Aligning your business to your customers' interests with HoneyBook's Oz Alon
Aligning your business to your customers' interests with HoneyBook's Oz Alon
Oz Alon: Do everything you can to build your business model around your customers' interests. So, if the product decisions that you will make will optimize for that, you will be very successful.
PEEP VO: I'm Peep Laja. I don't do fluff. I don't do filler. I don't do emojis. What I do is study winners in B2B SaaS because I want to know: how much is strategy? How much is luck? And how do they win?
This week, Oz Alon, founder and CEO of HoneyBook, a client management software for small businesses. HoneyBook was founded in 2013 and recently completed their Series E funding valued at $2.4 billion. In this episode, we discuss HoneyBook's obsession with their customers and how they won by aligning their product with the interests of their target audience and supporting their customers in ways that wouldn't scale. Let's get into.
Oz Alon: So, back in 2013, my wife and I were small business owners when we started HoneyBook, and the opening for us was when we interacted with small businesses, we found that the way they communicate with us was not the way we were used to communicating with larger businesses. For example, they asked us to pay cash or checks, and we were used to paying with credit cards. So from our perspective, it seemed like it's not the standard you would expect from a business. So we wanted to change that. We thought they should communicate like the bigger businesses and they should be able to accept online payments And we wanted to do that. We wanted to change the way they communicate with their clients.
Peep Laja: So back then, was it that there wasn't much else available on the market and you were kind of like the only game in town?
Oz Alon: Yes. And to accept online payments back in 2013 was not easy for a small budget.
Today, when you start a business, you can't imagine asking your clients to send you a check or cash, right? Like that's not acceptable in today's world. So I think on the one hand we see more and more competition, but on the other, the demand is growing as well.
Peep Laja: If you look at the competitive landscape, how much do you think about the competition and then pay attention to what they're doing and how does that impact your strategy?
Oz Alon: Some competitors I have to say, make you better, right? Like as a company, you have a copycat, that many times is able to either copy what you do or even do it sometimes better and faster. And then you look at your team and you say they just proved that they can do that. And we didn't execute well enough. So you have a benchmark and that really helps for the execution of the company and for the company to get better and better over the years. Other competitors, they paved the way for the market to understand that they have that need. If there's a really good scheduling tool out there, more and more businesses know that they want to allow their clients to schedule automatically with them. So now we see that our members are coming to us and saying, "Hey, we want you to have that capability or functionality in the product." So these competitors allow the product to become more meaningful to our members and for our members to use more functionality on our platforms.
On the other hand, competitors, can create dynamics around pricing, right? You want to make sure that you are differentiated and that, first of all, you build the best product in the market. Secondly, that from a brand perspective, you build a relationship with your customers and you make sure that the market trusts your offering. You want to make sure you're better. But, you know, I think there's many good things about competitors and there are annoying things as well.
PEEP VO: Pay attention to new competitors and startups in your space. They have noticed something about your market that is attractive, or have spotted opportunities to do something amazing that you haven't seen yet. Maybe you can spot it too if you look closer. It's like Oz pointed out, new competitors can push you to perform better.
Peep Laja: What category do you think you play in? G2 says you're an appointment scheduling software, which of course is just one use case. How do you look at yourself?
Oz Alon: That's a great question, because one of the things that we didn't get right over the years is to define our category. Because as I'm talking about these businesses, I had to explain what kind of businesses they are. Right? And I had to say, these are service-based businesses. And then I had to give an example of what exact services we serve.
So one, we did not define who our audience are and we believe these are independent businesses. And secondly, when I try to describe what it is that we do for them, I said, you know, "They use us to send brochures and proposals and invoices and accept online payments." But we didn't do a good job over the years describing that process. We want to change that. Our strategy is we want to define that category and we want to emerge as the leader of the category. We believe that what we are delivering is something we call a client flow. We believe that independent businesses have a real need for a good client flow. E-commerce businesses, businesses that sell goods, they have a need for an online store. That's how they sell their goods. But that service-based business, they don't sell their service through an online store. They sell their service through client flows, through that communication with clients. So I hope that on G2 a year from now, you will read that our category is client flow for independent businesses.
PEEP VO: The stability of market positions is jaw-dropping in established categories. Whoever is top three tends to stay there, and whoever is number 17 will also remain 17. It's amazing to see how most marketing has little to no impact on this. Major changes in the market dynamics happen when new categories or subcategories emerge, making some companies more relevant and some less relevant.
