Opportunity in a crisis: How Spoke Phone went from $99 to $20,000 MRR customers over COVID
The way we were
Saving the world at $99 a month.
We started Spoke Phone in late 2016 with a simple goal — “Turn mobile phones into a business phone system in 3-minutes or less.”
We wanted to put Cisco grade “big company” PBX features inside a mobile phone and make it simple to use for the average human.
We decided that our ICP [Ideal Customer Profile] was a small business owner with 3–30 employees. Someone who could make fast unilateral decisions and who would react well to a simple price/feature set that removed complex decision-making.
To attract these small business owners we decided to go with an inbound sales approach because we felt that our ICP was largely reactive. They were folks who are mostly working “in the business” and had little time to work “on the business” — i.e. “when something breaks, they need to buy a solution right now. “ Google search became our best friend.
The target markets were New Zealand, Australia, and the US.
The problems we saw but chose to ignore
The art of ignoring noise until you have all the data.
There were plenty of signals, especially early on, which hinted that our ICP could be wrong. As it turned out these signals and the way we captured them, became key inputs when we finally pivoted our ICP during COVID.
When you first launch a startup, you get a few customers and they give you lots of signals. What’s good, what’s bad, what’s missing in your product, pricing, etc. These signals are at best confusing and oftentimes, contradictory. What we learned…
Signals from small customer sets don’t equal insightful data — what you have is a bunch of opinions (and everyone had one!)
On reflection, a key thing we did right during those first uncertain years was not to knee-jerk react to the feedback we were getting. It’s something I’m trying to get my teenage daughter to do at the moment, “respond, not react” — the same can be said for refining product-market fit.
However, it’s easier to say than to do. We often caught ourselves foregoing our core beliefs, values, and thesis, as we got caught up in varying opinions.
We realized we needed a good way to capture customer signals while keeping the team focused on what to do next. We needed a simple way to answer the question “what is the most important thing we should focus on right now?”
We chose not to use any of the [many] product management tools to help us, rather, we used a simple spreadsheet; we called it the MER (Master Execution Roadmap).
The MER took in the “signals” we were hearing from customers and mixed them in alongside our own thesis, values, and beliefs. It [the MER] then weighed all of this against the business lifecycle/motions we knew to be important for scaling. The highest score got the focus.
To accommodate the changing stage of our company’s growth/product maturity, we then added a weighting model so as we matured, the focus/priority shifted. You can see in the table below that as we gained customers and matured features, our [original roadmap] weightings [and therefore, priority] changed towards customer acquisition, activation, and retention activities.
Throughout the process using tools like the MER, we were seeing small and increasing indications that our ICP could be incorrect. This information was critical when faced with dramatically changing our ICP.
Another brick in the wall
The writing is on the wall a lot sooner than you think.
On reflection, the MER was telling us that we needed to change our ICP
sooner than we made the decision, but pivoting is a tricky art. We believed in our original customer thesis so much that it was hard to let it go.
It’s hard when you’re wrong — it’s even harder to admit it.
However, at some point, the writing is on the wall and you can’t avoid it. For us, it came in January 2020. SMB was not going to scale at the pace we needed it to.
There are plenty of reasons for this, and we’ll go into those reasons in another article, however, we now needed to have a difficult conversation with our board, and get an agreement to rip up everything and dramatically change our ICP.
The problem is, you’ve got a few years invested by now, it was your idea, and you’ve spent a ton of other people’s money. Where do you even begin?
Note to founders: If you’ve been faced with a pivot dilemma and procrastinated for a long time, don’t beat yourself up. If you don’t do a pivot correctly you can demotivate your team, disenfranchise your customers, and your business could fail. Go slow to run fast.
A brave decision to change everything
The board let us tear everything down — the past 3 years' work.
It’s about now as a founder that you’ll find out if you’ve spent enough time and care keeping your board abreast of the business challenges.
Fortunately for us, we had a board that really understood the business, our challenges, and our opportunities.
We had neither inundated nor starved our board. We have never sugarcoated things, and whenever we came with an ask or a problem, we always made sure to have a recommendation or at least a considered point of view to discuss - basic board management stuff.
Perhaps the most important thing we had, was a board that gave us a safe place to fail.
Like your teams, founders and execs need to be able to fail quickly in a safe and supportive environment. If you’re at odds with your board, chances are you’re not going to bare-all and show your weaknesses.
