October 17, 2022
Portfolio
Unusual

How SessionM found product-market fit

Sandhya Hegde
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How SessionM found product-market fit How SessionM found product-market fit
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Editor's note: 

SFG 08: Lars Albright on customer loyalty

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In this episode of the Startup Field Guide podcast, Sandhya Hegde chats with Lars Albright, a general partner at Unusual Ventures and 2x cofounder who has spent his career building successful high growth companies as a founder, executive and investor. The last two venture-backed businesses Lars co-founded were acquired by Apple and Mastercard.

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Be sure to check out more Startup Field Guide Podcast episodes on Spotify, Apple, and Youtube. Hosted by Unusual Ventures General Partner Sandhya Hegde (former EVP at Amplitude), the SFG podcast uncovers how the top unicorn founders of today really found product-market fit.

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If you are interested in learning more about some of the themes and ideas in this episode, please check out the Unusual Ventures Field Guides on customer discovery, defining your ICP and building your go-to-market motion.

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TL;DR

  • The founding insight : Lars and his team wanted a better way to retain customers for the long haul and to create an advertising experience that actually benefited them, not just the company. 
  • Early design partners: A software development kit (SDK) was developed that would enable companies to launch a loyalty program directly with their consumers, thereby addressing the retention problem. The NFL, Zynga, and the Weather Channel were among the first of many to participate. 
  • Early use cases: There were three different sets of clients with three different sets of needs: 1) the advertisers, 2) the app developers, and 3) the app and users. All were initially very satisfied with the SDK and were reaping the rewards for the first few years. 
  • Pivoting to find product-market fit: Larger companies — AT&T, Rakuten, and the like — wanted their own white label solution so Lars and his team pivoted away from a coalition business to an enterprise software business. It was more lucrative and actually solved the retention problem since these larger companies had the means to fix any app-value problems. 
  • Core ICP: CRM leaders (VP of marketing, CMO’s, etc) specifically in fast casual restaurant retail; travel & hospitality; and CPG willing to pay significant amounts to address their customer retention problem. 
  • Growth tactics: Doing well in one vertical led other companies to request service in another vertical. Additionally, having partnered with companies that had global reach provided opportunities for international expansion. 
  • Advice to new founders: Don’t rush the early process of achieving product-market fit. Be ready to take a hard look at the data and ask yourself if you are really addressing the problem that you set out to solve. What indicators do you have that you are on the path to PMF or have achieved PMF beyond superficial indicators of success such as revenue or funding?

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Episode Transcript

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‍Sandhya Hedge

Our guest today is the incredibly accomplished and kind Lars Albright. Say hello, Lars!

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Lars Albright

Hey there!

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Sandhya Hedge

I'm really lucky to call Lars my partner at Unusual Ventures, where he leads our seed and series A investments and all things vertical SaaS and fintech. But Lars is actually a three-time founder of enterprise software and has sold two startups to Apple and MasterCard respectively. His last startup, SessionM, was a pioneer in mobile loyalty and even today powers the loyalty infrastructure for Fortune 1,000 brands. And it has been one of the most interesting lessons and the journey to product-market fit that I have heard about in recent times. So I'm just so excited for this session. Lars, how are you doing today?

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Lars Albright

I'm doing well, happy to be here!

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Why Lars Albright started SessionM

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Sandhya Hedge

So I think to kick things off, it would be great to just go back all the way to 2011 and hear from you about what was happening at the time. You were working at Apple, your previous startup had been acquired… what motivated you to start SessionM?

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Lars Albright

Yeah! I'd say, going back to 2011, a couple of big themes started to emerge in the market in 2011. For one of them, I had an interesting lens from my position at Apple to see what was going on in the app ecosystem for iOS developers. One of the common things that came up when I looked at data over and over again is that you'd see these retention charts. You'd look at retention after seven days, and then after 14, and 21 to 30, and then 60 to 90. And one thing was consistent: with the exception of very, very few apps, you'd have this incredibly steep decline in consumer retention and engagement. And you'd see it over and over again. And at the same time, you'd have apps coming to us saying, “Why can’t I make any money on my app? I've launched it, I got some consumers, I spent a bunch of money on acquisition. But I'm still not able to build an enduring business.”

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And so that started to get me thinking and get my co-founders thinking about how there's a missing solution in the market around retention. There's so much focus on acquisition. And then you saw — and this has continued through to this day — acquisition costs go up. But we realize that if you ignore the retention component and you don't drive the LTV [lifetime value] of your new customers, you just have that whole leaky bucket syndrome where you acquire customers and they go right out the bottom. So we saw retention as a big issue.

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And then the other thing that we saw, which is also pretty relevant today, is a broken system around monetization. We really didn't like — and I know you share this belief too — we really didn't like this notion of taking advantage of consumers and saying, “We're just going to try to track you as much as we can, deliver up ads, and make money” …[because] that ultimately wasn't adding to the customer experience. I think if you polled most consumers, it was actually taking away from the customer experience.

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And that was one of the things when Apple acquired us; and Steve [Jobs] was involved in that deal. He said, “I want to make advertising beautiful and a positive experience.” And he had a vision to take it in that direction in terms of high-end, brand-based advertising. But still, that wasn't quite enough, in our view, to really provide the right experience for consumers. So that's where we got in this whole kick around needing to provide a value exchange to consumers in order to have them want to give you their time and attention, which is really paramount; and then, even further, to want to engage in any type of branded sponsor advertising experiences. So you put those two things together around retention and this belief that there needs to be a better system that provides value for consumers, and we started to get really interested in what next-gen loyalty would look like. That was sort of the original idea.

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Then combining that with some of the things that my co-founders had seen from their gaming experience; they had sold their last business to Scientific Games; we started to come together and think about how we could provide, at that time, a mobile-focused, new form of loyalty that would really fix: the retention issue; drive a better experience for developers; and then ultimately, make them more money and create a more sustainable ecosystem for the app developers. And we thought about how to do this across iOS, Android, and mobile web. So that was the origin back in 2011, when we got going and what we started with.

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Early design partners for SessionM

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Sandhya Hedge

Right. And the original product idea was called “mPlus Rewards.” Can you tell us a little bit more about the business model behind that idea?

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Lars Albright

Yeah. So our thought at that time was that we could take that thesis we had developed around retention and better value exchange, and we could launch what is often called a “coalition loyalty program.” You can think of airline programs as a good example of this. American Express launched something called “Plenty” a few years back... basically, it's getting businesses to participate in a system or a community where consumers can benefit across those various participating businesses. So we thought, “Okay, that's interesting. Could we be one of the first to do it at true scale within the mobile app ecosystem?” 

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So we developed an SDK [software development kit]. We convinced a bunch of different app developers and big developers–from the weather channel, to a bunch of Zynga games, to the NFL, and others–to take our SDK and install that. And what they were able to do was then launch a loyalty program for their consumers that motivated their consumers, first and foremost, to establish a relationship directly with the application and with us as the provider of this coalition program. 

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So we had this great community with first-party data. Then it motivated consumers to interact with the application. So it could be things like, “Do you want your consumers to come back five days in a row? Do you want them to recommend it to a friend? Do you want them to interact with three pieces of video content?”

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Basically, what we were trying to do is create habits and behavior that would solve the declining retention. Our belief was that if you could get people motivated to do content engagement early, it would create this habit that would ultimately have them stick around longer if they were enjoying the application. So that was at the core.

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And then the way we amplified the experience was that if you wanted to interact with sponsors and brands or fill out surveys, you could earn this mPlus rewards currency that could then be redeemed in a reward storefront for things like sweepstakes and gift cards and charitable donations. What was interesting is that if you signed up for one app and you had other apps that you use, you could do it across all your applications, earn this common currency, and feel like you're getting rewarded for your time and your behavior. 

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This was very successful in creating a lot of adoption from consumers. We got 2,000+ apps onboard and we had 10s of millions of monthly consumers interacting with the system, so we were able to monetize it quite effectively from the advertising front. 

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Our pitch to advertisers was that this was not an advertising network like a traditional network. Rather, it's one where we have a direct relationship with all these consumers: we know a lot about them because they volunteer this information; they really like our system because instead of feeling like ‘someone's just tracking me without my permission’, they're getting value; they've opted in and get rewarded for their time and attention; and then they can go get tangible benefits for that. For the developer, they were getting the benefit of having happier consumers and people were sticking around longer. So that was our first belief, or our first go-around and strategy, and how we wanted to apply what we were doing.

