Case Study: Rutter Had To Go Through Two Years Of Pivots Before They Found Success
Case Study: Rutter Had To Go Through Two Years Of Pivots Before They Found Success
Rutter spent two years in pivot hell, but their perseverance paid off as they learned the crucial lesson on the difference between open and closed markets.
Author’s Note: Happy 4th of July!
Introduction:
Service providers to SMBs need access to the latter’s data to effectively serve them, but the data is fragmented across many different systems and communication mediums, leaving a massive, multi-billion dollar market in need of a solution. Rutter, a universal commerce application programming interface (API) startup was founded by Peter Zhou and Eric Yu to serve as a data bridge between SMBs and service providers.
Executive Summary:
Problem: Understanding The Difference Between Crowded And Open Markets
Without learning how to understand when a market was crowded, we would have never realized the open market opportunity we had with Rutter. Without figuring out how to see the total audience of our product, we would have never understood exactly what the audience cared about Rutter the most.Market: SMBs Building In-House Solutions To Acquire Third-Party Commerce Data
Building a single integration end to end usually takes two engineers a quarter, and companies that offer services to merchants or SMBs usually end up building over ten different integrations, which means 2.5 years of an engineering team’s roadmap. With Rutter, we take the integration roadmap of 2.5+ years and shorten it to a week.Solution: Personalized Interactions Guided Rutter To Build What Their Customers Needed
Personalize interactions with your customers - no automated outbound, no robocalls, no asynchronous questionnaires. In order to build a tight feedback loop, we’d add all of our early customers to a shared slack channel so we could have instant communication when needed.Team: Founder Conflict Reveals Whether You Are Working With The Right Person
Founder conflict is the best way to understand if you’re working with the right person. Everyone works well when times are good, but people show their true values when times are bad.Fundraising: Make It Clear To Investors The Expectations For Each Stage Of Your Company
We set an expectation at the seed stage that we were very much in exploratory mode (which resulted in 2 years of pivots). The main difference going into the Series A is that we had an initial wedge of product market fit and had the expectation of beginning to scale it.Takeaway: Every Pivot Requires Perseverance Before Success
Zhou and Yu spent two years pivoting before they arrived at what Rutter has become today. Every pivot they learned something that brought them to where they are as a company; their perseverance kept them in the fight!
Case Study: Rutter
Problem: Understanding The Difference Between Crowded And Open Markets
Tell me about a problem or set of problems that you’ve had to solve on your journey to product-market fit.
We learned how to identify crowded markets and open markets the hard way: on our journey to find PMF, we built a ton of different types of tools in completely different verticals before ending with commerce infrastructure. One of the first tools we built was a product feedback tool that would help companies categorize user feedback. We’d ask 50 companies if they had problems organizing user feedback, and of those 50 companies, 30 would resonate. But all 30 of those companies were already using a feedback tool or were happy with an existing workflow built inside of Notion, Google docs, Salesforce, etc. It took us two months of selling without success into those companies to realize that TAM doesn’t mean Total Addressable Market, it means Total Available Market, and that our TAM here wasn’t 30/50 of every company, it was 0. The hard lesson was that if people were happy with their existing solution for a problem, it was impossible to displace that solution.
Another problem we solved on our way to PMF was figuring out how to scalably get a view of market opportunity. When we started Rutter, our initial go-to-market was to go to every single app on the Shopify app store and ask them about how they scaled their apps onto other commerce platforms. We realized that most of these apps were smaller marketing apps and that most of the activity around commerce was actually happening outside of the app store.
Doing creative LinkedIn outreach to folks with keyword e-commerce in their name, we got exposure to companies of all sorts of different types: financial services, marketplaces, dropshipping companies, fulfillment services, and social platforms. The people who ended up responding to those LinkedIn outbounds ended up painting the picture of exactly how big the opportunity was that Rutter was tackling.
Why were these problems so critical to solve? What was it like personally struggling to overcome these challenges to achieving PMF?
Without learning how to understand when a market was crowded, we would have never realized the open market opportunity we had with Rutter; without figuring out how to see the total audience of our product, we would have never understood exactly what the audience cared about Rutter the most.
Going through failure after failure, in the beginning, was extremely depressing. It’s a grimy analogy, but I like to think of a startup founder in pivot hell as a blood cell going through apoptosis: building things that no one cared about, you’d feel as a founder that you lost your purpose in society, which was crushing because humans are wired for purpose and fulfillment. Eventually, we learned to separate failure from our own egos and treated failed products as experiments and learnings.
Market: SMBs Building In-House Solutions To Acquire Third-Party Commerce Data
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?
Let’s say you’re an SMB lender and want to offer a loan to a small business or merchant. In order to offer a loan, you need to understand how that merchant is performing financially, which requires looking into their commerce system of record. But this can be any number of platforms (Shopify, Amazon, QuickBooks, Stripe, Paypal, and so on), and although the data you need to pull per platform is all there, it’s structured and fetched completely differently across platforms. So you have to build integrations into every single platform, understand how to fetch data, how to authenticate the merchant, and then once you’ve built the integration, you need to reorganize it in a way that’s understandable across different platforms (how do you compare sales data from Shopify vs. Stripe when they’re organized completely differently?).
Building a single integration end to end usually takes two engineers a quarter, and companies that offer services to merchants or SMBs usually end up building over ten different integrations, which means 2.5 years of an engineering team’s roadmap. Rutter is a single integration for reading and writing data across any commerce platform, which means that you integrate into Rutter and instantly are able to support merchants on any platform. We take the integration roadmap of 2.5+ years and shorten it to a week.
