Creating a business that gets to millions of dollars in revenue is rare.
Hiten Shah has done it twice with his co-founder, Neil Patel. First in 2005 with the launch of Crazy Egg. Then came KISSmetrics in 2008. And now he’s on the path to do it again with FYI.
Some of the best lessons come from those who’ve been “there-and-back again.” So sit up straight and lean in as Shah shares some startup secrets.
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It’s easy to look at someone’s successes and overlook their failures.
Shah and Patel were making money hand-over-fist with a successful consulting firm. This allowed the duo to create software products. But though they’ve made millions with their startups, they’ve also had their fair share of flops.
In two years, Shah and Patel built a dozen different businesses that failed. One idea was a web-hosting company, which resulted in a $1 million loss. Another was a podcast advertising network which went nowhere.
So when should a founder kill their startup idea and move on?
Lacking money is a clear time to stop pursuing an idea. But Shah and Patel had plenty of money, so time was the more important factor.
I asked Shah what framework he uses to either quit or increase his grit.
“[We stopped] whenever our ideas did not have retention and did not have a clear path to getting retention and customer delight. We want ongoing engagement from people who start using our products. That’s difficult when there isn’t recurring usage.”
After months of painful lessons and frustration, Shah and Patel hit pay dirt.
In 2005, the team created a coming-soon landing page for Crazy Egg. The result? Over 23,000 email addresses registered in 45 days for their upcoming tool (source).
What was the reason for their success?
“We found a highly engaged community that we were part of called the 9 Rules Network. The community was full of design-minded folks who were eager to give feedback on Crazy Egg. This community was instrumental in getting early feedback to make Crazy Egg a must-have product.”
“Also at the time, CSS galleries which showcased modern website designs were popular. There were dozens of them on the Internet. Back in ‘05, ads on those websites were inexpensive. So we ran ads on these CSS galleries, which led people to our coming-soon landing page.”
What fundamentally changed? Shah and Patel began to focus on getting feedback from customers early, learning what their core problems were, and solving them.
Over time, Shah recognized the more time he spent talking to customers, the better his product became.
As you read through this article, you’ll notice he uses this simple 3-step process:
“I’ve built three successful businesses which follow the same pattern. When we spend more time than we’re comfortable with talking to customers, we inevitably end up building a product people love.”
With Crazy Egg, Shah focused on people who were using Google Analytics (GA). After talking to customers, he found two customer personas who loved GA: marketers and designers. So which customer did Shah serve first?
Both groups had a similar problem. GA doesn’t track or display where website visitors are clicking on a page.
Let’s say you have two buttons going to the same page. One button gets 10 clicks and the other one gets five clicks. When you look at GA, the data shows you a total of 15 clicks. This makes it harder to improve your web pages because what you’re seeing in GA is inaccurate a page’s design.
GA doesn’t provide a true representation of where people click on your web pages.
Marketers loved digging into the numbers. But after talking to this group, Shah realized Crazy Egg would initially be a nice-to-have product for them.
Designers didn’t care for the numbers as much. Instead, they were looking for a quick way to understand what website visitors were doing. This allowed them to make informed design changes and improve the experience.
Crazy Egg’s heat maps were the answer to the problem. Heatmaps would help justify design decisions to their clients, resulting in more paid work. Since these people had a higher visceral need, Shah first built Crazy Egg for designers.
With KISSmetrics, Shah did something similar. His first question was to find out who were the most active GA users.
“Marketers were using Google Analytics daily. The problem is the tool isn’t tied to a user database. It’s only designed to give you the number of people who signed up and where they came from.”
As a result, it’s hard to see what marketing channels produced the most value for your business with GA alone.
“Marketers have a hard time tracking data into the system, auditing it, and knowing it’s accurate. And it’s not person-based, so they can’t figure out who’s doing what,” (source).
After talking to his customers, Shah had a hypothesis. Marketers wanted to see a funnel of how visitors converted into customers. This became the first core feature of KISSmetrics.
“Even today, using funnels in Google Analytics is a time-consuming feature and difficult to make sure you are tracking the right data.”
After Shah moved on from KISSmetrics to create a new product, he doubled down on customer interviews.
“With FYI, we spent about 4 months interviewing people to find the problems they have with documents. People were using 3-5 tools to create and share documents. We learned that the #1 challenge people have with documents is finding them.”
