Feedback loops and free product offerings with PandaDoc's Mikita Mikado
Feedback loops and free product offerings with PandaDoc's Mikita Mikado
Mikita Mikado:
Commit to a long-term play and be optimistic. I feel like in B2B SaaS, if you are into something for a long ride, good things are bound to happen.
Peep Laja:
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, Mikita Mikado, CEO of PandaDoc. PandaDoc is an all-in-one document workflow automation platform. They launched 2013, was valued at $1 billion in 2021, and has a projected revenue of 55 million this year. They have 390 employees across the US and Belarus. In this episode, we discuss how they used customer feedback to pivot PandaDoc successfully, their decision to make their product free. And how balancing external opportunity and building a strong internal culture help them win. Let's get into it.
Mikita Mikado:
This one summer I went to US and left Serge, my co-founder with this mundane task of building sales proposals and he thought, "Hey, there's got to be a better way." And similar to many other teams that want to build a product, build something. We had a few ideas at the run. This was the most promising one, this one made the most sense, and we decided to pursue it further and further and further. And that's how our first B2B SaaS product, which was quite similar to PandaDoc, but a lot narrower came to light. Then we made a ton of mistakes building business around this narrow product, building software behind it. And that helped us to learn and then think about a broader market, think about opportunities in that broader market, and that's what helped us to create PandaDoc. So the problems were that at the time, and we're talking about 12 years ago, say for sales proposals, you mainly had word for writing them, managing templates, and then we had a copy and paste data from CRM.
Then once that proposal was accepted, signed and all the back and forth with customers. Have it done yet to move data back into the CRM store that proposal somewhere somehow. Ensure that the sales reps don't get creative with pricing and discounting and all that good stuff. That's where we built the original product for. Then we learned that same set of problems or similar problems exist in the world of contracts and in the world of SOWs and a bunch of other transactional documents that help companies agree among each other. So we decided to streamline this workflow, streamline this process, and make agree on a set of terms a lot easier and a lot faster. That was the thesis behind PandaDoc.
Peep Laja:
Tell me about the road to the first million dollars in revenue. How did you land customers? What channels worked back then?
Mikita Mikado:
That was a windy road dude, one windy road. As many entrepreneurs, we thought we're going to build it and they will come. And you know what? They actually came. This first product we launched, we made it free. We thought, "Well why would we invest so much time and efforts creating billing? Let's just build a bunch of features. They will come, then we'll have time and resources to build billing and they will pay. So they will come and they will pay." So what happened is they did come, we had about 3000 users a few months after the launch. Then we started working on billing and thought that we're going to convert anywhere from 20 to 30% of those free users. Well guess what? Out of 3000 we converted six. That's it. And that was a big bummer because at the time, Serge and I invested all of our savings into this thing and we don't really have any more left.
We were working on it. We've been arguing and focusing on the wrong things, like the shapes and colors of the buttons type of stuff. That was a windy road. Then we realized that, "Hey, we thought we know what's needed in the market. What is our customer's ready to pay for?" And we were completely wrong, completely clueless. So instead of making a bunch of assumptions, we got ourselves into the field and we started talking to clients. We started asking, "What is that we can do so that you'll spare couple dozen dollars a month?" And that helped us to pivot the product numerous times and just real slowly, it was first $1,000 MRR, then it was $5,000 in MRR. Then it was $25,000 MRR, at which point we raised seed funding and then we slowly climbed to about a hundred thousand dollars.
Peep Laja:
When we launched Copytesting now Wynter to the public in 2020. I had multiple assumptions about who we were and what our customers wanted. After the first month, the revenue started dropping. We saw a minus 43% month-of-a-month drop in July. Copytesting wasn't exactly flying off the shelves in August with me putting more marketing muscle behind it, we changed the downward trend and started growing again. But still it was clear that some of our early assumptions were not true. We began to learn Copywriters with some notable exceptions, were not the audience for this product. Most don't have money and command very little power inside organizations. E-commerce marketers, another ICP of ours don't tend to spend a lot of time thinking about product copy. Building features is expensive. We needed to get better at validation and selecting what to build. Right from the start, we started getting a lot of interest from B2B, but we didn't cater to them.