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 learned that everyone was attempting to do this in the house - often, companies that we sell have a public-facing roadmap of integrations they plan on working on. We also learned through customer interviews what an open market felt like - completely opposite to my recollection of exploring a crowded market, none of our target customers we talked to had a solution they were happy with.
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 wanted to focus on companies that were innovating the fastest, and the most aggressive companies we served were in financial services. By serving that segment of customers, we knew that their fast pace of innovation would push us even harder to build a great product, so it would actually speed up our pace of product iteration.
We wanted to make sure that we could get as clear of a signal as possible in the sales cycle, so we always ran our exploratory conversations as close as we could to sales conversations possible.
Solution: Personalized Interactions Guided Rutter To Build What Their Customers Needed
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?
Contrary to the question, our API is an incredibly horizontal product used across any business that interacts with commerce: financial services, business banks, shipping and fulfillment companies, email marketing companies, and so on. To maximize relevance for our target customers, we focused first on fleshing out exactly what APIs they’d need from our product and worked to make sure those were stable before putting the product in their hands.
What are some of the things you did that “didn’t scale” to shape your solution today?
Our target customer is a company that sells a product or service to merchants. We’d sign up on some of their sites as fake “merchants” just so that we could better identify with the merchant onboarding pain. Then, we’d put ourselves into the shoes of the company trying to sell the product to that merchant so we could best understand what that company was looking to solve with a solution like Rutter.
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?
Personalize interactions with your customers - no automated outbound, no robocalls, no asynchronous questionnaires. In order to build a tight feedback loop, we’d add all of our early customers to a shared slack channel so we could have instant communication when needed.
Walk me through how you landed your first few customers as you were building your product or service.
We landed our initial customers by reaching out to them on the Shopify app store and working closely with them as design partners.
This was the easy part. Being an engineering cofounding team, we knew we could work day and night to get the product out the door for our customers. We would set an onboarding date for a week or two in the future whenever we signed a contract and did all we could to build the product out before the start date.
Team: Founder Conflict Reveals Whether You Are Working With The Right Person
If you have a cofounder, walk me through a time when 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?
When we were in pivot hell working on a product feedback tool, I lost hope in the tool before my cofounder did and kept trying to get him to move on from the project and start exploring others.
Eventually, I stopped trying to convince my cofounder because it felt futile, and got to explore some other promising ideas we could work on. When the ideas I was exploring also didn’t work, it bubbled up into an argument we had about how we were supposed to be working as a team but we were all drifting off into our own ways. We ended up resolving the situation by first realizing that we were antagonizing the other needlessly - both of us wanted to make our company successful, and we should both realize that the other person was also mission aligned even if they had their own opinions. Then, we took an honest look at the potential ideas on the table and worked together to figure out what was most promising.
Founder conflict is the best way to understand if you’re working with the right person. Everyone works well when times are good, but people show their true values when times are bad. Having a conflict with Eric (my cofounder) and surviving it definitely strengthened the relationship we had.
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?
We actually brought on our first teammate when we were at almost a quarter million in revenue. Having people join your team is also a huge commitment and risk on their end, and so my stance on this is to actually bring people on when you know you can scale rather than bringing them to help you find product market fit.
Because the market we were exploring was so new, we screened deeply for people who have high learning ability over people who have a ton of experience. We also knew that the early hires needed to be technical because our product was so technical (API infrastructure).
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?
When you think about your next step, I’d optimize for learning as much as you can to scale yourself. This means working on interesting, hard problems and putting yourself next to ambitious and smart people.
The thing that I’m most proud of in building this company is the density of smart and ambitious people - the bar we set when making a final hiring decision is “would I start a company with this person?” and unless the answer is a resounding yes, we pass. I learn something new every single day, working alongside all of my teammates who are smarter than me.
My cofounder and I lean heavily on advisors - I have a CEO coach and multiple advisors that help with different parts of the go-to-market strategy. We have a culture of constant learning and growing here and use Plato to help our teammates find advisors as well.
Fundraising: Make It Clear To Investors The Expectations For Each Stage Of Your Company
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 set an expectation at the seed stage that we were very much in exploratory mode (which resulted in 2 years of pivots). The main difference going into the Series A is that we had an initial wedge of product market fit and had the expectation of beginning to scale it.
How does dilution work as you go from seed to Series A?
From the seed stage, the Series A investment usually dilutes the company by 10-20%, so in terms of percentage ownership, you own around 85% of your previous ownership in the company before the A. But the upside here is that the company itself is worth way more.
Takeaway: Every Pivot Requires Perseverance Before Success
What are the key lessons learned so far from your journey to achieve product-market fit?
Learn to understand crowded vs. open spaces, find cofounders that are values aligned, and iterate quickly. Most important, don’t give up.
What’s the hardest problem you’re facing now after solving the prior one(s)?
Our hardest problem is making sure that we are consistently bringing on exceptional people to our team. There’s so much pressure to bring on people given how much work there is that it’s tempting to hire fast. But above everything, we need to make sure that the team we work with every day is superb because it sets the bar and the culture for the future people we bring on.
Click Here for Rutter’s Founder File:
Rutter's Founder File Description:
Zhou: “One of the biggest challenges early founders face especially when things aren’t going so well is knowing when to keep moving on versus when to pivot. Having spent almost 2 years in pivot hell, my co-founder and I developed a structured framework for evaluating new ideas so that we could run an efficient process, have a clear way to identify positive and negative signals, and have a clear delineation for when to move on or continue with an idea.”
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