#1 - Pekka Koskinen @ Leadfeeder, Dealfront
Secrets to success from Leadfeeder's growth model
“We knew that if somebody takes a trial, then we can demo the product with their website visitors, with their customers. It's way more powerful." - Pekka Koskinen
Audio
Video
Podcast notes
[00:00] Introduction
[02:49] The Power of Free Trials and Feedback
[03:52] The Role of Analytics and Support
[06:55] An Unconventional Approach to Outbound
[13:24] Knowing When to Give Up on a Sale
[15:44] Key Roles in the Growth Journey
[17:33] Advice When Building a Business
[18:12] Conclusion and Upcoming Book Announcement
Transcript
Hi Pekka, thanks for joining. To get us started, can you tell us a bit about how the Go-to-Market model for Leadfeeder evolved in the beginning?
Sure. So we started Leadfeeder in 2012 with my co-founders Herkko and Vicent. Before that we were running a web analytics company called Snoobi. That was a Finnish based business, and the majority of our customers was in Finland.
We were selling with outbound sales and we were figuring out how to go international. This is around 2010. So we started to build outbound sales teams in different countries. And we learned that doing the outbound sales driven internationalization motion wasn't that easy. It was very costly.
At the same time, we were seeing really great startups coming from the US like HubSpot and others that had this like nice free trial experience. They were generating leads at a fraction of the cost that we had. And also they were able to close the deals better because customers already gotten some value before they needed to purchase something.
When we made an exit from Snoobi in 2012, I wanted to build my next startup very differently. So we built Leadfeeder to be international product led growth first. This meant we wanted to become really efficient at how we go to market.
In the first couple of months, we built a prototype of Leadfeeder and then just put it out there. We didn't even try to sell. There was no price. It was a free tool, you just sign up, use it and give us feedback. And we started to do Google AdWords on it. The idea was to start validating that there actually is a problem and that we have a solution for it.
We ran Leadfeeder as a free product for a year until we then put the most interesting features behind a paywall. We then started to validate the next step in the startup journey, which is if our customers were willing to pay for this. And are they willing to pay month over month over month? Which is a key thing to grow the product market fit.
Back then we didn't have any support or sales around it. It was just pure self-service. And luckily we started to get purchases all over the world. We had signups from US and Central Europe and Nordics. And many of those then found the product to be good and started paying us.
We had of course developed analytics all around it. So tracking how much can we drive traffic from AdWords? How well do they convert into signups? How does the signup funnel? What is the conversion to paid? And then we started to improve this.
We didn’t have sales or customer success, we only had support. And we saw that if we could talk with customers through support, then the probabilities of us making a sale was higher. So when we had a good flow of trials coming in, we started to think if it would make sense to contact these customers and explain them better how to use the product.
We hired our first salespeople that were contacting the most promising trials that we got. That worked really efficiently compared to the old model that we had experienced in the previous company, where we were doing cold calling.
This is how we started to add these commercialization steps and started to hire more people to call the trials. Next we were experimenting with what kind of customers are we contacting and how much effort are we putting into them. We were quite light touch, so if they didn't buy then we moved to the next one pretty quickly and didn't try to force the sale.
We scaled this motion many years. I think it was like 2017, when we already had several millions of ARR, that we started to look at the other channels as well. With inbound marketing, you can only reach those that are already searching for the solution. But we knew that there's a big group around these innovators and early adopters that did not yet know that they need our solution.
You can only reach those by outbound. So we started to invest in outbound sales and in channel partners like marketing agencies. Those were two ways how we could go outbound. Either having someone else talk about us, which is the marketing agencies, or hiring outbound salespeople to contact bigger clients ourselves.
After that we were evaluating the customer acquisition cost compared to the lifetime value that we were getting from each channel and started to put more money behind the channels that had the best ratios. And that's how we then ended up with this model where we have several channels and they serve different purposes. They target different audiences basically.
I know from our conversations that the outbound motion you put in place focused on getting people to use the product first, before making a sale. That’s different from a traditional sales approach, in which outbound sales usually sells something first and then gives access. How did you decide to do this more unconventional approach?
Yeah, that’s true. Our outbound still went through the free trial phase. This usage phase was a must-have, because we were pushing the 14 day free trial so much on the website. If we would reach somebody through outbound and they would visit our website, they would want to have the free trial before they would decide.
