Lenny's Podcast: Product | Career | Growth
00:51:47 · Elena Verna
[00:51:47] S1: And another one is giving your product away a lot. And for AI products, it may feel counterintuitive because they're so costly. Every single interaction with an AI product cost company something. There's an LLM pass through cost that is coming through. And a lot of especially traditional tech companies I see are gating AI immediately behind the paywall because they're sitting on the really cush high margin profile. And the moment that you start giving AI away for free, you like cutting into those margins with like a knife through the butter. Now, at the same time, AI being so new and the capabilities being so new, you have to remove the barrier of entry. You have to give a lot of your product away for free. But by the way, I don't just mean freemium. Freemium to me is just like a baseline. If you're in the new category, you need to let people explore what it is free and get that initial wow moment. It's not a moment, by the way. It doesn't need to be a moment anymore. It just needs to be a wow moment. And for Lovable is that first preview generation after your first prompt, even though it's absolutely not gonna be complete thing of what you wanna build, but you just go, this is possible. Like, I had no idea. I wanna keep building. And it becomes an addictive exercise. But we also give so many of our Lovable credits away to every event, to every hackathon. If you want to host a Lovable hackathon, we will sponsor it and give all of the participants credits away for free. So we give them away as candy and we basically track them over our LLM costs on freemium and giveaways as our marketing costs. And it doesn't go into our something we need to reduce to make our margins better. It goes into this is something that we need to spend more in because this is part of our growth secret sauce.
00:53:41 · Lenny Rachitsky
[00:53:41] S0: Okay. I wanna hear more about the growth secret sauce. That is extremely interesting. I haven't heard of that as a strategy, and I can see why this makes sense. If the strategy is blow people's socks off so they could tell their friends, post on all socials, The trick is to get more people to try it. And this is, and it's such a new crazy thing, like why would I pay money, why would I even go take the effort to like try sign up for an account if I don't know what this is, I don't know what I'm doing with it. So I could see how this loop goes faster and faster by giving it away.
00:54:09 · Elena Verna
[00:54:09] S1: Exactly. And again, this is very uncomfortable sometimes for companies that either use to really... AI companies have lower profile of margins. That's absolutely true. To find an AI company with 80, 90% margin profile is absolutely impossible. Let's be real. We're all sitting somewhere in the 40% or so, which is a lot smaller. So any time that you look at those AI costs as your cost center, that's when you're in trouble. You fundamentally have to flip the script and say, I need to expose to people of what is possible and I need to remove the monetization friction out of it. Because if you don't, nobody's ever going to try it or you're going to be very easily overtaken by a competitor that will give it away. And let's face it, once you hook people, they're more likely going to stay with you. So you obviously have to still work on the retention strategy there. But if you can have, like for our case, if somebody, one of our users stands up and say, hey, I'm going to have a hackathon at my work on Lovable. Can you give us all some free credits to play with? Why would we prevent person who wants to do all of the marketing and activating job for us in their company from using us? Of course, we're like, take it. How much do you need? How much would you like? We will sponsor it all. We will give you anything that you need. So we're really leaning into people that are wanting to show this magic to those around you and empowering them as much as possible. And that is something that is actually applies to every single product. And I agree, this is not a growth strategy that I've ever applied in my life on like giving product away as much as possible, but it is something that is more and more becoming something that I see that is absolutely non negotiable.
00:55:52 · Lenny Rachitsky, Elena Verna
[00:55:52] S0: What I'm feeling is like the more mind blowing it is, the more you should give it away for free. Yeah. Especially in a competitive market where everyone is, you know, it's hard. There's like so many companies trying to do this thing. And so so it's almost like the better you are, the more you should give it away. [00:56:07] S1: Right. Right. [00:56:08] S0: And this also explains why so much VC money has to be raised for these sorts of companies because this is not cheap. Like you said, you're paying all these foundational models a lot of money. [00:56:16] S1: Yes and no. I'm only gonna say no is because... So take a look at Lovable. We're over 200,000,000 in ARR. At this point, we're a 100 people large. So our headcount count costs are [00:56:28] S0: very low. Let just let me just make sure people hear that. 200,000,000 ARR. I didn't realize a 100 people work at Lovable.
00:56:35 · Elena Verna
[00:56:35] S1: Yes. And six months ago, we had 30 people working at Lovable. So we tripled. So for us, it's a really big deal. We tripled our company size. Going to quadruple it by the end of... I know. We're big boy and girls now. But perspective of the headcount costs, it's minimal. So we have very little in that going on. We are not spending a lot on paid marketing, so we're not a big paid marketing driver. Yeah, we're spending on influencer marketing, but it's not majority of our growth. It's low double digits, to to be fair, because it's it's not why we're successful. It's amplifying our success and it's helping us reach new audiences. We don't have really large sales team. We have only a couple of sales folks and they're just starting to ramp up their enterprise efforts. So we don't have like really big enterprise demand gen costs as well. So from that perspective, if you like look at the equation and you say, well, okay, if you're not going to do a lot of paid marketing, if you're not going to do a lot of sales, because we're really only working on hand raisers of people that are saying right now that they want to buy Lovable, then where is you don't have big costs so you can spend it on product. And that is the beautiful part because you're not... When we're giving our product away to our customers, we're not competing with other companies in that space because they're just going to use Lovable in their hackathon on their own. And we're competing on AdWords or like in paid Google where everybody's buying real estate for eyeballs. So from that perspective, think about it more as a shift of where we spend and cost. And honestly, it's more efficient way to do paid marketing almost in a sense because of the cost per eyeball that we get there is quite a bit lower compared to if we were trying to compete it on the Google. So yes and no to your statement because it actually does not deteriorate margin profile. We're just shifting of where we're spending it.
00:58:30 · Lenny Rachitsky, Elena Verna
[00:58:30] S0: That is an incredibly important point you're making there. So it's not like you're generating an incredible amount of revenue. So there is money available to spend. And what you're saying is because it's been spreading through word-of-mouth mostly, you're not spending tons of money on salespeople, you're not spending tons of money on paid ads. This is just an amazing way to get more people to use it. So it's kind of like a marketing cost. [00:58:54] S1: This is product led growth. Yeah. Supercharged. Max. Supercharged. Yes. Because you literally using your product to drive that awareness by giving it away to the agents in your ecosystem that will do that distribution for you. [00:59:11] S0: So fascinating. What a a wild world we're living in. Free stuff for everyone. [00:59:16] S1: Yes. Yes. I mean, it's great for consumers. This is a great time to be a consumer. You have so many options like everybody's throwing themselves at you, giving your product away for free. So it's great to be in the market right now. I think it's the power should be with consumer always. But with software power has not been with consumer previously because we were forced to use some solutions because of either how they were chosen for us or what was available in the market. And now that supply is almost infinite, the demand from the consumers can be very picky and the one that serves the best will win.