Myths about product/market fit, and how to find it | David Hsu & Bryan Schreier

Thank you for hanging around. This is the last session, right? And then the night sessions begin, I guess. I'm Bryan Schreier from Sequoia Capital. This is David Sue from Retool. We're really excited to take a little bit of a break from the last session, which was great to talk about the future and navigating this winter that's coming ahead. But they also mentioned retooling for that, and we'll get into some of that in this session. But it's really going to be about product-market fit and dreaming and creating. So excited to talk about that with all of you. I actually started my technology career in Europe at Google, where I worked for six years as we were opening our first European headquarters back in 2004. And a team that's live on the ground in London, so we're really, really excited about the ecosystem over here. David actually also did his schooling in Europe. He went to Oxford in this combo major—or I'm not sure what you call it. Oxford, you wouldn't call it a major, would you?

He founded Retool. We met in 2019, and the company has scaled 50x since we first met and partnered in the Series A. So we've seen David do an amazing job.

Well, you did convince me that you were a great company. I've been fairly interested in startups, and most people had referred to product-market fit as something like, oh, you will know it when you have it. It's almost like hitting a geyser or something.

It's refreshing to hear a company that almost went from one to ten million ARR by surprise or by accident. I like how easy you make that sound. It's not that way for all the companies that I've met out there. You guys did a lot of hard work. One of the things that has been said is that David, you have a formula for finding product-market fit, and I would like to write that down.

Just to jump in with one point. One of the things that I often say about working with you is that most founders think product-market fit is a product thing, but there's a lot of sales in there. That's maybe something new, maybe something that's surprising to folks who are coming at founding or building product more from a technical angle. So can you talk a little bit more about how you think about sales and how you weave that into product-market fit and building a business?

Yeah, I think PLG causes people to optimize for very weird things and probably kills the company actually. Today when I talk to founders, a lot of founders will tell me, oh, we don't have much revenue yet, but it's PLG. And the reason we don't have much revenue is because we're not Dropbox. Probably not Dropbox actually. So for us, we were always very sales-driven. We said, hey, currently we have this website, we have this product, people are signing up, but they're not paying us. Why are people not paying us? Let's go talk to them and figure out why they're not paying us. So we talked to them, and we were like, oh, actually it's totally the wrong market. One funny anecdote: when we first started Retool, one idea we had was that a pretty good market for Retool might be FileMaker developers. Retool is kind of like FileMaker 2.0, basically, in the cloud if you will. FileMaker is a sort of Apple product from 20 or 30 years ago. So what happened is I ended up joining a FileMaker user group on LinkedIn, emailed all of them, and I think we got three replies out of 300. And they were all like, no, no, no. But one guy was like, hey, I'm actually happy to hop on a call with you and tell you why this is such a bad idea. And I was like, well, that's a start. So we took the call, and he was like, well, it's a terrible idea because FileMaker is good for ABC reasons and you're bad for XYZ reasons. FileMaker is great and Retool sucks. And we were like, well, thank you for the feedback, see ya. So that's an example of something that if we had done the PLG way, in a marketing-driven way, we would have been like, it's pretty weird, a lot of sign-ups but no one's using the product, no one's paying for it. Why is that? You don't really know. But when we did that in the outbound sales way, people maybe feel more okay giving you honest feedback. We test pricing, for example. How it feels price today is entirely because we would test like, hey, can we charge five dollars a seat? Can we charge ten? What about a hundred? When we say a hundred, what's the facial expression? Are they happy? Are they sad? If they're happy, we're like, wow, now we learned that we can charge a hundred and it still works. And that is the kind of learning you can only have via sales. So for that reason, I think PLG is actually a very dangerous path to go down or a trap to fall into when you believe that if you build it, the customers will come. In reality, I think it's very rarely the case.

Right. I think you and I were talking backstage, and you were sharing one sort of counterintuitive thing or surprising thing about PMF that Sequoia sees.

Oh, that's a good question. Not one I'm prepared to answer in a scientific manner. But I would say that at Sequoia, we start with companies at the pre-seed stage all over the world. Actually, we just launched a seed company out there. I think a quarter of them would be lucky to find product-market fit. It's really, really tough. Now, I think half of those companies probably think they found product-market fit, because sometimes you can cover up the cracks with a different type of sales and marketing, which is just spending a lot of money to get people to start buying or using your product. And that's another common failure mode in this space that you want to be careful about.

