Case Study: Convictional's Road To Product-Market Fit Was Paved By Focusing Only On Paying Customers' Feedback

Roger Kirkness and Chris Grouchy found their path to PMF by focusing on customers who had "skin-in-the-game", or the ones who paid for their software.

Mar 01, 2021

Contact Chris Grouchy at chris@convictional.com.

Introduction:

Convictional is the Seller Enablement Platform that enables enterprise B2C retailers and distributors to implement and scale their own digital marketplace.

Problem: Convictional exists because existing legacy technologies like electronic data interchange (EDI) software fail to serve the needs of modern retailers and marketplaces, as well as the third-party suppliers they choose to onboard.

Market: Any retailer, marketplace, or distributor that purchases from more than twenty third-party suppliers, or the entire retail trade and supply chain trade sectors of the economy. The two believe there are about 2,000 companies in North America that can pay our enterprise pricing, and about 300,000 that would qualify on the basis of mid-market pricing and supplier count.

Solution: The two built infrastructure software that their customers (e.g. the buyer in the B2B transaction) can use to source, onboard, and integrate with third-party sellers. It’s basically a combination of APIs, apps, and a UI for both sides to make it as easy as possible to get to a transactional state.

Team: The team is composed of Chris and Roger, along with 18 other people. They currently have 9 software engineers, holding different portfolios, and 7 people dedicated to every other function (marketing, people ops, customer success, sourcing).

Roger Kirkness is the co-founder and CEO of Convictional. Roger oversees product, engineering, design, finance, and HR at Convictional.

Chris Grouchy is the co-founder and COO of Convictional. Chris oversees commercial, marketing, sales, customer success, operations, and growth at Convictional.

Executive Summary:

Problem: Figuring Out Who To Sell The Product To

Roger and Chris had the domain expertise to build the right solution for their potential customers, but that didn’t matter if they couldn’t figure out who wants to buy it.
Market: Defining And Aligning All Relevant Stakeholder Dynamics Within Your Product

The Convictional cofounders had to understand every relationship between the relevant stakeholders and incorporate those learnings into the product they built for retailers and sellers.
Solution: Taking Your Time While Learning About Your Customer And Their Problems, Step-by-Step

Convictional’s current success so far stems from the founders opting to take their time in learning as much about their customers, which helps them figure out the next set of features to prioritize building to make their customers’ lives easier.
Team: Focus On Leveling Up Your Communication Skills To Accomplish More

Roger and Chris have a great relationship as friends and more importantly, business partners, because they are both dedicated to continuously improve their communication with one another to handle potential conflicts that may arise.
Fundraising: Investors Are Concerned About Your Startup’s Material Progress From Answering The Tough Questions At Each Stage

As your startup matures, investors care more about your ability to figure out the right problems to solve with the capital and resources they give you to unlock massive growth opportunities.
Takeaway: Optimize For Extending Your Startup’s Runaway Over Everything Else

In the earliest stages of your company, it is time, not money, that’s your critical limiting factor. You may need more time to run the right experiments to find product-market fit, thus you should keep your burn rate as low as possible to give you the time you need to find product-market fit.

Case Study: Convictional

Convictional co-founders Chris Grouchy (left) and Roger Kirkness (right).

Problem: Figuring Out Who To Sell The Product To

Tell me about a problem or set of problems that you’ve had to solve on your journey to product-market fit.

We wanted to understand why our efforts to get customers using initially were struggling. We had built a product for a physical goods company (e.g., a brand, like Nike) to sell their products to a retailer or a distributor. We knew that we had to find a good way to talk about it, price it, and fit it into their existing environment. We also knew that many enterprise software companies spent two years in customer development before meaningfully finding a solution.

We got the product assumptions (e.g., customer jobs-to-be-done) correct. The product today is nearly identical to the product in 2017, with some enormous improvements in reliability, onboarding, scope, and so on. We got everything else (e.g., who was the customer, what were they willing to pay, what did they care about) wrong. We realized that we had to sell to the buyer in the transaction; the seller couldn't make their customers use our software. We had to sell to large companies because they experienced the pain most acutely. And we have to focus on the seller's experience, which was the thing we originally built our product for.

So the foundation on which we have built our current level of product-market fit was based entirely on a focus on customer jobs to be done. First, we solved for them poorly, in a way that made it hard to market to them. And then, over time, we would learn more and more about how to talk about, price, and position our product so that the right buyer was the one exposed. Eventually, we fixed each problem (who we sell to, what we charge, how we talk about it), and now we feel we are supply limited (e.g., demand is more abundant than our ability to fulfill it).

