Peter Peter - Founder, UserActive

Grow Your SaaS With Coat-Tailing – Andrew Ardron

In this SaaS Founder Interview, Peter speaks with the Co-founder of Prospect CRM, Andrew Ardron. Andrew has been working in SaaS for over 20 years and took Prospect CRM from a start-up to a multi-million turnover. He explains how you can grow your SaaS by taking advantage of coat-tailing. If this is an approach you’ve considered, give the video a watch to learn from Andrew’s experience.

Transcription

[00:00:00.810] – Peter

Okay, so I’m here today interviewing Andrew Ardron from ProspectSoft. Andrew runs Prospect CRM, and I’d like to welcome you to today’s live interview. Andrew, thanks for joining me for a chat.

[00:00:13.500] – Andrew

Hi, Peter.

[00:00:14.650] – Peter

Thanks to you. Could you just share a quick introduction on what you do? Tell us a bit more about prospect CRM, what the product does, and who you sell that to.

[00:00:26.090] – Andrew

Yeah, sure. So it’s a CRM system, unsurprisingly, given the name. So it’s a CRM system. There are millions of CRM systems out there, literally thousands a long tail of different ones. And our CRM specifically targets SMB wholesale and distributors or brand manufacturers. So people selling physical products business to business.

[00:00:50.190] – Peter

Great.

[00:00:50.850] – Andrew

Okay.

[00:00:51.540] – Peter

And one of the reasons that I wanted to interview you is that I know that you’ve got a strategy that you use to build your business and to acquire your customers. I wanted to just dive into that and learn a little bit more for other people that might also find this strategy relevant for them. It’s essentially using a larger software company and building a strong integration with their product. Can you talk us through how you’ve done that and built a business based on a largest software integration?

[00:01:22.450] – Andrew

Yeah, so it’s actually a strategy I’ve used twice. We used to develop an on premise CRM system many, many moons ago. And I’m not keen to go back there. SaaS world is much better. But we did some integration, and we built our market that way. The truth is, on premise, that was quite tough because all software products back then pretty much were sold through implementation partners.

So if you wanted to leverage a relationship with another business, you have to deal with a whole load of individual implementation partners. What’s different in the SaaS world is that basically every SaaS product wants to have integrations, and every SaaS product has got a marketplace. So if you can find it has to be a good fit, and it has to be something that works with strong synergy.

But if you can find the right SaaS product, start with the SaaS product. Don’t go anywhere else. Start the SaaS product that is being successful in your market, where it’s realistic that you’ll have mutual customers. So people who are using that product will find your product a good fit, do some good integration. And I think one of the secrets we’ve found is to do really good integration so that it is better than everybody else’s.

[00:02:56.700] – Andrew

I think a little bit of Zapier integration or using a third party tool or something just doesn’t really cut. It needs to be if you’re going to stand out with this strategy and not just being also ran, it has to be a great integration. So build the integration, and then I think naturally, over time, you then move in the direction of better and better serving that audience. I think we’re going to talk about operating in a niche and differentiating yourself in a little bit.

But one of the things that the coat-tailing strategy we call a coat-tailing sort of hanging onto mother’s coattails as she walks down the street, I think is where it comes from. So you’ve got this big software company, they’ve got a big target audience. You get into their marketplace, hopefully you even find them their customers. You can target them directly, although that can be tough to go and hard to do. But as you start to build up the number of inquiries you get from that customer in that marketplace, because it’s a fairly small community, the awareness of your product starts to build up not just amongst the customers, but amongst the staff of the SaaS product that you’re now cotailing.

[00:04:15.790] – Andrew

And so you start to get active referrals as well as just passive ones from the marketplace. Then assuming it starts to go well, what actually happens over time is you naturally start to develop features or improve the product for that type of customer. And you inevitably sort of I wouldn’t call it a Pivot, because a Pivot is a big change, but you slowly steer in the direction of better and better servicing that target market and say, we’ll talk about why.

I think that’s super important later on. But that starts to happen and you just get this kind of momentum building up where you’re getting the same kind of referrals, you’re servicing the same kind of customer, so you’re becoming a better fit. So you then get more referrals. The real secret source in all of this is those referrals are free. So in the early days of building a SaaS business, you can put your investment or your cash flow, whatever it might be, your own money, whatever it is that you’re putting in, you can pour all of that into building a great product. And sure, you might need a bit of sales resource and a bit of CSM resource, but you can pour money into building a great product.

[00:05:30.830] – Andrew

The two expensive things when you’re starting a SaaS company is marketing and building the product, sales and customer service. If you build a good product, they’re actually not too expensive. If you got good product market fit, they’re not that expensive. But the two extremes of marketing and product development, they’re the expensive things. And if you can avoid having to do loads of marketing, you just spend more money on the product and everything becomes easier.