We knew we had to pivot or change things up and I was contemplating focusing on B2B instead. But first we needed to learn more. You don't want to be running enthusiastically in the wrong direction. Buyer research efforts got turned up, we reached out to customers who had bought or B2B lease that didn't buy and talked to anyone who would take a meeting with us. We ran small-scale tests to validate, if we can service B2B companies and what the product should be like to do so. Turned out that B2B was the right direction for us and as soon as we focused on B2B, the business took off. If we hadn't took the time to talk to as many would be customers as possible, would've never known how we should pivot. Here's author Steven Blank on why the pivot is such a useful tool in business development.
Steve Blank:
A pivot says, "What do you do when your hypotheses don't meet reality?" And this is such a neat observation about startups and why what we now know is much different than before. What we now know, instead of firing executives when our business model doesn't match what's going on outside in the real world, we fire the model. And we simply say, "Hey, our hypotheses were wrong." So because we have been building the product iteratively and incrementally and keeping our burn rate incredibly low, a pivot is the substantive change to one or more of the business model components. It just simply says, "Hey, this isn't our customer segment. Our customer segment is really here." So the key idea here is a pivot allows you to get out and make changes.
Peep Laja:
What channels used to work back then? Were you're banking on SEO, pay per click or were you doing outbound or what was it like?
Mikita Mikado:
At the time, I had a very thick Eastern European accent and for some reason I thought that this is not going to enable me to sell direct. It's not that I didn't try. I tried that it did not work. So instead of further pursuing direct sales, we switched to digital marketing and all kinds of startup blocks where you announce and launch your thing and then review marketplaces. Then we integrate it with a number of CRM systems which made sense. Our product extended CRMs in a way, and all of those little tries and attempts and investments helped us to slowly but surely build a decent inbound flow of leads. And then with those folks we've engaged conversations and at times run a traditional sales motion. That was the story with the product that proceeded PandaDoc. With PandaDoc, it was slightly different because we learned that since we did not spend a lot of time in front of customers and did not learn customers enough, we took a different approach.
PandaDoc was not built yet. We had designs and the vision, the concept. Yet I've started to pretty much sell those designs to folks who either used our previous product or checked it out and decided not to buy. And I want to say I had 60, 90 accounts in the pipeline that I pursued through the traditional sales motion. It was a mix of trying to get feedback and trying to sign contracts for annual subscription under the condition that we're going to build this thing and launch this thing. The contracts that we signed, the value of this was that during those conversations we harvested a ton of insights and feedback and ideas and so forth.
Peep Laja:
How did you use those ideas then to shape the vision for the business and how did your product and marketing strategy then evolve over time?
Mikita Mikado:
Originally we thought that PandaDoc is going to be more of an individual use product. But during those interviews we learned that collaboration among the team members and the teamwork and standardization of the process of dealing with proposals and contracts, are a lot more important and bring a lot more value to those prospective customers. We also learn is that Integrability of the solution with the other tools is key to the success. So basically the allocation of resources, the kind of features we decided to build, pricing, all of those were influenced by face time with customers.
Peep Laja:
To win in the era of saturated markets, you need to know, one, what your target customers think and want. And two, what they think of you in particular. In essence, you need buyer intelligence. The faster your feedback loops, the bigger your advantage. Not only did Mikita create feedback loops, but he created high-quality ones that gave him actionable insights. Here's Meta's Daniel Strazzulla on how he sourced high-quality feedback through what he calls the customer intelligence pipeline.
Daniel Strazzulla:
Because at some point it seems tempting. It seems like, "Yeah, if we get more feedback, just more points of view, we'll just think really hard." And well inside is like, "No, no, no." What you want is actionable bits. You want something that leads the direction you want the good stuff and we start thinking, "Okay, what are the things that we want to get out of the feedback? How is this feedback going to be used? How does it impact the rest of the organization?" So we started thinking, "All right, we're going to build something called a customer intelligence pipeline and we're going to be tool agnostic this time. And we're just going to focus on the things that we want the data to do first." A good example that I like to use is working with the design teams or engineering teams who in the end consume the data through the PM or directly through a tool or whatever workflow that you have.
