Mike Arsenault was the product manager of Spreadable, a powerful word of mouth marketing tool that was developed by the Grasshopper Group. The company, which is lead by David Hauser, has been building products that make it easier for entrepreneurs to start and grow their businesses. The parent product Grasshopper.com – a virtual phone system for entrepreneurs is their most popular and reputed product and serves over 100,000 entrepreneurs. With Grasshopper.com’s enormous success in its kitty, the Grashopper Group launched Chargify – a Recurring Billing System for entrepreneurs, which is also doing pretty well. However, they couldn’t achieve similar success with Spreadable and they had to shut it down.

Foundora LogoWe at Foundora were excited to see how Spreadable would evolve over time, ever since David Hauser had mentioned about it in his interview with us. But, when we heard about its shut down, we were simply curious to know how it happened, what went wrong and more importantly learn from them. We reached out to Jonathan Kay, the Ambassador of Buzz at Grasshopper and got an interview arranged with Mike to speak about the Spreadable story.

In the interview we try to learn from Mike how Spreadable happened and the reasons for the failure, his lessons learnt and a lot more.

Interview Overview

Can you start by explaining what exactly Spreadable was and how it worked?

Spreadable was a referral marketing tool that helped our customers create tell-a-friend programs for their businesses. Using the app, our business owners could create a customized referral form that allowed their happy customers to share a customized offer with their friends. Our customers’ fans could share that offer with friends through email or through a variety of different social tools.

Spreadable tracked all of the referrals being sent and what actions were taken when the referees received them. After setting up their referral form in the app, our customers could implement an embeddable version of Spreadable on their web sites or link to a referral page that we hosted for them.

We were trying to solve three big problems: 1) People find it hard to ask satisfied customers for referrals 2) It’s hard to quantify the impact that referrals have on your business 3) Developing a referral program from scratch takes significant time and effort.

How did you guys come across the idea of Spreadable and how did it take shape?

A couple of years ago, we faced the same set of problems for Grasshopper (our virtual phone system product). We knew we had a lot of passionate customers who were referring us to their friends, colleagues, and family. On any given day, around 40% of new sign ups were saying that they heard about us via word of mouth. So the question became, how can we get more of our customers to share Grasshopper with the people in their network?

We experimented with a bunch of different referral platforms and none of them really did what we wanted – so we built our own. What became the “Refer an Entrepreneur” program for Grasshopper was actually the first prototype of Spreadable. We realized that the powerful thing about referrals is that they don’t come from an organization; they come from some one you know and trust. People are much more likely to open an email from a friend and take action than they are for standard marketing messages.

The Grasshopper referral program was such a huge success that we saw an opportunity to systemize the program we had built and turn it into a SaaS platform.

Okay, so Spreadable was born out of the success of “Refer an Entrepreneur” feature on Grasshopper.com. So, once you guys decided to build Spreadable as a service, did you start talk to people about it(custdev) or just went on with the assumptions that if it worked for you it would work for others too?

We just started building. This was probably the single biggest mistake we made. We made the assumption that since our program worked so well for Grasshopper, we could just port over the same functionality to Spreadable. There were major problems with that logic. First, very few of the customers who came to us had businesses like ours. We learned later that there is actually a threshold in terms of customer count for a Spreadable powered referral program to be successful.

Second, we missed several key components of the actual problem people wanted to solve. We found this out later when we started talking to customers and had to backtrack on our development roadmap.

We did spend some time looking at other competitive offerings that were out there. What we saw were several players in the enterprise space and many small apps that didn’t have great brands.

How much time and money did you guys invest in building the product and bringing it to the market? Did you use the lean startup principles of rapid prototyping?

Prototyping, yes. Rapid, no.

The first version of Spreadable, which was eventually completely scrapped, took about 3 months to build and wasn’t shown to anyone outside of our internal team during the development process. We scrapped it because we weren’t happy with how the app performed. This in itself was a big mistake. We would have greatly benefited from getting something in front of customers earlier despite the fact we were a little embarrassed by it.

We got a little bit smarter the second time around and built a small group of brand loyalists to get feedback from. However, we waited far too long to engage this group of people and the results still weren’t great.

For the rest of the interview, click here.