We think it's based on the persona. So you choose a persona, and it has to be something in their top 3 problems. If that's the case, you have to understand that persona's ability to spend on a solution. Based on their ability to spend and what they do spend, you can feel what they perceive the importance of solving the pain to be. This only applies in B2B contexts, with complex problems and solutions. So everything for us is based on defining the persona, then setting pricing based on the severity of the pain and what they're in a position to spend.

Why were these problems so critical to solve? What was it like personally struggling to overcome these challenges to achieving PMF?

We had to have a way to distribute our product. Our domain experience meant that customer jobs-to-be-done came easily, we knew what we had to do, and the data models of the software today are quite similar to the ones we developed in the first version we built. We kept struggling to figure out distribution, all the marketing elements that mean we can commercialize what we have built. And that required this constant experimentation process. We got almost all of those assumptions wrong, so one by one, we had to disprove our assumptions and relearn what we should believe about our market and about what customers care about.

We worked on the problem for a year and a half before making our first hire. The first year and a half was pretty isolating. Most of our customer conversations did not materialize, and most of the ones that did would churn from lack of usage. Building enterprise software is hard, and it requires a team and years of focused effort to build something useable. We didn't have either, so it was frustrating to have the right idea but not enough product or distribution maturity to realize it. There were plenty of times it may have been rational to quit, but we say we would not give up until we spent X time on the project. And that turned out to be an extremely good decision because it just took us a few years to figure it out.

There were plenty of times it may have been rational to quit, but we say we would not give up until we spent X time on the project. And that turned out to be an extremely good decision because it just took us a few years to figure it out.

Market: Defining And Aligning All Relevant Stakeholder Dynamics Within Your Product

Let’s get deeper into the pain point or points you were trying to solve. Imagine I’m a customer thinking about using your product or service. How do you go about understanding my pain and creating a solution to address it?

The fundamental problem in B2B is that to do what best serves your own business (e.g., your shoe brand or your shoe store), you have to do things that may compromise your customers' or suppliers' ability to do what they want. The seller wants a single place for customers to order from, but you have to somehow make them do it. The buyer wants a single place to place those orders from, but you somehow have to connect all your suppliers.

This seemed like such a hard problem to solve because there are many stakeholders: our software, our support team, the seller's support team, and software, the buyer's support team, and software. It's a huge number of interests to bridge in a single product. We eventually realized we needed to develop thoroughly considered personas for both the buyer and seller in B2B transactions. We had to focus on a single type of trade (e.g., a brand selling to a retailer) to avoid getting lost in an ocean of unrelated personas. And we had to understand who drove technology adoption decisions in that multi-stakeholder dynamic.

The best advice here is to talk to customers and try to sell them something for money. No one will be more honest with you than a customer you ask for money. The difference between $0/month and $50/month in practice is enormous; it becomes a considered purchase for a small business. So they will consider it, and then they will tell you exactly why they don't want it. You have to use those reasons and roadmap items, and eventually, they run out of objections. To do this, you need to talk to them, ask for money, and identify who you think they might be.

Assuming you’ve managed to address the pain points I face as a customer, what additional information did you discover in your journey to PMF that there’s a large market in need of a solution to the existing problem?

We realized that to compete with the existing solutions in a mature market, you have to be 10x better. Being only 2-3 better means your competitors will match your prices in deals, and you'll ultimately lose on track record (even if your product is, in fact, 2-3x better). By having evidence that you're able to accomplish your customer's goals *much* faster than the alternatives, it becomes less about competition and more about your solution's attributes. We had to make our approach 10x easier in terms of buyers onboarding sellers before we won deals.

In small or new markets, this may not apply because there might not be established players. But in creating something much easier to use, we realized there was a huge amount of unrealized market that needed something easier. We could just always be selling to that market. We never have to compete with the alternatives in the space so long as our approach is much easier; we can just continue selling to everyone who cannot use the alternatives.

How did you narrow your scope of what portion of the market you wanted to tackle first? Who did you decide would be your first beachhead customers and why?

We decided to focus on companies that were willing to pay us. We realize that sounds a little ridiculous, but we knew that free users don't give the same kind of feedback as paying ones. You need skin in the game to get the best possible feedback in the form of both paying and using the product. If a customer wasn't willing to pay, that's fine, but we tried to focus on the feedback we got from the ones who did. We got our early assumptions about customers wrong, but as in all things, go to the place where people experience the most pain.

