The surprising advice from a founder who built 2 unicorns | Jason Cohen (WP Engine)

Lenny Rachitsky (00:00:00): A lot of product teams, a lot of founders built something. It starts to show some success and then all of a sudden it just stops growing.

Jason Cohen (00:00:05): There’s a series of questions that I asked to diagnose why is growth slowing. The first question is, are customers leaving? 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. They didn’t just bounce off the homepage, which is again, improbable. And they got to the pricing page. That didn’t scare them off. They actually had the budget and bought the stupid thing. 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.”

Lenny Rachitsky (00:00:34): Step two is pricing, positioning.

Jason Cohen (00:00:36): Your prices are way too low because you just guessed and you haven’t changed them. What often happens is you raise prices and signups don’t change. Just think about a company with a thousand employees and 400 million in revenue or whatever. If they see a product that’s $2 a month or even $100 a month, thought is like, that can’t be good enough.

Lenny Rachitsky (00:00:52): We positioned this conversation as how to deal with stalled growth, but it’s actually just as useful for how do I grow more?

Jason Cohen (00:00:58): Do you know right now which channels are saturated and which aren’t? You can’t just rely on marketing forever. Just adding one little feature and then hoping we can flog AdWords is not going to work.

Lenny Rachitsky (00:01:07): What comes next?

Jason Cohen (00:01:07): The last question is, do you need to grow? We all have heard the phrase, “If you’re not growing, you’re dying.” Is that true or is that the kind of thing that investors use to make founders try to grow even when they shouldn’t?

Lenny Rachitsky (00:01:19): Today, my guest is Jason Cohen. Jason is a four-time founder, including two unicorns, one being WP Engine. He’s not just an incredible builder and entrepreneur. He’s also an incredible writer and share of product wisdom. He’s been sharing his advice online for over 20 years now. I’ve been a huge fan of Jason’s from afar for so long and it was such a treat to have him on the podcast. There are a million things we could have talked about and I’m definitely going to have him back. In this conversation, we spent the entire time talking about his very actionable and very helpful framework for what to do when your product’s growth stalls. I found his way of looking at the problem incredibly practical and real and actionable. And if you’re looking for ideas for how to rekindle your product’s growth or just accelerate the growth of your product, you’re going to walk away from this conversation with your mind buzzing.

(00:02:08): Also, I’ll add that after 20 years of blogging online, Jason is about to publish his very first real book. It’s called Hidden Multipliers. You can now pre-order it online at hiddenmultipliers.com. I am going to grab a bunch. I bet after listening to this conversation, you will too. If you enjoy this podcast, don’t forget to subscribe and follow it in your favorite podcasting app or YouTube. And if you become an insider subscriber of my newsletter, you get a year free of over 20 incredible products, including a year free of Lovable, Replit, Bolt, Gamma, N8N, Linear, Devin, PostHog, Superhuman, Descript, Wispr Flow, Perplexity, Warp, Granola, Magic Pattern, Raycast, ChatPRD, Mobbin, and Stripe Atlas. Head it over to lennysnewsletter.com and click Product Pass. With that, I bring you Jason Cohen after a short word from our sponsors.

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(00:05:22): Jason, thank you so much for being here and welcome to the podcast.

Jason Cohen (00:05:26): Thank you. It’s an honor to be here.

Lenny Rachitsky (00:05:28): It’s an honor to have you here. I have wanted to get you on this podcast for so long. You are both an incredible builder and a founder, and you are such a great communicator. You have been writing at asmartbear.com, which I want to get the backstory on for so long. How long have you been writing there, by the way?

Jason Cohen (00:05:47): Almost 20 years. I started when blogging was cool. And I’m still waiting for blogging to come back and be cool again, but it’s not yet.

Lenny Rachitsky (00:05:55): I think it is cool.

Jason Cohen (00:05:55): It is? Okay.

Lenny Rachitsky (00:05:56): Newsletters are cool now. Yeah.

Jason Cohen (00:05:57): Newsletters are cool. Okay.

Lenny Rachitsky (00:05:58): I don’t know if you saw Twitter now is encouraging long-form writing. There’s this articles feature, so I think it’s cool. I think you’ve survived the trough.

Jason Cohen (00:05:58): Yes. Okay.

Lenny Rachitsky (00:06:07): I was also out talking to Gemini trying to figure out how many posts you’ve written. I was like, “Count the number of blog posts on a smartbear.com.” Do you have a sense of how many things you’ve written on there?

Jason Cohen (00:06:14): Yeah, it’s not that many. It’s something like maybe a hundred and… Well, I would say between 150 and 200 that I’m proud of and probably about 300, 350. And that’s it over about 18 years. And that’s because I only write in-depth. Some are long, not all are long, but none are short, I guess. And I’ve always had a rule, even though you’re supposed to write really regularly and not just for algorithms, but they used to say, again, back in the aughts where I started, “Oh yeah, it needs to be really regular so people know when to expect your thing and they plug it into their day and all this.” So it’s always been true that you should be regular. And I never was because my attitude was always, I will only put out stuff if it’s the best that I can do. It’s up to the reader to decide if it’s good or useful.

(00:07:01): And so if I don’t have that, I’m just not going to publish. That’s the way it is. And so there’s years where I’ve published once or twice only the whole year. Maybe I was busy or didn’t have the energy. Other years were, yeah, I posted 40 times or something, but even then, it’s only that, because I can’t do something of that magnitude. And also found unicorns, which I did during that same time and run them. I can’t do that all at the same time and produce a lot. So it’s fewer and hopefully better, but that’s in the eye of the reader, of course.

Lenny Rachitsky (00:07:30): I like what you say. I’ve done 300, not too many.

Jason Cohen (00:07:32): Well, not for 18 years. Over that time, you expect-

Lenny Rachitsky (00:07:36): Well, I think this actually, this is where I was going to go, but I think this is a really important lesson I’ve also learned. I always used to tell people the key to being successful writing stuff online and just content in general is quality and consistency, but I’ve just more and more realized quality is actually the only thing that matters and the consistency doesn’t matter. So the only difference is the more rarely write, the more awesome it has to be.

Jason Cohen (00:07:59): 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.

Lenny Rachitsky (00:08:26): 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.”

(00:09:03): 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.”

Jason Cohen (00:09:29): 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.

(00:10:13): 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?

(00:10:54): 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.

(00:11:36): 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.”

(00:12:25): 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.”

(00:13:12): 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. 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?

(00:14:02): 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.

(00:14:58): 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.

Lenny Rachitsky (00:15:59): The metaphor here is a leaky bucket where are you adding enough water to keep up with the leak essentially?

Jason Cohen (00:16:03): Right. Except the leaks automatically increase and that’s what people don’t appreciate.

Lenny Rachitsky (00:16:07): Because it’s a percentage of your entire customer base.

Jason Cohen (00:16:10): 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.

(00:16:54): 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.

Lenny Rachitsky (00:17:15): Just to clarify, this is logo churn. This is like number of customers, not revenue churn?

Jason Cohen (00:17:19): 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.

Lenny Rachitsky (00:17:59): Cool. And when you say marketing, just to clarify, this includes basically all growth work, PLG stuff, marketing, sales?

Jason Cohen (00:18:04): Yeah. Yeah, yeah. Right.

Lenny Rachitsky (00:18:05): Great.

Jason Cohen (00:18:06): 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.

Lenny Rachitsky (00:18:14): Cool. Yeah. It’s like the whole bucket of just bringing new customers in. Awesome.

Jason Cohen (00:18:16): Yeah, yeah. Okay. So assuming you agree, yeah, I don’t like customers leaving, that sucks, so obviously you got to find out why they’re canceling and do something about it. And the kind of root issue here is they don’t want to tell you. They’re already out the door. They’ve already stopped investing in you mentally. So the last thing I want to do is spend time with you or really think about it and diagnose it with you. And I have a funny story about this for myself. So at SmartBear, people would cancel, we’d put up this form and a dropdown list, too expensive, project ended, this little stuff like we do, so we could gather data. And one of them did have more selection than the rest. And I realized it was the first one on the list. And I thought, huh, I wonder if people are just picking the first one.

(00:19:03): So then we randomized the list so everyone saw a different order of the list, and now all the items were picked equally, like, oh, right. It’s complete noise. And I know other companies have done similar things also with the similar results that this is a global phenomenon. So okay, so what do you do? The point is, it’s hard. So the first thing is you want to ask open-ended questions. I know you want to just get a list, but this is the problem. At least with open-ended questions, I mean, most people won’t answer, but at least you might be able to get some kind of thing that they generated. And when you do this, the wrong way is to ask, why did you cancel? Because again, this allows them to say something really simple like budget, which may or may not be true. I’ll get to that in a second.

(00:19:46): What you want to do is say, “What made you cancel?” In other words, what about the product or situation or whatever caused the cancellation? Just phrasing it that way, you get much better results. And I stole this from a company called Groove, who has this great case study online about this very thing. They had an email that they sent out, which is a great email, and they started by asking, “Why did you cancel?” They got 10% usable responses. They changed the same email to what made you cancel, and it’s 20% usable responses. So there’s, I guess, maybe some anecdata that this is a good idea. But the point is you really want them thinking about the product and not just coming up with an excuse.

(00:20:28): The next thing is the few times you do talk to them, so you want to go into, delve as far as you can into there, because most people won’t talk, the temptation is to hear what they generate at first and say, “That’s the answer.” So a really common one is it’s too expensive. I think anyone who’s looked at cancellation data at any company will agree that too expensive is often the number one or at least top three reason in one form or another. And that is never, ever, ever the reason. How do I know? Because they already looked at your homepage, read all the stuff, saw what you promised, looked at the pricing page and decided to buy it. That means it, whatever was in their mind of what it is, is not too expensive. They already decided with their actions. It was not too expensive. Something else happened, but you didn’t fulfill the promise that at least they thought you made or something else didn’t work or… Now, it is possible they lost budget, but that doesn’t mean you’re too expensive. That means they lost budget. That’s a very different reason. So it’s sort of like, this happens in healthcare, for example. So when someone dies, a doctor has to write what’s called a proximate cause, which is why did they actually die? But then you try to also write down the real reason. So let’s say someone comes in and the proximate cause of death is they stop breathing. Well, you could stop there and that’s like listening to it’s expensive and going, “That’s it.” Well, why did they stop breathing? Because they ran their car into a telephone pole and were injured so much that eventually they stopped breathing. Why did they run their car into a telephone pole? Because they passed out at the wheel. Why did they pass out at the wheel? Because they had undiagnosed diabetes. Now we’re getting somewhere. It still isn’t just one root cause, another as a sidebar. I hate the idea of a root cause.

