Pricing your AI product: Lessons from 400+ companies and 50 unicorns | Madhavan Ramanujam

(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.

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

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.

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

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.

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

Some of them, yes, without naming names.

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