A Product Market Fit Show | Startup Podcast for Founders
00:24:32 · Jeremy Liew, Pablo Srugo
[00:24:32] S0: I know, right? [00:24:34] S1: The other thing I had read, so maybe now that you're meeting with Evan at this point, how was that meeting? How quickly did you decide that, you know what? Because at that point you weren't actually fully bought in, you have this meeting –
00:24:46 · Jeremy Liew
[00:24:46] S0: Not only was I not fully bought in, I just didn't understand it because I couldn't natively use the product the way that it was being used. First of all, he did a couple of things. He just told me some of the metrics and then he cracked open his analytics dashboard and he showed me. What I saw was 50% daily active user to monthly active user ratio. I saw 50% D30 retention, extraordinary. I thought 50% month on month growth on a statistically significant number of users. I can't remember exactly what it was. It was 10 or 20,000 DAUs and that had been persistent over time. It didn't matter whether I got it or not. The dot was very clear that this was resonating, but then he explained it. That's the other importance. Today everybody understands, you know, principles behind Snapchat and how a lot of social media creates this performance anxiety, which means that you don't post, and so you get this more of a social media perspective with a small number of posters, large number of consumers. He talked about how the disappearing messages really reduced performance anxiety because there wasn't going to be persistence. You could put something that didn't look perfect and that was consistent with the behavior that I heard that people were sending these photos where they were deliberately trying to look weird or funny or ugly making faces and so forth. The context was less about the photo, it was the sub message which is, "Hey, I'm thinking about you. You're my friend, I'm thinking about you. I want to make you laugh." He went on to explain in a really clear way that – I mean he made this example like, hey, if you were with your friend and you're catching up and you're talking and I haven't seen each other a while, that at the end of the conversation he says, "Oh by the way, I recorded all of this," wait, what? What do you mean you recorded? He's like, "Yeah, I just recorded. Is that okay?" He's like, no, it's not okay, because historically when humans had conversations, nothing was recorded. He said that default changed when we started communicating digitally with the default is everything is recorded. That changed the way that people have human interactions. When you're in high school, it's a time of high drama. People have fights all the time.
00:26:21 · Jeremy Liew
If you and your best friend get into some dispute and it's like, fuck you, no, fuck you, I never want to see you again, fine with me. You have that fight. If you have that fight in person the next time you see each other, you could both pretend that it never happened and go back to normal, and that's what people do all the time. If you have that in other text chain, the next time you open that thread with your friend, you are looking at this last exchange which says, fuck you, no, fuck you, I never want to see you again, it's much harder to just pretend that never happened. He said what he was doing was restoring the default in digital communications as well as in the real world. This was an important point. He said there is no digital world in real world. There is just the world and the world should work the same. When you communicate with your friends, that should be history. It should disappear. It wasn't about ephemeral communication. It was about restoring the defaults. No one chose the defaults in digital communication that everything is recorded. That was not a deliberate design decision by anybody. He's in his view, which has turned out to be correct, it was an error which he since fixed and that's why we got disappearing messages. But if you have that either text chain, the next time you open that thread with your friend, you are looking at this last exchange which says, you, no, you're afford to see you again. It's much harder to just pretend that never happened. And he said like what he was doing was restoring the default in digital communications as well as in the real world. And he , this was an important point. He said, there is no digital world. In real world. There is just the world and the world should work the same when you communicate with your friends, that should be history. It should disappear. It wasn't about ephemeral communication, it was about restoring the defaults. No one chose the defaults in digital communication that everything is recorded. Like that was not a deliberate design decision by anybody. And he's in his view, which has turned out to be correct, it was an error which he since fixed and that's why we got disappearing messages.