(00:22:19): Complex systems do not have one root cause. They often have many interlocking things that could be done to detect earlier or to change it or to reduce and not one root cause. So the root cause analysis to me is, by the way, an incorrect thing. I’m explaining why right now with the healthcare, right? Because, well, what about this undiagnosed? Well, maybe part of the problem is we have a healthcare system that isn’t preventative and part of it is that, but they didn’t go to the doctor anyway. Okay, so there’s all kinds of things that could be useful and interesting to prevent this or make it better. That’s the point. That’s what an analysis should be, is this array of things, not the root cause. Anyway, something along the lines of undiagnosed diabetes is much more of a cause than stopped breathing. So when we say it’s too expensive and that’s the reason, you’re making this fallacy, you got to go into, well, they wanted this stuff, but it didn’t work with Linear, which is what they use. It only works with Jira. And so there’s a lack of integration.

(00:23:12): Now, maybe we should write that integration and maybe we shouldn’t. Of course, it depends on how much we hear about it. And of course it’s going to depend on other things, but that’s the reason, not it is expensive, right? And so this idea of getting into not even the root cause, but let’s say root-er causes.

Lenny Rachitsky (00:23:30): The roots cause.

Jason Cohen (00:23:31): Yeah, the more root. I think some people probably say five whys and just paper over what I just said with that. And maybe so, but let’s not be so simplistic about that, because again, five why sometimes implies that there’s some root cause at the bottom of the whys. Let’s be a little more smart about that. So anyway, these things too expensive, this is not it. Maybe project ended really is project ended. Okay. But even there, I see just today, today on an entrepreneur forum I’m on, someone said, “Yeah, we’re starting to see more people have project ended as the reason, and so there’s nothing we can do about that.” Now see, that’s incorrect. That’s only true if you only look at the proximate thing, which is project ended.

(00:24:15): You’re correct that you can’t make that project not end exactly. Yeah. Okay, but wait a minute. If your software was more successful and the project was more successful, would it have ended or is that actually an indicator that your product wasn’t that useful or didn’t do its job? It’s possible, like in this case, who knows, right? But that’s possible that it really is your fault. Another example is, but you picked what target segments you are going after. Did you pick a market segment that was easier to sell to, but their projects end like small business and consumers where very often the small business does go out of business where the project ends, et cetera? Because when things are small, they have high variance and lots of things can knock them off the path and so on. And so is it your fault for picking the wrong ideal customer profile or target segment? And so yes, that one case of that one project, that’s not your fault, quote-unquote, but by saying that you’re just ignoring the fact that there is maybe something to do about it… Now, all this is maybe. None of this proves you should change your market, but when you say there’s nothing we can do about it, you are closing the door on these things that might be the right thing. And very often, as I think probably a lot of people here on this listening to this know, the market segment you pick has a lot to do with your retention rate because everyone acts differently. And so anyway, so I know it’s a lot on this topic, but I just feel constantly, people make this particular mistake of just abdicating responsibility or just listening to the first thing they hear and saying that’s the reason and that’s not right.

(00:25:54): So that’s the big thing about listening. Another thing is you got to ask when people are in trouble, but not yet canceled. You might be able to save them. You certainly can learn more because you can talk to them. They’re not shut off yet from you. So this might be, they never uploaded their data, so they’re not being successful. They are calling tech support too much. They’re in trouble. They’re not calling tech support enough. They’re not engaged. They didn’t log in for a while.

(00:26:23): There’s all kinds of things where… Now, of course, the details are going to depend on the product, obviously, but there are signals that are correlated with cancellation. Now, if you have a lot of data, you can literally correlate signals with cancellation and try to extract that precisely, but even without data, you can guess. And guessing and having a theory, acting accordingly, and as you get more data adjusting your theory, this is a wise way to proceed even without data. So if you can catch them when they seem like they’re off the happy path, they’re in trouble, that’s a better time to do it. And then the last thing I would say about this detection is if you don’t know what to do or all else being equal, then focus-

Jason Cohen (00:27:00): … because if you don’t know what to do, or all else being equal, then focus on onboarding. Almost all companies have a whole lot more cancellation in the first day, 30 days, 90 days, depends, but the first period than the whole rest of the customer’s life. And also, small changes in the onboarding can have large effects on cancellation, whereas later on, that’s not necessarily true. It could be, but it’s not necessarily true.

(00:27:26): So a really dramatic version of this is if you’ve ever done YouTube videos, which I know you have, but if a listener has ever done a YouTube video and you see the “retention”, quote unquote, of the viewer on a YouTube video, it has this thing where it falls just so much, you can’t believe, in the first 30 seconds, and then, if it’s a decent video, it’ll flatten out as people decide to watch the video.

(00:27:47): So in that crazy-looking curve, for the people that have watched it for 15 minutes, maybe there’s something you could do to keep a few of them staying to the end, but that’s not going to change very much how many people get to the end. Whereas for me, I’ve only done a few, but what I see is about 50% fall off in the first 30 seconds. Well, if I can get that from 50% to 55% stay, that’s an additional… And at the end of the line, I only have 20% still there, which is pretty good for a longer video. But if I get it from 50 to 55, I might go from 20 to 25% staying. In other words, if I shifted 10% at the front, which maybe I could do, I can’t be dramatic but maybe a little, then in the output, I might be able to increase it by 20, 30%.

(00:28:33): So that’s a huge change, and so the SaaS equivalent is, as we all know, if they leave early, not only is it bad but it’s super unprofitable, because you spend all this money to acquire them and then they never stayed around long enough to pay it back, much less to be profitable. So if you can do a little bit in the onboarding or shift the onboarding percentage a little bit, it pays off enormously in revenue and profit over time by making them successful. So again, if you don’t know what to do, onboarding is a good bet, and even if you do know what to do, I’ll still bet that onboarding is a good bet for where to go.

Lenny Rachitsky (00:29:07): Oh, man. I’m so happy we’re spending so much time on this very specific first step of logo churn, because the way you described it is so visceral. It took so much. It’s impossible how far this customer got already. They are using your product and understand it mostly, and then they still decide to leave. So brutal the way-

Jason Cohen (00:29:29): And you’re going to believe them when they say it’s because of the cost? It just doesn’t even make sense when you put it that way.

Lenny Rachitsky (00:29:36): So let me summarize the advice you shared here, because this is so good. So step one is look at logo churn. The way to understand, and essentially to understand how big of a problem this is and why you need to spend time here is basically do the math, how many new customers you’re getting divided by the cancellation rate, and that essentially tells you, if that doesn’t change, what’s the maximum number of customers you will ever have?

Jason Cohen (00:30:01): Exactly.

Lenny Rachitsky (00:30:02): That’s going to be a sad number. And then the question is, okay, cool. How do I reduce the cancellation rate? Obviously, as you said, everyone wants new customers, more new customers.

Jason Cohen (00:30:08): Yeah. And I know you’re going to do that anyway, but you’ve got this cap.

Lenny Rachitsky (00:30:12): Exactly. Okay, so a few things you’ve shared here. One is instead of asking people a multiple choice, why did you decide to cancel? You make it freeform and you make the question, how would you say it? Was it what made you cancel?

Jason Cohen (00:30:26): What Made you cancel?

Lenny Rachitsky (00:30:27): What made you cancel?

Jason Cohen (00:30:28): Yeah.

Lenny Rachitsky (00:30:28): Great.

Jason Cohen (00:30:28): Yeah.

Lenny Rachitsky (00:30:29): And then you could use AI to help summarize these things, I imagine, instead of …

Jason Cohen (00:30:32): Yeah. I think what I find with AI is this, with this sort of thing, with surveys is this. AI is good at picking out themes. It is bad at picking out details that are actionable. When I say AI, of course, I mean LLMs, which is probably what we mean when we’re looking at natural language. And if you think about it, it makes sense because the LLM is an averaging machine. It’s predicting the most likely. That’s an averaging kind of a thing. And so when what you’re looking for is a kind of average, it’s usually pretty good, so summarization, topics, themes, but when you’re asking for what is interesting and not average, it’s actually pretty bad at it.

(00:31:15): One way that I’ve found that’s sort of useful is, yes, I’ll ask it about themes, but then I’ll say, “Now pick out every specific detail that goes under one of these themes. Put it along with which customer said it and the link to blah, blah, blah.” So you have to play with this to tune it right, but that kind of thing so that a human being can then still see the detail, which is what triggers in your mind, “Wait a minute. But that means we should do this,” because the topics won’t do that. The topics will be … I already know what the topics will be. It’ll be stuff like I couldn’t figure out how to do this, this integration. The topics are actually not going to be that surprising probably. It’s the details that are going to be the triggers for actionable stuff or patterns or something like that. So yeah, AI is not useless, but it’s not as useful as it sounds. It’s probably still a good idea to just read all this stuff. Although AI might be able to clean up, maybe people’s grammar’s bad, it’s a weird language. Okay, yes, that’s annoying. You could clean that up, but I wouldn’t rely on AI to do the thinking for that reason.

Lenny Rachitsky (00:32:20): That’s such good advice. I actually have a really cool guest post coming out soon that gives a bunch of really specific techniques to avoid AI hallucinating or just giving you really bad results from this very specific synthesis work, because it turns out AI is very not great at actually being honest about some of the stuff, so I’ll link to it if it comes out before this. And I think in real life, most people don’t have that much. The volume of these cancellations, unless it’s a super consumer app, is not that high, so you don’t even need AI for this. Just read it.

