With Itxaso del Palacio, Partner, Notion Capital
This is an article published in May 2020 on the online magazine We Are Tech Women. The link to the article is here.
The ongoing COVID-19 pandemic will have a historic traumatic significance for many reasons.
Most pressingly for the loved ones of the hundreds of thousands of people who have sadly lost their lives, but also more long term for the world’s entire populace as we experience the ramifications of the pandemic’s impact on the global economy. Global shares are in flux, large percentages of the world’s populations are now unemployed and the majority of countries are on the brink of a recession.
In the VC world where I operate there was a slow down in deal flow and investment at the beginning of the lockdown, and while this is predicted to continue for the rest of 2020, we are now seeing an uptick in funding rounds closing as we appear to reach the “light at the end of the tunnel”, with many organisations succeeding despite the crisis.
So who are these winners? You’ll be unsurprised that the majority of these companies are tech-first, enabling people and businesses to live their lives (namely shop, communicate, work and receive essential services) completely remotely. On the public side we see the obvious Amazon, Microsoft, Apple and (maybe less obvious) Tesla leading those with equity value added in 2020. In the private market, Stripe and Klarna from the fintech sector, Coursera in online education and Tempus and Zipline in the much coveted medtech and health-tech spaces have been named as the year’s most disruptive firms.
Many of these firms are doing well during this time because their strategies are product-led, something I believe separates an innovative idea from a truly successful business. Two of the most popular B2B firms, Zoom and Slack, are great examples of this – they weren’t just in the right place at the right time, they’re also the right product strategy and no doubt will continue to be successful post COVID.
In this article I’ll discuss what “product-led” really means and how founders can implement this in practice when building and scaling their businesses. I’ll conclude with some real-life role models, product-led firms at a scale-up stage that I’ve invested in and have continued to succeed through the pandemic.
What does “product-led” really mean?
Product led-strategies are the natural progression following the birth of software which occurred in the mid twentieth century. Consumers now expect easy access to a seamless, exciting user experience (ideally via the cloud) thanks to trailblazers such as Salesforce and Apple. As a result, tech companies (which most companies are now in some way) can no longer expect to “surprise and delight” simply with a flashy new product like the iPhone, rather they must listen to the demands of tech-savvy users who ask for beautiful, intuitive, powerful and affordable tools. It’s also important to note that while traditionally, product and UX has been a B2C focus, today it is also a requirement for B2B firms who should be working hard to make their customers fall in love with their products.
So, in sum, product-led strategies are user-led; they access, engage and communicate with the user via the product as the business grows as opposed to traditional organisations that use marketing and sales teams to reach out to customers. Product-led strategies empower customers from the bottom up, letting them discover the value of the products by themselves.
To give you a topical example, Zoom, the tech company darling of the last few months, has a product-led approach. Zoom was founded by an ex Cisco Webex employee, frustrated with the inefficiencies of video conferencing. Through Q1 and Q2 2020 we have seen it scale exponentially to become the company associated with personal and business communications during COVID because it is simply the best product. This is because it has always listened to its users and adapted its product accordingly.
How do I implement this in practice?
To start off with, you need to ensure that you are investing the majority of your capital into product development and customer experience teams – your people need to constantly have their ears to the ground, listening to what your users want, and everyone should be contributing to improve the product accordingly. The faster and better you can innovate, the more you’ll stand out in the market. Letting users try the product and making onboarding seamless should be a priority, while sales and marketing can be pushed to a second (or even third) level priority.
In terms of what this looks like tactically, product-led businesses need to take a “bottom-up” approach by kicking off with a freemium or free trial of their product – marketing centres should drive people to try the product and offer candid feedback, with teams ready to respond quickly to fix bugs and improve the product. Consumers are never going to be contacted by a sales rep when engaging with a product-led organisation. Onboarding experiences and ongoing in-product messaging within the solution embeds sales, customer experiences and marketing communications into the customer experience.
The product-led approach must also be core to the company’s culture and everyone within the senior management team especially must be aligned. Your team can’t just be bought into one feature of the product, or the future roadmap, but the product’s core raison d’être must be embraced by everyone. Case and point, as above, is Zoom’s CEO developing the firm because he was frustrated at the lack of a fit-for-purpose option in the video conferencing market and working with his team to create a solution that ironed out all the kinks.
Real-life role models
I’d like to now pull out two examples from my own portfolio which can act as role models to others looking to implement a product-led strategy.
YuLife is a B2B life insurance product with wellness at its core, rewarding employees on its plan if they are active and healthy. Sammy Rubin, who started his first insurance business with his father when he was 21, which they floated on the LSE in 1993, and more recently was the founding CEO of VitalityLife, had the idea for yulife in 2016. He joined forces with a stellar team, Sam Fromson, Jonathan Roomer and Josh Hart, all of whom are incredibly passionate about health and wellness and have relevant experience building high quality tech products, and all felt that the insurance market was in need of rapid disruption.
To contextualise this point, in the insurance sector traditional players are still dominating the space while consumers are looking for personalised plans and transparent prices, as well as a modern tech-enabled, user experience that brings insurance into the 21st century. YuLife is doing just this, replacing old insurance packages in companies that are making health and wellness a priority for their employees. It also gives employees (users) the opportunity to try basic coverage through their employers as well as allowing them to buy additional policies for themselves and their families from the app.
Another example is ForestAdmin, which announced a $7 million Series A round at the end of last year. ForestAdmin’s founders, Sandro Munda and Arnaud Besnier, have created the first out-of-the-box SaaS platform for building admin panels. Admin panels are widely used by online businesses to connect and manipulate the data coming from their applications as well as to manage key processes in their operations including customer onboarding and inventory management. ForestAdmin is integrated with the likes of Stripe, Intercom, Zendesk, Google Analytics and Mailchimp which allows to visualise and manipulate application data.
I invested in ForestAdmin because Sandro is a product-led founder at his core, he is obsessed with building the best product, both from a technical perspective as well as a UX perspective. As a developer, Sandro has himself experienced the pain of building and keeping administration panels up to date. The company is using a bottom-up strategy to enter the market; developers can use Forest Admin’s building blocks to connect their applications, while business teams can pay for enterprise licenses if they want to get premium features.
Product-led strategies for winning in a crisis
Crises breed innovation and this crisis, which is being compared to the likes of World War Two, will be no different. In some cases, companies have been able to adapt their products and focus on solving the host of problems that have arisen from the pandemic. In other cases, we have seen companies take advantage of product-led strategies to keep growing and onboard new customers. Companies that don’t require users to go through lengthy contracts and have removed any sort of friction to get onboarded, have been significantly less impacted by COVID. As mentioned earlier, crises should be perceived as an opportunity – looking at building product-led strategies might be a winning option here.
Itxaso del Palacio is a Partner at Notion Capital alongside holding a PhD in entrepreneurship from UC Berkeley and a Teaching Fellow in Entrepreneurship at UCL. Her varied career has seen her launch Microsoft’s M12 UK office, complete a masters in Engineering and spend a decade committed to classical ballet.