The Wisdom Wall

“founders are often very afraid to have a willingness to pay conversation. They feel like if they bring a dollar amount up, it might scare the customer off. But honestly, that's almost always not true.”

“So I'd be pretty flexible on signing, frankly, whatever your early customers want, as long as it's not going to expose you to like unlimited liability or container clause that's going to transfer all the IP in your product to your customer or something company ending like that.”

“If your net promoter score, your MPS, is not extremely high as a new consumer company, you're toast. You pretty much have to re-engineer the product to make it something that people love. The reason is it correlates extremely well with word of mouth referral. So I would argue Positive 50 is pretty much a minimum…”

“In general, committed recurring revenue, that's monthly recurring revenue or annual recurring revenue is preferable to usage based pricing. And that's because during an economic downturn or a slowdown, your revenue is protected at least until the contract is up for renewal.”

“You can get really convoluted with, you know, first touch attribution, last touch, multi-touch attribution. It's often, ah, way more hassle than it's worth. Simply using those UTM referrers or asking your customers where they came, where they heard about your, your business is probably the best way for most of you.”

“Just because you're getting free credits doesn't mean that that's a cost that doesn't exist. It just means you're hiding it for the moment. So companies that hide behind OpenAI credits and claim that they've got these huge, huge gross margins have a nasty shock coming when those credits run out.”

“So if you start with negative unit economics, you really, really have to have a plan to fix them. And I would really advise you don't scale your customer base. You don't try and grow as quickly as possible whilst you have negative unit economics. You fix them first, And then you scale.”

“And really, 90% of the time, the vast, vast majority of the time, founders get stuck in the very early stages. It's the, the very long unpaid design partnerships.”

“What many founders do, which is a mistake, is to try and overbuild a really broad platform, which is a mistake at this stage of your company because you just don't have the resources. You can waste a lot of time without any real signal that a customer wants what you're building.”

“The most common problem for these free trials is again, they're too long, maybe two or three months, and they suffer from the same low commitment problems as a design partnership. There's no target or end goal, and the customer isn't really committed Uh, to engaging with the product or the design process.”

“because your product is so early, you're never really selling a complete bug free experience. You're actually selling the founders and the early team. You're selling the promise that you personally are going to solve this problem for them.”

“Reducing it from weeks to hours is often the biggest single lever for higher pilot to paid conversion.”

“I would never do a full API integration during a pilot if it requires any engineering time from the customer whatsoever, because that's just going to delay you by months.”

“So to get around this really sophisticated founders move on from paid pilots to recurring revenue contracts with an opt out period. So this is typically a monthly or annually recurring contract With a 30 or 60 day money back guarantee or opt out period at the very start. But by default, if the customer does nothing and…”

“The idea that, take a human analogy, you hire a new employee, you hire an assistant, the idea that you're going to sit down and write out 30 pages of instructions of how you do every single thing in your life is possible, but none of us actually do it. You sort of, you give this gradual training.”

“I found I had bad results if I'm, like, prompting the AI multiple times to try and get something working. It tends to accumulate layers and layers and layers of bad code rather than, like, really understanding The root cause.”

“You might go and try four, five, six different prompts, and you finally get the solution. I'd actually just take that solution, git reset, and then feed that solution into the AI on a clean code base, so you can implement that clean solution without layers and layers of craft.”

“Each tool has a slightly different naming convention, but I know founders who've written hundreds of lines of instructions for their AI coding agent, and it makes them way, way, way more effective.”

“So I'll often just download all of the documentation for a given set of APIs and put them in a subdirectory of my working folder so the LLM can access them locally. And then in my instructions, I'll say, go and read the docs before you implement this thing. And it's often much more accurate.”

“Rails is a 20 year old framework with a ton of well-established conventions. A lot of Rails code bases look very, very similar. And it's obvious to an experienced Ruby on Rails developer where a specific piece of functionality Should live, or the right Rails way of achieving a certain outcome. That means there's a ton…”

“And the AI is so tolerant of minor grammar and punctuation mistakes that it honestly doesn't matter if the transcription's not perfect.”

“When a team and a product manager has a number to, to, um, to work towards, and in this case, like dwell time or engagement or number of minutes each user uses a service, like a well-meaning product team, in my experience, like tends to optimize and optimize and optimize for that single number, almost without regard…”

“when people need to, like, record long videos telling other people how to use your product, you've probably done something wrong.”

“You change something that people are used to, you're going to get millions and millions of people screaming about it, whether it's good or bad.”

“a social network that kind of constrained itself to that smaller group might be really interesting, but Then you have to find a different way to monetize, because you're not getting as many eyeballs, as many hours of viewership, therefore your ad revenue goes down and, and Shell, the pressure ultimately pushes you…”

“When your product gets the verb, you, you've won.”

“and I think ultimately, the best companies bring meaning to the name often, rather than the other way around. Monzo doesn't mean anything.”

