10 lessons on bootstrapping a $200m business | Patrick Campbell (ProfitWell)

1. 0:00 – 5:12

   Patrick’s background

   1. PCPatrick Campbell0:00

      The bratty thing here is that real professionals ship. Like, at the end of the day, like, real profess-... I don't care what... if you're a marketer, a product person, engineer. Like, it doesn't... Like, ops person, people ops. Real professionals ship and they ship at a pretty high frequency for whatever they're doing. In my opinion, your tempo framework is more important than your org design. And so, if you've ever had, like, a team that seems really, really smart but they're always planning or they, they don't really, like, ship a lot, or you've had trouble where everyone kind of gets it at the leadership level but then the team below them and below them seems to be kind of going in a different direction, you probably don't have enough alignment. And you don't have enough alignment on, like, what good looks like in terms of, like, tempo.

   2. LRLenny Rachitsky0:42

      (instrumental music) Welcome to Lenny's podcast where I interview world-class product leaders and growth experts to learn from their hard won experiences building and growing today's most successful products. Today my guest is Patrick Campbell. Patrick is the founder and CEO of ProfitWell which he bootstrapped and sold without any funding for over 200 million dollars. I've been a big fan of ProfitWell and of Patrick for many years. He's one of the most insightful and smartest people that I know, constantly sharing wisdom on Twitter and in his newsletter, primarily on pricing and retention and team building and all of the elements of building a successful SaaS business. I've been excited to get Patrick on the podcast since I launched it, and I think this may be the most action-packed signal to noise episode yet. We cover 10 topics in an hour including hot takes on team building, bootstrapping, shipping, competitive analysis, user research and of course pricing and retention. Do not miss this episode. It is one of my new favorites. With that, I bring you Patrick Campbell after a short word from our wonderful sponsors. This episode is brought to you by Vanta, helping you streamline your security compliance to accelerate growth. If your business stores any data in the cloud then you've likely been asked or you're going to be asked about your SOC 2 compliance. SOC 2 is a way to prove your company's taking proper security measures to protect customer data and builds trust with customers and partners, especially those with serious security requirements. Also, if you want to sell to the enterprise, proving security is essential. SOC 2 can either open the door for bigger and better deals or it can put your business on hold. If you don't have a SOC 2, there's a good chance you won't even get a seat at the table. Beginning a SOC 2 report can be a huge burden, especially for startups. It's time-consuming, tedious and expensive. Enter Vanta. Over 3,000 fast-growing companies use Vanta to automate up to 90% of the work involved with SOC 2. Vanta can get you ready for security audits in weeks instead of months, less than a third of the time that it usually takes. For a limited time, Lenny's podcast listeners get $1,000 off Vanta. Just go to vanta.com/lenny. That's V-A-N-T-A .com/lenny to learn more and to claim your discount. Get started today. This episode is brought to you by Amplitude. If you're setting up your analytics stack but not using Amplitude, what are you doing? Anyone can sell you analytics while Amplitude unlocks the power of your product and guides you every step of the way. Get the right data, ask the right questions, get the right answers and make growth happen. To get started with Amplitude for free, visit amplitude.com. Amplitude, power to your products. Patrick, welcome to the podcast.

   3. PCPatrick Campbell3:33

      Thanks for having me, man. Good to, good to finally... We've been texting chatting for years now and I just realized we've never, we've never had an actual conversation. So this is, this is where the relationship and the friendship ends because we realized how awkward we are together, I guess. (laughs)

   4. LRLenny Rachitsky3:47

      (laughs) I highly doubt it. I hope that doesn't happen. I wanted to get you on this podcast ever since I started this podcast. It's always been on my list. Uh, you're just generally one of the smartest humans and most amazing humans I know, and so thank you for joining me on this podcast.

   5. PCPatrick Campbell4:02

      We gotta, we gotta introduce you to more people, but I, I appreciate that.

   6. LRLenny Rachitsky4:05

      (laughs)

   7. PCPatrick Campbell4:05

      I appreciate that.

   8. LRLenny Rachitsky4:06

      You're humble, humble man. So usually what I do with these podcasts is I have kind of just, like, one main topic that I focus on. But I feel like you're such a renaissance man of a brain that I thought it'd be more fun to go through 10 different topics and kind of, like, power through them and see your perspective. I feel like you have all these contrarian takes on things and these, like, interesting insights. And so what I want to do is just go through 10 topics and kind of just get a sense of what's, like, a big mistake founders companies make in this area, what's maybe a big opportunity they miss, or just, like, what's a hot take on this topic? How does that sound?

   9. PCPatrick Campbell4:43

      Yeah, 100%. Let's do it. I, uh, am gonna change my Twitter bio to that, renaissance of a brain. Uh, that's, that's, that's a good missive for me. Yeah, appreciate that.

   10. LRLenny Rachitsky4:53

       Just, yeah, just Lennaissance, uh, tribute that quote. That'd be hilarious. People would be like, "What the hell is he talking about?" Anyway, let's just jump right in. First topic is building your team as a founder or just a leader of any kind. So here's the question. Just what, what are the biggest mistakes people make building

2. 5:12 – 7:38

   Building a team

   1. LRLenny Rachitsky5:12

      their team? What are the biggest opportunities people miss when they're building their team? And then just... Or just generally what's, like, your take on how to best approach building your team as a, as a founder or just a leader of people?

   2. PCPatrick Campbell5:23

      You always have to start answers with cliches and I think the, the biggest cliche with building a team is, is team is everything, right? Like, if you're listening you've, you've heard that, you've probably said that to somebody or, you know, gotten mentored on that. And I was told that in the early days of, of building and I, I actually thought it was terrible advice. I thought it was going to be like the product or marketing or something that was going to hold us back. But I think that although team is everything and I truly believe that, if you look at most data or most behaviors that most companies make, this isn't actually how we think or what we do. Let me give you two fundamental issues. I think the first one is we confuse team by being everything to all people, to accommodating to every single person. And especially in tech the last couple of years, maybe that's going to change a little bit now.But it was always like, "Oh, everyone needs to be, like, happy." And I think that's a really, really big misconception because, uh, you, you're not there to make everyone happy. You're there for some sort of mission and some sort of goal, and you want to set up the culture and the team in a way that gets to that particular goal. And I think the little bit more actionable way to look at this is, I don't think we actually focus on our team. The average tenure of a manager in tech right now is about 15.7 months. I actually went and looked into this, mainly because we, we got into hyper-drive about team a couple of years ago. The average time a report has the same manager in corporate tech is only about 10.8 months, so just under 11 months. And there's no way that team is everything, or at least we, we actually believe that when the purveyors of your team, your management only lasts that long. It's, it's just impossible. And I think for the most part, people ops is an afterthought, and if, even if you get into the history of HR, which we should not do 'cause that's an entire podcast, it's all about reacting. It came out of the labor movement in, you know, the mid-1900s and it was all about, you know, "Hey, how do we, like, CYA?" Rather than, like, "How do we push our team forward?" And I think in tech, we had the opportunity to do that, but we, we haven't really focused on our team as much. So I don't know if I answered your question, but that's kind of the scope of that problem, I think, is, is we don't actually focus on our team. We don't actually focus on our team in the context of the mission. We kind of just hire people, hope they're really happy, and, and obviously I'm generalizing, but if you look at, you know, the stats and you look at kind of what's happening, that's, that's, that's the, that's how it shakes out.

3. 7:38 – 10:41

   How ProfitWell handled a conflict using their guiding principle, the most charitable interpretation

   1. PCPatrick Campbell7:38

   2. LRLenny Rachitsky7:38

      Is there something you've done in building your company that has kind of been counter to that? Something you've learned about ... 'Cause I, I totally agree. People always talk about team, team, team, and then that's often really sucky to work at a lot of companies, and clearly they don't c- care that much about your experience.

   3. PCPatrick Campbell7:52

      So super actionable things that we've done, I think one, it, it kind of comes back to the baseline feedback or advice you've probably received or if you're listening to this before, which is, you can't be everything to all people. So like, who are you for? Like, who are you for? And who are you not for? I think really defining that in your values. And values aren't values unless there's an actual trade-off, right? And so, we had things like optimize for the long term. There's a clear trade-off when we optimize for the long term. You probably give up short-term revenue, right? You also have different types of people that do better at the particular company than not. One of the more controversial things we did is, is we talked a lot about behaviors, and the one thing that we had is this thing, this concept known as the most charitable interpretation. It's not something we made up, but there was this idea that basically when there's conflict or when there's some sort of confrontation, the way that you handle that confrontation was really, really important to us, and the way that we wanted our teams or the people that we wanted to hire for basically would take the most charitable interpretation of that confrontation. So Lenny, if you were like, "Hey Patrick, I like your shirt," and I just didn't like when people commented on my shirt. Instead of getting pissed off, going to HR or, like, getting mad at you, what we would do is we'd say, hey, like ... The, the right way at ProfitWell to handle that was be like, "Oh, he didn't know so I'm not gonna bring it up," or, "Hey Lenny, you probably didn't know, but, like, I don't really like when people comment on my shirt." It seems super trivial, but when you have over 20 people, all of a sudden these things start to come up, and I think most of the time we infantilize our teams where we let them run to kind of HR or we have different policies or all of these different things, when at the end of the day you're paying an exorbitant amount of money for very smart human beings to basically do stuff. And you want them basically working together and not having to go in this run-around with policies and people to kind of push things forward.