(00:32:51): And then this is a good segue to your next piece of advice, which is essentially the five whys but not the five whys, where you force yourself to dig into what’s the real reason that forced them to cancel? It’s probably not pricing. It’s probably not the project ended. There’s something deeper.

Jason Cohen (00:33:06): Yeah.

Lenny Rachitsky (00:33:07): And then advice number three is try to catch people early, try to catch them before they churn, and if you don’t have a lot of customers, it’s a lot easier if you have a lot. It’s obviously harder. There’s always been this holy grail idea of a product that just watches metrics and tells you this person’s going to cancel. I haven’t seen that before.

Jason Cohen (00:33:23): What I would say is it is not hard. You don’t need a lot of customers to go talk to the ones who are in trouble. You do need a lot of data or customers to mathematically know what behaviors are correlated with canceling, and therefore, to spend your time wisely. Then you need a lot more data. But to your point, even if you have that data, it’s not entirely clear whether some kind of mechanistic thing is all that important. One way I look at it is it’s very common advice, you should try to get more good customers and fewer bad customers. Of course you should. And so therefore, they say you should see what the good customers have in common, but that’s not the end of the sentence because a lot of the things that good customers have in common, they also have in common with the bad customers, because it’s just what your customers do, just what anybody does. So it’s what the good customers have in common that are different from what the bad customers have in common.

(00:34:20): Okay. So with that in mind, this it has to be both or else you’re just getting correlations that are not helpful, the cancellations or talking to people who are in trouble is another application of that. So what is correlated with people who actually end up canceling, not just what … And so I think that mindset is correct, if you add the other side of that to it.

Lenny Rachitsky (00:34:44): Really important nuance.

Jason Cohen (00:34:46): Yeah.

Lenny Rachitsky (00:34:46): Okay. And then the final step just to close this out is onboarding, work on onboarding activation. One of the most recurring themes on this podcast is just the power across every dimension of improving onboarding, improving activation.

Jason Cohen (00:34:59): Yeah.

Lenny Rachitsky (00:34:59): Sweet. Okay, so this is just step one, which is already full of gold if your growth has slowed. So step one is focus on your logo churn, the number of customers leaving, people leaving, actually canceling your product.

Jason Cohen (00:35:11): So I look at it like a question. So the first question is are people leaving too much? Because if your monthly cancellation is 2% for S&B, that’s good. So you could try to work on it, but since it’s already good, it’s still probably a good idea to work… It’s probably a good ROI for you to work on it, but it’s possible that you’ve got diminishing returns and that this isn’t really the reason or it’s not really reasonable for it to go. How low can it go for S&B? There’s some floor and you might be near it. So the first question is is logo churn too high? And trying to set a threshold lower than what people normally want to do.

(00:35:46): So the next question I have is is the pricing correct? Which of course, pricing is a perennially interesting topic, I know. There’s this funny thing, especially with newer companies, that the pricing is always too low. It’s not always, but that’s the common thing. Patrick Campbell, who has 4,200 data points about startups, let that sink in a little, has this great quote which goes like this: “Your prices are way too low because you just guessed and you haven’t changed them.” Yeah, if you really look deep within, you realize like, yeah, or we just picked whatever our competitors are doing and that’s it, or we added or subtracted something because reasons. Right, that’s probably not good.

(00:36:28): And people are scared to rate prices for obvious reasons, but if we set aside the emotional reasons, whether they’re correct or not, the economic reason people normally give is they have in their mind this microeconomic supply and demand curve thing, and the demand curve says that if you raise the price, demand goes down. That’s why demand curve is always going that way. And so they understand, I think everyone understands, right, but maybe you raise prices by 10%, but signups go down only 5%, so overall, it’s better. But the opposite could happen too if I’m on the other side of the demand curve, and okay. So that’s how most people think of it. However, this is not how it works. So that’s how it works in microeconomics 101 textbooks, that’s not how it works in the real world often.

(00:37:16): So what often happens is you raise prices and signups don’t change. When I say signups, I mean signups per month, the rate at signup. Or signups go up. This happens all the time. Even for solopreneurs on Twitter who have strange projects or everything, it happens all the time. They raise prices, they’re like, “I was scared,” but then signups went up.

(00:37:37): I once talked to a guy, this is really funny. I’m going to not say the name to protect the name. So he had a product that he was selling essentially to enterprise and government, so larger companies, and it was to me way too cheap. So he said something like, “Yeah, I charge $300.” I’m like, “$300 a month, that’s not enough.” He goes, “No, per year.” They’re like, “Okay, wait.” I said, “Okay, how many signups do you get a week?” And he’s like, “One or two,” because this is enterprise and it was a startup. I said, “Okay. Just for fun, just change it from per year to per month,” So in other words, we’re 12x-ing the price.

(00:38:19): So he did, and he still got one or two per week. Nothing changed. I’m like, “Okay, what are you going to do next?” And he goes, “Oh my gosh, well, now I have so much more money and profit, so I’m going to hire an engineer. I’m going to do this marketing.” And I’m like, “Time out. What you’re going to do is raise prices again. You just told me you 12x-ed the price and nothing observable changed. That means you’re not near the price yet, right? You don’t have to 10x it again necessarily. Maybe 2x, maybe 50%, but you’re not done. You can do those other things too, but you’re not done with the price.” It didn’t even occur to him still.

(00:38:56): Okay. So why does this happen? The reason is that pricing selects the market. So if you only think of the market as people with very limited budgets, barely can do anything, not getting much value out of it, then it is true that if you raise prices, you’ll get fewer of them, because they were never getting that much value out of it anyway. They don’t have that much money so if you raise prices, they’re gone. But think about just even a midsize company. Forget about enterprise, just think about a company with a thousand employees and 400 million in revenue or whatever, and if they see a product that’s $2 a month or even $100 a month, the thought is like, well, that can’t be good enough. They’re not mature enough, it’s not going to do enough. The support’s not going to be good enough. They probably don’t have good governance policies or other things that we need, et cetera. Whether that’s true or not, this is what it looks like because is it’s low quality, cheap, whatever, aimed at SMB.

(00:39:52): So they just won’t buy, they’re not in the market for the thing. So it’s not true that they have this demand curve where, oh, since it’s cheap, they all want it. That’s what microeconomics curve says. It’s so cheap that they should all want it. No, they don’t. None of them want it because it looks bad. So as it gets into a price range that makes sense for the kinds of things that they need, then their demand actually goes up. Then it can stay up while it’s in a good range, and then of course, at some point you are priced out of them. That particular kind of company’s like, “Look, I’m not going to spend $10 million a year on it. Are you kidding?”

(00:40:24): So yes, it does slope down and go away. So it’s not a normal curve, but it is like it slopes up and then it’s something and slopes down. Who knows exactly what shape it is? Probably none of us know, but it’s more like a Mesa and not a line that goes up to down like in the textbook, for that market. It’s only the very lowest, you might even say worst in terms of metrics end of the market that has the microeconomic slope that you’re worried about.

(00:40:51): So what happens is you raise prices and you enter a different market, and that’s why the signups go up or okay. You leave behind perhaps a worse market anyway. And of course, everyone will tell you the more they pay, the higher retention is, and all the kinds of stuff gets better when you charge more. So this question, is pricing correct? This is what’s in my mind when I ask that question. Probably the answer is no because pricing’s very hard. It’s just as much art as it is science. You’ve had some really good people on here on pricing. In fact, so good that I’ve bought some of the books that those people have talked about because I loved the interview so much, so I believe in all that. No problem, I believe in it. Nevertheless, they also say it’s art and science and it’s very difficult to … And also, once you auger it in, the world changes. Five, 10 years later, the market is different, the world’s different, and so it’s still unclear.

(00:41:48): Also, price is not just the number on the webpage. It’s easy to think that, but how it’s structured is just as important, how the product’s positioned is just as important. So for example, this example I’ve written about before online is this example, it actually was something that happened in my life but I changed the story to make it simple, and it’s real unclear without having to get into lots of detail. So the story version is how this company was able to charge eight times as much for the same product just by talking about it differently. So just by positioning it differently, eight times as much. Again, this happened to me but it’s too complicated. Those details are not interesting.

(00:42:37): So say there’s this company called Double Down, and the idea is that it halves the cost of your AdWords because it makes it so efficient, so that’s what it says on the webpage. “Cut your AdWords cost in half,” which is a very good pitch, isn’t it? It’s simple, obviously valuable. But when you think … So let’s suppose I’m a customer and I spend $40,000 a month on AdWords. What am I willing to pay for double down? Well, if you do cut my AdWords in half, then all right, I saved 20K, but I’m not willing to give 20K to Double Down because then I’m not saving any money. In order to actually save money, I need to give Double Down less money. How much less? I don’t know. Let’s just call it a quarter. So I pay Double Down 5K to save 20, so I’m really saving 15, Double Down’s making 5K a month, that’s pretty good. Everyone’s pretty happy at this five grand a month price point. So there’s nothing wrong with this. No one’s doing anything wrong, that’s a perfectly valid company. However, think about these two situations that the CMO might be or the chief product officer might be in in talking to the CEO at the end of the year. Well, scenario one goes, we started using this tool, Double Down, and it had our costs, so we’re able to spend that money on some other stuff. We were able to save money.” And the CEO would say, “Great, that’s good. We’re going to renew and I’m happy to hear it.” Again, nothing wrong here, but let’s take a different tact altogether. What does the CEO want to hear more? Growth or saves money? Both are good, but I know which one is healthier for the company, increases market share, is better competitively, and also makes the company more valuable. It’s the growth. So what we’d really like the CMO to tell the CEO is, “I increased the growth rate of the company.” Not so much, “I save money.” That would be way better.

(00:44:29): So here’s how we could do that with Double Down. Yes, Double Down halves the cost, but what that means is right now, right now, the company is paying 200 bucks per lead. Let’s call them leads, whatever this is outputting. Well, if I halve the cost of a lead, I could get twice the leads for the same money. I’m already willing to spend $200 a lead and I’m already spending 40K a month for it, so if Double Down halves the cost, it means I can get more leads. So the way I could pitch Double Down is double the leads per month, period. Now, if I’m willing to spend 40K for this number of leads, how much am I willing to spend to double the leads? 40K. I just said I’m willing to spend 40K for this number of leads, so doubling it, I’m willing to spend 40K to double it.

