Lenny's Podcast: Product | Career | Growth
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."
01:04:15 · Jason Cohen
[01:04:15] S1: Yeah. So is it harder? Yeah, of course, of course. All of these are easier, harder in different segments and ways. Of course, of course. I'm not trying to say otherwise. But I would say the mechanics of how the finances work is the same. You're just saying, " I don't have this lever to pull." And then I would say, "Okay, well then you need different levers." One that we didn't talk about is one way to offset the cancellations is existing customers grow, but another way is if existing customers bring in new customers. So they didn't grow, but they brought their friend. Now, this is absolutely something that happens in consumer, but it's also an answer to this thing where cancellations grow exponentially, because existing customers bring in new does triple if you have more existing customers. Aha. So this is stuff like refer a friend and all this kind of stuff. Again, some of this is obvious. We don't need to enumerate that. So those things are good. And so in consumer, you might say, "Oh, it's easier to try to get someone to invite a friend with a coupon and blah, blah, blah, blah, than it is to try to get them to grow," but in B2B, that may not be true. I don't get a mid-size company to refer. That doesn't make sense. So once again, this question of how do we have the existing base help us grow is still correct in consumer, but its manifestation could be very different. Of course, I agree with that. But I mean, how could we not say... I mean, of course, things like word of mouth and invite a friend, of course that's enormous with consumer, and this is one of the reasons why.