How Twilio nailed a billion-dollar niche by walking in its customers' shoes
Twilio is a “cloud communications platform as a service” company based in San Francisco valued in billions. Founded in 2008, Twilio reached $100 million in annual revenue in 2014 and $600-plus million in 2018.
The following is an excerpt from the 2nd edition of From Impossible to Inevitable, written by Aaron Ross and Jason Lemkin.
Twilio allows software developers to programmatically make and receive phone calls, send and receive text messages, and perform other communication functions using its web service APIs. For example, anytime you receive a text message from Uber or make a phone call to one of their drivers, you’re using Twilio. When you receive a text confirmation after booking a reservation on Yelp or OpenTable: It’s Twilio.
Platform startups often struggle to nail niche markets because customers can do so many things with it. Ask a platform founder “What can we use your platform for?” and they’ll answer “anything!” Jeff Lawson (CEO) and the Twilio team are experts at getting into the minds and shoes of customers to nail niches in ways that have created a platform company worth billions.
Platform startups often struggle to nail niche markets because customers can do so many things with it.
First: listen to customers (ideally in person)
In Twilio’s early days, Jeff was called up by investor Dave McClure. Dave told him “Hey, there’s this event in Las Vegas called LeadsCon, you should go to it and meet Jay the organizer.”
Jeff said he didn’t know the first thing about lead generation, but he went anyway.
Jeff met Jay, and told him, “I don’t even know what this is about, or who these people are!” Jay told him, “Don’t worry. I’ll put you on stage on Day 2 with other new startups and innovators. Go up there and talk about Twilio for 5 minutes. You’ll figure it out.” That was it.
The first day, Jeff just attended everything and listened. He realized lead generation was an industry where marketers generate leads for business and sell those leads. Leads might fill out a form, or even call a phone number in a late night infomercial.
That night he put together his presentation.
The second day of the event, up on stage, Jeff told the crowd “Yesterday, I had no idea what lead generation was, but here’s what I heard. I heard that the most valuable leads you get are phone calls. And I have a platform for phone calls. Let me show you how easy it is to record calls, pass calls, analyze calls, and if this is interesting, contact me.”
That was his naive pitch ... but there turned out to be numerous use cases for Twilio in lead generation, and it created a huge amount of business in that industry.
Jeff didn’t focus his talk on the platform and all its features; instead, he listened to the customers and tailored his talk specifically to what they needed. Don’t confuse meeting with customers and listening to them as the same thing.
Sounds simple, but few people or salespeople do this.
Second: walk in your customer’s shoes … literally
It’s easy to talk about listening to customers, but how do you actually do that and get useful insights? How do you practice the vital skill of empathy?
“You don’t understand someone until you walk a mile in their shoes.” Twilio takes this literally as their leadership principle of: “Wear the customer’s shoes.”
Twilio’s standing offer to customers: Trade your shoes for a pair of red Chucks with the Twilio logo. Customer shoes are hung around the offices, labeled with the name and company of the customer.
Every employee has to build a Twilio app ... even the lawyers.
What’s this look like in practice? First, every employee has to build a Twilio app (more on that later). Another way: Keep asking, and asking (and asking) why to understand their root problems and motivations—why are they doing this? Why do they need it? Keep digging. And when you can match a lot of those “whys” across multiple customers, you get a sense of the raw business need.
- Online surveys can be easy, but live interviews allow you to go deeper into details. To do surveys well you need to know what questions to ask. Interviews help you understand which questions to ask.
- You don’t need a lot of interviews: One is better than zero, and rarely do you need more than three to five unless you’re creating an entirely brand new product and pitch.
- Don’t be discouraged by unproductive early interviews. It’s a skill. You’ll get better with practice.
- People open up to people. You’d like customers to share authentic stories with you, so be honest with them.
- Your interview shouldn’t feel like an interview. It should feel like a conversation.
- Listen carefully and you can discover surprising ways customers use your product or service, (un)conscious reasons they resist buying, and internal keywords and key phrases useful for sales and marketing copy.
You’ll get better at interviewing with practice.
When debriefing salespeople, also ask “Why is the customer doing this?” If they don’t know, or throw out assumptions, make sure they go and ask.
The more customers you listen to (not just pitch or sell to), the more you’ll be able to think like your customers and empathize with them.
