Disruptive Strategy

Intercom Case Study

Introduction

Intercom was founded in 2011 by Ciaran Lee, David Barrett, Des Traynor, and Eoghan McCabe, with its headquarters in San Francisco in California and an additional office in Dublin, Ireland. In addition to its international offices, Intercom has a large research and development team based at its Dublin office in the former Anglo HQ. (Irish-Founded)

The product’s early investor presentation deck shows that the team was looking to solve the problem of SAAS businesses not having a specialized solution to build meaningful relationships with their customers.

Now, 8 years later, Intercom offers a highly successful communication platform that enables companies all over the world to have human interactions with their customers through Outbound Messages (chat with visitors on their website), and Team Inbox (smart flow to onboard and retain customers) core products.

The 2018 Crunchbase report Intercom to produce around $96M in estimated revenue annually.

Latest round D last year raised $125 million in funding with the $240.8 million in total funding puts the company at a $1.275 evaluation. According to PrivCo, post-money valuation even falls in the range of $1B to $10B as of Mar 27, 2018.

In a statement, CEO McCabe said the company would have a “special focus on functionality for larger organizations”, while it would also invest in “machine learning technologies to launch some powerful, market-first smart automation features”

To understand this statement better, we have to look at the company’s current situation.

Today’s Intercom

Presumably, Intercom’s services are used by more than 30,000 companies, including New Relic, Sotheby’s, and Shopify, who use the company’s product to connect with a billion unique people worldwide, and the startup claims to support about 500 million customer conversations every month. (Chat-Centered Sales)

After having succeeded to attract a large user base and establish the unique brand, Intercom currently competes with such solutions as ClientSuccess, Totango, and ContactEngine. Since the closest competitor has raised $140M(Gainsight) and the rest are much less that $100M, Intercom, with its $250M, is in a very advantageous position within this sector of the market to sustain the innovation with a hefty R&D budget, and they sure do know how to structure their research, development and marketing in the most efficient way.

It’s fair to say that the company might have started as a low-end disruptor, but pretty soon created its own market. The customers who started signing up for Intercom might have come from existing solutions and perception of the value associated with the jobs that were available through other messengers. But, just like the mainframe computers back in the day transitioned to personal devices with a completely new user, Intercom is also now loved by users who did not even realize that they had problems, let alone needed the solution for those use cases. Intercom competed against non-consumption. Marketers, Customer Success teams, Product Managers had no idea they needed a chat to do their job better. Messengers were for support and maybe sales in the days before Intercom. In a nutshell, Intercom created a new market were professional marketing, high-level support and customer engagement became affordable and accessible to small to midsize businesses who had no way to enjoy it before.

From the early days, the core team at Intercom, embraced the jobs to be done framework. Des Traynor, the company CPO, has written and spoke a lot on the topic. (How: Jobs to Be Done) They segment the customers as well based on the jobs they are trying to do and look at the causality of selecting a service (i.e. “I need help sending meaningful email to my customers”) as opposed to correlation (i.e. “25 yo, working in a tech start-up, like social media”) Intercom’s jobs boil down to three main jobs the customer hires Intercom to do:

1. help businesses generate leads

2. help businesses provide support to their customer

3. help businesses keep their customers engaged

   
   

With the sharp focus on jobs to be done the customer is welcome to sign up to solve a specific problem — do one specific job, or select an all-in-one option for all three jobs [Fig.1].

By building the product around this concept, Intercom has built a loyal user base who feel like they are being understood.

The three products are fully de-coupled: the user can sign up with any of them, and not feel like they are being undersold. The business realized that the earlier they disintegrate and offer more specialized solutions, the faster and easier it will be to get the market’s attention and compete with the incumbents who had heavy and expensive products.

The leading team is repeatedly proving to know their business very well. (The core team of co-founders is still around!) The content that they produce on their blog page is not only explaining their own processes, resources and the alignment for profitability but is also driving thousands of eye-balls every day. The articles teaching how to structure your organization and make the team cognizant of what they do well and what they should be avoiding became a classic.

To summarize, Intercom:

1. created its own market for SMBs which is roughly 28.8 million businesses in the US alone (Deloitte Report);

2. build strictly around jobs to be done;

3. offers modular products designed to appeal to different user needs;

4. is well-organized for innovation: profit, process, resources

Intercom’s Future

So what for was the latest round D and how does the company intend to maintain a disruptive scope?

First of all, it is becoming more noticeable that the company is trying to enter the next market level where such incumbents as Salesforce, Zendesk and Marketo will be disrupted.