Wow. So I think in a B2B SaaS world, the way I think about it is sort of how do you make sure you're on those eight moves basically. And that's a challenging thing. But I think being sales-driven, being customer-driven are probably the two main things. Especially being outbound sales-driven, because when you're outbound sales-driven, people don't lie to you. I remember the happiest days we had in early Retool was when we sent an email to another Sequoia company based in Latin America called Rappi, a delivery company. At that point, I think they had maybe a few thousand people. So I just emailed the CTO saying, hey, we have this fast way of building internal tools. And within 30 minutes, he replied and said, we'd love to see a demo. And I was like, well great, how about tomorrow? He was like, how about today? And I was like, boom, product-market fit.

That's a good point. I think probably value prop fit, whatever you want to call that, is probably number one. Because for us, if I think about that sale, you're totally right. When we sold Rappi at that point in time, our product was fairly immature. What we were pitching them really was we have the solution to this problem they have. And the problem they had we actually knew pretty clearly: they have all these internal tools they want to build because they're a very operationally heavy company, but they don't have the software engineers to go build all these tools. So that's why he was so interested in Retool. But when he first saw the product, the product itself actually had a lot of issues. So I think you're right. He was broadly interested in the problem. The fact that he was a stranger that we did not know who was so excited by the problem that we were solving that he would hop on a call within an hour or two, to us that was gold. That is something you could only get via pure outbound sales.

It was email. We had emailed him short emails. I think one other thing: when you're working on the value prop, people assume you have so much space. You really have very little. You have one sentence typically to really catch someone's attention. To get a meeting in 30 minutes, you really have to have it nailed. Which is a challenge. Some founders have no idea at all. They're just like, I don't know, I don't have an idea. Let me test with Google AdWords and see what idea works. Or I have seven ideas, let's see which one's the best. Go pitch all seven ideas via outbound email and see what happens. I think that very rarely works. I think a philosophy I have is that you have to have some strong, differentiated opinions about the world that you then go and test. You can't just say I have no opinions, let's see what happens. In our case, our opinions were something like: we think the current way of building software is stupid. We think there could be a much better way of building software, a much higher-level way, kind of like Legos for code. That was our opinion. And when we were selling this drag-and-drop way of building apps to developers, people would be like, that sounds like a terrible idea. I'm a developer, I would never use a drag-and-drop product like this. You should shut down, go do something else. We in fact had a YC batchmate that told us, oh, this idea, I tried this three years ago, it doesn't work for XYZ reasons. Go do something else. So I think what you have to believe is that you have maybe two or three core beliefs about the world that are different from what other people believe. And then you have to test that in a very rigorous and outbound salesy way. But you can't be too fluid with what you're testing, because if we were testing seven ideas, honestly we'd have no idea what resonated or not. So we had a core idea and a core value prop that we iterated on.

Yeah, it's tough. I think one sort of curse of success, if you will, is that companies almost become less interested in taking big risks the more successful they are. And I've actually long admired Asian companies for this reason. These Asian companies really do everything. If you look at Tencent, WeChat, Alibaba, Grab, they launch many products. It's hard in the Western world, I think. But these Asian companies were so competitive, their eyes are so on the ball. They're like, okay, we lost one product, that's great. We're not done yet. We want to launch 5, 10, 15, 20 more products. And that to some extent has been the thinking at Retool as well. It's great that we have this one product that now has found product-market fit, but we don't want to be complacent. We actually want to build far more products. Retool today is a fast way to build front ends. We want to expand onto the back end, storage, backend logic, mobile front ends, and probably five or ten other product lines as well. It's quite challenging because figuring out how to invest in new product lines, the ROI of that, whereas we could spend four engineers on it for a year on a new product line, it could go nowhere. So today, the way we think about building new products is we keep the budget very low. We like to think that new products can be started with basically two or three people. At Retool, when we were at around a million dollars in ARR, we met Brian. We were only three or four people. So that's the philosophy we had for starting new product lines too. Can we get this product line to something like a million dollars in ARR with just two or three people? That means it's going to be hard. Those two people are going to have to do everything: sales, engineering, marketing, product, everything. But that is kind of the approach. So now we have to find product-market fit again and again, as well as scaling the core product to nine or eventually ten million in ARR. So it's a lot of fun.

Thanks, Brian.