A Product Market Fit Show | Startup Podcast for Founders
00:08:48 · Pablo Srugo, Dane Atkinson
[00:08:48] S1: Do you think this is because something like Google Analytics is free, so there’s that benchmark? Because if you’re getting value, presumably you would pay. [00:08:56] S0: I think it hit home understanding your customer cohort. In selling to the enterprise, as an example, it’s easier for there to be a calculation of impact. How is this data actually guiding decisions? How are we able to make real value out of it? Then you can attach a fee to it. A small business, and I’m talking about this a lot, is characteristically struggles to make those calculations. Even medium-sized business because at the time, it’s hard to assess that impact and there’s a lot of [unclear] to it. I think you’re right in part because some of the services out there were free, and the data inside Shopify was, you could download it if you went through the hassle. Same thing for Facebook, same thing for that. What was really the value of creating utility in that data? We knew from the functional side that it was huge. We knew that they were driving their business – that they were guiding their decisions, that they were taking on our automations, which would create content for them. All these things had effect. It was a small business. It was really hard to cross that chasm. Having come from a pay model, which was Squarespace, I want to try a freemium model. There are a lot of lessons on that model where you’re getting the conversion from that to a paid system. It really is only 3% or 4% of your customers that will come over, which is tough.
00:10:09 · Pablo Srugo
[00:10:09] S1: That’s the hard part is where do you draw the line? You need to let them in. You need to let them get actual value from your product, but you can’t let them get so much value that it’s never worth converting. I find that’s always the big place where at the early stages, founders are struggling with. What’s that line? What’s the feature that – Slack is one that everybody understands, and I find it’s such an obvious one, as the history. At some point, you hit a message cap or you can’t see your history or whatever. If you’re a serious user, you’re going to pay for that. If you’re not, you’re going to still get the value. It’s just that perfect word. Just works out the nature of the product lets that happen. But that’s not that simple in many other freemium cases where you look at your features side by side and you’re like, if I cut it here, no one’s going to use it. If I cut it here, no one’s going to pay. It’s a delicate balance.
00:10:59 · Dane Atkinson
[00:10:59] S0: It’s hard now to actually say ego plays an even bigger part of that, because one of the nice thing – one of the challenges in building capitalized businesses is that you really want to live into the promise you had with your investors and your team, and getting usage on freemium feels like you’re winning. Now, I’ve got actions. People are looking in analytics. They’re printing reports. You’re doing things and everyone gets excited. Your board writes your bigger checks, like everybody’s leaning in, but you’re lying to yourself because you haven’t closed that loop. A lesson that I learned from Squarespace, and I probably shouldn’t get much closer to my heart, was we originally had, or during the cycle time, a 30-day trial. You build your site and everything else, and we quickly discovered that the length the trial actually was inverse effective. The shorter we made the trial, the more customers converted. The corollary to it, successful conversion was actually number of modules. In this case, at the time I was there, how many different components to the site? What was your investment as a buyer that I made into the product would be a better threshold for conversion than anything else. We started engineer. How do we get people to upload content? How do you get people to really feel attached to it? When you get, which my next chapter, my ego or just a successive hat through life got in the way, I’m like, people are fully engaged. It’s going to be a obvious conversion. I think that something to keep in mind is when you’re building these things, you really need to pressure test what is the future you will pay for. I think that that rope is almost always better, tighter. People do give way too much. Very quickly, when folks to the platform, and they get their thesis or the vision behind the company, they’ll decide, okay, I want to go in or I want to go out. Making them have a year and a half free and then the third mail button costs money. It’s incredibly hard. Because also the psychology is now this platform’s free. Slack was brilliant because their strategy was less about the threshold was not good in market muscle. They really found a way to get infection inside of corporate buyers through consumers.
00:12:51 · Pablo Srugo
[00:12:51] S1: Tell me more, actually, just on that Squarespace one, because I found that interesting. Why would letting somebody have a 30-day trial versus a 15-day trial actually lower conversions?
00:13:00 · Dane Atkinson
[00:13:00] S0: It’s interesting because we had the same thing in Shopify. Not we, but as part of that environment. They had found that much like we had five modules, when you had a customer make $25 off their website or something like that, then they would really feel fine paying the fee and going forward. Same thing for SumAll, we found out [unclear], five different businesses that we hit a critical value that they would even pay for it because it just hit that space. I think it’s very, very hard if you’re trying to make a trial based off time to know where that psychological point is. In 30 days, in a lot of ways, someone would get all excited. I’m going to sell scarves online. They would work on it for three or four days, and then life would get in the way. Then a month later, they get an email being like, hey, your website’s up for payment. They’re like, oh, I’m going to go back to it in three months when I get a better break. But that first seven days, you’re like, oh, is it working? I can see it. I can visualize it. Actually, your mental attitude was the investment I’m making versus the time I’ve spent is high. Vastly, I can pay now because I can extrapolate a future. Customers who did pay obviously would end up feeling the commitment and that payment as a reinforcement of their energy, and usually more energy in a gift to be more successful. It became 14 days, and 20 days, and 30 days. There’s definitely customers who would continue to invest in that period. But a lot of people just got and they’re like, this is going to always be here mentality and wouldn’t convert. Statistically, and again, this is a while ago and a lot of things have changed in the world, but a couple companies that I help advise now set a similar pattern. You actually will see a spike in decline. It’s a long tail, too. A lot of those customers that wouldn’t buy in 30 days would buy in three months because they come back and be like, oh, I want to do it. Exactly what that threshold is, it’s difficult. Even as an operator, as a business, one of the things that makes a shorter trial really helpful is when you’re trying to test what is driving conversion. If you think your cycle time is 30 days, your iterations are also in 30 days. Let’s promote -- in myday, we launched a WordPress importer. Sounds insane now, but you would move your WordPress content into Squarespace. Did that work?
00:14:58 · Dane Atkinson, Pablo Srugo
Because you couldn’t tell for 30 days because people would just wait out the trial. You’re like, oh, we have to wait to see if that one would work before we introduce a new feature. Having a short trial window and you could just try things and try [unclear]. [00:15:12] S1: It’s a tighter feedback loop, and it makes sense. You’re almost like leveraging momentum. When somebody signs up, that’s when their peak interest. Make it frictionless for them to get some value. Once they get some value, then get them to pay. Then like you said, now they’ve committed so they’re going to deploy more time into it and you get the positive flywheel spinning. [00:15:31] S0: That’s gyms, right? It’s the whole thing. Building habits takes energy, and you have to think about where you want to catch in that cycle. Different businesses obviously have different cycle times, but I would say most of those folks out there in the early stage, especially as you want that iterations to be tight, don’t get long trials If you can avoid it. Try to make that as quickly as you can, because also you’ll also see if you actually have something you’ll pay for it. [00:15:54] S1: Let’s jump now to Odeko, your current startup. In a sense, you stayed in this SMB world. I get that existing theme. You’re going from data analytics to coffee shops. Bridge that gap for me. How do you end up there?