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The Product Heist

July 28, 2022
Episode 21
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Tom and Vivek describe how building the best product is like planning the perfect heist: just like Danny Ocean, spend the time upfront to blueprint and stage, get into the casino with the insertion product, then drill into the safe and make your escape with the perfect product roadmap.


Voice Over: Welcome to The Closed Session, how to get paid in Silicon Valley. With your host Tom Chavez and Vivek Vaidya.

Tom Chavez: Welcome everybody to episode four, season three of The Closed Session. My name is Tom Chavez.

Vivek Vaidya: And I am Vivek Vaidya.

Tom: We are all the way live now on some fat new mics. I was just told by the sound engineer that this is the same mic, Vivek, that Joe Rogan uses.

Vivek: I know. And you've arrived now, right Tom? You're using the same mic as your idol.

Tom: So, you're going to pin that on me.

Vivek: Of course


Tom: You're the one with an alter in your house.

Vivek: I don't even know who Joe Rogan is.

Tom: Right, right, right. You're the one with an alter of Joe Rogan at your house. I've been there and I've seen it.

Vivek: I'm just a simple, humble villager.

Tom: Right. Right.

Vivek: ... from the country of India. What do I know about Joe Rogan?

Tom: Occasionally I do play along with that narrative, but not now. Okay?

Vivek: Okay.

Tom: I ain't having it. Can I just say, even though we're in the room here, your voice sounds terrific. Because I know it's inside on the big speakers over there. You sound like butter.

Vivek: You can just project yourself into the speakers in the other room even.

Tom: I've spent a lot of time in studios. Yes.

Vivek: Sure. Yes.

Tom: I can do that now.

Vivek: Yeah. Yeah. You can pull that line, Tom. Okay. Fine. I know I sound really good. So you don't have [inaudible].

Tom: Armatures like you can't do that, but I can. Should we talk about the topic of today's podcast maybe?

Vivek: Sure. Sure. And by the way, for our listeners, every meeting we have in this new remote work kind of world, we spend the first five to seven minutes of the meeting just speaking nonsense.

Tom: You got to chop it up. That happened during the early stages of the pandemic where everybody would get on the Zoom and be very business-like right away. And it was depleting. Why is everybody so damn serious?

Vivek: So you just got a taste of that.

Tom: Right. And we instituted, it really did become an informal rule. You got to spend five to seven minutes just talking a lot of nonsense about and just neighboring with your teammates. I actually think that made a difference. It was a very civilizing thing.

Vivek: It does make a difference. It does make a difference because it normalizes things. That's how you begin an in-person meeting or that's how we used to begin in-person meetings anyway.

Tom: In olden times.

Vivek: In olden times.

Ocean’s 11 as a framework for Product Development

Tom: Okay. Well, listen, today we are going to talk about our approach to product development. I do get a lot of questions from people because we are product first operation. We're unabashed products. We like to say the strategy for super set is people, products, customers, in that order. We've talked in prior podcasts about the people dimension. Today we're going to drill into products. We want to invoke this metaphor of product development as a little bit of a heist. I recently rewatched Ocean's Eleven.

Vivek: You did. Huh?

Tom: Let me tell you, that movie really stands the test of time. I urge you to see it again if you haven't-

Vivek: Have you seen the one with Sandra Bullock? The one with all the ladies?

Tom: That's Ocean's Eight. Right? Or Ocean's Nine or something?

Vivek: I forget the title but it's also really good.

Tom: I'm going to put it on the list. but so Ocean's Eight, 11, 12, 13, whichever you like, the idea of product development as a heist. I know now a lot of people are going to come back later and say, so these guys are treating their product build out as a criminal enterprise.

Vivek: Robberies.

Tom: Everybody lighten up. It's just a fun way of expressing the general idea.

Vivek: But actually, who doesn't love a good caper? Right?

Tom: I know. But we live in very serious times-

Vivek: I do. I know.

Tom: ... and everyone's trying to cancel you and I'm spending them off all day long. Because I believe in you and your potential still. Let's talk about products. So building a successful product is a little bit like pulling off a heist. Right? And in Ocean's 11, you can get into the casino floor. That's great. But how are you going to get into the vault? Okay. Now you're in the vault. How are you going to get the money out of the vault?

Vivek: Well, forget the money. How are you going to disable all the lasers?

