20Growth: The 7 Core Levers to Win at Consumer Subscription: Growth Loops, CAC + LTV Benchmarks, Pricing, Packaging, Notifications, Discounts, Paywalls | The Breakdown with Phil Carter

24:58You do have examples of companies where some combination of the quality of their product and the virality of their use case leads to this tipping point where they become so mainstream in the public consciousness that at least for a while their blended cacks go down because you just have so many people in their target demographic talking about this product and sharing it with friends. I mean, Chattity PT is a great example of that right now, right? Like it's so viral because it's such an amazing product and so I don't know what their balance of paid versus organic acquisition is, but I have to believe that the vast majority of it is just viral because everybody is talking about AI right now and chat GPT is at the center of that conversation.

25:34But those are the outliers. For everyone else, CACs almost by definition will go up over time for a couple reasons. One is, and the simplest is, as you expand beyond your core and as you tap out your highest intent early adopters, you are just going to have a harder and harder time converting eyeballs into subscribers. So your cost per install will go up, your sign up activation rate, trial start rate, trial conversion rate, all of those metrics become harder and harder to maintain at the same levels as the average intent of the user goes down. So that's one big factor. And then the second factor is certainly on page channels as you scale up the amount of spend you're budgeting per week per month, at some point it gets harder to maintain the same levels of efficiency.

26:22There's certainly a level below which you're inefficient if you're not spending enough money because you're not giving the algorithms enough information That's a problem that a lot of really early stage company space like they're spending $5 ,000 a month $10 ,000 a month on Facebook That's just not enough to get an efficient outcome But once you're really starting to scale you run into the opposite problem where you throw too much money at Facebook or Google too quickly And it's the same problem like you're moving beyond the users who are most interested in your product and you're starting to get into these lower intent users, or you're starting to get into lower quality ad inventory.

26:54And so the system just starts to break down. And that's why CACs for most companies tend to go up over time. So what should early stage startups do? If you don't get enough data with $5 ,000 to $10 ,000 a month, but you don't have huge amounts of money, what do you recommend they do? Yeah, well, this goes back a little bit to you asked me earlier, you know, should you be focusing on big swings or should you should you be focusing on smaller optimizations as a growth team? And when you're an early stage startup, what I said was focus on the big swings because at that stage nothing else matters I think it's sort of similar when you're thinking about your acquisition strategy And so what I mean by that is number one See if you can grow organically for as long as possible It's find or run some paid ad experiments on the margins just to sort of test the waters and figure out okay Is Facebook, Instagram, TikTok?

27:42Are these channels gonna work for us from an paid acquisition standpoint? But ideally, you're able to find an organic growth loop to sustain you early on. It's kind of like, so I live in Colorado, it's kind of like training at altitude, right? Like, force yourself to try to get strong enough product market fit and product channel fit that you can grow organically through some combination of word of mouth or content, which drives SEO. Before you start sinking a lot of dollars into paid acquisition spend, and then even once you do invest in paid acquisition, you want to run a bunch of tests to see what works, but then once you find a channel that works best, more often than not, there's this power -law of distribution that Peter Teal talks about in 0 to 1 and Brian Balfour has written about this.

28:25Like 70 % or more of user acquisition for most fast growing tech companies is going to come through a single channel early on. And so don't spread yourself too thin. Like really try to maximize your efficiency on one channel rather than taking this spray and prey approach. When do you think we should start thinking about secondary channels? Because you don't want to get to a stage where you saturate efficiency and suddenly you're pretty screwed actually because your channels topping out And you don't have a secondary and you don't have any others that you've tested or tried at all But then you also don't want to be diverting attention and resources away from a channel that's working when it's so hard to get just one working Yeah, it's a tough question to answer but philosophically I think the way to think about it is Test early to figure out what your dominant channel is go only on maximizing the efficiency of that channel But then very closely watch your input metrics, not your output metrics.