   4. LRLenny Rachitsky9:41

      I love that. It reminds me of something at Airbnb where our head of product was always encouraging us to assume good intent from the other person.

   5. PCPatrick Campbell9:48

      Yeah.

   6. LRLenny Rachitsky9:48

      That just like-

   7. PCPatrick Campbell9:48

      Same concept.

   8. LRLenny Rachitsky9:49

      ... what is the good version ... Yeah. Of, like, what they're trying to achieve. It's unlikely they're trying to cause harm.

   9. PCPatrick Campbell9:54

      But the important part is, and this is where, like, you really care about your team, is if you believe that, and it's okay to have a culture that doesn't believe that. I, it's not a culture for me and that's okay, that's the entire point. But if you believe that, then people who have trouble assuming positive intent or who have trouble taking the most charitable interpretation, they, they can't be at your company, and they have to go and you have to find ... And we would have people and we didn't always defend this, and when we started defending it, everything got better. But all of a sudden we would say like, "Hey, like, it seems like this is really tough. This is how we think about things. This is how we handle this type of behavior here. If that's hard for you, let's find you another job." And thankfully we're, we're not digging ditches here. We're all working in tech, and so it's easy, quote unquote, enough to find another gig even in, you know, economies like now.

4. 10:41 – 12:19

   Why new hires need to fit in with the company culture

   1. LRLenny Rachitsky10:41

      That reminds me of, there's this guy Douglas Adkin who I worked with for a while who helped us craft the core values at Airbnb, and he made this point that your values need to be, needs to be clear, exactly like you said. Who doesn't fit? Who doesn't belong? 'Cause if-

   2. PCPatrick Campbell10:55

      Yeah.

   3. LRLenny Rachitsky10:55

      ... it's everybody, it doesn't, it's wordless. Like integrity, trust, like, everyone wants that and is, and-

   4. PCPatrick Campbell11:01

      Yeah.

   5. LRLenny Rachitsky11:01

      ... and, you know, fits into that, but it's only valuable if it's clear who's, like, not a fit. Exactly how you're saying it.

   6. PCPatrick Campbell11:07

      Well, and we get this fear that accommodation culture again where it starts even in the interview process where like, "Oh my God, we need these hires. We need these salespeople. We need these engineers." So we don't, we don't end up being upfront with these values and these trade-offs in the interview process, and then all of a sudden you spend a lot of time and a lot of money hiring someone who just doesn't fit, and I think that's really, really bad for them. It's really bad for you. And so that was the other thing is, we would pull all of this forward into the interview process and talk about it and basically say like, "Hey, if, if this is not how you think, that's okay. We're not better than you. You're not better than us. It's just this is how we do things here." And I think a lot of times we're, we're scared to do that because we have that founder, that exec fear of, you know, "Hey, we have to get this thing done," and the only way to do that is to, you know, do X, Y or Z when in reality that's actually gonna, you know, make your deadline go out further than actually focusing on, you know, alignment as much as humanly possible.

   7. LRLenny Rachitsky12:00

      Next topic, bootstrapping. I feel like you're probably in the bootstrap hall of fame. You built a company, uh-

   8. PCPatrick Campbell12:06

      There we go.

   9. LRLenny Rachitsky12:07

      ... without ...

   10. PCPatrick Campbell12:07

       That's all I've ever wanted. (laughs)

   11. LRLenny Rachitsky12:09

       (laughs) I think you're in there. So you t- you tell me if I'm missing anything, but basically you bootstrapped a company, sold it to, for $200 million. I don't know if I've heard of anything like that.So what's your

5. 12:19 – 13:38

   The bootstrapping vs. funding debate

   1. LRLenny Rachitsky12:19

      hot take? What are mistakes people make around bootstrapping?

   2. PCPatrick Campbell12:22

      The, the basic idea is bootstrapping is for lifestyle businesses that want to cash flow. Funding is for companies trying to create a billion dollars in annual revenue. And that's, that is something that, that answer offends everybody. Like, that answer offends, like, the indie friends I have. They're gonna be like, "Oh, what about Basecamp, Wistia, ProfitWell?" And, and I'll tell you, like ProfitWell, we, this was a big mistake. Like yes, it was a great exit. We sold for over $200 million, et cetera. But we probably, if we had taken money, we, we could have had a billion dollar exit or we could have kept going, and we should have taken money earlier in our life cycle. This was actually a big mistake 'cause we got hooked on the efficiency, and that was, that was great, but we could have moved even quicker than we were. And you know, in hindsight it's 20/20, and you know, I'm, I'm, I'm obviously not crying over this, but it, it's one of those things that I think that you have to know who you are and you have to know what your goals are for a company. And our biggest thing was we wanted to build a big company, and we were going after that, but we weren't doing the things in order to actually make that happen, which is i.e. getting funded. So yeah. That's, that's, that's kind of my hot take, and hopefully I offend everyone. But it's also just kind of the end of the Twitter argument where it's like, yeah, it depends, but that's, that's kind of the thing to think about.

6. 13:38 – 18:08

   When founders should think about raising funds

   1. PCPatrick Campbell13:38

   2. LRLenny Rachitsky13:38

      It's interesting 'cause usually you hear from the other end, someone that raised VC money is like, "I shouldn't have raised money. I should have bootstrapped this thing longer." It's cool to hear from the other side someone that did that, like, "No, we maybe should have raised some VC money along the way."

   3. PCPatrick Campbell13:50

      Well, I think there's a lot of ideas that should not raise money. (laughs) Like, there's a lot of ideas that should just be great cash flowing, and they can be large businesses. You know, there's large businesses cash flowing tens of millions of dollars for, you know, without funding, right? And I think it's just one of those things that you need your goals, your model, and ultimately your, your funding situation all to kind of match. And I think a lot of folks, they go in the opposite direction where they're just like, oh, everything on TechCrunch, everything on Twitter is like, "Hey, I need to raise money, raise money, raise money." And they don't take a step back and go like, "Well, that idea, uh, it's just not a very good business to get money." And money is so plentiful even now still that, you know, it is easy, quote unquote, relatively easy to, to raise money on just not a great idea. And so that's, that's, you know, obviously problematic.

   4. LRLenny Rachitsky14:37

      I've been thinking about writing a post on that exact topic, something like, "Your startup probably is not venture scale because a lot of people think they should, they could raise money and build a huge business." What's like a heuristic that maybe tells a founder that they shouldn't raise money, it's never gonna be a billion dollar company?

   5. PCPatrick Campbell14:53

      I used to look at it, you know, 10 years ago you'd say is this a company that can get to 100 million in annual revenue?

   6. LRLenny Rachitsky14:59

      Mm-hmm.

   7. PCPatrick Campbell14:59

      And now those numbers are all changed because IPOs are happening closer to 200, 250 million, and, you know, the markets are all over the place depending on the day. I look at this as if you are going to be that large company, you need to get to a billion in revenue per year. It doesn't have to be overnight. It can be over 20 years. It can be, you know, it's not something that has to happen quickly, but that's how I think about it. And if I don't feel like there's a clear path to that, it doesn't mean I don't raise money. It just means that I take a step back and really think about that particular idea, because when you get on that treadmill, there's plenty of ideas that will sell for 400 million, 500 million. But then if you're on the funding treadmill and you look at how much money that that founder or that exec team ends up getting at the end of it, it's like, you might have been better just building a 50 million cash flowing business that, you know, you're getting more money, you know, from that, and you still have the choice to kind of sell it. So that's how I think about it. It's, it's a, it's a spectrum and it's on the margins there. It's not like a, a fixed rule. But the other thing I also think about, like, when I think about building my next company, w- we're gonna be bootstrapped for I don't know what. It's not a timeline, but I'd imagine probably the first 18 to 24 months, because I don't want to give up that equity for that funding on figuring out the idea. Obviously I had an exit, so I'm able to (laughs) I'm able to, like, afford that, and you know, I'm in a position where I don't have to worry about, you know, my own livelihood. But I think it's one of those things, if you can bootstrap for the, even if you're going after a funded idea, if you can bootstrap for the initial ideation and maybe even through product market fit, which is not an easy thing to do, but that's the ideal time then to raise because then you're just going, and you're going for the fences at that point.

   8. LRLenny Rachitsky16:37

      I really like that very concrete stat you shared, and that's exactly how we think about it. That if you don't think you can get to a billion dollars in revenue a year eventually, that it probably is not a venture scale business. And I think that just boils down to how large is the market. If there's not enough people that are gonna pay enough money to make this a billion dollar a year in revenue business, you probably shouldn't go down the VC treadmill.