Tom: Lasers and bad guys. Andy Garcia's coming for you. You got to figure out how to get past all of that. So the reason we dwell on that is because we see so many companies with big fancy ideas and that matters too. We're going to come back to that in a minute. But no detailed depreciation for the point to point, stage by stage build out. You need to contemplate at design time-

Vivek: At design time. Yeah.

Tom: ... if you're going to get it right.

Vivek: And also an appreciation for the people you need, you can't forget the people dimension. You can't do it by yourself.

Tom: There we are again.

Vivek: So you have to figure out who's going to do what. The people dimension is very important.

Tom: 25 years ago I think that there was probably a time when the puzzles were less complicated and lone engineers could wrap their heads around a single problem and mostly pull it off. But now in our current context, I want to get your opinion on this. But I think things just got, all of the easy things have been done, right? That single engineers used to be able to conquer and do. And the complexities, not just, certainly in terms of data everywhere, the moving parts and pieces of this much more evolved ecosystem we all operate in, all of the platforms, all the rest. It's so much harder than a nice clean relational database with an app on top for 25 years ago.

Vivek: It definitely is much more complex now. I will give you that. However, even 25 years ago, you still needed for example, customers. Early customers who could guide you down a path. So you couldn't just do it alone. You still needed people who you had to do it with. So that people dimension I think has always been there. It's perhaps more exacerbated now, right. Because you need people with different types of skill sets. But it's been there.

Tom: Now, first people, and on the product side now, you and I spent a lot of time thinking about what we call the whole product. Right? In our first company, we built a nice product, threw over the fence and expected all of the customer facing services people to just go handle it. And we got into a lot of trouble there. Didn't we?

Vivek: Right. Actually even before that, if you think about how we used to build product back then, we used to have this first, let's write these marketing requirements documents, and let's write these functional specifications and technical specifications. And then six months later you produce something and by that time the customer had already forgotten what they asked you for.

Tom: That's right. Well, we had the waterfall method. Right? And we used to go and slog for nine months at a time, by the way, markets just move so much faster. Now you don't have nine months-

Vivek: Correct.

Tom: ... to go into one of those development cycles.

Vivek: Correct.

Tom: You have to be on this swivel, really ready to respond to market opportunity. But here's the paradox and here's where people get stuck, at the same exact time, at the very beginning, you've got to stage and sequence your way through all of it. Right?

Vivek: You do.

Tom: So no plan withstands contact with the enemy. We're going to talk about the product blueprint. But the point here is to have extremely organized thinking about what's going to happen first, how the post conditions of stage one become what we like to call the preconditions of stage two. And yes there will be diversions and complexities and problems. There will always be problems. But the big bones, the fundamental scaffolding of the company, you're laying out at the beginning in this careful way.

Vivek: Just like a heist.

Tom: Just like a heist. And that's what they did in Ocean's 11, right?

Vivek: Just like a heist.

Tom: Before they start rushing in, they spend weeks and weeks in that hotel room, designing it all. They have a warehouse where they're rehearsing the move and they're building a replica of the vault. The gymnast is practicing his double 720 degree McTwist jump to get past the lasers into where the money's at. All of that is extremely well designed and rehearsed and thought through from the very beginning. That's exactly why we like this metaphor.

Tom: And then there are these customers, I remember a long time ago at that first company. This is when everybody was talking about business models and there were all these e-markets, net markets and all of these Mondo Beyondo, totally bullshit stories about how people were going to make money. I remember there was this, we were caught up in one of those conversations at a board meeting. And somebody's asking about our business model and there was an e-market thing going on.

Tom: I still remember Howard Charney, one of our big mentors, really important teacher, investor, business partner to both you and me. In that moment, he says, okay, everybody, to the entire board he says, okay, here's our business model. He uses a scare quote so people can't see it. He says, "There are these things out there, they're called customers." And he is doing air quotes on the customers. "And these customers are going to give us something called a check. When we receive the check, we're going to put that check into our bank account."

Tom: It was such a perfect way to bring everybody back to reality, right? Yes there can be some business model innovations and those are important, but don't forget at the end of the day money's going to change hands. 

Vivek: Yep. From customers to you.

Tom: From customers who find value in the thing that you're giving them-

Vivek: Correct.

Tom: .. or not. Right? And so here again, thinking about these design considerations at the very beginning, right? Recognizing that you're going to have to innovate and flex and respond as things go, but that's the sort of discipline we have in mind. We said we're going to talk about product blueprinting again. We've covered the people dimension here, so we're drilling in the product. Should we switch gears and talk about blueprinting?

