The Exchanges

Q said about the growth versus relationships there and the importance and priority still placed on growth, uh, which I think is absolutely right. But, but I want to touch then on growth versus retention. Uh, and it, Fred Wilson said in the past how he always focuses on 90 day retention number. For acquisition cohorts. Now, would you agree with, with this analysis of retention in relation to its growth?

A You know, retention is really the only variable that is exponential, right? So if you think about your retention numbers compound every month, right? So the difference between a churn rate of one percent per month, two percent per month, or three percent per month, if you compound that out over time, it's, it makes a dramatic difference Versus a metric like a CPA metric, you know, which is linear, right? So you would much rather spend 300 dollars to get people who are gonna churn one-third the percent, you know, than spend 100 dollars. So for different businesses, uh, we look at retention at a different rate. For more social apps, you know, we tend to look at, you know, day seven and day 14 retention because those have a high frequency of usage. And so you can learn a lot more, a whole lot faster. Whereas some other, uh, subscription oriented commerce businesses, you really need to look at the older cohorts, uh, and see what they're doing, you know, a year out, because if those cohorts stick in perpetuity, that's very different than if they continue to a trip over time at a similar rate. But yeah, retention is ultimately the most important variable because if you've got this leaky bucket problem, No matter how much you spend up front and no matter how much you do, you know, you're ultimately going to churn through your audience.

AI assessment note: “retention is ultimately the most important variable because if you've got this leaky bucket problem”

Q said about the growth versus relationships there and the importance and priority still placed on growth, uh, which I think is absolutely right. But, but I want to touch then on growth versus retention. Uh, and it, Fred Wilson said in the past how he always focuses on 90 day retention number. For acquisition cohorts. Now, would you agree with, with this analysis of retention in relation to its growth?

A You know, retention is really the only variable that is exponential, right? So if you think about your retention numbers compound every month, right? So the difference between a churn rate of one percent per month, two percent per month, or three percent per month, if you compound that out over time, it's, it makes a dramatic difference Versus a metric like a CPA metric, you know, which is linear, right? So you would much rather spend 300 dollars to get people who are gonna churn one-third the percent, you know, than spend 100 dollars. So for different businesses, uh, we look at retention at a different rate. For more social apps, you know, we tend to look at, you know, day seven and day 14 retention because those have a high frequency of usage. And so you can learn a lot more, a whole lot faster. Whereas some other, uh, subscription oriented commerce businesses, you really need to look at the older cohorts, uh, and see what they're doing, you know, a year out, because if those cohorts stick in perpetuity, that's very different than if they continue to a trip over time at a similar rate. But yeah, retention is ultimately the most important variable because if you've got this leaky bucket problem, No matter how much you spend up front and no matter how much you do, you know, you're ultimately going to churn through your audience.

AI assessment note: “retention is ultimately the most important variable because if you've got this leaky bucket”

Q So how do you think you broached then that difficult balance then, uh, Of, of remaining true to growth and having growth as a priority while still meeting investor expectations in many cases of reducing burn. How do you manage that kind of swinging pendulum in the middle?

A Yeah, I think that people have gone from one extreme where there was a lot of spend on things that were not driving the business forward to the other extreme where you're taking good companies and you're cutting into the muscle a little bit. And so I think it's just being very thoughtful about which spend is actually driving the growth engine and, and which spend is just spent in that company in particular. Um, there were other things we were spending money on that just wasn't driving the business. So, you know, we cut a bunch of that out. Um, that's a business, a business where sales has a much broader impact than marketing does. And so we're increasing the expense on the sales side and we're stealing it from the expense on the On the marketing side. One of the companies I got involved with very early on is a business called Coupa and, uh, they're a spend management platform in the procurement space. And, um, I remember talking to the CEO there and we had, at the time we had like 10 people in engineering and two sales reps. I think this was probably in 2009. And he looked at, he said, well, no wonder we're not hitting any of our sales goals. We don't have enough people out selling. And so I think he took two heads from engineering people that weren't performing as well and, and hired two more salespeople. And lo and behold, all of a sudden we started selling more because the f…

AI assessment note: “being very thoughtful about which spend is actually driving the growth engine”

Q And then picking companies, how have you refined your process over the years?

A Yeah, so it's funny. So, um, early on I became very focused on companies that had a really strong value proposition and a really, uh, interesting market that they were going after. And I wasn't too focused on, on the team side of things. And so I ended up backing a bunch of companies that did very well out of the gates. A, that helped me with, with promotions and helped me with my career. But a lot of those companies, you know, got to a point where they tapped out at the, you know, 50 or so million dollar revenue mark, and there just wasn't enough focus on, are we building the right teams to really scale over time? Not to say that, you know, you need to have it all, but I think the reality is you kind of need to have it all. You need to have something that has a very strong value proposition into an intriguing market opportunity, but you also need to have teams that are able to execute on their own, teams that know how to hire great people, And teams that know how to get ahead of problems. And so I think over time, my thinking has evolved to really looking at the team. And I think a lot of times when people hear looking at the team, they think that means that you're looking for someone who's done it before. And that's not necessarily the case, right? A lot of times people have done it before are the most blind to the opportunity that they're going into because they think it'll …

AI assessment note: “over time, my thinking has evolved to really looking at the team.”

