Self-serve first: an overlooked paradigm underlying great software companies

Self-serve first: the overlooked but essential paradigm underlying great software companies

“My biggest regret is that our first customer was $1M ACV*,” my friend lamented over coffee the other day. “I wish I could take it back.”

“Why? What do you mean?” I asked, perplexed. He is the CEO of a company that recently raised a Series C from great investors, is growing rapidly, has strong customer retention and a top-notch leadership team. I was — to put it mildly — taken aback.

“Ever since that first customer, our product, go-to-market, our support model have all been pulled in one direction — high-end enterprise,” he said. “Our first $1M ACV customer forced us to get on the elephant hunting treadmill, and we’ve never been able to get off it. Our board, our employees, everyone expects us to only go after customers that were as large or larger than our first customer.”

“And?” I prompted.

“And I’ve been watching this new competitor emerge that’s going after the same market as we are, except from the low end. They are tiny but growing rapidly. And it’s too hard for us to compete with them — we don’t have the people, technology stack, support model or frankly, the mindset.”

His words reinforced something I have long believed.

Truly great software companies are self-serve first.

Let’s dig into this assertion and why it makes sense.

To start with, let’s define “self-serve first”.

A self-serve product is one where a customer can go through the full product experience — from signing up to first use to activating new features to managing their account to upgrading and/or cancellation — all without ever needing to interact with another person (unless, of course the product, like Slack, is designed for the express purpose of interacting with other people :)).

Note that this definition of self-serve encompasses the entire customer journey. A great self-serve product experience carefully examines every customer touchpoint and puts deep thought into how to simplify, streamline, and edit the various customer flows to help them accomplish what they need to, quickly and efficiently.

Self-serve first is when the entire company is built around self-serve, when self-serve is the core foundation of the company.

For product development, self-serve first translates to the product being fundamentally designed around the needs of the self-serve customer, with mid-market and enterprise customer functionality built as extensions of — or as APIs on top of — the self-serve core. In the advertising space, Facebook Ads, Google Adwords and Google AdSense were all built as self-serve products first, and operated as such for years; it was a long time before features to serve larger customers got added to them.

Self-serve first doesn’t just stop at product development. Customer support, customer acquisition, brand building, communications — all focus on serving, highlighting and strengthening the self-serve channel first, sometimes at the expense of large enterprises and other customers. This is the reason that Google and Facebook highlight small businesses and micro advertisers in their earnings calls and other communications materials — large businesses get mentioned but not as the central, focal point.

All great consumer software companies are (obviously) self-serve first. Apple, Google, Facebook, Netflix, Twitter, Snap — great consumer software companies spend immense amount of energy, time and resources to make the self-serve consumer experience continually more frictionless and seamless.

It’s in the business software realm where the self-serve first question becomes more interesting.

Here’s why great business software companies are self-serve first.

1. Unbounded acquisition: Self-serve adds rocket fuel to customer acquisition in three ways.

• Stronger top of funnel: If your company’s growth is driven by sales, acquisition is driven by how quickly the sales team can convert leads to customers. In other words, new customer growth is a function of how many sales people you can hire and how quickly. However, there are enough customers out there who want to kick the tires and try your product without getting into a long-term protracted negotiation with a sales person. If you don’t have self-serve onboarding, you will miss out on all these customers. And the biggest tragedy? You won’t ever know that you missed out on them. Succinctly put, self-serve first will open up your top of funnel like nothing else — with the right marketing behind it, you could easily quadruple or quintuple the number of customers who end up signing up and trying out your product.
• Rapid global scale: You might be able to build a sales team focused on your home base region (US, Europe, etc), but if you want build a global company (and what great company doesn’t?), staffing up a sales team to reach customers in every region is slow, painful and expensive. Sales-driven companies take a long time to become truly global. Self-Serve first companies, on the other hand, can go global rapidly. After talking to dozens of startups, I’ve observed that even small-to-medium sized self-serve SaaS businesses get a quarter of their customers from outside their home region, if they’ve properly localized their product experience. And for great companies, the world is truly their oyster. I remember, when working on Google AdSense, the first time I looked through the list of active self-serve AdSense publishers; I was stunned to see that there were dozens of brand-name US, European and Indian publishers on the list (back then, AdSense was only available in English and a handful of European languages). The irony was that our sales team had been trying to get to the right decision maker at several of these publishers, not knowing all the while that they were already using the self-serve product.
• Unique acquisition tactics: Self-serve first companies can leverage tactics such as referrals, one-time promo codes, limited time discounts, and freemium pricing to acquire customers. These, taken individually or together, can be very effective marketing tactics, but remain largely inaccessible to non self serve companies.