For us, this meant thinking about what led to business pain in our domain. It ended up being a need to onboard many sellers (e.g., lots of shoe brands in my shoe shop) and doing so at scale (e.g., thousands of shoe brands, not just a dozen or something). The pain was most clear, and the customer was in most acute need of our work. That doesn't mean we can't go back and add freemium later or do something for SMBs once we are fully self-serve. But it does mean we started with those in the most acute pain of the variety that we can address. You don't test a new medical invention on a healthy person; you go to the people at most risk of harm.

Cold outbound emails and 15-30 minute discovery calls. People don't like to help you unless you can help them, so you have to try and bring value immediately in advice or solutions to problems. We got our customer wrong initially, so it took us a while to tease that out. You can learn a lot by doing 5-10 customer discovery calls per week and constantly being told no. If we got a yes, we would start to raise prices again next time we engage rather than settle. You learn about categorically different problems when you ask for $200k as opposed to $20k. And it always seems inconceivable that you can go up on pricing until it happens, and you do.

You need skin in the game to get the best possible feedback in the form of both paying and using the product.

Solution: Taking Your Time While Learning About Your Customer And Their Problems, Step-by-Step

How did you build your solution to maximize its relevance with the customer and ensure product-market fit? If you haven't found PMF yet, what have you learned? What are the blockers for getting to PMF?

I think this question is worded great. I don't think I have a concept of PMF in my head yet. My preferred definition is from the inventor of PMF, Andy Rachleff. To me, it means we have the most relevant solution possible for customers with the resources we have. It doesn't require extensive sales and marketing contortions, the value is clear, and there's more demand than we can reasonably supply. It's something we feel like we are always moving towards. In the last few months, we have had way more inbound and demand than we can reasonably fulfill.

We are hiring as fast as we can find good people, and customers are pre-paying to jump the line. Altogether that feels like what people describe as PMF, but to us, it's more just that for our available resources (team, time, money), there's much more demand than supply for now. We are more relevant than our survival need for resources to stay in the infinite game.

What are some of the things you did that “didn’t scale” to shape your solution today?

We still do a ton of things that don't scale. There's a fine line between permanently flintstoning (e.g., having something be manual which should be automated) and doing things that don't scale for the learning. It's just a fundamental truth (Zero to One talks about this) that you have to solve for making something way better before you can figure out how to scale it. You have to achieve customer perfection in terms of relevance and usage before you can scale it up.

So a lot of what we do includes manually onboarding our retailer's suppliers. Our competitors don't do this, partly because they have more customers, but also partly because they seem jaded about their ability to materially improve the process. But we find by essentially performing our customer's role; we're able to productize lots of small wins that compound into big wins. Making the process 10% more efficient 100 times means we have a way that is way more efficient than our competitors. I don't think they will be willing to slow down and figure that out, and we, by comparison, try to go as slow as we possibly can to learn the most.

The rule we used was that we're willing to do whatever it takes to get customers to use, but we also want to productize those things over time. Rather than grow revenue as fast as possible, we optimized learning as fast as possible, which means spending a lot of time with a constrained set of customers. We still do that, there are only a half dozen or so customers I talk with, but I talk to them every week and have a text messaging level of closeness. It would be very hard for us to deliver a bad experience when the customer can text the CEO.

The main thing we "did" that we are now trying to manage more thoughtfully is doing the customer's job for them. Providing the software and jumping in and sourcing sellers for them, getting those sellers onboarded, staging their products, and pushing them for sale. In doing all the steps, we're able to layout multi-year roadmaps for things we can improve. The roadmap becomes painfully obvious at that point, based on what bits were hard to do.

What did you learn to best engage with your customers? How did you build a tight feedback loop with your customers to rapidly improve your solution to their problems?

We think having a single inbox (e.g., email) and taking that inbox very seriously (every single support email is viewed as the last time we should ever get that support email) is critical. If something needs to be improved to avoid that support email from ever having to happen again, we do it. Even if it means it takes two days to close out a support ticket, we would rather solve that category of problem now than ever have to subject someone to it.

We tag all our support emails and link them into GitHub using email software called Front. Front is excellent for this because when we go back and close that issue out in GitHub by shipping the solution, Front will bump the thread to us so we can let the customer know. Nothing gets customers more fired up (and willing to engage with immature products) than knowing every support email will rapidly turn into a product-based solution. Like the last answer, we don't need to have a ton of customers getting a ton of high-quality feedback this way.

Walk me through how you landed your first few customers as you were building your product or service.

We did brute force outbound. Cold email all day until someone replies. Then use the most thoughtful kid gloves you can to get that customer setup and using your product. In any B2B software, the options at this point are pretty much inbound (e.g., app store or google ads) or outbound. If you have something complex (e.g., the value cannot be explained in a sentence), you have to do the customer's work for them by explicitly going after the best-fit customers. So that's what we did, we cold emailed everyone we thought was a good fit and constantly refined our wording, process, and assumptions about the customer until we had other things to do.

