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How Your Business Model Impacts Your Product
- 2. Do Product Managers play a role in selling the product? The product can sell itself.
- 3. How Your Business Model Impacts Your Product
- 4. A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. SOURCE: Wikipedia
- 5. A good product manager helps engineering go faster. A good product manager helps your company go faster.
- 6. People are expensive. Software is cheap.
- 7. Imagine your product is lemonade
- 8. Business model Sell the lemonade for 25¢.
- 9. Competition You’re not the first to try to quench people’s thirst with lemons.
- 10. A company should start when they have a technology that’s 10X better than their closest competitor. -Peter Thiel, Zero to One
- 11. Your business model can be a big differentiator
- 12. Two weeks ago @ product SF
- 13. As a startup you enter a classic battle of David vs Goliath. To compete it becomes a race to scale and build go-to-market. -Jerry Chen, Partner at Greylock Ventures
- 14. A startup’s path First stage: product Next stage: market fit Final stage: revenue CREDIT: Dave McClure, 500 Startups
- 15. What is Zinc? Like Whatsapp but for work, with all your company contacts preloaded, plus: ▪ Voice & Video Calling ▪ Files ▪ Broadcast Messages ▪ Security & Administration
- 16. Why Zinc? Consumer messaging improves the way we communicate in personal lives – can be equally transformative for businesses.
- 17. Competitors vs
- 18. Our process was an evolution learn validate iteratehypothesize
- 19. Freemium Model Free features create user growth. Premium features generate revenue.
- 20. Freemium Model user growth leads to $$$ acquire activate retain referral revenue Anticipate drop off at each step.
- 21. Freemium Model Premium FeaturesFree Lemonade
- 22. Freemium Model Administrative FeaturesFree Messaging
- 23. The hypothesis A link to premium features will inform potential buyers and allow them to identify themselves as a lead.
- 25. Try premium on desktop % users who clicked? Few. Why click? Mostly, just curious.
- 26. Build it and they will convert... is not enough.
- 27. Product takeaways Try premium experiment ▪ Instrument and ask ▪ Prime users with value of premium features ▪ Make premium features discoverable or part of product flow
- 28. Anything your sales team needs to do that your product can’t will increase your customer acquisition cost.
- 29. The hypothesis Bigger top of funnel means more revenue.
- 30. Viral loops “The steps a user goes through from activation to inviting the next set of new users” acquire activate retain referral revenue
- 31. Viral loops You can rearrange the steps in the funnel however you want. acquire referral activate retain revenue
- 32. Viral loops A creative way to seed contact lists.
- 33. Viral user growth In 16 months: weekly active user growth avg days engaged/week
- 34. Viral loops Still not helping the bottom of the funnel get bigger. acquire referral activate retain revenue
- 36. Viral user growth Best Case: Finding buyers amongst users like panning for gold.
- 37. Viral user growth Worst Case: IT at some companies became angry. NOT AN ACTUAL ZINC EMAIL BOUNCE
- 38. Know your buyer. They may not be your user.
- 39. Product takeaways Viral growth experiments ▪ Differentiate the user from the buyer. ▪ How does the buyer buy products like yours? i.e. what is their buying process and how do you make your product easy to buy? ▪ How do you make the buyer look good?
- 40. If the user isn’t the buyer, consider building mechanisms into the product for other users to loop them in.
- 41. The hypothesis If a free user uses the product a lot, they are likely to pay to use it more.
- 43. Paywalls We put limits on features people used. And described how it all worked on our website. EXAMPLE PRICING PAGE
- 44. Paywalls One day you were happily sending gifs. You have exceeded your data transfer limit. Contact Us Then not when you went over the limit.
- 45. Paywalls Two outcomes: 1. Decreased retention. 2. Users ignored paywalls.
- 46. Maybe this is enough lemonade Lemonade drinker doesn’t have any sunk costs.
- 47. People justify increased investment of money, time, etc. in a decision, based on the cumulative prior investment despite new evidence suggesting that the cost of continuing the decision outweighs the expected benefit”
- 48. Free usage alone does not create sunk costs.
- 49. Product takeaways Paywalls experiment ▪ One does not simply go to your website. ▪ Get the user to invest sunk cost.
- 50. Free features should drive the user to actions that make your product harder to abandon.
- 51. The evolution of the business model was the evolution of the product.
- 52. Lessons Look for ways to reduce customer acquisition costs.
- 53. Lessons Prime the buyer for conversion right from the new user experience.
- 54. Lessons Differentiate the buyer from and user – and think about how to make them look good.
- 55. Lessons You can do “AARRR” in any order you want.
- 56. Lessons Sunk costs can be powerful levers.