Planning the Heist: Product Blueprinting and Staging

Vivek: Yeah. Let's do that. And learning from our experience with the first company, right? The second time around at Krux, we actually spent quite a lot of time sitting at your dining table on 24th Street, designing and blueprinting the build out of Krux.

Tom: And remember, and it was one of these little habits that we've carried forward then where I would say something and you would say something, and mostly we were in the crappo sphere. We don't actually know what we mean. So we would say, okay, you say it back to me now. Right? What's the thing? And that became this habit that we carry forward called the you say it, I say it. Right? Now that sounds a little silly. But in fact when you're starting with just, not even a blank whiteboard, it's just founders at a kitchen table making stuff up.

Tom: It's so important. Right? Being a master of your own meaning. And having the clarity to be able to utter, what's the product? What does it do? For whom? Why? Who cares? How do we connect all of the sub pieces of it together? Right? We spent so much time struggling with that.

Vivek: We did. And the most important thing over there was at every step of the way we validated our respective thinking by following the, I say it, you say it framework. Right? Because if we couldn't convince ourselves and each other that this is what we mean and here's how we say it, and this is how it will make sense, then we could forget about convincing others. Right?

Tom: That's right.

Vivek: That was a very formational thing that we did. And it's something that we've carried forward at the build out of every company at Super{set}. It's also interesting, right? At Krux, we never, unlike what we do right now, we didn't really have a product manager or a head of product at Krux for the longest time. Especially in the early days, we didn't have a product leader.

Tom: That's right. There was a near mutiny as I recall. People were getting really frustrated and grumpy at you and me.

Vivek: Correct. First there was a lot of confusion. Like, why don't you guys have a head of product? And then it became like, this is unacceptable. I think what people tend to overlook is you do need product management and product leadership that does not always have to come from product managers.

Tom: Right. That's right. Well, it was a different discipline that we were imposing. Right? Because in the first company, you remember those 25 page PRDs. Right?

Vivek: Correct. Correct.

Tom: Now with the problem with the 25 page PRD first, it's false precision. You're writing down things and referring to specifics that are utterly unknowable-

Vivek: Unknowable.

Tom: ... at that stage. But the more dangerous thing that I think that happens in terms of building a kick ass product or organization, is you're disenfranchising all of your engineers.

Vivek: Engineers.

Tom: Right? They become short order chefs. You want pickles in the burger? Ketchup on the side? No pickles. What do you want me to do? Don't make me have to think about the product ever. I just do what I'm told. That's one of the psychological problems with those overwrote PRDs that people still like to write in some places I noticed. So we said, no, no, no, no, no, that's nonsense. We're going to have structured dialogue. We're going to enroll all of these engineers. By the way now, back to the kitchen table, because yes there was a lot of you say it, I say it, but remember we wrote it all down.

Vivek: We did. We did.

Tom: They were very detailed documents. This is by the way, when Krux, was a company spelled K-R-U-X. I've just for fun, just for giggles, I've gone back to my archives. We had documents for-

Vivek: C-R-U-X.

Tom: ... C-R-U-X. That's how old school that was before I remember we couldn't get Krux with the C, so we had to embrace the K and that became its own thing over time. We actually wrote it down. It wasn't this irresponsible, oh no, it's with the gods. We can't actually tell you what we do. We wrote it down. But when we were on the battlefield building the company at Krux, we had this different method with engineers as you're pointing out [inaudible].

Vivek: I think, and I still like to follow that at various places in super{set}, that this fundamental question that you need to ask, what problem are you trying to solve? If you frame the tasks or the things they're trying to do is, here are the problems we're trying to solve for our customers, engineers, at least the ones who you want at this early stage to work at startups will come up with clever solutions. Now, what we've learned along the way is, especially now with the, what I like to call the consumerization of enterprise software, the user experience perhaps that engineers design is not where it needs to be.

Vivek: So you do need a design component in the mix as well. But you don't need to over specify things in terms of, here's what the user is going to do. Therefore he is going to come here and click the button, and then do this, and then do that. You don't need to do that I feel.

Tom: That's right.

Vivek: We didn't do that at Krux.

Tom: The what problem are you trying to solve has become the classic VC question. How many times per day do you think you're asking that question?

Vivek: A lot actually. A lot.

Tom: Yes. And it's always perfect, because it brings everybody back down to earth. Are we doing cool technical stuff for the sake of coolness or what's the outcome? What's the point? Right? And technical engineering organizations frequently lose the plot in that way. Hey, we talked about blueprinting it all the way through. Here's a funny situation. I haven't had a chance to tell you about this, but the other day we were talking to an investor regarding one of our projects and we might bring this person in and his fund into one of these projects.