Without a safe place to fail, making a radical change to your business will be challenging. This turned out to be key in our ability to successfully pivot with the full support of the board.
Changing everything while sticking to your principals
The importance of having a “why” when faced with a dramatic change.
Chances are that your reasons for starting a company had little to do with making money.
You had a thesis, an idea, and you had a unique point of view. What you actually had was a ”why”, and that “why” helped you raise money, build a team, and keep going when times [invariably] got tough.
For Spoke Phone, our “why” was simple.
“Empower mobile workers to thrive just using a mobile phone.”
In our experience, our “why” along with our core thesis, values, and unique point of view were still valid [and were even more so], when we pivoted from selling to the SMB market to selling to the mid-market enterprise. A good idea is still a good idea, good people are still good people.
Our strong “why”, thesis, values, and unique point of view turned out to be the very things that created the continuity needed by the team and by our customers. By having a strong purpose, we avoided the “pivot pitfalls” of demotivated teams and disenfranchised customers.
If you’re a student of Simon Sinek and the power of “why”, our experience [over this transition] shows us that Simon’s thesis that “the what is far less important than the why and the how”, certainly rings true.
There’s gold in them thar hills
Proof that even failures can set you up for success.
There is an old saying “don’t throw the baby out with the bathwater.” It comes to mind as I reflect on how much we were actually able to keep as we pivoted.
More than just ‘keep’, actually a lot of what we had done for the SMB market was foundational.
A lot of the things we fought hard for, fought super hard for, with our SMB customers, actually propelled us significantly forward with our new enterprise customers.
As a startup focused on the SMB market, it sometimes felt that the SMB customer demanded an unrealistic level of quality, feature sets, and an impossibly high level of service.
What’s more, the SMB market demanded an ever-decreasing price point that borders on being unrealistic. If not ‘unrealistic’, it’s certainly a bar that’s untenable for most startups to meet. Thanks, Google, for giving everything away free!
However, what this SMB market forced us to do at Spoke Phone was strive for that perfection. Although we never reached that perfection [we don’t have 4,000 engineers like Apple or Google], our striving to reach perfection and satisfy the SMB market created a product with a very high level of simplicity, rich features, and a beautiful user experience.
Generally, mid-market enterprises are not used to products with a very high level of simplicity, rich features, and beautiful user experiences.
So thanks, SMB market — there’s gold in them thar hills!
The importance of selecting the right partners
Being built on Twilio turned out to be a savior as we changed directions.
Most SaaS companies like Spoke Phone leverage 3rd-party providers to power parts of their service. These providers are known as PaaS [Platform-as-a-Service].
PaaS providers [among other things], greatly speed up time-to-market. Rather than having to build everything, companies like Spoke Phone use PaaS providers to supply the “non-differentiated” parts of their service. These are typically the bits of a service that do not make the service special or unique, such as the ability to accept credit card payments online.
Amazon (AWS, Cloud Computing, etc.), and Stipe (Online Payments), are two excellent examples of PaaS.
One of the key PaaS providers Spoke Phone chose early on, was Twilio.
However, Twilio turned out to be way more than just another PaaS provider. They turned out to be a true partner and the core reason we were able to quickly re-focus from SMB sales to mid-market enterprise sales.
Twilio is a cloud communications platform. They provide the building blocks to add messaging, voice, and video communications to web and mobile applications. Think of Twilio as a giant box of lego for building telephony and communications applications.
Spoke Phone is built 100% on Twilio — and that decision has paid big dividends.
Being built on Twilio allowed Spoke Phone to quickly add the services, features, and security demanded by our new enterprise customers. Twilio also provided something more important to us — trust.
Because of Twilio’s scale and operational excellence, they had already solved a lot of the problems and answered a lot of the concerns enterprise buyers typically have. Twilio provided our trust. Spoke Phone has benefited greatly by drafting on Twilio's success.
A little bit of luck never hurt anyone
The harder you work, the luckier you get.
We had a bit of luck too. A few strategic partners came on board in 2020 and their networks and brands have helped us greatly. The biggest help was getting into lots of large customer conversations. These conversations helped us uncover key insights that we never would have reached so quickly by ourselves.
Luck, sure, dumb luck, no.
From day one, Kieron [my co-founder here @ Spoke Phone] and I have met twice weekly to groom not only the product roadmap but all priorities across every department. This practice has ensured that we are always on the same page, and the business clearly knows what is most important next, and why.