   9. PCPatrick Campbell16:59

      And I think when you think about that, it opens up this world of options for you as someone listening to this. And, and, and so like, think of it this way. You don't have to have the pressure to create a billion dollars in revenue. If you can take a step back and be like, "Okay, I can create a $10 million business." Like y- you listening to this probably do, you're like, "Ah, I don't know." But like if you were a director level somewhere at a corporate company or you're leading product support, you can go create a $10 million business. It might not happen overnight. It might take 10 years, all these other things, but that's amazing. That's insane. Like, think of, you know, 20, 30, 40, 50 years ago, you'd have to have a corner store and you'd have to work 18 hours a day to build that type of, you know, ability or that wealth to then hopefully retire when you're 65 and sell the business for like 1X. Now, like, you can build a software company that's doing a million a year, have an amazing life, reduce the number of hours if you want, or go all in and make it into a 10, 100 million dollar company over time. And I think that's, that's amazing, and we should celebrate that rather than like, if it's not a billion, you're failing. But we should just know our limits. I think that's, that's the thing a lot of people fail at with funding.

7. 18:08 – 23:46

   When and how companies should make pricing changes to their products or services

   1. PCPatrick Campbell18:09

   2. LRLenny Rachitsky18:09

      Next topic, pricing. You are probably the most, uh, okay, you're in the top, top 1% smartest, most experienced people on pricing. We could have done a whole podcast on pricing. Maybe we will-

   3. PCPatrick Campbell18:21

      Yeah.

   4. LRLenny Rachitsky18:21

      ... in the future.But as maybe one of 10 topics, what comes to mind as, like, maybe the biggest mistake people make in pricing, biggest, uh, opportunity they miss? Biggest hot take?

   5. PCPatrick Campbell18:31

      It's super boring, but the biggest hot take is you just have to do something once a quarter. That's it. Like, I've- I've been trying to teach about pricing for a decade now. I've- I've done a lot of different approaches on this, and I think the easiest thing is... Listen, you have three growth levers. You have acquiring customers, monetizing them, and retaining them. You're spending a lot of time and money on acquisition. You're spending some time and money on retention. You're probably doing nothing on pricing and monetization, and it's because you think it's this nebulous thing. And there are some nebulous aspects to it, but to make it super concrete, it is the revenue per customer. Look at that number, that one KPI, and you want that number going up and to the right. It's obviously going to go to the right over time. But you want it to going up over time-

   6. LRLenny Rachitsky19:19

      Mm-hmm.

   7. PCPatrick Campbell19:19

      ... you know, every single quarter. Not as high as your sales volume or your lead volume or your revenue maybe, but you want that number gradually going up. And just do one thing per quarter. The least sexy thing when it comes to pricing is have a pricing committee. If it's two-person company, it's you and your co-founder. If it's a, you know, 100,000-person company, it might be 30 people, but really, it's only eight people kind of central to that particular product. And then just realize there's a lot of things that influence that revenue per customer. There's the actual price, your packaging, your add-on strategy, your discount strategy, your price localization, freemium. It- there's a whole host of different things there, but just find one thing you're gonna do every three months. Put a calendar invite, let it renew every three months. You're gonna snooze it a couple of times, I get it. I've seen this many, many times before. But just do something, even if it's super small. Like, I- I guarantee you, it's just like any other thing you measure. As soon as you start measuring and caring about it, you're gonna start to do some stuff. Some of it's gonna go poorly, some of it's gonna go great. Then you're gonna do more stuff, and then just over time, all of a sudden that number's gonna go up and to the right. But just do something. That's- that's the basic idea.

   8. LRLenny Rachitsky20:24

      I love the simplicity of that. If I think about the- the pie chart of the things you will do and may change, there's... You mentioned a few. One is raise prices, one may be lower prices, one's probably change your pricing model. There's a couple more. I guess, in your experience, where have you found the biggest opportunities end up being, maybe early, in the early phase of a startup, in that pie chart?

   9. PCPatrick Campbell20:47

      The number one thing to figure out when you're thinking about the different pricing pieces, pound for pound, it's the pricing metric or the value metric. That's how you charge. Per user, per thousand visits, per thousand what's its, whatever it is. Consumer companies, i- it's a little bit harder. Physical good products, it's really hard, obviously, because you have that physical good. The physics, you know, you can't get over. But the reason this is so powerful is because if you get everything else, kind of, in your pricing wrong or not great, but you get that right, you tend to be okay when it comes to monetization. And the reason is, is because first, from an acquisition standpoint, like acquiring customers, you end up making sure that you get Disney coming into your product. They're paying Disney prices, and then you get Johnny or Jane Startup coming in and they're paying Johnny and Jane prices. You don't want them-

   10. LRLenny Rachitsky21:37

       Mm-hmm.

   11. PCPatrick Campbell21:37

       ... paying the same thing, 'cause obviously the value is different, even if they're consuming almost the same amount. So this allows you to kind of figure that line out. And then what's really beautiful about it is churn tends to be about 20 to 25% lower because people will downgrade, but they're using... You don't get this like, "I'm paying for so much and end up not doing, you know, not using a lot of it." It's like, "Oh, I'm using eight seats this month, I'm gonna downgrade," and it's just automatic. And then your expansion revenues typically double when you're using a particular value metric because instead of me having to resell you and being like, "Hey, Lenny, there's this really cool feature in this upper tier. Do you want this?" And you're like, "I already use the product, I don't really want this." Instead I just go, "Hey Lenny, congratulations. You now have 100 videos in your account? That's awesome. You guys must be growing. I'm just gonna bump you up to the 100 video plan. Let me know if you have any questions," right? Like, it's just a very, very implicit way to get expansion revenue. So that's the thing, pound for pound, that's the best. And then I would say if you have a lot of politics internally, which everyone does with pricing because it- it sits in the center of so many different teams, I would actually start with (laughs) a price increase. You should be increasing your overall price once per year if you're building. If you're not building and your support sucks and your NPS is low, then, you know, don't worry about it. But if your NPS is over 20, which is not a very high NPS, you should raise your prices once per year. The reason I- I suggest that is 'cause it gets all of the, like, BS and all the politics on- on the mat. You're gonna have to collect some data. You're gonna have to prove it to sales. You're gonna have to make sure you have the enablement. You're gonna have to make sure your messaging is. But it's a tight enough, non-nebulous thing that you're doing versus a value metric where you can have a bunch of debates about this metric or that metric and should you give 10 away versus 100 away. It's a good way to kind of rip the Band-Aid off. And most companies, most companies don't change their actual number that they're charging once but every three years. So if you haven't done it for three years, like, you're overdue for it. So it's a good one to kind of rip the Band-Aid off of.

   12. LRLenny Rachitsky23:30

       This episode already, pound for pound, I think is- is up there. This is amazing. I'm excited to get to the next topic. But first I'll plug, you wrote a guest post to my newsletter about pricing and we'll link to that in the show notes, and that goes deeper into this value metric and how to think about pricing. So check that out.

8. 23:46 – 28:48

   Strategic retention and tactical retention, and why the latter is often missed

   1. LRLenny Rachitsky23:46

      Next topic, retention. So when I think Patrick Gample, I think pricing and retention. So again, this is like, could be its own podcast episode but let's just pick one thing to talk about. What are the biggest mistakes people make, retention opportunities-

   2. PCPatrick Campbell23:59

      Yeah.

   3. LRLenny Rachitsky23:59

      ... or just hot take?

   4. PCPatrick Campbell24:00

      The reason I started writing about retention and publishing data on it is 'cause I didn't want to be the pricing guy. I was trying to, like, basically-

   5. LRLenny Rachitsky24:07

      (laughs)

   6. PCPatrick Campbell24:07

      ... differentiate myself, and then, you know, I was trying to be the SaaS guy, but there's... That's- that's too broad. But anyway, so retention. Th- the hottest of hottest takes, and this is the one to offend 90% of the list- no, it's not gonna offend, but this is a product podcast. That's how I think about it.

   7. LRLenny Rachitsky24:24

      Yeah.

   8. PCPatrick Campbell24:25

      Product homies.You fail at realizing, most of the time, that there are two types of retention. There is strategic retention, and then there's tactical retention. Strategic retention is all the stuff that you as a great product leader or great product team are doing. Your ICPs, your time to value, road mapping the right features. Figuring out your mission metric, agonizing over every little thing, right? All the paper cuts of being a great product leader. But because you're so focused and so biased towards that, you miss out typically on this thing we call tactical retention. And these are things like payment failures, term optimization, cancellation flows, off-boarding, et cetera. And if you're past product market fit, this area, this tactical retention, it's typically about 25 to 40% of your churn problem. Which is a significant amount, but you don't really look at it because again, you're like, "I got to go focus on features. I got to do this, and I'm going to go, you know, be-be this great product leader." And so, because product is so entrenched in that thinking, that that problem can be solved with like two months of work. Like it's not that much work. Putting in basically a marketing funnel when people's credit cards fail. Not that hard. Not rocket science, right? Doing off-boarding, like being really smart with off-boarding. And one little tidbit I looked at, like two million cancellation flows. We built some products for this, that's why I have this data, just to be clear. But looked at like two million cancellation flows and we found you have about 18 to 30 seconds when someone hits that cancel button. We found you should ask two questions. One, "Why are you leaving?" Multiple choice. Don't do the free response. You get like one out of a hundred great responses and 99 are not great. And then the other question we found works really, really well is, "What did you like about the product?" And the reason that works so effectively is because that person's on a freight train to basically cancel. They're like, "I'm already done. Oh yeah, this is why I'm leaving." The minute you ask them what they like, you're basically tapping into this nostalgia effect and you're stopping that freight train. And then when I have that information, it's great for our product team, it's great to figure out like what's working, what's not, what should we do more of, was this a good customer? But then based on their engagement data, their plan, whatever, all their like firmographics about them plus their answers, then I can offer up a salvage offer or a pause plan or a maintenance plan or these types of things. But all this type of stuff, this is really, really powerful and I always suggest like finance teams should just take this on, because product teams are always going to be thinking so much more in the future rather than like fixing this right now. But that's, that's the hottest take I got for, for retention.