Tom: He said, well, I'm aware of, because when I go and talk to my partners, they say, my God, that's a big surface area they're aiming to cover. And this investor, somebody we've worked with in the past says, yeah, I tell my partners, look, that's their style. That's what they do. It works, right? But the point here is that as with Ocean's, you got to dream a big dream. You've got to see the whole arc of the company. Right?

Tom: And our style of company building and I get it, there are others who just pick off individual pieces. But part of the game here is to lay out something that's compelling and durable and huge. Right? And frankly also, I'll say it for myself, I just don't want to get out of bed and chase small little things. Right?

Vivek: Absolutely.

Vivek: You absolutely need an inspiring vision that by definition has to be aspirational. If your five year vision, maybe 10 year vision is, you know how to solve those problems right now, then you're not dreaming big enough. By definition, what you want to do five years from now should appear impossible at this stage.

Tom: Right. At the last project Krux, we used to talk about a pervasive, always on data fabric for consumers everywhere. And then people would say, well, what does that mean? And I would always with the twink, I'm not quite sure. But it gets the people moving. Right? We have to have something provocative and huge to inspire ourselves. And maybe we never get to the summit. It doesn't matter because you have to set your eyes on the horizon.

Tom: And by the way, what does that have to do with product blueprinting? No, we're actually making large claims but paying them off. Right? With this carefully staged thing that we're talking about, writing it down at the very beginning. Talk about market message fit. Everybody's all a flutter about product market fit. What do we mean by market message fit at this early stage?

Vivek: Before you've built the product, before you have anything to show to prospective customers, going back to the, I say it, you say it, you have to be able to articulate the problem statements and the value propositions that you bring to the table for the customers in a clear, concise, coherent manner. And that's what we mean by message market fit.

Tom: That's exactly it. In this moment I do want to give Richard Wong at Accel, a quick nod. Because I remember many, many years ago and maybe he doesn't even, but we were talking about company building and he said, I think he posted something to this effect as well. But basically in his experience, the founders that he was most interested in backing, might not have the whole thing built and they might need a lot of help to build it. But if they could talk precisely and in an actionable way about all of the pieces-

Vivek: Correct.

Tom:... of the total solution, in a way that mapped to market or customer reality, those were the teams he wanted to back.

Vivek: Absolutely. I think it comes back to the staging and sequencing and the output of stage N being the preconditions for stage N+1. What you do in stage three or stage four, whatever your end stage is, is not that important. What is important is that you actually have a coherent narrative for how you're going to get there. Right? I don't know how to take one big leap from San Francisco to Miami, but I know the stops along the way. And by talking about the stops along the way, I can convince myself and everybody else around me, that yes, we are going to be able to get from San Francisco to Miami.

Tom: That's right. So notice then with product market fit, there's an actual hunk of software that does the thing and that meets the market where it is.

Vivek: Correct.

Tom: With market message fit, what we're talking about here is a solutioneering disposition in a rigorous way of talking about the whole problem, atomizing it, mapping it back to value propositions, market trends. Right? And not in a hand wavy way. Right? If you can do all of that, then you have market message fit. And at the earliest possible stage, when we're working with customers, bootstrapping our way to a product, you really want the discipline of, now we're taking the, I say it, you say it into customers-

Vivek: Customers. Exactly.

Tom: ... and prospects. Right?

Vivek: Exactly.

Tom: And if we're saying it and they're squinting their eyes and cocking their heads-

Vivek: It's not meant to be.

Tom: Right? We got to go back and refine. So that's the dance, the backwards and forward dance we do at that early stage where, and a lot of teams get freaked out by that. Like really, you're just going to go and talk to customers about a thing and-

Vivek: It doesn't even exist yet?

Tom: ... it doesn't fully exist yet? That's exactly what you're doing. Right? That's what we mean by market message fit. Should we talk about getting into the casino now, the insertion product, the next stage?

Getting into the Casino: The Insertion Product

Vivek: Let's do it. Let's do it.

Tom: All right. So insertion products, talk a little bit about insertion products, how we think about those, why they matter.

Vivek: The first thing to realize about the insertion product is you're, again, using the highest analogy, you're not in the vault yet. You've entered the building. Right? So your goal with the insertion product is, step one, which is, how are you going to enter the building undetected? Right?

