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Madhavan Ramanujam: Why launching AI at $20 wires in failure

Anchor an AI launch at $20 a month and underpricing wires in for years; outcome-based pricing sits top-right of an autonomy and attribution two-by-two.

Madhavan RamanujamguestLenny Rachitskyhost
Jul 27, 20251h 11mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 4:30

    Introduction to Madhavan and his work

    1. MR

      (instrumental music) The good founders need to be able to dominate both market share and wallet share. It is not a choice. You need to get better at both.

    2. LR

      It feels like every company wants to be an AI company these days. How is AI pricing different?

    3. MR

      The winners in AI will need to master monetization from day one. If you're bringing a lot of value to the table and you started training your customers to expect $20 a month and you anchored yourself on a low price point, you're in trouble. 20% of what you build drives 80% of the willingness to pay. But the irony is that that 20% is the easiest thing to build often.

    4. LR

      What would you say is the biggest lesson you want founders to take away?

    5. MR

      If you think about market share and wallet share, let's think about it as a two-by-two. The quadrant that you really want to be in is the outcome-based pricing model, the top right quadrant, where you have great autonomy and great attribution. About 5% of companies are probably in a true outcome-based pricing model. If you want to win in AI, figure out a way to get to that quadrant.

    6. LR

      Do you feel like the popular IDE startups are going to be in trouble down the road?

    7. MR

      Some of them, yes, without naming names.

    8. LR

      Today my guest is Madhavan Ramanujam. Madhavan is the smartest person I know on pricing and monetization strategy. As managing partner at Simon-Kucher, he's worked with over 250 companies, including 30 unicorns, to help them figure out how to price, package, and grow their products. He's also the author of the book on pricing called Monetizing Innovation. And now he's back with a new book, a sequel called Scaling Innovation, which teaches you how to architect your business for long-term profitable growth, and also how to avoid the common traps that teams fall into that keep them from building real, durable, sustainable businesses. Bill Gurley wrote the foreword. I had a chance to read an early copy. I absolutely loved it. It's a book that every founder needs to read. And in this episode, Madhavan shares many of the biggest lessons from the book, including how pricing strategy is very different for AI companies, why you need to get your pricing model right from the start in today's market, a very simple two-by-two to help you pick your pricing model, how to gain pricing power, a ton of tactical advice for negotiating more effectively, the most common traps founders fall into, and so much more. If you order five copies of the book, Madhavan is offering a chance to win a free conversation with him, a signed copy of the book, an invite to the book launch, a T-shirt, and more. Just send a copy of your purchase receipt to promo@49palmsvc.com. And some more good news. Madhavan is now more accessible. He left Simon-Kucher. He's now investing full-time with his own fund. He focuses on early stage AI companies. If you want to work with him, check him out at 49palmsvc.com. If you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube. With that, I bring you Madhavan Ramanujam. This episode is brought to you by Interpret. Interpret is a customer intelligence platform used by leading CX and product orgs like Canva, Notion, Perplexity, Strava, Hinge, and Linear to leverage the voice of the customer and build best in class products. Interpret unifies all customer conversations in real time from Gong recordings, to Zendesk tickets, to Twitter threads, and makes it available for your team for analysis and for action. What makes Interpret unique is its ability to build and update a customer-specific knowledge graph that provides the most granular and accurate categorization of all customer feedback, and connects that customer feedback to critical metrics like revenue and CSAT. If modernizing your voice of customer program to a generational upgrade is a 2025 priority like customer-centric industry leaders like Canva, Notion, Perplexity, and Linear, reach out to the team at interpret.com/lenny. That's E-N-T-E-R-P-R-E-T.com/lenny. Today's episode is brought to you by Dx. If you're an engineering leader or on a platform team, at some point your CEO will inevitably ask you for productivity metrics. But measuring engineering organizations is hard, and we can all agree that simple metrics like the number of PRs or commits doesn't tell the full story. That's where Dx comes in. Dx is an engineering intelligence solution designed by leading researchers, including those behind the DORA and SPACE frameworks. It combines quantitative data from developer tools with qualitative feedback from developers to give you a complete view of engineering productivity and the factors affecting it. Learn why some of the world's most iconic companies like Etsy, Dropbox, Twilio, Vercel, and Webflow rely on Dx. Visit Dx's website at getdx.com/lenny.

  2. 4:30 – 9:20

    The core thesis of Scaling Innovation

    1. LR

      Madhavan, thank you so much for being here and welcome to the podcast.

    2. MR

      It's exciting to be back, Lenny. Thanks so much for hosting me again.

    3. LR

      This is a, a very rare second visit to the podcast. You've got a new book coming out. I've got a very early copy right here. If you're watching on YouTube, here's the copy you sent me. It's like 200 pages. Did you print this out on your printer, by the way?

    4. MR

      Yes, I think I ran out of printer ink after that, I guess.

    5. LR

      I appreciate the early copy. It's amazing. What we're going to be doing with this conversation is going through some of the biggest lessons that you share in this book to give people a sense of many of the things that you've shared, many things you've learned since writing the first book. Let me start with this question. Why'd you decide to write another book and what is the difference between Scaling Innovation, which is the name of this book, and Monetizing Innovation is the name of the first book?

    6. MR

      So Monetizing Innovation, we actually wrote it eight years ago. Time flies. Uh, and the core thesis of that book was, you know, how do you build products that are not just cool, but are products that people need, value, and are actually willing to pay for? And I think that took a life of its own. And over the years, we kept getting another question from entrepreneurs that, "Hey, we built a great product. We know there is willingness to pay, but how do we build a great business? How do we scale this?" And the brutal truth is that even if you have a great product, you might actually not figure out a way to grow fast and grow profitably. So we wrote Scaling Innovation in an effort to actually solve that puzzle. So you can think of this as a sequel to Monetizing Innovation. And Monetizing Innovation talked about how to build great products. Scaling Innovation talks about how to build a great business. And, you know, writing a book is... Uh, there needs to be a purpose for this. For me, the reason for writing books is about, you know, giving a bit back based on what I know to like founders. And book writing is hard. Writing a good book is even harder. And, uh, just like, uh, Monetizing Innovation, Scaling Innovation is not, you know, marketing fluff. It actually has real actionable stuff packed in that you can go on Monday morning and start implementing. And, uh, we wrote this book to give back a bit of what we know and to help companies scale and architect towards profitable growth.

    7. LR

      I love people like you that do the work for, I don't know, decades at this point, learn from real life experiences over and over and over and then just share all this stuff with people. Like this is the most-

    8. MR

      Thank you.

    9. LR

      ... the highest ROI way to learn is, uh, letting you do all this work to learn all these things and then you share all your answers with us so that's- that's why I love these books. If you had to boil down the thesis of this book into just like a simple thought so that we can just start to plant this in founders' heads, what would- what would that be?

