Karen Peacock, COO of Intercom, one of the fastest growing SaaS businesses of all time, has led businesses of all sizes through massive growth. She will share her top 5 lessons learned in building and scaling SaaS businesses from $1M to $500M in ARR including expanding to serve upmarket customers, moving from product to platform, and how to hire well to drive breakthrough customer experiences and business growth.
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FULL TRANSCRIPT BELOW
Karen Peacock – COO @ Intercom
I hope you guys are having a fantastic day one of SaaStr. Now over the next couple of days, you’re going to hear some great talks about the founding story, and about that initial business success. And today, in this talk, we’re going to talk about what happens next. I’m Karen Peacock, I’m the Chief Operating Officer of Intercom. Intercom is a customer messaging platform that helps you drive business growth. I’m going to share with you my stories in growing and scaling businesses, SaaS companies from one million to 500 million in ARR. I’m going to share with you successes and failures and my top lessons learned.
So when you first started your company, or when you first joined a company, you probably had a goal in mind. Maybe it was to launch a new product, maybe it was to get to $1 million in ARR, and when you get there, it’s amazing, right? It feels great. But what happens also, is when you get there, you realize, that what you thought was the finish line, was actually the starting line. There is so much more work ahead, how do you keep driving that growth? That’s what we’re going to talk about today, my five best strategies to help you drive your next wave of business growth. So let’s go ahead and jump in.
First strategy, expand your market. So when you have that initial business success, you probably have a single product, and it’s great for a certain set of customers. That’s terrific, you should keep making that product better and better, and keep focusing on helping those customers. And you should also know that if you only ever focus on that product, or those customers, you will be stunting your growth. You have to figure out how to solve that same problem for more customers, how to expand your market.
Three ways companies typically do this. Often times companies start with one industry vertical, and then expand to solve the same or similar problem for another industry vertical. Upmarket companies start with a high-end solution, often times make it more simple or less expensive, and expand down market. And the third way is that companies that start focused down market, expand upmarket. The third one, a good example is, B2B SaaS companies that start by focusing on small businesses or mid-market, and then expand up to enterprise.
So this third one, this is classic disruption. What I mean by that is, when a new entrant comes into a space with a product that is more simple, and improves it and then disrupts the incumbent players, that’s classic disruption. Now there are many people who try doing this and try expanding upmarket, and there are good paths to go down, and then there are dangerous paths to go down. So let me start on the dangerous side.
It is super temping – and I’ve been tempted myself, to expand upmarket by building for one big customer, and let me give you and example. At Intercom we had the opportunity to work with IBM. Now just as a little bit of context, most of our customers are small businesses and mid-market companies, and we are expanding upmarket, but there’s upmarket and there’s IBM, right? It doesn’t really get more upmarket than that. And they approached us with an opportunity and a deal size of millions of dollars. It’s a huge deal. And in order to get that, we just needed to do a few things for them. It was actually 137 items that they wanted us to do. And I kid you not, it was literally, actually 137 items. And so we looked at that and we realized, we could do those things really well, but if we did that, those were not the most important things to be building for other customers. We’d be distracting our whole company, and we would be building something that was not scalable.
So think very carefully about what you say yes to and what you say no to. We passed on that. So at the end of the day, your strategy is as much about what you don’t do, as what you do.
One of my very favorite quotes, by Mike Tyson, which probably many of you guys know, “Everybody has a plan until they get punched in the mouth.” Right? Now here’s my corollary, “Everybody’s got a strategy until they get handed a big check.” What are you going to do when someone offers you that big check? Don’t get blinded, focus on your strategy, and make sure you are doing things that are scalable. So the best way to expand that market, is to do it one step at a time. Here’s what I mean by that.
If your product is a great fit for kind of a certain type of customer, think about who your sweet spot is, and then think about the customers who are outgrowing you, just one step bigger than that. Or, the customers you can’t quite close because they’re one step bigger. Go out and spend time watching those customers, and understand what it is that they want and what it is that they need, and figure out how you can build something for them, that one step larger customers. I’ll give you an example. I was previously the head of small business products and services at Intuit, and one of our products, Quickbooks Accounting, years ago was a fantastic accounting product for companies with up to 20 employees. Really good for that. But, many companies outgrew Quickbooks, and when they outgrew Quickbooks, they moved to products like NetSuite and others.
Quickbooks was $300 a month, NetSuite was $3,000 a month. There’s a lot of space between here and there, and so we looked at that and we thought, “There’s probably something we can do there.” And these customers were asking us to build more because they wanted to stay with Quickbooks. So we watched those customers to figure out what it was that they wanted versus needed, because we couldn’t build out everything.
