Patrick Campbell — Our Fundamental Strategy of Building a Business is Broken (Turing Fest 2018)

We've reached the point in the market where the "best practices" we've been taught are no longer applicable when it comes to growth. Using data from millions of customers and thousands of companies, Patrick will debunk much of the dogma that drives our mental models around building a business, before offering up a practical guide around pricing, building the right product, retention, and targeting the right customers - all to ensure we're building a sustainable, thriving business.

Transcript

1. Brought to you by Back to the fundamentals (maybe) TURING FESTIVAL - AUGUST 2018
2. Brought to you by
3. Brought to you by
4. Brought to you by
5. Similar traits Brought to you by
6. • Old in software years Similar traits Brought to you by
7. • Old in software years • Raised $100M+ Similar traits Brought to you by
8. You Brought to you by
9. You Brought to you by
10. You Brought to you by
11. You Brought to you by • Really good tech
12. You Brought to you by • Really good tech • Some great design
13. You Brought to you by • Really good tech • Some great design • Low money
14. You Brought to you by • Really good tech • Some great design • Low money
15. You Brought to you by • Really good tech • Some great design • Low money
16. You Brought to you by • Really good tech • Some great design • Low money
17. You Brought to you by • Really good tech • Some great design • Low money
18. You Brought to you by • Really good tech • Some great design • Low money
19. You Brought to you by • Really good tech • Some great design • Low money
20. Brought to you by
21. Brought to you by This is not how you build a business.
22. Brought to you by You can’t best practice your way to success.
23. Brought to you by “Wait - how do you even know large, bearded man?”
24. Brought to you by I’m no one.
25. Churn tribution Financial Unit Price Survey Willingness to In-App Usage Drastically reduce churn RETAIN Actionable, accurate insights to make you smarter about your business (for free) SUBSCRIPTION METRICS Proprietary pricing software for monetization MONETIZE
26. We’ve collected more market data and seen inside more growth businesses than anyone else out there. Brought to you by
27. Brought to you by We’re going to go through a ton of data.
28. Brought to you by Everyone will be unhappy.
29. Brought to you by Everyone will be unhappy.
30. • Company Level Cliches • Product Problems • Growth Terribleness THREE MAIN AXES OF BEST PRACTICES WE’LL EXPLORE — GETTING BACK TO THE FUNDAMENTALS Brought to you by your friends at
31. Brought to you by Company Cliches
32. “Funding is necessary for growth”
33. “VCs are basically demons”
34. Funding messes with unit economics
35. FUNDING IMPACT STUDY CAC Higher Amongst Funded Companies Customer acquisition cost (CAC) has increased significantly over the years due to market saturation of marketing vying for consumer attention, but CAC amongst funded companies outpaces everyone else. BLENDED CAC RELATIVE TO FOUR YEARS AGO SOURCE: 2018 PROFITWELL CAC STUDY 0% 25% 50% 75% 100% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today Upper Quartile Funding Funding No Funding WHEN MEASUREMENT WAS TAKEN N 611 N = 611 companies Brought to you by
37. Funding helps with growth…
39. …but only so far.
41. “Don’t focus on competition”
42. CONSUMERS ARE GETTING HAMMERED Number of Competitors in First Year in Business Companies started more than a year ago had far fewer competitors in their space than companies started today. AVERAGE # OF COMPETITORS IN THEIR 1ST YEAR AGE OF COMPANY 2016 SOFTWARE MARKET SURVEY 0 5 10 5 YEARS OLD 3 YEARS OLD 1 YEAR OLD 9.7 4.8 2.6 N = 1432 software founders and executives Brought to you by your friends at
43. CAC COMPETITION BENCHMARKS CAC Lower Amongst Competition Focused Companies Customer acquisition cost (CAC) has increased significantly over the years due to market saturation of marketing vying for consumer attention, but CAC amongst competitor focused companies is lower. BLENDED CAC RELATIVE TO FOUR YEARS AGO SOURCE: 2018 PROFITWELL CAC STUDY 0% 15% 30% 45% 60% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today Overall Competitor Marketing Strategy WHEN MEASUREMENT WAS TAKEN N 507 N = 507 companies Brought to you by
44. PRODUCT COMPETITION BENCHMARKS NPS is Lower for Competitor Focused Product Teams NPS is falling overall, but companies who are focused on competition from a product perspective are seeing lower NPS scores overall indicating you shouldn’t focused on competition to build product. AVERAGE NPS SCORE YEARS AGO SOURCE: 2018 COMPETITOR STUDY 0 7 13 20 27 33 40 5 YEARS AGO 3 YEARS AGO 1 YEAR AGO 5.22 12.08 24.11 10.2 19.5 33.8 Overall Competitive Product Strategy N = 231 companies N 231 Brought to you by
45. “Work life balance is important. Founders need hobbies.”
