Podcast Summary
Revisiting Pricing Strategies Regularly for Fair Compensation: Regularly reassess pricing strategies every 6 to 12 months for fair compensation and growth opportunities
Pricing should not be an afterthought in product development. Naomi Iannida, a product leader and VC at Menlo Ventures, emphasizes the importance of revisiting pricing strategies every 6 to 12 months to ensure fair compensation. She shared her experience with Evernote, where pricing was neglected for years, and the negative impact it had on the company. Iannida also introduced the concept of the "modern growth stack," which includes various areas where new tools can help support product growth. Throughout her career, Iannida has contributed significantly to the product and growth worlds, from building early teams and infrastructure at Evernote to her current role as a full-time VC. Her insights from observing various companies as an investor have given her a unique perspective on monetization strategies and their implementation.
Product-led growth and monetization strategies for SaaS companies: Focus on PLG for single player to multiplayer applications, prioritize revenue scaling with usage, make the platform the default for teams, and optimize monetization strategies using data and analytics.
Product-led growth (PLG) and effectively bridging the gap between single player and multiplayer applications are crucial for a SaaS company's success. The speaker, a venture partner at Menlo Ventures, shared his experience of shifting from core product roles to growth functions in early-stage SaaS companies, focusing on PLG and monetization. He highlighted Evernote as an example of a company that could have benefited from PLG and collaboration features earlier, potentially reaching the success level of modern tools like Notion. Monetization is a vital aspect of growth for SaaS companies. Founders and growth teams should focus on revenue scaling with usage, making the platform the default for teams, and ensuring accountability through shared workflows. The modern growth stack, a concept the speaker developed, can help companies leverage data and analytics to optimize monetization strategies and drive growth. By prioritizing PLG and effective monetization, SaaS companies can overcome growth challenges and reach their full potential.
Prioritize Monetization from the Start: Startups should prioritize monetization from the beginning to avoid leaving money on the table, undervaluing their product, missing critical feedback, and facing backlash. Use freemium models to build user base and habit formation, but have a clear plan for transitioning to a paid version. Continuously evaluate pricing to maximize revenue potential.
Startups should prioritize monetization from the beginning when building a B2B product. Waiting too long to monetize can lead to leaving money on the table, undervaluing your product, missing out on critical feedback, and facing backlash when you eventually do start charging. Freemium models can be effective for getting users and building habit formation, but it's important to have a clear plan for transitioning users to a paid version. Pricing should be a continuous process, not a one-time event. Underpricing can also be detrimental, as it can cheapen the perception of your product and limit your revenue potential. Overall, prioritizing monetization from the start can help ensure the long-term success of your business.
Determining Free vs. Premium Features in Freemium Business Models: Core utility should be free, free users can contribute to virality and network effects, day 1 features provide immediate value, day 100 features can be monetized, match price to value, and usage-based pricing is popular.
When it comes to pricing for a freemium business model, it's crucial to determine what features should be offered for free and what should be premium. The core utility of your product, which helps form user habits, should be free. Free users can also contribute to virality and network effects, helping manage customer acquisition costs. The concept of day 1 versus day 100 features is also essential. Day 1 features are those that provide immediate value and should be accessible for free. Day 100 features, representing more advanced functionality, can be monetized through upsells. Matching price to value is another important pricing strategy. This involves selecting the right value metric and creating alignment with users, leading to a natural escalator as they use the product more and pay more over time. Usage-based pricing, which matches price to value over the lifetime of a customer, is gaining popularity in the SaaS industry.
Setting the right price for your product involves understanding perceived value to different customer segments: Understand customer segments' perceived values, involve cross-functional team, and regularly revisit pricing strategy to maximize revenue
Setting the right price for your product based on its perceived value to different customer segments is crucial for business growth. Evernote, as an example, initially priced its annual subscription too low, leading to underutilized revenue. By conducting research and understanding the varying perceived values of their users, Evernote was able to implement a bifurcated pricing strategy, maximizing revenue from each segment. Another mistake is failing to evolve pricing over time. Companies should regularly revisit their monetization strategy to ensure they are being compensated appropriately. When deciding on an initial price, it's essential to involve a cross-functional pricing committee consisting of product managers, data scientists, and other relevant departments. Engaging in conversations with customers through surveys and interviews is also crucial to understand their willingness to pay and prioritize features. Remember, pricing is not a one-time decision but an ongoing process that requires continuous iteration.
Effective pricing strategy requires understanding user demand and willingness to pay: Understanding user preferences and perceived value can lead to significant revenue growth through effective pricing strategy, with many companies seeing a 25% increase in ARR after making changes.
Understanding both the demand for features and users' willingness to pay is crucial for effective pricing strategy. Companies can prioritize features based on user rankings or surveys, and use methods like Van Westendorp's to determine users' perceived value and pricing comfort. Pricing changes can lead to significant revenue growth, with roughly half of companies seeing a 25% increase in ARR after making a change. Monetization is an often underappreciated growth lever, and pricing experiments should be considered regularly. Ultimately, optimizing pricing can result in substantial revenue lift, though it may be challenging to isolate the impact of the pricing change alone.
Understanding user needs and mapping pricing to the user journey: Effective pricing strategies involve more than just changing prices. Companies should understand user needs and willingness to pay, and experiment with pricing to optimize revenue and growth.
Effective pricing strategies involve a holistic approach that goes beyond just changing prices or launching new plans. Instead, companies should understand their users' needs and willingness to pay, and map pricing to the user journey. This can lead to significant increases in pricing, as seen in the example of Envoy, which discovered it was significantly underpriced when it asked for a 10x price increase and received no hesitation from a prospect. However, it's important to continue asking for more to understand the upper bound and accept some deal losses. For PLG companies with public-facing pricing pages, experimentation is encouraged, but historically, there have been limited tools to support this process. Overall, pricing is a crucial aspect of a business model that requires ongoing optimization and research.