29:18Like, don't get fooled by the outputs. Focus on what is the efficiency of this channel every step of the way. If it's a paid channel, you know, from ad impressions all the way through to subscribe or conversion or retention. If it's an organic channel, there's a similar set of metrics that you can track through the funnel. And as you start to see bottlenecks spring up in that conversion funnel, You either need to be very confident that those bottlenecks are solvable and that with tweaks in your product or in your ad creative You can unlock the next step function of growth within that channel or you need to be very quickly Starting to diversify to your second or third channel and ideally you're not waiting until the 11th hour to do that Like ideally once you start to see the early signs that okay, we're not at saturation yet But I can connect the dots to six or 12 months from now We're probably going to start to hit saturation You should be investing heavily at that point and figure out what your next channel or two is going to be.

30:10Phil, can we just spend all way to dominance? Can we spend all way to growth? There are some rare exceptions where I think that has happened, typically in marketplace businesses where the network effects are so strong once you get to the tipping point that you can have upside down unit economics for months or even years and then once you flip that tipping point, you pay it all back. And I think there was a period over the last decade where the funding environment, VC preferences for you know massive user growth rates, over profitability were such that a model like that could work and with the right business model and with the right network effects It might be able to justify itself.

30:49But more often than not Certainly in the case of consumer subscription. That's that's just not the case. On the cack in the payback element And, CAC obviously is incredibly important because they'll hire the CAC the longer the payback will be if the all -pues the same. What is good versus great in terms of payback when you're looking at consumer subscription apps today? Six months is good. One month is great. First session is exceptional, which is significantly lower than B2B, right? And B2B, you know, 12 months can be considered a good payback, or even 18 months for an enterprise SaaS business.

31:21But we talked before about how consumer subscriptions don't have the benefit of low -chirin rates, high net revenue retention, sometimes over 100 % net revenue retention over time, right? There's also the fact that revenue cat recently had their state of subscriptions report for 2024, and they reported that over 75 % of trial starts actually happen in the first 24 hours after a user installs an app, in many cases on the first session. So when you look at both the shortness of consumer attention spans and how quickly most trials need to happen and if they're ever going to happen. Combine with the high -turn rates and low in our dynamics of these businesses, it's really, really important to try to convert users quickly and to pay off that initial paid hack as quickly as possible.

32:07So generally with the clients I'm advising, I'm saying, look, ideally we want pay back within the first three months and ideally within the first month if we can get there. And you have to have it within that time period because the chart rates are just so high. I mean, I'm going to butcher this and I hope Lewis, Juleinger, doesn't sue me. But I think retention rates on Juleinger is like 50 % for 12 months. And that's considered great. How do you think about retention rates of good versus great after different time periods and help me out as an investor here? What time period should I be looking at, Phil?

32:39Should it be 30, 60, 90? Should it be 31, 83, 65? What are the important time milestones and what is good for them? First of all, I like to break out retention rates on monthly versus annual subscribers, because they look very different. For monthly subscribers, I think any company that is retaining more than 50 % of its subscribers for six months or more is doing a very, very good job, because monthly subscribers just tend to turn at much higher rates. For annual subscribers, typically look at the first two years of subscriber retention, because there's a lot of data that shows that after the second renewal period, the subscribers that you retain for two consecutive years as anal subscribers are often going to retain for many years after that and they become the foundation that you're building your business on long -term because those are your highest intent users who are going to stick with you for the long haul.

33:30So generally I'm looking at two to three years on annual subscriber attention, the first six months on monthly subscriber attention and trying to get those retention rates as high as I can. And then there's the obvious thing you want to look at which is just does the curve flatten an out or in an ideal case, does it actually, is it a smile curve where it comes up? So Duolingo is an example of where even as highly touted as Duolingo is, they don't have fantastic monthly subscriber retention rates, but you actually get quite a bit of reactivation on Duolingo, where a user will maybe subscribe, learn a language because they want to go on a trip or because they're trying to teach their kid Spanish, and then they'll go dormant for a while, but then maybe a year later, they'll jump back in and they'll become a subscriber because they're learning a new language or they want to refresh their Spanish skills.

