Case Study: Pareto Founder Phoebe Yao Relies On Empathy To Separate The Signal From Noise In Her Product-Market Fit Journey

Read about how Phoebe used both her technical skills and emotional intelligence to drive Pareto to product-market fit.

May 11, 2021

Author’s Note: I apologize for the delay in sending today’s Case Study out.

Introduction:

Pareto is building the human API for business operations. Their women-led and operated virtual task force helps businesses automate day-to-day processes like lead generation, market research, and admin operations.

Problem: Startups and SMBs spend way too much time on manual data entry.
Market: 10.8B hours are wasted each year on market research, lead generation, and admin tasks and the U.S. SMB business automation is a $17.5B TAM.
Solution: Pareto is building click-to-launch business automation to help SMBs scale operations.
Team: Pareto is a fully distributed, women-led, and operated team brought together by a joint vision for global gender equality and economic empowerment, with members based in the Philippines, Uganda, Pakistan, and the U.S.

Pareto founder, Phoebe Yao, 22, is a Chinese-American immigrant, Stanford dropout, and 2020 Thiel Fellow. She’s passionate about democratizing access to meaningful work. Phoebe founded Pareto after spending a gap year researching human-computer interaction at Oxford and building tech for emerging markets at Microsoft Research India. She enjoys hiking meditation, Neal Stephenson’s cyberpunk novels, and mentoring student startups.

Executive Summary:

Problem: Developing Your Empathy To Improve The Product Is Hard

Phoebe struggled initially with separating the signal from the noise when trying to improve Pareto. She found that through empathy, she could better discover what would truly move the needle with Pareto to find product-market fit.
Market: Early-Stage Startups As Your Customers Require Empathy To Understand And Serve

Phoebe chose to ground herself and her team in their customer’s shoes as the former came to understand the latter’s day-to-day workflow. That sense of empathy for the early-stage startup customers of Pareto helped Phoebe figure out what she needed to build.
Solution: Integrating And Augmenting Existing Workflows And Being Upfront About What Your Tool Cannot Solve

Phoebe was upfront about what Pareto could do well and could not do for their customers, allowing the startup to find the right role for their service to augment their customer’s existing workflows.
Team: A Helping Hand Goes A Long Way

Phoebe learned the hard way that a “figure-it-out-culture” is not one that everyone thrives in; some need more guidance and support than others to achieve their full potential.
Fundraising: Setting Investor Expectations Through Monthly Newsletter Updates

Keeping frequent contact with Pareto’s pre-seed investors allows Phoebe to keep them updated on the business, as well as make sure their expectations align with the startup’s reality at every step.
Takeaway: Trial And Error Is Key To Finding Product-Market Fit

Trial and error is an inevitable part of the product-market fit process; embrace it and optimize from learning from your mistakes to sooner reach PMF.

Case Study: Pareto

Problem: Developing Your Empathy To Improve The Product Is Hard

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

Filtering signal from noise when it comes to what product to build requires developing a deep understanding of your customer segment. There's superficial knowing such as, "Entrepreneurs don't have enough time for all the work they do." Then there's deep, empathetic understanding like "First-time entrepreneurs are not good at delegating and get a lot of anxiety when it comes to handing off even the most mundane of tasks." If you can get from level 1 knowledge to level 2 empathetic understanding, you will be able to stay laser-focused on all key product-related decisions.

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

Before developing a deep mental model of Pareto's users, we were getting pushed in dozens of different directions by the feedback well-meaning VCs, founders, and advisors would give us after 20 minutes of conversation. Every conversation would leave me feeling more lost, uncertain, and confused about what I was building. Eventually, a mentor told me, "The founder's job is just figuring out who to listen to," which made me realize I had to cultivate my own judgment. Everyone has their own opinion on product. While it's incredibly helpful to hear different perspectives, the founder or co-founders need to trust themselves as the subject matter experts. You need to have your own problem-solution thesis to center your decision-making. If that means you need to interview 100 potential customers to get there, then do it.