Q So how do you think you broached then that difficult balance then, uh, Of, of remaining true to growth and having growth as a priority while still meeting investor expectations in many cases of reducing burn. How do you manage that kind of swinging pendulum in the middle?

A Yeah, I think that people have gone from one extreme where there was a lot of spend on things that were not driving the business forward to the other extreme where you're taking good companies and you're cutting into the muscle a little bit. And so I think it's just being very thoughtful about which spend is actually driving the growth engine and, and which spend is just spent in that company in particular. Um, there were other things we were spending money on that just wasn't driving the business. So, you know, we cut a bunch of that out. Um, that's a business, a business where sales has a much broader impact than marketing does. And so we're increasing the expense on the sales side and we're stealing it from the expense on the On the marketing side. One of the companies I got involved with very early on is a business called Coupa and, uh, they're a spend management platform in the procurement space. And, um, I remember talking to the CEO there and we had, at the time we had like 10 people in engineering and two sales reps. I think this was probably in 2009. And he looked at, he said, well, no wonder we're not hitting any of our sales goals. We don't have enough people out selling. And so I think he took two heads from engineering people that weren't performing as well and, and hired two more salespeople. And lo and behold, all of a sudden we started selling more because the f…

AI assessment note: “being very thoughtful about which spend is actually driving the growth engine”

Q So, so what are the commonalities then have you seen in retentive products? What, what creates the customer stickiness? It could be different for say social apps compared to, you know, enterprise apps, or it could be the same. It could be, you know, a virtuous loop or cycle that brings users back. But what, what are commonalities have you seen that creates this stickiness?

A Yeah, it's interesting because, you know, I invest in, uh, software companies. I invest in, in consumer marketplaces. I invest in social apps. And so I invest in, in businesses that ultimately have very different products and different business models. But at the end of the day, there's a commonality across all of them. And you're really looking for a product that has a high degree of usage and high degree of stickiness. So whether it's a business app, Where you're looking at is someone in the app every day, right? Is this their core system of record? Is this fundamentally changing how they go about doing their job on a daily basis or whether it's a commerce app and you're changing the way someone buys a product on a recurring basis or whether it's a social app and you're changing how people interact with their friends and the people in the world around them. Um, you're looking for something that's going to drive a fundamental change in behavior. Because at the end of the day, if you don't rise to that level, people are just going to forget about you and you're going to fade into the background. You run into that retention issue, but there tends to be, there tends to be commonality. And I think a lot of times people try to lock retention in with a business model. Uh, some of these subscription commerce companies, they were able to show that they have this nice lifetime value be…

AI assessment note: “you're looking for something that's going to drive a fundamental change in behavior.”

Q And then picking companies, how have you refined your process over the years?

A Yeah, so it's funny. So, um, early on I became very focused on companies that had a really strong value proposition and a really, uh, interesting market that they were going after. And I wasn't too focused on, on the team side of things. And so I ended up backing a bunch of companies that did very well out of the gates. A, that helped me with, with promotions and helped me with my career. But a lot of those companies, you know, got to a point where they tapped out at the, you know, 50 or so million dollar revenue mark, and there just wasn't enough focus on, are we building the right teams to really scale over time? Not to say that, you know, you need to have it all, but I think the reality is you kind of need to have it all. You need to have something that has a very strong value proposition into an intriguing market opportunity, but you also need to have teams that are able to execute on their own, teams that know how to hire great people, And teams that know how to get ahead of problems. And so I think over time, my thinking has evolved to really looking at the team. And I think a lot of times when people hear looking at the team, they think that means that you're looking for someone who's done it before. And that's not necessarily the case, right? A lot of times people have done it before are the most blind to the opportunity that they're going into because they think it'll …

AI assessment note: “over time, my thinking has evolved to really looking at the team.”

Q Does some startups not need that predictability of revenue in the very early days to keep production going, to reduce unit costs, uh, and to actually allow more people to experience the product though? Is there that potential?

A Revenue does a couple things, right? So, A, helps with cash flow in the business, and this is assuming we're talking about gross margin, uh, positive revenue, but, you know, which was sort of the assumption for years until recently, but we're, you know, we're thinking about revenue, uh, That is a margin positive. And so it helps with cash burn and it helps with expenses. That's one thing. And the next thing is that it shows a deeper level of, of customer engagement around a product. And there are certain categories you need to generate revenue in order to show that people like your product, right? And that tends to be into these commerce channels where at the end of the day, there's not a lot of strategic value. If you can't actually generate cash, if you can't actually have a sustainable revenue model.