And as we watched them – I’ll just give you one colorful example, there’s a property in Quickbooks which gives you basically the right to write checks and view a check register. It makes sense, right? So someone of the company has the right to write checks and see the check register, and they of course can see all the checks that go out of the company. That is all of the checks which also include all of the pay checks, right? Now that’s a big problem. As you start to get beyond just a very small company, you don’t want the person who’s writing any individual … paying any individual bill to see what the owner is making, to see the salary of every single person at the company. So that is a great example, that granular permissions, which is what the customers needed, is a great example of something that people needed, not just wanted.
We also spent time thinking about what it is that we could build, versus what it is that we could partner with others to do. And that’s a great thing to in general think about, the needs versus want, and what can you partner for. So we invested in that product, built out a couple of key features, opened up our APIs and launched that product. And when we launched it, we put it on the market for $1,000 a month. Three times the price of our original product. Think about your product, and imagine being able to sell it for three times the price. Incredible.
Now you look at that. So we put it on the market for $1,000 a month, but remember NetSuite was up at $3,000 a month, so it’s a still a screaming deal in the industry. We launched it, and within a few years it grew to become a $100 million ARR business. That’s how you move upmarket one step at a time.
Now, moving upmarket is not just about product, it’s also about the end to end experience. Think about if you’re going out to dinner, if you’re paying $10 for dinner, you’ve got a certain set of expectations about that. If you are paying $100 for dinner, you’ve got a different set of expectations, and it isn’t just about the food, right? You need to think about that whole customer experience. You need to change your blueprint. You need to think differently about how you market, sell, support, and help those customers succeed. My advice here is to hire one or two people who have served those upmarket customers, and have them work with you and define how it is … what your new blueprint for serving those upmarket customers is going to be.
Alright, so we’ve just talked about expanding your market, expanding upmarket one step at a time. The next strategy is around building new products. How do you find and build your next big product? What I would tell you as a secret, is that your next product is probably right in front of you. I’ll give you an example from Intercom. Intercom started as a live chat and messaging solution, which was all about helping businesses connect to with their customers in a personal way and support their customers. And what we found was that people were starting to use the Intercom messenger on their website to sell to prospects, because messaging and live chat is a great way to personally engage customers, and was actually helping them really sell. But that was not what we had originally built the product to do, and so we looked at that and we realized, our next product was right in front of us to create an amazing solution to help people sell.
And so we built out a product called Acquire, launched it, and it quickly became our fastest growing product ever. And over the last two years, we’ve invested in building out more and more for sales and marketing teams, and those have become our most used products across Intercom. Why? Because they solve an important problem, driving business growth, and they do it really well. Our customers have found that on average when they use the Intercom messenger to engage with their prospects on a website, they increase conversion rates by 82%. So that’s an important problem solved really well, that’s what’s driven the business growth of that new product.
So the key take-away here is, when you’re thinking about building your next product, watch what your customers do, not what they say. Now our customers were telling us things like, ”
Hey, can you incrementally improve the existing product in this way, I’d like this feature to work like that?” And we did absolutely invest in those areas, but there was never a set of customers saying, “He, Intercom, can you create a kick-ass, lead qualification, data enrichment system that then does really robust rowding and closed loop ROI?” No-one’s actually asking for that, but that was what they needed. And by watching what customers do, that’s how we knew what our next big product would be.
So ask yourself the question, what are the other important problems that your customers have, and which of those could you solve well. A couple of key points – Important problems: If you would like to build a small business, start by solving a small problem. If you want to build a big business, solve a big important problem. Focus on your customers, the people who are buying your product today, not the other people who work at their company, not their friends, the people who already know and buying your product today. What else can you do for them? And then, figure out where you can solve it well, and be really honest with yourself in terms of your assets there. So that’s a little bit about the product side.
Let’s talk a bit about go to market and how you sell that. Let me share with you something that I wish I had learned years ago, it would have saved me so much time and focus, and that is, that add-on products are not added on after the fact, they are sold upfront. Great businesses sell 50% of their add-ons upfront. So in the initial purchase, when you’re first working with a customer, map out all the things that you can do for them, and figure out a way to really start that relationship right. Your upfront experience is key. Invest in nailing that upfront purchase experience, whether that’s through a self-search channel or through sales. Make that upfront purchase great.