- 58. Thanks!! I’d love to hear your thoughts. @christinaluce christina.lucey@gmail.com
Notes de l'éditeur
- Before I dive in, I want to warn you: If you hear any “aboots” or “ehs?” you noticed I’m Canadian. Feel free to make fun of me like my American colleagues do and you definitely want to do it using this twitter handle and the conference hashtag.
- Quick poll… put your hand up if you think this is true. Q. Do they do any sales? I want you to turn to your neighbour and tell them the reason why you think that’s true. Take a minute. (wait) Let’s have people shout out a couple answers. Put your hand up, how many of you said it’s because the product needs to sell itself? My goal is to convince you both of these things are true by the end of this presentation.
- What I want to tell you about in the next 40 minutes is how the business model you choose impacts your product. I’m going to walk you through three experiments we tried at Zinc. And I’m going to focus on the things that didn’t go so well because those make the best lessons.
- So what do I mean by business model? According to wikipedia… in other words: what you make and how you sell it.
- I’ve always been told that a good product manager helps engineering go faster. They do it by defining the problem the feature should solve, seeking their input, and making sure they’re always working on the highest priority thing. The speed is really a measure of time saved not working on the wrong things, not over-engineering relative to the value that’s been created. And that is certainly true. But I think what’s becoming even more true is that, in the context of the question I just asked, a good PM helps your whole company go faster.
- And the reason for both is because if people and software can do the same tasks equivalently, software can do it for cheaper.
- Imagine your product is lemonade and your company is a lemonade stand. What business model would you choose?
- Probably you would sell the lemonade for a price that let you make a profit above your costs. Let’s say 25 cents.
- Even when creating something brand new you are trying to get people to change their behavior. They always have the choice to use something else.
- That’s why Peter Thiel wrote that your product needs to be 10x better in order to be disruptive. That <above>
- You can achieve this 10x competitive advantage in a number of different ways. One way is to have a business model that’s different from your competitors.
- Just two weeks ago at product SF Reid Hoffman the co-founder and executive chairman of LinkedIn, also partner at Greylock VC – was talking about the failure of his first company. Through that failure, he learned that product distribution is more important than the product itself.
- One of his partners at Greylock Ventures describes that a startup basically enters a contest between David & Goliath. You enter as the David and that to win you need to establish your distribution channel before the Goliaths build or acquire the product you’re building.
- So where does building your distribution channel fit in? According to Dave McClure of 500 startups, this is the path a successful startup takes.
- So let me tell you about the lemonade stand I recently worked on.
- This was our product hypothesis - that as transformative as texting and messaging was for people’s personal lives, that it could be equally transformative for the way businesses communicate.
- And here’s just a snapshot of some of the competitors we were up against. These were our goliaths. Communication and collaboration is a huge and crowded space.
- This is the process we followed as we evolved our business model. This is the process I believe in for building great products too – I encourage you to try it for just about anything. Frankly, I’ve used it for things like how do you make the best pickled green beans or how do you improve a product sign up flow. It works because you gain as such context as you can, you try, you learn, and you iterate!
- We started with the freemium model because it would help us establish our distribution quickly and cheaply. Let users try the product and invite others to try it before needing to decide to buy. Freemium means having some features be free to attract a lot of users and then enticing them to pay for premium features.
- It means your users (hopefully) follow this funnel, and you should anticipate drop off at each step.
- Going back to the lemonade stand, it would be like giving the lemonade away for free and then charging for premium features. Not everyone who comes for the free lemonade is going to buy the premium features, but hopefully enough are convinced that it covers the cost of the free lemonade. And hopefully it convinces thirsty people who normally visit other lemonade stands to come to yours.
- At Zinc we started off with free messaging and premium administrative features like sending broadcast alerts, syncing with Active Directory, and deleting users when they left your company.
- The very first thing we tried, we supposed that <above>
- And here’s what it looked like. A new user would sign up, see badge on settings, notice, log event. Clicking took them to pricing page. Log event which streamed directly to mixpanel’s live view for sales team, could message these users through app.
- We measured with both quantitative and qualitative data. This is especially important because the numbers will tell you the what but only the users can tell you the why. Validated with data by measuring how often this was clicked, relative to other actions it was in the bottom tier. Validated qualitatively by reaching out to people who clicked and trying to convert them.
- Sadly building products is not like field of dreams
- One thing that went well was to instrument the experiment so we had the data to understand what was happening and to let us follow up with users to find out the why. To incent more users to get there, we could have primed users on the value instead of making it a mystery. We also could have made the premium features more discoverable and part of the natural use of the product.
- As you design your business model, keep in the back of your mind that <above>.
