do not set it and forget it I see companies do this where they labor over designs and features and they build this perfect product that's delightful to use and then pricing sort of plucked out of thin air and then they don't revisit it this was Evernote it was many many years before we went back and overhauled the pricing so think about your pricing just like you do your roadmap so every six to 12 months there's probably something
meaningful that you're launching for users so treat that as an opportunity to revisit your monetization strategy and making sure you're compensated appropriately welcome to Lenny's podcast I'm Lenny and my goal here is to help you get better at the craft of building and growing products today my guest is Naomi ayanida Naomi was one of the first early leaders in product light growth and monetization having built early teams and
infrastructure over a decade ago at Evernote there's also an early contributor to reforge when it was just getting started and helped create some of their early programs she's also VP of growth at invoice2go and currently she's a full-time VC at menlovengers in her worked as a full-time investor she gets to see what works and doesn't work across many companies and one area that she spends a lot of time on is monetization when it's best to start
charging for your product how to decide what to charge and how to evolve your pricing and that's why we spend the bulk of our conversation around we also touch on a really interesting framework Naomi has been developing that she calls the modern growth stack which is essentially all the areas that new starter products can help take load off your plate and help your product grow Naomi is awesome and I'm excited to share this episode
with you with that I bring you Naomi ianita right after I word from our wonderful sponsors today's episode is brought to you by Miro creating a product especially one that your users can't live without is damn hard but it's made easier by working closely with your colleagues to capture ideas get feedback and being able to iterate quickly that's where Miro comes in Miro is an online visual whiteboard that's designed specifically
for teams like yours I actually use Miro to come up with a plan for this very ad with Mira you can build out your product strategy by brainstorming with sticky notes comments live reactions voting tools even a timer to keep your team on
track you can also bring your whole distributed team together around wireframes where anyone can draw their own ideas with pen tool or put their own images or mock-ups right into the mirror report and with one of miro's ready-made
templates you can go from Discovery and research to product roadmaps to customer Journey flows to final box want to see how I use Miro head on over to my mirror board at miro.com Lenny to see my most popular podcast episodes my favorite
Miro templates you can also leave feedback on this podcast episode and more that's miro.com Lenny this episode is brought to you by notion if you haven't heard of notion where have you been I use notion to coordinate
this very podcast including my content calendar my sponsors and prepping guests for launch of each episode notion is an all-in-one team collaboration tool that combines note-taking document sharing wikis project management and much more into one space that's simple powerful and beautifully designed and not only does it allow you to be more efficient in your work life but you can easily transition to using it in your personal
life which is another feature that truly sets notion apart the other day I started a home project and immediately opened up notion to help me organize it all learn more and get started for free at notion.com Lenny's pod take the first
step towards an organized happy team today again at notion.com Lenny's pod Naomi welcome to the podcast thank you did you know that you're one of the very few we see that I've ever had on this podcast and so you're basically
representing VC kind here how do you feel about that well well um thank you I'm you know I think early growth folks like us have a unique Bond and a lens on startups and investing so my operating background is something I lean on every day and it's actually informed a lot of the thesis thesis areas where I spend time now as an investor so um hopefully we'll bring it all together in that capacity awesome that's exactly what I was just going to
say so I'm glad that you covered that and so that's a good segue just uh let's get into your background briefly can you talk about some of the wonderful things that you've done in your career both at reforge which you'll touch on and growth stuff and then your VC life now perfect so I'm a partner in Menlo Ventures I focus on early stage SAS from seed to series B I started my career in engineering and Consulting before
getting into Tech back in 06. fell in love with product it's a new product development at a big Media company before business school and well at business school I spend time at the design Institute at Stanford so this was an opportunity to kind of bridge my analytical background with this refreshing view on human centered design and learning from the founder of Ido so brought that with me then to Evernote back in 2011 early days over there it
was there from about 10 to 100 million users and over that Arc I shifted from more of a core product role to starting our growth product function this was super organic I started just collaborating with colleagues from across the business come up with hypotheses do user research run experiments Drive metrics this was a new way of Building Product back then this was um a decade ago so the acronym plg had not been coined yet and I really
just thought of myself as a user and data-driven product person after Evernote I joined a bootstrapped mobile SMB company called invoice2go it was the top grossing business app at the time there I built teams across product
data growth engineering design and research and again focused on product-led growth and monetization over those two jobs I found myself doing a lot more advising and speaking on the side on these topics and my board members used to farm me out to their
companies to help their Founders think through things around product growth and pricing and various topics like that and reforge came together at the same time so I would come in and speak on on topics through that community so that really accelerated my transition into Venture I realized how much I love having that portfolio view of the world and helping Founders look around corners so I think it's an incredible privilege
to get to do the work that I do one thing uh you mentioned is Evernote I don't know how much you can talk about this but they just got sold right someone bought Evernote and if I think back to Evernote it feels like they
could have been notion which is killing it right now any any thoughts on what maybe they missed and didn't turn into notion along the way yeah we're gonna clear some cobwebs here um it's been a while but One Challenge Evernote really
