Lenny's Podcast: Product | Career | Growth
01:12:47 · Sean Ellis
[01:12:47] S1: I was there at the time. I basically... When I... Even when I first started talking with with Drew before I came in, I was like, I think the way we're gonna grow this business is by leveraging the really passionate customer base, and that's what we need to double down on. And we had tried a similar kind of referral program at Zodney and my friend who actually started Ring, Jamie Siminoff had previously had a company called PhoneTag like way before Ring and he had actually done a lot of the testing on kind of double sided referral programs and having incentive on both sides. He found that that worked the best. And so between what we had tested at Zobny and those conversations with him, I hadn't actually seen PayPal yet at that point what they were doing. But yeah, that was kind of like, yeah, it seems like a referral program where we have incentives on both sides is the best way to go. Interestingly, six months before I was at Dropbox, I was at LogMeIn and I really thought about having incentivized referrals that LogMeIn, but 80% of our new users were coming in through word-of-mouth and I had 100,000,000 devices connected in on our system and I was just so afraid of breaking this growth engine by adding an incentive that I didn't want to risk it. But at Dropbox, was so early that, yeah. I would still say no experiment is one person. It happened to be when I was there, I had some insights that I brought in, ultimately the guy who built it was actually an intern named Albert Ni. He ended up dropping out of MIT to stay with Dropbox for a few years after that. Yeah, he was kind of my right hand guy to collaborating on growth day to day.
01:14:46 · Lenny Rachitsky, Sean Ellis
[01:14:46] S0: Wow. Would say Dropbox as a referral program and the PayPal referral program, as you mentioned, are the two most legendary studied copied referral programs And out [01:14:56] S1: unfortunately, I think that what they don't realize is that before the referral program, Dropbox had amazing referral rate. Companies that are trying to copy it are like, why isn't anyone talking about our product? Let's add a referral program with incentives. Like, to me, I think it's it's a great accelerant when it's already working. But it can't it can't fix it if if people don't want to don't want to talk about your product. [01:15:24] S0: That's an awesome point and something I was just gonna ask about. And just kinda coming back to this topic of growing engagement, growing referrals as a as a growth mechanism, what do you look for to tell you that there's an opportunity there? And I'll just answer it partly as I've seen exactly what you just said, which is you need to already have strong word-of-mouth growth because referrals kinda sits on that and gives you a little more incentive to share. So maybe you agree with that, not agreeing with that. Any other advice on helping figure out is there some kind of loop here that we can build?
01:15:53 · Sean Ellis
[01:15:53] S1: Well, one thing I will say is like, freemium, when we first started with it, as I said, we're like, we we were one of the first with it. The... So it took me a while to figure out exactly how freemium worked, but to me, freemium towards having a free and a premium version of your product to really work in any business, it needs to be that your free product is so good that people naturally have word-of-mouth around that product. Then to be economically viable, you have to have a premium product that's better enough and differentiated enough that people are going to upgrade to the premium product. But I think a lot of times people are so worried about the second part that they make the free version not very good. And then they're surprised when word-of-mouth isn't very strong there. So I think you have to essentially have two distinct products that are, are great on their own. So that would be the one piece. And so, but then obviously companies that have any kind of collaborative layer to them are going to benefit from, are going to be more likely to work well with referral. And then I think on the engagement side, a lot of it comes down to just the nature of the product. Like, Airbnb, you're not going to use it every day, unless you're a vagrant or something maybe, then you won't have money to pay for it. So so there's kind of a natural usage cycle to products and you want to be able to to maximize against that cycle. And I think that's where I was saying, yeah, coming back to the the the hooked model, I think is is a really good way to help to have a framework to think about how do I improve engagement. One good counter example to that though of the natural frequency of using a product is Facebook when they change their North Star metric from monthly active users to daily active users. I think, again, just having what gets measured gets managed. Once Facebook was on a daily active user goal, the team suddenly had a lot more incentive to think about how do I bring people back every day and use this product, where when it was monthly active users, they only got credit for that person for using once in that month. Even if they used 10 times, they didn't get 10 times a credit. It was just like a, Oh, that's cool too, but they weren't measured on that.
01:18:26 · Sean Ellis, Lenny Rachitsky
So I think it was a random decision for Mark Zuckerberg to move from a monthly active to a daily active because they hit 1,000,000,000 monthly active users and they're like, Okay, let's go for 1,000,000,000 daily active users. It had a really big impact on making that product way more addictive to the point where obviously they ended up in Congress or get a lot of pushback. I'm not sure they went to Congress for that, but they got a lot of pushback for having a product that's maybe too addictive and the same thing carrying into Instagram and some of the other meta products [01:19:04] S0: or [01:19:05] S1: basically anything that is highly engaging. I do think the right incentives can actually help a team to focus on it, but there's going to be sort of a natural usage cycle to any product as well. [01:19:21] S0: I'm glad you mentioned North Star metrics. I actually have a post we'll link to in the show notes where I collected the North Star metrics of 30 different companies to give you some inspiration. I know this is a deep topic of its own, but just when someone is trying to pick their own North Star metric, which I 1000% agree, informs so much about how your company operates. It basically focuses everyone's incentives to let's drive this thing, and that changes so much of what you're building. Any just, like, bullet point piece of advice for helping you pick your North Star metric?
01:19:50 · Sean Ellis, Lenny Rachitsky
[01:19:50] S1: I start with, the value that's uncovered through the the Sean Ellis test. So with a company, I'll say, Okay, this is what the must have value is according to our most passionate customers. And we want to think about a metric that reflects us delivering that value. And then I'll give them kind of a framework of ways to think about a North Star metric. But I think it's really important for it to be a time capped group conversation. And if you give a team thirty days, they'll take thirty days. If you give them six months, they'll take six months. But I think generally a team can come up with a pretty good North Star metric after thirty minutes if they have the right kind of raw ingredients and a checklist of what's important in a North Star metric. Like something that it's not a ratio, something that could be up and to the right over time so you can keep managing it and feeling good. Should correlate to revenue growth, but not necessarily like revenue shouldn't be the North Star metric, but as you grow value across your customer base, you should be able to grow revenue at the same rate. And so there's some other things, I think that would be the most important is that it's something that could be up and to the right over time and reflects value that you're delivering to customers. [01:21:11] S0: Awesome. And I was gonna ask about revenue and your opinion there, so your advice don't make revenue your North Star metric.
01:21:11 · Lenny Rachitsky, Sean Ellis
[01:21:11] S0: Awesome. And I was gonna ask about revenue and your opinion there, so your advice don't make revenue your North Star metric. [01:21:17] S1: No, I know. Even Amazon, and again, this is just what I know of Amazon's as being, but monthly purchases. But someone else might say, No, Amazon's is a GMV or something. But I think monthly purchases great because it maps to value that people are getting from Amazon. And so even if I spend, say, 1,000 on a TV set with Amazon versus $3 or $10 on an electric toothbrush, Amazon, from the consumer's perspective, delivered the same value. I needed something, Amazon helped me find that thing. And so units of value from the customer perspective, I think is more important than, than, you know, overall revenue. But clearly, clearly, you know, with Amazon focusing on driving more monthly purchases, at least on their store side of the business that has helped them become one the most valuable companies in the world. So I think focusing on value is revenue should be a byproduct of doing things right. It shouldn't kind of guide your day to day actions.