46. FOUNDER IMPACT STUDY Hard to Grow Quickly Without Being All In Companies with Founders who score high on our work-life balance index tend to have companies who are growing much slower than those who score low on the work-life balance index. MIDSPREAD YOY GROWTH % SOURCE: 2018 PROFITWELL FOUNDER IMPACT STUDY 0% 25% 50% 75% 100% 2012 2013 2014 2015 2016 2017 49.3% 55.7% 54.1% 45.3% 47.9% 51.4% 30.9% 31.8% 27.5% 29.4% 32.2% 32.7% Balanced All In N 182 N = Minimum of 182 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate. Brought to you by YEAR MEASUREMENT WAS TAKEN
47. FOUNDER IMPACT STUDY Companies with Founders with a Hobby Grow Slower Founder who have a hobby they dedicate an average of 10 hours per week to tend to have slower growing companies compared to Founders without a hobby or ones that take up less than 10 hours per week. MIDSPREAD YOY GROWTH % SOURCE: 2018 PROFITWELL FOUNDER IMPACT STUDY 0% 25% 50% 75% 100% 2014 2015 2016 2017 51.2% 53.1% 54.1% 46.2% 40.5% 43.0% 37.0% 38.9% Hobby No Hobby N 182 N = Minimum of 182 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate. Brought to you by YEAR MEASUREMENT WAS TAKEN
48. • Funding requires scalpel, not sledgehammer thinking • Competition thinking will help unit economics, but not product • Work-life balance and hobbies likely will mean slower growth BUILDING A COMPANY IS INSANELY TOUGH — RETHINK THE COMPANY CLICHES Brought to you by your friends at
49. Brought to you by Product Problems
50. “Focus on one product for growth”
53. “Features = growth”
54. The relative value of features is declining.
55. THE MARKET IS DROPPING OUT BENEATH US Consumer Willingness to Pay has Declined Over Time Software willingness to pay has declined significantly over the past few years due to increased options and higher demands. WTP AS % OF WTP 4 YEARS AGO SOURCE: 2017 CONSUMER WILLINGNESS TO PAY STUDY 0% 30% 60% 90% 120% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEAR AGO TODAY Core Features Single Sign On Integrations Analytics WHEN MEASUREMENT WAS TAKEN N = Varies by line, but minimum of 10,000 customer respondents per line N 921k Brought to you by your friends at