Tom: There you go.

Vivek: And so what you're looking for with the insertion product is, it's like a grappling hook, which gets the customer interested, intrigued, in a way that it solves a real problem for the customer.

Tom: That's right.

Vivek: And most importantly it sets up the sockets for what you want to do next, because remember we've blueprinted that already. So you know how you're going to get from insertion product to the next product that you want to sell or pitch to the customer.

Tom: That's right. I think it's so important to emphasize that this isn't a make, believe thing. It's something that offers unassailable value, but might not solve world peace and the North Korea problem-

Vivek: Correct.

Tom: ... and everything else. It's just a start-

Vivek: It's a start.

Tom: ... that customer. And so I think the challenge that I've seen, also now back to our engineering organizations and early stage teams, and this is why we say it a lot. Unabashed, guys, if 40% of what we put into the market on the first put, the first product here, if 40% of it is wrong, that's world class. Right? In other words, if you're landing 60% of the surface area of a problem that matters, and 40% of what you've actually built in the insertion product is wrong, that's as good as it gets.

Tom: And that really vexes a lot of early stage people. They just hate. Like, really, I'm going to throw away 40% of this? We just have to get the acclimated like, yeah, man, that's good.

Vivek: I think this is something that founders just need to embrace, that it is going to work that. And so the sooner you wrap your head around it, the better. But again, I think 40% of it will be wrong, but the 60% does actually end up solving a very important problem for the customer. It is in sense a pain killer. It could be a pain killer for pain that the customer may not have realized when they started working with you, but it is a real pain for the customer that you're addressing.

Tom: That's right. And so how big are the teams involved in launching and delivering an insertion product at this stage?

Vivek: I think, again, it depends on what you're trying to do, but I don't think a team of more than five is needed. Beyond five it just gets too much. Beyond five the communication challenges, the coordination challenges start to crop up, and you want a team which you can sit at a small table-

Tom: That's right.

Vivek: ... and work together. Right?

Tom: This is the Jeff Bezos, I can feed this team with a large pizza. I got to say that really resonates with me. Right? When these teams get larger than that, as you point out, the coordination complexities sort of swamp that team's ability to deliver the product and achieve the throughput that's needed to move in this blitzkrieg fashion at this stage. Well, listen, I think we should come back now and talk about customers in a minute, but it's time for our totally unpaid for promotion. Should we do it?

Totally Unpaid-For Promotion

Vivek: Let's do it.

Tom: All right.

Vivek: So Tom, have you started traveling again?

Tom: I have been back on the road and I'm going to tell you, I don't want to be back on the road like I was before. Because I was gone every week. That was too much. But I like being on the road again, like Willie Nelson.

Vivek: I haven't been back on the road that much, but I've taken a few business trips and I have to say, it's good to be back on the road again.

Tom: And so what's your favorite airline?

Vivek: Well, a lot of my trips I end up making to New York. Right? And I have to say, actually this was before the pandemic started. I started flying JetBlue a lot and I really like the experience.

Tom: It is top notch. I'm right. And so hats off to JetBlue. By the way in a context now where, I used to be a big United guy and then Delta, loyalty mattered. I used to get upgrades and nice treatment.

Vivek: That I remember. Yes.

Tom: Now [inaudible], you don't get anything from these airlines. But JetBlue treats me nice and the experience is just so well designed.

Vivek: The planes are newer. The seats are comfortable. I like flying JetBlue.

Tom: I think I read somewhere that you made a little scratch in one of, with all of your technical pursuits along the way. And this is the part where I tease you, but I noticed you as a matter of principal, and I don't know if I'm overstating the case here, but mostly as a matter of principal, you still insist on flying coach. Always.

Vivek: Not always. Not always. For example, now I've decided that for international flights, I am going to fly business. For some cross country flights, especially ones where there are meetings and whatnot, then I do end up flying business. But I still like to keep it real, Tom. Not like you. Even for [inaudible] San Diego.

Tom: He's starting something now. I do now like to fly in the front of the plane at my own expense, I want to make sure that's very clear.

Vivek: Sure. Of course.

Tom: No, that's real. But I got to tell you, the JetBlue experience in the front, I think we flew to New York or something.

Vivek: A couple of times. Yeah.

Tom: And you were in coach and I was in the front of the plane. Did I send some nuts back?

Vivek: You sent some nuts and some socks back also, Tom.

Tom: I think I sent you some socks back.

Vivek: Yes you did.

