The Exchanges

Q start off with that, you know, a pricing plan that might be less than 30 bucks a month, they then drive growth by moving towards more expansion revenue, more variable pricing axes. Is it typical, and do you see in your data set, a time period where logo churn could be 30% annually, but revenue churn is five percent as pricing increases and expansion revenue machine really gets dialed in?

A Yes. So that, that can definitely happen, but to me, it's a bad sign. Um, any logo churn number that's greater than 20% per annum is worrying, and it's evidence that you don't have good product market fit in one of your customer segments. So what I would do there is I would recommend every startup look at the segments in their customer base and split them and start doing the metrics by different segments. So for example, you might have large customers, medium customers, and small customers as your segments, or you might have Some industry specific thing about them. Like you might have high tech as, as one segment and, um, healthcare is maybe a different segment. If you've got high churn, what you want to be trying to do is understand why is there a difference between the people who are sticking with me and expanding and the group that are signing out? There must be something, some characteristic about them that makes the product not work. So one example of a company where I saw a big difference like this was conducted on a New York They had some customers that were expanding like crazy and love the product and some customers that were churning. And we found out that the real key was that it was the nature of the users. The users that were sticking with the product were pretty advanced users that really understood how to take a tool and apply a tool. Whereas the ones who were ch…

AI assessment note: “Yes. So that, that can definitely happen, but to me, it's a bad sign.”

Q on from Namely. He talked about how You know, they've raised obviously over a hundred and fifty million bucks. They would do twenty five million run rate in 2016, well north of three million a month today, but they had less than two percent churn and their retention numbers were really through the roof. Walk me through what they base theirs around. So HubSpot was number of leads. What's namely?

A Yeah. So namely is number of employees. So that's, uh, again, quite an easy one to, um, recognize if you're doing payroll or if you're doing any kind of benefits or anything like that, the number of employees in an organization is going to definitely equate to the amount of value that you're getting from the system. Um, and then to really get things going, um, what, what, um, namely did was to identify that they could add other capabilities like benefits administration was, was a big one that they added onto the product. Um, actually they started with HRAS and added payroll. So the goal is to get people onto all three of those, those major modules, and then, um, be able to charge them on a per employee per month basis, which is pretty well recognized in the, um, in the HR spaces being a good, a good one there.

AI assessment note: “namely is number of employees”

Q at namely great company, right? But you've got gusto, you've got Zenefits, you know, hundreds and billions of dollars into this space. Some would argue namely is, is maybe not a category leader. Maybe, maybe they're at the top of the pack, but not a category leader. How does, how does matrix think about investing and do you use the category leading indicator as a, as again, a key indicator?

A Yeah, we do actually. And, and I'll tell you the, the rationale behind the namely investment. Um, I'd actually, uh, come up with a very simple, um, thing as a result of investing in a pre previous HR company called tribe HR that got sold to NetSuite. And the thesis there was pretty simple, which was millennials were entering the workforce. They were all used to Uber, Facebook, Instagram, etc. They were coming into the workforce, and they were seeing applications like Workday and others like that that are incredibly painful to use. The guys at both Zendesk and HubSpot were using Workday. And we were able to go to them and say, you know, what do you think of this product? And they told us that they hated it. They had to have the six page document next door to them to just go through an employee review. So, so the thesis was simple. This new, um, group of tech savvy workers were coming into the workforce and expecting to see the same quality of tools that they have in their consumer life on their mobile phone, and they weren't getting it. And whoever in the HR space Built a product for the employees and the managers, not just the employee, the, not the HR administrator was going to do extraordinarily well. And to my mind, namely is the leader in that particular segment that we think is an important segment. And then if you look at the space that they're running, which is the 50 to…

AI assessment note: “namely is the leader in that particular segment that we think is an important segment.”

Q soft was churning eight percent of, you know, logo churn per month back in the day. This was Quality leads coming in that then they could put touch on because the cost economics made sense, and it scaled very nicely. So if an entrepreneur comes to you and says, David, we're raising, we're really healthy, but 20% of our revenue on a cash basis is professional services. What's your response?

A So I have no problem with that. So I'm going to sort of give you a quick, very short story here. This is an imaginary story, but the story is you're a You're an employee at Glackendecker, and you go to a annual meeting where the CEO stands up, and he says, I've got good news for you, and I got bad news for you. The good news is drill sales are up like crazy, and we're beating plan. The bad news is we're not giving our customers what they want. Customers would like to be able to walk in and buy a packet of holes, and if we could give them that, if anybody, and never this, never has this become more obvious than, than, you know, uh, Uber coming along and disrupting rental car companies, because you could be focused on the, you know, the rental car. Mode of thing and not recognize that what people really want is transportation from A to B. So what, why I bring that up in this particular case here is I think it's super important for entrepreneurs and founders to focus in on what is the hole, not the drill that the customer is looking for and find a way to give them that. And sometimes it's really important to have services doing that. And in particular, in the really early days of a startup, I actually really like having services that are deeply engaged with one or two customers because That's how you really learn whether the product's actually going to work or not work and what ar…

AI assessment note: “So I have no problem with that.”

Q driving more traffic. You're talking about kind of the funnel. And my question to you is a lot of the CEOs that listen to the show The problem is they lack confidence in their conversion rates when the traffic sample size is small. So at what point do you switch from getting enough traffic where the conversion rates are meaningful and leading indicators to switch to improving the conversion metrics?

A Well, so I, I would say what we're looking for with conversion rate is evidence of product market fit. And, uh, there are some other ways that you can get a product market fit beyond just data itself. So one of the top ones of the whole lot would be engagement. Are the customers who, uh, have signed up for your product actually using it? And if they're not using it, why are they not using it? And what can you do to fix that? So that would be the, the first place that I would say you want to start fixing is, um, The actual success, uh, successful adoption and getting the results, the business results that the user bought the product for. And you don't necessarily need to have many customers to be able to focus in on that. But if you don't have that working, the last thing you really want to spend your time on is wasting time getting a ton of new customers if they're all going to churn and not be successful with the product. So I would say start fixing things there. And once you have things fixed there, then you're going to come back into trying to build the funnel to acquire more of them. And, um, my, my thought there is you're going to have a, uh, a series of phone calls if you don't have enough volume to try to find out why people aren't converting. So you don't just simply look at numbers and don't have the, the, uh, qualitative data as well. So the quantitative is one part o…

AI assessment note: “if you don't have enough volume to try to find out why people aren't converting”

Q set up to reveal what that activation metric is? And some challenges that they've articulated to me are, you know, says, you know, the, the customers will say that they're buying for one reason, but when they actually track the, the things, the clicks they're doing in the software, they're doing something totally different. And that's, what's leading indicator for stickiness. So how do you make sure the two match?

A Yeah, it's good. Good point. Well, so I, I would definitely start with You, you, generally speaking, you have a view of what your product's business benefit is going to be for the customer. And the customer, generally speaking, will declare to you that they bought the product for a specific reason. So in the case of say a HubSpot, they would have bought it for more leads and maybe better conversion rates on leads. And so what you want to try to get inside of, of, of is what exactly Can you do to get them to that business benefit as fast as possible? So don't focus in on engagement and usage because in all honesty, some of the very best products I've seen actually have very low engagement because you simply do a sign up for them and they simply just start working. And if they have great business benefits and low engagement, that's the very best kind of product.

AI assessment note: “don't focus in on engagement and usage because in all honesty”