“People would look in the tools they use and ask their friends or coworkers what they shared and where. They often would not remember the title of the document because their friend created it or they simply forgot. So we created an interface to help people find their documents. We call it a document organization service.”
After interviewing several founders, many of whom chuckle when I ask them when is the right time to launch.
Some take Reid Hoffman’s approach he used at LinkedIn. “If you're not embarrassed by the first version of your product, you’ve launched too late.”
It’s catchy, but it’s also not without survivorship bias. How many startups failed also following this advice?
Others take Rand Fishkin’s approach by creating an exceptional viable product.
The challenge here is that it's hard to know when you’re MVP becomes an EVP. Further, you could spend years building what you think is an EVP. Then only to find out it’s an MVP (or worse).
There’s always more to research, even after launching an MVP. So when should you stop?
Here is Shah’s take on when to stop researching and start figuring out what to build next:
“After launching an MVP, we recommend to stop doing research once you keep hearing the same things from people over and over again.
"With FYI, once we hit about a dozen interviews, we felt like we were hearing the same feedback over and over again. We did a few more interviews just to make sure. And then we knew we were done because we discovered what we needed and were ready to analyze the interviews and decide what to do next.”
In the early stage of your startup, it’s difficult to create strong messaging that sells.
Weak messaging can cripple a business. It’s harder to attract customers. Investors aren’t as intrigued to give you money. And top-talent becomes more challenging to come by.
So how do you find the right message that resonates with your audience?
In my article “Positioning Strategy: Why Brand Messaging Makes or Breaks Startups,” I mentioned how to choose a profitable niche. In short, you want to:
After this process, I recommend you talk to your customers to find out the messages already in their head. Shah agrees.
“We did a lot of customer research on our blog subscribers to determine how they think about Google Analytics and KISSmetrics…”
“My advice for founders is to spend your time figuring out the words your customers in your space use to describe their problems and solutions. This involves everything from customer interviews to reading blogs, industry magazines, and publications,” (source).
With Shah’s experience building three successful startups, we did some rapid-fire question-and-answers.
If Shah could go back to Crazy Egg’s early days, he wishes spent more time talking to customers about pricing. He’s also learn how people bought the product.
“We used to have a free plan at Crazy Egg and eventually decided to stop making it available for new customers. It was a great decision short-term for increasing revenue but I believe it was not the best decision long-term,” (source).
Shah also invested in hiring an agency to help do pricing research. Not every early-stage startup can afford these services.
“If you’re in an existing market, price your product similar to how customers tend to buy is a good first step.”
As mentioned earlier, Crazy Egg’s major success came from engaging with a community early on and running ads on popular design websites. Launching on Digg.com was another massive win, back when the site was like Reddit.
After launching Crazy Egg, Shah was relentless commenting on every blog that mentioned his product. This helped build goodwill among people who were his target audience. (Source)
With KISSmetrics, Shah and Patel raised a round of investor money. With the rise of Twitter, the KISSmetrics team built their following as the go-to source of analytics. His team also got coverage on TechCrunch.
For FYI, Shah built up a large following on Product Hunt. Since he knew his audience was there, this became a prime place to invest him and his team’s time.
To a degree, no one will know if a product is valuable until after it’s used by customers. But there are metrics you can use to see if people want what you’re making.
“We kept asking ourselves is do people love it and keep coming back to use it? Does this product have high retention?”
But just because people keep coming back doesn’t mean they love your product. It’s not uncommon for customers to put up with a product until they find a better solution. In this case, Shah suggests looking for product-market fit.
“You can use quantitative measures using the product-market survey. This involves asking customers how disappointed they would be if your product no longer existed.”
Additionally, you should watch for people talking about your product on the web.
“We watched for sentiment, retention, and word-of-mouth. We would watch for what people say on social media and blogs. You know you got it right when people talk about how much they love your product without you asking them to do so.”
As you may have noticed, Shah is fanatical about building products people love. His parting words-of-wisdom reflects this mantra.
“If you don't know who your customer is, you won’t get them. You need to have a tight customer profile.”
“Even though anyone can use FYI, we are learning over time who gets the most value from what we’ve created. Most people share the product with their team. So now we’re building FYI for Teams.”
Shah keeps bringing things back to the three steps to creating a product people love to use.
“Have a hypothesis of who you think will love your product. Talk to those people. Then build a solution for the most painful problem(s) you heard from these people.
"This process helps you become obsessed with your customers. Customer obsession will lead to you building a product people to use and pay for.”
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