Lenny's Podcast: Product | Career | Growth
00:04:05 · Oji Udezue
[00:04:05] S0: And the thing behind that is that there's a... And you know, people can find that on Substack and on Medium with my writings. Well, the premise is that there's a lot of risk in building startups, right? And the last decade of product management and startups has really focused on the method of building software in companies. We talk about the lean approach. We talk about fail fasts, YC Doctrine, so on and so forth. And I think that that was a necessary phase for us because a lot of innovation was just the ideas of founders, unvalidated by customers, And we needed this inflection point in our discipline. People need to understand though that customer science is not the solution to everything otherwise. OpenAI will never have done anything, right? It's also innovation. Alright? And so the problem space and the solutions to the problem space is still a big driver of success in building software companies. What problem are you really solving? And if you believe that the problem space is key, so what problems will predict success? Right? In b to b SaaS especially, which is much easier to circumscribe, is where I I start to think about, look, how do you tell from the beginning? Because I'm an investor as well as an operator, right? Now, to segment this space, I think of two dimensions, you know. One is how many departments in the company does the workflow you're trying to solve apply to, Right? Is it just a few or is it all of them? Right? And the second is how intense or how frequent is the workflow executed? Is it daily? Is it weekly? Is it three times a week and so on and so forth? Now, if you draw a nice quadrant of these two things, then you can start to have some predictive power. Things that are useful in every department, I call everyone workflows, like things like collaboration, like Slack, email, calendaring, workflow, social knowledge, and like Notion and so on and so forth. And then things that apply to single departments, I call niche and things that apply to... That's what I call niche, right? And then the intensity is about frequency. A month is not infrequent. Daily is super frequent. If you divide the market or the enterprise into frequency and into how broad the workflow is, you can actually have predictive power.
00:06:28 · Oji Udezue, Lenny Rachitsky
And what I found by looking at the biggest companies, public and private, in each quadrant was that every one frequent workflows intuitively are the most profitable to work on, but also the hardest to get into because they're dominated by Microsoft and Google and very, very large companies. For example, one of my friends is the CEO of Coda. And so this is interesting because he's in that space for him to think about. And then the place where B2B SaaS really thrives is niche workflows that are highly frequent. Right? HINI is what I call it, you know, high frequency niche. And then there are the other two quadrants that are a bit more challenging, and then you have to figure out how to navigate your way into one of the other two. If you are in one of the top two quadrants, hi, Nye, and hi, everyone, and you solve a really important problem, workflow problem, you can probably turn into a billion dollar company. If you do the other two, there's some challenges that you have to go through and the framework sort of talks about how you should navigate those places into success. And I think it's very important because if this is true, and by the way, like I said, I did some validation on it, founders can start to, before they invest years, start to think about what probability of success is. And if you're an investor like me or a VC, you can start to think about how you deploy your money. [00:07:57] S1: What are examples of companies in each of those quadrants, if you can frame this in your... I don't know if you have this in your head already.
00:07:57 · Lenny Rachitsky, Oji Udezue
[00:07:57] S1: What are examples of companies in each of those quadrants, if you can frame this in your... I don't know if you have this in your head already. [00:08:03] S0: High frequency everyone workflows tend to be things that are done by the doorman to the CEO. So it's email, it's collaboration, it is writing, it is, math, you know, all the basic things. And Atlassian, we spend a lot of time thinking about this. So word, you know, we've had, you know, word processing forever in the work in the workspace. Things like Notion and Confluence are huge, are sort of the evolution of that. Slack, email. Companies in that space, Google, Microsoft, Atlassian, etcetera. In the Hainai, which is high frequency niche, you have things like Jira, right? You have things like, you know, tools for recruiters. You have Martech, alright? You have SalesTech. And these are... We know the companies behind them, Atlassian, Salesforce, so on and so forth. And then in in the, you know, low frequency everyone, you have things like maybe form tools, and actually, they're not that many of them, right? Low frequency everyone, or even like expense, actually the best is expensing, right? Not everyone does it all the time, but everyone essentially has to do some of it mostly, at least a lot of people. And then there's a low frequency niche, which is its particular department. So planning, which is done by FP and A, but done infrequently, things like that.
00:08:03 · Oji Udezue, Lenny Rachitsky
[00:08:03] S0: High frequency everyone workflows tend to be things that are done by the doorman to the CEO. So it's email, it's collaboration, it is writing, it is, math, you know, all the basic things. And Atlassian, we spend a lot of time thinking about this. So word, you know, we've had, you know, word processing forever in the work in the workspace. Things like Notion and Confluence are huge, are sort of the evolution of that. Slack, email. Companies in that space, Google, Microsoft, Atlassian, etcetera. In the Hainai, which is high frequency niche, you have things like Jira, right? You have things like, you know, tools for recruiters. You have Martech, alright? You have SalesTech. And these are... We know the companies behind them, Atlassian, Salesforce, so on and so forth. And then in in the, you know, low frequency everyone, you have things like maybe form tools, and actually, they're not that many of them, right? Low frequency everyone, or even like expense, actually the best is expensing, right? Not everyone does it all the time, but everyone essentially has to do some of it mostly, at least a lot of people. And then there's a low frequency niche, which is its particular department. So planning, which is done by FP and A, but done infrequently, things like that. [00:09:30] S1: How frequent is frequent in your experience? Does it have to be, like, once a week at least? What is... Do you think is that minimum bar?
00:09:30 · Lenny Rachitsky, Oji Udezue
[00:09:30] S1: How frequent is frequent in your experience? Does it have to be, like, once a week at least? What is... Do you think is that minimum bar? [00:09:39] S0: Frequent is every day, really, or, like, multiple times a week. Infrequent starts to be, like, two times a week, once a month, and, of course, there's a big interregnum in the middle of that. [00:09:51] S1: It's interesting that there are examples of companies that succeeded in those lower quadrants of infrequent, say the expensing use case. Do have a sense of what it takes to win there? Because I imagine most startups are in that area and imagine founders are like, what can we do to win still?
00:09:51 · Lenny Rachitsky, Oji Udezue
[00:09:51] S1: It's interesting that there are examples of companies that succeeded in those lower quadrants of infrequent, say the expensing use case. Do have a sense of what it takes to win there? Because I imagine most startups are in that area and imagine founders are like, what can we do to win still? [00:10:05] S0: Well, this isn't a static framework in the sense that companies are not destined to be in one of these things. The essence of strategy is to navigate from, you know, the the the curve of travel is essentially go from the lower to the higher. Right? Atlassian is trying to go from high niche to high everyone with Confluence and with all the tools that they have. People below are trying to get into the high frequency niche by focusing on their core customer. So what it looks like, say in say low frequency everyone workflows, something like that is, well, if some people are using it infrequently, but they must use it, well, that's a good thing, right? But then maybe you provide a module that is used by the finance department every day, right? And so suddenly you're moving into the high frequency everyone workflow. So it's about finding a part of the organization that considers this mission critical and then solving their problems beyond the problems for everyone, for example, in that quadrant. [00:11:08] S1: Is there an example that comes to mind of either a Calendly or Typeform or Atlassian where you pushed it further up the frequency direction or the everyone direction?