Why Radical Product and Lean Startup go together
It’s not often that a founder turns down funding when investors and his team are urging him to take it. In a post that went viral, Tim Romero explains why he shut down his company rather than taking on additional funding. It’s an excellent read on the importance of vision and strategy in guiding a Lean Startup execution.
Here’s why we believe he did the right thing.
Background
Let’s start with some background on his company, ContractBeast, a SaaS offering for Contract Lifecycle Management (CLM) — a deeply unsexy task, perhaps, but it represents a multi-billion dollar market saddled with legacy solutions and without a clear leader.
They launched the product in a private beta and got glowing reviews from customers. Unfortunately, real-world usage patterns didn’t match the praise they were getting. Very few contracts were actually being entered into the system.
In his post, Tim shared some really good insights into why this was happening. Below, we’ve reframed the relevant insights into the RDCL Strategy Canvas — we’ll focus just on the Real Pain Points and the Logistics, because they ended up being fundamentally incompatible.
R — Real pain point: Who is the customer and what is their need?
There are 2 potential target customers, both in the SMB (small to midsize business) market segment:
- Accounting and legal personnel of small to midsize firms: Employees who managed the day to day activities around contracts. Their task was to get reviewed, approved and executed.
- CIO of small to midsize firms: Wants contracts managed and details such as expirations, renewals, authoring etc, handled more efficiently and at a lower cost than current large CLM providers.
D — Design: What does the product do (features) and how does it do it (appearance, brand, voice)? ContractBeast focused on including a core set of features shared across their customers, so that individual customers wouldn’t need a consultative customization process. This was in line with their Logistics strategy (see Logistics below). To figure out these initial features, they invested heavily in user research upfront.
C — Capabilities: What are the unique product capabilities (e.g. data, algorithms, patents) and Process capabilities (e.g. relationships, partnerships) that allow you to accomplish the functionality exposed by the Design? ContractBeast deep access to mid-size companies through existing relationships. This meant that they could partner with these customers in a beta release to iterate and find product fit.
L — Logistics: How does the product get into customers’ hands? How do you price it? How will you support it? While their competitors took a consultative sales approach and as a result charged higher prices, ContractBeast’s differentiator in their go-to-market strategy was to reach customers through content market and SEO and thus support a lower pricing structure. The product would be delivered as a SaaS tool with individual adoption and self-service.
In writing this post we reached Tim to get his comments. Tim shared, “When we analyzed the feedback, we realized users were not feeling the pain even when they understood it intellectually.” This is why the end users, Accounting and Legal Personnel, weren’t using the tool for all their contracts — they were only using it in contract review and approvals, where they perceived an immediate benefit.
To force employees to use ContractBeast for all contracts, the CIO would need to dictate this from the top. This would require ContractBeast to use a top-down consultative sales approach targeted at the CIO, which went against their bottom-up Logistics strategy.
Tim reviewed all the feature requests, trying to find other pain points that the Accounting and Legal personnel had that would represent more immediate and urgent needs. Unfortunately, Tim eventually learned that SMBs don’t view contract management as truly urgent. Lacking a valued pain point among Accounting and Legal, there was little Tim could change about the product’s Design or Capability strategy elements that might drive bottom-up adoption. And if they were to start over with a product that was priced higher, thus justifying the costs of a top-down consultative sale to the CIO, they would have priced themselves out of the SMB market. Tim (wisely, we think) decided to shut it down instead.
ContractBeast is a great example where the founder thought through all the RDCL elements of strategy, including pricing model and unit economics, and used a Lean execution approach to test and validate hypotheses.
Without Lean Startup methodology and actually launching a beta, ContractBeast would have never discovered that their end users weren’t actually using the product — throughout all their mock-ups and demos with target customers, they saw one thumbs-up after another.
Had Tim been pursuing a “pure” Lean Startup methodology, the right course of action would have been to build out some of the very interesting feature requests coming from customer feedback, pivoting the product to continue searching for a solution while burning through their funding.
However, Tim took a different approach. By anchoring his Lean Startup approach in a clear strategy, Tim came to the conclusion was that, even with additional resources, he couldn’t build a viable business on top of ContractBeast’s core “why” — delivering a clean, low-price solution to the more expensive and consultant-laden CLM market. While pivoting on “how” (your specific solution) is simply a cost of doing business, changing your “why” is hugely disruptive. In most cases, it essentially amounts to starting a new company.
We commend Tim’s decision to shut down ContractBeast — it’s not an easy choice to make. His decision was grounded in the knowledge that taking funding at that stage was a high-risk proposal for investors. It would have meant using the cash towards hunting for a fundamentally new business idea and revenue model. In the end, investors and the team were appreciative of this thoughtful approach to building and winding down the company.
This example with ContractBeast demonstrates one of the most difficult decisions a founder has to make. But even in everyday startup life, anchoring your execution in a clear vision and strategy can provide clarity in decision-making for you and your team.
A special thanks to Tim Romero for his collaboration on this article. Share your stories and experiences as you use the Radical Product toolkit in the discovery phase of starting your company. We look forward to hearing from you!