    10. MR

      So if I have to boil down the core thesis of the book, it is basically that if you want to build an enduring business, you need to be able to architect towards profitable growth. What that means is, you need to be able to master two engines: market share and wallet share. It sounds simple on the surface but it's actually quite complex because if you unpack that, for gaining market share and wallet share, you need to be good at acquisition, monetization and retention. As in get customers, make an initial money on them, but also make money on an ongoing basis and have your customers actually refer more customers. Many companies actually what they do is they focus on a single engine strategy. So they focus on one of those two topics and pretty much exclude the other one. That leads to all kinds of situations. You see companies saying, "I'll grow at all costs and postpone monetization." You see some who would say, "You know, I'm gonna monetize earlier on," but they might miss out on acquisition opportunities or yet others who are so focused on a small set of loyal customer base that they're neither monetizing nor are they actually acquiring. So to ma- to- the good founders need to be able to dominate both market share and wallet share. It is not a choice, you need to get better at both. But this does not mean that you're putting equal effort on market share and wallet share at all given points and time, but it means you're putting equal attention on both those topics and being thoughtful about the trade-offs and saying, "How can I actually look at these two topics together so that I'm architecting towards profitable growth?" That's the core thesis of the book. We actually showcase nine strategies that actually allow companies, uh, you know, to architect towards profitable growth. And every chapter ends with how this particular strategy, uh, you know, circumvents a single engine problem and helps you, you know, focus on market share and wallet share at the same time. And there's also CEO questions and leadership questions that people should reflect on when they architect towards profitable growth and are they on the right track? I mean, think about it this ways, if you're flying a, you know, aircraft, you don't want to fly it on one engine. Why do you actually want to do

  3. 9:20 – 12:06

    Common traps founders fall into

    1. MR

      that for your business?

    2. LR

      Okay. So I imagine many founders or people thinking about starting a company are- are not feeling like they are in one bucket or another. There's- like intuitively you're not like, "Oh, of course, we're gonna just focus on growth forever and that's all that matters." You had these kind of traps that founders fall into that you referenced a bit. Can you just talk a- again about just like the common traps you find founders fall into that, uh, people may recognize like, "Shit, that's what I'm doing probably"?

    3. MR

      So, e- let's unpack the traps that are correlated to the archetypes. So if you're a, you know, disruptor archetype, you might fall into one of two traps. The first one is you might land but you might not ex- expand, as in your eagerness for like acquiring, you might have actually given away a lot at less and you've given the farm away but you don't have anything to expand to. That's the first trap you're likely to fall into. The second trap that you actually fall into is you start, uh... You know, a market share that is won is different from a market share that is actually held. If you're so acquisition focused, you're actually focused on getting more and more customers but you're not spending enough time with customers that you actually got to keep them, upsell them, you know, keep them happy, et cetera. So you might fall into that trap. If you're a money maker, you fall into one of two traps. The first one is you might nickel and dime your customers to death. You know, because you're focused on monetization, you might come up with a, you know, very differentiated pricing model, different levers, hidden fees, things to charge for, you know, many different things and come across as just trying to nickel and dime your customer. The second trap that a money maker actually falls into is that, you know, you fall into the price premium paradox, where you're- you- you think that pricing high actually indicates value but you have priced it so high that you actually start, you know, hurting your acquisition. So it is- it is- just becomes irrelevant for most people. If you're the community builder, you actually fall into like two common traps. The first one is you're focused so much on the, you know, foundation that you actually miss the frontier, which is you're so focused on your loyal customer base that you forget- forget to like attract, you know, different types of customers and you're not acquiring. And the second trap that you, uh, fall into if you're a community builder is, you know, you train your customers to expect more for less. Because you're so eager to satisfy your loyal base, you start giving them more and more and you're training your best customer base to expect more for less. So these six traps are very common across these archetypes. Being a profitable growth architect means that you're avoiding these traps and you're... In- in other words, you're simultaneously being a disruptor, a money maker and a community builder all at the same time. And how do you actually have that archetype and the right strategies to actually go

  4. 12:06 – 15:00

    Beautifully simple pricing

    1. MR

      about your business?

    2. LR

      Okay. So this is what you want to not do. You mentioned you have nine strategies for how you actually want to approach pricing, monetization, scaling, monetization an- and innovation. Can you share a couple of these strategies? Maybe two or three? Maybe some of your favorites.

    3. MR

      Sure. So I will unpack a couple of, uh, you know, strategies. Maybe the first one I would take is what we call as beautifully simple pricing.So, in your early days, it is by far more important to have pricing that is really simple and is not creating too much friction in the sales conversation. I mean, the acid test that you probably should go back on Monday morning and do this, take some of your early prospects or customers and ask them to articulate the pricing strategy back to you, right? If they were to actually sell on your behalf, how would they describe the pricing strategy? And if they cannot, you know, contextualize that in a simple manner and actually explain, you don't have a simple pricing strategy. It's as simple as that. And having a simple pricing strategy also means that, you know, your pricing needs to be able to tell a value story. As in, you need to contextualize your price based on the value that you actually bring to the table. A great example here is, you know, Superhuman. When they started, they were actually competing with, like, you know, free email products and they were coming up with a premium email experience, and how do you actually price that? And I thought the team at Rahul- uh, ro- with the, uh, team at Superhuman with Rahul and others did a pretty good job. They came up with a $30 price point per month, which was pretty simple, but the way they kind of told the story was that, you know, you pay a dollar a day for actually getting four hours of productivity back in the week, and then suddenly the pricing doesn't look too off. I mean, it's like the price for a latte in a week to actually get four hours back, why wouldn't I actually do that, right? And pricing contextualization and value story doesn't need to just apply for premium products. If you take another example, like the Subway $5 footlong, it's a different way to say a story with pricing that, oh, for five dollars, you get a lot of value actually back, right? So beautifully simple pricing really means coming up with a simple pricing strategy that your customers immediately get and your pricing is actually telling a value story. And how do you actually get that? So, in the book, we have a checklist of 10 different things that you actually need to look at to make sure that your pricing is beautifully simple.

    4. LR

      As we go through these strategies, is your advice try all these things, like you should do as many of these strategies as you can, or is it maybe pick a few that work for you or just one is enough?

    5. MR

      So there are nine strategies. We have organized that into strategies that apply during your startup phase, like the just- just when you get started, and strategies that apply to you in your scale-up phase. So there are four strategies that you need to do in your startup and five in the scale-up. So it's quite manageable. I would argue that all four apply in the startup and all five actually apply in the scale-up phase, but it's not like you need to start focusing on nine things from day one.

    6. LR

      So this first

  5. 15:00 – 26:51

    Mastering negotiations

    1. LR

      one was- was the startup phase?

    2. MR

      Yeah, the beautifully simple pricing is the startup one, exactly. And so in the scale-up phase, I think, uh, the- one of the most important strategies is to, like, you know, master negotiations and really get, uh, better at acing negotiations, right? Especially if you're in a B2B situation. And how do you actually do that? Because you need to be able to talk about the value and contextualize your price based on those kind of conversations. So to master negotiations, it comes down to actually three things: mastering gives and gets, being good at value selling, and third, having the right negotiation strategies. So let's unpack that each at a time. So giving and getting, why is that important? Because in a negotiation, you know, typically you're giving. I mean, you're giving concessions, people are asking. If you don't get anything back, you're basically indicating to the other person that they can keep beating you up and you can- you know, you- you need to keep giving. But if- if you're giving something but you ask for something in exchange, then you're basically bringing authenticity into the negotiation because it actually means something you- to you to give, so you're asking something back. It actually makes the negotiation way more effective. And, you know, in the book, we actually talk about the top 10 gets in B2B and the top 10 gets in B2C. One of my favorite gets in the B2B situation is what I call as conducting a value audit. So what this means is if you're giving a concession, ask for a value audit in exchange, where every six months, you know, a team internally from your customers would be commissioned to actually conduct a value assessment of your products so then it becomes their business case and you co-create it with them saying how much value was actually produced. And this is great because if they actually engage in that, that gives you tremendous pricing power for, like, renegotiations because it is their business case, they have championed it internally, and you're pretty much making your products pretty sticky. So it's a pretty harmless get, but it could be very powerful for, like, you know, uh, future negotiations. So being good at-

    3. LR

      That's really smart.

