Growth vs Efficiency: Can You Have Both?

0:00We need to try to get back to like fundamentals and how do we actually iterate and ship fast. We have to build products that are constantly evolving and that are constantly learning and evolving from those learnings. The only way really to stay ahead of that curve on that consumer side is get the lightnings keep hitting. I mean that sounds hard. It's very real. That's incredibly hard. Second product hitting, so rare. Third product hitting, you're a generational company. It's like there's this big wave coming and it might hit your ship. Is there a way to avoid the way? I don't think so. I think it's kind of a tsunami.

0:32If you sit there, it's just gonna wash you away. People will want to talk to people. So like community becomes much more important, referral becomes much more important, where the myth becomes much more important. The new limiting factor is possibly creativity. That's a very, very fun place to be. Despite it being easier than ever to build a product, it may actually be harder than ever to grow one, especially sustainably, with many tried -and -true channels no longer working as they want to do. paid platforms were hit with app transparency tracking, SEO is not threatened by AI chat, social graphs have moved to interest graphs, product led growth is easier than ever to copy, and viarality is just as transient if not more transient than before.

1:15And those are just a few of the examples that founders are facing. So what growth green space still exists, especially in an era of austerity? How do you balance efficiency and profitability while still growing? and what channels matter and how you master them in 2023. These are just a few of the questions we addressed in this episode, together with three people that have successfully grown companies through similarly confusing waves of the past. First off, we have Gina Gotthelf, now leading latitude, but perhaps most well known for her impressive reign as a VP of growth at Duolingo, growing them from three to 300 million users with no paid budget.

1:54But we also have Curian Flanagan join the conversation, long time SVP of marketing at HubSpot, where he was a founding member of their international business, all the way up to HubSpot hitting over $1 billion in ARR. And finally, we have our very own brand -kin, partner at A16C, who also held several leadership roles at SNAP, from their hyper -growth days all the way through IPO. Alright, I won't keep you waiting any longer. Let's dive in. As a reminder, the content here is for informational purposes only. Should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16z fund.

2:37Please note that A16z and its affiliates may also maintain investments in the company's discussed in this podcast. For more details including a link to our investments, please see A16z .com slash Disclosures.

2:58What are you seeing in terms of growth that still works in 2023? Are there white spaces that companies can tackle? What's happened in this kind of really interesting because there may be like AI is somewhat of a tailwind for like maybe 12 months or 18 months for the best people and then who knows after that maybe ahead, we're going to cross everything. So I think certainly in search, I really dug in there. And there are lots of examples of the click -through rate decreasing and the amount of traffic you get from Google search pages decreasing. But I still think there's a lot of value in that. Paydads, very similar, I still think there's a lot of value in that.

3:34What really happened with the popularity and growth of the internet is like marketing growth became much more measurable. And they could have a seat at the revenue table. They could say, hey, put a dollar in here and I get $3 out of here. And the growth that's starting to happen today or where things are starting to shift is a little bit back to this indirect causation. These channels, if you look at the platforms that grow in it's short from video, TikTok, YouTube, these kind of media channels. If you look at where I think things will go with the evolution of AI, people will want to talk to people.

4:03So, community becomes much more important, referral becomes much more important, where the math becomes much more important. All of these things are going to shift us back into the place where we have to be okay doing things where you can't measure everything directly all the time. And I actually don't think that's a bad thing because I think the over index of measurements forces everyone into the middle and everything becomes like mundane and lacks creativity. And so I think that there's like some pros and cons to actually this happening, but there's certainly a change in terms of how you are able to do your work and actually really have the value of that work to like the founder who the founder is for the most part still going to be stuck in the binary, give me three dollars for the dollar that I give you.