Look at Figma, Klaviyo, or Gorgias. They didn't grow because they beat incumbents in the brand preference game. They created a new subcategory and dominated it. If you look at the buyer's decision process, they first select the subcategory, like SUVs. Then, they determine which brands to look at, like who's in the consideration set? Maybe like Lexus, BMW, Audi. And then they make a selection.
So, the first two steps that are about brand relevance. Category plays a key role in the decision-making process. The very last part of the decision making process is about the brand preference. Do you like Audi? Or do you want BMW? It's the least impactful part, but guess where companies spend most of their money. They spend way too much on brand preference competition and way too little on brand relevance competition. In the brand preference competition, you win if your brand is preferred over other brands. This game is played through incremental improvements. You add a little feature here and a little feature there, a little better, a little faster. The problem is that incremental innovation is not exciting. It's not enough to move market dynamics. It's hard to win in this game because the message of "We're better" is not that exciting, and whatever "better" feature you shipped, the competitors will catch up and copy you very quickly. You need to spend atrocious amounts of money to make a dent and get into consideration sets and win the preference war. Monday.com did it, but how much did they spend? Huge amounts. Excess share of voice is a viable strategy if you can afford it. Odds are you can't, and you'll never catch up. In the brand relevance competition, the competitor brand is not considered. You can do that if you bring substantial innovation. With this type of innovation, you're improving something that people are already using. You improve it so much that those improvements become the new must-haves, and companies without those must-haves will not be considered. Let's take Figma. Figma brought substantial innovation over existing design tools and won. It was browser first, which was made possible by their understanding and use of web technologies, and suddenly Adobe wasn't relevant anymore.
Now companies that allocate more resources to substantial innovation take care of their differentiation and marketing problems while creating new subcategories. And companies that pull this off are winning big. Category creation, of course, can take significant resources to pull off. Drift spent $10 million on it. So what if you don't have millions to invest in this? Guillaume Cabane of HyperGrowth Partners shared some ideas on a previous episode of How to Win.
Guillaume Cabane: You've got to find some angle of differentiation. Like, obviously, because you've got to give your marketer something. Okay. Let's take another example. Look at Gorgias, okay? Gorgias is a former client of mine: a help desk for e-commerce stores. Pretty successful, right? Help desks? Man. There are help desks everywhere. Everybody's a help desk, right? And there's a leader, Zendesk, public company. Huge one. Very successful. They understood that they could call out, within the entire market, a smaller niche which is e-commerce. And there were not many players in that category, okay? Now there's no such category as, like, "help desk for e-commerce." At least yet. And they don't have the means to create the category, yet. But it is a market, it is a niche with underserved needs. So they built feature sets, namely integrations with Shopify, with all the e-commerce platforms, and the marketing side, we started outreaching hard on the populations that did not have anything to basically manage all their tickets in Gmail. And the population that has Zendesk, which was basically under serving them by not having any integration with the e-commerce tool stack. And the win rates were above 50%. And that's when you understand that you have something there. And it's not so much, at least at the beginning, about having a very differentiated, awesome product. It's about having the right angle.
Peep Laja: When you think about what your product does when you first launched versus where it is now, how has the product strategy evolved over the years?
Oz Alon: It's interesting. I firmly believe that every company has their claim to fame. And every successful company out there has this one thing that they did better than any other company. It's the one thing that have gave them the reason to exist. And many, many years later, many decades later, if you look at companies out there that exist for decades, they kind of do exactly the same thing. Right? And not many companies are able to do another thing. So when we look at ourselves, we follow the same track. When we launched back in 2013, we launched a client flow. And that, to this day, is our claim to fame. That's what people bought back in 2013. And if you look at our product today, it doesn't look the same, we will argue that it's far better than what it was back in 2013, but it does the exact same thing. And we believe that we do it better than any other company out there.
PEEP VO: There's always room at the top to be the very best, but few are willing to put in the effort. Mediocrity, on the other hand, is very competitive. I say it all the time. To win, your company has to be the best at something. There's just no way around it. Being "okay" is just not cutting it. The customer has too much choice. You need to be the best at creating winning customer value for a particular set of customers, or you are destined to be overtaken by a competitor who is. Strategy is about choice, deciding where to play and plotting a pathway to winning that game. You can't win without being the best. You need to focus your resources on constantly improving your customer value and refining your customer targeting. Choose your customers and build the best for them.
Peep Laja: You've been at it for a while. How did you manage to keep focused and, you know, not chase the next shiny toy?
