Saying 'no' is hard. When is it the right answer?

While serving as CEO, our largest customer came to us with a request to build a new module that would tie into their existing use of our product. They were ready to commit over a million dollars a year in incremental subscription revenue and told us that they believed we could sell the same module across the rest of our base. On its face, it was an obvious yes. The chance to develop a much needed module alongside our most important customer AND get a large amount of incremental ARR. However - before committing we knew we had to diligence the opportunity, and be ready to say no if needed.

We ran three workstreams in parallel. The customer success team spoke to a cross-section of our existing customers about the proposed module. A separate team reached out to the vendors already selling a version of this module in the market, and to their investors, to understand the economics and history of the category. Our R&D team worked up their views on the lift needed for the project. I held off on the executive conversation with the requesting customer until we had something to say.

The diligence came back against the project. Our other customers were broadly unhappy with this category of module, regardless of vendor. The market price was twenty to forty thousand dollars a year, far less than what our largest customer was prepared to pay, which told us their offer was an outlier. The vendors and their investors gave us the reason: workflows in this area varied too widely from customer to customer for any single product to serve them well. The space had defeated everyone who had tried it. I took the answer to our customer myself, walked their team lead through what we had found, and explained why we believed building it would hurt both companies. We turned the conversation toward the future roadmap that already had them excited, and treated them as a partner in the decision.

While we gave up a large amount of incremental ARR and the availability to co-develop a new module, we avoided building something that could in the end poison our customer bases’ view of us, and also allowed us to ensure the long term strategic relationship with our top customer. The customer stayed one of our biggest advocates, our R&D plan held, and they brought us several other ideas in the months that followed.