The Exchanges

Q start though on a statement that you said before about consumer subscription, which is kind of a core focus for you in growth and one of my passion points, um, reason why I have a few friends. Um, but, uh, you've said before that, you know, in particular consumer subscription apps are easy to launch, but hard to scale. If we just deconstruct that, why are they easy to launch?

A Sure. So I think there are several advantages that consumer subscription businesses have. Relative to more complex business models, and that might include B to B SaaS. It might include marketplaces, uh, even certain social networks, right? Like simple on their surface, but there's a lot of complexity underneath. When you think about consumer subscriptions, and this certainly isn't true of all of them, but in many cases, they're, they're operating in relatively mature categories with customers who understand that the product they're bringing to market, uh, and, and they're just relatively easy to launch for a few reasons. Number one, most of them don't require sales teams. Um, number two, Most of them don't have to deal with complex two, two-sided marketplace dynamics. Um, they tend to have high gross margins, low marginal cost to serving additional subscribers. And then over the last 10 years, thanks to the app stores, they get all these advantages in terms of global distribution, payments, turnkey support tools. So they're very easy to get up and running. They, they tend to be able to get to market faster and with less capital than a lot of other tech companies. But then you run into a lot of challenges that make them hard to scale.

AI assessment note: “they're just relatively easy to launch for a few reasons. Number one, most of them don't require sales teams.”

Q Phil, can we just spend our way to dominance? Can we spend our way to growth?

A There are some, some rare exceptions where I think that has happened. Typically in marketplace businesses where the network effects are so strong once you get to the tipping point that you can have upside down unit economics for months or even years. And then, you know, once you Flip that tipping point. You pay it all back. And I think there was a period over the last decade where the funding environment and, um, VC preferences for, you know, massive user growth rates over profitability were such that a model like that could work and with the right business model and with the right network effects, it might be able to justify itself. But more often than not, certainly in the case of consumer subscription, that's, that's just not the case.

AI assessment note: “more often than not, certainly in the case of consumer subscription, that's, that's just not the case.”

Q just on the CACs alone, when you review the different companies that you've worked at and CACs and how they change over time, do CACs get higher as you saturate your core market and expand into ancillary markets that are maybe less direct, or do they get lower because you get brand recognition, word of mouth, and a lot of other ancillary benefits from just being bigger and more pronounced?

A Yeah, it's a great question, and I'll sort of divide the world up into two categories. There are the outliers, like, let's say, Duolingo, Tinder, Strava. You do have examples of companies where some combination of the quality of their product and the virality of their use case leads to this tipping point where they become so mainstream in the public consciousness that at least for a while, their cacks go down. Their blended cacks go down because you just have so many people in their target demographic talking about this product and sharing with I mean, ChatGPT is a great example of that right now, right? Like, it's so viral because it's such an amazing product, and so I don't know what their balance of paid versus organic acquisition is, but I have to believe that the vast majority of it is just viral because everybody's talking about AI right now, and ChatGPT is at the center of that conversation. But those are the outliers. For everyone else, CACs almost by definition will go up over time for a couple reasons. One is, and the simplest is, as you expand beyond your core, And as you tap out your highest intent early adopters, you're just going to have a harder and harder time converting eyeballs into subscribers, right? So like your cost per install will go up, your, uh, signup activation rate, trial start rate, trial conversion rate, like all of those metrics become harder and…

AI assessment note: “For everyone else, CACs almost by definition will go up over time”

Q On the CAC and the payback element. Yeah. CAC obviously is incredibly important because the higher the CAC, the longer the payback will be if, you know, the ARPU is the same. What is good versus great in terms of payback when you're looking at consumer subscription apps today?

A Six months is good. One month is great. You know, first, first session is exceptional, which is significantly lower than B to B, right? And B to B, you know, 12 months can be considered a good payback or even 18 months for an enterprise SaaS business. But we talked before about how consumer subscriptions don't have the benefit of Low churn rates, high net revenue retention, sometimes over a hundred percent net revenue retention over time. There's also the fact that RevenueCat recently had their state of subscriptions report for, ah, for twenty-twenty-four, and they reported that over 75% of trial starts actually happen in the first 24 hours after a user installs an app, in many cases on the first session. So when you look at both the shortness of consumer attention spans and how quickly most trials need to happen if they're ever gonna happen, Combined with the high churn rates and low NRR, um, dynamics of these businesses, it's really, really important to try to convert users quickly and to pay off that initial paid CAC, uh, as quickly as possible. So, so generally with the clients I'm advising, I'm saying, look, ideally we want payback within the first three months and ideally within the first month if we can get there.