[00:05:55.160] – Peter

Yeah, I just wanted to touch on how you built the product because obviously there’s a large player in your industry that helps the audience manage their inventory. Right. So how did you identify a core offering that you could develop with prospect CRM that differentiates it’s something that this large software company doesn’t provide. So you’ve kind of built an add on, kind of value add to their product in a way. Is that how you think about what you’ve done? Is that the right kind of yeah, I think so.

[00:06:35.580] – Andrew

And we’ve got a great chairman. I’ll give him a little plug. John Thompson. One of the things he has said several times to us is that it’s not just enough to build differentiation. You have to build a moat. So your differentiation has to be defensible. It has to be something that other people won’t easily do. And obviously we’re in the CRM space, so our competitors are salesforce, pipe drive, so we have to build something that they wouldn’t do.

But one of the things I didn’t realise at the beginning, but is pretty apparent now, is that if you’re going to do a coaching and strategy, you have to build something that the company you’re integrating with won’t build or can’t build easily. I think there are plenty of examples over the history where some small company has built some great add on to a big product and then that big vendor is just basically rewritten acquires them. Well, they can acquire them or they can just rewrite it, right?

[00:07:40.580] – Peter

Yeah. I guess if it’s a low barrier to entry or something that they can build in house.

[00:07:46.100] – Andrew

Yeah. If it’s defensible, they either need to carry on working with you and respect you even though you’re smaller, because what you’ve done is unique and defensible. So they have to keep working with you or they have to offer to buy you. And at the end of the day, that’s not the worst outcome for a SaaS founder being acquired by a bigger partner. Even if that comes too early and you think you don’t want to do it yet.

If you’re in partnership with this company, you can just play a little bit along for a few years and build that relationship until it happens at the right time for you. So I think them deciding that your feature is unique and defensible and hard to rewrite means that they either have to work with you or they have to acquire you. And either of those two outcomes is fine. The problem comes when what you’ve done is not defensible and they just rewrite it.

[00:08:39.350] – Peter

Yeah. How do you identify how would you go about identifying whether it’s defensible or not or whether the larger company would build this kind of feature if you regardless of whether you start on the journey to do that or not?

[00:08:54.280] – Andrew

Yes, I think that’s a really good question and I think there are certainly multiple ways in which you could consider yourself to have a defensible moat. Am I allowed to swear? A little bit. But what I would say is the number one rule when you’re trying to figure that out is don’t swallow your own bullshit. You have to be honest with yourself about how clever is this thing. If you think that you’re unique because you’ve got some cool technology, is it so different that it’s patentable?

Because if it is, then patents are defensible. But if it’s not unique enough to patent it, then it’s probably not that defensible. Even if you think it took you three years to write, it is the software world, and everyone in the software world knows that what it took the first person three years to write only took the second person one year to write. Like copying it is quick. There’s so much tech out there that it’s not a technical challenge, it’s a figuring-out challenge. And if you figured it out, I can just copy you. And I figured it out as well. So how long you took to build it is not enough.

[00:10:15.030] – Andrew

I actually think the most defensible two scenarios are that they’re quite similar. One is either you just are the market leader, so people have copied Salesforce, but they were the market leader. They were the first mover. And there’s a book called Build Bigger, I think, which talks about creating a new market and defining a market and being the leader in that. And that’s what salesforce did. So even though people have copied them, their position is still reasonably defensible. Yeah. The other way it’s defensible is just if you’ve got domain knowledge, expertise, motivation, and interest, and forget the software.

Just as a founder, as a team, you’ve got something that the other team haven’t got because they can copy your software pretty quickly, but they probably can’t copy your domain knowledge very quickly. They have to build a brand new team and hire a new person in. And that’s a pretty expensive, tricky job for a company to bring in a whole new team and build a whole new product. So for us, as you said, the people that we’re coat-tailing are people doing inventory management and accounting software. And they’re really good at that. And I don’t think I’d like to write an inventory management product or an accounting product.

[00:11:49.030] – Andrew

I’m kind of sure, technically I could, but it doesn’t flake my boat. Apologies to everybody out there writing accounting software, but sounds pretty dull. It doesn’t flake my boat. It’s not. What I’m interested in probably is my dad, because he’s an accountant as well, but sales, marketing, running sales teams, selling products, that floats my boat.

My Co-founder, Stewart, he’s interested in that as well. Customer sales background. And we built up a whole team that understand what it takes to be successful in a product business, in selling and marketing. And if you go to those companies that were coat-tailing, they know how to manage stock, they know how to ship an order, they know how to do some inventory. But if they wrote a CRM, it would be a poor copy. Not because of the technology, but because they’re just not passionate about it like we are.