“This is where I think founder CEOs do have an advantage. They have the kind of moral authority of like, I started this company, and this is what I believe, and this is where we're going.”

“Often when you haven't worked at a big company, you don't have good calibration about what kind of prices these companies tend to pay for software. And so you might think of the last time you bought software, you know, a subscription to GitHub or ChatGPT, and you pick a ludicrously low number, 19 dollars a month or 49…”

“I typically pick somewhere between 25 and 50% of the value you're delivering. So they keep roughly two-thirds, you keep roughly a third.”

“If you just stop with that value equation, honestly you'll get Eight to 90% of the pricing spot on.”

“Some people like to do a cost plus a margin pricing, and it just always ends up with you underpricing your software.”

“Really you should be aiming for software margins of like 80 or 90%.”

“People typically are wary of totally uncapped usage-based pricing, so you might want to put a cap on that.”

“really, if you can mirror the way they are used to paying for other software, the better you'll do.”

“If you choose a price randomly and put it on your website for an enterprise contract, you are certainly leaving money on the table. You'll overprice the product for a whole chunk of customers who don't get that much value out of it. So you've lost them entirely. And for the people who get much more value out of it,…”

“Often it's things like, uh, SOC two audit reports or single sign on or audit logs or compliance reports or, Data being kept in certain geographies, things like that, uh, that really individuals and small companies don't really care about, and enterprises find absolutely vital and can't live without. That allows you to,…”

“So a good rule of thumb is about a five to one ratio between new signed ARR and total compensation for a salesperson, including commission.”

“In general, offering a really long free trial or a pilot is counterproductive. Uh, the customer's not actually bought into using the product, and so what you want to do is keep these, these pilots or these proof of concepts really, really short. Maybe a couple of weeks, maybe four weeks with really, really clear…”

“What you should do instead is play to your strengths as a startup. Say to your customers, you can have the phone number of the founders and we're on call, 24 seven to come and fix your problems. You're certainly not going to get that from Salesforce or Oracle or something like that.”

“And when you start To lose more than 25% of potential deals based solely on price, you're now probably in the right ballpark. So you don't need to win every single deal, and if every single deal is closing straight away, you're almost certainly underpricing.”

“And just remember, if your company is successful, these initial five, 10 customers you sign up at the start are going to be a tiny, tiny fraction of the revenue you make over the next five years. And so It's more important to start signing deals and getting to the flow of it. You can always increase prices as the…”

“And so it's about filtering. Early stage sales is way more about filtering down to your ideal customers than trying to convince the other.”

“A good growth rate is 15% month over month. At that rate, you'll five X your user base every year. 10% monthly growth for consumer company is okay. It means you'll approximately triple your user base every year. Five percent a month or lower is unlikely to reach breakout success, I'm afraid.”

“I would treat this as paid acquisition, actually. You're spending money to acquire customers, and if you stop spending, those customers won't, won't appear.”

“The best consumer companies have a split of organic versus paid growth of something like north of 80% organic to 20% paid.”

“You all take your margins to zero and Google and Meta end up making all the money. That's why it's so dangerous to be so reliant on paid growth.”

“Simply finding that kind of tipping point that looks about right from your metrics, and then agreeing with everyone that that's what you're going to optimize for, rather than being really pedantic about the exact definition is probably the best way to go.”

“making buttons red or green, that's not really something you have the scale to split test until you're really at the size of Google or Facebook.”

“constant arguments about what your key metrics are, are even worse than having no metrics at all.”

“And so almost always, especially for B to B companies, your key metric should be revenue. If you pick another number, take gross transaction value, you'll find that your employees, and eventually you might start optimizing for that number.”

“Those three numbers, revenue, burn rate, and runway are absolutely crucial to include. And if they're not at the top of your investor updates, honestly, I always, uh, assume this founder has something to hide.”

“And it almost matters that they flatten out at any point as opposed to a high point. You know, I, I take a 20% retention that flattens out over a higher retention initially that goes to zero.”

“The final thing, as a benchmark, any early stage B to B SaaS company should be looking at net dollar retention well above 100%. This is for several reasons. First of all, you've probably underpriced your product with your first launch. So you might charge 10,000 dollars a month for your initial customers. You realize…”

“For mature companies in the same range, 110%, 120% is pretty good net dollar retention.”

“If your net dollar retention is below 100%, especially for enterprise B to B SaaS, something is wrong. You are churning off customers. They don't love the product. And I would invest in fixing that. Talking to customers and figuring out why they're churning off, rather than trying to just shove more customers in the…”

“So people at AWS, Microsoft, OpenAI, giving out tons and tons of credits to startups. You should treat those as a cash cost. Don't assume you'll have unlimited credits forever. It'll totally mess up your margins.”

“It's really easy to tell founders who are in command of their metrics versus founders who aren't. And it's really impressive when founders can talk about what percentage of their signups are DAU or WAU or what the annual revenue per user is. And we'll go into some of these in detail, but it's a big differentiator when…”