AI assessment note: “Six months is good. One month is great.”

Q retention rates on Duolingo is like, 50% for 12 months, and that's considered great. How do you think about retention rates of good versus great after, after different time periods? And help me out as an investor here. What time period should I be looking at, Phil? Should it be 3060, 90. Should it be 31, 83, 65? What are the important time milestones and what is good for them?

A First of all, I like to break out retention rates on monthly versus annual subscribers because they look very different. Um, for monthly subscribers, I think any company that is retaining more than 50% of its subscribers for six months or more is doing a very, very good job because monthly subscribers just Tend to turn at much higher rates for annual subscribers. Typically look at the first two years of subscriber retention, because there's a lot of data that shows that after the second renewal period, the subscribers that you've retained for two consecutive years as annual subscribers are, are often going to retain for many years after that. And they become the foundation that you're building your business on long-term, because those are your highest intent users who are going to stick with you, uh, for the long haul. So, so generally I'm looking at. Two to three years on annual subscriber retention. The first six months on monthly subscriber retention and trying to get those retention rates as high as I can. And then there's the obvious thing you want to look at, which is just does the curve flatten out or in an ideal case, does it actually, is it a smile curve where it comes up? So Duolingo is an example of where even as highly touted as Duolingo is, they don't have fantastic monthly subscriber retention rates, but you actually get quite a bit of reactivation on Duolingo whe…

AI assessment note: “retaining more than 50% of its subscribers for six months or more is doing a very, very good job”

Q Do you buy notifications as a retention mechanism today? They are so overused. We have such notification overload. How do you think about that?

A Yeah, so I think it's a double-edged sword, and I hate to keep going back to Duolingo, but they are one of the biggest success stories in consumer subscription, so I will in this case. Luis Van An, the CEO there, has multiple times talked about their approach to notifications, and I've listened to a couple podcasts where he talks about how he got this warning, um, from one of the other, uh, founders that he looks up to That any time you increase the number of notifications or emails you send, in the short term, it's like the sugar high. It's going to lead to a short term pop in your metrics. But if you do that too many times, you kill the channel. Right? And so it's really important to make sure that every incremental notification you're sending earns its place. And that, to me, that means two things. One, it means that just having a statistically significant lift above baseline in a metric like DAU retention rate isn't good enough. It needs to be above, it needs to be a significant enough lift that it earns its place in the product experience. And then the second thing is, you know, moving from science to art again, it needs to fit within the holistic experience you're building for the user. And so if this notification is fundamentally making the user's experience a little bit better, and that could be because it's reminding them to come back and not lose their streak, or it c…

AI assessment note: “I think it's a double-edged sword... every incremental notification you're sending earns its place.”

Q What are the biggest mistakes you think startups make when it comes to the pricing and the packaging of their products in this way?

A I think there are a few things. So I'll, I'll separate out pricing and packaging. So on pricing, I think the biggest mistake, and it seems so obvious, is it's remarkable how many consumer subscription apps will set a price and then won't revisit it for years and years. And there are some, there are some famous examples of this, right? Like, I mean, Quizlet went many years without changing its pricing. Um, Strava, AllTrails, there, there are a number of companies that like launched their app, found a price that worked well enough, and then several years went by, they went back, they did a pricing study like Conjoint or Van Westendorp and or the AB tested the pricing and the product, and they found that there were significant opportunities to improve pricing. So on pricing, it's like, this is something that should be revisited, in my opinion, at least once a year. That doesn't mean you have to do a whole expensive pricing study, but like at least Do some quick analysis to make sure your price is still, um, optimal. Packaging I actually in many ways think is the opposite, where like, as I said before, less is more in consumer subscription, right? Consumers have short attention spans. Um, the more complexity you introduce in the paywall, the, the worse your conversion rates are going to be on the margins. And so if you're going to have multiple tiers, you should only be doing that …

AI assessment note: “I'll separate out pricing and packaging. So on pricing, I think the biggest mistake”

Q That's very, very kind of you. I would love to just start with some context. So tell us, it's been a pretty diverse and interesting career, but why are you so versed to discuss the topics that we're about to discuss diving into the granular of growth?

A Sure. Well, we were talking about depth versus breadth. So I guess I'll start there. I mean, I'm someone who spent my twenties doing a few different things. I spent a few years in venture capital, investing in mostly early stage consumer companies, then spent the last seven years being a product and growth leader. And then I just started an advising and consulting business, but the through line has been working with consumer businesses that fundamentally make people's lives better. And then specifically working with a lot of subscription business models. And so I'm sure there are plenty of other people who could speak to this topic, but I feel like I'm somebody who knows, who knows more about it than most.