struggled with was this Evolution from single player to multiplayer to team to Enterprise it's a Chasm that a lot of bottom-up SAS businesses struggle to cross Evernote was philosophically anti-social you know it was meant to be your second brain kind of your personal tool and I think that capped the company's growth potential you know I always used to say you can't retrofit collaboration you have to be collaboration first and a lot of
companies now really take that for granted but back in mid-2000s this has been a new way of Building Product and so we missed that bridge if companies do that well it benefits every metric that bridge from single player to multiplayer you know acquisition goes up you grow organically through referrals and shared workflows retention goes up because now you have these shared workflows that are incredibly sticky you know employees are
accountable to each other to say this is how work gets done like design and figma you know roadmap planning and ticketing in Nigeria are linear it just becomes the default platform and monetization goes up right you know Revenue scales
with usage and so the more people using it the more they use it you start tripping the wire on paying more and more over time and so Evernote really struggled in Crossing that Chasm from the prosumer tool of choice that
employees wall-to-wall were using but never became this larger you know High ACB contract from a sales perspective yeah it's always easy in hindsight to see what could have been better or could have worked out what didn't work out so what are you gonna do so you you mentioned monetization and I know that you spent a lot of time with Founders working on pricing on station especially using monetization as a lever for growth
and so I want to spend some time there to kind of pick your brain about what Founders and growth teams can do and how they should think about monetization in terms of growth and then perfect and then you also have this cool concept
that you've been developing that you call the modern growth stack which is kind of this play on Modern data stack and so I want to spend some time there perfect cool so to dive into that first topic of monetization if you think about
when you're starting a company what are some of the biggest challenges you face start building a product especially a B2B product I always think about pricing and trying to figure out how much to charge how to charge your pricing model how to evolve your pricing when to charge all these things and so I know that you work with Founders helping them figure these sorts of things out and so maybe a first question here is just what
do you find startups most often miss or get wrong when they're starting to think about monetization there's a lot to cover here I'll cover on a few missteps that I think are most common one is uh waiting too long to monetize another one is under pricing and this isn't just setting the base price too low but it's also leaving money on the table by not offering different plans to cater to different segments and the third one is all too
often with pricing people set it and forget it so this idea that when your product development work is never done neither is your pricing and you need to combat that along the way so uh those are three areas I I think we can cover here maybe starting with one I can Jump Right In I think I'm waiting too long to monetize so the beginning of a startup journey is all about creating something of value right that's that's the whole
the whole point hopefully Founders have some unique Market Insight or some you know authenticity around a pain point and some novel Solution that's going to change the world so that business value is really critical but the other side of the same coin is being properly compensated for that value as a business so I understand the vulnerability of being a new startup you just want people to use your product and I view that you
know early kind of free beta user feedback loop as an r d class to make sure you're building the best possible products and that they're driving a lot of value but I see companies way too long to make that shift from building a
product to building a business and I think that's the true signal aquatic Market fit is ultimately having people open up their wallets and pay you so looking for people to get to that to that end goal and so again like these
things aren't mutually exclusive you're gonna create business value but you're going to be compensated for it and prioritize your roadmap over time so that you're building based on what people actually want and are willing to pay you for so when you don't monetize I think you're doing yourself a disservice the the things that I see is you know the the pain of leaving money on the table you're inadvertently cheapening your product people attribute
a lower dollar value or a zero dollar value to what you've built you're missing out on critical feedback loops to understand what people are willing to pay and you're shooting your future self in the foot because this is the other
problem is at some point you're going to start charging and you're going to experience some backlash so it's nice to get ahead of that so a few a few things to think about and a food for thought around delaying and sort of kicking the
can down the road from a monetization so just to reinforce that your general piece of advice is you're building a B2B product start charging immediately don't give it away for free at least have some like you probably give it away for free make it clear we're gonna charge you this much soon how do you how do you think about that yeah I don't think those are mutually exclusive so this isn't to say that I don't like freemium
models Evernote was the darling of freemium over a decade ago so I'm I'm still a big believer in that it's more a question of where you put the paywall how much do you give up for free and then how do you price and package a paid
version of your product so freemium is all about getting that top funnel excitement getting people to build habit formation you know collapsing time to Value You're Building habit formation You're Building all these Champions to
use your product but the idea is to Shepherd them along into a paid version of your product and to again like not delay the idea of like what should our premium features even be what should that paid plan even look like again going back to the misstep at Evernote I think that there was always a Premium plan but it didn't really Bridge into Enterprise so we can talk more about that this kind of a tangent I know because you have um these two other
pieces of underpricing and sitting in and forgetting it been talked about but do you have any advice for deciding what goes into freemium and what if it gets you to the aha moment like that that path to Habit formation that has to be free that's the core utility of your product and so the idea is that in that first session or first day someone's getting to see the delight and saying oh my God I'm not I'm never going back to