If you tell a designer, "Hey, people don't like the search bar 50 times and you tell them 50 people don't like the search bar, the designer actually has a hard time working on it." He needs to know who these people are, what the context is, what persona it is, which part of the sales journey or the customer journey they're upon. And then if you give them all the information, they can act on it. So we say, "Okay, next time we structure our data, we're make it in a way that we can make these queries."
Mikita Mikado:
In terms of marketing, I wouldn't say that a lot has changed since, even though we layered many more marketing channels and introduced a lot more supporting channels to inbound and SEO and SCM and so on and so forth. But we're still an inbound -driven business. 95 plus percent of PandaDoc's revenue comes through inbound. We like it, but at the same time it's not like we got there by choice. Back in the day, being in this new work, it was just challenging to build a direct sales team. We had no knowh-ow and we don't really have any people in our networks that can help us get that know-how. So we relied on inbound. We remained to be inbound product-led, as they see here in the Valley, business and that works just fine.
Peep Laja:
What was the moment in PandaDoc's history where things just kind of clicked and you started to grow much faster than you had been growing before?
Mikita Mikado:
Our business has been one of those incremental stories. This little thing adds up to that little thing and then yet another date comes and something else comes around and we just slowly, slowly, slowly climbed the ladder. There are few launches that worked out really well. When COVID hit, we were there for a very long time. We've been arguing whether launching free electronic signing solution is going to be good or bad for the business. On one hand it positions us struggling the market against largely signature players because what they do we offer for free and potentially opens up top of the funnel.
On the other hand, we thought we were going to cannibalize some of our revenue. And that's scary to make a part of your product free. And then the COVID hits and we decide, just like many other companies at the time, we were thinking about ways to help the community. We decide to do it fast then and there as sort of a response because how else are you going to sign documents during COVID and lockdowns? So the launch of free electronic signing gave us a boost for sure. And it was a good thing for the business, but it's not like we doubled PandaDoc because of this one thing.
Peep Laja:
I worried that a free offer might cannibalize your sales? Build the free offer around a complimentary product that supports but does not replace the main product. That's one way to do it. A free offer lows the barriers to entry so that people discover your product and there's nothing to stop them from trying it out. A very competitive free plan can even be a moat. This is exactly what Patrick Campbell founder of ProfitWell said in a previous episode of How to Win.
Patrick Campbell:
I think from a product perspective, that's where we have more of the moats because our free product, that's a moat. Let's say we don't win the market, we're going to mess the market up enough for our competitors. You know what I mean? That was one of the toughest thing I think for our competitors. And we came out and initially it was free and good enough and now it's free and it's better.
Peep Laja:
If you look at the space that you're in today, how are you going to win against the competition?
Mikita Mikado:
We believe that when it comes to contracts and any kind of forms of contracts, there will be and should be one solution. And from the very, very beginning we positioned ourselves and build a product so that it can be an all in one system. And unlike many other folks, we did not build PandaDoc on top of PDF or Word or any other file format. We believe that the files slowly but surely are going to be gone. And the way we've created PandaDoc is that documents are digital, documents are editable, you can collaborate on it, of course you can sign them. Of course, you could inject functionality and they're sort of cloud-native.
So that's how we're different from other folks out there in the market. When we launched PandaDoc, we targeted companies that have less than 20 employees. Those were the only customers that our product was truly good for. And then a year later it was targeting companies with less than 50 employees. And then a few years down the line, less than 100 employees, few years down the line, less than 200 employees. Now less than 500 employees and then larger companies with simple workflows. But as the depth of the product grows, we become more and more feasible and ready for larger accounts, larger businesses.
Peep Laja:
The space that you're playing in a lot of other companies also tried to win in this space but failed. Looking back, what about the things that you guys did right? So you succeeded where some others did not?
Mikita Mikado:
There are external factors and then there are I think also some internal factors. We can talk about the external factors and the gap in the marketplace and the modes. Oh, PandaDoc is built with html, so and so is built in type of PDF. You can edit documents, collaborate on them in PandaDoc. It's more convenient to integrate PandaDoc, blah blah blah blah blah. And there was a gap therefore in the marketplace we sort of filled that gap. E-signing is free with PandaDoc and then you have to pay a bunch of money to sign with whatever sign, blah blah blah.
