A Product Market Fit Show | Startup Podcast for Founders
00:01:31 · Scott Stevenson
[00:01:31] S0: Yeah, we started Rally. There's myself and two co-founders Matt and Daniel. Daniel was a lawyer. Matt was a mechanical engineer who had started a toy company. I come from an engineering and product background and I had started my first small naive startup straight out of the university. Even before this, we launched this musical instrument and I got my first little angel check of 20K. Before I knew it, half of that angel check was gone on legal fees and I was like, what just happened? It was crushing for me. I thought that was a lot of money at the time for a company to have and I was really frustrated with that. I went down to become a director of engineering at another company for a while, but this problem really stuck in my head of like, wow, it's really hard to start a company when it costs so much just to get basic legal work done. This must be a problem for a lot of people. That became my mission and I was plugged into the smart contract and Ethereum space for a while. I was like, oh, for a while I thought smart contracts are going to take over and everything's going to become a computer-based contract and it's all going to be cheap. I went to Ethereum hackathons and things like that, but we knew we needed to build something that people would actually use and that lawyers would use and lawyers didn't seem too receptive to using Ethereum and smart contracts at the time. They knew there was this pain. This set me personally on a mission to figure out how do we make legal services more accessible so we can have more entrepreneurs, so we can have faster sales cycles, better employment contracts? Everything in the world runs on contracts. It's friction that is in every single transaction. As an entrepreneur, I would always been looking for what's an impactful mission that I could dedicate my life to? When I thought about the experience I had and when I thought about the scale of this around the globe; if you go to the strike website, you see that globe with all the financial transactions happening around the world and their whole thing is increasing the GDP of the internet. I'm like, well, if we could decrease the friction of legal transactions by 90%, what does that do to the GDP of the earth? How many more people can start companies?
00:03:39 · Pablo Srugo, Scott Stevenson
[00:03:39] S1: That's the high level to decrease friction, which I really like. What was the first pain point and value prop that you went after and how did you land on that specifically? [00:03:53] S0: I'll preface this with us plus really our director of growth as well. We launched over a hundred landing pages, so we've had a lot of different value props. I could tell you about a lot of experiments that we ran. [00:04:06] S1: We'll definitely go through that. [00:04:08] S0: The very first thing we launched and it happened almost in a couple weeks was really a template library for founders. Actually the very first thing we did was like, screw lawyers, we're just going to bring templates to founders and whatever they need we'll have. We launched that very quick. It wasn't pretty successful. [00:04:25] S1: Like an employment contract, a safe doc, whatever, a bunch of NDAs?
00:04:25 · Pablo Srugo, Scott Stevenson
[00:04:25] S1: Like an employment contract, a safe doc, whatever, a bunch of NDAs? [00:04:30] S0: Yeah, exactly. We had a bunch of people immediately sign up and pay us five bucks a month and we're like, oh geez, this still isn't – it's going to take a long while to become raw and profitable on this. It was a hard sale because what we realized is even if you could automate the creation of these documents for people, they still had no idea what they say. They still need someone to trust. They still need someone to explain it to them. We really quickly pivoted away from that. At the same time, a law firm guy named Todd Bissett in Waterloo at Miller Thomson came to us and he was like, "Oh, our law firm is actually looking for a templating technology and a way to streamline startup paperwork for our own clients. We saw what you have and it looks actually really compelling." We actually worked with him and his team for a number of weeks to actually hone the product for law firms and to interface with clients so they could then use our product to capture a bunch of information from clients. They could send a questionnaire to clients and then suck that into templates, build a whole bunch of docs, and then do their bespoke thing. Then that became – I would say the core of the real Rally product was this Rally for law firms. [00:05:37] S1: When you had this lawyer come to you and tell you about this problem set, did you just start designing with them or did you also go and run discovery and all these classic PMF motions?
00:05:37 · Pablo Srugo, Scott Stevenson
[00:05:37] S1: When you had this lawyer come to you and tell you about this problem set, did you just start designing with them or did you also go and run discovery and all these classic PMF motions? [00:05:48] S0: We definitely went into hyper focus on their problem. We actually worked out of the office for a little while. We were alongside lawyers who were doing real legal work. We hyper-focused probably too much on my customer to be honest. Probably over-fit our product a lot. [00:06:06] S1: That was your first product? This is like 2019, you've got this product for law firms to help them streamline their process of making simple documents. Is that maybe in broad stroke what it was? [00:06:16] S0: Yeah, exactly. Then we ended up raising a pre-seed round from some east coast investors early on after we had some initial revenue. We got a handful of other customers on law firms on board who were great early supporters. This is still 2019. Then we did a lot of iteration there to get to something where we felt there was really deep PMF. This is where the long – those first customers were super exciting but then it was at the valley of despair. I'm sure you've seen the graph from YC of the typical startup trajectory. Really exciting getting these first customers; then getting to true PMF was this valley of years really.
00:06:16 · Scott Stevenson, Pablo Srugo
[00:06:16] S0: Yeah, exactly. Then we ended up raising a pre-seed round from some east coast investors early on after we had some initial revenue. We got a handful of other customers on law firms on board who were great early supporters. This is still 2019. Then we did a lot of iteration there to get to something where we felt there was really deep PMF. This is where the long – those first customers were super exciting but then it was at the valley of despair. I'm sure you've seen the graph from YC of the typical startup trajectory. Really exciting getting these first customers; then getting to true PMF was this valley of years really. [00:07:00] S1: What happened? Walk me through that because I find this is so important to understand and hard to understand from the outside is if you find one customer, five customers that really love it, you just assume there's got to be a thousand and how can it be harder? It is got to get easier, not harder. What's your thinking on that? Why does that happen?
00:07:18 · Scott Stevenson
[00:07:18] S0: I think the biggest thing for us is I don't think the initial customers – they love the idea of it, they love to buy it, they love the concept of it, but actually getting real usage, real engagement, real habit change, that was the hard thing. Even with these customers, getting them to truly set up templates in our system, time to value we realized was really important. It took us a long time to figure that out, but they had to do a lot of setup and configuration to get this to work. Then once they got it set up to work – so they had to basically set up these fancy legal templates in our system. Then often the legal teams would be like, "Oh, this is great, all the other lawyers are going to love this. My work's a little bit too bespoke but all the other lawyers are going to love it." We would hear that over and over and over again where they so want to improve their process, they so want to embrace technology, but when the rubber meets the road and they have a live deal they're like, oh, this is too bespoke for this templating engine and they wouldn't use it. From a usage perspective it wasn't hitting the way we wanted. I think especially if you're working with a large customers, large law firms, the danger there is the implementation cycle can be a year, can be two years to technically get something rolled out past all the committees and to start getting feedback and do all the changes. When all that time goes by, you don't know if you have product market fit or not. That's really, really difficult. I think we ended up switching to focusing on small nimble firms who just adopting is really quickly. Then our iteration cycle sped up a lot. We could easily see like, okay, we still don't really have deep PMF. The other way we measured PMF was CAC payback period. We were just of a little bit religious about what's our CAC payback period? You doing this motion. If the CAC payback period wasn't clearly well under 12 months we were like, okay, we don't have PMF.