the old way this is how X gets done if you're looking for some virality or network effect that's the other thing you're free users you might not be getting revenue from but the idea is that they help you manage CAC so these are folks that are driving organic growth for you and and helping reduce the incremental cost of your next set of users so that's another part of the math equation to think about in um sort of
giving up Revenue you also have this model that you didn't mention that you mentioned in a previous chat we were having offline of this idea of day one versus day 100 like stuff people need on day one versus what they need down the
road you still believe in that and what should people know about that I do believe in that that was tied to we had done this experiment at my last company in voice to go where um you know typically on the demand curve the
hire you raise the price so average revenue per user or poo the um lower the conversion rate so these things are inversely correlated and we were able to do this rebalancing of our pricing and packaging so that we actually doubled our upgrade rate from our starter plan to our Pro Plan while also increasing the price of the Pro Plan so to actually get twice as many people to upgrade while paying something like 30 percent more
for that new plan is pretty rare to get the compounding benefits of that and what we did was said a lot about what is a day One Premium feature what is a premium feature that you can get value from the very first time you engage with
the product that's different than your day 100 features those are the ones that represent more advanced functionality maybe they're ones where the value is derived from having a certain scale of data in the platform and so those you
shouldn't waste through cognitive load for your users to have to even understand or try to appreciate when they're first getting going push those into a more advanced pro version of your product and monetize them down the road through an upsell so big believer in how do you really keep pricing simple and we've all seen those SAS pricing Pages where there's a laundry list or just like a gnarly Matrix of features and functionality so
do what you can to think about that Journey for a user and how they're going to continue to increase value with your product over time and how you can map your pricing and packaging against that journey I really like that framework
because it's so straightforward and simple like as you use it you'll need more Enterprise features innately because you're sharing it more widely your head of security is going to be like what are you doing with this thing
your Finance team is going to be like oh how do we pay for this thing and so that's a really nice simple way of thinking about what to put in freemium in your free plan versus not so glad we touched on that great okay so we were
going through the three things that companies and Founders do wrong when they're starting to price and so the first you said was they go too late and I tangentized us and so I'll give it back this is this is by far the most common
issue and so one framework I like to use here is matching price to Value so when you do that you create alignment with your user so this entails picking the right value metric so this is the unit of value that you know they derive from using your product and it creates this natural escalator because as people use it more you get paid more over time so SAS was historically built on a seat based model that's been sort of historical SAS
pricing and now with the rise of plg we've seen more of these usage-based approaches uh gaining speed so that's pretty pretty exciting to see so whether it's number of API calls or messages sent or terabytes of storage used or words written this usage-based approach really matches price to Value over the lifetime of a customer the other thing that happens when you match price to value is it helps you understand who you're building for and
it lets you target different customer segments so in doing that you're able to better serve each segment but you're also able to maximize revenue for the business Evernote always had a business model from from its beginning it had uh 45 a year for an annual subscription and to set the foundation for the company and tens of millions in Revenue early Revenue growth but the approach was sub-optimal so as a growth team we
started doing surveys I was really curious to understand why people converted from our free version to our premium subscription and one of the most popular answers without fail was um well I just feel guilty I use it so much I get so much value from it that I just feel obligated to pay and like take that in for a second because if guilt is one of the main reasons why people are paying you then your free version is too good and you
are leaving money on the table so a single premium tier is often a mistake and you're going to be leaving money on the table for specific segments and it's important to drill down and understand who those are so our additional research helped us understand that brand new users with low perceived value of Evernote looked at it like their apple notepad app that was you know pre-installed on their device and so they couldn't understand the idea of
paying 45 dollars for forever note but then we talked to Avid users and these were people that were cross-client using it on desktop and mobile you know every device they had they were using it for work and personal they were leveraging OCR capabilities in the Web Clipper and it was truly their second brain they could not imagine life without it and these people were floored that they were only paying 45 dollars a year they told
us that they were getting hundreds of dollars value from Evernote so here the perceived value for Avid users was far outpacing what we were asking from them and um this intuition and research really led to a bifurcated strategy of
having different plans for different personas based on what they actually you know the value they got from the product and their willingness to pay that makes sense when I heard you say that it cost forty five dollars for a year that
sounds way too low and so I could see how that sets the like the pattern for Evernote just not making enough money over the long term cool and then the third was that you don't evolve your pricing right that's yes yes so do not
set it forget it I see companies do this where they labor over designs and features and they build this perfect product that's delightful to use and then pricing sort of plucked out of thin air and then they don't revisit it this
was Evernote it was many many years before we went back and overhauled the pricing so think about your pricing just like you do your roadmap so every six to 12 months there's probably something meaningful that you're launching for users so treat that as an opportunity to revisit your monetization strategy and making sure you're compensated appropriately what it advice do you have for Founders around just like how to