Oz Alon: We weren't able to keep focused and not chase the next shiny toy. We actually chased the next shiny toy many times. And we failed to do that, you know, failed on, delivering, on delivering an add-on. And I think that failure, not once and not twice, got us to the conclusion that we have the claim to fame and we have the thing that we do better than others and that we need to focus on it. It came with a lot of pain that understanding. We thought at one point that we should deliver a marketplace that will connect between new clients and our members. And what we learned through that experience is that it caused us to focus on the client and start thinking about the end client versus the businesses. And when you do that, you start kind of commoditizing the way you present the businesses, because you want to make it very easy for the client to explore. We thought that it would be a great idea, and we believe that many of our members want more business, but in the execution we learned that to do so, we need to prioritize the end client, and that's not where we wanted to play, and we didn't do it successfully.
PEEP VO: The experimenters mindset. I've been blessed with a career in experimentation and optimization. What that teaches you is not to tie your ego and identity to an outcome. If you fail it's because your hypothesis was not valid and you try again. I see some people take not succeeding really hard. If they're not seeing the results they want, they feel defeated and there's temptation to give up, so instead of working on asking better questions, getting better data, and formulating new experiments, they feel shitty. When HoneyBook experimented with their marketplace concept, they knew it wasn't working, but they also learned valuable information about their ideal customer that informed their strategy going forward.
People need to be trained in the experimentation mindset. You need to think in bets, assign a probability to every decision, separate your ego from outcomes. It's about learning and improving your decision-making process. A good book on this stuff, "Thinking in Bets" by Annie Duke.
Annie Duke: The way into this is actually to try and separate outcomes from decision quality as much as possible. Once you have a result, it really distorts your ability to go back in and analyze the decision process. It's a problem called resulting. Once we know the outcome, once we know whether it's good or bad, it's incredibly hard for us not to then retrofit the decision quality to the outcomes. So, what do we do once an outcome has occurred in terms of how do we move forward? It's like, ignore the outcome as much as possible is actually the weird answer to that. It's very hard to sort of take our great outcomes and look for mistakes. It's very hard to take our bad outcomes, actually, and look for it mistakes as well. We kind of want to pawn that off onto luck.
Peep Laja: How did you, uh, acquire customers back when you got started and how have those channels changed?
Oz Alon: Very early in our journey we did s- well, we didn't understand back then it was sales, but today we know it was sales. But we called our very first members, and the one by one, we went and we met with them for coffee. And we said, look, like, here is what we're building and we want you to join us. And it was not scalable. We invited them to our house. They had lunch with us. We knew each other. We knew their kids. It was not scalable, but the very first hundred members joined us like that. Then someone said, "You know, you guys are doing sales and you should really think about your sales process." So we got a consultant to help us build the sales team. We hired out for salespeople and we started, doing these like outbound sales goals. What we found is that our members did not want someone to call them and these businesses don't have time to spend with a salesperson on the phone. And then we decided, you know what, we need to move to more of an inbound process. At the time, it was not self-onboarding as well. So we handheld every new member and helped them build their profile on HoneyBook. Many times we helped them design their proposals on HoneyBook and their agreements on HoneyBook, not scalable at all. We understood that for us to scale, we need to allow our new members to self-onboard themselves. But not only that, we learned that that's what they want. When they are ready to buy, they don't want to be sitting now for a few days to wait for their profiles to be ready. They want to play around with it and learn it. So, for the first time we allowed people to self-onboard, and that was a defining moment for us as a company because it was the first time that we couldn't really control how they experienced the product from the get-go. It was the first time that we experienced fraud because, you know, we deal with payments so folks in the interwebs decided to try us. It was a scary moment for so many reasons, but what happened next was it allowed us to open channels that we couldn't do before. So we started doing paid advertising on Facebook and Google. We launched a referral program and the referral program created a new group of folks that became our influencers. These amazing members that advocate for us, and we saw businesses actually make a good income on referring HoneyBook to new members. And, the last channel was, we saw that our product, when someone sends someone an invoice through HoneyBook, make times that person that received the invoice is a business themselves. And so when we see a client that turned into a business, into a member, we understand that it's product virality. And then the last one will be organic channels. You know, content out there, et cetera. So these are the four channels, right? Paid, organic, referrals, and product leads. The split between these channels are 30, 30, 20, 20. What's super interesting is if you go back to 2017, that was the split. And since then, we've probably 10x the number of new members that join us every month. And yet the pie chart that I just described stays the same. The pie grew 10x, but stayed the same. So we're seeing this consistency on, like, we're investing in our paid channels, our member-based growth. We're seeing that virality, referrals and increasing organic leads.