34:15And so all of these different dynamics matter when you're thinking about the overall picture of retention. But certainly getting retention, right? It's the foundation of any business. But for consumer subscription, it's particularly important because you're just losing so many more subscribers early on than a lot of B2B models. I think it's why you can't have vertical consumer subscription. But you can have vertical SaaS with dentists, with gardeners, with architects. You can't with consumer subs, because you just churn through so many, you have to have such a big original pool. I think that's right.

34:46You either need a very large market so that you can afford to churn through plenty of lower -intense subscribers and still build a hundred million dollar plus business, or this gets back to, or you just don't raise venture capital, and you keep your team small, and you build a great 10 to 20 million dollar ARR business with a smaller team. And that can work really well on certain kits. So I argue with Nico at adjacent all the time about this and he is fucking successful and I think the world of him so he's right and I'm wrong but I don't think consumer subscription as an asset class as a subcategory or category is a venture backable large enough category there might be one like Jua Lingo and maybe a couple more but that make it to venture scale returns.

35:32Overall I think that's right I think it is a hard category and that's probably not going to change anytime soon. I actually just published a guest post for Lynnie's newsletter and one of the figures that I include in that article is a list of consumer subscription businesses that have achieved billion dollar plus valuations. So that's both publicly traded companies as well as private companies based off of their latest publicly available valuations. And they're about 30 to 40 companies on that list. Roughly half of them are public, half of them are private, but there aren't many, right? Like when you think about...

36:08I went through that list though and I was looking at half the private names thinking I can buy these on secondaries for 50 % of this price. How difficult it is to scale these businesses, right? I won't name names, but there are plenty of companies that were darlings in the venture community, in the tech community a couple years ago that are, you know, household names and consumer subscription, but they still haven't gone public. Well, why haven't gone public? I haven't seen their numbers in most cases, but they probably haven't gone public because under the hood there are metrics that say this may not be sustainable over the long run.

36:40And so this gets back to if you are a venture capitalist. Consumer subscription is not the most attractive asset category because there had been very few billion dollar plus outcomes let alone the like 10 billion 100 billion dollar plus outcomes that you're ideally looking for to make, you know, to make your fund multiple times over. But that doesn't mean that with the right discipline and with the right product and growth strategy, you can't, as a founder, find a really attractive niche, build a great product for a small but, you know, rapidly excited and loyal community of enthusiastic early adopters, get that to 10 to $30 million in revenue.

37:18And with a team of 10 to 20 people, have a really great outcome in a sustainable business. As long as you don't push yourself beyond your core to the point where, you know, all the metrics start to break down. You start to see LTV go down and cap go up like we were talking about before. Do you think the harsh revenue multiple applied to consumer subscription businesses is fair or unfairly ascribed to them? I think based off of historical performance, it's fair. If you look at the number of duo lingo, Spotify, Tenders, there just aren't that many of them. I understand and why based on those outcomes and based on some of the underlying metrics we've talked about, churn rates, net revenue retention, it makes sense that the quality of that revenue is just considered lower and therefore the multiples are lower.

38:05I do think that there may be some factors over the next 10 years that start to make this a little bit easier. For example, 15 to 30 % App Store fees, I think Google and Apple are under increasing pressure to lower the average App Store fee at least in certain cases. So that's one that could have a pretty significant impact on a lot of these companies margins. Number two, I think AI is going to create all sorts of chaos and disruption. And as Brian said on his episode with you, chaos is a good thing for growth teams, right? There hasn't been a lot of alpha to go after in terms of consumer subscription acquisition channels over the last five years.

38:44TikTok is probably the big exception to that. And there have been a couple companies recently, I'm an investor in one called Ladder. that's basically made their business on the back of cracking TikTok. But there haven't been many examples of those. I think AI is going to create a lot of new opportunities to rapidly scale consumer and prosumer subscription business models. So I do think there are a couple of factors that may make things easier in certain cases and may lead to some of these bigger outcomes. You mentioned some great consumer subscription businesses that tend to Spotify being two of them.