decide on your initial price clearly Evernote didn't get that correct and I'm sure you've learned a lot from that and then other companies you've worked with how do you actually decide what to start charging yeah there's a full pricing
process here so I'm I'm happy to walk through it so the idea here is understanding who your customers are why they pay you what is it that they want or value and how much are they willing to pay you I'd encourage you to put
together a um pricing committee this is not a single threaded exercise that lives in one department or another this very much is a cross-functional exercise if you are a plg company like companies I worked at this was the product growth award that I Ran So the combination of PMs and data scientists hooked like that to iterate on pricing if you are an Enterprise SAS business of course sales and finance and revops play a role so
think about who that committee should be at your company and commit to being that cross-functional team that really owns and and iterates on pricing over time then they are responsible for talking to customers this is like by Far and Away
the the most basic thing you can do to just increase those feedback loops and understand how much you can push the envelope on pricing you do that with surveys with interviews there's some questions that we like to use around
understanding the relative partization of features going back to that laundry list of of features and and kind of matrices on a pricing page it's very rare that people convert you know equally across all those features are typically one or two that are the main carrots for conversion so it's good for you to understand the relative rank there and how to reconcile some of your pricing and packaging accordingly so we would make a list of
our features that we had and maybe new things we wanted to build and have people rank them as a must-have nice to have or not necessary that help us understand the relative prioritization you can also get at it with like a 100 point question where you give users 100 points and say spend them across these different features and the more points you give a feature the more value you're assigning to it this is to get to like
the demand or the the features and functionality that you've created so sort of first step one is understanding like what people actually want and and making sure that you know they're not just saying everything but the kitchen
sink but they're actually getting a good sense for what's most important to them and then the other side is understanding their willingness to pay I'd say the easiest on-ramps here for companies to start digging into that is
to use van westendorp's method here I don't know if uh you're familiar with that you're nodding a little bit yeah yeah it comes up comes up a bunch on the spot oh great so I'll I might be repeating myself here but no this is
great this is how we learned we hear it again if you take the packages the users designated as a nice to have and must have you make that collection of features in the survey then ask them what's such a cheap price that you start
to question the quality of the product ask them what's a good deal or sounds like the right price for this package ask them what's expensive but they would still pay so you're starting to get to that you know level of discomfort and then ultimately what's uh prohibitively expensive what would people just say okay that's it you've crossed the line of how much I'm willing to pay here and by plotting those four curves you start
to get a sense of how to inform your pricing that's a great way to marry the questions around demand and then the questions around willingness to pay awesome I wish that survey name was simpler to say because I can never remember exactly to pronounce it but you got it so man West endorph okay you got it so say that you got a price you launched with something how do you think about and how do you suggest folks experiment with pricing
changes and then just what impact have you seen from making a pricing change either in terms of Revenue or growth what kind of because I know you work with a lot of startups on these sorts of things so I'm curious yeah what's like
like how big of an impact can you see from pricing changes oh it can be huge our friends have openvo do a really good job of pumping out content and doing these great you know sort of SAS benchmarking surveys so they did
something recently that showed that roughly half of companies that instituted a pricing change saw at least a 25 increase in ARR so that's a pretty massive step function Improvement in your revenue from something that doesn't require massive technological overhaul I find that most companies regret not doing it sooner profitwell is another group that I've friends at and a lot of respect for them and the content that
they've put out they did a survey once on I think it was over 500 SAS companies and they looked at for a one percent Improvement on acquisition retention and monetization how did it impact a company's bottom line and they found that the impact with an improvement on monetization was Forex that of acquisition so this idea of like how can you efficiently improve your business modernization is really underappreciated as a growth lever so definitely
something people should be thinking about that's part of my goal of doing this podcast is making sure Founders are compensated in a way that they deserve so um let's hope everyone makes a little more money after today and I've seen
I've seen a lift upwards of 10x on Revenue but it's sometimes hard to parse just the pricing change because usually it can be coupled with big product changes a Rebrand a lot of PR you know the launch of a new plan like a team or
an Enterprise plan so um it's hard to sometimes understand the the just the pricing change in isolate Nation but it really can be pivotal the company and when you think through the pricing change is that you've seen is the impact often from raising the price just broadly is it like segmenting more intelligently is it changing freemium versus paid is there like a bucket you think of like here's generally where the biggest impact ends
up being yeah it comes from doing it holistically I think it's it's very rarely as impactful if you dress you know pick a pick a new price or um just Just Launch a new plan I really think of it as rebalancing pricing and packaging overall so it's doing this whole exercise of understanding what people actually want what their willingness to pay is and mapping it to that user Journey like we talked about from single player mode to multiplayer
you know that first other person you connect with and have a workflow with spreading it to your whole teams and ultimately spreading it wall to wall across an organization so it's a longitudinal view of the user life cycle and thinking about your whole business model holistically I don't know if you can talk about any of these but is there a company or an example that comes to mind where you did a pricing change and