56. You need value metrics.
59. “Steve Jobs didn’t talk to customers…you don’t need to either”
60. Brought to you by
63. We’re building the wrong product. Brought to you by
64. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY THE MARKET IS DROPPING OUT BENEATH US Measuring consumer sentiment to what we’re building DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE Brought to you by
65. 2017 SOFTWARE MARKET SURVEY THE MARKET IS DROPPING OUT BENEATH US Measuring consumer sentiment to what we’re building Relative Value of Attributes Brought to you by
66. 2017 SOFTWARE MARKET SURVEY THE MARKET IS DROPPING OUT BENEATH US Measuring consumer sentiment to what we’re building Relative Value of Attributes • Taste • Country of Origin • Temperature Brought to you by
67. 2017 SOFTWARE MARKET SURVEY THE MARKET IS DROPPING OUT BENEATH US Measuring consumer sentiment to what we’re building Relative Value of Attributes • Taste • Country of Origin • Temperature Willingness to Pay • Price elasticity for a cup of coffee Brought to you by
68. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY THE MARKET IS DROPPING OUT BENEATH US Measuring consumer sentiment to what we’re building DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE Taste Brought to you by
69. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY THE MARKET IS DROPPING OUT BENEATH US Measuring consumer sentiment to what we’re building DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE Taste Temperature Country of Origin Brought to you by
70. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY THE MARKET IS DROPPING OUT BENEATH US Measuring consumer sentiment to what we’re building DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE Taste Temperature Country of Origin Brought to you by
71. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP Brought to you by
72. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP Add-Ons Low Value/High WTP Brought to you by
73. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP Add-Ons Low Value/High WTP Core Features High Value/Low WTP Brought to you by
74. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP Add-Ons Low Value/High WTP Core Features High Value/Low WTP Trash Land Low Value/Low WTP Brought to you by
77. CLEAR WINNERS AND LOSERS Comparing Cust Dev Strategies of Companies Acquisition based growth companies grow at a smaller rate than those with a balanced growth approach (growth from all three pillars of growth). YOY GROWTH RATE SOURCE: 2017 STUDY ON CUST DEV 0% 25% 50% 75% 100% 2012 2017 44.821% 31.72% Minimal Customer Development Aggressive Customer Development N 687 N = Minimum of 687 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate. Brought to you by
78. CLEAR WINNERS AND LOSERS Comparing Cust Dev Strategies of Companies Acquisition based growth companies grow at a smaller rate than those with a balanced growth approach (growth from all three pillars of growth). YOY GROWTH RATE SOURCE: 2017 STUDY ON CUST DEV 0% 25% 50% 75% 100% 2012 2017 59.08% 44.821% 17.43% 31.72% Minimal Customer Development Aggressive Customer Development N 687 N = Minimum of 687 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate. Brought to you by
79. • You probably need multiple products sooner than later (at least for growth) • Features are no longer keys to brute force growth • You need to understand your customers better to properly build the right product these days PRODUCT FOCUS HAS NEVER BEEN MORE IMPORTANT — PRODUCT REQUIRES FOCUS Brought to you by your friends at
80. Brought to you by Growth terribleness
81. “Discounting is effective”
84. “Brand is for retail products”
87. “Acquisition is everything”
88. WE MAKE MATTER SO MUCH WORSE Which Pillar is the Most Important in Your Business Founders and software executives overwhelmingly put their support behind acquisition based growth instead of caring about monetization or retention. % OF TOTAL RESPONDENTS PILLAR OF THE BUSINESS 2017 SOFTWARE MARKET SURVEY 0% 50% 100% MORE LOGOS MORE $ PER CUSTOMER KEEP CUSTOMER LONGER 21.1% 7.58% 71.32% N = 1578 software founders and executives N 1578 Brought to you by your friends at
89. Acquisition is just to survive now, not to grow.
90. WE FOCUS ON THE WRONG FUNDAMENTALS Impact of Improving Each Pillar of Your Business Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. % IMPACT ON REVENUE SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS 0% 5% 10% 15% 20% ACQUISITION MONETIZATION RETENTION 2.35% 3.32% 2008 - 2012 2013 - 2016 N 734 N = Data from 734 software companies PILLAR OF THE BUSINESS Brought to you by your friends at
91. WE FOCUS ON THE WRONG FUNDAMENTALS Impact of Improving Each Pillar of Your Business Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. % IMPACT ON REVENUE SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS 0% 5% 10% 15% 20% ACQUISITION MONETIZATION RETENTION 9.32% 15.89% 2.35% 6.71% 12.7% 3.32% 2008 - 2012 2013 - 2016 N 1.4k N = Data from 1.4k software companies PILLAR OF THE BUSINESS Brought to you by your friends at
92. • Discounting is terrible. Stop it. • You need at least the semblance of a brand strategy. • Pricing/Retention are more important than ever GROWTH IS IMPOSSIBLY HARD GIVEN THE DENSITY OF THE MARKET — GROWTH IS TOUGH Brought to you by your friends at
93. Brought to you by Fundamentals > Best Practices
94. Brought to you by A lot of you aren’t going to focus on any of this.
95. You • Hungry to grow • Some great design • Low money Brought to you by
96. Brought to you by This breaks my heart, because you have everything to win.
97. Brought to you by You just have to put in the work.
98. pc@profitwell.com Brought to you by