    4. MR

      ... gives and gets is... Thank you. Be- for being g- good at gives and gets is really, you know, critical. The second thing in mastering negotiations is being good at value selling. And for being good at value selling, you need to do three things. First, you need to be able to, like, create the needs. Second, you need to be able to create affirmation loops. And the third one is creating a good ROI model, and let's talk about each of those. So creating needs is very important because, you know, many, uh, founders show up and try to understand what are the needs of the customers. That's one way to look at it. But you need to be able to create needs rather than just discover them, right? So like for instance, if you're a, you know, marketing automation AI product and, uh, you know, you- you save, like, let's say three weeks of, like, work that actually needs to be done to actually get stuff in a dashboard that can be analyzed by marketing managers, the way you create the need is ask about existing processes and say, "Okay, so just so I understand, all of this stuff actually takes you three weeks to, like, put data together to actually have meaningful dashboards for your, you know, marketing managers to, you know, take action. What if that was available to you instantaneously?" Oh, you've now just created a need, right? So be in that mindset of creating a need as opposed to just discovering them. The second thing is, you know, creating affirmation loops, and this is really important. Uh, I've seen a lot of founders get into negotiations. They're so eager to talk about their products, they keep talking about their products without any affirmation from the other side. You need to pause and create affirmation loops. Things like, for instance, "Okay...So far, you've seen all of this. How does this actually, uh, you know, play out in your company? Do you see it as valuable? What about this dashboard do you actually like? So when you ask these kind of questions and your customers are playing back the value that they actually see in your product, you're creating affirmation loops, which become tremendously useful when you start selling the product finally, because if they've agreed that there's value that is being produced, then you also have a bet- better commercial discussion. And the third one is, you know, creating a good ROI model, and you know, I see a lot of founders work on a POC and after the POC is over, they'll show up with an ROI model and try to defend a price. You've already lost the battle. I mean, no one is gonna believe an ROI model that you just cooked up. Everyone is gonna challenge you on assumptions. The, the right way to think about an ROI model is to actually co-create it with your customers from day one, which means, you know, agree and validate on the assumptions and the inputs. So like, "Hey, how long does this process take today? How many engineers are there?" So you create, ask questions that are all inputs to an ROI model, and if you have done that process and the customer agrees on all the inputs, they are very unlikely to push back on the output of an ROI model. So a POC needs to be framed as the purpose of a POC is to build a business case, and we are gonna co-create an ROI model with the customer, as opposed to it being a, you know, tech and product functionality feature test and you show up with an ROI model. And when you're building an ROI model, there are many buckets to focus on, but th- there are three that are very critical. The first one is, you know, what are the incremental gains that you actually bring to the table based on KPIs and metrics that your customer is tracking? So this could be things like incremental revenue, reduction in churn. These are the immediate tangible clear impact to the business line based on the products that you actually bring to the table. The second bucket is, you know, cost savings. Are you reducing headcount? Are you reducing license costs? Like, what are the tangible cost savings? And the third one, which is often overlooked, is opportunity cost. For instance, if you save, you know, 10 hours of time for like a team, what do they actually do with that 10 hours? That can also be quantified. So when you put all of these three things together, you start building a proper ROI model that you can actually use in your value selling to defend the right price. And the... So we talked about three steps in mastering negotiations. The first one was gives and gets. The second one was, you know, getting better at value selling. The third one is actually getting better at even negotiations and what strategies we actually use, and there are a couple of, uh, you know, strategies that we have found to be really, uh, productive. The first one is to show up with options. You know, many, many founders, uh, rush with, like, one product and one price and say, "Okay, this is a 100K product and that's what we are trying to sell." Inevitably what will happen is the, you know, the immediate focus of the conversation will be on the price and you're o- only talking about price, but if you have options on the table, let's say if you have a, you know, good, bad or best, if you have a 100K product, a 200K and a 300K option, then you're not just talking price, you're talking value, because if your customer is budget conscious, they'd say, "Hey, I like the 100K price point, but I actually like the functionality in your 200K product." Then your immediate question is, what in the functionality do you actually like? Why is that beneficial for you? So you switch the conversation back to, like, you know, value as opposed to just talking about price, and we have seen that with these kind of conversations, you are by far more better off to actually land in a much better place than just showcasing one product and one price. And, and showcasing options doesn't need to be just different products. It could even be a pricing model choice, and I'd probably give a, you know, simple hack that people can try on Monday morning. Um, you know, I was talking to this founder who said, "Hey, I think, uh, I think the budget is about 100K. Um, that's what I believe from the key stakeholder, but my product really brings crazy value. It- I could even charge, let's say a 500K for this product, but I don't have the courage to actually go and ask for a 500K, uh, you know, price because I kind of know 100K is the budget. What should I do?" Right? So for those kind of situations, actually show up with options in your pricing model. So I- we- we coached him to, like, go in with a 100K plus 10% on any incremental value that you bring or it's a 500K fixed. So now this is actually a great situation in negotiation because if you're price sensitive, you're focused on the 100K. It's a, you know, small fee to actually get started, but the conversation will gravitate towards what is that 10%? How do you measure value? That's a great conversation to have because now you're talking about how you add value, where's the value generation, what portion would you take? And, you know, you see one of two situations. Either the customer will say, "That's great. You're putting skin in the game. Let's go with 100K and 10%." Or 80% of the situations you might actually wanna avoid the outcome-based pricing as a buyer, but you're not really fixated on the 500K at that point. It is the premium that you're actually paying for, like, the certainty. So no one is focusing on the 500K because there's 100K option on the table and you just put a 500K and got the courage to do that, and in this specific situation that 500K got negotiated to 400K and they just 4X the deal compared to where they would be. Right? So having options on the table when you negotiate is critical. And there's also some tactics that we showcase in the book, like anchoring is important. If you start high, you will also end up higher, but, uh, and also tapering concessions. Like how do you give concessions? I mean, the worst negotiators will start by giving, you know, a small concession and then they give a bit more when someone asks. Like, you might give a 5% discount and the procurement guy says, "That's not enough." "Okay, I'll give you 10% more." "Okay, that's not enough. I'll give you 15." What are you indicating to the other person? You're just basically indicating that I can keep beating you up and I can get more discounts. The best negotiators will taper their concessions. So they would say, "I can give you a 15%." "Okay, I need more." "I'll give you five." "I need more." "I'll give you two." So you're automatically indicating to the other person that the negotiation is actually ending, right? So how do you taper concessions also become important. So when you put all of these three things together, if you master your gives and gets, you get better at value selling and use the right negotiation strategy, you can extract full value from every deal. That's probably way more important when you're in the scale-up phase.

