Lenny's Podcast: Product | Career | Growth
00:07:59 · Jason Cohen, Lenny Rachitsky
[00:07:59] S1: It is a lot of pressure. I feel that. And then I tell myself, that will just prevent you from writing anything and that's not good. So yeah, you tend to want everything you make to be the best thing you've ever made. And on the one hand, I want to hold onto that because it's motivation to be good and not to let the bar slip. On the other hand, you can go into paralysis, which is obviously bad. So yeah, I still struggle with that, but I think that is the tension. [00:08:26] S0: Okay. So with 300-ish posts, 200 you're proud of, there are so many directions we can go. There's a few that I've picked that I want to spend most of our time on. The first is you have a really pragmatic way of approaching growth stalling. And the reason I want to spend time here is because a lot of product teams, a lot of founders build something, it starts to show some success, it's going, it's growing, and then all of a sudden it just stops growing. And I think that's one of the most painful things to go through. And I've never come across a way to think about how do I solve this? Because I think a lot of people are just like, "Okay, I guess that is not working. Let's move on to something else." You have a very specific way of approaching this problem. And I want to read actually a quote from Will Smith, and this is something that has stuck with me ever since I read it because it's so true. So in his biography, he has this line. People ask him, "What's it like to be famous?" And his answer is, "Becoming famous is amazing. Being famous is a mixed bag. Losing fame is miserable."
00:09:29 · Jason Cohen
[00:09:29] S1: That's funny. So first of all, I think a lot of people are experiencing this right now. You have a lot of companies that have reasonable products and their growth has slowed. Why? It could be the economy because it's not as good as a lot of indicators say. We all know that, for example, jobs are not as good as the indicators say. It could be because AI or the threat of AI or the expectation of AI, blah, blah, blah. Who knows? It also can just be size. As you get bigger, growth slows because you know what? You're not going to grow 2X a year forever. So it slows. There's just mechanical things. So there's many reasons why things slow. And sometimes it's all of a sudden, although then maybe there's some event like an algorithm changes or something happens. But actually, I think what's really common is it just slowly gets slower. In other words, it decelerates. But I wouldn't say sneaks up on you because most people are looking at growth all the time, so it's not sneaky, but it is sort of a little bit more gradual where just like, you just feel more like you're running through mud like, "Ah, God, we're just still doing so much work and it's not having as much of an impact." And so that's what I see. And when I say that's what I see, so I've built four companies. The last one is a unicorn. The one before that is also a unicorn. The previous one was bootstrapped. This one was VC-funded and I've invested in about 60 startups. Some of them failed completely. Some of them were very successful, some in the middle, because of course, right? And so when I say that's what I've seen, that's the context of what I mean by what I've seen. So there's, I wouldn't say a checklist, but there's a series of questions that I asked to diagnose why is growth slowing in this order, because it's one of these things where the first one that's a problem, if you don't fix that, it doesn't matter if you fix one of the ones below. Just like if, I don't know, maybe if you had a marketing funnel and there's a step where everything falls apart and you're like, "Well, I'll just tune the bottom of it a little." It's like, "That's not going to work. It's not going to help enough. You got to go where the biggest issue is." So this is in that sort of order. So the first question is are customers leaving, i.e. logo churn, right? Churn within.
00:11:42 · Jason Cohen
You can do churn with MRR too, but just for simplicity, let's say with customers. And it's the worst problem for a couple reasons. One is there's nothing you can do about it once it happens. They're gone. There's no saving them, increasing their revenue. There's nothing in the future you can do. Also, it's often correlated with things like negative reviews or other things on social media, which is another kind of preventing growth. So it's kind of a two punch thing of like, they're not here and they may be actively hurting your growth, so that sucks. The math is undeniable, which I want to talk about because this is something where there's a metric I like that is unusual and people find useful. But before I get to the metric, there's also this kind of visceral thing, which is the customer's saying, "This product, I don't want it." And when I think about the gauntlet they went through to get to the product, how did they even find out about me? That was hard already and improbable that they see an ad or hear it. And then they clicked, which is improbable, and then they didn't just bounce off the homepage, which is again, improbable. They actually were like, "Oh yeah, this sounds pretty good." And then they got to the pricing page and that didn't scare them off. They actually had the budget and bought the stupid thing. Then they went through onboarding and invested their time, et cetera, et cetera. That is a crazy gauntlet that almost no one gets through. And after all of that, which clearly means they wanted it to work, they're like, "No, bye." What? Just on an emotional level, you got to go, "Wait a minute, that's terrible. I'm fundamentally not fulfilling whatever promise I made or they thought I made, which is whether that's a product issue or a communication issue." Okay. There's lots of... But one way or another, something is really fundamentally broken just in terms of like, I'm a product person, so what I want to do is make a product that other people want to buy and use. And if they don't, no matter what the metrics say, we're failing our mission, our customers, whatever. So there's just even that non-mathematical reason to go, "Oh my God." Right? So to me, that's already enough reason, but the math is very interesting.