39:14And you said that if you want to build a monster consumer subscription business, every successful one is built on an enduring core value promise. What is a core value promise? And how do you describe that to founders listening? Yeah, sure. So a core value promise, and this doesn't just apply to consumer subscription businesses. This is any business should be built on a strong core value promise, which is simply what am I delivering to you as a product or service that ideally you couldn't get anywhere else, or you couldn't get anywhere else as cheaply as you can get through my company. For subscription business models, what's important is that these are unique and differentiated and that they're enduring.

39:52And the reason I emphasize those two words unique and enduring is because of the challenges we talked about earlier. If I am a consumer subscription business whose value promise looks a lot like a dozen other companies in my category, then it's going to be really, really hard to charge a high enough price and maintain strong enough subscriber attention over time to build a sustainable business. Similarly, even if I have a unique and differentiated value promise, but if it's not enduring, then I'm going to have very high subscriber turn rates. And this is something that I saw a lot in quantified self -apps early on, whether you're a fitness tracker or a sleep app or nutrition, whatever the case may be.

40:30Often times within your first month or two of using one of these products. And I've used many of them, right? I've got an Apple Watch, I've got an Aurora Ring. I love these products. The very best ones have done a great job overcoming this challenge. But in many cases, after I see a month or two of my data, I kind of know, okay, these are the things that lead to better sleep. And these are the things that lead to better fitness metrics like HRV or resting heart rate or whatever the case may be. So the value diminishes over time, which means my likelihood to keep paying for that subscription starts to go away.

41:02How do you solve for that, dude? You mentioned Or there's Woop as well. I see so many people and, And Bunley everyone says, hey, I kind of get what what, some what doesn't after a certain time period. What would you do if you were within loop or order to solve for that diminishing value over time? So I think there are two things that these companies are doing really, really well to make sure that people continue to use their products over time. One is they're selling a hardware device, which means two things. One, they're getting a lot of revenue from their user up front as opposed to relying on and SaaS subscription revenue.

41:36And two, it sort of escalates commitment. So I'm somebody who's really been in a mountain climbing for much of my life. There's this factor of like, you got and you buy all the equipment, and it almost like makes you more excited to go do the mountain climb, right? Because now I have all this fancy equipment, I gotta go use it. It's the same thing with these products. Like if you drop $300, $400 on an aura ring or a wound band, you're gonna be more invested in using it and getting maximum value out of it. So that's the first piece is they've been clever about monetizing their product off of the hardware device as much or more than the subscription.

42:07The second component of it, and I think Aura is truly best in class at this, is the velocity with which they are launching new features, new insights, explaining those new features to users, either through the app itself or through emails or other channels, is pretty remarkable. And so I think all of that contributes to longer subscriber attention rate. You mentioned there at the start, the streak settlement. There's also like badges and leaderboards and notifications. If we take that as a kind of tactic that people use or a level that people use for engagement for retention, what are the biggest lessons that you have in how to do stat streaks badges well?

42:47I'll step back for a moment on this question because I think stat streaks, badges, achievements, coins, currencies, like they are all tactics rooted in this idea of gamification, which is like, how do I take my core value promise and the natural usage frequency of my product and bolt onto that this additional set of rewards that makes the user feel delighted. Underlying that is like, what is the underlying motivation of your user? And so there's this great framework called the Octalysis framework that I teach about in my Reforge course, this guy Yukai Cho invented the framework after spending many years in the gaming industry.

43:28And it talks about these eight core drivers of human motivation. And so for products like Duolingo, some of the most important drivers for Duolingo's product are things like achievement. I want to feel like I've learned something new on Duolingo accomplishment. Like I want to feel like I'm learning the language and I'm learning it faster and better than my peers. There's a degree of ownership. Like I'm somebody who wants to become a good Spanish language speaker. And so I take ownership over that and I want to improve my ability over time. There's a little bit of social status, like social influence.