    5. LR

      This is such (laughs) great advice. I love that this is just one (laughs) small chapter of your book.

    6. MR

      (laughs)

    7. LR

      Like, this could make or break your company. It's interesting that you have a whole thing on negotiation in a book about, uh, scaling, innovation, and growing your company. Is the assumption here that your pricing and monetization is so impacted by how well you negotiate because that changes your entire pricing structure and how much you're making? Is that why you put so much effort into this part?

    8. MR

      Exactly. I mean, in a B2B situation, you can set all the pricing you want, come up with great pricing models, but at least even today, it's a human having a human conversation trying to negotiate. So if you cannot contextualize, you know, what you put on the table, how do you negotiate around value, you know, how do you contextualize your price, you're leaving a lot of money on the table. So to us, negotiations is yet another monetization topic where you're thinking about it as extracting full value from every deal. And this is not just, uh, you know, negotiation tactics like, you know, keep your boss at home and just negotiate and things like that. These are actual negotiation strategies that are rooted on value selling, gives and gets, and focusing on extracting full value from every deal.

    9. LR

      So useful. This idea of throwing out a third, like, higher-priced option, say, 500K, it's so interesting because usually the advice I hear is, like, "Just throw out twice the number you used to throw out. Just, like, put it out there just in case," which is really scary, right? To ask for, like, "What about $50,000?" And this is, like, a much less scary way of doing that. "Okay, but we also have this 500K option. Here's what you get." And then they may be like, "Oh, that's exactly what we wanted." You're like, "Oh, wow, it worked."

    10. MR

      Exactly. It's a very simple hack to get your courage to put out a-

    11. LR

      That is so cool.

    12. MR

      ... good price point, yeah.

    13. LR

      Wow. Uh, this is awesome. This is just like a, a golden nugget within golden nuggets of, of advice.

  6. 26:51 – 27:35

    Other strategies for effective pricing and monetization

    1. LR

      (laughs) Okay, so you have nine strategies. We've covered two. Let's not get into them, but just what are a few more just so people know what else they might be able to learn?

    2. MR

      Sure. We talk about how to, uh, you know, land and expand, as in how to design your best free product in such a way that you're landing but also expanding. We talk about things like how to have the right packaging strategy, you know, how to stop churn before it happens, how to do price increases effectively, because at some point in your scale-up journey, you need to increase price, but how do you do that in a meaningful, uh, you know, fashion? So we have, you know, various strategies that apply both for the startup and the scale-up phase. But in combination, all of those things help you articulate, uh, an architect towards profitable growth.

  7. 27:35 – 31:33

    How AI pricing is different

    1. MR

    2. LR

      Awesome. Okay, let's talk about AI for a bit. A lot of your book is about how AI pricing is very different from other previous traditional pricing strategies, and it feels like every company wants to be an AI company these days, so I think this is gonna apply to a lot of people. How is AI pricing different?

    3. MR

      Yeah, AI pricing is very different from the previous, uh, you know, vintage of companies. Why is that so? Because AI founders need to tackle monetization from the very early days, like day one, in their seed stage, pre-seed, uh, kind of thing, which was not probably the focus for, you know, the previous SaaS companies. Why is that so? Because of two reasons. One, there's... For, for the first time, there's cost dynamics to actually navigate, so you need to think about monetization from day one. But there's also a more critical reason, which is value capture, because with AI products, you're actually bringing a lot of value to the table, and if you don't capture that from day one, then you're training your customers to expect more for less. So for instance, think about this. If you're building a, you know, agentic AI, uh, product that taps into labor budgets, labor budgets are 10X compared to software budgets. So if you a- use all the old playbooks, then you're under-monetizing again from day one and ex- uh, and training your customers to expect more for less. So how do you come up with, you know, foundational models that actually allow you to, like, capture the value that you bring to the table? And why does this become critical? Because, you know, with AI, finally founders can, you know, really solve the attribution problem. In the previous vintages, like for instance, if you take Slack, you can say that the productivity went up, efficiency happened, but you cannot measure it, monitor it, attribute it to Slack. Okay, that's probably why they were in a seed-based pricing, uh, you know, pricing model. But in today's situations, you see companies that say, "In a Fortune 100 company, I was a- able to improve throughput by 10%, reduce crap by 5%." And when, when you get into those kind of situation where an AI is creating core value and it's attributable to the AI, you get a lot of pricing power. So the two questions that we commonly hear from, you know, AI founders is, "How do I set the right pricing model?" As in, "How do I charge?" Which becomes, you know, way more important than how much you charge, because the underlining business model has changed. It is not... Uh, we, we have moved from, you know, software being a, you know, pay for access to, like, now you're paying for work delivered. So, like, the monetization models become key. That is the first question that people actually ask us. The second one is, you know, "How do I navigate POCs, commercial discussions early?" Because the buyer on the other side also wants to see the value before they engage in a commercial discussion. So those two topics become very critical, and we have showcased a lot of this in the book.

    4. LR

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  8. 31:33 – 36:25

    Handling POCs

    1. LR

      Let's talk about this POC piece because I think this is something a lot of people deal with, and then I want to talk about this two-by-two that you have in the book and I'll, I'll actually pull it up. So let's talk about POCs first.

    2. MR

      So POCs, you know, when we talk about POCs, many founders think about a POC as a proof of technical functionality and is their product actually working in, like, their customer environments. And they set up the expectation that way saying, "Hey, we are going to put the product and we are going to see if it actually works." And, and they would probably say, "Should I charge for a POC versus not?" And we will unpack that in a bit, should you or should you not? And the- that's actually a completely wrong way of framing it. The POC should be framed as the entire goal of the POC is to create a business case, period, full stop. It is not to, like, demonstrate, you know, product functionality, fit within your customer environments, ability to integrate. All of that s- stuff is a consequence of the business case. So if you frame it this way, so you can say, "Look, it is a 30-day pilot for co-creating an ROI model and building a business case along with the users. If we see value at the end of the 30 days based on the business case, we can get to commercial discussions." So that way you have actually not talked about your price. You're only focused on co-creating a business case with the customer. And based on the business case, you can actually come up with, you know, a proper commercial agreement. And if they see value, they're going to pay you for it, right? So thinking about the POCs in that kind of manner. And, uh, you know, the question that I often get asked is, "Should I charge for a POC?" (laughs) And the answer is, uh, yes, but smartly. Um, let's talk about why it's important to charge. Uh, the, the reason you need to charge for a POC is you start isolating people who are just tire-kickers versus serious buyers. It becomes a lead qualification mechanism. If you didn't have that, you're going to attract all of these curious buyers who are just curious about AI, they just want to see if it works or not. They will say, "Yes, I'll engage with a POC." They will take 30, 60, 90 days with you. They will burn a lot of resources, never buy. You've just wasted your time. Time is of the essence. So like having a price tag to your POC actually indicates that, you know, there is seriousness on both sides. So you should charge. But how do you actually charge for it? You need to charge for it smartly. Um, what this means is that you need to make sure that your POC pricing is not a reflection of your actual commercial deal, because let's say if you just say it's a 10K POC for like a 30-day pilot, if you don't talk about the fact that it is not the same as your commercial discussion, you have now set an anchor that, okay, it's a 120K per m- per year kind of deal if the POC works. So you have to be clear that the 10K is only for building a business case. Commercial discussions will follow after that. It is not an indication of the actual commercial discussion. But your, you know, buyer on the other side might still push you saying, "That's all great, but I need a price or a budget, otherwise I won't move forward with it." So there are two ways to actually, you know, deflect those kind of questions. The first way is, you know, contextualize the price and the value. So you, you can say something like, if, if you're pushed for price, "Hey, for customers such as yours, you know, we have been able to at least unlock 10 million in very similar situations and our pricing is, you know, one is to 10 X when it comes to ROI." So you basically said that you're $1 million to actually get started, but you actually didn't say it. You just said it's a 10 million and I'm, I'm taking one in 10 in, uh, in exchange for it. So you've kind of given the buyer an indication, but you've framed it in such a manner that that actually is justifiable, right? One in 10 X ROI. So that's one way to do it. Uh, they might still say, "Yeah, that's good, but I need a, you know, budget." So then rather than just give them a budget saying it could be a 200K, you know, uh, option, don't do that, that's the worst thing you can actually say. Give them a range. You can say something like, "Look, the final pricing would be anywhere from 500K to a million, and based on the business case that we would co-create with you, we can pick a point in bit- in that range that justifies the value that we bring to the table." So you're giving budgetary ranges, right? So that's the other way to actually go about POCs. So how you navigate your early wins, who you choose, uh, is very critical when you're building companies at scale and fast in AI, because that actually dictates the destiny for rest of, you know, your future. And picking those early wins is very, very critical, and uh, and having, you know, buyers who are serious, lead qualifying, having the right POC process. And thinking about POCs as frankly not just, uh, trying to see if your product actually works and delivers value, but it's a great chance to have a commercial test and learn experiment, and have fun with it and try to see what you can, you know, bring to the table in terms of your value and what portion can