(00:45:23): So if I give Double Down 40K, not five for the same product, which is the leads are cheaper, but now the pitch is I doubled the leads for 40K instead of having the cost for 5K. So Double Down gets 8x the money because it gets 40K for this product, not 5K for this product.

Lenny Rachitsky (00:45:43): Amazing story.

Jason Cohen (00:45:44): And everyone’s happy because the CEO goes, “What did you do?” And they said, “Oh my God, I doubled leads.” “What?” “Yeah. At the same ROI as we had before, same CAC, I doubled leads.” CEO goes, “How can we do more of that? ” Just everything is so much better, same product.

(00:46:00): Now, I know it’s a little bit of an exaggeration, et cetera, because I’m trying to make a point, but the big point is, the largest point is pricing is not just the number on the page. It’s positioning, it’s how their budgets work, it’s how it’s structured. It’s per site or it’s per usage or it’s per seat or it’s per … All of this stuff is part of what pricing is. And often, even if it’s the same price or the same product, depending on how that’s structured, it either seems fair and good or it seems unfair and too expensive or whatever.

(00:46:34): And so in particular with the positioning, the big lesson for product managers is sell more of what the company values like growth. It doesn’t have to be growth. It could be something else, the retention for their customers, how competitive they are in the market. There’s various things they could value. Growth is an obvious one. Sell them that they’re going to get more of what they value as opposed to saving, cutting, ROI, saves time, saves money, more efficient. And again, there’s nothing wrong with saving money saves time. It’s just that it caps this price and this value that they perceive that you do. Whereas if you deliver more of the value that they already value, it’s I don’t want to say uncapped completely, but the cap is maybe an order of magnitude higher than saving. So again, it’s valuable to save. They’re not doing anything wrong. That’s not how to talk about what it is, and therefore help set the price.

(00:47:35): So it’s a long way of saying … So again, when I think, “Is your pricing correct?” I’m thinking in maybe a more general way than just the number. I’m thinking about the structure, the positioning and all that, and my guess is when growth is slowing, that there’s a lot of improvement that could be had there.

Lenny Rachitsky (00:47:52): Oh, man, this story is so powerful. Who does not want to change some copy on their website and double their growth and triple their price? And the biggest takeaway here is when you say is pricing correct, it isn’t what is the number? 20 or 25 or 100? It’s almost is the market we are going after correct? Is the way we are selling to them correct? Is this price communicating the right sort of story? And then also, is the positioning of what problem we solve for you correct? So there’s a lot here, and luckily, I’ve done a bunch of episodes along this stuff which we’ll point people to. We could go much deeper because this is a deep skill and there’s a lot to do here.

(00:48:35): One thing I’ll mention specifically, so Jen Abel, a recent podcast guest.

Jason Cohen (00:48:38): I love her.

Lenny Rachitsky (00:48:39): It was her second visit to the podcast. She has a lot of really good advice on this of just how to price and how to reposition the way you’re selling it. Specifically, she had this really interesting insight that enterprises, their sweet spot for contracts is 75 to 150K. That’s how they normally buy SaaS software. And it sounds absurd, but that’s what you want to … You want your product to be in that bucket versus a thousand a month, 2000 a month. And everything just gets easier if you’re like, “Okay, this is one of those. Okay, cool.”

Jason Cohen (00:49:05): It gets easier. I don’t want to go off too much of a tangent, but the thing you have to remember is that pricing is not this knob that you can turn separate from the rest of your strategy. So when you say, even when I just said raise prices or whatever, but you can’t just raise prices. These new customers have different demands. Now, maybe you need SOC too. Now, your other governance stuff matters. Now, integrating to certain systems you didn’t know about matters. Maybe now, they need professional services. You can’t just raise prices and change market and that’s it. And maybe that’s wise to do, but maybe it’s not. Maybe you realize that sure, of course, that other market has certain advantages, but they also have disadvantages and we don’t want those, either because we’ll no longer be competitive because the way that we’re distinguished, competitive, special, interesting, valuable, is only valuable in the market we’re in. The next market does not value it like that, and so uh-oh, actually, that would be really bad for us.

(00:50:10): Or it could even be cultural. We are a company… Like Buffer’s a great example. Buffer could go up-market and try to sell social media tools to whatever, but they realized, “We are a company for the little people. I don’t want to sell to a big company. We’re never going to make a product for them, we don’t want to. This is who we are, this is what we want to do. This is what’s fulfilling to us, so we’re not going to go there.” So it can be cultural, it can be certain goals, it can be other aspects of the business model or the strategy, but it’s not this kind of like, “Oh, I’ll just change this.” It’s a decision about the whole strategy, and that too, we could talk about for hours, but let’s just caution that, “Oh, I’ll just go enterprise,” is of course not how it goes.

Lenny Rachitsky (00:50:54): [inaudible 00:50:54]. We got this.

Jason Cohen (00:50:55): Yeah. I love Jen. Her pricing and sales stuff is good. She’s great on Twitter too. I love Jen.

Lenny Rachitsky (00:51:00): And that is such an important nuance. Don’t build the thing you’re miserable building and just like, “Okay, I listened to a podcast. We’re going to raise our prices 10x and life will be grand.” There’s also downsides.

Jason Cohen (00:51:09): Yes.

Lenny Rachitsky (00:51:11): Yeah, okay. Amazing advice. Okay. There’s so much here. Again, this could be some conversation, pricing, positioning.

Jason Cohen (00:51:11): Yeah, for sure.

Lenny Rachitsky (00:51:17): I’ll link folks to a bunch of cool advice that we’ve covered on this podcast too.

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(00:52:07): Let’s keep going through this checklist. So one was look at logo churn. Two is look at is your pricing correct?

Jason Cohen (00:52:13): Is the pricing right? And why do we think it is? Because we probably don’t have good reasons yet. Okay. So the third one is our existing customer is growing. I think everyone probably knows this, but just to say it. Okay, if cancellations overtake marketing in magnitude, one way to come back, one thing is, okay, make cancellations lower, but they can’t be zero. So what else do we have to combat cancellations that would be proportional to our size so that it keeps up, unlike marketing or basic direct marketing? So one would be, all right, 2% left, but of the remaining 98%, some of those upgraded or otherwise paid us more, maybe it’s usage based, whatever it is. They’re paying us more, and so that covers the gap, and yes, if I tripled the company overnight, that would triple, and so that’s the answer.

(00:53:04): So that is the answer, and maybe that’s obvious but it’s useful to tie it back to the sort of mental model we’ve got going. And of course, the metric here is NRR, net revenue retention, and the way that’s computed is you say what is the revenue of customers right now? So existing customers, existing whatever, just the whole total, and then one year from now, what if that remains? So not new customers coming in, not talking about them because we’re asking about the cohort that exists. What remains? So with cancels, it goes down, with downgrades, it goes down, but with upgrades, it goes up. So when I say remains, it could end higher than we started if upgrades exceed cancellations and downgrades. And now we are talking about MRR and not n, because n doesn’t have this. N doesn’t have an upgrade. N just only goes down, which again is why I think the n is actually the most important one. Because think about it. A lot of times, people think … So if you’ve heard of NRR, you…

Jason Cohen (00:54:00): … because think about it. A lot of times people think… So if you’ve heard of NRR, you might think, “Well, that’s my golden metric. I’m done.” But the issue is if NRR is positive, but N goes down too fast, it doesn’t matter because not enough people are left. And so there’s not enough people left over to upgrade. And so actually, you’re wrong. And so NRR does not include that, and therefore, it actually undercounts what’s going on in a bad way, in a way that hurts you.

(00:54:28): There’s yet another way to see why what I’m saying is right. There’s this thing in investments where, let’s say I started out at $100 and the stock goes down 5%, so now it’s at 95, or no, it goes down 20%, now it’s at 80. Then it goes up 20%. Is it back to 100? No, because 20% more than 80 is 96. So if it goes down 20% and up 20%, it does not come back to zero. It’s worse. When you have a loss, a percentage loss, you have to have a greater percentage gain just to get back to where you were. In this case, a loss of 20% requires a gain of 25% to get back to where you were.

(00:55:08): This is why NRR isn’t quite right, because NRR is saying that a loss of 20% from cancellations is offset by 20% from upgrades. As we just saw, no, it’s not. That only gets us to 96% actually. So this is why, again, I believe in NRR. I’m saying you got to track it. It’s good. Just in the back of your mind, realize it’s not quite that good, and looking at N keeps you honest about what’s really going on with these customer cohorts. So that’s why they’re both useful, in fact. This is why they’re both useful.

(00:55:42): So NRR, of course, is important. A nice way to see this is, if everything I’m saying is true and there’s these limits and stuff because of cancellation, then there should be no way to get a big company like a public SaaS company unless NRR is greater than 100. Otherwise, cancellations should just win. And that is in fact the case. There’s over a hundred SaaS public companies, and something like two of them have NRR less than 100%. That’s how it goes. And those companies have horrible financials and their valuations are bad. It’s not good. It’s not a good thing.

(00:56:17): And in fact, the median for an IPO SaaS company, like at IPO, the median NRR is 119%. So yes, that’s what it takes. You can’t do this. You’re limited in less. Now, your goal may or may not be to get that big, but the point being it’s mandatory for growth. Now, if the literal customers are just leaving, you got to plug that hole first, like you said. But okay, if they’re okay, that’s why this is in order, if that’s generally okay, now we turn to NRR to say, “Okay, but the ones who stay, they’re hopefully happy, they need to grow. Okay.” So that’s the full story of NRR. I think people who’ve heard of NRR don’t necessarily think about all those things and realize that.

(00:57:01): So a good question is, okay, what do I do with NRR? But I think the answers are pretty clear. 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.

(00:57:51): 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.

(00:58:32): 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.