00:27:54 · Pablo Srugo
[00:27:54] S1: Clearly at this point, Snapchat is growing exceptionally well. They've got product market fit in terms of usage, but they're also not making any revenue and they're about to face a massive competitive threat, because as we all know, Facebook tried to buy Snapchat at one point and after Evan decided not to sell in late 2012 Facebook launches this copycat app called Poke and it quickly – I mean they have billion users at this point. It quickly goes to the top of the chats and it's a bit of an existential moment for Snapchat. It turns out all that, that did was actually make Snapchat more popular because every single article talked about how Poke was a copycat of Snapchat. It just created all this publicity for Snapchat and frankly the audience that Facebook went after, either they were already using Snapchat or their friends were using Snapchat and so they weren't willing to move to another platform or they were much older in which case they just didn't care about the disappearing nature of it. It turns out that actually was a tailwind for Snapchat in the long run. Even still, there's so many consumer apps that get to a certain point and then crater off. I don't know if you remember the Yo app? That was really cool until it wasn't. Clubhouse lately became a Unicorn and then just exploded and went away. What I asked Jeremy Liew is why did Snapchat not just take off but continue to stay relevant when so many other consumer apps don't.
00:29:11 · Jeremy Liew
[00:29:11] S0: When we invest I think there's four things we look for in a consumer app. Can this become part of pop culture? One of the early indicators for that is that it's primarily used by young women because I think young women are culture carriers. You think about a bunch of guys get together. They'll go play basketball, they'll play a video game or something because then they don't have to talk to each other. You don't have to have a meaningful conversation with your guy friends when you're doing an activity. You can just talk about the activity, pick up your man, you suck, shoot again, all that. You can avoid having any meaningful conversation whatsoever with your friends. When women get together, and this is obviously a massive generalization, but I think there's a gem of truth to it. Women get together, they choose an activity as an excuse to talk to each other, whereas men choose an activity as an excuse to not talk to each other. Women go to a book club, 10% of the conversation is about the book, 90% of the conversation about what's going on with your life. That's why women are carriers of pop culture because they talk to each other. Men don't. Obviously that propagation is going to happen when there are real conversations happening, like this thing that you just tried or whatever. What we saw with Snap was heavy concentration in young women, which is a pretty good indicator that it could become part of pop culture over time. That's the first thing we saw. Second thing we looked for is, is it creating new habits? With the DAU of MAU ratio and the D30 retention, it was very clear this was creating new habits. That's one of the interesting things about the difference between social media and messaging. With social media, there is no expectation that you respond. You can look at it and do nothing; totally fine. Your friend isn't like, "Oh dude, why didn't you hide it? Why didn't you respond?" No comment, what's going on? If you send someone a message, there's an expectation of response. If you don't respond, you are the ass hole. Don't leave me on unread. That was creating this habit, this ping pong, ping pong, which institutionalized the streaks that was creating habituation. The third thing that we look for is a scalable repeatable way to grow.
00:31:13 · Jeremy Liew
With Snapchat, firstly the data showed that it was obviously happening, 50% month to month growth, something's going on. What's really important in all of this is that the founder needs to have a unique insight. It's explaining what is going on. He was able to do that in this really clear way that I think we all know it's common knowledge. At that time, no one was talking about this. No one was talking about how historically human communication was ephemeral. No one was talking about performance anxiety and social media. No one was talking about the fact that when you were posting on social media, you were just posting the highlight reels of your life. When you're happy, when you're proud, when you're excited, when you're doing something new and novel and fun and interesting and Evan's perspective was if you want to make real lasting friendships, you can't only be sharing the top 10% of your life. You've got to see the full 100% of your life; when you're happy and excited and proud and nervous and anxious and sad and angry and all of the emotions that you have. That wasn't happening on social media but it had a place on Snap, and that was creating stronger relationships. That was what was driving this organic viral growth; not viral because people were sending out invites because historically that's the way people measure virality is like how many invites did you send and what's the response rate? Is K greater than one? But viral in the sense that people are talking about it to each other. You see someone get a message, open their phone, laugh, and then put their phone away and be like, what was it? What did you see? What's so funny? Why are you laughing? Your friend would be like, "Oh, I can't show you. It's disappeared." It's like, "What do you mean it's disappeared?" Oh well it's this new app Snap. I use it with my good friends. Tell me more. How can I get on it? The only way you could get on it that time, you remember there was no digital invitation process. In the beginning, the only way you could be at it is for someone to give you their username so that people were telling someone about the app they downloaded. They would have to give you the username to get connected. Then the first thing they would do was they would send them a snap of themselves making a funny face or something.