   9. LRLenny Rachitsky27:00

      That's a great, awesome take. And I want to plug ProfitWell right here actually. I know you guys offer a product that does this and I've used it, so I don't know if this is still true after the acquisition things change, so I use ProfitWell for my newsletter. I just plug it into my Stripe account and it's like the most amazing free product 'cause it just tells me everything I want to know. And then it's got this cool feature, you just turn it on and it does these things for you. Like it tells people, "Your credit card is about to expire. Hey, this card failed. You should try uh putting in a new card." So that's a cool uh-

   10. PCPatrick Campbell27:27

       Yeah.

   11. LRLenny Rachitsky27:27

       ... cool reason to check out ProfitWell.

   12. PCPatrick Campbell27:29

       Thanks man, I appreciate that. And it, it's actually kind of cool because I think for us, because the fact that product teams don't really think about this stuff, we stumbled into this like whole thesis that, you know, could be a whole episode, which is like all the product features are done for you. So what I mean by that is, like you've noticed this, but when you log in and set this up, you're not writing emails, you're not setting up the flows. And the reason is 'cause we have all this data from, you know, $30 billion in ARR flowing through our metrics product that we can like study and like understand what works and what doesn't. And that kind of stumbling that is useful for folks is what we kind of discovered is this anti-active usage type product, like it retains itself at a really, really high rate because people are just getting the value and they don't have to use it. And so what we kind of found, this is like a little, little bonus thing on retention, when we look at churn rates across different types of products, those products that are workflow products you use every single day or mostly every single day or those products you don't have to log into but you still get the value, that's where the lowest churn rates are, the highest retention. Anything in the middle, it's like death. And this is why ProfitWell metrics ended up being free because we were just like it's, it's terrible to build a metrics or an analytics product. It's so hard because people just don't appreciate how much work goes into it, therefore they don't retain at a high rate, they don't want, they're not willing to pay that much,

9. 28:48 – 29:56

   Why people don’t want to pay for a SaaS analytics tool

   1. PCPatrick Campbell28:48

      et cetera.

   2. LRLenny Rachitsky28:49

      I think that alone is a really interesting story and I don't know if we should get too deep, but just to like highlight what you just said, so many startups build an analytics product that it's just like a better way to measure and track all the stuff that's going on. And what you found is you won't make money doing that. People don't want to pay for like a SaaS analytics tool.

   3. PCPatrick Campbell29:08

      No. You have two options. You go upmarket and you pretty much become like a data product with-

   4. LRLenny Rachitsky29:14

      Okay.

   5. PCPatrick Campbell29:14

      ... a UI, or you go super niche. And even super niche, like it's super hard. And it's just because, I don't know, like everyone's trying to kill a spreadsheet and it's like you're not going to kill a spreadsheet. All, all real analysts will do everything in a spreadsheet. So for us it was we want to give you a clean UI and then we want to help you get this data into spreadsheets or email or you know, whatever you're using for your databases, things like that.

   6. LRLenny Rachitsky29:37

      Yeah. Like I don't want to make this an ad for ProfitWell, but it's like founders come to me with pitches of like, "Hey, I built this sweet analytics." I'm like, "Just look up what ProfitWell is giving away for free. That's going to be a high bar to exceed."

   7. PCPatrick Campbell29:49

      Yeah, yeah, yeah. We were going to try to sell it, like we were trying to sell it in the beginning. But what ended up happening is we ran into all this and that's why we didn't.

10. 29:56 – 34:42

    The importance of mission metrics for shipping

    1. PCPatrick Campbell29:56

    2. LRLenny Rachitsky29:56

       All right, back on track. Topic number five, shipping. What have you learned about shipping? What are mistakes people make when trying to ship faster or ship more efficiently?

    3. PCPatrick Campbell30:05

       Yeah. The s- the bratty thing here is that real professionals ship. Like at the end of the day, like real profess- I don't care what, if you're a marketer, a product person, engineer, like it doesn't, like ops person, people ops, real professionals ship and they ship at a pretty high frequency for whatever they're doing. And so the thing that we thought a lot about is, is, is like in my opinion your tempo framework, and I'll explain a little bit more of what that, that means in a second, is more important than your org design.And so, if you've ever had, like, a team that seems really, really smart but they're always planning or they, they don't really, like, ship a lot, or you've had trouble where everyone kind of gets it at the leadership level but then the team below them and below them seems to be kind of going in a different direction, you probably don't have enough alignment and you don't have enough alignment on, like, what good looks like in terms of, like, tempo. And so, the way we looked at this was we have to establish, like, mission, mission metric and guiding principles at the top. So, what do we do? How are we measuring it? And, and how we're going to get there. So, for us it was we automate subscription growth. Our mission metric was the amount of revenue that was on ProfitWell because that was good from acq- acquisition but it also meant we were doing our jobs. Then how we're going to get there, we want to be the most helpful brand in SaaS, and then we also, we're gonna do it for you. This whole thing that I just kind of talked about. Then what we did is we established at the leadership level. Every org leader, so marketing, sales, et cetera, they need a framework that fits into that overall. So, marketing at ProfitWell was this whole inbound media, so lots of podcasts, video series, et cetera. And the most important part of that was they needed to determine what good looked like in terms of shipping. So, if we're like, "Hey, we're doing sales blah, blah, blah, blah, blah," or marketing in this case, "This many episodes per month, it's this many product launches per month, this many big product launches per quarter," whatever it is. And then your leadership is basically a conversation of, like, "Great, that's what good looks like, we agree. How do we close that gap?" And then all of those conversations are like, "Okay, you only shipped one thing per quarter, we want to do one per month." "Why?" "Well, I don't have enough resources." We solve that problem or we, you know, figure out how to get them more resources, then they're not doing it again. "Okay, why?" "Well, there's this problem." And then all of a sudden you start to create this, like, you know, very high output team k- kind of across the board, and you also have this alignment so you don't, like, wake up nine months into someone being at your company and being like, "Well, I think Tim sucks." And it's like, well why did you just all of a sudden wake up and think Tim, Tim sucks? "Well, he's not shipping blah, blah, blah." Well, it's probably an org problem rather than, like, a Tim problem because, again, you vetted Tim. Tim was at this other company and apparently was a really great rockstar. So, what, what's the difference here? Like, you screwed up the hiring? Well, maybe 'cause that, you know, is really, really hard. But most of the time you just haven't set an expectation of, like, what good looks like in terms of tempo and then you haven't had that constant conversation to make sure that Tim has what he needs in order to ship.

    4. LRLenny Rachitsky33:00

       What was, like, a big learning, I guess, in doing that? Is that just something you built up over time of, "We need to create this tempo-"

    5. PCPatrick Campbell33:05

       Yeah.

    6. LRLenny Rachitsky33:05

       "... at ProfitWell and..."

    7. PCPatrick Campbell33:06

       Complete misalignment if you don't call it out on what good looks like. Just complete misalignment. Like, so-and-so is going and building, they think one product launch per quarter, or I'm sitting there and I'm like, "Well, we should have a medium one per month and then we should have a big one per quarter," right? Complete misalignment, and if you don't have a way to talk about that, like some sort of nexus to have that conversation, you o- you end up not having it, and then you end up creating this, like, friction and resentment on both sides because everyone thinks, again, like, Tim isn't doing well when it's like, that's, that's not what's happening. It's just the expectations aren't set. And then what was really cool is that you start to find out that the why they aren't hitting what good looks like is, is all solvable, and most of the time it's this team isn't talking to this team. "Oh, great. Well, marketing wants to do these launches, product isn't providing them stuff. All right, let's get these two people together, have this conversation," 'cause we didn't have product marketing or official product marketing. They have this conversation, then all of a sudden it's like, "All right, Neil, you need to provide one thing a month. There's so much stuff we've built." (laughs) A lot of it we haven't announced. "You just need to provide one thing a month. Marketing will worry about how to, like, position it in a way that, you know, isn't too far, isn't, like, overselling it, but also, like, gets us something per month and you can approve, like, that positioning." And then all of a sudden it's, like, you start getting this, like, tempo going which, you know, obviously is the goal.

    8. LRLenny Rachitsky34:27

       Reminds me, David Sacks has this awesome post called The Cadence-

    9. PCPatrick Campbell34:30

       Yeah.