AI assessment note: “spent the last seven years being a product and growth leader”

Q What are the biggest mistakes you think startups make when it comes to the pricing and the packaging of their products in this way?

A I think there are a few things. So I'll, I'll separate out pricing and packaging. So on pricing, I think the biggest mistake, and it seems so obvious, is it's remarkable how many consumer subscription apps will set a price and then won't revisit it for years and years. And there are some, there are some famous examples of this, right? Like, I mean, Quizlet went many years without changing its pricing. Um, Strava, AllTrails, there, there are a number of companies that like launched their app, found a price that worked well enough, and then several years went by, they went back, they did a pricing study like Conjoint or Van Westendorp and or the AB tested the pricing and the product, and they found that there were significant opportunities to improve pricing. So on pricing, it's like, this is something that should be revisited, in my opinion, at least once a year. That doesn't mean you have to do a whole expensive pricing study, but like at least Do some quick analysis to make sure your price is still, um, optimal. Packaging I actually in many ways think is the opposite, where like, as I said before, less is more in consumer subscription, right? Consumers have short attention spans. Um, the more complexity you introduce in the paywall, the, the worse your conversion rates are going to be on the margins. And so if you're going to have multiple tiers, you should only be doing that …

AI assessment note: “on pricing, I think the biggest mistake, and it seems so obvious, is it's remarkable how many consumer subscription apps will set a price and then won't revisit it for years and years.”

Q So what should early stage startups do if you don't get enough data with five to 10,000 dollars a month, but you don't have huge amounts of money. What do you recommend they do?

A Yeah. Well, this goes back a little bit to, you, you asked me earlier, you know, should you be focusing on big swings or you should be, should you be focusing on smaller optimizations as a growth team? And when you're an early stage startup, what I said was focus on the big swings because at that stage, nothing else matters. I think it's sort of similar when you're thinking about your acquisition strategy. And so what I mean by that is number one, see if you can grow organically for as long as possible. It's fine to run some paid ad experiments on the margins, just to sort of test the waters and figure out, okay, is, is Facebook, Instagram, TikTok, Are these channels going to work for us from a paid acquisition standpoint? But ideally you're able to find an organic growth loop to sustain you early on. It's kind of like, so I live in Colorado. It's kind of like training at altitude, right? Like force yourself to try to get strong enough product market fit that and product channel fit that you can grow organically through some combination of word of mouth or content, which drives SEO before you start sinking a lot of dollars into paid acquisition spend. And then even once you do invest in paid acquisition, you want to run a bunch of tests to see what works, but then once you find the channel that works best, more often than not, there's this power law of distribution that Peter T…

AI assessment note: “see if you can grow organically for as long as possible.”

Q Final one, Phil, what's the best growth strategy you've seen enacted in the last 12 months?

A Yeah. So I will say right up front, I am an investor in this company called Ladder. They are a fitness app that has really built a following around a group coaching product. And so, uh, they started by recognizing that a lot of people struggle to maintain motivation with their fitness, whether that's going to the gym or running or working out at home. And so having a coach who holds you accountable, but specifically a coach with a group of members Who are all doing the same or similar workouts with that coach every week can be a really powerful way of maintaining user motivation. And that's great for the, it's obviously great for the user because they'll, they'll experience better fitness outcomes. It's also great for the business because it leads to much higher subscriber retention rates. But getting to growth strategy, what, what this company ladder figured out over the last 18 to 24 months is they, they realized their product was perfectly tailored to TikTok. Because these coaches, many of the coaches on Ladder are, um, influencers, so they already have a following on channels like Tik Tok and Instagram, and they can build this really compelling, um, very authentic content organically on Tik Tok. And then what Ladder does, and this is where the innovation comes in, is they take the best of that content, they promote it into spark ads or even into brand ads that get broader r…

AI assessment note: “they take the best of that content, they promote it into spark ads”

Q just on the CACs alone, when you review the different companies that you've worked at and CACs and how they change over time, do CACs get higher as you saturate your core market and expand into ancillary markets that are maybe less direct, or do they get lower because you get brand recognition, word of mouth, and a lot of other ancillary benefits from just being bigger and more pronounced?