Now, 50% means there’s still another 50% who are expanding with you over time – start with one solution and then buy more from you over time. What should you do for those folks? I think in general in marketing, and probably very much in life, show is always better than tell. And this is true particularly for your existing customers. Your existing customers do not want your general, generic, high level marketing messages about the kinds of things that you can do. They want to understand, what is this new product and exactly how does it work, and what will it do for me. So give them what they want. Show them your new product. Show it to them in the context of your existing product. Market your new product within your existing product. Show the integration, show the new product with the customer’s data already in it. Show – don’t tell, particularly with your existing customers.
Alright, strategy number three – Finding product market fit again and again. So there’s a myth out there, and the myth is, that you get this stroke of inspiration, and you work really hard, and you do some smart things, you get a little bit of luck on your side, and you enter the beautiful world of product market fit, and all is good, right? Well, you’re not done. You have to keep finding that product market fit again and again. And whether that’s to new customer segments, or for new products, or even for your existing products, you have to reinvent yourself over and over. So think back to your favorite products two years ago. Just take a moment in your mind, what were some of your very favorites. Now, how many of those products are still your favorite products today? It’s probably only the ones that have been reinventing themselves. So make sure that you are reinventing your product continuously, and driving that product market fit.
And here is my single piece of advice for how to find a product market fit, both upfront and over and over again. And that is, to fall in love with the problem, not the solution. I’ll give you a story. When I first Intuit and I was leading product management for Quickbooks Accounting, I wanted to make the product better. So I and my team, we went out and we spent time with customers and we asked them, “What do you love about the product? What do you hate about the product? What do you wish for?” And the number one thing that people asked us for, was budgeting. And we said, “Fantastic, we would be happy to build you budgeting.”
And so we started iterating on a budgeting solution, we brought in customers, we iterated with them to the point that we got to where customers said, “Yes, that is a great budgeting solution.” We said, “Fantastic,” we built it, we shipped it, and do you know what happened? Nobody used it. See I promised I’d share some failure stories too. Nobody used it. Why did nobody use it? They asked for it, we built what they asked for. Well, the problem is, that budgeting is tomorrows problem. Budgeting is something a small business owner sits down to do tomorrow, but there’s never actually a moment where a small business owner sits down and starts to budget.
So why were they asking for it? What was the core problem underneath that? And so we went out and spent time with customers again, and this time really watched to see what was going on. Where was the pain, why were they asking for this? And what we found was, the real problem was, “I can’t pay my bills.” Small businesses have a whole set of bills they need to pay, they’ve got invoices they’re expecting in from customers, some of those invoices are late, and they’re trying to basically pull together this like Tetris map of cash flow. And that was the real problem, “I can’t pay my bills.” And so when we fell in love with that problem, we developed a cash management solution to that, which was quickly thereafter used by hundreds of thousands of small businesses worldwide. So make sure you fall in love with the problem not the solution.
Alright, these first three things are pretty heavy. Don’t go it alone, we live in an interconnected world. Your customers don’t want you to go alone. They want your products to work with all of the other things that they already use and love. And as you get bigger, they want all the other things that they use and love to work with you as well. So think about what your platform play is. What are the platforms you’re going to build on top of? What are the platforms that you’re going to integrate with? And for certain companies it makes sense to move and become … shift from being a product company to a platform company. And that’s exactly what we decided to do with Intercom about 18 months, and I’ll share why.
18 months ago, we decided and realized really, it was time for us to move from product to platform. And the reason why, is because we watched the way customers were using Intercom, and we realized they were already using us as a platform. In the conversations that they were having with their customers through our messaging solution, they were inserting all sorts of things. Inserting links to go schedule an appointment, inserting a link to do a survey. People were building products that sat on top of Intercom, so we were already a platform without even really intending to be. And so we invested in building out a platform and really doing it right.
And within three months of launch, we had 100 applications live. And today, 65% of active customers, use our platform, and use one or more of our third-party apps. It’s become a core part of a value that our product provides, and a core reason why customers choose our product over other products. It’s become a successful platform.
So I wanted to share with you today, my single biggest principle of building a successful platform. And that is, to focus on value. To focus specifically on delivering value first to customers, next to partners, and third to yourself. If you focus first on value to yourself, you will lose. Focus on delivering value first to others, starting with your customers. What that looks like, is figuring out what are those early killer apps, those first couple of things that will make … No customer says, “I want to buy a platform.” The customer really wants to have a specific use case work for them, so figure out those upfront killer app use cases. For us, that included things like, integrating and calendaring applications.