4:45We're almost like going back to the origins of advertising. There's that saying that says you need to hit someone seven times before they convert. And Facebook maybe changed that. Maybe it was like two times. And then it feels like we're sliding back in the other direction. I think it has always been the case that people need repetition to really notice something. And yes, more and more, there's more media, there's more for us to watch and listen to, and we're more distracted. So I think that that becomes even more of the case. But I may be simplistic, but I don't think that much is changing because to me thinking about growth is about the framework for Understanding what makes people tick what people care about how to reach one person or one media outlet or One channel whatever it is that will reach a lot more people in the most efficient way possible What are the moments in your product that people really really care about meaning like?

5:35number of people who actually encounter that moment and if you actually make some sort of like a bit tesser change, you'll actually see significance as a school results on the other end because people really care about that one moment. It could be a notification. It could be a screen. You know, we keep seeing these trends and things grow and EBSCO rules are constantly changing because we're at the whim of algorithms and so we're just constantly trying to adapt. Places become saturated. Like at one point it was really trendy and cool to do ads inside the subway in New York City. Someone discovered that in 2012, which is funny because it feels pretty obvious, and suddenly everyone was doing it.

6:10Everyone's testing the notifications and everyone's saying, there's too many and it doesn't matter. I think all of those channels are still very relevant. It's about finding how to actually impact how people feel and finding new ways of impacting people that are cheaper because less people are using it over and over. So I think that that will continue to be the case and it just depends on what's the trendy channel and what are people paying attention to. But if you think a priori like that like how do I reach one that then reach a lot or what are the things that I can modify that actually make a difference?

6:39Then I don't think that much has changed. I have like a slightly heretical take so this is gonna be fun But you know when we talk about gross especially I know ACKV where all we're the Silicon Valley and the stalwart what have you But when I think about gross this like gross tactic gross, you know channels and even the word gross hack became very popular in that You know, there's this prevalent theory and sort of care and touch on it where you can put it in a dollar and get back Why put a next dollar get why back and I think that certainly became true and there became so many channels and there became so many Wisdoms and tried and true tactics whether it's SEO or ambassador program or community building where everyone's trying to learn from each other I'm like, how do I hack this thing?

7:21Genus is something interesting is sort of how I think about it where like moments in the product when people go, uh -huh like this is great. At the end of the day, I think gross, we're sort of conflating two things. One is the actual product is a sticky, doesn't enable you to continue to come back because gross at the end of the day is like, how many people continue to use your product? It's like not a singular metric of like on day X, how many people showed up? Well, that's useful for today. But actually for a company that is ongoing concern, what you want to know is like, how many people consistently show up?

7:50And how does that grow, right? It's a cumulative concept, which means that, you know, the fact that people come back day in, day out is probably one of the most important factor in assessing the growth potential and growth of it, which to me goes back to a little bit of product where when people first come on, like we all notice, but, you know, the biggest drop off, typically day one or day zero, when, you know, people come on, they do onboarding and maybe they didn't get to the aha moment quickly. So why would they come back? If they don't come back, then your game as a gross is like, how do I get more acquisition, right?

8:21Because gross to me is also sort of a, you know, an numerically almost an equation. There's like, you know, people who showed up yesterday plus new people that you acquired minus the term people plus the resurrected people. That's sort of like an equation. And when you think about how to get the retention of, I think it all goes back to product. Why as founders and operators, why is there gross in your product? Like, why is it useful for more people? And is your product constructed in a way, as Gina said, like, you know, helps people understand what your product is about when they first use it.

8:52Can you deliver that product value again and again consistently? I think now we call it product like gross, but it's honestly like a core product value and how you actually define that is one. And a lot of things that we're also talking about here is like distribution. So they're like a product and the distribution side of it. If we think of like distribution, I think, you know, the panel is exactly right. There are areas where it's less good now and there are areas that are continuing to be good. You know, you talked about advertising, there's that saying that you never know where half of it goes.

