A Product Market Fit Show | Startup Podcast for Founders
00:11:12 · Andrew Antos, Pablo Srugo
[00:11:12] S1: Yes. [00:11:13] S0: And that conflict. And the latest wave, they've just seemed to say, it's kind of you have to do it. Because everybody's doing it and that's unlocked a lot of spend. [00:11:21] S1: That's exactly right, right? And I mean, they're also in the direct path of AI, right? But anyway, so that was the first iteration. So then we went mostly to in house legal departments and again, it wasn't OK, but it was basically a lifestyle business, right? It just didn't grow fast enough because the problem is not big enough for a sufficient number of people and so that naturally caps your growth, right? And that's how we really understood the dynamics of a market, right? You need to be number one problem for lots of very senior people. If you're selling into enterprise, so you can grow fast enough, so you have high enough deal size and you have lots of deal velocity. [00:12:01] S0: How long did this last, this first iteration? [00:12:03] S1: Two and a half years.
00:12:03 · Andrew Antos, Pablo Srugo
[00:12:03] S1: Two and a half years. [00:12:04] S0: So this is where I'd really like to go deep on the story. Because it's incredible the number of founders that, this is like one of the most common problems. I mean, you put something out and it doesn't work at all. It's very clear, and at some point you're gonna give it up or you're gonna try something else. If it just takes off, amazing, good for you, right? But being in this situation where you've got something that kind of works, just enough to keep you going but really not enough to make it worth your while is such a common pitfall. What do you do, like two and a half years in. When do you start to realize that it's an issue and what sort of actions do you start taking to change, you know, pretty dramatically, I assume?
00:12:44 · Andrew Antos, Pablo Srugo
[00:12:44] S1: Yeah, so we basically just realized that this is a problem and we always had this view of, we just need to run a bunch of experiments, right? To basically get feedback from the market, right? There's no other way to do this. You cannot hypothesize your way out of this problem. So we would always come up with new ideas. I think what we realized after two years, it's not just a product problem, right? Because we were doing everything that we could with the technology at that point. But it was also a market problem. People just didn't want this at a high enough rate, right? It wasn't that thing, and most of our discussions with lawyers were like, hey, we're doing AI for law. And they're like, why would I do that? Why should I care? That's not a thing and so, we realized we need to get out of that buyer, right? That was kind of a critical thing. [00:13:33] S0: And you're where, by the way? ARR wise? You're doing half a million, a million ARR or less? [00:13:36] S1: Yeah, close to a million. Like, maybe $800k. [00:13:39] S0: OK, so you've got something that's worth defending sort of thing but not enough. [00:13:43] S1: Yeah, and I think it's also the size of our ambition, right? I think for a lot of people, they would just call it like, oh, this is a good lifestyle business. You know, next year, I'm going to be at a million and the year after that, I'm going to be at $1.3 and the year after that, I'm going to be at $1.55. [00:13:57] S0: Correct.
00:13:58 · Andrew Antos
[00:13:58] S1: But I think both my co founder and I, we're extremely ambitious and so we were just like, this is clearly not what we want to do. And so they were like, we need to change who we're selling into, right? And so we looked around and we're like, OK, we have some tech that works well in terms of understanding documents. Which was a scarce resource, looking at 2019, 2020. So we have that, we have expertise in NLP, which also was a scarce resource and so we were like, who else has problems that are related to documents? And we sliced it by industries, and then we sliced it by functions. So we developed these hypotheses, we put all these sticky notes up and basically what came out of it is like we want to be function specific rather than industry specific. Because we don't have any unfair advantage in a specific industry. It's not like one of us has been in banking for twenty years and have a great network and we can just easily sell to banks. And so we said like, OK, we don't have that kind of an unfair advantage nor we're in a place that has that. So we looked at, OK, what are the functions? And so within functions, we basically realized, OK, the people that have the biggest problems with documents other than lawyers are finance teams, right? Because they're looking at the same documents, contracts, orders, POs, invoices, expense receipts. Everything is just some kind of documentation of a transaction that happened and all these finance teams needed to account for those transactions properly. And so we were like, OK, let's focus on finance teams. Let's do a research, and initial research was like, yes, you have teams that are reviewing contracts for revenue treatment. You have teams that are doing order management to book and build deals. You have teams that are doing the expensing, the expense receipts. You have AP teams that are doing invoicing. So there's a lot and those teams are pretty big. And so we were like, OK, there's a logic here. And so what we've done, we were like, OK, let's build a product. Let's spend three months on this. Let's build something on top of the technology that we already have, launch it and then we said in six months, we need to be $250k ARR. So this is 2020, so very different numbers than what you see in the market today.
00:16:11 · Pablo Srugo, Andrew Antos
[00:16:11] S0: Thats right. [00:16:12] S1: We need to be a $250k ARR from minimum eight customers, right? Then we put that guardrail as in we're finding product market fit now. The fact that we can deliver services. So we set that guardrail and then we just managed to that, right? So we went out, we tried to sell it to everybody who would be willing to speak to us and we ended up hitting eight customers. But like $350, almost. Like $340k ARR in six months and so that told us that, hey, where people are willing to pay for this. It's a bigger problem. So they're willing to pay more, even though they were super early and it also kind of scales pretty easily, right? If you can go from zero to eight enterprise customers in six months, that's a good start. So that's kind of like the first guardrail, and then the business continued to grow.
00:16:58 · Pablo Srugo
[00:16:58] S0: And I'm curious, before we move forward. The analysis of all the different industries and the functions, and then deciding that you're better off going after a function, picking finance. Because they have potential problems with documents. That all makes sense. That's the theory side. Then you go out and you said, you started talking to these customers. Do you have a sense? I'm curious what that was like, how deep, how many customers, what kind of conversations, what kind of things did you ask? Coming up with a story of something that sounds like it's going to work is so easy and it's so easy to delude yourself, right? And so I'm curious what you did ahead of it to increase the odds of the story you told yourself actually work and ultimately, you know, got you to the $350k or whatever.