just talking about what they changed just to make this even more concrete I have a specific story there with one of our companies Envoy um this is this is a fun one so he was just getting started this is Envoy the visitor registration
tool that I'm sure a lot of people have used uh you know especially before covet probably mostly nsfs I imagine folks in other countries don't know about it maybe describe it yeah so it is um if you visit an office instead of just
signing in to that you know piece of paper in the lobby with your your name and your email address and what time you checked in it is a digital kind of ipad-based way of checking in and sharing information with the person you're visiting and so in talking to Larry and and getting a feel for how he uh sort of his Evolution around pricing he he tells the story that I love so he was uh meeting with a big hospitality company and the
conversation was going really well this this Prospect was really leaning in and excited about about using Envoy and the conversation shifted to pricing so in that moment because Larry was feeling some good vibes he decided to 10x the price that he was typically charging people so just in the moment he said just go for it go out on a limb and ask for a 10x the typical price and in that moment the exec said okay sure sounds
good like not a minute of hesitation not a second of hesitation and what he learned in that moment was that one he was wildly underpriced it was it was very clear that he hadn't even thought about what the ceiling was but the truth
was he probably could have pushed it even further considering there was no hesitation so what I encourage users to do in um especially in like these Enterprise conversations is to continue to ask for more to understand where the
upper bound might be and to understand that it's okay sometimes to lose some deals due to price if something on the order of 20 to 30 percent is is reasonable so that you can get a sense for where where the limit might be the vast majority of companies are are definitely under charging like we discussed so glad on a limb Like Larry at Envoy and you can see that sometimes you can 2x 4X even 10x your price that's an awesome story and
it touches on exactly what you said where people often under price imagine it's strategically smarter not to go straight to 10x and maybe go 2 or 3x until people start pushing back because you lose a lot of data there but that's
one way to just zoom to the to enhancer yeah they're all feedback loops right so I think there's some incrementality to it but um you've got to understand who these different segments are and if you don't have enough data points it's hard
to really understand how to continue to optimize any other tips that you want to leave listeners with around pricing or monetization or even testing pricing anything there before we shift to our second topic yes so we talked about about research methods and different surveys you can do to help inform your pricing and with Enterprise it's all about continuously asking for more but if you're a plg company and you have a
public-facing pricing page I'd encourage you to experiment this is something people shy away from and frankly there haven't historically been great tools for companies and sort of infrastructure to be able to do this work so at
invoice2go we invested very heavily in um some internal pooling we had a whole metering and few management and experimentation system in-house it was a big growth engineering undertaking and with that we tested different value
metrics we tested different quota limits price points promotions You Name It We track the consumption of our pay as you go model and you know Loop that back into the product so we can nudge users along the other life cycle to get them to convert or upgrade or renew once quota limits were reached so um there's a lot there I'm excited about this new wave of modern tools to actually help you do this and not sync a bunch of
engineering time into building something in-house so that's something we can talk about in a bit but that investment was very worthwhile we had we had huge Revenue gains by being able to iterate in a way that was more streamlined
there's some things to to watch out for though it's it's hard to test pricing there's a lot of different variables to isolate so you've got to make sure you're bringing a consistent test experience to the in product experience
experience your pricing page maybe mobile app stores or life cycle emails that you're sending one trick you can do is we would segment these tests by Geo so we would do some tests in Canada or Australia before rolling out in the US that was a nice way to um just put some constraints around our experimentation and the other thing you really have to think about is the long-term nature of pricing experimentation so knowing if
you succeeded and failed often requires understanding the implications on um churn let's say part of your test is like your one discount you need to understand how do users perform in year two and have a sense of the trade-offs
around user growth retention or poo so all of these things are different levers that you want to optimize over time this episode is brought to you by vanta helping you streamline your security compliance to accelerate growth if your
business stores any data in the cloud then you've likely been asked or you're going to be asked about your stock 2 compliance sock 2 is a way to prove your company is taking proper security measures to protect customer data and builds trust with customers and partners especially those with serious security requirements also if you want to sell to the Enterprise proving security is essential sock 2 can either open the
door for bigger and better deals or it can put your business on hold if you don't have a sock 2 there's a good chance you won't even get a seat at the table beginning a society report can be a huge burden especially for startups it's time consuming tedious and expensive enter vanta over 3 000 fast growing companies use vanta to automate up to ninety percent of the work involved with stock 2. Banta can get you ready for security audits in weeks
instead of months less than a third of the time that it usually takes for a limited time Lenny's podcast listeners get one thousand dollars off Banta just go to bed santa.com Lenny that's v-a-n-t-a.com slash Lenny to learn more
and to claim your discount get started today there's a question I wanted to ask you and maybe it's too big of a question to answer simply but it's this question you just raised of trading off Revenue versus growth that's one of the most
common trade-offs Founders have to make do you have any just general thoughts advice there is there one you should generally index on what have you seen works best which kind of direction should you lean growth or revenue for let's say B2B company like early stage yeah if you know that you have a bridge to move up Market then giving up the long tail of individual users can be very worthwhile so I think figma is a great example of
