Monday, August 16, 2010

Case Study: SlideShare goes freemium

(Normally, I do not write about companies that are doing a marketing launch. But I have decided to make an exception today, for two reasons. First, SlideShare is a fantastic product (that I use on a regular basis) and an impressive company example of Lean Startup practices in action. Second, their story illustrates a key Lean Startup idea: proving the business in micro-scale. It requires separating the product launch from the marketing launch (see Don't Launch) as well as other staple Lean Startup tactics: minimum viable product, split-testing, customer development and the pivot. This story especially demonstrates that these techniques are not reserved only for tiny startups just starting out. When SlideShare began the journey you're about to read, they already had more than a million visitors a day. Because the stakes were high, they had to successfully use a technique I call Innovation inside the box which is important for entrepreneurs inside established companies of all sizes.

Once again, this case study is a collaboration with Sarah Milstein, who conducted the interviews and wrote the post itself, with some minor edits and commentary from me. As this is a new initiative for this blog, we especially welcome your feedback. Did you find this post useful? One recurring request I hear from Lean Startup practitioners around the world is a desire to see examples of the ideas in action. How are we doing?

In the meantime, take a look at how SlideShare performed a significant pivot while still moving at full speed. -Eric]

“The first user experience was actually terrible.” Rashmi Sinha, co-founder and CEO of SlideShare, describes an early version of the analytics package that’s part of the Pro accounts the company announced today.

If your company is using minimum viable product, you’ve probably said the same thing yourself. A lot. SlideShare, founded in 2007, started experimenting with MVPs and A/B testing this year. Those tools, combined with focused customer interviews, have turbo-charged the company’s ability to learn.

What prompted the process change? Early this year, SlideShare launched custom channels. Designed for large businesses, the channels let a company share several types of documents, brand the channel with their own design elements, and then include display advertising, contest promotions, blog aggregation, social media integration and metrics reporting. The idea seemed to SlideShare to be a natural direction. Except it didn’t take off. [I was an early adopter of this feature, and participated in the last marketing launch, as you can see here. Alas, even brilliant marketing adorned with a giant picture of me can't fix the wrong product. -Eric]

Big companies said they liked the idea, but SlideShare found it hard to close deals. Meanwhile, individuals and smaller companies emailed by the hundreds to say that they wanted the features of custom channels, but the sales model—arranged like a media buy—didn’t make sense to them.

SlideShare’s existing customers had needs that the company’s new product—along with its pricing and positioning—simply weren’t solving. Realizing it had taken a wrong turn, SlideShare rethought its approach to premium accounts and ultimately performed what we’d call a value capture pivot, one where the company changes the way it collects revenue from customers.

The process started with a few moving parts. First, the company began quietly testing subscription pricing plans, initially positing a basic plan and an enterprise version. Second, when an individual or small company signed up, Sinha would email them to ask if they’d be willing to hold a phone interview with her to discuss their experience of the product. Despite the fact that SlideShare's product is well-established with many customers, Sinha still took the critical step of (to use Steve Blank's famous phrase) getting out of the building, a particularly important job for founders. Third, SlideShare started holding sales calls with large companies to learn what would prompt them to buy the enterprise version.

“Individuals and small companies wanted analytics, they wanted to know what was happening in social media [for their content], they wanted ad removal and lead gen. Branding was less important to them,” says Sinha. Big companies had other needs. “We didn’t anticipate at all the control features. For instance, we worked with Pfizer, and they wanted the comments turned off. I hadn’t thought that would be a feature. But they’re regulated, so it makes sense.” SlideShare used the two streams of information to segment their market and come up with three plans that recombined the custom channel features in meaningful ways.

But that’s just part of the story. As SlideShare was pivoting, it was also trying out two processes to get better results: 1) A/B testing to refine the pricing plans and the page describing them; and 2) MVPs to hone the actual premium features. The combo helped SlideShare learn a lot in short order. [This is the essential approach to testing a big vision that avoids the "local maximum" trap. See Learning is better than optimization. -Eric]

The company ran landing page splits every two or three days (they initially used Unbounce to generate the pages) and measured them carefully with KISSmetrics. They also used SnapABug for live chat on their site. Between the metrics and the direct customer questions, SlideShare had what Sinha calls “minor learnings and then major shifts.”

For example, early iterations of their pricing page included the original, free version of SlideShare. “We realized that was really confusing people,” says Sinha. “We don’t give you all this Pro plan information right away when you join SlideShare. It’s more like, ‘If you’re already using SlideShare, you might want to try this.’” They removed the core plan, and conversions went up.

The A/B testing did have its challenges. Because SlideShare has more than a million visitors a day, the team is used to developing features that at least 100,000 people will use. “You get used to having a big impact,” says Sinha. With the split tests, maybe 500 people would see an iteration (SlideShare drove traffic with calls to action around their own site). “You have to get ready to deal with much smaller numbers.”

The MVPs were tricky to implement for emotional reasons, too. Because the SlideShare team was used to giving away a high-value product, engineers balked at charging for a clearly imperfect product. The analytics package, for instance, launched in what Sinha calls “a very crude version; we started off and sold it before we were comfortable with it.”

The saving grace was follow-up interviews. SlideShare asked customers what they had expected in the product; the responses were often literal descriptions. People consistently said they were dying for analytics and specifically that they wanted to track social media and understand the people visiting their content (SlideShare eventually discovered that showing visitors’ locations and timing satisfied people’s needs).

“Charging for something half-baked is really interesting,” says Sinha. “It makes the product team uncomfortable. At the same time, you make sure that you get honest feedback. If the product doesn’t meet customers’ expectations, they cancel. It’s a very honest relationship. On analytics, we got a lot of feedback that it was half-baked, that we sold it under false pretense. But we would just respond honestly and fast and say, ‘Tell us what you want.’ Then we’d get back to them when we had built it.” Customers appreciated the follow-up, and many bought again after the feature had evolved. In this regard, SlideShare used the early adopter feedback not only to improve the product, but too improve its understanding of what subsequent customers would want. [That is customer development. -Eric]

The marketing launch for SlideShares Pro accounts is today. But the product launch has been happening iteratively over the past months—which means the company is confident in its new offerings. “When we launched custom channels in February, a lot of people reached out and said, “We’d love to buy’,” recalls Sinha. “But it never happened.” [Alas, customers don't know what they want! -Eric] Since creating and refining its premium accounts, SlideShare has closed a number of deals, including high-profile accounts like Dell, Cisco and Pfizer.

Sinha notes that Eric Schmidt, in a recent interview, said that you find out whether people truly like a product in the second phase after launch. In the first phase, you get a lot of curious people. Only after the buzz has died down do you truly understand what’s going on. With careful and continuous learning processes, SlideShare is inverting that idea and going to market with a validated product. That is the essence of proving the business in micro-scale.

[We'll see if the marketing launch results follow the predictions of SlideShare's validated business model. We wish them the best of luck, and hope we can convince them to share their results - positive or negative - in the near future. In the meantime, good luck and thanks for letting us share your story. -Eric]
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