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Sandhya Hedge

I think what's really fascinating about it is that it's almost like you had three different sets of clients: you had the advertisers, you had the app developers, and you had the app and users. It's fascinating, because how do you talk about product-market fit in this context where you have three different sets of people with three different sets of needs — not all of which are perfectly aligned with the other's needs, right? 

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You have advertisers who really just want a lot of engagement on their ads and want to see that converting into revenue. You have developers who just want your app to be extremely fun and don't necessarily want their users to see many ads. And then you have end users, who don't want someone else to own their data and don't want a lot of ads, and want to try a lot of free apps.

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I remember back in the early days of the mobile revolution. No one wanted to pay for mobile apps. It was very much like, “Oh, this is supposed to be free.” Thankfully, that is not true anymore, so we don't live in a world where everything has to be monetized by advertising. But the fact that you had three different kinds of features (customer fits) to find with one product is really fascinating. 

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Could you share a little bit more about what happened when you launched? What kind of feedback did you get in the market? How much traction did mPlus Rewards have?


Early use cases for SessionM

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Lars Albright

When we first launched, the feedback was really strong. We got, from all three of those constituents, a really good response. Consumers liked it. They were opting in. They felt like they were finally getting payback for the time they’re investing in this application or looking at these ads — which I get are part of the whole powering the free app environment, but they just want to feel like they’re also getting some sort of reward for that. So that was great. We got lots of signups there.

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The developers were happy initially because they felt “okay, this is good.” I'm also forgetting, one thing to mention about the model, is the developers, they got a cut of the revenue that we generated. So not only was it a retention tool for them, it was an additional monetization tool for the developer. So they were happy. 

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And then advertisers were happy if you could deliver scale and you can deliver performance based on various metrics. So if you're actually driving click-through rates and then ultimately driving conversion, that's what makes them happy. If they can deliver insertion orders at scale and get the right performance vis-à-vis other alternatives. And they can back into a price that makes sense whether it's on a CPM or CPC or CPA basis, or a CPI on installs.

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So initially the momentum was quite strong. We doubled our revenue each of our first few years and got the business up to north of $30 million in top-line revenue with a plan that would have doubled again, so really rapid growth.

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When I take a step back and think about that, we really hit the ground running. We had a smart customer acquisition strategy because we did it through our app developers, who installed the SDK and promoted that program to their consumers. We were able to build quite a bit of momentum early.

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But that didn't last. That shifted a bit across these constituents. One of the challenges we found is that regardless of what mechanics we were putting in place — from a coalition loyalty program and trying to get people to create those early habits – while we could do it for a little bit, we couldn't fundamentally change the long-term trajectory of retention for applications that just didn't have the right underlying value. 

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What we couldn't do is go in and fix an app. If a game wasn't really effective at drawing consumers in, we couldn’t go in and  change that app. Or if a news app was just more redundant to other new sources, we couldn't necessarily go in and change or make that more unique.

We could improve it for a period of time, but we really couldn't fundamentally change those application experiences enough to look six months down the line to see that you really were driving different retention. 

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So we started to see some declining results there. Then when we really looked at our most active consumers, the numbers started to get a bit smaller. And we said, well, that's not really going to be in great service to our sponsors and advertising community. We just started to see some areas of weakness in these various constituents. Now, not all were dramatic, but enough that we were taking note. We were always very focused on what our consumers were telling us. So that was that. 

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Then for the other piece, we looked at the business model and we started to say, “Okay, we're signing up developers, but we've got to pay them a pretty steep price, which is somewhere in the 40-50% of our revenue share. We then also have to fund a rewards storefront that has gift cards and sweepstakes, and we've got to make that valuable enough for consumers. That's expensive.” That's another, you know, 20 points off the top of your margin. So you're left with a fairly low gross margin business. And you put those things together, and we said, “Okay, we’ve got really strong top-line growth and we've got good user numbers, but they’re not necessarily trending the way we want them to. We have a monetization play that's working. But if the user numbers start to go down, that's going to start to go down.” And we didn't like the unpredictable nature of ad models.

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One of the reasons why ad models became so unpopular is because, unlike SaaS, they can spike up and they can go down. You don't have this very predictable month-over-month recurring revenue. You've got more volatile revenue, potentially. When you hit challenging markets, businesses that don't have that locked in are in more trouble. We didn't love that characteristic. So all of these things came together. I give our team a lot of credit for us to say we still have a lot of belief in what we're doing and the core notion around retention as a service. But we believe that we can potentially apply this in a better way.


Pivoting to find product-market fit

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Sandhya Hedge

Right. What I think the big generalizable lesson I take away from it is that you kind of identify two problems right up front: retention and monetization.

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You had an excellent solution for monetization that actually aligned the interests of these three different constituents. But mPlus Rewards, in its original avatar, didn't really solve the retention problem. The fact that, if the app is kind of a flash in the pan – which by the way, I remember the early days of Amplitude, a lot of these apps were Amplitude customers – and it would make us so nervous to see them getting really big spikes and user engagement, and all the data volume would go up. They'd be spending so much money on analytics! And then we would see them just falling off a cliff because people were really, really excited about this new game for three hot weeks. And then they'd be like, “Yeah, I don't want to play this anymore.” So that's like a cold retention challenge that this coalition strategy perhaps was just not solving. It's really incredible that you had all this traction, but at some level, you would argue that you didn't have product-market fit because even though all the customers really wanted this to work, at its core, the retention problem was not being solved.

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Lars Albright

Yeah, at least not being solved for long enough to think it would be solved early. I think it’s fascinating that revenue can fool you into thinking that you have product-market fit. It can make you think that you're getting real momentum on the revenue side. 

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But if you're not really thinking about, “is that true product-market fit?” The answer sometimes is that you’re not. We had such dramatic growth on that side that it took us a little while to recognize that. 

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Ultimately, we also needed to see things play out over time to look at these trends and we recognized that we didn't believe that we had true product-market fit in a way that would scale to be the type of value we wanted from the business. And so we could have kept growing top-line revenue and kept making tweaks here and there. But ultimately, we also really believed that the challenge still existed, and we had an interesting approach to it. 

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That's right around the time, when we were thinking about the business dynamics, we had a couple of customers or potential customers come to us - this was AT&T and Rakuten, the Japanese e-commerce player - and say, “We love what you're doing around retention and loyalty and customer engagement and using data to drive better customer experiences. That's all great. But we don't want to do it as part of a coalition. We'd love to do it for our own business with our own white-label solution. Would you consider doing that?” 

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That's what got us thinking huh, okay we could take this platform, turn it into an enterprise software model, create a basis that will be applicable across various verticals, and then go out and deliver, not as a coalition but individually, to these enterprise customers. The beauty of it is that it really took off pretty quickly. We had very large ACV deals early. We signed up AT&T, we signed up Rakuten, we signed up Kimberly Clark, we signed up Coke. They were paying us for these big deals; half a million and even upwards of a million dollar ACV deals. It really started to make us think this direction is viable.

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That's when we started to go through the hard pivot of winding down the coalition business while we built up the enterprise software business. We really worked on starting that off. That was probably about three years into the business when we really started to make that change.

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Sandhya Hedge

Got it. And could you spend more time on how that pivot happened? For example, did you have to change the team composition? Or did you just kind of change what people were focused on? What did it feel like in the boardroom when you were trying to figure out your goals for the quarter when you had one live business with over 30 million in gross revenue and were trying to pivot and sell this completely new product to fairly different customers? How did you actually navigate that pivot process and what did the execution plan for it look like?

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Lars Albright

Yeah so, first of all, it was much harder than I thought it would be at the time. I naively felt, “okay, we make this decision. Six months in and we'll be fully on our path.” But there are so many things that go into it. It's where I joke with people, you know, back in the Quattro days, we actually had a very early pivot a couple of months into the business just in terms of our focus. This one was a few years into the business. It's far easier to pivot earlier than it is later, particularly when you have dozens of customers and millions of consumers – and the market also gets to know you in a certain way – so there’s a branding element and a go-to-market element that's big on this.

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Also, you bring up a great point on the board level. They were happy with the fact that we were continuing to show really good revenue, although I'd say a couple of things – I've talked about this to other founder CEOs and I was sharing with them some of the concerns about the business, which I think is an important thing that you have to do. You want to be transparent if you have some questions. So we did have some good board discussions around that which was a helpful foundation so it wasn't a complete shock to them.

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I'd say the thing that really did help, which is really just good, fortunate timing, was having a couple of customers that validated this new direction. I think it's much harder when you go to a board and say, “You know what, we're going to make this dramatic move, and we're going to shut down one line of revenue that's growing. We're gonna do this new direction, but we're just not sure what's going to happen. We'll see.” 