44:05So this is where leaderboard comes in, right? Like I wanna be viewed as somebody who is one of the best language learners in my language and in my peer set. And then the last one for Duelingos avoidance. Like I want to avoid losing my streak in their case because there are people who've had streaks on Duolingo for months or even years, and that becomes a real thing that they want to avoid losing. So fundamentally grounding your understanding first in the core motivational drives of your user is important because that then informs the specific motivation tactics that you go build on your product.

44:37And so for Duolingo, that has been streaks, achievements, leaderboards, because it taps into the underlying motivational drivers of accomplishment, ownership, social influence, and avoidance. But for other products, it may not look anything like that. And so you first need to understand, you know, what are the underlying drivers for your customer? Do you buy notifications as a retention mechanism today? They are so overused, we have such notification overload. How do you think about that? Yeah, so I think it's a double -edged sword. And I hate to keep going back to do a lingo, but they are one of the biggest success stories and consumer subscriptions.

45:10So I will, in this case, Luis van on the CEO, there has multiple times talked about their apportionate notifications. And I've listened to a couple podcasts where he talks about how he got this warning from one of the other founders that he looks up to that anytime you increase the number of notifications or emails you send in the short term, it's like the sugar high, it's going to lead to a short term pop and your metrics. But if you do that too many times, you kill the channel. And so it's really important to make sure that every incremental notification you're sending earns its place. To me, that means two things.

45:46One, it means that just having a statistically significant lift above baseline in a metric like DAU retention rate isn't good enough. It needs to be a significant enough lift that it earns its place in the product experience. Then the second thing is moving from science to art again, it needs to fit within the holistic experience you're building for the user. And so if this notification is fundamentally making the users experience a little bit better, and that could be because it's reminding them to come back and not lose their streak, or it could be something as simple as injecting humor and levity through Duo, the ALMASCOT, then great, that's not just improving metrics, it's leading to a better user experience, but if you're just keeping notification upon notification on upon notification, you'll see your metrics keep going up until they don't, and then everything sort of goes south really fast.

46:36But I would actually argue to against Lewis here, which is incredibly bold of me, given that he's created a $10 million company and I haven't at all. So, very venture capitalist of me and my confidence here. But it is bluntly saying, hey, the less that you do, maybe the more value that one ascribes to it, not really in the grand scheme of notification overload, where people are just paying less attention to other notifications because there is so many. If you did less, people won't put more value on it because they're just getting bombarded. Do you see what I mean? Yeah, so you're saying, you're taking the other side of the argument and you're saying that sending fewer notifications.

47:13There's so much to apply. So you send fewer people won't pay more attention because they're just drowning in 50 other channel notifications from every other provider. Yeah, so it's like a zero sum game. If you don't send more notifications, then your your mind share will go down because all of these other products are just going to be bombarding users with notifications. I think that that is true in a vacuum, but I think in reality, and this goes back to this idea of subscription fatigue, there's certainly a concept of notification fatigue as well, where if a prock is embarking with notifications all the time, in a way that feels completely inorganic to my natural usage frequency of that product, eventually I'm at the very least going to turn notifications off, or I'm just going to delete the product entirely.

47:56And so that's where I think Duolingo has done a really good job of calibrating like, Yes, we want to be in the user's mindset and ideally we're a daily use case, and so that creates opportunities to send daily notifications. But within a certain set of constraints, and then the other thing I think they do really well is they'll throttle their notifications. So like, if I stop using Duolingo for a few days, eventually they'll stop sending me notifications, because the last thing they want me to do is, you know, rage quit the app. But the moment I come back in and do another session, that's when they're like, oh, Phil's ready to start learning again and they'll ratchet the notifications back up.

48:32And so to me, that shows a real nuanced understanding of how to optimize notifications as a channel. I think notifications like social posts, which is very simple. Everyone must either educate or inspire. Educate would be a great example or goes, well done, you got 92 out of 100 on your sleep. Oh great, I learned that I got 92 out of 100. Spotify goes, hey, Jiu -A -Lipa's new album came out. Great. I didn't know Jiu -A -Lipa's got a new album. Fantastic. The ones that don't work are like, Harry, X happens if you don't. Right. There's no actual learning or inspiration. Yeah, well, there's almost even like fear tactics, right?