A Yeah, it's a great question, and I'll sort of divide the world up into two categories. There are the outliers, like, let's say, Duolingo, Tinder, Strava. You do have examples of companies where some combination of the quality of their product and the virality of their use case leads to this tipping point where they become so mainstream in the public consciousness that at least for a while, their cacks go down. Their blended cacks go down because you just have so many people in their target demographic talking about this product and sharing with I mean, ChatGPT is a great example of that right now, right? Like, it's so viral because it's such an amazing product, and so I don't know what their balance of paid versus organic acquisition is, but I have to believe that the vast majority of it is just viral because everybody's talking about AI right now, and ChatGPT is at the center of that conversation. But those are the outliers. For everyone else, CACs almost by definition will go up over time for a couple reasons. One is, and the simplest is, as you expand beyond your core, And as you tap out your highest intent early adopters, you're just going to have a harder and harder time converting eyeballs into subscribers, right? So like your cost per install will go up, your, uh, signup activation rate, trial start rate, trial conversion rate, like all of those metrics become harder and…

AI assessment note: “For everyone else, CACs almost by definition will go up over time”

Q What are the biggest mistakes that you see founders and growth leaders make when it comes to setting that North star metric? That guiding user metric that determines successful growth?

A Yeah, I think there are a couple archetypes of mistakes that I've seen. Uh, one that often gets talked about, and I think Brian Balfour mentioned this, uh, when he spoke on your podcast is focusing too much on the outputs and not the inputs. So if you work backwards, like the metrics that a VC cares about or that the CEO cares about are things like ARR, MRR, subscribers, Uh, average revenue per user or ARPU, right? But those are like the outputs. The inputs upstream of that are things like signup rate, activation rate, cost per install, cost per trial, uh, trial start rate, trial conversion rate, install to subscriber conversion rate, right? Those are the upstream metrics that are ultimately driving those outputs. And so as a growth leader, part of your job is to connect the dots between, okay, here's the company's strategy. That strategy needs to drive this amount of output in these key output metrics like ARR and subscribers. As the growth leader, I need to explain that to my team, and then I need to connect the dots between the individual initiatives and the metrics those initiatives are driving, which are the input metrics and those outputs. And then as the individual PM or marketer responsible for those initiatives, I need to be all over understanding, okay, what are these input metrics? Which ones are the ones that matter most for my company? What does our current perform…

AI assessment note: “focusing too much on the outputs and not the inputs”

Q On the CAC and the payback element. Yeah. CAC obviously is incredibly important because the higher the CAC, the longer the payback will be if, you know, the ARPU is the same. What is good versus great in terms of payback when you're looking at consumer subscription apps today?

A Six months is good. One month is great. You know, first, first session is exceptional, which is significantly lower than B to B, right? And B to B, you know, 12 months can be considered a good payback or even 18 months for an enterprise SaaS business. But we talked before about how consumer subscriptions don't have the benefit of Low churn rates, high net revenue retention, sometimes over a hundred percent net revenue retention over time. There's also the fact that RevenueCat recently had their state of subscriptions report for, ah, for twenty-twenty-four, and they reported that over 75% of trial starts actually happen in the first 24 hours after a user installs an app, in many cases on the first session. So when you look at both the shortness of consumer attention spans and how quickly most trials need to happen if they're ever gonna happen, Combined with the high churn rates and low NRR, um, dynamics of these businesses, it's really, really important to try to convert users quickly and to pay off that initial paid CAC, uh, as quickly as possible. So, so generally with the clients I'm advising, I'm saying, look, ideally we want payback within the first three months and ideally within the first month if we can get there.

AI assessment note: “Six months is good. One month is great.”

Q You mentioned some great consumer subscription businesses that Tinder, Spotify being two of them. And you said that if you want to build a monster consumer subscription business, uh, every successful one is built on an enduring core value promise. What is a core value promise? And how do you describe that to founders listening?

A A core value promise. And this doesn't just apply to consumer subscription businesses. This, this is any business should be built on a strong core value promise, which is simply what am I delivering to you as a product or service that ideally you couldn't get anywhere else? Or you couldn't get anywhere else as cheaply as you can get through my company. For subscription business models, what's important is that these are unique and differentiated and that they're enduring. And the reason I emphasize those two words, unique and enduring, is because of the challenges we talked about earlier, right? So if I am a consumer subscription business whose value promise looks a lot like a dozen other companies in my category, Then it's going to be really, really hard to charge a high enough price and maintain strong enough subscriber retention over time to, to build a sustainable business. Similarly, even if I have a unique and differentiated value promise, but if it's not enduring, then I'm going to have very high subscriber turn rates. And this is something that I saw a lot in quantified self apps early on is like, if you think about it, whether you're a fitness tracker or a sleep app or nutrition, whatever the case may be. Oftentimes, within your first month or two of using one of these products, and I've used many of them, right? I've got an Apple Watch. I've got an Oura Ring. I love t…

AI assessment note: “simply what am I delivering to you as a product or service that ideally you couldn't get anywhere else”

Q What is paywall view rate? Just so we understand the basics, the amount of people that see the paywall.