Tom: That's how considerate I am.

Vivek: Yeah, yeah. Yeah.

Tom: The JetBlue thing, especially if you're in aisles two or four is dependent. Because you have the whole space to just stretch out. You can claim all this land for France. The food is delicious. They bring you the little headphones with, I'm going to take them to task for the video thing.

Vivek: Here we go.

Tom: Their video systems are a little wonky. JetBlue if you're listening to this, you need to fix those.

Vivek: But why do you need the airplanes video system, don't you have your iPad, Tom?

Tom: I have an iPad, but my plane time is when I don't really watch that much TV or that many movies as you know. So this is my opportunity to catch up on movies that I think I want to see. It works but it's not great. But otherwise it's sublime. So this totally unpaid for promotion goes to JetBlue. We salute you. Keep up the fine work.

Vivek: Keep up the good work. Yes.

Drilling into the Safe: Executing the Product Roadmap

Tom: Okay. We're back. Let's talk about, so we're building this product, customers, those pesky customers who send us checks that we put into-

Vivek: Our bank accounts.

Tom: ... bank accounts. What kind of customer are we looking for at this super early stage?

Vivek: That's an excellent, excellent question. Every customer likes to think that they are innovative and they want to do forward looking things.

Tom: They all say it.

Vivek: They all say it. Right?

Tom: How many truly are?

Vivek: And that's what you need. You need to find customers who are truly innovators, who understand and appreciate and embrace the ups and downs of early stage software development. We've been very lucky to work with lots and lots of such customers. But there have been some customers who said they would operate like that. But when the rubber hit the road, not so much. Right?

Tom: That's right. And typically, not always, but typically they're larger customers with bureaucracies, as you'd expect, sometimes there are relationship driven moments where a key person at a slightly larger company wants to champion the cause and drive it forward. By the way, for those people, we've seen them over time. It's a great career enhancing move for them to take some risk with an external company to do something transformative. But if they get hit by a bus or they move on, right?

Vivek: Then the project goes to shit.

Tom: The Borg takes over and bureaucracies do what they do. So smaller customers, that's a good litmus test, a smaller, innovative customer, we like to talk about, people love to do sector analysis. I remember Jeff Moore's multi-stage model and your early movers and your middle majority and so on. I've always felt so strongly like, no, no, no, this is an anthropological profile that you're looking for. An ideal customer, irrespective of what market sector and all the rest and I know most VCs hate this. Right?

Tom: But you are just looking for somebody with the right risk attitude, the right technical instincts. Right? Some level of juice in terms of manhandling their own organizational aspects. Right? And all the naysayers and skeptics and corporate antibodies that want to flood in and kill it. Right? You're looking for a little bit of a warrior, a risk taker, somebody who leans forward in one of those companies. And here we are, right again, back to the people dimension, but it's the people dimension now applied to an early stage customer.

Vivek: You need to find someone who's curious, who will derive joy from building something together with you, even though they're not actually hands on keyboard building it, but they will love the fact that their fingerprints are all over this. Like I said earlier, we've been very lucky to have encountered a lot of people in the past who've helped us build our early stage products.

Tom: We sure have. We sure have. Now let's also emphasize because we're seeing this in one of our companies right now, where there's this desire to leap ahead and start to execute a market motion with a pipeline process and all of the rest. That's important, but really what we found is at this stage especially it's the founders selling, right? And founders who feel, no, no, no, no, no, I'm the fancy pants. All of that skirt work tied to selling, that's somebody else's problem. I'm going to hire a sales person to handle that. Dead wrong. Right?

Vivek: That's wrong.

Tom: You and I, and all of the successful companies that we have working at super{set}, it's founders on the ground in every one of those early stage deals.

Vivek: Yup. Because every interaction with a customer is an opportunity to validate product market fit. Right? You are looking for, what pain points do you have? What keeps you up at night? Is it a pain point and are you actually spending money trying to solve it? Or is it just like, yeah, it is a pain point, but I'm not really worried about it?

Tom: That's right.

Vivek: These kinds of signals, you need to extract from these customer conversations and founders are, whether you like it or not, you have to put yourself out there and have these conversations.

Tom: That's right. And look, founders, if they're the right founders can straddle those lines. Right? They're what they call in the vampire movies, a day walker. Right? They can speak product, they can understand sales and market pain and talk the way business developer and seasoned account executives can. By the way, I think we've said it in a prior podcast, you and I are not professional salesmen like Ferris Bueller in that scene playing the clarinet, never had a single lesson. But we show up and we explain and persuade and we find a lot of joy in it actually. Right?