that this was a company that took a while to monetize and you know even having free usage at the individual level that was the way to just drive insane community and love for this product you know designers around the world were just just fell for this product overnight but this idea that once they were using it in a more corporate setting once they were collaborating with more people across the business they were tripping a
wire to paid and so what happened there was you had this massive top of funnel of individual users but knowing that design is inherently collaborative you're interfacing with Engineers you're interfacing with PMS with marketers with
researchers with execs you know more than half of figma users weren't even designers once it was embedded in the Enterprise and so this idea of these compounded gross Loops that you got by interfacing with so many different parts of the
company and and making design truly collaborative and in the browser um they were able to just have this exponential curve on on monetization once they shifted into more of a team or enterprise-based package so that's a good example of saying like they were willing to trade off on monetizing the individual because they knew that it would be so sticky and would go so wall to wall within a company got it so you're feeling as if it's a multiplayer
plg-ish product you probably want to optimize for growth they'll let it just take over and not go charge as much as you can immediately versus say like a sales LED B2B Enterprise E product maybe they're focused on Revenue immediately versus making it feel cheap yeah and I think if you do have a few free users crafting it as more of a sweetheart discount like more of a year one discount but you know getting paid over
time I mean again I'm a big believer in having some some early users being your design partners and really giving you that tight feedback loop to make sure you're building the right products so it's not that you should really optimize for revenue on on day one I mean it it is a journey but I just oftentimes see companies just take too long or in evernote's case I mean the free version was just too good so that's just something to consider
where to put the paywall and be really really strategic about that just don't don't optimize for Guilt paid driver so you're talking about pricing testing and I was going to ask what tools you found that are useful for testing
pricing and that's probably a good segue to talking about the modern growth stack would that fit into this concept of modern growth stack testing your pricing yeah let's do it okay let's do it so just to set it up there's this term
modern data stack that I think it'd be useful for you to explain because not everyone is aware of that and you've kind of been thinking more about this adjacent idea of a modern growth stack so can you just talk about these two
things and then yeah we'll lead to some questions there yeah so the modern data stack is basically a collection of cloud native tools to more easily move and manage data it consists of a fully managed elt data pipeline a destination
for that data so the cloud-based data warehouse like a snowflake a redshift a data transformation tool like DBT and then finally a platform for visualization on top so people can can access the data this is uh you know the play on Modern data stack was was very intentional I think of the modern growth stack or my core thesis area right now at Menlo as the evolution of what you do with the data so these are the workflows
that the data enables to drive the business forward for product growth and revenue teams like I used to run it's the modern replacement for infrastructure that uh you know teams like mine built or bought when you're responsible for driving things like activation or monetization or retention there tends to be a lot of these internal tools that are built because uh you're really powering cross-functional teams to to do this work it's not um
sort of mapped easily into Legacy departments awesome and the general idea here right is there's so many more tools now to help you grow with the data stack there's just all these tools now that make it so much easier to collect data use data make decisions off data and you're finding the same things happening with growth what are some of the tools that you found to be super helpful I know you're investor in some you're not
investor and others yeah you get to just talk about here's just like a bunch of cool tools and how they fit together as much as possible to help you grow your startup yeah and I want to reinforce some different themes before I get into some layers of the stack because I think it's important to to frame the benefits of the modern grid stack so one is um data to is workflow and three is impact so starting with data the modern growth
stack companies really are powered by these smart Integrations and the automation that you get as a result so with this proliferation of SAS it's created this need for more data access and interoperability we've all felt that
pain of siled data modern growth stack companies leverage reverse ETL companies like high touch or census to break down these silos and help companies earn employees across the the company access data and be more productive so that's
there's a big data theme with modern growth stack companies the other theme that they unlock is around workflow uh here it's really the enablement of people and process so rather than employees sitting in their departmental silos modern growth stack companies build Bridges between them so by unlocking data access the business side can often self-serve and be more self-sufficient without relying on a an engineer or a data scientist to
run queries or stitch together data sets for them the other thing here is um lots of growth work is inherently cross-functional so the efforts to drive growth requires new tools and collaborative workflows like we're discussing without purpose-built software many teams like mine felt no choice but to build in-house so we spent sacred hours building and maintaining tooling for experimentation personalization billing monetization
these were resources that could have been reallocated to building proprietary features for the business had we been able to buy something purpose-built and finally these products really drive impact so the idea here is driving hard Roi in the form of cost reduction so automation means Time Savings and often times it can be mapped directly to cost reduction for a company but they also help product and and growth and go to
market teams better engage and monetize customers so they're driving hard Roi in the form of Revenue impact too I'm really compelled by companies that can drive hard Roi both across cost savings and revenue generation and I think that