PEEP VO: The most important channel for B2B marketers doesn't show up in analytics or a dashboard. It's word of mouth. It's people telling about your product to other people in DMs, Slack groups, LinkedIn threads, or in-person conversation. It's how normal people buy things. Through peer recommendations. What can companies do to facilitate and nurture word of mouth? Here's Jason Widup, VP of Marketing at Metadata, explaining how they do it.
Jason Widup: Our nurture strategy is organic LinkedIn. We've done a couple things with this, but one of the main programs that we're really proud of having is this program that we've built that connects us to other like marketers in similar roles as us in similar companies that would have benefit from using metadata. And we're marketers, they're marketers -- easy LinkedIn connection. And then we focus on distributing our content. And this is content that is not, like, "this is why metadata is good. Metadata this. Metadata that." This is "Six ABM and demand gen campaign ideas you can steal." "How to build a demand model that your CFO will respect." You know, it's basically content about how to be a better B2B marketer. And so they start to see all that stuff. And they have no opportunity with us. We're just connecting with them. It's not like they came in demo request or anything. We're just saying, this is our target list of people that we think should be buying our platform and would get benefit from it. And let's connect with them on social and then let's just have them see the content that we put out there. If they like the content, if they're getting help from it, then they will probably come and check us out the website. "Well, they're putting out helpful content. Maybe their platform is helpful?" "It's smart content. Maybe the platform is smart." And so, that's what we're hoping that they make that small leap. That's not a big leap, you know? And so, that's one of our bigger and longer strategies.
Peep Laja: Your company has succeeded over the last 10 years where many others did not succeed. So, in hindsight, what were the things that you got right that made you succeed when others failed?
Oz Alon: We are obsessed about our members. From day one, we did things that didn't scale. As I said, we were handholding on members. Our members came to our house and it really helped us build the brand, the trust, with our members. And attract new team members to our team that are obsessed as well, because we saw candidates walk through the door in the office, see it, and feel it and say to themselves, "I love serving. I want to be part of this company as well." So, we became a culture of people that love serving customers and I believe that that helped us against competition over the years because it came natural to us. And now investors that join us, they joined us because of that. I remember our Series A investor sitting in our living room, the office was in the house, and he was asking, "What is she doing in the company?" And I said, "Oh, she's on customer support." "Oh, great. And what is she doing?" And I said, "Well, she's in customer support." He said, "Well, what are you doing?" I'm like, "Well, I actually do a lot of customer support." "Oh, wait, didn't you say you have like 10 customers?" And that's the thing, we just loved it. We loved it. The other thing, I would say, things that don't scale, at the very beginning, we wanted to prove out that people want to get paid online. But, we didn't want to invest in building it and automating it before we could actually prove that people want it and would do it, right? So the way we started was we knew how to accept payments, but we didn't know how to transfer them automatically to our members. So, what we did is we would accept online payments and then I would go online to our bank account. And I would wire the money to our members. So every payment, every transaction, I had to login and wire the money from the bank account. And that's how we wired the first 1,734 payments. And the interesting thing about that is that by needing to transact every single payment myself, helped me learn a lot about our members, about their businesses. About when they transact money and how much they transact and really kind of feel every transaction. It helped me understand pretty quickly which member is about to churn because suddenly I noticed that, "Oh, I didn't transact to this member for a few days. Now we should check what's going on with them." And it really kind of helped us understand better, from the get go, our members and the process and what we're delivering. So, again, this is another example of something that is definitely not scalable, but helped us kind of build a culture around that obsession that again, to your question, helped us over the years, beat competition and build the brand and the company.
PEEP VO: Doing things that don't scale is just so useful at the early stages. When I started my company, Wynter, I was running 100% of the demos. I was running the live chat and we were shipping every new feature as no code first, just to test demand, only writing code to scale. And I learned so much. The value of doing things that don't scale became apparent to Airbnb co-founder and chief product officer Joe Gibbia when it gave them the opportunity to learn how their customers were actually using the product.