(00:59:02): 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? 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.

(00:59:35): 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.

Lenny Rachitsky (01:00:10): Amazing. In the recent Modivon 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?

Jason Cohen (01:00:25): Yeah.

Lenny Rachitsky (01:00:25): 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%.

Jason Cohen (01:00:37): Yes.

Lenny Rachitsky (01:00:37): 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.

Jason Cohen (01:00:59): 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?

(01:01:44): 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.

Lenny Rachitsky (01:02:21): 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.

Jason Cohen (01:02:56): 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?

(01:03:27): 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.

Lenny Rachitsky (01:04:09): 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.”

Jason Cohen (01:04:15): 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.”

(01:04:35): 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.

(01:05:11): 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.

Lenny Rachitsky (01:05:44): I just love picturing the people listening to this, especially product folks, founders. I imagine many of them are just sitting here taking all these notes of how to help grow their product because we’ve positioned this conversation as how to deal with stalled growth, but it’s actually just as useful, how do I grow more?

Jason Cohen (01:06:02): Oh, for sure. Right, right, right.

Lenny Rachitsky (01:06:03): Which is awesome.

Jason Cohen (01:06:04): It clearly is more growth. It’s just maybe a little more evocative, because if growth is good, yeah, sure, you want to grow more, but it’s not the problem. If growth is really good, the problem is generally operationally scaling to meet the growth, and so you’re focused on that. It’s when growth slows, you’re like, “Whoa, wait, wait, wait, wait. We have to focus on growth now, must,” as opposed to, “Of course it’s always nice.” So yeah.

Lenny Rachitsky (01:06:28): Yeah. And I was thinking as we were talking about consumer NRR, if you look at Duolingo, they’ve done a great job here. There’s so many ways you can pay them more for all these little advances, get all these gems, change the color of your app to something fancy.

Jason Cohen (01:06:41): Yeah. Yeah.

Lenny Rachitsky (01:06:42): Okay. So there’s more. Let’s keep going.

Jason Cohen (01:06:44): More? Okay.

Lenny Rachitsky (01:06:44): So we’ve done three. There’s more.

Jason Cohen (01:06:46): We’ve done three.

Lenny Rachitsky (01:06:46): More you can do.

Jason Cohen (01:06:47): So okay. Logo churn.

Lenny Rachitsky (01:06:51): Pricing.

Jason Cohen (01:06:51): Pricing.

Lenny Rachitsky (01:06:52): NRR.

Jason Cohen (01:06:54): NRR. And then maybe it’s stalled, so this is really a stalled question. Maybe your acquisition channels, your marketing channels are saturated. We’re done. I mean, what we tend to do is flog the people doing AdWords, flog the SEO people, get more searches. It’s possible that this is it. Maybe this is it in some sort of physical law. There literally isn’t anything else, or maybe just this is how good we can be. This is it.

(01:07:23): But there really are limits. There’s different words for it. Inventory is sort of the old word, like with magazine ads. Inventory was the word, but there’s just this amount. There is only so many searches in your area, and you can only appear once in the search results for a given keyword. So there is this limit of what you can get. Even if you’re in the number one position for everything or other things that are not even practical, there’s still a limit. And there’s some kind of practical limit that’s below that we don’t really know, but maybe we’re there or maybe we’re close.

(01:07:53): And worse, channels tend to decline over time. So I think people talk about S-curves. ” Oh, I didn’t figure out this market. Then I figured it out. We unlocked it. Now we’re getting a hundred leads per month through Facebook,” or whatever. But then it kind of taps out and then we go into this optimization mode, “Can we eke out another blah, blah, blah, blah?”, which is right. It all is right. And you call that an S-curve because it’s shaped like that, but that’s not what happens. What happens is it starts with an S-curve and then it starts sagging. Its butt starts sagging down. So I wrote an article about this called the elephant curve, which is what I named it, because it’s like this trunk, but then it’s this butt. And there’s different reasons why this happens, but if you talk to any marketer, they’ll all tell you, “Oh my God, let me tell you this story.” They all have stories about it because yeah, this is what happens.

(01:08:45): There’s different reasons. First of all, the audience gets saturated because there’s all these little marketing isms, and I don’t know if they’re true or not. I don’t think any of it has any data that actually proves it, but whatever. If words start with the same letter, that’s better. I don’t think anyone’s ever proved that’s true, but marketers seem to think so. Okay. Well, one of the things is someone has to see it seven times before they act. Okay. All right, well, maybe they saw it seven times already, so they don’t want it or they saw it 20 times. So initially you hit people who hadn’t seen it yet, but now you have.

(01:09:21): And especially with magazine ads, as I used to do before there was no such thing, that’s exactly what would happen. You’d have this nice surge and then like, “Well, we’ve seen it before.” So you still get a little trick. You still get some because it was just that moment they needed to see it again. Okay. But a lot of people have already seen it and they don’t want it, or the channel is declining and they’ll never tell you. When I did magazine ads, every year they would tell you what their circulation is. Every year it would go up and then the magazine would go out of business. Conferences are the same way. “Attendance is great. Attendance is great. Oh, wait, we’re out of business because we couldn’t get enough people to come. What? They said it was great.” But more quietly, AdWords, Facebook ads, even SEO searches, this does happen all over the place. Affiliates, it can happen. And now with AI, I don’t even know. It’s disrupting everything. We’ve all heard stories going all different directions. I think the answer is, “I don’t know.” Shrug is the answer. And what will it be like in two years? Another shrug. But the point being, they’re not all going to be growing a lot. That’s not one of the futures that AI will bring us. So it has this sag.

(01:10:33): That’s just a very long way of maybe trying to prove this point, but it’s yet another reason why you can’t just rely on marketing forever because you try to stack things, but there’s not an infinite number of marketing channels you could advertise in that your customers are actually going to, and they sag. Oh no, it’s even harder to keep up. So it’s kind of like the secret in reinforcing my very first point here with this, but here, are they all saturated? Because we could flog marketing all we want. It’s not going to work. So maybe growth is slowing because all our channels are saturated, possibly even sagging, but even if not, okay, not growing, and so we can’t just flog the marketing department. It’s going to take something else.

(01:11:16): The obvious thing is get more channels, but again, maybe there aren’t any. So again, there’s many possible things to do, but this is this critical thing to notice, because I guess I would put it this way. Do you know right now which channels are saturated and which aren’t? If the answer is no, I’m like, well, okay, maybe that’s… because the answer is all. It needs to change how you think. Just adding one little feature and then hoping we can flog AdWords is not going to work. Even if the feature’s great, not going to work. So there’s different things that could work, but that’s not one of them, and yet that’s probably what we’re doing. “Let’s add another feature and marketing can flog it,” is often the answer. But if you’re in this state, that isn’t the answer. So this is why you could say it’s obvious to say this or that, but are you acting like this is true? Often we don’t.

(01:12:05): Okay. So there are many things to do. Again, we don’t have to enumerate all of them or something. It’s just simply the right question to ask. But for example, some people are like, “We’ve done direct. Maybe we should try things like SEO and social and these other indirects or vice versa. We’re really good at SEO, but we’ve never taken out ads.” Often if you’ve done ads and they’re optimized, you know what content might be good to write stuff for SEO, and maybe even vice versa, maybe. So it’s a good idea and sometimes it works, but here I have no data, I only have my feeling here. And actually, you probably have a lot more visibility into this, but my experience is a product that sold really well direct actually doesn’t do well in things like social and SEO and vice versa. If you’re getting a lot of traffic through SEO, adding ads often costs a lot and doesn’t really move the needle. You can tell me, is that… because I don’t have data to support that theory.

Lenny Rachitsky (01:12:55): Yeah. My take is you could always get some percentage of win from all these different channels. Usually one channel’s where most of your growth will come from. And so over time, everyone just adds every channel. Everyone’s doing ads. Everyone’s doing SEO in some form, but it’s usually sales or word of mouth or ads that drives everything. Everything else is kind of this little layer on top.

Jason Cohen (01:13:16): Yeah. So should you do that? Yeah, probably, especially if you’re at some scale and you can just afford to because it’s such a clear thing to do, but probably you’ll have to get more creative about what it means to add a channel or something like a new product or a new market where it’s actually new. It’s expanding in a new way rather than trying to incrementally expand what you’re already doing.

(01:13:36): So an example of getting creative on a channel is what Constant Contact did when they had this very problem of, “Growth is slow. We don’t know how. We sell email marketing newsletters to small business before all these modern tools existed.” And one of the things they did that restarted growth is they physically went to a bunch of cities and held workshops showing, “Here’s how to do email marketing for your small business.” So the restaurateur and the dentist and everyone would come to these sessions and they’d teach them how, of course, teaching them how with Constant Contact so they became customers, right?

(01:14:08): Now, you would think there’s no way this is cost-effective. Physically being in these cities and dragging people in for a $20 a month product? No way. It was very effective and actually solved, in that moment, restarted growth. They were very clever about… First of all, it’s a clever idea, but then they were clever about how to do it. They took power users who are also agencies, so these could become customers of theirs. Okay. So you could be clever about how is it that we do something different, something new. So that’s possible. Of course, it’s always hard to say, “Think of something clever.” That’s a weird finger wagging thing to do, but okay, it’s true. But yeah, it could be a different type of channel. For example, HubSpot famously tested selling through agencies instead of direct. That ended up being 50% of their revenue after four or five years, so it’s one of the main reasons why they were able to continue growing. Same thing happens with my company, WP Engine. Tons of our websites are sold through agencies that create WordPress sites. So there could be something that’s not direct anymore. Another channel of human beings or something like that could in fact dramatically change your growth rate. There’s lots of examples like those, but it could be it’s time for the next product. And I said that earlier, because it’s always possible. Of course, we all know that’s very hard, it’s risky. I have sort of a framework that I use to think about that kind of expansion, which I’m happy to provide. I’ve also written it up, but I’m happy to say it right here. But usually you want to stay in the target market you’re already good at and grow from there. But sometimes the whole point of the expansion is to change [inaudible 01:15:51] or add something where you’re leveraging something else about the company that you have as an asset going somewhere else. So this is what this framework helps decide.