Third: make your lawyers build apps
Want your people to “get customers”? Don’t just make them read about your product, have everyone use it.
Twilio has all employees—including assistants, recruiters, and lawyers—walk in the customer’s shoes by making every new employee create a Twilio app. They’re helped by Twilio developers who volunteer to teach non-coders how to code.
Then they present the app to the company. There’s nothing like a healthy dose of fear of public embarrassment to motivate people to take something seriously! It’s a smart Forcing Function.
Fourth: get customer feedback before you build it
Twilio has mountains of API documentation, which is a great description of the product capabilities. In fact, if you have accurate API documents, it perfectly describes what that API will do.
When Twilio contemplates a new API product, they write the documentation first, before they begin coding. Then they share the documents with customers. “Does this API solve a problem? Would you use it?”
How can you get product feedback before you build it?
Customers respond “yes, it’s perfect,” “No...” or “I want to do something like this, which API should I use?”
Product and services companies do the same thing by—before building a product—putting up a landing or sales page about the possible product to see if anyone wants it. Pre-marketing a product this way can help catch product or messaging problems early. It’s much cheaper and easier to fix mistakes before you’ve built the product.
Fifth: combine research + leaps of faith
It’s impossible to research your way to certain success. At some point, you need to take a leap of faith.
Twilio’s products are based around APIs (Application Programming Interfaces). Their users are developers who write programs that talk to Twilio’s programs. API products often start slow, because after you share your APIs with developers, they (1) experiment with them to figure out what they want to build, then (2) release a feature or product, and (3) iterate it until it works for users.
Through this process, a developer experimenting with Twilio’s APIs might spend 50 cents on API usage. Revenue from a new product like this usually won’t show up until much later, until long after important use cases are identified.
Twilio watches even small numbers while those developer users play with it, looking for common factors where it’s getting (or not getting) traction.
It’s impossible to research your way to certain success.
Twilio built its first video API product so companies could easily add video communications to their systems. Twilio figured customers would mostly build screen-sharing applications. Customers had other ideas.
Twilio saw remote tutoring. They saw people opening bank accounts remotely while chatting with an agent. Rather than waiting days or weeks for an appointment, they saw people get doctors evaluations in minutes. The main use was for freeing people from time and geography constraints in getting help from experts online.
Twilio went out to find more companies that needed this, whether in health care, finance, or retail. Jeff says “like with lead generation, we found a big opportunity in video by accident after we put our products into the market.”
Walk in customer shoes. Get great at empathizing. Research your opportunity. But you can’t research or whiteboard your way to success. Get your stuff into the hands of customers and watch what happens. And if nothing happens, that’s not a failure if you see it as useful information, too.
If nothing happens, that's not a failure if you see it as useful information, too.
The 20-interview rule
We know everything can’t go according to plan in any startup. It certainly didn’t for either of us. But if it’s early days, one suggestion: If you are planning to sell to an enterprise/businesses of any meaningful size: Don’t forget the 20-interview rule.
The 20-interview rule is simple: Before you write a line of code, finalize your niche, or take some other kind of leap, interview 20 real potential customers.
Not your friends. Not people you know. They have to be real potential buyers; that is, if you hope to sell to sales managers, you can’t interview a rep. You have to interview a VP or a Director of Sales or Sales Operations. And you have to do 20 of them.
We know it’s hard to get to 20, but it’s the right number: You need the first five interviews just to truly understand the white space and the current opportunity. Yes, you probably think you already understand it. But you are the vendor, not the purchaser. You need to understand your prospective app from the purchaser’s perspective, for real.
It answers three questions:
- Why aren’t you growing as you want / why has it plateaued?
- How can you speed up growth?
- How can you sustain it?
The new 2nd edition contains pieces such as “How Twilio Nailed A Billion-Dollar Niche”, “How Sagemount Triples The Value Of A Company”, and “Uncommon Approaches Of Hypergrowth CMOs”.
From Impossible To Inevitable can be found on Amazon here.
Excerpted with permission of the publisher, Wiley, from From Impossible to Inevitable, Second Edition by Aaron Ross and Jason Lemkin. Copyright (c) 2019 by Pebblestorm, Inc. All rights reserved. This book is available wherever books and ebooks are sold.