49:09Like, I think companies can get a lot of trouble when they are more or less coercing their users to take the actions that they want as a business, but they aren't actually what their users want by using fear tactics. It can work in the short term, like scarcity and urgency are real things. And they can work to drive short term DAU retention or to drive trial start rates because I'm getting a one time only discount. But when you do too much of that, you lose all credibility with the user. 100%. Another cool element that I just love to dig in on with you while I have the chance is like paywall visibility and conversion is one of probably the most important ones to think about.

49:47How do you think about paywall visibility and conversion and lessons from the rights? Sure. Yeah. So this is mostly for earlier stage consumer subscription businesses that in many cases are just figuring out the basics, right? Like, you're not going to go into do a lingo or a straw or a tender and talk about paywall of your rate and find anybody who's surprised but what is paywall view rate just so we understand the basics, the amount of people that see the paywall. Yeah. So Paywall View Rate very simply is the percentage of all users who install your app, who view the Paywall at least once, and then to put an even finer guardrail around it, ideally, it's view your Paywall at least once with an X time period.

50:28And going back to 75 % or more of Trial Stars happen in a user's first session, ideally, you have a high Paywall View Rate in a user's first session, because there's a good chance that if a user leaves your app without seeing your paywall on their first session, they may never come back. So you want your paywall view rate to ideally be over 80 % and over 80 % ideally within the user's first session or if not their first session then certainly within their first week. How do you think about hard decisions on paywalls? There's quite a few products. I think Foto Room is one of them, which has a very hard product decision where you don't get anything for free.

51:07It's like, you hit it and you've got to pay versus three free, a premium layer. How do you think about that hard versus soft to pay wall decision? Yeah, well, this is one of those that sounds like such a simple question, and it's actually much more complex because when you think about the optimal paywall positioning, It depends on what your product is, who your target customer is, what their willingness to pay is, how many cheap and easy substitutes there are for your product in the market. And there's another piece around what your price point is, because obviously the higher your price point is, the longer, it's a more considered purchase, which just generally means it's going to take consumers, they need more proof before they're going to put their credit card down.

51:50And so all of these things matter. And this is oversimplifying it, but I would say on one end of the spectrum, you have a freemium product like Quizlet that is targeting Students and teachers, but the vast majority of Quizlets subscribers are students. So these are people who Have low willingness or even ability to pay for your subscription. They have plenty of other ed tech products out there on the market You've got cheguero court cheguero you've got more and more AI products that are cropping up, and even even chat GPT, right? And so, Quizlet's a product where a more friendly and less intrusive paywall makes a lot of sense.

52:29Because they get a ton of value from word of mouth and from SEO that is driven by free users, in many cases, creating content. And so the last thing they want to do is be overly aggressive with their paywall in a way that shuts down those free user acquisition channels. And also, that is probably just not gonna help on subscriber conversion because of the dynamic of selling into students. So that's one into the spectrum. On the other end of the spectrum, and I don't know photo rooms product really well, but you do have examples of products where it makes sense to be more aggressive, either because you have a really differentiated product solution that isn't easily substituted by other products, or it's just, it's such an obvious purchase decision that like a seven day free trial or multiple free attempts to use the premium product isn't going to make as much of a difference.

53:15And there's another piece of this which is like As a result of Apple's ATT restrictions, the sooner you can get signal on conversion, the better you can optimize your pay -to -pay acquisition channels. So I guess on the other end of the spectrum from Quizlet, you've got higher price products with a rapid purchase decision, with users who kind of know what they want, and an acquisition strategy that's very much built on paid advertising. And in those cases, it can make a lot of sense to have a hard paywall, and it's basically all or nothing. You don't get a free user experience out of it. You do see a lot of correlation between companies with lower price points and organic acquisition strategies like Quizlet going more freemium and companies with higher price points that are much more dependent on paid advertising for a subscriber acquisition going more paid a play.