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Instead, we could say that we're going to go in this new direction, which still builds off the foundational elements in the platform and our core thesis in the market. But we think we've got a much better way to apply it, a better business model, recurring revenue, overall a more viable plan to build a large sustaining business. And we've got this early customer traction from real brand name logos that are saying they need this. 

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That gave the board a bit more comfort to say, “okay, we can fully support it.” And to their credit, once we had that set of discussions, they got fully behind it. They said, “Great, let's go do this! We believe in the direction and the team, and we're going to support you in doing that.” So I have a lot of respect for the board for them to think differently about the business, get on board, and be really helpful in helping us build the next chapter. So that was at the board level.

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From a team perspective, you've got to look at the team not only from the senior leadership team, that needs to get everyone on board with the new direction. That was pretty quick, because people all had a role in playing a part in this new strategy. But where it gets more complicated is thinking about how your product team functions. What are the types of engineers you need on board? What new talent do you need to recruit on the go-to-market side? It's very different.

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We did nothing on the advertising side anymore. It was all about SaaS-based selling. We needed to build up that entire new team and then a whole new go-to-market motion, build the top of the funnel, and get in front of analysts to show them our approach. There were a lot of things that had to go through the business. And, back to my naive assumption that maybe we could do this in six months, it really took a little over a year to go through that… and probably even longer to really, fully have the market truly understand our approach. So that was hard. I mean, there's really no other way to put it. Those were hard.

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There's a book called “The Messy Middle.” This was the messy middle for us. There was progress in some areas, then we went back in other areas, progressed, went back… Eventually, we powered through and got to a point where we had the right organization, the right go-to-market motion, and the right branding in the market so people understood what we did. And we built up incredible momentum with these great Fortune 500 logos.

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Sandhya Hedge

And with the previous business of mPlus Rewards, were you still maintaining the contracts you had with your customers there? How did you approach sunsetting the previous business?

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Lars Albright

We looked at it systematically and, as quickly as we could, tried to get out of any contractual obligations.

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There were some that we just couldn't, we had to stay with for longer, but we were very disciplined and at times had tough conversations with developers who were saying, “Wait a second,” -  because some people were very happy. They're like, “Wait, why? Why are you shutting this down?” - so we worked on that and we just went after each kind of relationship. Some were easier, some were harder; that’s what took 12+ months, getting fully out of those. At that point, we were out entirely. We didn't have any contracts that straddled the old business and the new business. I think that was an important part of fully transitioning into chapter two. 


SessionM’s core ICP

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Sandhya Hedge

Got it. And this time around, what are some of the product-market fit indicators you were looking for, given what you just went through with mPlus Rewards? What was the different metric or different feeling that you needed to say, “Yes, this direction is not just promising, but this is the right way to go… And here's how tangibly it feels different from the previous three years?”

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Lars Albright

Yeah, so part of it is that we were able to find customers where there were buyers that really had this need. So we were able to go to CRM leaders – could be VP of marketing and CMOs - we were able to go find these people within organizations, and they'd say, “Yes, I need something that's going to help me drive retention and customer loyalty. I don't have it. I need it as of yesterday. If you can help me solve this problem, this is going to be incredibly important for my business.” 

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And the other piece that is really critical – and this is extremely relevant today with what's going on with the changes in iOS and the changes in Android – is that businesses were tired of being disintermediated by third-party networks. They wanted to make sure that they established a relationship with our customers. 

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One of the best ways to do that is through customer loyalty programs that actually invite you into the program. So if you think about it, a lot of it is a permission-based data acquisition play where you go from knowing nothing about your customer, to having a customer profile, to having a way to reach out to them. You can then communicate with those individuals. You can deliver personalized offers and you can get behavioral data on them to ultimately drive a better experience. And that trend started a while ago with companies realizing that they wanted that direct connection. We were hearing that in organizations, time and time again, and that was powerful. 

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It was still an enterprise sale, you had to go in and it was not easy, but there was definitely a receptive audience across these core verticals. We focused on retail (fast, casual kinds of restaurant spaces with companies like McDonald's, or Chipotle, or Starbucks); we focused on travel and hospitality; and then CPG. We built a motion around those verticals and were able to build success in some case studies and go out and start to create real momentum. 

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So one of it is that we felt the market need; we found buying personas within the organizations that were receptive to it; and then also, we validated that they were really willing to pay significant dollars for it because it was such a need. And then I'd say the other pieces were, once we got launched with some of our early customers here, the performance was effective. So unlike before, where we started to feel like “oh no, is this really gonna drive retention for these applications (that you can't totally fix)?” In this case, it was really driving business impact. It was allowing them to deliver better experiences for their customers, and build more customer loyalty, have more data, and it was an important part of their overall CRM strategy. So those elements of recognizing those market needs, seeing receptivity from the potential buyers, and then seeing performance, made us feel like “okay, we have something here.” 

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Now, a separate conversation was that we certainly developed product-market fit, but did we have a truly scalable approach is a bit of a different story because we were going into big enterprises. They were pushing us around and saying, “we're happy to license your platform, but we need these services and this customization, this middleware.” And that was a whole other element to the true kind of scalable product-market fit, which is something that is very challenging on the enterprise side.

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SessionM’s growth tactics

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Sandhya Hedge

Let's dig into that a little bit more. First, I just want to level set. What does it look and feel like as a startup to be working with Starbucks or a really large company? For example, often we tell founders, if you're going to do a top-down sales cycle, that takes months. You have proof of concept. You have to go through security since you’re working with Fortune 500 companies. Your contract value needs to match that sales cycle, right? A long sales cycle means large contract value. What did that look like at SessionM? Did you guys feel like you had a good match between how long the sales cycle is and where you’re able to land with these big logos?

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Lars Albright

Yeah, we did. That's one thing that we were able to do. We had a long sales cycle, kind of a six to six-plus month sales cycle, but we were able to match the ACV to that in a pretty significant way. We, even early on, had deals that were paying us $2 million a year and ACV $500,000. Some of them skewed us up, but on average, we were in that $500,000 - $600,000 a year ACV. That can allow you to successfully support the unit economics of your direct sales team and deal with long cycles. And remember that it's not just the sales cycles, it's also implementation cycles. In an enterprise, deployments are not 30 days, they can be several months as well so you do have this lag in the business.

What worked for us is that our deal size was large enough that we were able to put a pretty dramatic growth of going from effectively zero to over 30 million in recurring revenue close to the time of our exit, so it is something that I have a lot of respect for, or a healthy respect for, that if you don't have that match, it can be very painful.

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Sandhya Hedge

What did it feel like to negotiate all the custom requirements and pricing with a large company? What was your approach? What are some of the pressures inside the startup and your lessons today from that experience?

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Lars Albright

The pressure was intense. When you have one of these big deals that you think you can go get, that you know is going to be very impactful to your growth in your business, and it’s going to help you build momentum, the pressure is to be flexible to get that deal done. And I think we were good in that we drove strong pricing, so we were disciplined on that front.

Where we were overly flexible, and we started to learn this as we went through, is in the customization request the, “oh, we just need you to do this.” And that's something that we definitely had to move fast and fix things later when we came to some of that. The challenge is, given our success of signing on all these large enterprise companies, it got harder and harder to go back and fix everything. So you start to build up tech debt that you need to go deal with. And so that's something that I think you have to be mindful of: there's an element of realism you have to have when you're going to negotiate with a massive company; you need to have some flexibility, but if you go too far outside of the scope of your platform and what you want to do for your roadmap, you spend a lot of time going back and playing catch up. And that's something that we had to do. But generally speaking, our team did an amazing job of knocking down these big logos and bringing them in. From that perspective, it was really working quite well. The delivery side gets complex. 

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In the midst of this, we also brought on an equity investment from Salesforce that led one of our rounds. We formed a really tight go-to-market partnership with them that also fueled growth. Because we were aligned with them, we had integrated offerings that made it easy for our joint customers to buy both products and bring us on. We motivated their sales team with incentives and compensation; that worked incredibly well. We had a nice momentum building there too. So a lot of rapid growth in this business.

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I'd say probably the biggest lesson is that piece where you have to stay disciplined to what your core offering is. Services are going to be an element of it, without a doubt. Because they're enterprise customers, they want some services, but you have to think about that really strategically so you don't end up going too wide.

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Sandhya Hedge

Sounds like you want to separate out “Okay, yes, we'll build this custom product” versus “no, we'll handle that in professional services, we just need to make it work for you and don't have to build something we have to maintain.” Could you share a little bit more about where some of the more challenging customization requests came from? Was it integration? What was it that people usually asked for that required custom work? And in hindsight, what was your framework of ‘this is the stuff we should have pushed back on’ versus ‘yeah, this is the stuff that was a good idea to do even in hindsight’?