We can talk about that, sure. But I think we also shouldn't discount the internal factors. And I think those internal factors are as important as how lucky you get in terms of the market opportunity and what is actually brought to market. For us, those internal factors definitely start with people. I believe we're fortunate to find and work with people we've been working along the way and are working with today. That's one. I think we've been fortunate to establish a good enough cadence as well as a set of artifacts and values and culture that unite us all and help us work as a team. And the combination of the three, people, cadence written and the shared database of beliefs and knowledge, I think all three of those matter a lot.
Peep Laja:
Internal strengths and external opportunity need to be in perfect balance for you to succeed. You can assess and react to external factors by building mounts, researching market gaps and outmaneuvering your competitors. You can't control the market. Building a strong internal culture is something you can control. Culture is not foosball tables and free food, culture is sending the standards for what's expected, the minimum effort you can get away with. Create a culture of high standards, caring, accountability and excellence. Here's Dock's Alex Kracov on how he developed a strong company culture at his former company Lattice on a previous episode of How to Win.
Alex Kracov:
The thing that I think we've done a little bit differently is it's not about benefits, it's not about ping pong tables and snacks and all of that stuff. It's about giving something that people really want to work on and something they believe in and giving people the ability to grow.
Peep Laja:
What kind of strategic tradeoffs have you made? So in order to prioritize this, you deprioritize something else.
Mikita Mikado:
Customer focused. When I said that once we launched PandaDoc, we focused on companies of that size or this size and blah blah blah. That means that we didn't focus on the other cohorts of businesses and did now invest resources to do A, B, C and whatever. So that's been a continuous sort of trade off and it was a part of many internal negotiations.
Peep Laja:
You've been building this business for over 10 years now. What are some pieces of advice you would give to other B2B SaaS founders based on your lessons learned?
Mikita Mikado:
Think about your successes and failures through a prism of not a three-year planning cycle or in a five -year planning cycle. Because in B2B SaaS you get involved, you're committing to a long haul. I did not realize that when I was 24. I read Tech Ranch and things happened so quickly there and just I thought that two more years and something is going to happen. And that's just not necessarily the case in B2B SaaS sometimes it is, but not always. And frankly it may not be actually the best for the team, for the founder. So this long-term commitment is what I think is important and that comes along with long-term planning. And therefore I get to my second advice, to be optimistic, "Okay, you got rejected here and there maybe for one month, for two months, for three months, for six months."
It doesn't really matter if you think about a time span of 10 years. I remember raising our seat round and getting at least 200, more likely 300 rejections. And I thought at some point I thought that whatever is that we're working on makes absolutely no sense because nobody wants it. But that was not the case. It was just a combination of me doing a poor job selling the vision and the story and yada yada yada. As well as timing and where we were and just a bunch of different factors. So commit to a long term play and be optimistic. I feel like in B2B SaaS, if you are into something for a long ride, good things are bound to happen because they're so many niches and so many different corners of that B2B world. And you may not build a multi-billion dollar company, but you will build a company and you will figure out a way to deliver customer value as long as you stay focused and surround yourself with really good people. And sort of go at it hard for a long enough time.
Peep Laja:
So what a PandaDoc's three winning strategies. One, they listened to their customers and pivoted.
Mikita Mikado:
Instead of making a bunch of assumptions, we got ourselves into the field and we started talking to clients. And that helped us to pivot the product numerous times.
Peep Laja:
Two, they built a strong internal culture at the same time as assessing market opportunities.
Mikita Mikado:
I think those internal factors are as important as how lucky you get in terms of the market opportunity and what is that trying to market.
Peep Laja:
And three, they positioned themselves as an all in one product for document workflow.
Mikita Mikado:
We positioned ourselves and built a product so that it can be an all in one system.
Peep Laja:
One last takeaway from Mikita.
Mikita Mikado:
Be optimistic, it's okay, you got rejected here and there maybe for one month, for two months, for three months, for six months. It doesn't really matter if you think about a time span of 10 years.
Peep Laja:
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.