    10. LRLenny Rachitsky34:30

        ... around how marketing and o- and product and sales should operate and create this kind of cadence of being s- aligned but also, like, offset schedule, which, uh, we'll link to that-

    11. PCPatrick Campbell34:40

        Yeah.

    12. LRLenny Rachitsky34:40

        ... in the, in the show notes if you haven't seen it.

    13. PCPatrick Campbell34:41

        Yeah, that's great.

11. 34:42 – 40:21

    First-principle thinking, the “5 whys,” and Patrick’s alternative approach

    1. PCPatrick Campbell34:42

    2. LRLenny Rachitsky34:42

       Next topic, first principles thinking. As a renaissance man of a brain, I feel like-

    3. PCPatrick Campbell34:48

       (laughs)

    4. LRLenny Rachitsky34:48

       ... you spend a lot of time thinking about from first principles, and in our conversations you always have really interesting approaches to things. What have you learned about actually implementing first principle thinking, which, you know, people are always talking about, "How do I, how do I be first principle?"

    5. PCPatrick Campbell35:01

       Yeah, people, people always talk about it, and I have... There are no good courses that I have found on first principles thinking. There are good blog posts, but the good blog posts kind of explain what it is and then that's kind of it. Like, it's like, "This is what it is, and here's an example," and most of them quote Elon Musk about rockets and breaking down, you know, the, the different parts. So, what I kind of found is there's the five whys which I, I think someone's talked about before, or at least I've read it in the newsletter before, which is just you keep asking why, right? You know, you're kind of, "Well, this is this way." "Well, why is that?" "Well, this is this way." "Then why is that?" I found the model that people who aren't great at first principle thinking or aren't great at talking about it, that kind of helps them unlock, is this thing called problem cause solution. So, I learned this in debate in college and high school, and it basically is you have a problem that you're trying to solve. Well, you can't actually solve a problem. So, if we talk about world hunger, you can't just solve world hunger because it's kind of a symptom, it's, it's this problem that exists. Well, then I want to break down, what are all the causes of world hunger, right? And it's a little more brainstormy when you have these conversations with folks, especially, again, when they struggle with this. And all of a sudden I could list out all the causes, irrigation crisis, aid not getting to where it needs to be, you know, famines, drought, et cetera. And then what I can do is I can rank those causes in terms of, like, magnitude, right? So, if we're trying to solve world hunger and for some reason we discovered irrigation was the biggest problem, like, if we solved irrigation, you know, everything would be great.Well, then I'm going to align my solutions to all of those different causes. And you get this, like, nice alignment between, well, I can solve a cause, and if I solve the cause that's big enough and proper enough, I'm going to eventually solve the actual problem, or mitigate the problem, I should say. So, that's the framework that I found really, really useful. And it also, it also, it's great for using for presentations, it's great for mission, it's great for all of these different things because it's a little bit more actionable than just the five whys, which is more of a way to have a conversation.

    6. LRLenny Rachitsky37:06

       So the way you operationalize this, so problem, cause, solution. You're saying, like, on strategy templates you kind of write out, here's the problem we're trying to solve, here's the source of the issue, and then here's how we're approaching it. Can you talk a bit more about how you implement this at- at your company and the people you work with?

    7. PCPatrick Campbell37:22

       Yeah, totally. So, I'll say big, medium and small things, and I'll try to be really quick. So big things, it's- it's like, what are we facing? Oh, we, you know, we're- we're gonna try to charge for this metrics product, now there's a bunch of competitors, the customers don't really care about it, so we have this problem. And the problem is growth, right? Like, how do we grow a product like this? How do we grow our company, right? And what's really interesting about, like, a big problem or a nebulous problem like that is you end up having a lot of conversations about the problem. Which I think is more useful sometimes about, like, well, what are we actually trying to do? Like, let's get alignment as much as possible. And then it's like, okay, well what are the causes of our growth problem? Well, people aren't willing to pay for, uh, metrics. Getting accuracy is really, really hard, actually. The market's dense, all these other things. Well, what are some of the solutions? Well, we could do this, could do this, could do this. And normally what ends up happening is the solution ends up being kind of an approach. So our approach that kind of mitigated some of- or solved for some of these causes and mitigated the problem was freemium, and then these paid products that were all pay for performance, because with pay for performance you could charge a significant amount more in a market that only has, like, 100,000 logos, right? Which is a really small market. And so that- that's kind of an example there. Medium and small, like, let's talk about a support ticket, right? Like, this person's pissed off. They're coming in, they're pissed off. What are the causes? Well, there's a lot of different causes that were probably, like, oh, we didn't get back to them in time, and then we gave a crappy solution, we gave this. It just kind of allows us to kind of, like, look at the problem, and so it's- it's- it's more of a way of thinking on that level. And it's not happening, you know, we're not going to have an hour long conversation about a support ticket, but the support folks that I've talked to about this, they go, "Okay, cool. Why is he upset?" Well, we didn't get the answer in time. Okay, my first line is going to be, "Hey, I understand we didn't get you an answer quick enough," like, "Apologies for that." You know, it- it just allows them to have a little bit of, like, an extra second to kind of think through things and kind of move forward with it.

    8. LRLenny Rachitsky39:21

       I love that. I love that, uh, big example and the small example. This episode is brought to you by Dovetail, the customer insights platform for teams that gets you from data to insights fast, no matter the method. There's so much customer data to get through, from user interviews to NPS, sales calls, usability tests, support tickets, app reviews. It's a lot. And you know that if you're building something, hidden in that data are the insights that will lead you to building better products. And that's where Dovetail can help. Dovetail allows you to quickly analyze customer data from any source and transform it into evidence-based insights that your whole team can access. If you're a product manager who needs insights to motivate your team, a designer validating your next big feature, or a researcher who needs to analyze fast, Dovetail is a collaborative insights platform your whole team can use. Go to dovetailapp.com/lenny to get started today for free. That's dovetailapp.com/lenny. All right, next topic,

12. 40:21 – 43:15

    The importance of frequent customer research

    1. LRLenny Rachitsky40:21

       customer research. I feel like you have a pretty interesting perspective on customer research, so let's go into it.

    2. PCPatrick Campbell40:27

       I- I think I have, like, the 85-year-old curmudgeonly man perspective on customer research.

    3. LRLenny Rachitsky40:33

       (laughs) .

    4. PCPatrick Campbell40:34

       So I- here's the thing. Everything in your business, it does not matter what type of business you have, everything is used to drive someone to a point of conversion or justify the product or the price that you're offering them. That customer is a human being you're driving to that point of conversion, and it's your job to understand how they perceive you, how they perceive their problem, how they perceive the world, like, around them, around your products. Like, we all know this on a philosophical level, but here- here are some fun facts. So one, only one in five companies have buyer personas or ICPs. Only one in five. So we talk about this all the time, we retweet the articles, you know, we give the advice. So many of us give the advice. But then we look at our own companies, only one in five have some sort of segmentation ICPs, right? And then only one out of 10 companies actually do customer research or development on a quarterly basis. This should be a continuous thing, it should be a monthly, weekly type thing. Not saying you're, like, sending out surveys or having all these conversations on a weekly basis, but, like, only one out of 10 are doing quarterly, so that means the number that are doing monthly is even smaller than that. And I- I just think that's insane. And when we look at all data, and we have a lot of data on this, and this is something where I've- I've been talking about customer development for a long time, like, everything is better. Like, (laughs) everything is better. NPS is higher for organizations that have, you know, customer development functions or even just ICPs, um, or buyer personas, depending on what framework you're using. Willingness to pay is typically higher. The funnel is more efficient. CAC is typi- LTV to CAC is normally much, much higher. All those growth numbers, you're typically growing at a much, much higher rate, like a 15%, 20%. Like, not- not a small, like, delta. 15%, 15% to 20% higher rate. Retention's better. All these things are better. Um, and the thing that I think 20 years ago or 10 years ago, you didn't have to do customer development because, you know, and this is where the, you know, Keith Ripoix is just like customer research is dumb, or whatever his famous quote is. But you didn't have to do it because there just wasn't a lot of stuff out there and we all were riding the wave of the internet.But now the market's harder and harder, so like what are you going to do? Are you just gonna keep throwing stuff up against the wall? Or are you gonna actually do the stuff that all of us talk about doing, and actually do the research? And the research is hard. It's never going to be 100% accurate because you're gonna have to use your judgment, but like that's your job. And so that's more of a rant, I guess, than a hot take, but I think it's... I also think this is one of those things that AI kind of starts solving, especially all this, you know, generative AI because now you can just throw all that stuff into a workload and then all of sudden you'll get back a lot of the sentiment, all that kind of stuff, so you don't even have to do your, do, do the hard part anymore. But yeah, that's, that's my rant.

    5. LRLenny Rachitsky43:14

       Love

13. 43:15 – 46:13

    Simple strategies for doing customer research

    1. LRLenny Rachitsky43:15

       the rant. Maybe one follow-up question. Why do you think it is that companies don't do this? Like I love the point you made of they're like retweeting, yeah, research is great, writing blog style research is use- useful, we gotta do research. Why do you think they don't, companies don't do it? And then put one thing that maybe they could do tomorrow that'll bring them closer down-

    2. PCPatrick Campbell43:34

       Yeah.