I was lucky enough to take Steve Blank's Lean Launchpad class at Stanford, where he taught The Lean Methodology for finding PMF. The process involves:

Building a Business Model Canvas (BMC).
Conducting hundreds of customer development interviews.
Synthesizing common pain points.
Proposing ideas on the spot to gauge reactions.
Iterating your solution and BMC with each interview.

No coding required — just thoughtful conversation. The best part is that the framework is readily available on Steve Blank's website. I highly recommend all early-stage founders check it out.

If you can get from level 1 knowledge to level 2 empathetic understanding, you will be able to stay laser-focused on all key product-related decisions.

Market: Early-Stage Startups As Your Customers Require Empathy To Understand And Serve

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?

We always start with a grounded theory approach to understanding the user journey. This means asking questions that are rooted in the concrete day-to-day activities of the user. So I would ask you, "Could you walk me through your typical workday?" rather than something like "What do you spend most of your workday doing?" The former gives you an idea of the user's actual activities, while the latter gives you the user's analysis of their activities and could abstract away key pieces of insight. For instance, maybe the user spends most of their day typing emails, but they answer you, "managing my team," and you lose out on the idea to build an email integration to streamline their task delegation process.

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 spoke to over 100 startup founders during Pareto's customer development process. We realized that early-stage startups and tech-forward SMBs typically require the same set of simple business operations automation. Working from first principles means that a finite investment in infrastructure would allow us to scale across lower-market customers through a 100% self-service platform without relying on costly high-touch sales or account management. Millions of entrepreneurs set out to build their businesses and billions of hours being wasted doing these tasks manually or hiring, training and managing people to do these tasks manually. We determined a tool that combines machine automation with systematized human labor would hugely disrupt the business process automation market.

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?

Our customers are early-stage innovation-led enterprises. These are businesses in which the founding team focuses on research and development but spends up to 80% of their time on repetitive, manual tasks that Pareto can automate. By initially targeting the startups that get funded out of accelerators and VCs each year, we can front-run the market to offer the most seamless, high-quality automation platform that scales as their needs grow.

We began by diving into the startup ecosystem — joining accelerators like StartX and Envision, which helped us grow our business and immersed us in thriving startup communities. As we began to build relationships in these communities, we grew to understand entrepreneurial jargon and culture better. This deep empathy enabled us to hone our product marketing to speak to our early-stage customers truly.

Working from first principles means that a finite investment in infrastructure would allow us to scale across lower-market customers through a 100% self-service platform without relying on costly high-touch sales or account management.

Solution: Integrating And Augmenting Existing Workflows And Being Upfront About What Your Tool Cannot Solve

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?

SMBs and startups aren't looking for costly, niche software solutions. They don't have the bandwidth or insight to pick the best fit tool, set up a process to use the tool, and maintain a dozen different software tools. They'll go to Pareto because we're embedded in existing communications tools like Email and Slack, enabling founders to delegate tasks with minimal friction. Users sign up on our website then email their Pareto Partner with 2-3 sentences of quick instructions to launch a new task. While our secret sauce is in our internal workflows, our engineers are excited to roll out a user dashboard come March to enable self-service onboarding, task requests, and work progress tracking.

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

We didn't write a line of code until after six months of serving paying customers. Our team used Trello's free plan and had to make a new Trello team for every ten customers we onboarded to track user tasks. This peak scrappy bootstrapping helped us realize that our defining technical innovation would not be user-facing but rather on the side of empowering our internal human workforce with the necessary infrastructure and software automation to understand and complete user tasks.

We piggybacked off the tools that our customers were already using rather than building anything of our own. In Pareto's early days, we were taking task requests via group chats on Facebook Messenger. It was quick, low friction, and got the job done!

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 reach our customers by partnering with top accelerators and entrepreneurship communities -- from Ondeck, YC, StartX, Alchemist, 500 Startups to Techstars. Since our users are already Slack messaging and emailing our teams, feedback is only a message away.

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

I had a dozen of my closest friends send me their to-do lists and asked Pareto's small team to take their best shot at completing the random assortment of tasks. Seemingly simple tasks such as buying an airplane ticket turned into hours of frustrating back and forth. During Pareto's first three months in operation, we probably failed 1 out of 3 tasks sent our way.