A Yeah, so Paywall View Rate, very simply, is the percentage of all users who install your app who view the paywall at least once And then to put an even finer guardrail around it, ideally it's view your paywall at least once within X time period. And going back to 75% or more of trial stars happen in a user's first session, ideally you have a high paywall view rate in a user's first session, because there's a good chance that if a user leaves your app without seeing your paywall on their first session, they, they may never come back. Um, so you want your paywall view rate to Ideally be over 80% and over 80% ideally within the user's first session, or if not their first session, then certainly within their first week.

AI assessment note: “percentage of all users who install your app who view the paywall at least once”

Q Do you think the harsh revenue multiple applied to consumer subscription businesses is fair or unfairly ascribed to them?

A I think based off of historical performance, it's fair, right? If you look at the number of Duolingo's, Spotify's, tenders, uh, there just aren't that many of them, right? And so I understand why based on those outcomes and based on some of the underlying metrics we've talked about, Churn rates, net revenue retention. It makes sense that the quality of that revenue is just considered lower, and therefore the multiples are lower. I do think that there may be some factors over the next 10 years that start to make this a little bit easier. Uh, for example, 15 to 30% app store fees. I think Google and Apple are under increasing pressure to lower the average app store fee, at least in certain cases. So that's one that could have a pretty significant impact on a lot of these companies' margins. Um, number two, I think, you know, AI is going to create all sorts of chaos and disruption, and as Brian said on his episode with you, chaos is a good thing for growth teams, right? There hasn't been a lot of alpha to go after in terms of consumer subscription acquisition channels over the last five years. TikTok is probably the big exception to that, and there have been a couple companies recently. I'm an investor in one called Ladder that's That's basically made their business on the back of cracking TikTok, but there haven't been many examples of those. I think AI is going to create a lot o…

AI assessment note: “I think based off of historical performance, it's fair, right?”

Q Could you give me an example of that? You mentioned it with your time at Quizlet, like a failed A-B test that led to an unlock that led to success. Can you help me just with an example there?

A Yeah. So here's a good example, and we can talk more about international expansion if you're interested later in the show, but, um, one of the things I did in my first year at Quizlet was, uh, sort of step back and understand fundamentally what are the key actions and core growth loops that are, that are fundamentally driving growth for this business. Quizlet had been around for over a decade when I joined, um, they had sort of this small nascent growth team in place that was mostly working on signup and activation. Um, but they hadn't really wrapped their arms holistically around the blueprint for how the business grew, and then, then a quantitative model that, that sort of explained that in numbers. With that context, um, SEO was driving more than 70% of Quizlet's growth, uh, and had been for some time. But we were looking at how we could expand beyond the US and sort of get the SEO flywheel, which is notoriously slow to get started, going in markets like the UK or France or Germany. And our hypothesis going in was, We just don't have enough relevant content in these international markets for the SEO flywheel to work. We have a lot of English content in the US that theoretically could be consumed by a student in the UK, but because the school systems are different, the academic calendars are different, the subject matter that students are studying is slightly different, it do…

AI assessment note: “here's a good example, and we can talk more about international expansion”

Q Why do you think Tinder has done so, and what can we learn from them in that respect?

A Yeah, so this is such a great example, and, uh, Ravi Mehta, who was chief product officer at Tinder for a little while a few years ago, and who's one of the guest speakers in my course, uh, we teach a case study on this in my Reforge course, and he talks about how The dating category is challenging, right? Because going back to how to build an enduring value promise, dating is one of these weird categories where if you do a really great job and you help somebody find love, then ideally they're never coming back to the platform. Now that doesn't happen with everyone, but it does put extra emphasis on making sure that you're monetizing your users as efficiently as possible. And so one of the things that Tinder has done over time is they've moved from a single subscription tier, Tender Plus, Into three subscription tiers. Tender plus, tender gold, tender platinum. And this is oversimplifying it a bit, but the value props for each of those tiers, as Ravi describes them, is tender plus is making it easier for you to get other users swiping on you. It's basically elevating, um, the visibility of your profile. Tender gold is leading to more and higher quality matches, and tender platinum actually allows you to communicate with potential matches before you match. And so each of those three things is a bit different, right? It's you're paying for something different. And then on top of …

AI assessment note: “put extra emphasis on making sure that you're monetizing your users as efficiently as possible”

Q Final one, Phil, what's the best growth strategy you've seen enacted in the last 12 months?