54:03Thinking of those different price points, how do you think about single versus multiple pull tears when it comes to pricing. Sure. Yeah. Well, so I'll divide tiers versus durations. Tears you've got, tender's a good example. You've got tender plus, tender gold, tender platinum. Each of them have different premium value propositions. And so that's tiers. Duration you've got weekly, monthly. In some cases, three months, six months, those are unusual that you have them. And then annual, and then the infamous lifetime subscription plan. So on tiers, I think the vast majority of consumer subscription businesses should only have a single tier.

54:42At least until they become very large mature businesses, and they're actually becoming platforms that are offering multiple premium product offerings, rather than a single product. And that's generally what you see in the market, right? Like tender and bumble are big exceptions in the dating category, where both of them have multiple subscription tiers. And they've also introduced a lot of additional one -off in -app purchases that are like consumables that go beyond the subscription, but they're actually really complimentary to the subscription tiers and monetizing their power users. But the vast majority of consumer subscriptions have a single tier.

55:14It's their plus tier or their pro tier, right? Duration is different. I think that more often than not, you see consumer subscriptions trend towards monthly and annual plans. There are categories like edtech where three months or six months can make sense because of the school calendar and maybe there are a couple of other categories like that. But those are pretty unusual. Weekly plans just have such high turn rates that I think they generally don't make sense for companies that have achieved any meaningful scale. So generally, you're going to trend towards monthly an annual overtime, and then you want to nudge as many users as possible into the annual plan because it's just so much better from a cash flow and LTV standpoint.

55:50What are the biggest mistakes you think startups make when it comes to the pricing and the packaging of their products in this way? I think there are a few things. So I'll separate out pricing and packaging. So on pricing, I think the biggest mistake, and it seems so obvious, is it's remarkable how many consumer subscription apps will set a price and then won't revisit it for years and years. And there are some famous examples of this, right? Like, I mean, Quizlet went many years without changing its pricing, Strava, all trails, there are a number of companies that like, launched their app, found a price that worked well enough, and then several years went by, they went back, they did a pricing study, like Conjoin or Van West and Dorp Andorre, they A .V.

56:31tested the pricing and the product, and they found that there were significant opportunities to improve pricing. This is something that should be revisited, in my opinion, at least once a year. That doesn't mean you have to do a whole expensive pricing study, but at least do some quick analysis to make sure your price is still optimal. Packaging, I actually, in many ways, think is the opposite, where, like, less is more in consumer subscription, right? Consumers have short attention spans. The more complexity you introduce in the paywall, the worst your conversion rates are going to be on the margins.

57:01So if you're going to have multiple tiers, you should only be doing that once you have a large and diverse enough pool of subscribers, that you're selling them different things. I can go into more detail on Tinder, but Tinder has done a very good job of differentiating what you get from Tinder plus versus Tinder plus versus Tinder Platinum. Why do you think Tinder has done so? What can we learn from them in that respect? Yeah, so this is such a great example. And Robbie Metta, who was chief product officer at Tender for a little while a few years ago, and who's one of the guest speakers in my course, we teach a case study on this in my ReForage course.

57:34And he talks about how the dating category is challenging, right? Because going back to how to build an enduring value promise, well, dating is one of these weird categories where if you do a really great job and you help somebody find love, then ideally they're never coming back to the platform. Now that doesn't happen with everyone, But it does put extra emphasis on making sure that you're monetizing your users as efficiently as possible. And so one of the things that Tinder has done over time is they've moved from a single subscription tier, 10ter plus, into three subscription tiers. 10ter plus, 10ter gold, 10ter platinum.