So it was very hard to not go that route. And we decided to include the trial in outbound as well. Because we also knew that if somebody takes a trial and they install the tracking script on their website, then we can demo the product with their data, with their website visitors, with their customers. It's way more powerful.
And of course, we had tested this. We saw the conversion rates with customers where we demo their own data compared to showing our own website data or some demo website. It was totally different. With the trial, we could already start setting up the customer account and set searches or filters like during those demo calls.
That proved to be very powerful. The customer could then after the demo have access to the tool and continue from where our discussion left. And then we just had to call them to try and close the deal, because the product has already proven the value.
You touched on some of it already, but what were the key stages in the development of the Go-to-Market model?
This is related to the steps to build a company. In the beginning, we validated if there was a problem and if we solved it. To do that, we gave the product away for free. Because you can always upsell those customers later.
When you later put a price on it, you're not going to lose any revenue, because they didn't pay in the first place. In the second phase, we started trying to close the deal and get the validation that people were actually buying and staying with the platform.
If we look at how you build a startup, that was the Product Market Fit stage. The next stage is Product Channel Fit. So what is the effective go to market motion to sell this? The ones we looked at were inbound, outbound and partnerships.
For inbound, we had two variations. Either purely self serve or touched, which means that there's also sales involved there. So we had these four different channels that we monitored and started putting small bets, to see how well they performed. And started improving them, by looking at where we were seeing the best LTV to CAC ratio.
It takes some time to understand what churn looks like in these different channels. This makes the LTV challenging to calculate. In the beginning, the CAC payback time is probably the best metric to look at. How quickly are we getting the sales investment back? Because that's typically easier to calculate. You basically take the salaries of the salespeople and the marketing costs.
After that, you put more money behind the ones that work. You try to find a sales channel that is profitable, scalable and is predictable. Once you find that, you go to investors and say that you can turn €1 into €5 in 12 months.
You mentioned that when you added the sales team to the free trial motion, you made them call the most promising leads. Can you explain how you identified those leads? How did you make sure that the investment of the sales team is profitable?
We were looking at the conversion rates per segment. If I remember correctly, if there was no sales touch, the conversion rate was around 10%. And when we added sales, then the conversion rate was around 40%, so four times higher.
Then we started to look at how many deals one salesperson can handle in a month and how much revenue they can close. We were then able to calculate the effectivenesses. In the beginning, we only called the biggest customers, but then we expanded that in search for the best fit. We ended up in a situation where we were calling probably half of the trials.
But it's also important to know when to give up. How long are you trying to keep selling? This is something that many companies do wrong. They stick too long with the clients that are not yet ready to buy. We pretty quickly moved to the next one.
Anyway we had a freemium version. if you didn't buy during the trial, you could keep on using a limited free version. So we didn't really lose them. We just got back to them after six months. In the meantime, the product would have developed a lot. So it was like logical to get back to them and ask if they wanted to have a new trial and evaluate again.
What were some of the key roles that you put in place to make all of this happen?
In the beginning, we only had chat support in the product. That's the main way how customers could get help. After that, we started to recruit salespeople. And we saw that we don't need these traditional salespeople. We needed people that can help the customer get the value from the product and understand online marketing.
So you're not really selling, you're showing how to get value from the product. Then the customer just wants to buy. It's a different focus when it comes to selling. So we tried to hire people that know about internet marketing and can add value to the customer.
It took quite a long time before we added customer success into the mix. When the product got more complicated, we needed to have people to help customers go beyond the first use case they saw. But we've always tried to keep the product as simple as possible so we wouldn't need to spend too much time there. We always made sure that the automated onboarding works well. We had support materials. and we tried to do things in a scalable way because we already had the volume.
Is there anything you want to add before we close off?
Well, building a company takes a long time and especially the early years are often a struggle. But once you hit Product Market Fit and Product Channel Fit, then it starts to go really well. Then just keep your eye on the customers and the numbers.
I would really emphasize to make sure that in the beginning, the KPIs and the product analytics are in good shape. That was the instrumentation we used to fly the plane, because otherwise you are flying blind.
Thanks for sharing your experiences Pekka.