9:21And maybe we're going back to that, but I think there are many other areas that continue to work well, whether it's subway ad or remnant TV ads or radio. It depends on your product is. And when your intended audience is, if you're marketing or appealing to young generation of gamers or communities or niche areas, then red and in discord are actually pretty good places. I also think ATT did kneecap a lot of the sort of paid advertising side of things. But the AI, like here I also talked about, can also be used for that purpose, right? Facebook or Meta is investing heavily on AI side of it so that sometimes all you need to do is just say, hey, I have this idea here is like the base creative.

10:05And now they're able to change how it looks, to add different copy, like change the thing to see what works automatically at scale with AI and deliver higher value. And that's also you know, very promising, I think, direction that we're seeing where the efficacy of the paid side may also be restored. Yeah, I mean, I like the breakdown between there is product and there is distribution, those latter up to growth, but maybe if we just attack this idea of building a good product, that's not a new idea, but it does feel like at least to me, maybe we are in a different era where it's easier to copy products.

10:43And so is it just about being a first mover in an era where things are easier than ever to build? And maybe Gina, you can speak to that because Duolingo kind of famously grew with no marketing budget. Is that correct or a very little marketing budget? And it was exactly product -like growth that resulted in that company becoming so big. Yes. So what I think has really changed with tech is that people could say, oh, my product is really good before, but like it wasn't as easy to know whether a product is good or not good as it is now because you can actually see that in metrics in terms of as Ryan was saying just in terms of retention and people coming back again.

11:18So now that defines what a good product is. But it's not just about building a product that's good, but also the fact that with tech, we have to build products that are constantly evolving and that are constantly learning and evolving from those learnings. But the main thing I think that like when you talk about Duolingo, what we're trying to do at latitude now, which is a new company. The importance of not just building a great product, but understanding really clearly what your moat is. And your moat needs to be something that makes it really hard to replicate your product. And it can be anything, right?

11:47Like so, for example, if Kim Kardashian launches a shoe that's exactly just like every other shoe that exists out there, the moat is Kim Kardashian because her brand and her audience and like the fact that she is an influencer, she's not telling people to buy this shoe, that's a moat. It means that like it's the thing that makes it really hard for you to go and just do that again. With is the most and that's the most incredible thing because of what I just said before about the iteration and the iterative practice. Anyone at any particular moment in time and many did try could actually go and copy exactly what Duolingo was doing.

12:19They in fact use the same fonts in many cases, they use the same design colors like the same format. You can do that but you don't have the data and the team behind it that knows how to use that data that is constantly learning from every single day of all of the usage that we're getting and understanding what's leading to every single decision and why we're modifying things in a particular way, that's impossible to catch up to. So at every moment in time, even if you mimic exactly what Duolingo is, there's no way you're going to get to the next day of Duolingo because you don't have all of that history or the knowledge of how to use that history.

12:53So you can just spend all your time trying to copy Duolingo every single day, but that doesn't actually get you to solve a problem for a consumer and understanding how what you're doing is actually solving a real problem, which is at the core of, as you were saying, a retensive product that people actually like, and that defines a good product. So it's not as easy as it sounds. It's definitely not as easy as it sounds. Kiran, I want you to tap in here. You now are the CMO at Zapier, which I feel like actually is a great parallel to what Gina just said. I mean, Zapier has so many, you could say clones or competitors, right?

13:27Like I've used many of them, many of them are cheaper. How do you think about that differentiation and building a product to Gina's point, like getting the right data and involving it in a way that you can stay ahead, you can have a mode? Yeah, I think first and remember, revenge is useful if you can build a healthier attention curve and that retention curve helps you make that product much better over time. And so you're just like making it much harder to compete with you. And that could be an all manner of things. Exha up your is mode for some time was just they had much more expansive coverage of apps and the amount of things that you can automate with.

13:57And then like, More recently, it's like, how do we integrate AI? How do we make automation much, much easier for companies? How do they actually do natural language within their apps? Like, one of the things that's super interesting about the AI part is going back like the distribution and then the product part and the product led growth. And like, AI is a phenomenal unlock for product led growth because product led growth will get naturally built into every single product because every single product will have a natural language interface. And so like, you will actually be able to onboard the products and use products without actually any human intervention.