We may see asymmetric motivation at play once Intercom starts signing up more and more lower-end part of the enterprise market while Salesforce and such will be moving further up market. The motivation to flee instead of fighting might be embedded in the numbers. Based on the data from one of the online public reports Enlyft.com “Zendesk is used by 18.14%; Talk.to — 8.14%; LiveChat — 8.79%; while Intercom was hired by mere 0.63%”.

This will make the larger players ignore the disruption Intercom brings. It is important to notice, though, that Intercom is successfully moving up market already: “30% customers of Zendesk are medium-sized compared with 23% for Intercom”. (Enlyft.com)

In an interview with TechCrunch co-founder and CEO Eoghan McCabe said: “Salesforce is not built for internet businesses.” And that Intercom is the “next generation customer database that’s specifically built for internet businesses” In addition, the company is committed to entering enterprise level market through the implementation of machine learning (Custom Bots) and unique purpose brand recognition.

The latest company website update reflects the strategy very clearly through added a targeted solution not only based on the jobs that the customer wants to do, but also, a more packaged solution based on the company’s growth stage [Fig.2].

What the company should look out for as potential risks that can derail their success?

Intercom is undoubtedly ready to take on the competition and evolve the product to satisfy the most demanding markets. In this phase from the efficiency to sustaining the innovation phase, the risks creep in:

1. Bad Money

With the round D it’s becoming harder and harder to control a pool of investors. It typically gets very diluted and any company in this position is running the risk of being swayed from their winning strategy trying too hard to accommodate multiple stakeholders. Every unicorn company now is expected to grow like crazy within an insanely short period of time with certain disregard to actual engagement and retention metrics.

Will second to Slack, growth phenomenon Intercom focus on user base growth or contract margins?

Is it the right time to roll out enterprise deals and whether they will be able to test the strategy quickly and efficiently without creating a deliberate strategy too early?

These are the questions that Intercom will have to keep asking themselves regardless of how comfortable they might be feeling at the moment. As Clay Christensens’s research shows, companies fail over and over again once they stop innovating and looking for emergent strategies right within their organization. So whether Intercom’s 2020 strategy will end up being “good money” or “bad money” year we will see pretty soon.

2. Losing Sight of the Performance Defining Component

This might sound like a trivial concern for an organization that has written tons of articles on how to maintain product focus. The “make internet business personal” commitment brought Intercom into the space and allowed to stay for the past 8 years. Not to mention that “82% of the top-performing companies” (PWC Report) are reporting the ever-growing demand for human experience around digital and tech that Intercom will be more than ready to provide.

But is it really that trivial? As the company is entering the enterprise market segment, they will be dealing with jobs that had no need or voice in the start-up and SMB worlds.

The “product-first” team will inevitably have more and more pressure from their sales teams as they are trying to close “whale” accounts and need just that “one small feature”.

Marketing will also start coming back with the requests that supposedly “all the big guys have” and are a must-have for the front page to drive the attention of the enterprise accounts.

And that all will be happening while, on the low-end, the cheaper good-enough solutions will be popping up and, on the high-end, the Salesforces and the Zendesks of this world are already considering specialized units to fight for the same segment.

And, most importantly, will the functionality that the customer cared about yesterday — “being personal” — still the most profitable area tomorrow? Or will that have changed?

These are some real risks and without an unconditional focus on the state of the Performance Defining Component — whether it is changing or has to be protected from any distractions, — Intercom will wind up fighting too many draining battles.

3. Resource allocation process

Within a team of 5 or even 10 VPs and managers, it’s pretty easy to make sure that the right things are being prioritized, AKA resources allocated, based on the where the proverbial “puck” is going and with the Performance Defining component in mind. However, as the company grows, the managers are becoming rather misled by the illusion that they control the “valve” while, in reality, the prioritization happens organically on all levels of the pyramid, whether they like it or not.

CEO McCabe has established that Intercom is “putting their foot on the pedal”, and hopes to grow “workforce beyond 500 employees” beyond the current “geographic footprint”. With this rapid expansion, encouraging every person to be responsible for decisions they make on a daily basis and keeping them aligned with the company values and strategy, is not going to be easy.

The clearer the values manifesto and the more the organization is supportive of innovative culture, the lower the risk that the resources allocation process will at any point go wrong.

Conclusion

Intercom has a stellar track record of understanding the disruption and its key concepts since early 2011. Their mission and vision are inspiring. Their focus on the customer and personalization of the Internet can hardly be fully matched by anyone else in the SAAS industry.

That’s what makes them such an interesting case study for showcasing the theories of Disruptive Strategy in tech.

I want to close by wishing Intercom’s team strong intuition for the future, the customer and the ideas within so they could ”live long and prosper”.