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Lars Albright

Yeah. There are a bunch of them. Integrations are definitely one. We worked with point-of-sale systems as well. So one of the elements that we did is that we delivered personalized offers in real-time at point-of-sale. That was a part of our overall customer engagement loyalty offering and point-of-sale integrations are challenging.

Usually, it's not the top line of “oh, we can integrate with x-system.” There's always some sort of difference with how a company or vertical deals with that integration, that you end up having to say, “Oh, well, our out-of-the-box integration didn't really work here.” Which we didn’t necessarily know that in scoping, so then we had to quickly create a solution. 

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But was that solution really built to endure across multiple customers? The answer there is, typically it's not because you're moving quickly. So I'd say one of those things is integrations and understanding the complexity. We didn’t fully appreciate the variations of integrations and how they work across different customer sets. We’d just say, “oh, yeah, sure, we can do that integration.” So those are things that we had to learn through or work through.

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The other interesting one for us, working with big enterprises - many of them were and are global organizations -  they pulled us into international markets far sooner than we were ready to go. They basically said, “okay, you don't want all of Europe, or you don't want to be in Southeast Asia with us, then fine. We'll go find another vendor.”

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Of course, at that point – back to your question about “how do you feel as a start-up?” – you don't want to give up any ground. You want to continue to expand and grow that. So we were pulled in. The way we thought about it at the time was that it was positive and that we were having global expansion and that it was so exciting, because it's a larger addressable market, which is all true.

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But it's incredibly complex to launch in all these different markets. We launched in Malaysia and Singapore and throughout Europe, and there are all sorts of things to consider, from data residency to language localization to different integrations and different partners you need to have. You have to consider how to support these customers and how to think about your customer success program and all these different things that you jump into without even having fully appreciated that. 

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I remember, with one deal that we did, it was with a Malaysian-based retailer. I was feeling a lot of pressure to hit a quarterly number. I wondered if we could really pull it off. We convinced ourselves that we could, and eventually we did! But it required a fair amount of hard work and pain to get to the point where we could support that effectively. 

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So, things like that are a couple of integration keys, the depth of them and the variations that come up; thinking carefully about international expansion and making sure that if you do build any middleware that it has the right SLA associated with them; sometimes those can become disorganized. There has to be a lot of discipline around that middleware development. 

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Then the last one is vertical expansion. We would often have success and then another company in a different vertical would come to us and say, “Oh, great! We want to do what you're doing in fast-casual restaurants” or “we want to do it for airlines.” Then you say “Great, that sounds like it’s the same core problem and the same customer retention, customer profile, real-time data management… But then you go into that vertical and there are so many nuances and different systems that you need to then go learn about and integrate effectively with. And that takes a lot more time than you realize. You also have to build a whole go-to-market and sales motion around that and a marketing motion.

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So the notion that you can just quickly expand into verticals is also something that we learned and realized that we really had to take a step back and make sure we were prepared from a product level and a marketing level and just organizationally to go attack these new verticals.

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Sandhya Hedge

It's just fascinating how you have to be so careful about your timing: when you go broad and when you go deep. It sounds like, in hindsight, you felt like you went broad a little too early. But I'm curious, did that eventually become an asset? Because you had a global acquirer like MasterCard, who potentially might have valued the fact that even though you're a startup and you're relatively small, you have presence across a lot of different verticals, a lot of different geographies. I could see how that would be a great asset for an acquirer like MasterCard.

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Lars Albright

Yes, you're absolutely right! That actually was an important part of their consideration. Because they're a global organization, they were not interested in just a North American business, so from that perspective, it really did help us to show that we had, at a minimum, at least thought through what scaling globally means. Now, at MasterCard and as we've learned and I learned when I was there, it's a totally different level of scale and it's a totally different global operation - one of the world's most global, in the sense of what they do on a real-time basis, every minute, but that was an important part of our attractiveness to what they were trying to do. So yes, in some ways, that really did work. But I'd say the other thing, too, just going back, we were doing a lot of this on a pretty quick timeframe because we were kind of making up for lost time, we'd had Chapter One of the business, and we were really trying to make a lot of progress. And I think, you know, in hindsight, if everything were perfect, and you had a couple more, either 18 months, 24 months to really build that base, and then grow from there, that would have been smoother. But as I've talked about before, one of your things as a Founder and a CEO and a founding team is you've got to adapt,, it's never going to be exactly the way you think it is. It's never going to be totally perfect. And really, it's the best teams that can be flexible, adapt, and then have the persistence and the fortitude to go see that through. And that's where I give our team a lot of credit.

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Sandhya Hedge

And what would be your advice to founders today, when someone is out there in the market raising a Series A, and they're like, ‘Well, we have 500k and ARR, we have Product-Market Fit’. What is usually your response, what questions do you ask, and what advice do you give folks when you feel like they have revenue but not Product-Market Fit?

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Lars Albright

I mean, I do think revenue is a great indicator of value. I think, particularly when it comes from institutions that have some credibility behind it, I know how hard that is to do. So I do respect that on that level.

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Sandhya Hedge

It means you're solving a problem that there is real demand for.

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Lars Albright

Right. There's real demand for it, and there's smart people on the other side of the table that are buying the solution and so I think it's great. I wouldn't shy away from it. I also think it's incredibly motivating for an organization. There are pros and cons to this. But sometimes, you see founders wait too long to go live and start generating revenue because it's very clarifying for an organization. There is nothing like a real customer to get you to really deliver at a higher level. That can be very effective to move you forward faster. But the things that I do look for are, how repeatable is this? How skilled, fine, you might be able to scale to 5 million or 10 million, or 15, or 20. But what, what's gonna get beyond that? How do you get to 100 and 200 million of recurring revenue? And is there a path that really feels like you can do that in a way that, back to my points around repeatability and scalability. Those are really important things. So I do look a lot for that, just knowing some of the growth challenges we had to go through to get to the other side. That's a really important piece. Yeah, so I think when I see revenue, I like it, I have a lot of respect for it, as I said, but I would say you have to think a little bit beyond those first chats because that's the other thing too. People sometimes get to a milestone, they're so focused on getting to maybe that first million of ARR or 5 million, and you do whatever it takes to get there. But then it's really okay, what's next, like, you've got to then have the next chapter. And it has to be building on the strong foundation that you've put in place at first.

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Sandhya Hedge

Right. Yeah, obviously there’s some responsibility the investor ecosystem and folks like us have to take for this too, but once you start generating revenue, it can feel like you're on the revenue treadmill, like every quarter, you need to show that you are growing faster or better than the previous quarter. And it's really hard to get off that treadmill and say, yes, there's demand for what I'm building, but I'm not quite solving the problem in the right way. And either I don't have the end results, or I'm building too much custom software for each client. It's not a repeatable scale, like, stepping off the treadmill and forsaking revenue, so you can change your product. You can pivot. It’s extremely hard. But you know, the right thing to do for the long-term future of the company. 

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Lars Albright

Yeah, that is a great point and something that I completely agree with. This goes for both sides of the table as investors and as founders. You need to think really carefully about this. Once you effectively start on the revenue piece, as you said, it's really, really hard to pull that back. Many founders don't even realize that they've started it. They’re like, ‘Oh, wow. Shoot, I put up, you know, $80,000 this quarter.’ Okay, but now it started, like, you don't really want to then say, ‘Oh, well, next quarter, I did $20,000.’ It's typically got to be growth quarter over quarter, year over year. And so that treadmill is real, and that is a lot of pressure! I mean, and you've dealt with this in your past roles, having that pressure, particularly for a founder CEO, is really intense. And so you then have to start managing to that revenue growth as opposed to necessarily going back and making absolutely the right foundational decisions for the product. So I think I'd say back to your original question, just be really careful that when you have decided to put that revenue up, you have a really good plan to continue that growth trajectory. Otherwise, you're gonna have a lot of challenges and explaining to do.

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Sandhya Hedge

Well said. Thank you so much, Lars, for spending time sharing the story of SessionM with us. I'm sure it's been incredibly useful for so many founders listening in. If anyone wants to reach Lars, you can reach him on LinkedIn. If you're in the vertical SaaS space or doing something around loyalty or Fintech, do reach out. He's just incredible. I've seen him in action, and he’s just an incredible advisor to have around your table. And it will be super, super valuable to get his advice. Thank you so much for spending this time with us, Lars!