Roi story is even more compelling now in a softer macroeconomic climate you just have to be able to continue to retain sales and pricing power and I think that's derived from from a strong Roi story like I described so those are
those are General themes and sort of consistencies across the companies that I get particularly excited about so happy to talk about a few layers in the stack and I think you might be familiar with a few of these as well um especially based on your growth background at Airbnb and tools yourself yeah exactly that's what I was going to say that so many of these things are just coming out of startups that have built these in-house and then
they're just like hey I could start a company doing this and provide it to all these other companies and so I just love that there's all these tools coming out that just make it easier to build startups and grow startups and do less work and have less people it just reminds me the number one app in the app store at this point I don't know if it still is gas which uh is is just like four people and it's built it's like
higher than Tick Tock and and YouTube and all the things in Facebook and it's four people and so it just shows you the power of what tools can do for you to build new startups and disrupt people that and companies that have been around for a long time and you have to help companies do more with less now there's a lot of you know Frozen budgets and that's a good way to break through so I love I love that these companies can can
do that for the buyer um so one that's that's come up a bit and gotten a lot of air time recently is product LED sales this idea of companies that serve plg businesses and harness the power of all that product usage data to
inform the customer facing team around which accounts are most upgradable it's really free money when you shine a light on an account that nobody was paying attention to and you know some some inside sales team can drive a large
account expansion so I don't know what better Roi you should get than that and there's a bunch of companies that are doing this and game happens to be one that I work with they have customers like figma Loom calendly there's other players too I think Pocus has done a phenomenal job of building content and Community to help inform the market around the power of product LED sales so there's just a lot of goodness about all
the players in this space really waking everyone up to this this opportunity of layering on sales to it product LED motion and how to maximize Revenue along the way I'm an investor in both of those actually and I'm gonna just in the show
notes note the one I'm an investor in because I'm an investor in a lot of these companies turns out and we've co-invested in a few so I'm just going to keep it simple and I'll write in the show notes here's ones I'm an investor
in just to avoid I love that double tipping means you're a believer in the category as well I am I love it there's so much cool stuff happening there and and I'm really excited yeah yeah cool I think another layer in the stack
is experimentation so this is really critical infrastructure in my opinion for these cross-functional product data growth teams to a B test hypotheses and understand their impact on the business how do you know if you make a change in
the product or you're pricing whether you succeeded or failed without having infrastructure like this along the way category creators like optimizely really paved the way I was an early buyer of optimizely and they targeted marketing personas and it was just game changing to be able to start to a B test things and bring hypotheses to life I'm also biased as an investor but some of the modern tools here like EPO which offers
experimentation for the modern data stack so unlike optimizely which focused on more kind of Click through metrics Echo ties directly to the metrics in your data warehouse so tying an experiment result to things like subscriptions or revenue or margins um really like you know board level metrics that you're trying to moo they make that full trip really convenient and understand the impact on those business kpis directly so it's a lot of
automation around the experimentation results and Analysis they used to live off to the side and Excel or Jupiter notebooks now is automated away with EPO um I think you're familiar with them yeah I know we definitely didn't plan this but epo's both a happy sponsor of this podcast I'm also an investor nepo go EPO but this was not well this is Airbnb Roots was an early data scientist at Airbnb so I worked with them at Airbnb and he was
amazing and it doesn't invest in anything that he built he built an awesome thing yeah exactly you described I love these Founders that have steep authenticity around the problem because they built it internally and now they're
commercializing it for the masses and so the story of Che and EPO is a good one on that Dimension and there's other players too you know I'm also a big fan of amplitude uh been a buyer of that tool as well and I love a lot of the
team there so if you do not have a data team or a data warehouse and you still want to leverage you know being able to do behavioral kind of ad hoc analysis or experimentation that's a great tool for you as well so a lot of different ways to solve this problem in the market also a happy sponsor go amplitude cool I love it this is great hitting on all my favorites okay let's keep going what else what else we got well I talked a
lot about Billy and and monetization so I'd have to talk about that one I think uh platforms for managing billing and iterating on your pricing and packaging this is just such a big need I think these will transform business models for SAS in particular most companies have been seat based like we described so uh you know the historical incumbents like a charge b or Zora really serve that model but um and the shift to more usage based
there's new entrants that are that are servicing companies in that Dimension and there's also lots of um sort of clunky workflows when you think of bridging from engineering to product and growth to to finance or rev Ops so
there's a lot of just like streamlined workflow that that these new tools can offer some early breakout players in the world of usage-based billing are metronome and orb there's also more room to handle the the full like monetization
infra layer so for example I like how or marries the billing component with the data infrastructure to actually inform what your pricing and packaging iteration should be and help you forecast and optimize Revenue so there's there's other players that are that are doing different components from this journey of the you know the metering piece all the way through to the experimentation piece and uh it's been really really fun to to get to know
players in that space and I wish I could have been a buyer of them many moons ago not only investor in these yet and so that's cool quick tangent do you have a strong opinion on pricing models usage base versus seed based versus something else what's your guidance to Founders like is this the way to go usually one of them or is it super dependent what do you recommend yes this is a similar answer I had before I don't think that they're