(01:15:58): But one way or another, you probably want to plant one foot into some strength or asset that you have, move the other foot, which is the risky part, but the idea is that, “Yeah, well, we have this big upside, so we’re taking that bet,” and that becomes a smart bet. Of course that’s true for any of these things, but especially if acquisition channels are full and it’s like we literally can’t ask the marketing department, that’s just not one of the choices, it almost forces us to start taking these more drastic bets to say, “Well, we got to do something and that’s not one of them.”

Lenny Rachitsky (01:16:29): I just want to keep saying how awesome this advice is and how many people are going to benefit from… None of this is like, “Oh, I’ve never ever thought of any of this.” It’s just the very methodical sequence of questions you should be asking yourself to help you not just undo stalled growth, but also just come up with a bunch of great growth ideas.

(01:16:49): And this specific section, it makes sense. Somebody’s discovered alpha in a growth channel. Say, [inaudible 01:16:56] just launched. TikTok just… There’s like, “Oh, cool, what’s the new thing? Okay, let’s get there quick.” And then you drive a bunch of growth, it’s awesome. Eventually everyone’s going to start doing that. And so you should assume everything that is working for you now will slow down. I missed your post on the elephant S-curve. What do you call it? The elephant curve?

Jason Cohen (01:17:15): Yeah, elephant curve.

Lenny Rachitsky (01:17:17): Yeah, that’s so real. It’s not just this S-curve that will forever continue to drive win. It will actually dip and decline over time because other people discover it and start using it.

Jason Cohen (01:17:26): Yeah.

Lenny Rachitsky (01:17:27): I love that. So the idea here is, and the classic advice is, whether it’s an S-curve or an elephant curve, think about are you starting to approach the apex of that and start to explore other channels before you slow down or start to dip?

Jason Cohen (01:17:44): Yeah. It’s easy to hear stuff like, “Well, if marketing is full, do something else.” And you go, “I know.” But then you look at people’s behavior and it’s like, “Well, you’re not acting like you know.” So maybe it needs to be said in enough detail that you actually do something about it.

Lenny Rachitsky (01:17:59): And it’s important to note, this is a very hard problem. Most companies do not really solve this. Something worked for them and then it stops working and then like, “All right, well, we found something,” and then it just kind of went away. There’s a couple posts we’re going to link to in the show notes that will help you come up with ideas that are all around new growth channels that are emerging. One is by Emily Kramer around ecosystems as a new growth channel. And there’s a lot of really cool advice there around this kind of emerging combination of influencers and content and partners where it’s your ecosystem that helps you grow. Basically, there’s a quote from the head of growth at Wiz where it’s like, “Why start with zero when you can start with 10,000?” essentially growing through someone with an audience already. And then there’s going to be a post out by the time this comes out around ChatGPT’s app store, which is going to let you submit apps. And that’s a really interesting, potentially huge new growth channel for companies. So cool stuff happening there.

(01:18:55): So just to summarize, logo retention, pricing, NRR, marketing, channel saturation. What comes next?

Jason Cohen (01:19:04): The last question is, do you need to grow? So okay, growth is stalled. And if we assume every question before has been answered in a satisfactory way, you could ask, “Hey, is that a problem? What do we mean by grow? What do we need to do exactly?” Now, of course, you should know these kind of things, the goals all the time. And again, obviously the answer could be once again, all new products. These other things where this company, when we say, “Do you need to grow?” if we define you as this product in this market and this company, the answer might be, “No, what we need to do is have a different product in a different market or a different thing,” or you could change the word revenue. If you say, “Do you need to grow revenue?” You could change the word revenue and say, “You know what? What we could do is maximize profit instead of revenue now. We’ve been maximizing revenue, but maybe we maximize profit instead.”

(01:20:02): And so this is a company like 37Signals or really lots of bootstrap companies who have hit some sort of limit and realize, “That’s okay. The founders are getting paid millions of dollars a year in dividends and it’s okay, but I don’t have to get… In fact, if I got bigger, it might be an organization that I don’t like or serving a market segment that I don’t want to serve,” or whatever. And so maybe growing forever isn’t the goal actually, or growing revenue isn’t.

(01:20:29): You could ask philosophically, why grow anything? Why isn’t it just okay to have stasis? And we all have heard the phrase, “If you’re not growing, you’re dying.” This is a classic company thing. Is that true or is that the kind of thing that investors use to make founders grow or try to grow even when they shouldn’t? It might be, but I would submit that even at a bootstrap company that has other values and culture other than growth at all costs, that that phrase is still fairly relevant because if the company…

Jason Cohen (01:21:00): But that phrase is still fairly relevant because if the company’s stagnant for years, is that a great environment for everyone? As the founder, did you start this company in order to do the same thing every day? Is that why you did it? Is that fulfilling for you? What about everyone else? Nobody wants to further their career? They just want to do the same thing every day and never further their career, not really learn anything, not really innovate? Does it feel good to just not be growing?

(01:21:32): The answer could be yes. If I’m a CPA, and I have some clients, and life is good, the answer could be yes. I’m not dictating the answer here. I’m just asking because a lot of times, whether it’s our careers, or as founders, our companies, a lot of times we’ve just been in the mode of, “Oh, I’ve got to grow, I’ve got to get promoted, I’ve got to do more, I’ve got my resume.” We’ve got in that mode for so long, maybe our whole life, that I was going to say lose sight of, but maybe we never had sight of, “Wait, does this make me happy? Is this what I really want? Am I fulfilled doing this? Or even if I do have these goals, have I gotten stuck in a rut where my goal is growth and I don’t know, more money, more everything, but I’m stuck in a rut here.” Sometimes we forget to take a step back and go, “Wait a minute. Is this still right or do I need to turn the page and have a new chapter of life right now?”

(01:22:26): And so this question, do you need to grow, or if you’re not growing, you’re dying, well, for some people, no, they like doing the same thing forever. And that’s great, actually. That’s nice. But for many people, especially the kind of people who want to get into product, and build stuff, and innovate, and people who start companies, a lot of people like that are not the kind of people that want to just do rote things for 20 years.

(01:22:51): And so the not growing part, what I like to say is maybe the you in if you are not growing, you’re dying is you, the person as opposed to you, the company. It’s also you, the company. But what if we took it to mean you? If you are not growing, then in some sense, maybe for some people, you’re dying. Maybe if you’re listening to this, that’s you. You’re a shark and you got to go.

(01:23:16): And we all know people too, who claim they hate work or maybe they do hate work. Let’s not say claim, they do hate work, but then they retire and kind of go downhill because they don’t have a purpose or this, or that, and the other thing. In that case, it was true, if they’re not growing, they’re dying, literally. So again, I don’t mean to overstate this, and I certainly don’t mean to claim that there’s some answer that’s right for everybody, of course, but surely this is the right kind of question.

(01:23:45): And surely for many people who are listening to this, the answer is, “Yeah, I mean, in some sense, some very rough sense, that’s probably right for me. And so if I’m in a stagnant situation and really, every other option has been exhausted and isn’t going to happen, this is simply a stagnant thing. Maybe there’s something else needs to happen. I need to leave, the company needs to change some drastic way, I sell the company, I change jobs.” I don’t know. Of course, it’s going to be super context specific and personal. But something dramatic may need to change because nothing incrementally is changing.

(01:24:20): So this final question, do you need to grow? Or if you’re not growing, you’re dying, is that true? And are you therefore dying and what needs to happen? So if you were looking for more metrics in another framework, sorry, it’s existential, but it is. It is existential. So do you have to only ask this at the end of the chain? No, of course you should feel fulfilled. And of course you want to be checking in with yourself at least annually, of course. But I put it at the end of my list in the sense that I’m assuming the original question is about the company, especially with smaller companies, but also with big public companies. There’s plenty of big public companies that aren’t growing, aren’t there? So this is true of all scales because there are natural sizes for things. So yeah, it’s a little philosophical, but I think it’s quite important.

Lenny Rachitsky (01:25:18): Such a beautiful way to wrap up this piece. A lot of people listening to podcasts are bootstrap founders, and for them, this is actually very much an option. They can just be happy with the revenue they’re generating. Like with my newsletter right now, I’d be very sad if it stopped growing, but also just, it’s amazing the life it has created for me. And even if it did stop growing, and just stayed flat, and doesn’t become an elephant curve, that’d be incredible. In practice, psychologically still hard for that to be the case, and that’s why this component of the sequence is really important. Like, “Why do you actually need it to grow?” Is that just your ego, is that just like, “I’m used to growth?”

Jason Cohen (01:25:58): It can also help you avoid doing unnatural things that you actually regret to grow. So if growth at all costs is just the thing, there’s probably ways you could, “Grow the newsletter,” that you would just say, “I just wouldn’t be proud of that. And the newsletter’s doing so well, that I don’t need to do that.” And so again, maybe that’s a softer version because growth hasn’t actually stopped, but okay, it’s a softer version of, “I certainly don’t agree with growth.” You might say, “I certainly don’t agree with growth at all costs. I want to grow as much as possible within the things that I’m proud of. If we grew fast, but the content was crappy, I’m just not willing to do that. It’s not the point.”

(01:26:35): And so it helps set up these boundaries of like, “Wait a minute, not if … ” And early on, we may not have that flexibility. You could argue that you should have those values early on because that’s who you are, and that’s what you’re doing, and people respond. So I could argue you should have that all along, but I could also argue that at the beginning you’re just trying to do something where you don’t die, you’re starting to blog, you’re probably copying other people’s style. You probably don’t have that much unique things to say. So there’s a lot of … That’s okay. You’re just trying to get going. It’s okay. 20 years later, if you have no style, and no voice of your own, and nothing new to say, that’s probably not good, but to get going, sure.

(01:27:09): So sometimes we have this thing where we get going with maybe looser … I don’t want to say values. I’m not saying that’s unethical, but looser bar or a pride that we have in our own work, and we tighten it up as we’re able, as we can afford to, you might even say. So good, but then that becomes a nice filter here of like, “What is it in a greater sense I’m trying to do here, I’m willing to do here?” So if you’re not growing, you’re dying fair, but that has to come with these limits. And the more successful you are, the more you can be serious about those limits.