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October 17, 2022
Portfolio
Unusual

How SessionM found product-market fit

Sandhya Hegde
Sandhya Hegde
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How SessionM found product-market fit How SessionM found product-market fit
Editor's note: 

SFG 08: Lars Albright on customer loyalty

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In this episode of the Startup Field Guide podcast, Sandhya Hegde chats with Lars Albright, a general partner at Unusual Ventures and 2x cofounder who has spent his career building successful high growth companies as a founder, executive and investor. The last two venture-backed businesses Lars co-founded were acquired by Apple and Mastercard.

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Be sure to check out more Startup Field Guide Podcast episodes on Spotify, Apple, and Youtube. Hosted by Unusual Ventures General Partner Sandhya Hegde (former EVP at Amplitude), the SFG podcast uncovers how the top unicorn founders of today really found product-market fit.

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If you are interested in learning more about some of the themes and ideas in this episode, please check out the Unusual Ventures Field Guides on customer discovery, defining your ICP and building your go-to-market motion.

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TL;DR

  • The founding insight : Lars and his team wanted a better way to retain customers for the long haul and to create an advertising experience that actually benefited them, not just the company. 
  • Early design partners: A software development kit (SDK) was developed that would enable companies to launch a loyalty program directly with their consumers, thereby addressing the retention problem. The NFL, Zynga, and the Weather Channel were among the first of many to participate. 
  • Early use cases: There were three different sets of clients with three different sets of needs: 1) the advertisers, 2) the app developers, and 3) the app and users. All were initially very satisfied with the SDK and were reaping the rewards for the first few years. 
  • Pivoting to find product-market fit: Larger companies — AT&T, Rakuten, and the like — wanted their own white label solution so Lars and his team pivoted away from a coalition business to an enterprise software business. It was more lucrative and actually solved the retention problem since these larger companies had the means to fix any app-value problems. 
  • Core ICP: CRM leaders (VP of marketing, CMO’s, etc) specifically in fast casual restaurant retail; travel & hospitality; and CPG willing to pay significant amounts to address their customer retention problem. 
  • Growth tactics: Doing well in one vertical led other companies to request service in another vertical. Additionally, having partnered with companies that had global reach provided opportunities for international expansion. 
  • Advice to new founders: Don’t rush the early process of achieving product-market fit. Be ready to take a hard look at the data and ask yourself if you are really addressing the problem that you set out to solve. What indicators do you have that you are on the path to PMF or have achieved PMF beyond superficial indicators of success such as revenue or funding?

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Episode Transcript

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‍Sandhya Hedge

Our guest today is the incredibly accomplished and kind Lars Albright. Say hello, Lars!

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Lars Albright

Hey there!

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Sandhya Hedge

I'm really lucky to call Lars my partner at Unusual Ventures, where he leads our seed and series A investments and all things vertical SaaS and fintech. But Lars is actually a three-time founder of enterprise software and has sold two startups to Apple and MasterCard respectively. His last startup, SessionM, was a pioneer in mobile loyalty and even today powers the loyalty infrastructure for Fortune 1,000 brands. And it has been one of the most interesting lessons and the journey to product-market fit that I have heard about in recent times. So I'm just so excited for this session. Lars, how are you doing today?

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Lars Albright

I'm doing well, happy to be here!

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Why Lars Albright started SessionM

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Sandhya Hedge

So I think to kick things off, it would be great to just go back all the way to 2011 and hear from you about what was happening at the time. You were working at Apple, your previous startup had been acquired… what motivated you to start SessionM?

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Lars Albright

Yeah! I'd say, going back to 2011, a couple of big themes started to emerge in the market in 2011. For one of them, I had an interesting lens from my position at Apple to see what was going on in the app ecosystem for iOS developers. One of the common things that came up when I looked at data over and over again is that you'd see these retention charts. You'd look at retention after seven days, and then after 14, and 21 to 30, and then 60 to 90. And one thing was consistent: with the exception of very, very few apps, you'd have this incredibly steep decline in consumer retention and engagement. And you'd see it over and over again. And at the same time, you'd have apps coming to us saying, “Why can’t I make any money on my app? I've launched it, I got some consumers, I spent a bunch of money on acquisition. But I'm still not able to build an enduring business.”

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And so that started to get me thinking and get my co-founders thinking about how there's a missing solution in the market around retention. There's so much focus on acquisition. And then you saw — and this has continued through to this day — acquisition costs go up. But we realize that if you ignore the retention component and you don't drive the LTV [lifetime value] of your new customers, you just have that whole leaky bucket syndrome where you acquire customers and they go right out the bottom. So we saw retention as a big issue.

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And then the other thing that we saw, which is also pretty relevant today, is a broken system around monetization. We really didn't like — and I know you share this belief too — we really didn't like this notion of taking advantage of consumers and saying, “We're just going to try to track you as much as we can, deliver up ads, and make money” …[because] that ultimately wasn't adding to the customer experience. I think if you polled most consumers, it was actually taking away from the customer experience.

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And that was one of the things when Apple acquired us; and Steve [Jobs] was involved in that deal. He said, “I want to make advertising beautiful and a positive experience.” And he had a vision to take it in that direction in terms of high-end, brand-based advertising. But still, that wasn't quite enough, in our view, to really provide the right experience for consumers. So that's where we got in this whole kick around needing to provide a value exchange to consumers in order to have them want to give you their time and attention, which is really paramount; and then, even further, to want to engage in any type of branded sponsor advertising experiences. So you put those two things together around retention and this belief that there needs to be a better system that provides value for consumers, and we started to get really interested in what next-gen loyalty would look like. That was sort of the original idea.

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Then combining that with some of the things that my co-founders had seen from their gaming experience; they had sold their last business to Scientific Games; we started to come together and think about how we could provide, at that time, a mobile-focused, new form of loyalty that would really fix: the retention issue; drive a better experience for developers; and then ultimately, make them more money and create a more sustainable ecosystem for the app developers. And we thought about how to do this across iOS, Android, and mobile web. So that was the origin back in 2011, when we got going and what we started with.

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Early design partners for SessionM

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Sandhya Hedge

Right. And the original product idea was called “mPlus Rewards.” Can you tell us a little bit more about the business model behind that idea?

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Lars Albright

Yeah. So our thought at that time was that we could take that thesis we had developed around retention and better value exchange, and we could launch what is often called a “coalition loyalty program.” You can think of airline programs as a good example of this. American Express launched something called “Plenty” a few years back... basically, it's getting businesses to participate in a system or a community where consumers can benefit across those various participating businesses. So we thought, “Okay, that's interesting. Could we be one of the first to do it at true scale within the mobile app ecosystem?” 

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So we developed an SDK [software development kit]. We convinced a bunch of different app developers and big developers–from the weather channel, to a bunch of Zynga games, to the NFL, and others–to take our SDK and install that. And what they were able to do was then launch a loyalty program for their consumers that motivated their consumers, first and foremost, to establish a relationship directly with the application and with us as the provider of this coalition program. 

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So we had this great community with first-party data. Then it motivated consumers to interact with the application. So it could be things like, “Do you want your consumers to come back five days in a row? Do you want them to recommend it to a friend? Do you want them to interact with three pieces of video content?”

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Basically, what we were trying to do is create habits and behavior that would solve the declining retention. Our belief was that if you could get people motivated to do content engagement early, it would create this habit that would ultimately have them stick around longer if they were enjoying the application. So that was at the core.

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And then the way we amplified the experience was that if you wanted to interact with sponsors and brands or fill out surveys, you could earn this mPlus rewards currency that could then be redeemed in a reward storefront for things like sweepstakes and gift cards and charitable donations. What was interesting is that if you signed up for one app and you had other apps that you use, you could do it across all your applications, earn this common currency, and feel like you're getting rewarded for your time and your behavior. 

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This was very successful in creating a lot of adoption from consumers. We got 2,000+ apps onboard and we had 10s of millions of monthly consumers interacting with the system, so we were able to monetize it quite effectively from the advertising front. 

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Our pitch to advertisers was that this was not an advertising network like a traditional network. Rather, it's one where we have a direct relationship with all these consumers: we know a lot about them because they volunteer this information; they really like our system because instead of feeling like ‘someone's just tracking me without my permission’, they're getting value; they've opted in and get rewarded for their time and attention; and then they can go get tangible benefits for that. For the developer, they were getting the benefit of having happier consumers and people were sticking around longer. So that was our first belief, or our first go-around and strategy, and how we wanted to apply what we were doing.