  9. 36:25 – 38:58

    The importance of mastering monetization

    1. MR

      you actually take.

    2. LR

      So the core kind of takeaway here is for AI companies, you no longer can just grow and figure out monetization later. Your advice here is, uh, what you start with is what you're going to end up with, and it's very easy to under-monetize because people aren't realizing that they're now helping with actual labor force, uh, savings versus just like SaaS software that's making people a little bit more efficient.

    3. MR

      Yeah, absolutely. I mean, I strongly believe that the winners in AI will need to master monetization and they need to ma- ma- master it from day one. I mean, when we talk to early stage founders, it is a topic that keeps many people up at night. But that's also why we wrote Scaling Innovation and other assets so that they can get some more courage to think about, you know, pricing correctly from day one. And it's, uh, become very critical for AI companies to do that.

    4. LR

      Do you feel like the popular IDE startups, I won't name names, do you think they've under-monetized and they're going to be in trouble down the road?

    5. MR

      Some of them for sure have. I think they will probably run out of it because they might show a lot of, uh, let's say fast revenue growth, but is that enduring revenue? Are people actually going to stay and is there going to be churn? And, you know, so there are a lot of, uh, uh, aspects to architect profitable growth. It's not just growing fast, but also growing profitably and having an enduring business. So some of them yes, without naming names. Um, but, uh, yeah, I think that's why it's, it's important to be thoughtful about market share and wallet share.

    6. LR

      Well, those are different. So there, I think what you're saying here is they may not, the retention may not work for some of these companies, but on the other hand, they're really cheap, like 20 bucks a month to help your engineer be like 10 times more productive potentially. Like is that too good a deal? Do you think they should have priced a lot higher?

    7. MR

      Yeah, for sure. I mean, if you're bringing a lot of value to the table and you started training your customers to expect $20 a month and you anchored yourself on a low price point, I think there are companies that have actually done that and they try to undo it with like, you know, having more sophisticated, let's say products that are actually higher priced or much higher priced, et cetera. That's one way to like undo that situation. So it is, it's really a trade-off between, you know, getting more customers and making money at the same time. That's the whole point of the book market share and wallet share and how do you dominate both? So if they're being thoughtful about both and have a vision to not just, you know, grow market share, but also have a clear strategy to land and expand and increase wallet share, those strategies might pan out for those types of companies. If you just threw out a $20 product hoping to just, you know, accelerate your market share,

  10. 38:58 – 43:13

    Choosing the right AI pricing model

    1. MR

      you're in trouble.

    2. LR

      Okay. This is a great segue to this two by two, which goes much deeper into this. So it's easy to be like, here's what you shouldn't do. Here's your advice on what to actually do. So I'm going to pull up on my screen this two by two that you have in your book. So if you're watching on YouTube, you'll be able to see it. Uh, so talk about this. This is essentially how to figure out an I- the, the best possible pricing model and where you have the most power.

    3. MR

      So when you talk about AI companies and, you know, monetization models, we get asked this question, should I be usage-based? Should I be outcome? Should I be, you know, uh, a copilot mode or how do I actually think about my pricing model? So we came up with this framework, which is a, you know, relatively simple straightforward framework, but very powerful. So there are two axes here. One is attribution and the other one is autonomy. And when you have high attribution and high autonomy, that is when you have high pricing power. And we will come back to that in a bit, right? So let's take the first, uh, you know, bottom left quadrant. That is the quadrant where your attribution is low and your autonomy is low. In that situation, the best pricing archetype that actually fits is, it is actually a seed-based or a subscription model because there's not much to do about it because you're not, you know, being able to like attribute a lot of value to what you bring, but you're in a copilot mode and you're not in an autonomous mode. So a seed-based pricing would actually make sense. But if you're at that quadrant, the immediate thing to think about is how do you actually build more attribution and move to the right so that you actually get more pricing power. Uh, so if you think about the, you know, bottom right quadrant, those are companies that have actually done that. They have more, they can prove more attribution to like what they actually bring to the table, but they're still not in a fully autonomous mode as in there is still humans in the loop. If you take Cursor, for instance, you know, it definitely improves productivity, can actually bring down the time to actually, you know, do code. The attribution is clear, but it's still in a copilot mode. In those kind of situations, a hybrid pricing model is the best option where you still have a, you know, seed-based model for the copilot kind of use case, but you also layer in a consumption model which actually says there are a certain number of AI credits or tokens that can layer in the usage aspects. So if you use more and more, then you're actually paying more on consumption. So it's a hybrid model that actually works there. If you look at the top, uh, you know, left quadrant, those are, you know, products that are very autonomous but are not, uh, strong on attribution. So these tend to be mostly like backend or infrastructure kind of products that are core critical to like run businesses can be autonomous, but they are not directly impacting the KPIs that businesses are tracking and hence cannot prove attribution very effectively. So, you know, in that situation you need to be on a pay for what you consume and a usage-based model. A seed-based model would not make sense because it's autonomous. There's no human in the loop. Uh, but that's why you're also in a usage-based model saying the more you use it, uh, the more you're actually charged and usage becomes a proxy for the value that you bring to the table. The quadrant that you really want to be in is the golden, uh, you know, quadrant, which is the top right one. That's the outcome-based pricing model where you have great autonomy and great attribution. And here is where I think AI can be really magical. So this means you're not only charging for work delivered, but you're charging for work delivered that was delivered by AI without no humans in the loop. So that becomes more of an outcome-based model situation. So a classic example here is, you know, Intercom for Fin, uh, what they actually do is they charge based on an AI resolution. So if an AI is able to, you know, resolve the ticket completely independently without a human in the loop, then they charge for it. If a human intervention is needed, they don't charge for it. So they're more on an outcome-based model or like companies like, you know, Chargeflow would charge, you know, up to 25% on a chargeback that they're able to actually recover because these are like, you know, core savings that you actually bring to the table based on your AI. It is highly attributable, highly autonomous. So you can start moving towards an outcome-based