    3. LRLenny Rachitsky43:34

       ... that path?

    4. PCPatrick Campbell43:35

       The one thing you can do, put a number on a whiteboard. Ten, you're gonna have ten customer conversations a month, just ten non-sales conversations. You're just gonna talk to ten people. Or you're gonna send one survey. And people are terrible at sending surveys. Like surveys are actually great, you just have to be good at sending them. And, and good is, it's not a high bar. It just means that like you have 30 to 45 seconds of someone's time, unless you're compensating them. Don't send 45 question surveys by email where the first question is, "What's your email?" Like, you know, don't do that. But just do, just put a number on the board. I think the reason we don't do it is because it was, quote unquote, "easy to get away with not doing it." Like if you really think about a funded environment, and, and some, some products are so paradigm-shifting that, eh, like the biggest misconception about customer research is like I have to listen to them. You don't have to listen to them at all. You just have to understand where they are, and then you're filtering all of that with all this other data, and then you're making a decision, and you're earning your paycheck as a product person. Typically it's the product person, but also in marketing. So I, I think it's just, it's just one of those things where you could get away with not doing it. Now though, the way the market's going, like you're just starting to see this more and more. You're starting to see more tooling. And the reason you're seeing more tooling is 'cause they're starting to connect it to like actually being useful, rather than you having to set up your own kind of customer development program. I think the other, the other reason typically people haven't had to do this is because there's a lot of brute forcing that's done in startup land, and it only lasts so long. So all of these companies that raise a bunch of money, get the $100 million exit, everyone's clapping 'cause it's a big number, but like cap table's screwed, everything's bad, you know, like it's a win ‘cause it's a win, but like all of those companies are ones who are able to brute force to a certain level, and they never learned how to like actually understand their market or their customer. And, and I think that, that kind of story will continue to happen as long as we have a lot of capital flowing in the market. But I would rather not be that company. I would rather be the company that, you know, gets the $100 million, $200 million exit with bootstrapping or, you know, builds the billion dollar annual revenue company because I know my market, I know my customers so well.

    5. LRLenny Rachitsky45:47

       Talking to customer's good. You should do it. Great reminder. People are gonna listen to this like, "Yes, we should do this," and then they'll just move on. And that's-

    6. PCPatrick Campbell45:54

       Oh, I, my joke when I give talks is only 20% of you are gonna do this. Uh, you know, when I give a talk on it, and so like I'm not even gonna talk deeply on it. Like you 20%, come talk to me, I got a whole framework for you, that type of a thing, 'cause I think people-

    7. LRLenny Rachitsky46:07

       Yeah.

    8. PCPatrick Campbell46:07

       ... just nod their heads, and they tweet it, and they just don't end up doing it.

    9. LRLenny Rachitsky46:11

       Status quo is, it's hard to overcome

14. 46:13 – 51:06

    Understanding your competitors

    1. LRLenny Rachitsky46:13

       sometimes. We're onto our eighth topic, we got three to go, and it's on competitive intelligence, and that touches on a really interesting part of your background that I don't know a lot of people know.

    2. PCPatrick Campbell46:24

       Yeah, so my, my background, I started, uh, my career, I worked in US intelligence. I worked for NSA. And I, I was just a entry level intel analyst basically. I was only there for, for just over a year. And what, what was kind of interesting is you get taught first principles thinking in so many different ways 'cause y- you're solving essentially puzzles every day. Now those puzzles are like finding a bad guy or a gal, or finding this piece of information. Like those are all the puzzles, but you have to kind of think through like how to, how to figure this out. And a lot of those puzzles involve you have these number of entities, how are they gonna react? And you're trying to predict how they're gonna react, and you're also trying to help figure out how you're going to kind of react or, or act in the context of them, right? So like node analysis basically. And what's interesting from a startup or a business perspective is I think that "Don't focus on your competitors" is terrible advice. It's amazing advice for product teams. When you have a competitive intelligence program or you have competitive intel, I, I try never to share that with product ever, 'cause products should just focus on the customer. They should not give two craps what's going on with, you know, competitor A or competitor B, right? But as a overall missive, "Don't focus on your competitors" is terrible advice. And if I'm being charitable, it's just outdated because some fun facts, and I alluded to some of them before, over the past decade if you're building in tech, particularly in like SaaS or subscriptions, you now have 16 times the number of competitors if you started a business today than if you did 10 years ago. And this is because everyone and their mother can spin up a website, a server, they can drive traffic to that site. So there's just a bunch of stuff in the market, right? And then because of all that stuff, all these marketing channels are getting denser and denser, right? CAC in B2B is up about 110% over the past 10 years. Consumer, it's up 145%. If you're selling sales and marketing software, it's up 220% 'cause there's just so much sales and marketing software doing sales and marketing things in the market. And so the other reason for this is we haven't had a brand new marketing channel since 2015, and that was Snapchat. We have TikTok, but you know, TBD depending on how you think about it, but we're, we're going from like brand new marketing and advertising innovation every quarter to basically every five years.My point is, if you are not in a blue ocean, you're not in the Peter Thiel, go to a market of one, you're not in those types of things, which is most of us, and even some of us who think we're in those things, we're actually not, you do have to focus on your competitors on some level. And the levels I particularly think are a bare minimum, just knowing who they are, having a strategy. So for ProfitWell, we never had comparison pages because we very quickly went from a challenger in this very competitor market to the leader in the market. So all of a sudden we were gonna be above the fray. That was the idea, that was the strategy that we had. Which is, we're gonna have a lot of intel on what's going on with them, why people care about this product. We had white label NPS surveys and customer development surveys going to our competitors' customers. Like, that's the level. And it was just automated; it wasn't like it was taking a lot of time, but we just wanted that intel.

    3. LRLenny Rachitsky49:34

       When you say white la- label, that means you're emailing your competitors' customers to see what they think of your competitors. Right.

    4. PCPatrick Campbell49:41

       Exactly. So we're basically ... and we're-

    5. LRLenny Rachitsky49:43

       Cool.

    6. PCPatrick Campbell49:43

       We did it as, like, a third party basically, which was, you know, I think one of them was ... (laughs) analyticsoftware.com, like stuff like that.

    7. LRLenny Rachitsky49:50

       Cool.

    8. PCPatrick Campbell49:50

       So it wasn't like we were spoofing as, you know, our competitor 'cause I think that crosses a little bit of a line. But basically, we would have this intel. I would have ... there's a whole program here. Like, I would have basically I, I'd have sources, like, basically these, you know, c- these customers I knew were always gonna stay because they liked the founder or something like that, I'd get on the phone with them every quarter or two just to be like, "Hey, like, what are you liking? Why haven't you switched yet?" These types of things. Or I'd see them at conferences. So th- th- there's a whole program there, and again, it's not, it's not like it's distracting anything. It's just I want the intel so I can predict what's going on, I can predict who to care about, who not to care about. But even then, like, if you're a challenger, competitor marketing pages are really powerful. And the thing is, is like, your customers, especially in a denser market, they know your competitors exist or they're looking at them. Don't infantilize your customers. Help them. "Hey, this is how we compare to XYZ, you know, competitor." And be honest as much as possible. We should always be honest, but be, be as upfront as possible, I should say, with where you're bad at and where you're, where they're great at. Those types of things. But long story short, having something, awareness, and then choosing a particular strategy, and then depending on your strategy, you might ramp up how much you actually do with the actual intelligence program.

15. 51:06 – 54:08

    Why veterans make great hires

    1. LRLenny Rachitsky51:06

       This is amazing. Two questions. Should every startup have a former spy on their team-

    2. PCPatrick Campbell51:12

       (laughs)

    3. LRLenny Rachitsky51:12

       ... to help them operationalize these ideas? And then, two, is there anything else that you found super valuable that you didn't based on your training there?

    4. PCPatrick Campbell51:20

       We didn't have a formal program, but I love hiring veterans, either veterans of intelligence, so they're c- they're citizens, so they're not, they're not veterans from a military perspective, but like people who had worked in intel or people who were actual veterans of, of different military branches. There's a lot of reasons for this, but I think that the intelligence folks, it's a way of thinking. Now, you gotta be careful, and this is just purely my opinion, because depending on how long they were in, the reason I left is because it's the government, it's super bureaucratic. It was one of the most fulfilling jobs, like, I will ever have, and I was only there for, for, for a short amount of time, but it was just one of those things where, like, it's just so bureaucratic. So the 15-year person there is not driving, they're not trying to, like, change the world necessarily. They have a job, right? So you gotta kind of be careful with that, but yeah, I think there's, there's these really smart people that just think in a different way, and it's ... A broader point is, I think it's just really, really good to, like, go to different industries. Like, all this customer development stuff, you go to any, like, major retailer or any major e-commerce company, they have entire teams just dedicated to this stuff. Like, Hallmark was one of our first pricing customers back in the day before we went subscription-focused. They had 119 people in customer insights and research. And this was part of the reason we were like, "Well, you guys don't need our help. You got enough people." But, like, those are great people to hire, even though they don't necessarily have the domain or the, the actual industry knowledge, they have a lot of domain expertise. In terms of things I learned, I'll put it this way, not to get political, if I was in charge of budget, I would give so much more money to the intel community. I saw conflicts or heard about conflicts being stopped just because of intelligence that didn't go hot, you know, in terms of, like, war, fighting. I think it's one of those things where I would put so much more money there than the actual, you know, other side of kind of the defense budget. And also, like, everyone asks me about Snowden. So again, not to get political, it's a lot more complicated I think than a lot of people think. It's one of those things that the issues that were brought up, obviously they got really sensationalized, but they're, they're really important conversations to have, but it's not as simple as like, you know, "Oh, like, stop doing this, start doing that." You know, you don't have to worry about the NSA. The NSA is all outward-looking. You should worry about the FBI. The FBI are the ones who get a little, a little testy with, with certain things, and, you know, you're seeing that in the court cases and stuff like that. But just-

    5. LRLenny Rachitsky53:45

       Wow.