A Yeah. So I will say right up front, I am an investor in this company called Ladder. They are a fitness app that has really built a following around a group coaching product. And so, uh, they started by recognizing that a lot of people struggle to maintain motivation with their fitness, whether that's going to the gym or running or working out at home. And so having a coach who holds you accountable, but specifically a coach with a group of members Who are all doing the same or similar workouts with that coach every week can be a really powerful way of maintaining user motivation. And that's great for the, it's obviously great for the user because they'll, they'll experience better fitness outcomes. It's also great for the business because it leads to much higher subscriber retention rates. But getting to growth strategy, what, what this company ladder figured out over the last 18 to 24 months is they, they realized their product was perfectly tailored to TikTok. Because these coaches, many of the coaches on Ladder are, um, influencers, so they already have a following on channels like Tik Tok and Instagram, and they can build this really compelling, um, very authentic content organically on Tik Tok. And then what Ladder does, and this is where the innovation comes in, is they take the best of that content, they promote it into spark ads or even into brand ads that get broader r…

AI assessment note: “they take the best of that content, they promote it into spark ads”

Q How do you think about when's the right time to hire a growth team? I actually interviewed someone and they said you should hire one pre-product market fit, because product market fit is about getting the data to determine what works and what doesn't work, and growth people will be able to increase the supply side of data.

A Yeah, I generally disagree with that position, and I, I don't want to say that it can't be the right answer in certain cases, but in my opinion, Before you have product market fit, you don't even really know if you're building the right product. And then even once you have product market fit, you then need to figure out how do I get this product to scale within the right channel so that my unit economics remain healthy as I push beyond my highest intent early adopters, and it gets harder and harder to cost efficiently scale my business. And so I think typically it's like right around the time where you first Demonstrate you have strong product market fit that you want to bring in your first growth leader, because you'll have a much better understanding of who that person needs to be and what sort of team they need to build. Having said that, I will say the one caveat to this is oftentimes the best growth leaders come out of functions like, uh, engineering analytics or product. And so what that means is I've seen cases where you have pre-product market fit companies where there's, it's often somebody who's a little bit earlier in their They're, they're just really bright. They're really hungry. And they sort of have the natural skill set of like the intellectual curiosity and the drive to just understand, you know, why, why are we seeing growth in this area? Why is this target c…

AI assessment note: “it's like right around the time where you first Demonstrate you have strong product market fit”

Q What are the biggest mistakes that you see founders and growth leaders make when it comes to setting that North star metric? That guiding user metric that determines successful growth?

A Yeah, I think there are a couple archetypes of mistakes that I've seen. Uh, one that often gets talked about, and I think Brian Balfour mentioned this, uh, when he spoke on your podcast is focusing too much on the outputs and not the inputs. So if you work backwards, like the metrics that a VC cares about or that the CEO cares about are things like ARR, MRR, subscribers, Uh, average revenue per user or ARPU, right? But those are like the outputs. The inputs upstream of that are things like signup rate, activation rate, cost per install, cost per trial, uh, trial start rate, trial conversion rate, install to subscriber conversion rate, right? Those are the upstream metrics that are ultimately driving those outputs. And so as a growth leader, part of your job is to connect the dots between, okay, here's the company's strategy. That strategy needs to drive this amount of output in these key output metrics like ARR and subscribers. As the growth leader, I need to explain that to my team, and then I need to connect the dots between the individual initiatives and the metrics those initiatives are driving, which are the input metrics and those outputs. And then as the individual PM or marketer responsible for those initiatives, I need to be all over understanding, okay, what are these input metrics? Which ones are the ones that matter most for my company? What does our current perform…

AI assessment note: “focusing too much on the outputs and not the inputs.”

Q start though on a statement that you said before about consumer subscription, which is kind of a core focus for you in growth and one of my passion points, um, reason why I have a few friends. Um, but, uh, you've said before that, you know, in particular consumer subscription apps are easy to launch, but hard to scale. If we just deconstruct that, why are they easy to launch?