Pricing experimentation: Balancing revenue and growth: Investing in internal metering and SKU management systems can lead to revenue gains from pricing experiments. Isolate variables and ensure consistency across channels when testing pricing. Consider long-term implications of pricing experiments on churn and user growth. Prioritize growth over revenue in early stages for potential enterprise collaborations.
Pricing experimentation is a crucial aspect of growing a business, but it requires careful planning and consideration. At Invoice to Go, they saw significant revenue gains by investing in internal metering and SKU management systems, allowing them to test various pricing models and user experiences. However, testing pricing involves isolating variables and ensuring consistency across different channels. Additionally, the long-term implications of pricing experiments, such as churn and user growth, must be considered. Figma is an example of a company that successfully prioritized growth over revenue in the early stages by focusing on individual users and later monetizing through enterprise collaborations. Ultimately, the decision between prioritizing revenue or growth depends on a business's unique circumstances and long-term goals. Modern tools can help streamline pricing experimentation and reduce the need for heavy engineering investments.
Optimizing for long-term growth in multiplayer products: The modern growth stack empowers long-term growth strategies by providing cloud-native tools to easily manage data, increase productivity, and drive impact across the organization.
Optimizing for growth in a multiplayer product involves considering a long-term strategy rather than maximizing revenue immediately. This was exemplified by Evernote's decision to offer a free version that was too good, leading to a slow monetization process. The modern growth stack can aid in this strategy by providing a collection of cloud-native tools to easily move and manage data, enabling workflows for product growth and revenue teams. Some of these tools include reverse ETL companies like High Touch or Census, which help break down data silos and increase productivity. The benefits of the modern growth stack include the use of smart integrations and automation, the need for data access and interoperability in the age of SaaS, and the ability to drive impact across the organization.
Unlocking data access and enabling workflow collaboration for cost savings and revenue growth: Modern growth stack companies automate processes, reduce in-house tooling, enable product-led sales, and harness product usage data for revenue expansion, leading to cost savings and improved customer engagement.
Modern growth stack companies focus on unlocking data access and enabling workflow collaboration between teams to drive both cost savings and revenue growth. By providing purpose-built software, these companies automate processes, reduce the need for in-house tooling, and enable product-led sales. This not only leads to significant cost savings but also allows for better customer engagement and monetization. The current macroeconomic climate emphasizes the importance of retaining sales and pricing power, making the ROI story of these companies even more compelling. Additionally, the emergence of product-led sales as a category offers significant opportunities for revenue expansion by harnessing product usage data to inform customer-facing teams. Overall, the themes of data access, workflow collaboration, and automation are consistent across exciting growth companies, making them valuable investments in today's business landscape.
Experimentation and data infrastructure for cross-functional teams: Tools like Optimizely and EPO help teams test hypotheses and measure impact on KPIs, while managing billing and iterating pricing for SaaS companies are essential needs met by new tools.
Experimentation and data infrastructure are crucial for cross-functional product, data growth teams to test hypotheses and measure their impact on business KPIs. Tools like Optimizely paved the way for AB testing, but modern tools like EPO offer more automation and integration with business metrics. The market offers various solutions for experimentation and data analysis, even for those without a dedicated data team or warehouse. Another significant need is managing billing and iterating on pricing and packaging for SaaS companies, with new tools offering streamlined workflows and integration with data infrastructure for informed pricing decisions. Usage-based pricing models are not mutually exclusive with seat-based models and are often used in a hybrid approach by many SaaS companies.
Balancing predictability and value in subscription models: Subscription models with fixed and variable components offer predictability for buyers while compensating creators. AI integration automates tasks and improves performance, particularly in marketing, sales, and customer support. 'Monetizing Innovation' and 'StoryBots' recommended for further learning.
A successful subscription model includes both fixed and variable components to provide predictability for buyers. This model, often seen in tools like Slack, Dropbox, and Invoice to Go, offers a consumption limit for a given value metric, triggering an upgrade or allowing for overages. However, it's essential to strike a balance between compensating creators for their value and offering predictability to buyers. Moreover, the future of the modern growth stack lies in the integration of generative AI. This technology, having a significant moment, offers breakthrough applications in creating images, text, code, audio, and video. By automating repetitive tasks, AI can save time and improve performance, particularly in areas like marketing, sales, and customer support. Two recommended books for further learning are "Monetizing Innovation" by Madhavan Ramanujam and colleagues, offering practical pricing strategies from tech companies, and "StoryBots" for a more lighthearted, educational experience. Lastly, during the lightning round, the favorite recent movie or TV show was "StoryBots" on Netflix, which answers kids' questions in an engaging and educational manner.
Naomi's parents' inspiring immigrant journey fueled her entrepreneurial spirit: Naomi's parents' resilience and determination inspired her entrepreneurial journey, instilling a strong work ethic and appreciation for opportunities in America
The driving force behind Naomi's entrepreneurial spirit comes from her parents' inspiring journey of immigrating to the US and building a life from scratch. Despite facing numerous challenges, they took advantage of educational and professional opportunities in America, progressing through school and building their careers in three different languages and cultures. Naomi is deeply indebted to their story and draws motivation from their resilience and determination. You can connect with Naomi and learn more about her as a partner at Menlo Ventures by visiting menlovc.com, LinkedIn, or Twitter. Her DMs are open for questions or potential startup pitches.