It's very hard to build something people don't want and ask for money and hear no constantly. We viewed that as the price to understand what people want to pay money for. In our case, we learned a lot about the customer we didn't know, but we had roughly the right product for the jobs they were trying to accomplish. Every call we had with customers, we would take the learning from the prior one forward and hit on those newly relevant learnings. At this point, it's working super well. We're able to keep marching up-market and charging more for what we do because we get better and better at communicating exactly what the merit is. It takes a huge amount of telling the story, listening, and slowly iterating your sales process to do this. Sometimes people give up and outsource, but that is deeply flawed; you have to keep doing it.

It's just a fundamental truth (Zero to One talks about this) that you have to solve for making something way better before you can figure out how to scale it. You have to achieve customer perfection in terms of relevance and usage before you can scale it up.

Team: Focus On Leveling Up Your Communication Skills To Accomplish More

If you have a cofounder, walk me through a time that you two had a conflict. What was it about? How did you handle the situation? What was the resolution, and how did it impact your working relationship with your cofounder?

We have semi-regular conflicts as co-founders. Much like marriage, that is normal, and the outcome is based on where you tend to go when stressed (e.g., four horsemen). We have a concept from the 15 Commitments of Conscious Leadership that talks about being above the line (e.g., vulnerable, thoughtful, open) or below the line (e.g., angry, dismissive, contemptuous). We have done a lot of work, with each other, with a coach, with therapists, and with our spouses to navigate stress in relationships better. Each time you level up your ability to communicate, it *enables* you to tackle more as partners and as a business, which *results in* more stressors on the relationship. So you have to have an agreeable framework for conflict.

In terms of specifics, we often have conflict navigating material decisions. When to fundraise, how much to raise, when to make key hires, what key hires to make. Sometimes it's because one founder is bringing themselves to work below the line (e.g., having a bad day). You want to avoid making bad decisions when you're feeling like that. When it happens in customer deals, we have this concept of deal teammates. The person not emotionally connected to the deal can be the voice of reason and help us navigate the deal without letting it impact results. Something similar has to happen when you have founder conflict; you need a teammate in the form of a spouse, therapist, or coach (or, in our case and ideally, all three) who can help debug.

Our first major conflict was around fundraising while at YC. Neither of us had experience with it, and we differed a lot in our approach and values (at the time) to navigating that conflict. That's when we became closer and realized that being business partners is deeper than being friends. We realized that we both sometimes have conflicting needs. We did what everyone should do in that situation, which is to cool off and go for a long walk and talk about life. We both feel like almost no problem can stand up to a long walk talking about life. It made our relationship better, but since then, we have done a good job enforcing equality in the relationship and learning how to handle each other when we need to have hard conversations. We have essentially no toxic conflict anymore, but we do spend a lot of time coaching the team to have better conflict. Growth begets stress which begets conflict. Strategies are key.

What key qualities did you look for in key early hires to increase your chances of discovering product-market fit, and how did you prioritize what types of hires you needed to make first?

You want to find people who care about customers and each other. People you enjoy working with who offer an essential skill to your customers and which you do not have are ideal. We tried to avoid hiring more than a handful of people until we felt customers pulling the product out. There were skills (e.g., infrastructure software, enterprise account management) we didn't have but knew were essential to understanding if we had something in our business. We optimized for those things and tried to stay frugal and lean otherwise if it wasn't essential.

If there was a potential employee of your startup reading this Case Study right now, how would you convince them that joining your team is the next best step in their career?

The problem we're solving impacts one-fifth of all economic activity; somewhere on the order of $12T worth of transactions being handled, the legacy way will need to be transitioned to modern solutions like ours. We have already spent three years learning about PMF, but our company's market value has not caught up to the opportunity yet. Our stock increasing 20x in the next 2-3 years is very realistic if the current level of inbound can be reliably converted into being a customer. We are entirely supply bottlenecked at this point. We basically can't hire fast enough to keep up with paying/using customers. We have managed to build a 20 person team with no toxic people, and we hope to continue to grow the team with zero tolerance for toxicity and 100% tolerance for learning in failure. We value learning, long-term thinking, focused intensity, and autonomy; we think those are the things that lead to long-term sustainable progress.