So in the course of a conversation with a customer, rather than giving a link to go out and then schedule an appointment and then maybe come back to the message, maybe not, you can now within the course of the conversation actually book an appointment right there and continue on your way. That and 150 other applications are why our platform is successful. Focus on understanding what are those first killer apps that your customers are going to love and value.
From a partner perspective, think about two different things. First of all, how can you set these partners up for success in terms of enabling them to build great apps. This is an area at Intercom that we invest a lot in. Building out a great app framework, great APIs, great tool sets, great documentation, dedicated developer support. And now our typical application partner builds a new app in one to two weeks, because we really invested in building the right tools. If you’re going to invest in becoming a platform, make sure you invest in your developer community and building the tools for them.
Also, you need to invest in your developer community by enabling them to be successful. Help them get access to customers and grow. That means building out a partner program. Thinking about things like home marketing and more. So my advice here really is, focusing on value to customers, partners then you.
Now, there’s certainly been plenty of hype around platforms over the past few years, right? And there are a lot of big, fancy, exciting sounding numbers out there, and I would just tell you, don’t get fooled by those vanity metrics. Things like the massive number of app store visits somebody gets, or even the huge number of apps somebody has in their store, is not really anything to do with value, and those are just vanity metrics. If you can pick just one metric to focus on for a successful platform, the metric that matters most is active use. Are your customers actively using your platform and third-party apps. If they’re getting value, they’ll be actively using it. If they’re not actively using it, it’s no good for you, it’s no good for the customers, it’s not good for your partners. Focus on driving that active use.
Alright, fifth and final key strategy to drive that next wave of growth. You can’t do it yourself as one person, you probably can’t even do it with the team you have – as awesome as they are. You need to figure out what you need in your team. Now a great way of doing this is to go out and talk with people who are a couple of years ago. If you’re the CEO of a company at $10 million in ARR, find yourself a founder CEO friend whose a leading company at 10 million or 50 million in ARR, and learn from them.
Take that, take all of the other things that you know about your business and assess. What’s the team you have today, and what do you need? Where are your apps, where do you need to hire? And there are going to be some places that you need to hire that are functions that you’ve probably never hired for. Hiring your first head of sales, hiring your first head of people, hiring a general counsel. There probably are going to be a lot of functions that you’ve actually never either managed before or hired before, and so how do you do that?
My advice here, is when you’re hiring for a role that’s new for you, find three people who are considered to be best-in-class in that particular role. If you’re looking for a head of sales and you’re a $1 million ARR company, go out and talk to amazing heads of sales at $10 million and $50 million companies. A great way to find these folks is through your investors. Ask them for their recommendations of who they think are best-in-class at doing this, either companies or people. Meet with those folks and learn from them. What do they do? What do they spend their time on? What do they think are big pitfalls about the job? What’s their advice in looking for a great head of sales? Do they have any people that they’d refer to you? And learn from those conversations and form a foundation of what it is that you are looking for.
Then, when you actually start hiring, you’re going to be interviewing. Interviewing is hard, it’s really hard to assess people in that kind of setting. And so the one piece of advise that I would give you here, is when you’re interviewing, apply lean startup principles to hiring. And by that I mean, put people in the job. If you are hiring somebody to be a sales person, have them actually pitch you on your product. If you’re hiring somebody to do marketing, have them design a landing page that features your product. Have them do whatever the job is that you would actually want them to do. That let’s you learn so much more about that person.
Have them do that job whether it’s for one hour, or one day, or one week, whatever it is, I promise you’ll learn far more from that then from your standard interview questions. And they’ll also learn. It’s great for them as well. They get to understand the type of work you actually want them to do, and what it’s like to work with you. So it’s great for both of you.
Alright, so we’ve talked about a lot. I’m going to put it all together on one single slide. Five ways to drive your next wave of growth. We’ve talked about expanding your market, expanding upmarket one step at a time. Second, we talked about building your next big product, and watching what customers do not what they say. Third, we talked about finding product market fit, and falling in love with the problem not the solution. Fourth, we talked about deciding your platform play, and moving from product to platform. Focusing on delivering value to customers and partners, and driving up active use. And fifth, we talked about building your team, and applying lean startup principles. Putting people in the role.
So it’s kind of a summary of everything we talked about today. I want to thank you very much for your time. We at Intercom love to share best practices, and learnings, and stories. You can find that on our blog and through our books. A great next step for you is to check out our growth handbook, which is free. You can also follow me on Twitter @karenpeacock. I hope that you took away some actionable ideas and thoughts. I’ll be doing a Q&A session after this if you want to go deeper, and I wish you all the best.
Thank you. Bye-bye.