A Sure. So I think there are several advantages that consumer subscription businesses have. Relative to more complex business models, and that might include B to B SaaS. It might include marketplaces, uh, even certain social networks, right? Like simple on their surface, but there's a lot of complexity underneath. When you think about consumer subscriptions, and this certainly isn't true of all of them, but in many cases, they're, they're operating in relatively mature categories with customers who understand that the product they're bringing to market, uh, and, and they're just relatively easy to launch for a few reasons. Number one, most of them don't require sales teams. Um, number two, Most of them don't have to deal with complex two, two-sided marketplace dynamics. Um, they tend to have high gross margins, low marginal cost to serving additional subscribers. And then over the last 10 years, thanks to the app stores, they get all these advantages in terms of global distribution, payments, turnkey support tools. So they're very easy to get up and running. They, they tend to be able to get to market faster and with less capital than a lot of other tech companies. But then you run into a lot of challenges that make them hard to scale.

AI assessment note: “they're just relatively easy to launch for a few reasons. Number one”

Q So what should early stage startups do if you don't get enough data with five to 10,000 dollars a month, but you don't have huge amounts of money. What do you recommend they do?

A Yeah. Well, this goes back a little bit to, you, you asked me earlier, you know, should you be focusing on big swings or you should be, should you be focusing on smaller optimizations as a growth team? And when you're an early stage startup, what I said was focus on the big swings because at that stage, nothing else matters. I think it's sort of similar when you're thinking about your acquisition strategy. And so what I mean by that is number one, see if you can grow organically for as long as possible. It's fine to run some paid ad experiments on the margins, just to sort of test the waters and figure out, okay, is, is Facebook, Instagram, TikTok, Are these channels going to work for us from a paid acquisition standpoint? But ideally you're able to find an organic growth loop to sustain you early on. It's kind of like, so I live in Colorado. It's kind of like training at altitude, right? Like force yourself to try to get strong enough product market fit that and product channel fit that you can grow organically through some combination of word of mouth or content, which drives SEO before you start sinking a lot of dollars into paid acquisition spend. And then even once you do invest in paid acquisition, you want to run a bunch of tests to see what works, but then once you find the channel that works best, more often than not, there's this power law of distribution that Peter T…

AI assessment note: “see if you can grow organically for as long as possible.”

Q You mentioned some great consumer subscription businesses that Tinder, Spotify being two of them. And you said that if you want to build a monster consumer subscription business, uh, every successful one is built on an enduring core value promise. What is a core value promise? And how do you describe that to founders listening?

A A core value promise. And this doesn't just apply to consumer subscription businesses. This, this is any business should be built on a strong core value promise, which is simply what am I delivering to you as a product or service that ideally you couldn't get anywhere else? Or you couldn't get anywhere else as cheaply as you can get through my company. For subscription business models, what's important is that these are unique and differentiated and that they're enduring. And the reason I emphasize those two words, unique and enduring, is because of the challenges we talked about earlier, right? So if I am a consumer subscription business whose value promise looks a lot like a dozen other companies in my category, Then it's going to be really, really hard to charge a high enough price and maintain strong enough subscriber retention over time to, to build a sustainable business. Similarly, even if I have a unique and differentiated value promise, but if it's not enduring, then I'm going to have very high subscriber turn rates. And this is something that I saw a lot in quantified self apps early on is like, if you think about it, whether you're a fitness tracker or a sleep app or nutrition, whatever the case may be. Oftentimes, within your first month or two of using one of these products, and I've used many of them, right? I've got an Apple Watch. I've got an Oura Ring. I love t…

AI assessment note: “simply what am I delivering to you as a product or service”

Q What is paywall view rate? Just so we understand the basics, the amount of people that see the paywall.

A Yeah, so Paywall View Rate, very simply, is the percentage of all users who install your app who view the paywall at least once And then to put an even finer guardrail around it, ideally it's view your paywall at least once within X time period. And going back to 75% or more of trial stars happen in a user's first session, ideally you have a high paywall view rate in a user's first session, because there's a good chance that if a user leaves your app without seeing your paywall on their first session, they, they may never come back. Um, so you want your paywall view rate to Ideally be over 80% and over 80% ideally within the user's first session, or if not their first session, then certainly within their first week.

AI assessment note: “percentage of all users who install your app who view the paywall at least once”

Q Thinking of those different price points, how do you think about single versus multiple tiers when it comes to pricing?