Vivek: We do. I think a lot of it is also just, people talk about discovery. Right? I think a lot of it actually just come just comes down to that, asking questions. Oh yeah, we already have some way of doing X. Can you help us understand what X is?

Tom: That's right.

Vivek: What are your challenges? How would you make it better? Have you invested? These are just questions you ask and ultimately you're trying to get to helping them understand what value you bring to the table. And you are leading the witness a little bit, but you're doing it through this Socratic method where they feel they contributed-

Tom: That's right.

Vivek: ... to getting to the answer.

Tom: That's the tale of leadership. Right? When they look at the end result, they say, I did that. And we quietly affirm that. But to your point, if we're earning our keep, we have to have blueprinted it all the way through, seen around some of those corners-

Vivek: Correct.

Tom: ... advanced that curiosity you're talking about, which needs to be authentic because [inaudible], by the way, your blueprint isn't going to cover all the corner points. That's the point of this consultative question asking rhythm you're talking about. Right? That's just so core. Let's talk about pricing, because I see a lot of early stage companies trying to get every nickel off the table. They're trying to extract revenue. What's our view of that overall attitude?

Vivek: I think at the early stage, price is secondary. Your number one priority is to get customers who are going to use your product.

Tom: Amen.

Vivek: And your job is to make them widely successful, so that they end up becoming references for your future customers. So the value you get, the revenue you get from an early stage customer needs to be measured in the second order effect they have on revenue you get from them being references. That's how you should think about it.

Tom: Absolutely. That's a call that just happened this morning, right?

Vivek: Yep.

Tom: There's a customer in this particular sector, they are a canary in the coal mine, this particular customer we've seen when they move, all the other lemmings in their cohort just jump right off the ledge. So don't break your pick trying to get every nickel out of those. Try to build a strategic partnership with them. Really like an authentic, and everybody talks about partnership and a lot of it's who, we, but authentically, how are we going to build something great together that makes the person who's adopting it and driving it on their side a huge star inside their company?

Tom: By the way, that's it, make your customers famous. Right? And think about that longer arc. Right? I think that there's much more recognition of that these days in venture back companies, because you see much more of the focus on net dollar retention. Right?

Vivek: Correct.

Tom: And patients now among VCs that I did not see 10 to 15 years ago. Right?

Vivek: Big deals.

Tom: Big deals. Got to get the money out. No. Right? Buy your time, plant those seeds and then harvest in the next stage.

Vivek: But I do want to make one comment, the fact that you don't want to get every nickel off the table or price is secondary when it comes to early-ish customers, does not mean you shouldn't have a framework for pricing. Right?

Tom: Oh yeah. [inaudible].

Vivek: You should have your framework, because even with your early customers you do need to be able to explain to them what the framework is. Right? And depending on where you are or what kind of relationship you have, you can even talk to them about, look, this is our standard pricing framework, we're heavily discounting it for you because of the partnership we want to build together. But you need to be very clear in your own head first what your pricing framework is.

Tom: And we're maniacs about that. Right? Before we get going on anything, we actually try to develop a detailed pricing framework that prescribes a revenue model. And of course there's no P&L here. It's just about understanding and modeling out, how would money flow into and out of this revenue engine you're trying to create? What are the most sensitive variables? At the last Krux, we actually went through that analysis.

Tom: And let's get Harran out here in this moment to Clint Korver at Ulu. I trained with Clint in a decision analysis program a long time ago at Stanford, we're both crazy people about this. So model it all out, discover the sensitive variables. And in that case at Krux we had identified after all the sensitivity analysis, number of segments created per customer, per month as the single largest driver of revenue production for the company.

Vivek: Correct.

Tom: And my goodness it sure came out to be true.

Vivek: It did. And it was, you might look at that and say, well, surely you must have included number of segment authored as the pricing metric. No we didn't. Because it drove revenue. It was a second order of effect on revenue, we had no limit-

Tom: That's right.

Vivek: ... on the number of segments that somebody could author.

Tom: But we also, and now we're getting into the whole product consideration and how do you meet the customer and how do your services groups interact? It was the metric that we paid a lot of attention to.

Vivek: We did.

Tom: How many if I could understand the health of different customers by just sweeping through and seeing how many segments each of them was creating per month. And we could start to marshal resources on the services team, back to the customers who were lagging. Okay. One final note and then we should probably wrap it up. I may have mention before about, of whole product and we're talking about services teams and how they interact.

