Thoughts on Growth — April 20, 2018

Thoughts on Growth is Reforge's weekly newsletter of must-known updates and perspectives in growth. By subscribing, you'll join a few thousand PMs, marketers, UX folks, engineers and analysts at today's top tech companies. Check out today's edition below.


1. What's the “story cost” of your product strategy?

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WHY IT MATTERS

Is that new thing you've been working on a product, or is it a feature?

It can be tempting to think every feature as their own individual mini products. It makes the project feel big and meaningful.

But, from the perspective of your customers, having too many different products, often with different pricing structures, causes analysis-paralysis.

Instead:

  • bring your features together as one single product, or “platform” in Drift's case (example below)
  • this lets you build a cohesive product “story,” or narrative about why you exist and why they should care

LEADER OPINION

ANDY RASKIN Strategic Messaging & Positioning for portfolio companies at Andreessen Horowitz, First Round Capital, GV, and former Product Marketing @Skype and @Mashery, on the cost of telling multiple product stories:

Tell as few high-level stories as possible. Ideally, tell just one.

Here's an example:

Drift stopped listing "products" on their website and started talking about the "platform" as the product, "demoting" what used to be called products (Drift ABM, Drift Email, etc.) to "features" available in higher pricing tiers.

Most SaaS companies should have only one “product" and market new functionality as features (bundled through pricing plans).

That's because tere's a story cost to introducing new, named products: You complicate the buying decision for prospects by forcing them to sift through multiple product stories and figure out which is right for them. It's less friction if they're pricing/packaging options of a single product.

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2. How to find “feature-product” fit

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WHY IT MATTERS

We already know that product/market fit isn't enough. Casey Winters says you also need feature/product fit.

Many product teams try to improve their core product, increase engagement and drive growth by launching new features. Yet, many feature launches fail. Why is that?

LEADER OPINION

CASEY WINTERS, growth leader formerly @ Pinterest, Grubhub, and Greylock Partners, on how he decides whether a new feature has feature/product fit:

For a new feature to find fit and create product value, it needs to check all three boxes of the feature-product fit checklist (with special attention paid to the third checklist item):
  • Retention for that specific feature
  • Scalable adoption for that feature
  • It improves retention, engagement, and/or monetization for the core product
The last point is key. Not only do the products they're building need to be used regularly and attract their own usage to be successful, they also need to make the whole of the product experience better.

What happens when a feature has retention and adoption, but doesn't increase retention, engagement, or monetization for the company? This means it's cannibalizing another part of the product. This might be okay. As long as those three components do not decrease, shipping the feature might be the right decision.

You'd be surprised at how many core product features are shipped when the new feature decreases one of those three areas [retention, monetization, and acquisition]. How does this happen?

The team working on the feature is motivated by feature usage instead of product usage, so they force everyone to try it. This makes the product experience more complicated and distracts from some of the core product areas that do have feature-product fit.

If you own a feature, your job is not to get people to use that feature. Your job is to find out if that feature has feature-product fit.

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3. Price against value delivered, not on feature access

  Image from ProfitWell's  Value Metric Benchmarks Report     

Image from ProfitWell's Value Metric Benchmarks Report

 

WHY IT MATTERS

A benchmark report from Profitwell shows that pricing models based on value metrics result in faster growth and higher retention when compared with ones based on features.

Value metrics align to how your buyer receives value from using your product.

  • As your user gets more value from your product, your value metric grows.
  • If your pricing is based on value metrics, your revenue grows too.

Examples of value metrics for SaaS companies:

  • usage thresholds (the number of help tickets managed in a customer service product)
  • seat thresholds (the number of customer service representatives using the product)

With value metrics, your customer only pays more when they are getting more value from your product, so your growth aligns with your customer's success.

LEADER OPINION

PATRICK CAMPBELL, Co-founder & CEO @Price Intelligently:

Companies that have value metric based pricing are growing at nearly double the rate as their feature differentiated counterparts - and the gap is widening.

Gross churn rates of those companies who are utilizing a value metric are half those of those pricing based on feature differentiation.

Plus, raw expansion revenue as a proportion of overall revenue is higher - with value metric companies seeing roughly 10 to 25% higher expansion revenue on an absolute basis.

This growth differential for value metric companies is because you’re baking expansion revenue directly into your pricing model. If you’ve aligned your value metric correctly with your target customer base, then as they use more of that metric, they’ll naturally be inclined to pay more, because they’re getting more value. Plus, you won’t have to fight tooth and nail to convince them to upgrade for a feature they probably don’t need.

Clearly a value metric is the way to go, but what are some signs you’ve hit the right one? First, I’d make sure you’re seeing this type of throughput from an expansion revenue perspective.

If you’re seeing less than 15% of your revenue from expansion, you’re probably using the wrong metric.

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4. Two strategies for de-risking mobile launches

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WHY IT MATTERS

Recent numbers from App Annie show that consumer spending on Google Play grew 25% in Q1 2018, year over year, largely from US growth.

For years, companies took an iOS-first mentality to developing mobile products, and used Android as their low-risk experimentation sandbox.

But, as Google Play has closed the gap to become a mainstream platform, mobile developers are on the hunt for the next frontier for both growth opportunities and low-risk experimentation.

LEADER OPINION

SHAMANTH RAO, previously growth @Zynga and now VP of Growth @FreshPlanet:

As Android matures, the answer for most companies looking for a testing ground isn’t the next biggest platform.

Other platforms don't have significant volumes and their user behavior is not representative of iOS/Android users. We see significantly different retention & monetization patterns that would not be helpful in testing features for iOS & Android.

Instead, when you're looking for quantitative data and you don't have a relatively sophisticated A/B testing infrastructure in your stack, test new features in a high-affinity or low-cost geos.

What gaming companies are doing:
  • soft-launch new games in countries like Canada and Australia because their retention & monetization patterns mirror the US
  • test in the Philippines because the cost of user acquisition is lower and they have in-game engagement and retention patterns that are somewhat similar to the US
If you want qualitative feedback, cultivate a list of power users and give them early access to beta builds with new features. We maintain a Facebook group of beta testers - an email list is another option - with which we share builds via TestFlight to get feedback before we release any features in the wild.

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Thoughts on Growth is Reforge's weekly newsletter of must-known updates and perspectives in growth. By subscribing, you'll join a few thousand PMs, marketers, UX folks, engineers and analysts at today's top tech companies. Check out today's edition below.