Lenny Rachitsky (01:27:43): I think an important element of this is also the product you’re currently working on, maybe it’s okay for it just to not grow. This is a good opportunity to do something else, have this thing maybe running on the side, maybe sunset it at some point, but it’s a good opportunity to be like, “Okay, wait, what else is out there?” We had a recent podcast conversation with Matt MacInnis, CPO at Rippling, and there’s some really good advice he shared on just when to quit, when to quit your startup, just like, “If it’s like four or five years in and it’s just not clicking, maybe it’s time to move on.” And even though people do succeed years in, most likely it’s not going to be you.

Jason Cohen (01:28:16): I have a book almost out now that’s on pre-order about topics like what we’ve been talking. The next book I want to write is on this topic of how do I make these decisions of uncertainty? Like, “Maybe it is time to quit. Maybe I should move to a different city. Maybe I should marry this person. Maybe I should launch this company. Maybe I should use this strategy where you want to use probability and expected value. It’s unlikely that … ” But the truth is we don’t know what the probability is. We don’t know what the probability curves look like. We actually can’t use expected value. And anyway, even if you could have expected value, I am a human being. This is my life and I either sell the company or I don’t. And so all this stuff about probability, and like, ” That doesn’t apply to me. I need other ways of sorting this out.”

(01:29:03): So I guess I would just say briefly, probability is not going to work for these decisions. So that doesn’t say what is right, but it’s not that, which is nice, because you could put those tools down. “I’ll do some market research to see if I should sell my company.” Nope. That’s not where the answers are.

Lenny Rachitsky (01:29:26): More questions than answers on that one.

Jason Cohen (01:29:28): Yeah.

Lenny Rachitsky (01:29:29): Speaking of the book, let’s give you a chance to share what you’re working on, and when this is coming out, and where folks can find it.

Jason Cohen (01:29:36): Sure. So the book is called Hidden Multipliers, and you can pre-order it at hiddenmultipliers.com. Or I guess if this is out long enough, it’ll be order it, I guess, depending on when you’re listening to this. And it’s a lot of stuff like we were talking about today, these questions of, it’s called multipliers because the idea is little things that you can do or little decisions you can make that have a huge impact like moving the cancellation rate from five to 4%. It sounds small, has a huge thing, onboarding as opposed to later, huge thing.

(01:30:09): So those are some examples, but the book is of course full of different kinds of topics, but all of this idea of this stuff that has such a big impact on things like revenue or profit. And either, just as you said earlier, either maybe you have never thought of it that way, so you weren’t thinking about it right. Or yeah, you’ve heard that, you say, “I know.” But your actions don’t reflect it. And so if we go deep enough with examples and specific things to do, then you can actually act on that supposed knowledge and realize those multipliers.

Lenny Rachitsky (01:30:40): And just to remind people that you’re all hiddenmultipliers.com.

Jason Cohen (01:30:44): Yeah.

Lenny Rachitsky (01:30:45): And there’s an S at the end, Hidden Multipliers.

Jason Cohen (01:30:48): Right. There’s more than one.

Lenny Rachitsky (01:30:49): There’s many. It’s more than one.

Jason Cohen (01:30:51): Yeah.

Lenny Rachitsky (01:30:52): Jason, I had other things I wanted to talk about, but I feel like this episode’s actually going to be stronger if we just focus on the thing that we’ve been talking about, which is unstalling growth. So if we do that, is there anything else you want to mention or leave listeners with before we get to a couple corners and then the lightning round?

Jason Cohen (01:31:13): I think if you tried to find a common thread throughout all this stuff about growth, it comes back to the customer getting value. And I know we already talked about that, but I think if there could be one thing where it would help solve kind of all of it, it would be that they really are getting value. Your product actually promises the right thing, and then it actually delivers on that thing, and the customers can onboard so that they can do the thing, and the customers know, they realize that they’re getting the thing, and you’re measuring the thing, so you know it’s increasing.

(01:31:48): That is probably, if I was an LLM, I’d probably say, “That’s the common thread.” There’s many ways that manifests, of course, but if that’s your North Star is how are we actually creating value in the way the customer values it in their language, in their way, and their way of understanding it, I wouldn’t say all the pieces magically fit into place, but certainly isn’t that the root thing that is going to make all this stuff work? Then there will be a good way to do pricing.

Lenny Rachitsky (01:32:15): Yeah.

Jason Cohen (01:32:16): They will stay as long as possible. And these things will probably be right, if that. So this idea of creating value for the customer and then figuring out how to split with them is probably the root idea. And of course, I hesitate because platitudes like that are actually not actionable, not very actionable. Like, “All right, well, I’ll move on with my day.” And that’s why Twitter’s not so useful. But given that we’ve gone into so much detail, perhaps that’s a nice way of summarizing it.

Lenny Rachitsky (01:32:39): I think that’s such an important point. I think what’s also interesting is some of your advice is the value, you may be picking the wrong customer, the wrong market, you may be positioning it wrong. So the value may be there, you’re just trying to convince the wrong people about it.

Jason Cohen (01:32:54): Yeah. There’s so many ways to get it wrong because like we said, all these things have to be right. And you just said another one, which is, and you have to say in a way that when this person hits the homepage, they know it. It’s true, but do they know that? It’s just so many things have to go right.

Lenny Rachitsky (01:33:11): What a tough job we’ve got over here, just solving people’s problems. Come on. Okay.

Jason Cohen (01:33:15): Well, at least we’re growing.

Lenny Rachitsky (01:33:18): So now we will be after this conversation. Okay. So I’m going to take us to a recurring corner, a recurring segment on the podcast that I call AI Corner. What’s one way that you have discovered using AI in your work or in your life that might be helpful for folks to hear?

Jason Cohen (01:33:37): There’s a lot of data on the internet and it’s often in things like images, which makes it hard to do your own analysis, or plug it in, or et cetera, come up with your own models or apply it. But I found that AI is really good actually, especially Gemini, at say, you just give a chart to it and say, “Make this into a table that I can paste,” literally say, “that I can paste into Google Sheets.” And it will do in a way that literally you can copy, and it will actually paste correctly into Google Sheets, and then you can do stuff. So especially with the book and my articles, I love to use real data whenever I can, of course. And so I do that all the time. So I think that kind of interpretation is very useful. And so all of a sudden you can get 10 examples of something and test a theory, where before it was just too hard and you didn’t.

Lenny Rachitsky (01:34:24): That’s an awesome tip because people know you can generate all these infographics, especially with Gemini and all these things. That’s really cool to know you can just feed it, “Here’s a chart and make a text.”

Jason Cohen (01:34:35): Yeah.

Lenny Rachitsky (01:34:36): Okay. I’m going to now take us to Contrarian Corner. The question here is, what’s something that you believe that most other people don’t?

Jason Cohen (01:34:43): A/B testing doesn’t work very well and it doesn’t work on most things. It won’t work on strategy, or vision, or insights, nothing actually important to the success of the company. You don’t A/B test whether Uber’s a good idea. And then, even when you do A/B test the details, where I agree, sometimes that can work. What happens is people will try things like, “Oh, I’ll just try this verb, and that verb, and this ad, and that ad.” And then like, “Oh, the seventh or eighth one, I got a positive result. That must be good.”

(01:35:14): And what happens is you keep doing that. You pick the best one, and then you go on, and you find another one, and pick the best one. And then a year later you look back and you should be like 50 or a hundred percent better because you’ve stacked these things, and you look back, and like nothing’s different. The conversion rates are the same as they’ve always been. You say, “What the hell happened? I thought I picked the winner.”

(01:35:34): And the answer is in a combination of the tools not being statistically accurate, which they’re not. And the fact that you will get false positives even if the tool is statistically accurate means that most of them are false positives. Even if the tool’s 95% accurate, when the thing you’re looking for is rare, which it is in the case of A/B testing, the false positives happen more often than the actual thing happens. And so most of the results you get are false positives anyway. So as a result, this isn’t true of all A/B testing, but for what most people do when they just do the mundane A/B testing, you can’t A/B test the important things and the details are mostly false positives, so it’s an enormous waste of time unless you’re incredibly sophisticated. I know there’s special groups that actually are very sophisticated. Fine. If you’re not doing that, it’s like the poker table. If you don’t know who the patsy is, it’s you. If you don’t have all of this information and knowledge about A/B testing, then you’re the patsy.

Lenny Rachitsky (01:36:31): Bam. All right.

Jason Cohen (01:36:32): Yeah.

Lenny Rachitsky (01:36:33): I will just say that I have found A/B testing useful in my career. I think it’s maybe at a certain scale when you’re just trying to optimize and continue to grow, you know-

Jason Cohen (01:36:43): Yeah.

Lenny Rachitsky (01:36:43): … where it’s like millions of users, like a percentage gain is like millions of dollars.

Jason Cohen (01:36:47): True.

Lenny Rachitsky (01:36:47): Most people are not working at that scale, most people.

Jason Cohen (01:36:49): Right.

Lenny Rachitsky (01:36:50): Yeah. So just wanted to, for folks that find it valuable.

Jason Cohen (01:36:54): That’s true.

Lenny Rachitsky (01:36:55): But I love-

Jason Cohen (01:36:56): However, even so, on your own podcast when you were interviewing the guy from Shopify, and he was saying how maybe a third of the things that they found with their systems just disappear, they just magically disappear. And they have a team of a hundred people, and they’re really good at it, and their effects disappear all the time. So they double check later whether the immediate effect goes away because even then.

Lenny Rachitsky (01:37:19): Right. I think that was the CTO of Shopify conversation. Yeah.

Jason Cohen (01:37:19): Oh, okay. Yeah.

Lenny Rachitsky (01:37:22): Yeah. Sweet. Okay.

Jason Cohen (01:37:24): I just go off of memory because I listen to a lot of episodes, but I don’t-

Lenny Rachitsky (01:37:26): That’s such a good one.