- So that didn’t work out great. Back to the drawing board. Let’s grow our user base, look for pockets of users within companies and try to convert them to paying users. One fundamental idea behind freemium is that you’re not going to be able to convert every user to paying, so you need to have a large enough user base to create more value than it costs you to produce it. If you think of that funnel as user acquisition, <above>.
- We grew by building viral loops into the product. Viral loops are <above>. They are a step in that funnel too. The cool part is that you can totally blow up that funnel and do the steps in any order you want.
- So that’s what we did, we tried moving the referral step before getting the user to send their first message - the activation step.
- We took the use case of needing to coordinate a meeting before it starts - to say you’re running late or moved rooms – created a feature where if you connected your calendar, it made that really easy. This helped with virality in two ways - one the contacts in one person’s calendar could help seed contact lists for other new users. And two, sending a message to someone not yet on Zinc was actually an invitation. This reduced the friction for both the inviter and the invitee. And we built a number of growth features around that model.
- This in addition to other features substantially grew the user base. We grew the product by 30x in WAU. Our cumulative messages sent went from 125K to 5.5M. The people who did use it, used it nearly every day of the work week. Hooray, right?
- Despite all that user growth and referral and retention, we were still not seeing the bottom of the funnel get proportionally larger.
- But this is enterprise software. Back to the lemonade stand, selling enterprise software to IT is a lot like imagining all of the patrons of your lemonade stand needing to convince their parents to buy the lemonade for them.
- What was excellent growth created some new challenges for us. Those users were not necessarily decision makers, they were not necessarily IT. They were not necessarily the buyer. At best, we were left to mine a huge a huge volume of users to figure out which ones had the budget, authority to purchase, the need to solve the problem our product proposed solving, and catch them at the right time.
- In the worst case - and this did happen only a handful of times - we embarrassed the buyer. The people they were responsible for were using a communication tool they weren’t even aware of. And they blocked our emails and blocked our DNS. Was this the common case? Definitely not. But it did put us off on the wrong foot with a few potential customers.
- This is a really key learning.
- Get to know the buyer and their buying process. You can treat purchasing your product like a feature of your product in this way. The buyer is someone with a job to do - think about how your product can make them look good? Make them look impressive to those around them? Remember your buyer lives in the real world outside your product with other people.
- As you design your business model, keep in the back of your mind that <above>.
- We learned premium features needed to be discoverable and that we needed to make it easier to identify the buyer. Instead of putting features into strict buckets (e.g. free features and paid features), we tried limiting the usage of popular features.
- Back to the lemonade stand where the equivalent would have been giving out a tiny about of lemonade for free then charging for more lemonade. You know they are already interested in lemonade and through trying it, enough are convinced to buy more to actually quench their thirst.
- So here’s what we tried. We placed limits on sending attachments – up to 2GB a month – and on voice and video calling – up to 100 mins/month. And we dutifully described these different usage tiers on our website.
- And here’s what a paywall looked like. You would be using the product, sending messages and attachments to your heart’s content until you approached the limits described on the last slide. When you reached those limits, the paywall appeared exactly where you used to send attachments, in every conversation. And it had a button that let you message our support and sales team right from within the app with one easy button so we could help you give us your money.
- We had two outcomes. In one set of users, the paywalls decreased their usage. In the other set, they just kept on messaging to their hearts content.
- Back to the lemonade stand again - simply having some free lemonade wouldn’t necessarily influence their decisions the next time they got thirsty.
- What are sunk costs? You know them if you’ve heard this expression - “in for a penny in for a pound.” It’s talking about a phenomenon that behavioral economists observe.
- Free usage alone does not create sunk costs. Sunk costs can be a powerful hook, but simply giving away something for free doesn’t mean you’re creating sunk costs for the user. You need to get them to invest something that makes it harder to switch. As wth the lemonade example, limiting messaging alone without sunk costs didn’t work.
- The user needs to know how to buy your product from within your product. As Boromir says … If you’re going to give something away for free, get the user to invest sunk cost. Trying something does not mean someone will buy something.
- As you design your business model, keep in the back of your mind that <above>.
- So sitting back and reflecting on some of the more interesting experiments we tried, and how our business model evolved over time. <above> There needs to be as much care and design in the business model as goes into building the product. And the same principals apply - have empathy for and deep knowledge of the user and design a great buying experience for them.
- Here are some things you can apply when thinking about designing your disruptive business model. Look for ways to automate where there is human intervention in the buying process.
- Think about buying your product as a feature.
- If you want to optimize a later step, try doing it earlier in the funnel.
- Free usage doesn't equal sunk costs, think about how you get the user to become invested through the free use.
- Hope that helped you think about how your business model can help you to be 10x better and take down your Goliaths. Happy monetizing!