14:25And I think that's an incredible augmentation of how apps work in general. But I think the most part is going to be much more complex. I'm talking through the lens of B2B, not through consumer apps. But certainly for B2B, it's going to be somewhat more complicated to figure out over time because AI does commoditize things and make things much easier to replicate. And we've seen AI may be one of the few platforms shifts that actually skews towards the monopolies and conglomerates versus these individual companies who just get sucked up in their features of these existing platforms. It kind of skews towards if you have distribution, you might wings.

15:00I think AI features might be more of a retention play than an actually new acquisition play, which is like, if you build the AI features into your platform, no one will go leave you to actually use all these different point solutions. So I think modes will exist in similar formats. There may be just companies with less of them. And I do think distribution is a mode retention, is a mode network effects, but there'll be a mode community is a mode. And so I think that all of those things in relation to Zapier, like how are we touching and all of those things as we continue the web company. One thing I want to respond to what Kirin said, a latitude, I would say the community is our mode, but the reason why the community is our mode in addition to the distribution aspect of it is the trust building.

15:35So trust can be a mode because that takes a while to build. So for B to be product, I think that's also super relevant because if someone can come into the market and just offer the same product, but you build a brand on the Zapier side that is super trustworthy, and so people will continue to trust new features or new solutions that you put out there instead of trying to maybe try new products. I think that that's another aspect worth considering. By the way, Karen, how many times a day do you get asked if it's tapier or Zapier? I don't even know if I said correctly, I said Zapier, but maybe Zapier.

16:08I should probably know. I heard one of the founders say it's Zapier, it rhymes with happier because it makes it happier. Oh, there you go. I know it's apps. That's how I do it. It's apps. Yeah, yeah. The main reason I joined is just I like to say in the word apps, it's just a cool world. I know we talked a little bit about B2B. Just talking about more of the consumer side, gross and thinking about distribution has changed. I think a long time ago already Mark Zuckerberg at Metta already said it's a battle for the home screen. And more and more, even recently, people are downloading less and less apps over time.

16:48Part one, part two is harder and harder to get discovered in the app store. App store ranking is hard to get discovery now. So now you have this issue of one, people are less willing to download brand new things. And two, even if they kind of heard about you, it's like harder to get discovered. So I think part one of the consumer side, the platforms have, or lack of better word, maybe I can call it ossified, where there are two distribution platforms, Google Play and Apple Store, great, and they just distribute apps. And people read download, ton of apps, they retry a lot of things with brand new things, not so much, or certainly less than before.

17:28So now you have this conundrum of like, okay, like it's just harder to break through the noises. And we talked a little bit about, especially Kieran talked about, you know, maybe AI is an accelerant for retention, maybe less of an acquisition. I think that's correct. And that's interesting where also we have a lot of these like incumbents, right? Like especially in the consumer side, incumbents come with incredible modes. They already have the network effect. They already are synced to everything. They already have login for everything. They already have all your data. They know what you bought.

17:59They know you. So So you talked about how do you stay ahead? It's very, very, very difficult actually. Even if you have a clever hack, all these companies come up with incredible new consumer products and they enter the zeitgeist and through entering the zeitgeist they're able to solve the first order question. How do I break through the noise and get distributed initially and have more people to try it on? That alone is a feat. That's incredible. If you have highly -retended product on top of that, legendary, that's amazing. Fantastic. And all these are the products that we talked about did have that.

18:36Now the question is, okay, copy. Gina, you talked about people copying down the fonts. I understand that so deeply of the Snapchat were four or five years. And you know, down to the font and everything, like UI level, yes, they copy everything. And how do you actually fight that as a new entrance? Especially when incumbents come bearing a lot of these already like weaponry, if you will, that have retention and data and everything. It's hard and I think actually, and this is like a sort of difficult answer, the only way really to stay ahead of that curve on that consumer side is get the lightnings keep hitting, which is so, so, so hard.