00:13:51 · Jason Cohen
And what I find is when I talk to people, especially on Twitter or something where people are just yapping around whatever they're doing, I say things like anything above 3% per month cancellation is terrible. And people are like, "Oh no, it's okay. Five is fine, seven, six." Everyone's yapping about what they... And it's very abstract. Is four much worse than five? I don't know. And I heard someone else, and blah, blah, blah. So it's very, I don't know, generic and rough. So there's a different metric that I like to use, which keys off of this idea that I think, again, people don't appreciate, which is cancellations grow faster than marketing, and so cancellations overpower the growth of the company and slow it to a halt, i.e. growth slows, right? To where you literally cannot grow anymore. There's a maximum ceiling of how big you could ever be thanks to cancellations. And when you know what that number is, it's much more real and visceral and scary. And so just to kind of justify what I just said, just imagine any company and imagine you just tripled the number of customers that are there and paying, and the same kind, the same age, just the same kind of stuff just tripled overnight. So the next month, would marketing deliver more new customers than a month before? No, because none of your marketing efforts care how many customers you have. AdWords delivers the same number of leads and SEO delivers the same. It does not care how big you are, these efforts. So you're still going to be growing at the same rate as you were the previous month. But cancellations in absolute terms, like the number of customers who leave will triple because you have 5% cancellation and triple... Okay, so still 5% of a triple number is triple, right? So this is the point, is that cancellations automatically grow as you grow, even if you're doing everything right, but marketing doesn't. Marketing grows only as fast as you can improve marketing. We all know that's quite hard actually. It's linear. It's hard to find new channels that aren't trivial. It's hard. And of course we're going to do it, but it's hard, whereas cancellations grow automatically as you grow. So cancellations always overtake marketing for this reason.
00:15:59 · Lenny Rachitsky, Jason Cohen
[00:15:59] S0: The metaphor here is a leaky bucket where are you adding enough water to keep up with the leak essentially? [00:16:03] S1: Right. Except the leaks automatically increase and that's what people don't appreciate. [00:16:07] S0: Because it's a percentage of your entire customer base. [00:16:10] S1: Yes. So we say... When in marketing, we say things like, "I'm adding a hundred leads a month." But in cancellations, we say 5%. Why'd you say percent? Because it's based on your size and it's exponential. That's what 5% is, an exponential. And so there's this maximum size you could ever be. It's when churn equals growth. So how would you compute that? It's actually quite simple because let's say you have this 5% per month, just let's take a number. So it's simply the amount of new customers you add divided by that cancellation rate. That is the amount. That is the limit. So let's suppose you add 100 customers a month and you have 5% cancellation. So 100 divided by 5% is 2,000. So a company like that will never have more than 2,000 customers. And by the way, as you approach that number, growth is very slow because you bring in a bunch of customers and almost the same number leave, so growth is slowing. Ah, look, we've diagnosed by growth slows automatically at all SaaS companies. So that's why this is the first thing, because it's such a hard cap limit and it means that people don't want your product. These are two reasons why it's the most important thing. [00:17:15] S0: Just to clarify, this is logo churn. This is like number of customers, not revenue churn?
00:17:15 · Lenny Rachitsky, Jason Cohen
[00:17:15] S0: Just to clarify, this is logo churn. This is like number of customers, not revenue churn? [00:17:19] S1: Yeah. Well, it is both logo churn and revenue churn. Do the same math. You could say dollars in divided by dollars cancellation rate or number of... I've been saying number of customers just to keep it simple because I think when you look at it and say, "Wow, we will never have more than 2,000 customers." It's just such a visceral, "Oh my God, we got to do something about that." Now, of course, one thing you could do is have more marketing, but you know that already. If growth is slowing, you're already thinking, how do I get more out of marketing? You knew that. The point is that cancellation is this hard limit pulling you down with all these other really bad either implications or side effects, which is why it's so important. [00:17:59] S0: Cool. And when you say marketing, just to clarify, this includes basically all growth work, PLG stuff, marketing, sales? [00:18:04] S1: Yeah. Yeah, yeah. Right. [00:18:05] S0: Great. [00:18:06] S1: Yeah. PLG is nice, but you still need marketing to bring the people in the first place. PLG just means there's not a salesperson unless you're expanding or some other segment. [00:18:14] S0: Cool. Yeah. It's like the whole bucket of just bringing new customers in. Awesome.