map, so they got something ahead of time. But eventually with a tool that you're rolling out, hundreds of thousands of customers, it has to be rolled up. You have to have one code base. Pablo (Host) 27:25 Got it. You've gone from this consumer play to enterprise to SMB and things are going quite well, I would think, at this point. Allan (Guest) 27:37 Yes, they're going better than we had ever experienced in the past. I think in the first year, we had something like, I don't know what it was, but just shy of 100 customers. I think at the end of year two, we had 350 customers. Then we had 1100 customers. It was starting to take off, much more quickly than we had ever experienced. And this is where that feeling of, do you have product-market fit or do you not have product-market fit is really dramatically different? If you have product-market fit, you can feel yourself being pulled. And you're struggling with questions like, how do we scale our support team, or how do we deal with the sales side or customer issues, or how do we get more developers so that we can build these features? Those are the questions that will consume a founder's time if they have product-market fit. And, you should listen to those questions because the opposite is very true as well. If you don't have product-market fit, it's so easy to think that you're on the right track. But if you are not feeling that, if you're having to convince prospects, or if they're taking a long time, or if they're being ambiguous about what their needs are, you haven't found the right product-market fit. There's always, there are two things to that. You either could be talking to the wrong market. They don't have any real need, or their pain point is not mapped to what you do. Or the product is not hitting the mark. And finding the intersection of where the product really resonates and wows somebody, that's the definition of product-market fit. And again, maybe just a note on that as well, as a founder and myself included, I'm much more of a product person. And so thinking about product features, and UX, and performance, that's something that comes really natural to a lot of founders, but that's only half of the PMF story. The other half is understanding who is that best fit customer. So, really looking into and spending to like on, what is their role, what are their needs, what are their demographics and firmographics, where in the world are they, how old are they? All of that kind of stuff to try to figure out who is really interacting with your product and loves it. Who's buying first? Who's not negotiating? Who's telling 10 of their friends about this? And then if you can circle that kind of a market and tell your marketing people, okay, get 10 times, get 50 times more of those kinds of people, that's when you know that you got something that eventually will scale. Pablo (Host) 30:37 I think on that note, the interesting thing from your journey is that each time you took a real step forward towards product-market fit, not, just linearly, it wasn't product. In other words, you were in consumer, I'm sure you made a bunch of product features, didn't get you any closer to real PMF . You then went enterprise. That was a big step, much closer to PMF . Not quite it yet. I'm sure you implemented a bunch of features there, and yet there was kind of a ceiling , a cap on how... And then you took another step , to this cloud-based SMB approach and product-market fit was a lot clearer, almost from the very beginning. And again, you kept improving towards it, but... Allan (Guest) 31:17 You can almost think of this as almost a formulaic system. If you have a web form that asks a bunch of profile questions, you're watching all of those people come in, you know a bunch of things about them, their demographics, and then about the company, the company size, cetera. And you then mix panel or heap or something, you're watching the behaviour inside of the app. You now need to take all of that data back and have an analyst, one of your analysts do a quant, constantly going over this data and trying to figure out what cohort are really engaging with the product and eventually converting. You can really think about that as this formulaic perpetual improvement machine that you're always feeding back into product road map, you're always feeding back into marketing to tell them to get more of those folks. I think that approach or that mentality is really an easy way to think about, okay, well, how are we going to continually get better, get better people in and scale the whole product? Pablo (Host) 32:26 Awesome. Well, listen Allan, we'll stop it there. I really appreciate your time. It's been an amazing episode, in my opinion. You took us through the very, very early journey of Klipfolio from leaving your own startup to deciding to start something totally new on the consumer side to enterprise, to SMB. And then really thinking through PMF and making hard choices along the way until you got somewhere that had real product-market fit. And then, as they say, the rest is history. Really appreciate you taking the time and sharing that with us. Allan (Guest) 33:02 Yes, for sure. You really made me dig deep into the history there. But you know, there's lessons. And there's things that were still done wrong. But yes, it's hard. And , I think thinking logically through these things is really important. Thanks, Pablo. Pablo (Host) 33:18 T hanks so much for listening. If you wanna see more content, check out p mf.show.