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Sandhya Hedge

I think what's really fascinating about it is that it's almost like you had three different sets of clients: you had the advertisers, you had the app developers, and you had the app and users. It's fascinating, because how do you talk about product-market fit in this context where you have three different sets of people with three different sets of needs — not all of which are perfectly aligned with the other's needs, right? 

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You have advertisers who really just want a lot of engagement on their ads and want to see that converting into revenue. You have developers who just want your app to be extremely fun and don't necessarily want their users to see many ads. And then you have end users, who don't want someone else to own their data and don't want a lot of ads, and want to try a lot of free apps.

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I remember back in the early days of the mobile revolution. No one wanted to pay for mobile apps. It was very much like, “Oh, this is supposed to be free.” Thankfully, that is not true anymore, so we don't live in a world where everything has to be monetized by advertising. But the fact that you had three different kinds of features (customer fits) to find with one product is really fascinating. 

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Could you share a little bit more about what happened when you launched? What kind of feedback did you get in the market? How much traction did mPlus Rewards have?


Early use cases for SessionM

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Lars Albright

When we first launched, the feedback was really strong. We got, from all three of those constituents, a really good response. Consumers liked it. They were opting in. They felt like they were finally getting payback for the time they’re investing in this application or looking at these ads — which I get are part of the whole powering the free app environment, but they just want to feel like they’re also getting some sort of reward for that. So that was great. We got lots of signups there.

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The developers were happy initially because they felt “okay, this is good.” I'm also forgetting, one thing to mention about the model, is the developers, they got a cut of the revenue that we generated. So not only was it a retention tool for them, it was an additional monetization tool for the developer. So they were happy. 

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And then advertisers were happy if you could deliver scale and you can deliver performance based on various metrics. So if you're actually driving click-through rates and then ultimately driving conversion, that's what makes them happy. If they can deliver insertion orders at scale and get the right performance vis-à-vis other alternatives. And they can back into a price that makes sense whether it's on a CPM or CPC or CPA basis, or a CPI on installs.

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So initially the momentum was quite strong. We doubled our revenue each of our first few years and got the business up to north of $30 million in top-line revenue with a plan that would have doubled again, so really rapid growth.

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When I take a step back and think about that, we really hit the ground running. We had a smart customer acquisition strategy because we did it through our app developers, who installed the SDK and promoted that program to their consumers. We were able to build quite a bit of momentum early.

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But that didn't last. That shifted a bit across these constituents. One of the challenges we found is that regardless of what mechanics we were putting in place — from a coalition loyalty program and trying to get people to create those early habits – while we could do it for a little bit, we couldn't fundamentally change the long-term trajectory of retention for applications that just didn't have the right underlying value. 

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What we couldn't do is go in and fix an app. If a game wasn't really effective at drawing consumers in, we couldn’t go in and  change that app. Or if a news app was just more redundant to other new sources, we couldn't necessarily go in and change or make that more unique.

We could improve it for a period of time, but we really couldn't fundamentally change those application experiences enough to look six months down the line to see that you really were driving different retention. 

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So we started to see some declining results there. Then when we really looked at our most active consumers, the numbers started to get a bit smaller. And we said, well, that's not really going to be in great service to our sponsors and advertising community. We just started to see some areas of weakness in these various constituents. Now, not all were dramatic, but enough that we were taking note. We were always very focused on what our consumers were telling us. So that was that. 

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Then for the other piece, we looked at the business model and we started to say, “Okay, we're signing up developers, but we've got to pay them a pretty steep price, which is somewhere in the 40-50% of our revenue share. We then also have to fund a rewards storefront that has gift cards and sweepstakes, and we've got to make that valuable enough for consumers. That's expensive.” That's another, you know, 20 points off the top of your margin. So you're left with a fairly low gross margin business. And you put those things together, and we said, “Okay, we’ve got really strong top-line growth and we've got good user numbers, but they’re not necessarily trending the way we want them to. We have a monetization play that's working. But if the user numbers start to go down, that's going to start to go down.” And we didn't like the unpredictable nature of ad models.

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One of the reasons why ad models became so unpopular is because, unlike SaaS, they can spike up and they can go down. You don't have this very predictable month-over-month recurring revenue. You've got more volatile revenue, potentially. When you hit challenging markets, businesses that don't have that locked in are in more trouble. We didn't love that characteristic. So all of these things came together. I give our team a lot of credit for us to say we still have a lot of belief in what we're doing and the core notion around retention as a service. But we believe that we can potentially apply this in a better way.


Pivoting to find product-market fit

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Sandhya Hedge

Right. What I think the big generalizable lesson I take away from it is that you kind of identify two problems right up front: retention and monetization.

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You had an excellent solution for monetization that actually aligned the interests of these three different constituents. But mPlus Rewards, in its original avatar, didn't really solve the retention problem. The fact that, if the app is kind of a flash in the pan – which by the way, I remember the early days of Amplitude, a lot of these apps were Amplitude customers – and it would make us so nervous to see them getting really big spikes and user engagement, and all the data volume would go up. They'd be spending so much money on analytics! And then we would see them just falling off a cliff because people were really, really excited about this new game for three hot weeks. And then they'd be like, “Yeah, I don't want to play this anymore.” So that's like a cold retention challenge that this coalition strategy perhaps was just not solving. It's really incredible that you had all this traction, but at some level, you would argue that you didn't have product-market fit because even though all the customers really wanted this to work, at its core, the retention problem was not being solved.

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Lars Albright

Yeah, at least not being solved for long enough to think it would be solved early. I think it’s fascinating that revenue can fool you into thinking that you have product-market fit. It can make you think that you're getting real momentum on the revenue side. 

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But if you're not really thinking about, “is that true product-market fit?” The answer sometimes is that you’re not. We had such dramatic growth on that side that it took us a little while to recognize that. 

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Ultimately, we also needed to see things play out over time to look at these trends and we recognized that we didn't believe that we had true product-market fit in a way that would scale to be the type of value we wanted from the business. And so we could have kept growing top-line revenue and kept making tweaks here and there. But ultimately, we also really believed that the challenge still existed, and we had an interesting approach to it. 

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That's right around the time, when we were thinking about the business dynamics, we had a couple of customers or potential customers come to us - this was AT&T and Rakuten, the Japanese e-commerce player - and say, “We love what you're doing around retention and loyalty and customer engagement and using data to drive better customer experiences. That's all great. But we don't want to do it as part of a coalition. We'd love to do it for our own business with our own white-label solution. Would you consider doing that?” 

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That's what got us thinking huh, okay we could take this platform, turn it into an enterprise software model, create a basis that will be applicable across various verticals, and then go out and deliver, not as a coalition but individually, to these enterprise customers. The beauty of it is that it really took off pretty quickly. We had very large ACV deals early. We signed up AT&T, we signed up Rakuten, we signed up Kimberly Clark, we signed up Coke. They were paying us for these big deals; half a million and even upwards of a million dollar ACV deals. It really started to make us think this direction is viable.

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That's when we started to go through the hard pivot of winding down the coalition business while we built up the enterprise software business. We really worked on starting that off. That was probably about three years into the business when we really started to make that change.

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Sandhya Hedge

Got it. And could you spend more time on how that pivot happened? For example, did you have to change the team composition? Or did you just kind of change what people were focused on? What did it feel like in the boardroom when you were trying to figure out your goals for the quarter when you had one live business with over 30 million in gross revenue and were trying to pivot and sell this completely new product to fairly different customers? How did you actually navigate that pivot process and what did the execution plan for it look like?

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Lars Albright

Yeah so, first of all, it was much harder than I thought it would be at the time. I naively felt, “okay, we make this decision. Six months in and we'll be fully on our path.” But there are so many things that go into it. It's where I joke with people, you know, back in the Quattro days, we actually had a very early pivot a couple of months into the business just in terms of our focus. This one was a few years into the business. It's far easier to pivot earlier than it is later, particularly when you have dozens of customers and millions of consumers – and the market also gets to know you in a certain way – so there’s a branding element and a go-to-market element that's big on this.

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Also, you bring up a great point on the board level. They were happy with the fact that we were continuing to show really good revenue, although I'd say a couple of things – I've talked about this to other founder CEOs and I was sharing with them some of the concerns about the business, which I think is an important thing that you have to do. You want to be transparent if you have some questions. So we did have some good board discussions around that which was a helpful foundation so it wasn't a complete shock to them.

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I'd say the thing that really did help, which is really just good, fortunate timing, was having a couple of customers that validated this new direction. I think it's much harder when you go to a board and say, “You know what, we're going to make this dramatic move, and we're going to shut down one line of revenue that's growing. We're gonna do this new direction, but we're just not sure what's going to happen. We'll see.” 

