Lenny's Podcast: Product | Career | Growth
00:56:51 · Jason Cohen
You add features, you have different tiers, you change the pricing in some way with usage or seats or something that kind of goes up automatically as they get more value out of it, so I don't think that's terribly interesting to double click into. It's sort of obvious. I would say, "Oh look, it's tied into pricing because their behavior," but the main thing is you want it to where the customer themselves would agree when they pay more, that they are getting more value. Hopefully they even think they're getting far more value than the price going up. I'm going to say this as if it's precise, which it's not, but they need to feel like if the price doubles, "Yeah, but I'm getting five times the value, so that's fine." That should be the feeling, whether they can measure it or not. A good way to do that is to say, "Well, then you should be measuring whether they're getting value out of it." Often we measure usage metrics and other kinds of metrics within our product because we can. But actually, what's really important is to measure how does the customer value this? And we need to measure that so that we make that go up because if we make that go up, they'll be willing to pay in whatever structure. And if that isn't going up, they won't be willing to pay. So even if we start making them, they'll leave. And we all know, we've all probably done it ourselves, we've all had products we love, but then as we scale, the price goes up faster than we feel the value is, and then we start looking for other products. We've all experienced that. So that's what I'm saying. To do that, you want some sort of measure of the value the customer's getting. If you're really lucky, that can be a number. That'd be wonderful. Then go do that and maybe that's your North Star. But admittedly, it's not always possible. So then the question is, the usual questions and metrics, are there proxy metrics that we understand are not the full picture, but they're helpful, they're part of it? And I'm a big believer in saying not all important things are numbers. I mean, even things like how differentiated are we in the market? Not a number, but it's very important. So this might be one of those things that's important, but not a number. So okay, can we get some proxy metrics, even of behavior and other things that's something better than some metric that's just operational?
00:59:12 · Jason Cohen, Lenny Rachitsky
And even if it's qualitative, okay, can we do that? Can we talk to customers and ask them qualitative questions to try to see? I would just say do your best here, because only when you generate more value for the customer, you can then decide how to split that with the customer in terms of things like price. But that's in fact how I think of it, that very phrase. How do we create more value for the customer and then split that with them? And when you do that, you're keeping the customer forefront in mind. You are taking some. Splitting means you get some. Let's not forget. It's not a charity. And on the other hand, first we should think, how do we generate value for customers, and then we've now earned the ability to take a little piece of that. So to me, this is the right way to think about NRR, not just, "We'll add a feature and make them pay." True, but let's actually take it from this different... Let's get there from this different perspective. [01:00:10] S0: Amazing. In the recent Madhavan episode where we go into pricing, you actually have some really good tactical advice for measuring the value that you're giving to a company to quantify that, which feeds into this idea of how do I create more value for you and then how do we split it? [01:00:25] S1: Yeah. [01:00:25] S0: The other element of this that's top of mind is just this land and expand strategy. There's a lot of companies that are just like, "Okay, cool. We'll get in with some price. We'll expand. That'll be amazing," which is essentially expanding as NRR going above 100%. [01:00:37] S1: Yes.
01:00:37 · Jason Cohen, Lenny Rachitsky
[01:00:37] S1: Yes. [01:00:37] S0: Something Jen actually shared in her chat that was really important is that you can't expand that much, at least for a while, because if you get in for 10K, if you go up to, okay, now it's 100K, someone's going to be like, "What is this? This can't go up 10X. Are we getting 10X value from this?" You can't just raise prices later. You're kind of stuck at that reference point, so you have to be really careful there.
01:00:59 · Jason Cohen
[01:00:59] S1: Yeah, I think that's right. And maybe you don't deserve it. In other words, especially when there's investors or other sort of forces saying like, "Hey, we need to X, Y, and Z," forces that are not the customer saying that, yeah, you can be coerced into making pricing or other kinds of policies that in fact are not good for the customer. So one tool I use is when anyone claims anything really, is, is that really true or is that really actually good for the customer? Because look, we are going to do things that are selfishly good for us. We have to. We can't just do things that are bad for us, but is this in fact good for the customer? Because often even in an internal proposal, we say it as if it is. "Oh, this pricing will be good. It'll raise prices on everyone, but it's better because of this reason," that we're sort of justifying. It's like, well, will the customer say this is better? If the answer is no, it's like, okay, it's better for us, but sorry, we have an equation where it has to be better for us and better for the customer. Sorry, it's an and. And of course, not all companies do that. And we experience that, all of us as consumers on the other end of that, and we don't like it. And that's not a good long-term strategy, even though it might work in the short-term, as many bad long-term strategies are.
01:02:21 · Lenny Rachitsky
[01:02:21] S0: I love just how this third step just reveals how powerful the sequence is that we're going through. Step one is this logo retention. Essentially, do we have product market fit? Step two is pricing, positioning. Essentially, are we going after the right market and charging them the right amount roughly? And then here it's just, can we grow? Is there something here that can continue to expand? Because you're going to get eaten alive if you're, especially... And just to be clear, this is B2B SaaS primarily that we're talking about here. It's harder to grow NRR if you're a consumer product that has, I don't know, just a tier or two.
01:02:56 · Jason Cohen, Lenny Rachitsky
[01:02:56] S1: What I would say is the rules are true everywhere because they're based in the mechanics of finance in the business. You're right that in the consumer segment or small business segment for that matter, they tend not to grow. So that doesn't mean the NRR question is invalid. It means, dang, we can't think of anything. That's okay. Then you go onto the next question because you can't think of anything, but it would be more strategic if we could. And are we trying hard enough? As a consumer, I do not want to spend more with AT&T, but they're also not giving me any more value. But there are other products as a consumer, like Amazon, where they do. So you're right, but it would be as a product manager, it would be 10 times more valuable for you to think of something like that than to move on to other things, et cetera, or there's other ways, like other products. We didn't talk about it and it's okay because of course each one of these, you could go on forever, right? But another way is a second product. A second product sold to the same segments that you're in so that your existing customers can buy it. Well, I don't know why that wouldn't work in consumer. It certainly works in consumer in apparel. [01:04:09] S0: I think about AG1, which has all these new... I'm doing their sleep supplement, and there it goes. They're just like, "Here's a new thing you can buy."