mutually exclusive and so if you look at all the companies that um you know in different pricing models in SAS a small sliver less than 10 percent around roughly five percent have just pure natural escalator kind of usage based model the the vast majority have a hybrid approach and so what I mean by that is they're typically some good better best subscription model where there's some consumption component across each tier like some quota limit
for your given value metric so in slack there might have been number of messages sent or Dropbox number of terabytes of storage invoice to go might be number of invoices there's some Dimension that's been sort of packaged in with a given
pricing plan and once you reach that limit it is a trigger to get you to upgrade to the next plan over or sometimes there's overages that you can pay for so um I don't believe that you know you should just be seat based or
just be usage based I think one challenge with purely usage-based models is that's not always how CFOs want to buy I think buyers sometimes want predictability they want to be able to budget for your tool and I've lived that
I remember using tools like mixpanel and segment and even zero to an extent where you know paying a cheap amount to get going and all of a sudden I realized we'd grown quickly and I looked at all of our SAS spend and I was like Blown
Away by how much more we were paying so it's the other side of this you know I'm advocating for people getting paid and you know compensated for the value that they're delivering but there can be a Breaking Point and so how do you think about packaging a fixed and variable component so that people can more predictably buy your software any other layers of the stack they want to touch on slash which would you be most excited
about in the future do you think people should be paying more attention to them maybe they're not paying attention to I mean I wouldn't be doing my job as a VC if I didn't mention generative AI right now um it's really having a moment so there's a bunch of breakout applications there that sit within the theme of the the modern growth stack when you think of using AI to create images or text or code or audio or video These
capabilities change the way teams work so writing a blog or writing copy for an ad SDR is doing their work and kind of outbound sales efforts there's just a lot of these touch points where it's humans kind of tinkering and iterating
and and laboring over every word and if the machine if AI can tell you what's going to be a more performant version of Something uh that's a very very hard Roi exercise there you save time and hopefully you've improved your
performance across the various you know marketing or sales campaign where do you think AI will be the most help on growth in terms of growth you have a idea there I think what I described around marketing and sales just because they really uh you know touch the dollars it can be this Roi story around saving time but also driving Revenue there'll be plenty of really effective examples within things like customer support I
mean the cost savings potential there is going to be massive um we'll see what happens in engineering with generating code I think there's a lot of areas where it's going to touch the Enterprise but from a modern growth
stack standpoint I think something that's really Revenue generating and can point to attributable Roi on that Dimension is going to be pretty relevant to where I'm spending time right now I'm excited any last thoughts before we get
to our very exciting lightning round I'm happy to hand it over to the lightning round here well we've reached a very exciting lightning round I'm only gonna have four questions for you I'm gonna ask them pretty quick we'll go through them fast whatever comes to mind no pressure question one what are a couple books that you've recommended most to other people my buddy monavon from Simon Kutcher's wrote a book called monetizing
Innovation this is a great read uh he and others there have done pricing engagements with hundreds of tech companies so there's a lot of stories and practical tips there I often gift that one to Founders so I would uh I
can't do this whole talk without giving a nod to my friend madhuban and his his Bible awesome I just recorded an episode with modifon and so that's a great pick question number two favorite recent movie or TV show that you really enjoyed
I have little kids so uh I don't know if um if it's going to be as interesting for for folks but we like StoryBots on Netflix they're these little cartoon characters that answer kids questions so people sort of call in and ask questions and they do a whole episode on why is the sky blue um how do airplanes fly how do I see and uh I inevitably learned something from from watching those so there's a very in a playful and educational shows
um I I clearly need a new I don't know the answer to any of those questions I need to watch this okay so question three I'm looking at my notes and I've never asked this question before so I don't know where this came from but I love it who's been the biggest inspiration to you in your life for me um it's my parents different three different continents before immigrating to the US for graduate school it's a pretty cliche American Dream but
they came here with nothing just this idea of building a family and taking advantage of the educational and professional opportunities in America they progress through school and building their career in three different languages with no financial support no entrenched kind of resources or networks to lean on and I just can't imagine doing that just the stress or cognitive load of kind of restarting your life and in whole new
geographies and cultures and languages and um and just you know betting on yourself and figuring it all out along the way so my drive has always been rooted in their story and I'm forever indebted to them I need to ask this question more often that was an amazing answer on the spot Naomi we have reached the end of our chats two final questions where can folks find you online if they want to learn more maybe pitch you startup ideas
uh contact you if they want to ask you questions and then finally how can folks be useful to you I'm a partner of Menlo Ventures so you can find more about me and the firm at menlovc.com or else on LinkedIn or Twitter my DMs are open amazing Naomi thank you so much for being here my pleasure I look forward to talking to more folks who are building things across workflow automation data Ai and um the modern growth stack so thank you
it's always a pleasure all right DMS are coming in as we speak thanks Lenny thank you so much for listening if you found this valuable you can subscribe to the show on Apple podcast 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 [Music]