Tom: At our first company I mentioned also, we threw the product over the wall because we didn't understand that the work wasn't done. There were all of these incredible last mile considerations that we had ignored. We got it a little better the second time round. Talk for just a minute about how we think about engineering and services and how we conceptualize customer implementation and adoption from the product perspective.

Vivek: Absolutely. It's important to remember that the first company there was no SaaS.

Tom: True.

Vivek: This was late 90s, early odds. There was no, SaaS hadn't taken off. Cloud didn't exist. Public cloud didn't exist. SaaS hadn't taken off the way that it has now of course. That's why we had this, okay, here's ShrinkRapt software. We're going to run in the customers environment, there's a long implementation phase, odd services people doing whatever they did. Right? At Krux, it got much better because it was all SaaS. Still we didn't pay as much attention as we would've liked to the whole product.

Vivek: My favorite example is, anytime you think about a feature or a set of capabilities you're providing to the customer, how does the customer know it's working? I uploaded a file or I pointed you to an S3 bucket to import files from. Right? Do I have to call you to say, hey, did it work? Did it error out? What was the error? You have to think about the whole solution as you are building it. And those are the kinds of things that we're paying a lot more attention to now.

Tom: Right. Because product and engineering people will frequently want to do something that's super cool. And we like super cool shit too. But the problem is you introduce a super cool feature that on the margin adds very little value-

Vivek: Correct. Correct.

Tom: ... to the customer, but induces a gigantic services burden. 25 million questions. Explain this to me. I'm seeing the other, I don't understand it. Customers with great certainty will tell, you're wrong because I saw this thing and it must be wrong. We're right, but now we have to go and explain. Right?

Vivek: Defend. Yeah.

Tom: And some of that is fine, but the point of whole product is to think about the implications and reverberations of the coolness that you're putting into the product and what kind of complexities is going to create-

Vivek: Correct.

Tom: ... for your customer facing people, is also this maniacal commitment we have to making as much of it as self serve as possible. Right? And it's too easy, especially in enterprise tech for companies to say, that's a problem for future self-

Vivek: Correct. Correct.

Tom: ... I'll hire some services people and they'll handle it. And here's the problem, is it collapses your gross margin performance.

Vivek: Exactly. Exactly.

Tom: The more of those people that you introduce, and we're also crazy people about gross margin design, right? The more you have to invest in COGs or services people to support the implementation of your software, the crappier your margins and the lower your valuation.

Vivek: We've always said, cost to serve is a product feature. You have to treat cost to serve as a product feature. It has to be prioritized like you would any other feature or capability in your product-

Tom: In your estimation, how many CTOs truly subscribe to that, what you just said?

Vivek: I don't know. I think that this was definitely a very foreign concept five, seven years ago, but with the increased adoption of cloud and the infrastructure costs just ballooning for people who don't pay attention to these things, I think it is becoming something that people are paying a lot more attention to now. But it is still, every time I have conversations with people about, yeah, that's how you should think about it, it does, they do frown a little bit like, what the hell are you talking about?

Vivek: The other thing that I've started to do now is, especially for, because a lot of the products that we're building now have users who are techies, maybe developers, they may be folks who are implementing IT solutions, what have you. I always now tell the engineers, put yourself in their shoes. Imagine you were a user of this product that you've just released. What information would you like to see-

Tom: That's right.

Vivek: ... to understand that it worked or not? Is what we have right now enough? And then they start think, oh yeah, I need to add this. It would be cool if we got this also. And that completes the whole product picture and minimizes the customer success/services burden.

Tom: See, so now you've conquered, hopefully all of these last mile, whole product considerations. And you're like Danny Ocean and his crew walking out with the money, dressed up as SWAT officers-

Vivek: That's right.

Tom: ... in all the confusion they created. Remember that scene?

Vivek: Yep.

Tom: And that's your whole heist. Okay. Well, listen, we've covered a lot of ground here-

Vivek: We have.

Tom: ... staging sequencing, blueprinting whole product. This is the attitude, this is the discipline that we feel any winning tech company needs to bring to the development at formation especially. It's not something you do later, you got to do it early.

Vivek: Yep. And so before you start at the kitchen table, watch all the Ocean's movies and then start your journey.

Tom: That's your homework.

Vivek: That's your homework.

Tom: Thanks everybody.

Vivek: That's a wrap. Thank you guys.