I developed a Pavlovian anxiety response every time I got a new Slack notification from the team. It was a miserable time, figuring out what works and what doesn't work while not upsetting our early users. Slowly but surely, we began to understand the limits of task delegation. We learned that personal tasks are the most difficult to get right -- we had to collect so much one-time information from the user that delegating the work was far more expensive than if the user had just completed the task themselves.

We didn't write a line of code until after six months of serving paying customers.

Team: A Helping Hand Goes A Long Way

If you’re a solo founder, walk me through a time that you had a conflict with your team. 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?

Pareto's operations team took on all kinds of user tasks in the early days -- from creative writing to pitch deck design to debugging simple scripts. I thought it a wonderful opportunity to empower the team via exposure to many different entrepreneurship and business building parts. And then, a team member quit. I hopped on a one-on-one with another team member to understand why she opened up to me about how intimidating it was to be assigned work she'd never before seen or been trained to do and how every mistake she made was a major hit on her morale. The conversation was a huge turning point in understanding what "empowerment" actually means and how to structure more friendly and supportive operations processes.

We went from naively assuming that our team members would "just figure it out" to developing a bootcamp curriculum to train our team to navigate new problems, ask critical questions, and say "no" when user requests fell outside their scope. That was something we found that our female workers lacked the confidence to do. We also restructured our team, such each woman was connected to at least two mentors. Hands-on training and support is such a "duh" point in retrospect, but at the time, I was so used to the engineering culture of "figure it out yourself" that this was a huge eye-opener for me.

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?

I look for entrepreneurs. The more entrepreneurial the hire, the more they'll relate to our target customers, have intuition for Pareto's value prop, and have the systems-level thinking needed to see the bigger picture of how product decisions impact business bottom line. I also prioritize hiring selfless leaders who are driven by Pareto's economic empowerment mission.

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?

Suppose you feel aligned with Pareto's mission of economic empowerment and our vision for the future of human-machine automation. In that case, I'd have you meet our incredible founding team based around the world, from Uganda, Pakistan, France, Philippines to the U.S.A. We're as diverse as we are tight-knit, as international as we are mission-driven. We inspire each other daily to be more curious, rigorous, light-hearted, and open-minded. It's rare to be among people who show up to virtual stand-up every morning (or evening) excited to support each other as whole human beings, and I'm honored to share that Pareto's team is one such community.

The funny thing here is that helping entrepreneurs scale themselves personally and professionally is Pareto's whole mission. We continuously use or "dogfood" Pareto within our internal operations. We give every team member an uncapped Pareto task request channel to have their own Pareto Partner to delegate tasks to and remind each other to consider whether Pareto can do a task before doing it ourselves. The delegation mindset is an invaluable scaling mechanism and something we hope to curate not only within our own team culture but within the greater startup community.

Hands-on training and support is such a "duh" point in retrospect, but at the time, I was so used to the engineering culture of "figure it out yourself" that this was a huge eye-opener for me.

Fundraising: Setting Investor Expectations Through Monthly Newsletter Updates

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've raised a small pre-seed from institutional and angel investors. At this early stage, expectations setting is more or less a monthly newsletter where we share the highs and lows of achievements and lessons learned.

Takeaway: Trial And Error Is Key To Finding Product-Market Fit

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

As a founder, you're constantly making decisions to consolidate opposing forces, for example, building fast vs. acquiring technical debt, scaling user base vs. maintaining service quality, building internal automation vs. user-facing software. The key startup lesson is that you need the process of learning from trial and error to hone your judgment and discernment. Trust in the journey. It will teach you how to balance along with uncertainty.

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

The hardest startup problems are often the most indefinite — you don't realize something is a problem until you've already identified the problem, and defined problems are simple to solve. Right now, I'm learning how to be a great leader. If curious, check out Good to Great by James Collins— he presents a pretty comprehensive overview of the subtle difference between good and great leaders.

Three Cool Founders You Should Know About:

Yao: Here is one founder you should check out next!

Yehong Zhu, Founder of Zette: Zette is on a mission to make high-quality content accessible to all.

Click Here For Pareto's Founder File

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