    6. PCPatrick Campbell53:45

       ... know there's a lot of really hardworking, very well-intentioned people who you might disagree in terms of trade-offs, in terms of safety, and things like that. They're also some of the most privacy-orientated people on the planet, so you know, that's worth a whole conversation. So hopefully I didn't throw too many grenades in this, in this part.

    7. LRLenny Rachitsky54:02

       No, we need more grenades. Uh, that's the first time, uh, Snowden was brought up on this podcast, so that's cool.

    8. PCPatrick Campbell54:07

       There you go. (laughs)

16. 54:08 – 59:21

    Why local strategies are more effective for some companies

    1. LRLenny Rachitsky54:08

       And this actually a good segue to the next topic, which is around local strategies, like FBI versus NSA.

    2. PCPatrick Campbell54:14

       Mm.

    3. LRLenny Rachitsky54:15

       I think you have a strong perspective that local strategies-

    4. PCPatrick Campbell54:18

       Yeah.

    5. LRLenny Rachitsky54:18

       ... are much more likely to drive (...) So we'll just get into that one.

    6. PCPatrick Campbell54:21

       Yeah, yeah. Just to give you a tease, I'll tell you what I think of Snowden after the podcast so the, the world doesn't get to know, except that I'll tell you what my opinion is afterwards.

    7. LRLenny Rachitsky54:30

       What a tease.

    8. PCPatrick Campbell54:31

       Local strategies, local strategies, very basic. People like to buy from people, but we as operators get so excited about the scale of the internet that we forget the basics of humanity. Here's some fun data points. We did a bunch of studies on this.So, prospects who meet you in person, and this is not just for profit, like all the data I've shared, it's all global level data. We're segmented depending on how we did it. It's not, like, just our findings, it's, like, we looked at probably a minimum of, like, 2,000 companies per, you know, kind of, factoid. Uh, most of the time, much more. But prospects who meet you in person have 10 to 30% higher willingness to pay than those who didn't. Churn for those folks who you meet in person is typically 20% lower than those folks who have never met you. Expansion revenue is typically 15 to 20% higher. And this is, this is not only in, like, hand-to-hand kind of sales, like, you know, coffee meetings, lunches, lunch and learns, those type of things, but it's also in skilled products. So, products that cost 20, 50 bucks per month. And so, my suggestion is to you, especially in like a post, you know, post-COVID, I don't know if that's the right term, but, like, in a, in a world that hopefully does not see another pandemic in our lifetimes, you know, knock on wood, do meet-ups, do lunches, go to conferences, unless you're Lenny who is not a big fan of conferences. But, like, get out of the office. Make sure you get out of the office. And the budget doesn't have to be as big as you think. Breakfasts and lunches are super cheap. We would push all of our P2 and P3s to, like, a meet-up, and all of our P1s we would have one-on-one coffee dates. Like, it's super cheap.

    9. LRLenny Rachitsky56:08

       What do the Ps mean? Is that, like, priority?

    10. PCPatrick Campbell56:10

        Like, priority one, you know, we want these people to convert, they're very good fits, all this other stuff. P2s are like, they're, they're probably good fits but they're just not as big. And then P3s are, with a content play, they're, they just love our content and stuff but they're not necessarily, um, good fits for us. And so, people make the mistake, they push everyone to dinners, and it's like, I don't want to spend all of my money on P2s and P3s. And so, like, breakfasts and lunches are cheaper than dinners. Meet-ups can be extremely inexpensive. Get creative. We like to do, like, barbecue type stuff, or, like, you know, not dive bars, but, like, the unique dive bar, I guess is the best way to put it. So, it's not fancy. People just want to meet people. They want to talk to you, especially if you're doing content and things like that. The Lenny, uh, newsletter, or Lenny Empire, uh, meet-ups, I see the pictures of those all the time. Like, there, there's just an urge to, to learn from one another and, and hang out. So, yeah, that's the biggest thing. Get out of the office, or get out of your desk at home.

    11. LRLenny Rachitsky57:07

        Yeah, that's right, your, uh, Zoom. And you're saying it's not just, like, the founders. It could be anyone on the team, salespeople. That all works.

    12. PCPatrick Campbell57:14

        Anyone.

    13. LRLenny Rachitsky57:14

        Mm-hmm.

    14. PCPatrick Campbell57:14

        I led marketing as part of, part of my role as CEO, and so, like, I did a lot of this and I'm also the one doing a lot of the content and stuff like that, or, like, the face of a lot of our content, so I did a lot of it. But your head of sales, and, and you just have to position this a little differently. If, if they're going to meet with a salesperson, it's the same, same thing as if they get an email from a BDR. Like, they're like, "I'm not going to figure it out. I don't want to, like, deal with this." But if it's like, "Hey, we're hosting, like, we, we're doing these lunch and learns right now." I was in Paris, New York and London last week, it's probably why I'm so sick this week, and all of a sudden, you know, we did these lunch and learns. People just want to hang out. So, we had 10 people, we had 20 people at one, 10 people. All priority one leads. And then we did these meet-ups with, you know, 100 plus people at each. Like, just think of that, like, brand equity. And you just hang out, you know, it wasn't just me at all of these things. I ran the content, but then all of our sales folks were hanging out and, you know, doing their thing. But it doesn't have to be super complicated, it's just those touch points that people want. And it's so, so high leverage because there are a lot of people who will not answer your email, but will come to an event to meet you or meet someone from your team, 'cause it's something to do, especially if you're buying them breakfast or coffee or something like that. Doesn't have to be something that's extravagant.

    15. LRLenny Rachitsky58:25

        I love this advice. Basically, it's like, if your sales aren't where you want it to be, find a way to meet your potential leads, or someone on your team meeting your leads.

    16. PCPatrick Campbell58:33

        Yeah.

    17. LRLenny Rachitsky58:33

        Like, that's a very actionable thing you could do. Like, "We're not hitting our numbers, let's just go meet some people, find opportunities to hang out in real life."

    18. PCPatrick Campbell58:41

        Well, in the early days, pre-product market fit, we, this is all we would do, too. Like, I would, I would stay at the worst hotels, I would stay at hostels. But just to, just to get to, like, "Okay, I want to sell to these people. Like, the best information I'm going to get isn't in a Zoom where I'm asking them questions." It's going to be like, "Hey, I, you know, gave a talk on pricing," 'cause that was, like, a high leverage thing I could do, 'cause no one knows anything about pricing, but they know it's important, so a lot of people want to listen. But then afterwards, it's like, "Oh, yeah, how do you think about this? Like, what are you doing for this? What are you doing for..." Like, all of those, like, fun product-y questions. It's just really, really high leverage, and, and I think it's one of those things that, you know, de- depends on your role, depends on your stage, but everyone can use something there.

17. 59:21 – 1:04:54

    Why the middle of the funnel is the biggest opportunity

    1. PCPatrick Campbell59:21

    2. LRLenny Rachitsky59:21

       Great segue to our final topic. A lot of people spend time on the top of funnel driving visitors, driving traffic, getting the word out. A lot of people spend time at the end of the funnel closing customers, increasing-

    3. PCPatrick Campbell59:33

       Yeah.

    4. LRLenny Rachitsky59:33

       ... within an organization. You have this perspective that the middle of the funnel is maybe the biggest opportunity these days. Can you talk about that?

    5. PCPatrick Campbell59:40

       Pound for pound, biggest opportunity. So, take a quick step back. Demand generation exists for more than just supporting the sales team. We, we forget that. So, sales and marketing, you know, in the past decade, right, it's all been the funnel. We're at top of the funnel, middle of funnel, bottom of the funnel. HubSpot's trying to make it a flywheel, but marketers are still talking about funnels, right?