  11. 43:13 – 44:48

    Current trends in AI pricing

    1. MR

      pricing model. If you look at the state of where AI is today as of the day of recording this podcast, uh, you know, the most popular model is right now a hybrid pricing model. So because this is also expected because of, you know, the previous SaaS, uh-... uh, playbook was usually on the seed-based model, but they've all now moved on to at least a hybrid to actually incorporate AI credits and usage, et cetera. Uh, about 5% of companies are probably in a true outcome-based pricing model, uh, you know, a- as of, as of today. But those companies, some of the best ones, are able to recover 25 to 50% of the value that they actually bring to the table. In the classic SaaS situation, we used to say if you can charge 10 to 20% of the value, that's actually great. But in AI, you can actually charge 25 to 50% because it is autonomous, you're doing it with the AI, there's no humans in the loop. You know, you're creating incremental value to, like, the business metrics. You're producing hard cost-savings as opportunity costs. You can justify all of that. It's attributable. So you can actually take 25 to 50% of what you bring to the table. In, there are a lot of benchmarks and studies that actually show that, and this also, uh, my belief, that in the next three years, that 5% number will move to 25%. So what this really means is if you want to win in AI, figure out a way to get to that quadrant because that's the magic quadrant. If you can truly, you know, price based on outcomes, you've achieved and unlocked tremendous

  12. 44:48 – 50:23

    Strategizing for outcome-based models

    1. MR

      value.

    2. LR

      Wow, okay. I'm just going to pause again. This is amazing, Madhavan. Thank you so much for... (laughs) I love that, again, that you just spent years, decades studying this stuff. Come here, tell us all the answers of what we should be doing. This is incredible. Let me ask you this. Uh, by the way, for fe- folks not watching on YouTube, the companies you have in the golden quadrant, outcome-based pricing, Ciara, Fin, and Chargeflow, we've got the founder of Ciara and Fin coming on the podcast soon, so we'll talk about all this with those guys.

    3. MR

      Awesome.

    4. LR

      Uh, so, so is the way to use this two-by-two figuring out your model? Like, is it like, okay, I'm like Cursor, I'm going to go in this quadrant, or is it how do I get to outcome-based no matter what, that's where I need to be?

    5. MR

      Yeah. So that's a great question. The first one is to actually figure out, uh, you know, what is your right archetype based on where you are today. I think that is most important. Like, if you try to rush into an outcome-based pricing model but cannot prove attribution, you will fail, right? So it is really coming up with, uh, what is the right archetype based on what I'm doing today, but also use this two-by-two to say, how do I, you know, paint a vision to actually get to outcome-based and can I get, uh how, how can I get close to that or can I be purely an outcome-based model, right? How do I evolve into that? What that would mean is, you know, how do I build functionality in the products to actually show attribution? How do I build more agentic workforces to, like, take the human out of the loop and be more autonomous and being thoughtful about your vision and strategy so that you will orient yourself towards more, you know, outcome-based pricing models? So when you think about increasing attribution, that means first of all understanding, you know, what are the KPIs of your, uh, customers? How do they track their business performance? Can you impact it? Can you productize things in your product that showcase that you are actually affecting those KPIs in a positive manner? Can you build dashboards to show, you know, value attribution? Uh, can you do those value audits that we talked about on an ongoing basis to actually show that you're bringing a lot of value to the table and is attributable to you? So how do you create these kind of attribution mechanisms become important and also autonomous based on, like, you know, building more agentic workforces that can actually be on an autonomous mode? So pick the right archetype and plan to like get to like as close as you can to the outcome-based pricing model. That's how I would use the two-by-two. And you actually kind of see this happening with certain industries, right? If you think about coding as a overall category, like, uh, you know, back in the day with GitHub, everyone, they started with a seed-based model, right? They've now moved to like the hybrid-based pricing model with Cursors and everyone else. But the natural move would be more towards the outcome-based pricing model where, you know, a AI agent can probably code everything, uh, at the same time, debug it, and you're kind of almost hiring a AI developer or a AI QA person, and that actually becomes more closer to like a outcome-based model because it's attributable and autonomous. So that is picking the right archetype and then figuring out your pathway is, is the key way to interpret this two-by-two.

    6. LR

      This explains why everyone's building agents. That's where the money's at, is what you're telling us here. (laughs)

    7. MR

      Yeah.

    8. LR

      Okay, and-

    9. MR

      It's gonna be the age of the Matrix, too many Agents. (laughs)

    10. LR

      Agent Smiths everywhere. That didn't turn out too great. (laughs) Um, so what I'm hearing is if I work Canva, so Canva here in your model is bottom right, they're in a hybrid pricing model. They have a base fee and consumption fee. What I, what you would do if you were helping Canva is what can you build that creates, uh, more autonomy, an autonomous version of Canva? And it's not like you need to do this, it's just you have more pricing power if you figure something out there.

    11. MR

      Exactly. I mean, and, and, uh, and, and a good case for that is the, you know, Fin product from Intercom because traditionally, you know, all of those kind of companies used to price based on an agent basis, how many customer service agents are actually using the product? It used to be seed-based but they built out Fin which is a completely AI resolution for those kind of support tickets and then that actually enables them to like move to the outcome-based pricing model quadrant.

    12. LR

      Amazing. So you say you're an AI founder today. You're thinking about your pricing strategy or monetization strategy long term. Your advice is work with design partners, create these POCs where you work on this ROI model with them to ideally find some outcome-based pricing strategy. Is that a good way to summarize? What, what would you add to that?

    13. MR

      Yes. I mean, um, at least be able to contextualize the business case even if you're not moving to an outcome-based pricing model. Be clear on the outcome that you're actually, you know, creating for your customers through that business case which actually will enable you to charge a fair price in exchange for that outcome and if your, you know, if your customers agree with the business case then you can actually take a portion of that.

    14. LR

      Mm. Uh, Fin actually, they're a new sponsor of the podcast and I've learned, I didn't know this, it costs 99 cents for every out- for every support ticket they solve. Which is-

    15. MR

      Through AI. If it's, uh-

    16. LR

      Through AI.

    17. MR

      E- e- exactly. If it needs a human intervention, then they don't charge for it.

    18. LR

      Yeah, and it's just like, what? That's such a simple story. Your agent costs 20 bucks, those things cost 99 cents. Uh, I would pay-

    19. MR

      Yeah, that is, uh, two chapters in one beautifully simple pricing and an outcome-based pricing model. (laughs)

    20. LR

      And interestingly, they were the m- the least, like the most hated pricing model initially. I did a survey on Twitter once, like, "What products do you pay the most for?" And it was always Intercom, and everyone hated their pricing, and they found a solution.

    21. MR

      I think they found a great solution.

  13. 50:23 – 51:37

    Packaging strategies for scaling

    1. MR

    2. LR

      Okay, so is there anything else along these lines that you think companies, especially AI companies, should be thinking when they're thinking about pricing that you'd want to share before we move on to other stuff?