AI assessment note: “Revenue does a couple things, right? So, A, helps with cash flow in the business”

Q Before we move on to the next stage, what were those, you said about those learnings there. What were those learnings that you've taken Come with you to your career in BC?

A Well, look, this was an interesting time, right? When I showed up, uh, I was an intern originally, the company had about 30 people, came back a year later, and it was around 360 people, and I think over a hundred or so of those were MBAs, and people were, were kind of pre-ordering their Porsches, it was, it was very much a, you know, kind of a crazy time, uh, ended up coming out to the west coast, the business was based on the east coast, and so when I got to San Francisco, there was, you know, 20, 25 people out here, And after six rounds of layoffs, after four CEO changes, ended up being the last one left on the west coast. And so when, when you have things cratering like that around you, and when you, we had some, some real customers, we had people paying, uh, you know, millions of dollars to buy our software. And so when you've got juxtaposition of those two things of a team shrinking dramatically, but expectations of customers still being very high, You end up learning a lot very quickly in venture. You see a lot of people who sort of show up and assume that they have all the right answers without really understanding the context or the history and saw that a ton with the new CEOs that would show up where they would try something that they thought was new, but was something that the guy before them did. And they just very rarely would ask the right questions. And the assump…

AI assessment note: “assume that they have all the right answers without really understanding the context”

Q Before we move on to the next stage, what were those, you said about those learnings there. What were those learnings that you've taken Come with you to your career in BC?

A Well, look, this was an interesting time, right? When I showed up, uh, I was an intern originally, the company had about 30 people, came back a year later, and it was around 360 people, and I think over a hundred or so of those were MBAs, and people were, were kind of pre-ordering their Porsches, it was, it was very much a, you know, kind of a crazy time, uh, ended up coming out to the west coast, the business was based on the east coast, and so when I got to San Francisco, there was, you know, 20, 25 people out here, And after six rounds of layoffs, after four CEO changes, ended up being the last one left on the west coast. And so when, when you have things cratering like that around you, and when you, we had some, some real customers, we had people paying, uh, you know, millions of dollars to buy our software. And so when you've got juxtaposition of those two things of a team shrinking dramatically, but expectations of customers still being very high, You end up learning a lot very quickly in venture. You see a lot of people who sort of show up and assume that they have all the right answers without really understanding the context or the history and saw that a ton with the new CEOs that would show up where they would try something that they thought was new, but was something that the guy before them did. And they just very rarely would ask the right questions. And the assump…

AI assessment note: “You see a lot of people who sort of show up and assume that they have all”

Q So, so what are the commonalities then have you seen in retentive products? What, what creates the customer stickiness? It could be different for say social apps compared to, you know, enterprise apps, or it could be the same. It could be, you know, a virtuous loop or cycle that brings users back. But what, what are commonalities have you seen that creates this stickiness?

A Yeah, it's interesting because, you know, I invest in, uh, software companies. I invest in, in consumer marketplaces. I invest in social apps. And so I invest in, in businesses that ultimately have very different products and different business models. But at the end of the day, there's a commonality across all of them. And you're really looking for a product that has a high degree of usage and high degree of stickiness. So whether it's a business app, Where you're looking at is someone in the app every day, right? Is this their core system of record? Is this fundamentally changing how they go about doing their job on a daily basis or whether it's a commerce app and you're changing the way someone buys a product on a recurring basis or whether it's a social app and you're changing how people interact with their friends and the people in the world around them. Um, you're looking for something that's going to drive a fundamental change in behavior. Because at the end of the day, if you don't rise to that level, people are just going to forget about you and you're going to fade into the background. You run into that retention issue, but there tends to be, there tends to be commonality. And I think a lot of times people try to lock retention in with a business model. Uh, some of these subscription commerce companies, they were able to show that they have this nice lifetime value be…

AI assessment note: “you're looking for something that's going to drive a fundamental change in behavior.”

Q Does some startups not need that predictability of revenue in the very early days to keep production going, to reduce unit costs, uh, and to actually allow more people to experience the product though? Is there that potential?

A Revenue does a couple things, right? So, A, helps with cash flow in the business, and this is assuming we're talking about gross margin, uh, positive revenue, but, you know, which was sort of the assumption for years until recently, but we're, you know, we're thinking about revenue, uh, That is a margin positive. And so it helps with cash burn and it helps with expenses. That's one thing. And the next thing is that it shows a deeper level of, of customer engagement around a product. And there are certain categories you need to generate revenue in order to show that people like your product, right? And that tends to be into these commerce channels where at the end of the day, there's not a lot of strategic value. If you can't actually generate cash, if you can't actually have a sustainable revenue model.

AI assessment note: “there are certain categories you need to generate revenue in order to show”