    6. LRLenny Rachitsky1:00:04

       (laughs)

    7. PCPatrick Campbell1:00:04

       And when you look at the data, it, it depends a little bit on the price point and a little bit on the vertical, but 80% of sales and marketing budgets tend to go to the top of the funnel and the bottom of the funnel. So, sales folks, and, like, ad type spend, um, you know, field events, whatever it is, that's where it goes. And the whole point is you're trying to move someone from a, a lack of awareness at the top of the funnel to being aware about you, and then to, like, a sales convo or, or a conversion point if you're, if you're not doing kind of sales. The problem is bottom of the funnel efficiency and top of the funnel efficiency has plummeted the past decade. Like, just plummeted. And it's not only because of the factoids I was saying before about CAC and all these other things, and so many competitors being in the market, it's just...It- it's just one of those things that, like, the days of, like, just hiring a bunch of BDRs, not training them, not having them in account-based marketing, not doing all these other things, those days are- are- are not here anymore. Like, (laughs) those days are gone. Maybe in some specific verticals and in- in specific parts of the market. But here's- here's the other problem. Sales today is so much more about timing than it once was. Because there's so much stuff out there, it's- it's one of those things where people are- are- are waiting until it's the right time. They're aware of you, but they're waiting. So, the question we have to ask ourselves to not bury the lead any further is, do we... We need to make this, like, river of demand generation, like, basically with demand generation works, but that's table space. If we want to be even increasingly more successful, that middle of the funnel needs to get bigger. That pool of users who is aware of you, interacting with you on a regular basis. Like, what if you had leads basically hanging out there in the middle of the funnel, interacting with you on a regular basis before all of a sudden their timing was right, and then all of a sudden they go to the bottom of the funnel? And even better, they opt into that. You don't have to, like, keep, you know, going after them and doing, you know, sales processes that are very, kind of, churn and burn. So, that pool of leads. And so, the best way to create pools of leads, freemium. I'm a huge fan of freemium. I used to write articles about how freemium's terrible, so I'm a big convert. I wrote a book on freemium as well. The thing with freemium is, CAC is still up over the past decade, but it's up a lot less than overall CAC. Customers who convert from freemium and become paid customers, their retention is typically about 10 to 20% higher than those who converted from a free trial or converted from kind of like a traditional sales process. And then on top of that, NPS or CSAT, we measured it through NPS, is typically about double, because they're converting on their own kind of timeline, not on some artificial timeline of a free trial or artificial timeline of sales. You should still have those things, but I want this pool of people who are aware of me and are using something of my product, because at the end of the day, what better content do you have than your actual product, right? Even if you're a big enterprise solution, give them something to interact with. And then the other way to kind of fill that middle of the funnel is- is I think inbound marketing is just becoming SEO and e-books. Kieran from HubSpot gets offended when I say that, but I love you buddy. It's okay. I'm still a huge fan. And this is just because, like, CAC and inbound marketing has gone up and it's all about, you know, a lot of SEO and we'll see what AI does to that. But this whole thing of inbound media, we got on this train about five years ago, and inbound media is just podcasts, video series. When we sold the company, we had eight different podcasts and video series, all very, like, niche. Like, Pricing Page Teardown, which was a show about, we collected data and tore down pricing pages, the good and the bad. We had Boxed Out, which was a retention-focused show for the e-commerce industry, the subscription e-commerce industry. So, all of that was to build this pool so that people were aware of us, and then over time, all of a sudden they're like, "Oh, we have a pricing problem. We should go talk to these guys. Oh, we have this content or this retention thing, we should go talk to these guys." But I think the pool is- is kind of the future, and a lot of people are still treating it as just this- just this gateway between the top and the bottom of the funnel.

    8. LRLenny Rachitsky1:04:02

       Middle of the funnel is the new top of funnel. We need a bumper sticker.

    9. PCPatrick Campbell1:04:05

       There you go. That's... I don't know if that's going to sell well, but I will buy one, so...

    10. LRLenny Rachitsky1:04:09

        The most nerdiest of all bumper stickers.

    11. PCPatrick Campbell1:04:12

        I love it.

    12. LRLenny Rachitsky1:04:12

        Patrick, we've gone through TED topics. Is there anything else you want to touch on before we get to our very exciting lightning round?

    13. PCPatrick Campbell1:04:18

        I think what I will say is, this is all still hard, right? So I'm giving- I'm giving some heuristics, I'm giving some benchmarks, but, like, your mileage is going to vary. But that's, again, that's your job. Whether you're a founder, a product person, an exec, whatever you are, like, your job is to, you know, take in information. Your job is to kind of analyze the problem and then ultimately, you know, come up with the best solution. And so, I think it's one of those things that there's some hard truths I think we talked about, but then there's a lot of this that you kind of have to evaluate it for yourself. So, just a general... I may have come off like a know-it-all, but I understand that, you know, mileage varies, I guess, is the best way

18. 1:04:54 – 1:08:28

    Lightning round

    1. PCPatrick Campbell1:04:54

       to put it.

    2. LRLenny Rachitsky1:04:54

       Well, with that, we've reached our very exciting lightning round. I've got six questions for you. Are you ready?

    3. PCPatrick Campbell1:05:01

       I'm ready.

    4. LRLenny Rachitsky1:05:02

       Okay. (laughs)

    5. PCPatrick Campbell1:05:03

       I feel like I need a buzzer.

    6. LRLenny Rachitsky1:05:04

       I'm gonna get- I'm gonna add a buzzer someday. Anyway, here we go. What are two or three books that you recommend most to other people?

    7. PCPatrick Campbell1:05:11

       I have read High Output Management probably 20 times in the past 10 years. I read it at least once a year now. I commissioned a bust, a bronze bust of Andy Grove, so that's being done.

    8. LRLenny Rachitsky1:05:24

       Wow.

    9. PCPatrick Campbell1:05:24

       I'm a big Andy Grove fan. Uh, so-

    10. LRLenny Rachitsky1:05:25

        Oh, it's in progress.

    11. PCPatrick Campbell1:05:27

        Yeah, yeah, yeah, it's in progress. It's not done. I'll sh- I'll send you a mock-up after this. But yeah, High Output Management. Thinking in Bets, Going to the First Principles Thinking. I- I find that a good book to share with people so that they can, you know, kind of think about things, uh, and- and kind of get on board with that. And then Powerful by Patty McCord. Anything around HR, like, to kind of break your brain a little bit about what you think about HR and people ops, that's the gateway drug. That was the one where I was like, "Oh, we can choose how to design our- our people ops teams."

    12. LRLenny Rachitsky1:05:55

        Okay, next question. Favorite recent movie or TV show?

    13. PCPatrick Campbell1:05:58

        I don't have one that's recent, but I watch The West Wing at least once per week. So, I've done that for a long time.

    14. LRLenny Rachitsky1:06:04

        Mm-hmm.

    15. PCPatrick Campbell1:06:04

        I just... I- I love Sorkin. I, you know, I- I think the writing's just so good, so I- I'll just throw that out there.

    16. LRLenny Rachitsky1:06:10

        Great one. Someone was telling me there's a podcast for the Analyze Each Episode, which, uh ...

    17. PCPatrick Campbell1:06:13

        It is a great podcast, and I've listened to most of them. So, yeah, it's a good one.

    18. LRLenny Rachitsky1:06:16

        Okay, (laughs) great. You're all over it. Favorite interview question that you like to ask folks you're interviewing.

    19. PCPatrick Campbell1:06:22

        I have a controversial one. I'm not gonna be able to go through the entire question in a lightning round. But what I do is I do a mini... I do all the fi- or I did all the final interviews at ProfitWell, and we did a very hard culture check in that final interview. There's a mini case study. It only lasts about, like, a couple minutes, so I'm not gonna go through it. But I asked them if someone in Slack, uh, responded to someone sharing something benign, like some report they found on the internet from McKinsey, they shared it in Slack, and then someone responded to that with something indirectly offensive. Uh, so it- it's changed over the years. Sometimes I say like, "Oh, they- they called it the R word." They said it was stupid, like, something indirectly offensive.And then, whatever, and then I say, like, "What would you do? And what do you think the company should do?" And no matter what they say, I challenge them. And I always tell them, like, "I've never seen that at ProfitWell," um, which is always good, just to, like, make sure they don't have a bunch of fear in, you know, this, this position. But it gave me a really, really good opportunity to talk through our culture, particularly that most charitable interpretation piece. And I would say there about 10% of people who ha- kind of had, like, a zero tolerance policy for whatever, you know, the situation was. And I would tell them, I would say, "Hey, listen. Like, we have zero tolerance for the obvious things," right? "We probably all agree on those. But for this type of situation, we would, we would ask some questions. We'd want to figure it out. We'd want to see, there's probably some judgment around what happened, like how long, if they'd been doing this for a while, that type of thing. And then we would make kind of a decision on what would happen." And a lot of times, nothing would happen except, "Hey," like, you know, "Don't be an idiot. You're smarter than that. Use better words," or something like that. And so that, that was a good, good culture check to kind of opt them in or out.

    20. LRLenny Rachitsky1:08:05

        That is very cool. It circles back to the value of culture and values and being aligned within your company on, on culture and values. And it's interesting that that's the question you ask and not something technical or skill-based.

    21. PCPatrick Campbell1:08:16

        Yeah. Well, I do all the final interviews, so they've already gone through, like, a skill-based, and they've done culture screen already and stuff like that. So this is more of the, "Here's why you should not work here." That, that type of conversation, basically.

Episode duration: 1:13:36