Jason Cohen (01:37:26): … no, it’s-

Lenny Rachitsky (01:37:27): I love that. Yeah. Where they leave like a holdout group essentially, and then they just look back, “Was the effect something that lasted?” And most times it didn’t.

Jason Cohen (01:37:34): Yeah.

Lenny Rachitsky (01:37:34): Such a good one.

Jason Cohen (01:37:35): There you go. And that’s with a lot of end. So that’s what I mean. If you’re doing that level of stuff, good for you. But if you’re not, I don’t know, man.

Lenny Rachitsky (01:37:42): There we go. Well, Jason, it’s always a really good sign when I’m just like, “I can’t wait to get this conversation out the door and into people’s minds because there’s so much value here.” I’m just already anticipating all people are going to reply and just like, “I got so many ideas for what to do with my product,” which is exactly the goal. And with that, we have reached our very exciting lightning round. I’ve got five questions for you. Are you ready?

Jason Cohen (01:38:06): Boy. Yeah. I mean, I don’t like talking a long time anyway, so lightning’s great.

Lenny Rachitsky (01:38:10): Here we go. What are two or three books that you find yourself recommending most to other people?

Jason Cohen (01:38:16): For writing, On Writing Well by William Zinsser. I know I’m not the only one, but that’s the point. On my best day, I write like that. And then for product, I actually like Crossing the Chasm, which of course everyone’s heard of, but what I find is no one’s read it, so that you know the little picture, and you think you know what the chasm is, what I find is very quickly I realize, “Oh, you haven’t read the book. You saw a blog post.” And there’s so much good stuff in there, how to define a market and really what to do with this model. It’s fantastic. So I highly recommend reading the book.

Lenny Rachitsky (01:38:51): I have had Jeffrey Moore on the podcast. We dove into a lot of this stuff. One of the things that always stuck with me is when early companies are looking for someone like them to adopt the thing. That’s something that really stuck with me. It’s not like they’re looking for an early adopter to be like, “Oh, this is awesome.” They’re looking for someone that feels like them to say, “This is great.” And so the early adopters are just going to spread to other early adopters and there’s work to do beyond that.

Jason Cohen (01:39:14): Yeah. Part of that’s because he defines a market and among other things as, and the people in the market respect the opinions of the other people in the market.

Lenny Rachitsky (01:39:23): Exactly.

Jason Cohen (01:39:23): And that’s when you realize, “Oh, so jumping to a different market, it’s not impossible. It’s just like case studies aren’t going to work.” Yeah.

Lenny Rachitsky (01:39:30): It’s a new thing.

Jason Cohen (01:39:31): Yeah.

Lenny Rachitsky (01:39:31): Okay. All right. And then On Writing Well, such a huge trend in the book. That’s like the book that most helped me write. And if you summarize the book, for me, it’s just cut. Cut more and more of your stuff. There’s always to cut.

Jason Cohen (01:39:43): I love this phrase where he’s on a panel with this guy who is like an amateur writer, and his summary to that guy is, the guy told him, “I never knew writing could be hard.” And Zinsser says, ” I never knew writing could be easy.” I think both of those summarize the turmoil of being a writer.

Lenny Rachitsky (01:40:07): Yeah. The classic, maybe Hemingway, maybe not quote, “Writing is easy. I just sit at the typewriter and bleed.”

Jason Cohen (01:40:14): And bleed, yeah.

Lenny Rachitsky (01:40:16): So good. Okay. Moving on. Favorite recent movie or TV show?

Jason Cohen (01:40:21): ER from 1994-

Lenny Rachitsky (01:40:22): Can- [inaudible 01:40:23]

Jason Cohen (01:40:24): … 15 seasons. Why do I say that? Besides the fact I think is good, I have a 16-year-old daughter and we’re now on season, I think 13, watching this whole thing. She says it holds up after 25 years. And being Gen Alpha or whatever, I don’t even know what it is. And so if this is an era when shows were an hour long, and seasons were forever, and she says it’s great TV, it must be great TV.

Lenny Rachitsky (01:40:52): Wow. I’ve not had this podcast yet. Also, The Pitt. I don’t know. If you enjoy ER, you’ll enjoy The Pitt, which has won all these awards-

Jason Cohen (01:40:59): Yeah. Pitt’s good.

Lenny Rachitsky (01:41:00): … on Netflix. Fun fact, my cousin was in ER, not as a recurring character, but she was a young girl patient, and actually is a fancy actress in the world.

Jason Cohen (01:41:10): Oh, cool.

Lenny Rachitsky (01:41:10): That was her start. Okay. Next question. Favorite product you’ve recently discovered that you really love.

Jason Cohen (01:41:17): This is probably not unique, but Wispr Flow for dictation. It’s really good. I like the keyboard shortcuts because I just use it all the time in all the software, and anything Anker makes. They have power stations, and docs, and rechargers.

Lenny Rachitsky (01:41:31): Anker with a K.

Jason Cohen (01:41:33): Yeah. A-N-K.

Lenny Rachitsky (01:41:34): Yeah.

Jason Cohen (01:41:35): Right. And just all their stuff is super high quality and works really well. Everything seems to charge twice as fast when plugged into an Anker thing. So I don’t know. Whatever it is, it’s really good.

Lenny Rachitsky (01:41:44): I got a new Anker charger, I also love Anker, that has a display on the side when you plug in stuff, and it’s got multiple ports, and it shows you the percentage it’s charging and the wattage per outlet. I love it. They’re just like, “How do we make this more fancy, and fun, and charge more?”

Jason Cohen (01:41:58): Yeah.

Lenny Rachitsky (01:41:59): I love it. Yeah. And then Wispr Flow, quick shout out. You get a year free Wispr Flow by becoming a insider, I think even just an annual subscriber of my newsletter as part of the product pass. And so check it out, Lennyproductpass.com. You could also check it with me.

Jason Cohen (01:42:15): I did not know that. I’m not a shill for them.

Lenny Rachitsky (01:42:17): I know. I love that.

Jason Cohen (01:42:17): But it’s great.

Lenny Rachitsky (01:42:18): I love when people recommend products in the product pass, a whole year free.

Jason Cohen (01:42:21): Because I’m subscriber for long enough that I didn’t get that.

Lenny Rachitsky (01:42:23): You missed out. You missed out.

Jason Cohen (01:42:23): Okay.

Lenny Rachitsky (01:42:24): There’s 19 products in there right now.

Jason Cohen (01:42:25): Nice.

Lenny Rachitsky (01:42:25): And by the time this comes out, there’ll be even more. Okay. Two more questions. Do you have a favorite life motto that you find yourself coming back to in work or in life?

Jason Cohen (01:42:35): Yes. “Be yourself, everyone else is taken.” And it’s attributed to Oscar Wilde, but I’ve tried to look into that as I tried to get all my annotations correct for the book. And there’s no evidence that he said it. But there’s also no evidence who said it. So let’s say it’s Oscar Wilde because he said lots of things like that.

Lenny Rachitsky (01:42:53): I love that. And it’s such a deep point. It’s easy to hear and be like, “Yeah, yeah, yeah.” But it’s something I’ve learned to be more and more true over time, especially as you see people online doing their thing and just like, “Oh, I want to be like that.” And then you realize, no, you got to be yourself.

Jason Cohen (01:43:06): No. And the people who love you or like what you do also want you to be yourself because that’s what they love. And if you’re changed, then they wouldn’t love that.

Lenny Rachitsky (01:43:14): Final question, you have this fancy award behind you on your desk. I am curious what’s the story there.

Jason Cohen (01:43:20): That’s the Ernst & Young Entrepreneur of the Year Award for-

Lenny Rachitsky (01:43:21): Whoo.

Jason Cohen (01:43:24): … 2017 for Central Texas, which I co-won with the CEO of WP Engine Heather Brunner, which is awesome because I often call Heather a late joining co-founder, because that’s what … LinkedIn, that’s what Reid Hoffman called Jeff Wiener, because Jeff was four years in, but was so impactful to everything, the success of the company, the culture, the da, da, da, da, that basically is a co-founder. And that’s exactly what Heather is like at WP Engine. It’s now been 11 years since she became the CEO. So there’s lots of data to back us up.

(01:44:02): And I used to say to people at WP Engine, like, “If I just told you that Heather was a co-founder, you’d say, ‘Yeah, no kidding.’” I’m like, “Right, that’s why I think of it that way because so do you, so did anyone, because that’s the impact she’s had.” So we co-won that award, which is nice because you almost never have co-winners. In fact, I can’t remember another one. I mean, I know there are others, but it’s rare enough I can’t think of another one. So it’s really cool that we co-won that entrepreneur award.

Lenny Rachitsky (01:44:29): Jason, this was so awesome. I really appreciate you making time. I really appreciate you sharing so much wisdom with us. Two final questions, where can folks find you online, point them to your book, your website, and how can listeners be useful to you?

Jason Cohen (01:44:42): Yeah. I mean, to be useful, order the book, hiddenmultipliers.com, or of course you don’t have to. I have all these articles online for free. So you can go to asmartbear.com and I’m on Twitter and other stuff that’s all linked off of that website. And the articles, they’re free. I don’t have ads, I don’t sell courses, I don’t sell anything. So that’s very, very non-commercial. And so in fact, the one thing I’ve ever done with writing that costs money is the book because it’s a physical book. I’ve got to charge something so I can ship it and everything. But I think Hidden Multipliers is certainly my best work. So I’m very proud of that, but you don’t have to buy it. It’s okay. It’ll make me feel good.

Lenny Rachitsky (01:45:26): This is our chance to repay you for all the-

Jason Cohen (01:45:26): That’s right.

Lenny Rachitsky (01:45:28): … free content you’ve put out over time.

Jason Cohen (01:45:30): Right.

Lenny Rachitsky (01:45:30): And so I’m going to order a number of them. Jason, thank you so much for being here.

Jason Cohen (01:45:35): Thank you. This is fun.

Lenny Rachitsky (01:45:36): So fun. Bye, everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at lennyspodcast.com. See you in the next episode.