    3. MR

      I think that we've covered most of the topics. Like we said, it's, uh, you know, being thoughtful about POCs, choosing the right, you know, pricing archetype or the pricing models. Those things become very critical in the early stages. But when you start scaling and let's say you become a multi-product company, then you need to start focusing on, on what, what kind of, uh, packaging strategy should I have? Is it a platform plus add-ons? Should I have, like, versions of the products like good, better, best? Should I tackle different use cases because now my AI can solve an insurance use case and a, you know, healthcare use case? Should I productize to, like, different use cases? Is, is that my packaging strategy? Or should I keep it completely modularized for, like, people to pick and choose? So, these kind of questions become more critical, and that's why the chapter on, uh, blowing up your packaging from your early days and coming up with your packaging strategy for your scale-up phase become very critical. So, I think that's the next thing that founders will be hit with. As and when they build multiple products, they need to think about the whole packaging, cross-selling, up-selling motion.

  14. 51:37 – 53:40

    Adapting pricing strategies over time

    1. MR

    2. LR

      This kind of touches on something I was about to ask, which is, uh, changing your pricing strategy, uh, how often does, is, does it, is it a success to change the way you price? Like, I know we're talking about you need to get it right from the beginning if you're an AI company. In your experience, how often, like what does it take to successfully shift the way you price down the road if people are listening to this and they're like, "Shit, we already have this pricing strategy"?

    3. MR

      Back in the day we used to say that, uh, you should revisit your pricing strategy, overall pricing model, you know, how much you're charging at least once in two years. With AI that's probably reduced in half, um, because of the scale with which and the s- speed with which companies are built and competing. So, I would say that it is an ongoing journey. It is not like you just solve it in day one, you know, sh- uh, fill it and forget it. It has to be, uh, you know, you have to be thoughtful from day one but also be ready to like pivot, iterate. And, and you're gonna learn along your journey. So, the whole point is to think about pricing as also a test and learn opportunity in your early days. And there are things that you change more often and there are things that you probably don't want to change too often. Like things like pricing model, unless you have, you know, really changed your attribution autonomy, there is no need to like shift your pricing model. Stay within that archetype, don't confuse things. But there are things like price points, "Should I increase my price because it's been, you know, six months or a year?" Yeah, you should because in a year there's probably prices go up 3% to 5% for everything that you consume. But how can you actually increase your prices and be thoughtful about it? So that entire chapter on how to do price increases, you know, smartly become very important in the, you know, scale-up phase. I think W- Warren Buffett summarized this really well. He said, uh, "The true definition of a company is a pricing power, and if you have a prayer session for doing a 10% price increase, you have a terrible business." So, you have to be able to increase prices over a bit of time. But how do you do it strategically that does not affect too much churn but you're also able to like pass on the increase as a value exchange? Those things become critical.

  15. 53:40 – 58:00

    Key axioms for pricing success

    1. LR

      Awesome. Zooming out a little bit, something that I love about your book is you structured it around these axioms. You have a bunch of these really clever axioms that get stuck in your head and help you think about pricing. Can you share some of your favorites? Maybe two or three of your favorite axioms from the book?

    2. MR

      Um, you talked about, uh, Sierra being in your part, uh, founders. I don't know if that's Clay, but he has a shout-out for like Clay. So Clay actually, um, read the entire book and gave me feedback, Scaling Innovation, (laughs) the similar copy that he actually had. And I had, uh, I called it Scaling Innovation Axioms, ah, throughout the book. And the whole point of the axioms was that at the end of the day if you can just take all the axioms, put it in a, you know, printout next to your desk, it's the summary of the book and it's like PT statements that you will just remember what to do. So, he came up with this idea that, hey, rather than calling them just sca- generic scaling innovation axioms, you need to brand each and every axiom. And I thought that was a brilliant idea, so I went about coming up with a unique... He, he even contributed some of the names. So we came about, you know, 'Cause we, we came up with some unique names for each axiom. And here's the other fun fact, uh, probably I'm geeking out too much, but when I counted the number of axioms there were 42 axioms. Uh, so, and I didn't try to make this up, and if you're Hitchhiker's fan then you know that's the answer to everything. Uh, but jokes apart, uh, let me unpack a few axioms. The first, uh, one of my first favorite axioms what, what I call is the 20/80 axiom. So in, in especially in tech companies, you know, 20% of what you build drives 80% of the willingness to pay. But the irony is that that 20% is the easiest thing to build often. So what founders do is they put this, take this 20%, build it, put it out in the market almost for free, and then they're chasing their tails to build 80% stuff that's only driving 20% willingness to pay. So if you've not been thoughtful about that, you've given the farm away unintentionally. So truly understanding what drives willingness to pay in your product is critical-And I think, you know, people call it the MVP. I think we should change the definition of MVP. It shouldn't be minimum viable product. It should be the most valuable product. (laughs) And be thoughtful about what are you actually giving out as your early products, I think is key. That's the 20/80 axiom. Probably my second one is the, you know, uh, price paralysis, uh, axioms. So, um, you know, w- what that means is your reluctance to do a price increase is often internal and emotional, and it's not external and logical. This goes back to the same, uh, you know, prayer session to actually do a price increase. If you're holding hands, you have a terrible business, right? I mean, so like it's mostly internal and emotional, and how do you, how do you be thoughtful about price increases become important. My, probably my, uh, uh, you know, third, third favorite one is stopping churn before it happens. It's stopping churn axiom. Um, so to stop churn, you need to attract customers who won't leave. That sounds counterintuitive, but that's the best way to actually stop churn. What does this actually mean? You know, most companies would try to stop churn when someone actually says, "I want to go." It is too late and you're being reactive. At the most, you'll throw some offers, they will stay for another six months, and they will leave. They've already made that determination. The way to stop churn is to start a, start acquiring customers who won't leave. And that is the most important thing. So if you look back at your, you know, data and say, "Who are the types of customers who actually tend to stay longer? What are their characteristics? How can I focus my acquisition dollars in getting more of those?" Then you stop churn before it happens.

    3. LR

      Mm-hmm.

    4. MR

      And that's the key.

    5. LR

      That's interesting. I'm surprised you didn't say what was my favorite, which is, I think it's like if you land, make sure to expand.

    6. MR

      Yeah. Yeah, that's-

    7. LR

      That one really stuck with me.

    8. MR

      That's a good one too.

    9. LR

      Maybe talk about that one. Yeah.

    10. MR

      Sure. I mean, so if you, if you land, you need to also make sure you're ex- you're expanding in the sense that, you know, if you give the farm away in your entry level product, you don't have much to actually, you know, monetize later. So being thoughtful about, you know, what is the fence between your land product? Uh, you know, wha- is it a free experience? Uh, what, what is the gating? And the gating is typically based on, you know, are you getting based on features? Are you also getting based on usage? And how do you be thoughtful about that so you leave

  16. 58:00 – 1:01:33

    Takeaways for founders

    1. MR

      stuff for the expansion?

    2. LR

      Okay. So zooming out even further. To kind of wrap up, what would you say is the biggest lesson you want founders to take away that they're probably, they think they understand, but they probably don't?