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Instead, we could say that we're going to go in this new direction, which still builds off the foundational elements in the platform and our core thesis in the market. But we think we've got a much better way to apply it, a better business model, recurring revenue, overall a more viable plan to build a large sustaining business. And we've got this early customer traction from real brand name logos that are saying they need this. 

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That gave the board a bit more comfort to say, “okay, we can fully support it.” And to their credit, once we had that set of discussions, they got fully behind it. They said, “Great, let's go do this! We believe in the direction and the team, and we're going to support you in doing that.” So I have a lot of respect for the board for them to think differently about the business, get on board, and be really helpful in helping us build the next chapter. So that was at the board level.

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From a team perspective, you've got to look at the team not only from the senior leadership team, that needs to get everyone on board with the new direction. That was pretty quick, because people all had a role in playing a part in this new strategy. But where it gets more complicated is thinking about how your product team functions. What are the types of engineers you need on board? What new talent do you need to recruit on the go-to-market side? It's very different.

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We did nothing on the advertising side anymore. It was all about SaaS-based selling. We needed to build up that entire new team and then a whole new go-to-market motion, build the top of the funnel, and get in front of analysts to show them our approach. There were a lot of things that had to go through the business. And, back to my naive assumption that maybe we could do this in six months, it really took a little over a year to go through that… and probably even longer to really, fully have the market truly understand our approach. So that was hard. I mean, there's really no other way to put it. Those were hard.

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There's a book called “The Messy Middle.” This was the messy middle for us. There was progress in some areas, then we went back in other areas, progressed, went back… Eventually, we powered through and got to a point where we had the right organization, the right go-to-market motion, and the right branding in the market so people understood what we did. And we built up incredible momentum with these great Fortune 500 logos.

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Sandhya Hedge

And with the previous business of mPlus Rewards, were you still maintaining the contracts you had with your customers there? How did you approach sunsetting the previous business?

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Lars Albright

We looked at it systematically and, as quickly as we could, tried to get out of any contractual obligations.

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There were some that we just couldn't, we had to stay with for longer, but we were very disciplined and at times had tough conversations with developers who were saying, “Wait a second,” -  because some people were very happy. They're like, “Wait, why? Why are you shutting this down?” - so we worked on that and we just went after each kind of relationship. Some were easier, some were harder; that’s what took 12+ months, getting fully out of those. At that point, we were out entirely. We didn't have any contracts that straddled the old business and the new business. I think that was an important part of fully transitioning into chapter two. 


SessionM’s core ICP

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Sandhya Hedge

Got it. And this time around, what are some of the product-market fit indicators you were looking for, given what you just went through with mPlus Rewards? What was the different metric or different feeling that you needed to say, “Yes, this direction is not just promising, but this is the right way to go… And here's how tangibly it feels different from the previous three years?”

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Lars Albright

Yeah, so part of it is that we were able to find customers where there were buyers that really had this need. So we were able to go to CRM leaders – could be VP of marketing and CMOs - we were able to go find these people within organizations, and they'd say, “Yes, I need something that's going to help me drive retention and customer loyalty. I don't have it. I need it as of yesterday. If you can help me solve this problem, this is going to be incredibly important for my business.” 

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And the other piece that is really critical – and this is extremely relevant today with what's going on with the changes in iOS and the changes in Android – is that businesses were tired of being disintermediated by third-party networks. They wanted to make sure that they established a relationship with our customers. 

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One of the best ways to do that is through customer loyalty programs that actually invite you into the program. So if you think about it, a lot of it is a permission-based data acquisition play where you go from knowing nothing about your customer, to having a customer profile, to having a way to reach out to them. You can then communicate with those individuals. You can deliver personalized offers and you can get behavioral data on them to ultimately drive a better experience. And that trend started a while ago with companies realizing that they wanted that direct connection. We were hearing that in organizations, time and time again, and that was powerful. 

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It was still an enterprise sale, you had to go in and it was not easy, but there was definitely a receptive audience across these core verticals. We focused on retail (fast, casual kinds of restaurant spaces with companies like McDonald's, or Chipotle, or Starbucks); we focused on travel and hospitality; and then CPG. We built a motion around those verticals and were able to build success in some case studies and go out and start to create real momentum. 

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So one of it is that we felt the market need; we found buying personas within the organizations that were receptive to it; and then also, we validated that they were really willing to pay significant dollars for it because it was such a need. And then I'd say the other pieces were, once we got launched with some of our early customers here, the performance was effective. So unlike before, where we started to feel like “oh no, is this really gonna drive retention for these applications (that you can't totally fix)?” In this case, it was really driving business impact. It was allowing them to deliver better experiences for their customers, and build more customer loyalty, have more data, and it was an important part of their overall CRM strategy. So those elements of recognizing those market needs, seeing receptivity from the potential buyers, and then seeing performance, made us feel like “okay, we have something here.” 

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Now, a separate conversation was that we certainly developed product-market fit, but did we have a truly scalable approach is a bit of a different story because we were going into big enterprises. They were pushing us around and saying, “we're happy to license your platform, but we need these services and this customization, this middleware.” And that was a whole other element to the true kind of scalable product-market fit, which is something that is very challenging on the enterprise side.

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SessionM’s growth tactics

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Sandhya Hedge

Let's dig into that a little bit more. First, I just want to level set. What does it look and feel like as a startup to be working with Starbucks or a really large company? For example, often we tell founders, if you're going to do a top-down sales cycle, that takes months. You have proof of concept. You have to go through security since you’re working with Fortune 500 companies. Your contract value needs to match that sales cycle, right? A long sales cycle means large contract value. What did that look like at SessionM? Did you guys feel like you had a good match between how long the sales cycle is and where you’re able to land with these big logos?

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Lars Albright

Yeah, we did. That's one thing that we were able to do. We had a long sales cycle, kind of a six to six-plus month sales cycle, but we were able to match the ACV to that in a pretty significant way. We, even early on, had deals that were paying us $2 million a year and ACV $500,000. Some of them skewed us up, but on average, we were in that $500,000 - $600,000 a year ACV. That can allow you to successfully support the unit economics of your direct sales team and deal with long cycles. And remember that it's not just the sales cycles, it's also implementation cycles. In an enterprise, deployments are not 30 days, they can be several months as well so you do have this lag in the business.

What worked for us is that our deal size was large enough that we were able to put a pretty dramatic growth of going from effectively zero to over 30 million in recurring revenue close to the time of our exit, so it is something that I have a lot of respect for, or a healthy respect for, that if you don't have that match, it can be very painful.

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Sandhya Hedge

What did it feel like to negotiate all the custom requirements and pricing with a large company? What was your approach? What are some of the pressures inside the startup and your lessons today from that experience?

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Lars Albright

The pressure was intense. When you have one of these big deals that you think you can go get, that you know is going to be very impactful to your growth in your business, and it’s going to help you build momentum, the pressure is to be flexible to get that deal done. And I think we were good in that we drove strong pricing, so we were disciplined on that front.

Where we were overly flexible, and we started to learn this as we went through, is in the customization request the, “oh, we just need you to do this.” And that's something that we definitely had to move fast and fix things later when we came to some of that. The challenge is, given our success of signing on all these large enterprise companies, it got harder and harder to go back and fix everything. So you start to build up tech debt that you need to go deal with. And so that's something that I think you have to be mindful of: there's an element of realism you have to have when you're going to negotiate with a massive company; you need to have some flexibility, but if you go too far outside of the scope of your platform and what you want to do for your roadmap, you spend a lot of time going back and playing catch up. And that's something that we had to do. But generally speaking, our team did an amazing job of knocking down these big logos and bringing them in. From that perspective, it was really working quite well. The delivery side gets complex. 

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In the midst of this, we also brought on an equity investment from Salesforce that led one of our rounds. We formed a really tight go-to-market partnership with them that also fueled growth. Because we were aligned with them, we had integrated offerings that made it easy for our joint customers to buy both products and bring us on. We motivated their sales team with incentives and compensation; that worked incredibly well. We had a nice momentum building there too. So a lot of rapid growth in this business.

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I'd say probably the biggest lesson is that piece where you have to stay disciplined to what your core offering is. Services are going to be an element of it, without a doubt. Because they're enterprise customers, they want some services, but you have to think about that really strategically so you don't end up going too wide.

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Sandhya Hedge

Sounds like you want to separate out “Okay, yes, we'll build this custom product” versus “no, we'll handle that in professional services, we just need to make it work for you and don't have to build something we have to maintain.” Could you share a little bit more about where some of the more challenging customization requests came from? Was it integration? What was it that people usually asked for that required custom work? And in hindsight, what was your framework of ‘this is the stuff we should have pushed back on’ versus ‘yeah, this is the stuff that was a good idea to do even in hindsight’?