2. Superior experience: A self-serve first business customer experience is intrinsically better because it’s been designed to be used like the best consumer software — without human interaction or interference. And it’s not just for small, micro customers. During my time at Google, Facebook and Square, I’ve seen how the the desire for easy-to-use software cuts across customer size. Even the largest customers want — and increasingly, demand — delightful experiences where they can explore and fully use the product without having to contact a account manager for every single request. Consumerization of technology experiences and interfaces is a megatrend, and for good reason. Self-serve experiences lead to higher customer satisfaction and retention. And every experience, every business process, can be made self-serve. If Square can take payment processing — an experience characterized by piles of paperwork and bank visits, an experience that was earlier as painful and non self-serve as getting a root canal — and make it self-serve and delightful, there’s hope for every company.

3. Lower operating costs: A corollary to the experience point above is that the per-customer support cost for self-serve first companies is much lower, since most support issues are handled by customers themselves. Even larger companies are much easier to serve in a scalable (and cost-effective way) since they start getting used to handling their needs themselves, and consequently generate much fewer support inquiries. Lower operating costs are a moat that can be leveraged to — for example — lower prices without lowering margins.

4. Agile mindset: Working at a self-serve first company builds an inherent scrappiness — from product development speed to innovative marketing tactics — that in my opinion, stems from the ability of self-serve first companies to try things, take risks around everything from pricing to onboarding to growth tactics and quickly get feedback from a large number of customers, without gatekeepers in the middle. This mindset is hard to quantify but is a powerful amplifier of all the other advantages that self-serve first companies naturally possess.

Taken together, the factors listed above can lead to enduring competitive advantage. Most self-serve first products start being used by small customers (typically entrepreneurs or developers) that are overlooked by the incumbents since they are too hard (for said incumbents) to acquire and cost-effectively serve. This initial footprint serves as the beachhead for the company, helping it developing strong customer loyalty and word-of-mouth acquisition through great experiences, as well as a much lower cost to serve them. In some ways, it serves as the base camp for the assault on the incumbents’ bread and butter, financed by the profitable low end customer base. As the company inexorably acquires larger customers and creeps upmarket, the lower cost of customer acquisition — powered by word-of-mouth — coupled with higher customer loyalty and retention and lower cost of serving the customer, makes it an extremely formidable competitor for incumbents to compete with. This is the definition of disruption. This is Christensen’s disruption theory at its core, enabled by self-serve.

Amazon Web Services, Google Docs/G-Suite, Square, Adobe — each company plays in completely different verticals, but each has followed the same basic formula to growth, on the back of a revolutionary self-serve experience.

To back my assertion, I pulled up the list of top market cap companies on the NASDAQ and looked at the business software companies on this list (all market cap data as of mid-April, 2018). Every $50B+ business software company on the list — Alphabet, Microsoft, Amazon, Facebook, Adobe, Booking, Paypal, Baidu, Alibaba, Intuit — have built formidable, powerful, fast-growing self-serve businesses, and I would argue that nearly every single one of them is self-serve first. For most of them, in fact, the self-serve channel is the biggest part of their business, dwarfing the combined impact of the sales and partnership channels.

I hope you’re not inferring from this that self-serve first is easy. It is not. There is no “build it and they will come” secret. A great self-serve product doesn’t automatically lead to a great business. It needs systematic and disciplined marketing and other go-to-market investment. One could argue that a sales-driven model is a much more predictable way to build a business. Self-serve first businesses have high beta — they can be hard to get to scale. But when things go well, when everything falls just right, you have successes like TSheets (bought by Intuit for $340M) or Trello (bought by Atlassian for $425M). And when things go really well, you get to build a company for the ages.

Obviously, one can point to several “non-self-serve-first” companies that have built strong businesses with a pure direct or inside sales model. And they, like my friend’s company, will do fine, for now. However, their growth, their customers, how fast they go global, will always be limited by how fast they can scale their sales team. Second, and more important, these businesses will be at constant risk of being disrupted by a self-serve-first competitor.

Self-serve first — especially self-serve onboarding and first run experience — only became fully viable once the Internet took off. Therefore, business software companies on the list above that started in the 1980s or earlier — Oracle and Microsoft being prime examples — have faced the challenge of moving to a self-serve first model. Some have had more success than others; Microsoft, in a post-Windows world, will be self-serve first. Some have not; Oracle still sells enterprise software through a sales team, and though a great company, I believe is at significant risk of being cannibalized and disrupted long-term by cloud-based database software offerings that anyone can sign up for and access. AirTable is a good example of a self-serve first database / data store company that could undermine Oracle’s core business, slowly at first but accelerating with time as they move upmarket.

Back to my friend who kickstarted this post. By the end of our coffee, he resolved to pull together a tiger team of four engineers to rearchitect the company’s technology stack and make it possible to launch a self-serve version of the product by end of year. “It’s not as good as launching self-serve from the ground up — we’ll need to cut corners- but it’s a start, and we’ll go from there.”

He is doing self-serve second, but I applaud that he is not satisfied with merely building a good software company. He wants to build a great company. One that delivers a truly delightful experience, one that has limitless customer acquisition possibilities, one that is resilient in the face of disruptive competition, one that stands the test of time.

If you, too, want to build a great software company, you will consider self-serve very seriously, even as an enterprise software company.

So do yourself a favor and ask yourself — Is your company self-serve first?

*ACV = Annual Contract Value

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