One more thing: we don't use Slack, so you can actually get work done. Please sign here :)

We went from 2 people as founders to 20 people over three years, but all the growth happened in the latter quarter when we went from 6 to 20 people rapidly. It requires going from the actor in the machine, to player-coaching people of varying seniority levels, mostly focusing on building teams and coaching people on how to act in the machine. Going through that process in six months is very uncomfortable and unnatural. It's hard when you haven't been a manager before, or haven't been for very long, to invest time in being good at managing people and investing in their ability to act inside the machine.

The 'how' of this we use is when we end up with what we call part-time jobs. So your full-time job is to close deals, but your part-time job is to build stuff or do support. It's not the main focus based on where your skills spike, but it's something you're doing, and it creeps up to half your calendar. If it's half your calendar as a founder, it's probably someone else's full-time calendar with abundant context and experience. That's when you know you need to hire for it. As you grow, you end up with many part-time jobs (e.g., 5-10 hour a week obligations outside your experience), so you have to decide how to prioritize them based on which one leads to impact. Basically, look at your part-time jobs (do a calendar audit) and hire for the most important or most easily hirable aspect of those things. At a certain point, you would want to hire for all operations and admin, not just on engineering and customer-facing roles.

In terms of motivating the team, we have found that hiring people who are already acting as player-coaches in their existing function and want to upgrade in terms of speed, customer relevance, or career progression are very open to acting as actors machine in the short term. Long term allows you to scale those people, as they have already played in player-coach roles before, so when the time comes, you can promote them into managers. We do have a culture of spending a good deal of time simply learning about what the demands on our time will be in one or two quarters from now, and pulling the learning forward, so we find the people on the team with interest in managing people also tend to exhibit those behaviors.

Each time you level up your ability to communicate, it *enables* you to tackle more as partners and as a business, which *results in* more stressors on the relationship. So you have to have an agreeable framework for conflict.

Fundraising: Investors Are Concerned About Your Startup’s Material Progress From Answering The Tough Questions At Each Stage

How did you set expectations with investors at seed and Series A? What is the main difference in those expectations as your company grows from one stage to another?

We haven't raised a Series A yet, but we can speak to our $2.2M seed round coming out of YC. We told people we had paying, using, and durable customers, but not many of them, and they didn't pay us much. We felt the same product would be relevant to big companies, but we weren't sure and weren't ready to sell them. We told them if we raised what we intended to raise, we could answer all of those questions and prove there's something big. The market is so large, and it is hard to argue against a believable experiment trying to tackle it.

We have found in having early priced round / Series A conversations that the focus is more on having a clear way to deploy the extra money to inflect the company. Now that many questions about feasibility are answered, how do we devise more experiments to further ourselves? It's less about faith in our ability to answer those questions as founders and more about evidence that we have made material progress in answering our hard questions. Did we not only show we can close big companies but get them using and retain them? Things like that. This makes sense, we should have better answers for those things now and new hard questions to answer.

How does dilution work as you go from seed to Series A?

This is a broad question. In general, you have to decide at any time if dilution is worth it. Sometimes dilution implicates control, but not always. As a seed-stage company rapidly growing into a Series A stage company, we are mindful of dilution. As first-time founders, though, we care a lot more about the impact and building something great than we do about optimizing the percent of ownership at exit. It's rational for investors to care about that. For us, it's just about staying in the infinite game as long as possible and never running out of will or resources. So we don't think that much about dilution; we think way more about great advice. That seems to us to be what separates the good from the great in terms of investor support.

It's less about faith in our ability to answer those questions as founders and more about evidence that we have made material progress in answering our hard questions.

Takeaway: Optimize For Extending Your Startup’s Runaway Over Everything Else

What are the key lessons have you learned so far from your journey to achieve product-market fit?

Save enough money that you can safely make $0 in the first two years of the life of the business. Even if you make money, which we did, it immediately gets reinvested. If you have that, never give up because infinite games are only about will and resources to continue. The only product or solution advice you should take is from paying customers. Eventually, paying customers will pretty much layout a roadmap for you of what to build. Follow that map. Do not settle for answering the same support email twice; use that as a way to make the product great.

What’s the hardest problem you’re facing now after solving the prior one(s)?

How to hire and retain great software engineers and customer success managers in a global talent market :) If you figure that one out, let us know. Otherwise, things are good.

Do not settle for answering the same support email twice; use that as a way to make the product great.

Three Cool Founders You Should Know About:

Brian Vallelunga, Founder of Doppler: Doppler is the first Universal Secrets Manager (USM).
Benjamin Encz, Founder of Ashby: Ashby builds people software for high-growth companies.
Adam Turner, Founder of Postscript: Postscript is a powerful, easy-to-use SMS platform for Shopify stores.

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