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Lars Albright

Yeah. There are a bunch of them. Integrations are definitely one. We worked with point-of-sale systems as well. So one of the elements that we did is that we delivered personalized offers in real-time at point-of-sale. That was a part of our overall customer engagement loyalty offering and point-of-sale integrations are challenging.

Usually, it's not the top line of “oh, we can integrate with x-system.” There's always some sort of difference with how a company or vertical deals with that integration, that you end up having to say, “Oh, well, our out-of-the-box integration didn't really work here.” Which we didn’t necessarily know that in scoping, so then we had to quickly create a solution. 

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But was that solution really built to endure across multiple customers? The answer there is, typically it's not because you're moving quickly. So I'd say one of those things is integrations and understanding the complexity. We didn’t fully appreciate the variations of integrations and how they work across different customer sets. We’d just say, “oh, yeah, sure, we can do that integration.” So those are things that we had to learn through or work through.

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The other interesting one for us, working with big enterprises - many of them were and are global organizations -  they pulled us into international markets far sooner than we were ready to go. They basically said, “okay, you don't want all of Europe, or you don't want to be in Southeast Asia with us, then fine. We'll go find another vendor.”

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Of course, at that point – back to your question about “how do you feel as a start-up?” – you don't want to give up any ground. You want to continue to expand and grow that. So we were pulled in. The way we thought about it at the time was that it was positive and that we were having global expansion and that it was so exciting, because it's a larger addressable market, which is all true.

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But it's incredibly complex to launch in all these different markets. We launched in Malaysia and Singapore and throughout Europe, and there are all sorts of things to consider, from data residency to language localization to different integrations and different partners you need to have. You have to consider how to support these customers and how to think about your customer success program and all these different things that you jump into without even having fully appreciated that. 

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I remember, with one deal that we did, it was with a Malaysian-based retailer. I was feeling a lot of pressure to hit a quarterly number. I wondered if we could really pull it off. We convinced ourselves that we could, and eventually we did! But it required a fair amount of hard work and pain to get to the point where we could support that effectively. 

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So, things like that are a couple of integration keys, the depth of them and the variations that come up; thinking carefully about international expansion and making sure that if you do build any middleware that it has the right SLA associated with them; sometimes those can become disorganized. There has to be a lot of discipline around that middleware development. 

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Then the last one is vertical expansion. We would often have success and then another company in a different vertical would come to us and say, “Oh, great! We want to do what you're doing in fast-casual restaurants” or “we want to do it for airlines.” Then you say “Great, that sounds like it’s the same core problem and the same customer retention, customer profile, real-time data management… But then you go into that vertical and there are so many nuances and different systems that you need to then go learn about and integrate effectively with. And that takes a lot more time than you realize. You also have to build a whole go-to-market and sales motion around that and a marketing motion.

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So the notion that you can just quickly expand into verticals is also something that we learned and realized that we really had to take a step back and make sure we were prepared from a product level and a marketing level and just organizationally to go attack these new verticals.

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Sandhya Hedge

It's just fascinating how you have to be so careful about your timing: when you go broad and when you go deep. It sounds like, in hindsight, you felt like you went broad a little too early. But I'm curious, did that eventually become an asset? Because you had a global acquirer like MasterCard, who potentially might have valued the fact that even though you're a startup and you're relatively small, you have presence across a lot of different verticals, a lot of different geographies. I could see how that would be a great asset for an acquirer like MasterCard.

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Lars Albright

Yes, you're absolutely right! That actually was an important part of their consideration. Because they're a global organization, they were not interested in just a North American business, so from that perspective, it really did help us to show that we had, at a minimum, at least thought through what scaling globally means. Now, at MasterCard and as we've learned and I learned when I was there, it's a totally different level of scale and it's a totally different global operation - one of the world's most global, in the sense of what they do on a real-time basis, every minute, but that was an important part of our attractiveness to what they were trying to do. So yes, in some ways, that really did work. But I'd say the other thing, too, just going back, we were doing a lot of this on a pretty quick timeframe because we were kind of making up for lost time, we'd had Chapter One of the business, and we were really trying to make a lot of progress. And I think, you know, in hindsight, if everything were perfect, and you had a couple more, either 18 months, 24 months to really build that base, and then grow from there, that would have been smoother. But as I've talked about before, one of your things as a Founder and a CEO and a founding team is you've got to adapt,, it's never going to be exactly the way you think it is. It's never going to be totally perfect. And really, it's the best teams that can be flexible, adapt, and then have the persistence and the fortitude to go see that through. And that's where I give our team a lot of credit.

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Sandhya Hedge

And what would be your advice to founders today, when someone is out there in the market raising a Series A, and they're like, ‘Well, we have 500k and ARR, we have Product-Market Fit’. What is usually your response, what questions do you ask, and what advice do you give folks when you feel like they have revenue but not Product-Market Fit?

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Lars Albright

I mean, I do think revenue is a great indicator of value. I think, particularly when it comes from institutions that have some credibility behind it, I know how hard that is to do. So I do respect that on that level.

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Sandhya Hedge

It means you're solving a problem that there is real demand for.

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Lars Albright

Right. There's real demand for it, and there's smart people on the other side of the table that are buying the solution and so I think it's great. I wouldn't shy away from it. I also think it's incredibly motivating for an organization. There are pros and cons to this. But sometimes, you see founders wait too long to go live and start generating revenue because it's very clarifying for an organization. There is nothing like a real customer to get you to really deliver at a higher level. That can be very effective to move you forward faster. But the things that I do look for are, how repeatable is this? How skilled, fine, you might be able to scale to 5 million or 10 million, or 15, or 20. But what, what's gonna get beyond that? How do you get to 100 and 200 million of recurring revenue? And is there a path that really feels like you can do that in a way that, back to my points around repeatability and scalability. Those are really important things. So I do look a lot for that, just knowing some of the growth challenges we had to go through to get to the other side. That's a really important piece. Yeah, so I think when I see revenue, I like it, I have a lot of respect for it, as I said, but I would say you have to think a little bit beyond those first chats because that's the other thing too. People sometimes get to a milestone, they're so focused on getting to maybe that first million of ARR or 5 million, and you do whatever it takes to get there. But then it's really okay, what's next, like, you've got to then have the next chapter. And it has to be building on the strong foundation that you've put in place at first.

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Sandhya Hedge

Right. Yeah, obviously there’s some responsibility the investor ecosystem and folks like us have to take for this too, but once you start generating revenue, it can feel like you're on the revenue treadmill, like every quarter, you need to show that you are growing faster or better than the previous quarter. And it's really hard to get off that treadmill and say, yes, there's demand for what I'm building, but I'm not quite solving the problem in the right way. And either I don't have the end results, or I'm building too much custom software for each client. It's not a repeatable scale, like, stepping off the treadmill and forsaking revenue, so you can change your product. You can pivot. It’s extremely hard. But you know, the right thing to do for the long-term future of the company. 

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Lars Albright

Yeah, that is a great point and something that I completely agree with. This goes for both sides of the table as investors and as founders. You need to think really carefully about this. Once you effectively start on the revenue piece, as you said, it's really, really hard to pull that back. Many founders don't even realize that they've started it. They’re like, ‘Oh, wow. Shoot, I put up, you know, $80,000 this quarter.’ Okay, but now it started, like, you don't really want to then say, ‘Oh, well, next quarter, I did $20,000.’ It's typically got to be growth quarter over quarter, year over year. And so that treadmill is real, and that is a lot of pressure! I mean, and you've dealt with this in your past roles, having that pressure, particularly for a founder CEO, is really intense. And so you then have to start managing to that revenue growth as opposed to necessarily going back and making absolutely the right foundational decisions for the product. So I think I'd say back to your original question, just be really careful that when you have decided to put that revenue up, you have a really good plan to continue that growth trajectory. Otherwise, you're gonna have a lot of challenges and explaining to do.

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Sandhya Hedge

Well said. Thank you so much, Lars, for spending time sharing the story of SessionM with us. I'm sure it's been incredibly useful for so many founders listening in. If anyone wants to reach Lars, you can reach him on LinkedIn. If you're in the vertical SaaS space or doing something around loyalty or Fintech, do reach out. He's just incredible. I've seen him in action, and he’s just an incredible advisor to have around your table. And it will be super, super valuable to get his advice. Thank you so much for spending this time with us, Lars!

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