The macro lens for this prioritization is our overarching strategic plan. What we want for the business long term. Think of it [our process] as similar to product requirements planning. You’ve got functional priorities and non-functional priorities. The who, what, and when are the functional features the teams are delivering, and the strategic plan is the non-functional requirements.
To help scale this approach we again used the MER [Master Execution Roadmap]. The MER aligns the company’s strategic plan against each department’s core deliverables (sales, features, and whatnot). The result is that every department knows the part they need to play in the larger picture, and why it’s important.
For those Verne Harnish disciples, we use an abridged version of Vern’s Scaling Up! methodology at Spoke Phone.
We picked out the bits of Scaling Up! that we thought most relevant/useful for us (sorry Vern!), and have incorporated them into the MER. Primarily we use an adaptation of Vern’s One-Page Strategic Plan and 7-Strata.
Kieron and I also meet for 1/2 a day every two months to focus on strategy. No current issues or activities are discussed. It’s a regular review of our strategic direction and checks that the current imperatives are still imperative, and what course corrections we need to make. (See above: A plans the plan until there’s a new plan.)
So, yes, we’ve had some luck, but it’s been influenced by some of the practices and processes we try to do regularly.
Plan time to work ‘on’ the business — revalidating your strategy regularly.
It always takes longer than you think
It takes a while to turn a ship, keep the faith.
You’re a founder. You can do everything, in fact, you do it better than anyone else — right?
It took me a long time (four exits in fact), to learn three key lessons:
- Speed has nothing to do with going fast;
- Execution at scale is about hiring good people and empowering them to enable others to succeed, and;
- It always takes longer than you think.
For a founder, lessons #1 and #2 are super hard.
Lesson #1: As a founder, you need to realize that no one you hire is ever going to work as hard as you, care as much as you, or be as neurotic over every detail, as only you can be. Once you realize this, hiring people (especially the expensive senior people you need to scale), becomes easy.
Lesson #2: At Spoke Phone we changed out our management team as part of the pivot. We brought on senior people into management roles (with significant expense ahead of sales or any real proof/traction in the enterprise space). This may sound counterintuitive to a startup, but it’s all about scaling.
Lesson #3: It’s taken Spoke Phone an entire year to pivot, and we’ve got work to do still. Just changing brand and market messaging is a massive job. We were fortunate to have great investors and money in the bank, but it's still a big investment and risk to undertake a pivot. The point is, whatever you plan for, double it and hope for some luck.
Speed has nothing to do with going fast!
Today, we look forward with confidence
We’re now well placed to succeed, thanks to great teamwork.
So now [at time of writing] it’s 375 days since lock-down and slightly more since the board agreed to our ICP pivot.
In the year of COVID, our business [SMB customer base] shrank significantly, but we were able to replace that lost revenue to remain revenue neutral (up actually.) Basically, a Gap-year in revenue terms.
During the same time, we’ve changed people, process, product, marketing, messaging and developed several key enterprise partnerships. We feel that our team worked really well over this change. They found the opportunity in the crisis — making lemonade out of a year that turned a lot of good businesses into lemons.
What’s most important?
Deal size has changed significantly. MRR has increased by ~136x and TCV by ~40,000% compared to our average deal pre-COVID — just one year ago.
So what’s next for Spoke Phone?
I’m sure our pivot won’t miraculously solve all our problems. The challenges we had with selling into and scaling the SMB Market, will just be replaced with different challenges and hurdles in the mid-market enterprise space. We’re already seeing some [of the hurdles].
However, irrespective of the new challenges we may face [selling into enterprises], the enterprise buyer is generally more considered, has resources, people, and processes that increase our chance of success. And the larger deal sizes [revenue] affords us the time to figure things out.
Let’s have a conversation
I would love to hear your feedback on this article.
Some folks have already requested deeper dives into some of the topics covered in this article, and I plan to write those as time permits.
So far the candidates for deeper dive articles, are:
- Master Execution Roadmap — A simple but effective way to align teams to the strategy in early-growth companies
- Simplifying Strategic Planning — A practical implementation of Scaling Up! for time-poor founders
- Scaling SMB Sales — A realists view of the challenges and why we failed
- Not From The Valley — The challenges of building “at scale” SaaS from New Zealand
Finally, I would love suggestions for other articles that you would find useful as you grow your business. We’re a pretty open and honest bunch around here at Spoke Phone, so if you think any of the experiences that I, Kieron, or any of the team has had would help you, we’re happy to lend a hand if we can.