    3. MR

      Yeah, I think this comes back to what you started with. I think intuitively people get it, that they need to think about market share and wallet share if they are going. And even if you ask them, they will say like, "Yeah, yeah, I'm thinking about wallet share." But have they really thought about it, uh, equally and paid equal attention? Have they, you know, postponed one of them? Are they operating in a single engine strategy, consciously or subconsciously? I think that's the key takeaway I have. So the contrarian take is not to put equal effort on both the, you know, engines at the same time. In certain stages of your company, you might need to be more market share dominating. In certain stages, you might need to be wallet share dominating. It's not equal effort, but it's equal attention. And like really developing that mindset of being a true profitable growth architect. And that is the main takeaway that I have for people. And if you are not in that mindset already, there's a book for you.

    4. LR

      (laughs) We'll point them to it. So just so folks know what to do when they're like, "Okay, I need to focus on wallet share more," is the main focus figure out a pricing model that aligns well with pricing power? What's like, what's in the bucket of work to do to invest more in wallet share thinking?

    5. MR

      So it, it's actually all of those, uh, you know, uh, market share, wallet share, acquisition, monetization, retention are all kind of like correlated. You can't think about them in isolation. I wouldn't say only for wallet share, what do you need to do? If you wanna grow on both the market share and wallet share, let's say for instance, you know, you need to have the right land and expand strategy. The land helps you with, uh, acquisition. The expansion helps you with wallet share. Um, if you have a, you know, pricing model, then you need to have a pricing model that lets you acquire faster because it's intuitive, but it should also help you recover value, which is like your monetization. And if people understand your pricing model, they're actually gonna stay. So it's all sort of, uh, you know, goes hand in hand. Um, so I wouldn't isolate thinking one way or the other. That's why the nine strategies actually are very powerful, because if you follow the strategies, you are not going to fall into the single engine strap. These are tried and tested strategies of how to build businesses in such a way that you're being thoughtful and paying equal attention to both market share and wallet share.

    6. LR

      All right. That is a very reasonable answer. Manavan, is there anything else you wanted to share or leave listeners with before we get to our very exciting lightning round?

    7. MR

      Read the two books in sequence, Monetizing Innovation and Scaling Innovation, because it's one thing to build a great product. It's yet another thing to build a great business. You cannot build a great business with a not so great product, and you cannot do it the other way around either. So I think it's, uh, having, uh, thinking about pricing early, uh, especially for AI companies, being thoughtful about it, you know, like la- you know, price before product, and then thinking about how to actually scale, developing a profitable growth mindset. All of these things become critical. And I'm, uh, looking forward to the feedback from the audience.

    8. LR

      I feel like your books are kind of like in the, the staple of founder reading. There's like all these things, you just don't know what you're doing, and there's a few of these books that are like, "Okay, here's all this advice that'll answer so many questions and save you so much heartache." And so, uh, I'm really excited you- you're adding something to that bookshelf.

  17. 1:01:33 – 1:11:42

    Lightning round and final thoughts

    1. LR

      With that, we've reached our very exciting lightning round. Are you ready?

    2. MR

      Okay. Let's go.

    3. LR

      Let's go. What are two or three books that you find yourself recommending most to other people?

    4. MR

      The first one that comes to mind is Business Model Canvas by Alex Osterwalder. It's a classic and one of my favorite books. I recommend a lot of people to read that because I think it nicely ties a lot of what we are also saying from a more strategic business model angle. I like this book, uh, Thinking Fast, Thinking Slow. I think that's also a classic because again, uh, you know, there's always a human element to things and understanding the customer psychology, uh, is important, whether you're in B2C or in B2B because if you're in a B2B situation, it's humans having a human conversation. So like, it's as much behavioral as it's actually numbers. So I, I love that book and there's a lot of nuggets in there so I recommend it a lot. And probably the third one that I recommend is a book, uh, called Contagious by Jonah Berger. Uh, I love that. He was in the PhD program at Stanford, um, in marketing and he actually wrote this book on how to make messages viral and he's actually seen, you know, the best viral messages and boiled it down to a framework and if you follow that, um, then you can make those messages viral. And I've tried to use some of those in, uh, you know, my own outreaches and things of that nature so I think it's, uh, it's a fantastic read.

    5. LR

      Wow.

    6. MR

      Have you read it?

    7. LR

      I got to check this out and I have not. I haven't even heard of it. All right. Well, it's-

    8. MR

      It's a good

    9. NA

      (laughs)

    10. LR

      ... we're going to go viral as, as we got the playbook. Um-

    11. MR

      Contagious. That's the name of the book

    12. LR

      Okay. Contagious. Okay, we'll link to that. Is there, uh, a recent movie or TV show you've really enjoyed?

    13. MR

      I guess a movie. Sure. Let's pick a movie. Um, uh, definitely enjoyed, uh, Mission Impossible, uh, the final one, uh, eighth in the sequence. I, I think I find that whole, uh, uh, I, I love those, the entire genre one through eight. Uh, but what I kind of like about it is my willingness to pay has constantly increased over a period of time. They could have charged me whatever they wanted for the eighth movie. I would have probably gone and seen it, because I wanted to. So I thought that's a interesting example of like a durable brand where your, you know, your monetization power actually increases over a period of time so I think, um, I enjoyed the movie, um, it was great. Um, yeah, I mean, hey, by the way, I just realized MI stands for Monetizing Innovation and also Mission Impossible.

    14. NA

      (laughs)

    15. MR

      Maybe subconsciously that's why I liked it too.

    16. LR

      And you're the Tom Cruise character.

    17. MR

      Yeah, exactly.

    18. LR

      MI- That's a... I love how you (laughs) , you're the only person in the world that thinks of Mission Impossible through a monetization willingness to pay lens.

    19. MR

      Exactly. I think there's a, too many, uh, of these dinner conversations also gravitate towards pricing and bu- and monetization. I think it's become my life.

    20. LR

      So, yeah. We need a, we need a version of this movie, like a Mission Impossible of Madhavan.

    21. MR

      Sure.

    22. LR

      I'd pay, I'd pay anything for that.

    23. MR

      (laughs)

    24. LR

      All right. Next question. Do you have a favorite product you recently discovered that you really love?

    25. MR

      Um, I will probably talk about two products. The first one is, uh, Delphi, uh, the, uh, you know, digital mind representation, that's the Lenny bot that you actually, uh, I think put out. So I think... I find that product fascinating and I also love the founders, Dara and Sam there. I, I truly believe that that is going to be the future for like, you know, thought leadership and how thoughts are consumed by like consumers. Like if I can... and I've used your Lenny bot, I really enjoy it. Like if I can, you know, co-create some thought leadership piece with talking to you, but it's not you, you're AI and it's actually living and breathing, your brain, how cool is that? And I think that the... I, I really love the product category. There's a lot of, you know, different use cases, uh, longitu- lo- longevity extension use cases, things of that nature. I'm excited about, uh, about the product. I think it's, uh, it's been great. I pr- I plan to, uh, taking inspiration from you, plan to create a Delphi of myself.

    26. LR

      Okay, I was going to ask. Okay.

    27. MR

      At some point I think it should be out before the, uh, book maybe.

    28. LR

      Oh, okay.

    29. MR

      I'll try to. That's the promise.

    30. LR

      Okay.

Episode duration: 1:11:43

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