[00:12:47.650] – Peter

Yes, that’s also in a way that you’re able to build something in that niche that might not have been done already, or to differentiate another way to differentiate it’s bringing your passion to something or your insight and knowledge and serving a gap where one of the big providers doesn’t cover that. We were going to talk a bit about differentiation, so this is a good moment to just touch on that. Yeah, we just got a couple of minutes.

[00:13:18.350] – Andrew

One warning. The warning I would give, and the mistake we’ve seen once or twice, is to either curtail too small to market or too big a market. Right. Too small to market is a problem, because even if you’re a good fit, you might only get 20% or 30% of that market. So it needs to be big enough. But if it’s too big, you can’t build that traction. You don’t get that kind of community. You don’t get noticed by the vendor.

[00:13:43.190] – Peter

Right.

[00:13:43.720] – Andrew

So coat-tailing Salesforce might be problematic.

[00:13:46.710] – Peter

Just be one app in a huge marketplace.

[00:13:49.250] – Andrew

Huge marketplace. You’ll never get noticed by them or by their customers. We went for people, for businesses which were about four or five times bigger than us at the time. And actually we went over time. We went for two, three, four of those. So that gave us, eventually, quite a big market. But to each vendor, we’re quite important, and I think that helps a lot. Okay, well.

[00:14:19.330] – Peter

We’ve got 1 minute left, so I just want to spend that on a bit of differentiation, because obviously you’re building a defensible product with a motor around it, and then how do you think about differentiation in your marketplace, and what do you do to make sure that you can maintain that?

[00:14:34.090] – Andrew

Yeah, so we talked about the defensible moat a fair amount in terms of the partners you’re partnering with who inevitably have got a different product. So they’re not considered your direct competitors. But if what you’ve got isn’t unique enough, they are going to compete with you, so it’d be unique enough to differentiate from them. But then when you’re inventing a SaaS product, you’re either starting a brand new market and then you’ve got all sorts of other problems, like educating the world as to why they should even care about your thing, or, as we’ve done, you’re entering an established market.

So we entered the CRM market. SaaS CRM Salesforce Pipe Drive and sitely. There’s loads of them, and they’re all big, and they’ve all got more marketing dollars than we have. They’ve all got more R and D dollars than we have. Obviously, they don’t have better UX designers because we’ve got you, Peter. But they’ve got great UX designers in every way. They can outspend us if it comes down to spend. So you’ve got to pick something that makes you unique and stands out and easy, if I’m honest, is a small enough niche that they don’t care about it, because salesforce won’t write the unique features we’ve written, because the target market we’re selling into is niche enough.

[00:15:54.590] – Andrew

And so the features we’ve written are hard for Salesforce to copy, and they probably don’t want to.

[00:16:03.010] – Peter

Yeah, they don’t see enough return on that market to invest in.

[00:16:10.310] – Andrew

They’d be quite distorting their product to make it so unique for this audience. But if you’re going to go with that strategy, you have to go all in. There’s no point in me in us building up a copy of salesforce that isn’t as good as salesforce. That just is not a winning strategy. We’re not going to outperform Salesforce. We have to be different. And when people take a free trial of our product and a free trial of Salesforce, they really have to see what’s different.

Because the truth is, salesforce will do loads more things than we do and do some things way better. So there has to be something that’s really important that we do that they don’t find in salesforce. Not that Salesforce do, but we do a little bit better because that’s an impossible message to explain. There has to be something that we do that salesforce does not.

[00:17:01.030] – Peter

Yeah. And that comes from just focusing intently on a very specific nation and serving their argument.

[00:17:11.450] – Andrew

What is the absolutely magic thing we could do that would make them give up their alesforce and buy a CRM system they never heard of?

[00:17:21.120] – Peter

Yeah. And in a busy space like CRM, that’s a really great way to think about it, isn’t it? Really carving out a very specific use case for people that need and I.

[00:17:32.210] – Andrew

Think those two strategies go well together because you find somebody to coat-tail who’s medium-sized. I did say not huge. So they’re medium-sized, which means they’ve got a specific audience that bought their product for a specific reason, and then that is your niche. That gives you a clear target audience, and then you go all in to write what they need. Yeah.

[00:17:55.090] – Peter

Great. Well, Andy, I’ve really enjoyed speaking with you. Thanks for agreeing to the interview. It’s great to speak with an expert on coat-tailing, which is a term that I just learnt speaking with you today. So appreciate it and great to hear about how you think about Prospect here, and thanks for joining us.

[00:18:10.330] – Andrew

Okay, great. Thanks, Peter.

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