Joe Gebbia: Noone's using our service, but there are some people in New York who are renting out their homes and we realize something that the photography, the images of their listings are actually not very good. Now we can solve that problem. We know to take a good photo, but it's not scalable. That's the thing, some of the mythology of Silicon Valley is that you have to solve problems in a scalable way. That one line of code has to meet the needs of hundreds, thousands, maybe millions of people. So Paul Graham comes along and basically gives us the single greatest piece of advice we ever got. Go meet your people. Do things that don't scale it'll teach you you'll learn from it. So we fly to New York that weekend. We rent a camera with a wide angle lens, and here we are in the environment of our customers. We got to step into their shoes for a moment and really see the pain points that they were feeling. You know what happened because of this? They started using the word "love" in the same sentence as "Airbnb." And so two things started to happen simultaneously. The amount of choice started to go up and the quality of that choice went up as well. And when a new host came to the site, they said, "Oh, well, I guess I need to have really nice photos to be in the part of this marketplace. And we started to see the number of reservations go up.
Peep Laja: Let's talk about the brand. Um, so what happens in software is feature-based advantages will just go away eventually, and it's all about the brand. So, how are you thinking about competing on brand, on marketing, things like that?
Oz Alon: So, first of all, I hope that we'll be able to keep delivering a lot of value, as I said, on that client flow, because the need for a very good client flow just increases over time. The consumer is used to consuming from companies like Amazon, for example, it gives an amazing experience, right? I think the consumer is used to now getting a response within seconds. The consumer is used to buying when they want to buy, that exact same moment. And small businesses are at a disadvantage because if you're a sole operator, how do you perform your job while responding at the same time to a lead, right? If you want to automate that process, then how do you make sure that you are differentiating yourself as a business, that you express yourself in the best possible way in front of that consumer? That challenge just increases over time. So we see that the need for what we deliver on and the need for us to innovate within that client flow increases over time as well. So, there'll be a lot of room for us to deliver differentiated value. From a brand perspective, I believe that it comes within the company. We need to stay true to our core values and to make sure that we don't compromise on any new team member that joins our company. And if we deliver for many years consistently, our brand will strengthen itself. That's our best bet when it comes to our brand. And, you know, one more thing. The customer obsession, we have to maintain that. If we lose it, we will lose our brand.
Peep Laja: You've been an entrepreneur for a while now. If you had to give certain pieces of advice to fellow B2B SaaS founders out there, what will be pieces of wisdom you would want to pass on?
Oz Alon: Do everything you can to build your business model around your customer's interests. Because you're going to make so many product decisions, right? So, if the product decisions that you will make will optimize for that, you will be very successful. While we were customer obsessed, there were things that we believed in as well. For example, we didn't think that small business should accept only cash and checks. We thought that they should allow their clients to pay online. That was the basis of why we started the company and what we thought about the world and how the world should be. So, one decision we made early on was that payments, the ability to pay online for small business, will be the core of the experience and will be a must. And not all the businesses liked that back then. So we had to kind of balance between that customer obsession and wanting to serve and respond to any feedback on what they tell us, and innovation. And that decision was, in hindsight, one of the most important decisions we ever made as a company. Because doing that created our business model. And the reason that is important because by building a business model around the payments, we aligned ourselves with our members' interests. So when our members succeed as a business, we succeed as a business. In hindsight, I believe that that's what differentiated us to this day.
Peep Laja: Boom. Awesome.
PEEP VO: So, what are the three key strategies HoneyBook has relied on to grow their business? One. They are obsessed with their customers and did things to support them that wouldn't scale, but became a part of their company culture.
Oz Alon: From day one, we did things that didn't scale. As I said, we were handholding our members. Our members came to our house, and it really helped us kind of build the brand, the trust, with our members and attract new team members to our team that are obsessed as well.
PEEP VO: Two. They view competitors and copycats as incentive to continually push themselves to be better.
Oz Alon: Some competitors, I have to say, make you better, right? Like, as a company, you have a copycat that many times is able to either copy what you do, or even do it sometimes better and faster. And then you look at your team and you say to the team, "They just proved that they can do that. And we didn't execute well enough."
PEEP VO: Three. They clearly identified their ideal customer and designed their business around their specific needs.
Oz Alon: By building a business model around the payments, we aligned ourselves with our members' interests. So, when our members succeed as a business, we succeed as a business.
PEEP VO: One last takeaway from Oz:
Oz Alon: I firmly believe that every company has their claim to fame. Every successful company out there has this one thing that they did better than any other company. It's the one thing that have gave them the reason to exist.
PEEP VO: And that's how you win. I'm Peep Laja. For more tips on how to win, follow me on LinkedIn or Twitter. Thanks for listening.