A Yeah, well, so I'll divide tiers versus durations, right? Tiers, you've got, Tender's a good example. You've got Tender Plus, Tender Gold, Tender Platinum. Each of them have different premium value propositions, and so that's tiers. Duration, you've got weekly, monthly, in some cases, three months, six months, those are unusual that you have them, and then annual, and then, you know, the infamous lifetime subscription plan. So on tiers, I think the vast majority of consumer subscription businesses should only have a single tier, at least until they become very large, mature businesses, and they're, they're actually becoming platforms that are offering multiple premium product offerings rather than a single A single product. And that's generally what you see in the market, right? Like tender and bumble are big exceptions in the dating category where both of them have multiple subscription tiers. And they've also introduced a lot of additional one-off in-app purchases that are like consumables that go beyond the subscription, but they're actually really complimentary, uh, to the subscription tiers and monetizing their, their power users. But the vast majority of consumer subscriptions have a single tier. It's their plus tier or their, their pro tier, right? Um, duration is different. I think that Uh, more often than not, you see consumer subscriptions trend towards monthly and an…

AI assessment note: “the vast majority of consumer subscription businesses should only have a single tier”

Q really well is kind of the gamification of it in, in a way, though, actually, um, And that takes me to, like, games love to give easy levels to start with. Oh, you know, yay, I passed level one, super easy. And it makes me think of, like, time to value. How important do we think, or how do we think about time to value today in consumer subs apps?

A Yeah, well, I think time to value is, it's becoming more and more important for any business because human attention spans are getting shorter, right? Like, we're constantly bombarded with, Advertisements with notifications, as we talked about earlier, right? And so it's just so easy as a consumer to get distracted, which means that the window of time that a, that any product, but certainly consumer subscription product has to get a user's attention is getting shorter and shorter. Um, and so what that means is new user onboarding has become one of the most important parts of any consumer subscription app experience. Now the old conventional wisdom and I'll put myself in this category was shorter onboarding flows are better, right? Like the moment the user installs the app, they should understand your core value promise within the first 30 to 60 seconds of using it. And as quickly as possible, you want to get them to the aha moment and get them to enter a trial, um, so that you're able to continue to send them lifecycle marketing emails and ideally convert them into a subscriber. I think over the last few years, that's gotten a little bit more nuanced though. And, uh, Perhaps the canonical example of this is new, right? Which has more than a hundred screens in its onboarding flow, or at least the version of the onboarding flow I've gone through, right? It's, it's got so much per…

AI assessment note: “time to value is, it's becoming more and more important for any business”

Q I would love to see the abandonment rate and how it changes In the different durations of the flow, because no one's going to go through 15 minutes and be like, ah, fuck it. Nah, don't feel like it. You're like, I'm nearly there. I'm nearly there, you know?

A Yeah, I think that's right. Well, I would love to see that data too. My hypothesis, and this may be completely wrong, but my hypothesis is it's a bit bimodal, where you're going to have a good percentage of users drop off within the first 10 to 20 screens Of Noom's onboarding experience. But once they've gotten far enough, they're probably sticking around for a reason. And in Noom's case, like Noom's whole value promise is we are going to deeply understand you and your unique psychology to understand how to help you lose weight where many other solutions have failed. And I think a lot of Noom users are users who have probably tried alternative solutions and they just haven't worked. And so when you think about it that way, Ok, once you've gotten to whatever the screen is, screen 20, screen 30, you're probably not going to stop, because you're pot invested to borrow a poker term, and you want to see it through, because if this works, it is solving a really acute pain point in your life.

AI assessment note: “my hypothesis is it's a bit bimodal, where you're going to have a good percentage”

Q How do you solve for that dude? You mentioned or there's whoop as well. I see so many people and bluntly. Everyone says that, hey, I kind of get what works and what doesn't after a certain time period. What would you do if you were within whoop or to solve for that diminishing value over time?

A So I think there are two things that these companies are doing really, really well to make sure that people continue to use their products over time. One is they're selling a hardware device, which means two things. One, they're getting a lot of revenue from their user upfront, as opposed to relying on SAS subscription revenue. And two, it sort of escalates commitment. So I'm somebody who's really been into mountain climbing for much of my life. There's this factor of like, you go out and you buy all the equipment and it almost like makes you more excited to go do the mountain climb, right? Cause now I have all this fancy equipment. I gotta go use it. It's the same thing with these products. Like, if you drop 304 hundred dollars on an Aura ring or a Whoop band, you're gonna be more invested in, in using it and getting maximum value out of it. So that's the first piece, is they've been clever about monetizing their product off of the hardware device as much or more than the subscription. The second component of it, and I think Aura is truly best in class at this, is the velocity with which they are launching new features, new insights, and Explaining those new features to users either through the app itself or through emails or other channels is pretty remarkable. And so I think all of that contributes to longer subscriber retention rate.

AI assessment note: “all of that contributes to longer subscriber retention rate”