19:19I think getting the first hit is so hard. Second, product hitting, third product hitting, you're a generational company. So it's sort of that innovation curve that I think is like very interesting. So for the companies that are newly entering and building new product, and we're on the side of the builders, right? And companies may have like all the advantage, but we want to see new products. We want to see new, you know, hungry founder that are building for the next generation. And they're not happy with the current set of solutions. So the only way potentially is, you know, there's a series of things, but like step one boss game is like, how do you get through to distribution noise?

19:56Step two boss game is, you know, how do you get retented product? Great. Step three, and this is like the holy grail in my mind is like, how do you get that lightning to hit? Continue to enter zeitgeys. And for that, you know, I think it's thoughtfulness. I think it's a structure of the company. I think the culture of the founders and the team of wanting to continue to put out the best and brightest work that they have. have continuously versus potentially resting on laurels or optimizing for things that have worked in the past. And thinking that their first iteration product is what is going to bring them to the next, next, next level because they may not be because the distribution of the advantage of the incumbents as well as the difficulty of getting further discovery.

20:36What's an example of that? That sounds really hard. Is there an example of a company that you've seen execute on that hard mode really well today. I mean, you know, one of the last examples I've seen in one of our portfolio companies be real has done that too with certain features. But if you think about, I'll talk about snaps since that's the name I know well. And you know, it's been copied so many times. Don't have you. You know, the first hit one may think is a disappearing images. That was revolutionary that people thought of images as something to keep on your phone. It's like for recording and for keepsakes.

21:08You turned that into disappearing thing, which made the medium itself a message. Communication method. That's revolutionary, very interesting. Sexting was the first use case, but it catapulted the company in a new height. Great. So that was going really well. Now then, the kicker is they then started to add stories. Stories of these disappearing photos linked together that showed you a day in time in your life in a passive way, but also goes away revolutionary in that sense, then that to me is a second zeitgeist hit. Which by the way, what a great love something being copied to, right? So everybody has it.

21:49Like LinkedIn has stories like no dig on LinkedIn, but like everyone has stories now. So you know, it's a medium and like a thing that worked really, really well and potentially even burst like the short video type thing that's trend. So to think about the second innovation, That's like a huge innovation. Third also is you know, they didn't arrest area was like okay We are seeing more and more people Evanned in the front result of the front facing camera. What is the problem? Well, they don't like what they look like well Let's add dog ears on people's face. Let's like rainbow pukes on people's face and again That's another thing stuff where everyone copied like everyone has lens now like it's very very good I'm gonna talk here now and take talk You know, puking rainbows, blue eyes, what have you, but these augmented reality effects are now prevalent in consumer products.

22:36So this is one example where I think each subsequent hits have essentially catapulted the company the new heights. And that I know from inside was very difficult, very long term with several bets going at the same time and being very thoughtful of what to kill and what to put out there. So, it's that system of innovation is that hunger and continuous past that I think is very important. That speed and hunger of being able to like implement all that at a fairly large and established company, I think is a very difficult thing. So, I think there's a cultural aspect. I think there's a founders mentality of always wanting to be ahead of the curve, always implementing and sort of looping in the new products that the users are looking for.

23:22How do you foster that culture? I think especially in 2023 where maybe budgets aren't as big, maybe some of the talent you had before is not used to that austerity or that idea of having to ship really quickly, maybe spend less money and just figure it out. I've talked to a lot of companies this year that were CD public. I feel like a lot of founders are actually excited to get back to shipping. Like I think we went through this ballooning of companies during COVID and everyone was like wow Like I don't really know how this company even works anymore Yes, and we need to try to get back to like fundamentals and how do we actually iterate and ship fast?