58:10And this is oversimplifying it a bit. But the value props for each of those tiers, as Robbie describes them, is, Tender Plus is making it easier for you to get other users swiping on you. It's basically elevating the visibility of your profile. Tender Gold is leading to more and higher quality matches, and Tender Platinum actually allows you to communicate with Pinetital matches before you match. And so each of those three things is a bit different, right? It's your pain for something different. And then on top of that, they have boosts and superlikes, which sort of fill in the gaps apps under the consumer surplus curve in order to make sure that your power users have the opportunities to maximize the value they're getting from the product and to maximize the money that they're paying back to tender.

58:56And so that's a good example of a company that's done it really well. But I think the mistake that too many companies make is they just add more tiers without really thinking about, is this second tier different enough from my original subscription plan to warrant its own subscription tier. And more often than not, the answer is no. I think one thing they do really well is kind of the gamification of it in a way, though, actually. And that takes me to like, games love to give easy levels to start with. Oh, yeah, I pass level one super easy. And it makes me think of like time to value. How important do we think, or how do we think about time to value today and consumer subs apps?

59:35Yeah, well, I think time to value is, it's becoming more and more important for any business because human attention spans are getting shorter. We're constantly bombarded with advertisements, with notifications as we talked about earlier. And so it's just so easy as a consumer to get distracted, which means that the window of time at that any product, but certainly consumer subscription product has to get a user's attention is getting shorter and shorter. And so what that means is, news or onboarding has become one of the most important parts of any consumer subscription app experience. Now, the old conventional wisdom, and I'll put myself in this category was shorter onboarding flows are better.

1:00:11Right? Like the moment the user installs the app, they should understand your core value promise within the first 30 to 60 seconds of using it. And as quickly as possible, you want to get them to the aha moment and get them to enter a trial so that you're able to continue to send them life cycle marketing emails and ideally convert them into a subscriber. I think over the last few years that's gotten a little bit more nuanced though. Perhaps the canonical example of this is new, right, which has more than 100 screens in its onboarding flow, or at least the version of the onboarding flow I've gone through, right?

1:00:41It's got so much personalization that everybody probably gets a slightly different adventure through their onboarding experience, but more than 100 screens, I think it's easily more than 20 minutes to completely fill out their onboarding quiz, but in the case of new, and more broadly, in categories like health and wellness or finance, where you're making a very considered purchase and part of the value promise is believing that this product is being tailored to your unique needs. In that context, a longer onboarding quiz, if implemented correctly, can actually build user intent and excitement and confidence in the product over the course of that flow, leading to higher conversion rates at the end of it.

1:01:22I would love to see the abandonment rate and how it changes in the different durations of the flow because no one's gonna go through 15 minutes and be like, ah fuck it. Nah, don't feel like it any. You're like, I'm nearly there. I'm nearly there, you know? Yeah, I think that's right. Well, I would love to see that data too. My hypothesis, and this may be completely wrong, but my hypothesis is it's a bit by modal, where you're gonna have a good percentage of users drop off within the first 10 to 20 screens of Nooms on -boarding experience. But once they've gotten far enough, they're probably sticking around for a reason.

1:01:56And in NUME's case, like NUME's whole value promise is, we are going to deeply understand you and your unique psychology to understand how to help you lose weight where many other solutions have failed. And I think a lot of NUME users are users who have probably tried alternative solutions, and they just haven't worked. And so when you think about it that way, OK, once you've gotten to whatever the screen is, screen 20, screen 30, you're probably not going to stop because your pot invested to borrow a poker term and you want to see it through because if this works, it is solving a really acute pain point in your life.

1:02:31The final item that I do want to discuss though is that the element of discounts and promotions, they can be a real lever to juice up conversions to juice up engagement. How do you feel about the most effective discounting methods? Are they effective? Yeah, well, so I think that at the highest level, strategic discounting can be really powerful, particularly for subscription businesses that have a single subscription tier, and they're trying to better align the pricing of one tier with the curb of willingness to pay that varies across different users. If you're smart about how you target specific users with discounts, then it can lead to higher subscriber conversion rates and it can lead to significant improvements in subscription revenue growth.

1:03:17Having said that, I think the mistake that a lot of companies make is they treat it as a blunt instrument. It's like we're just gonna throw out 50 % discounts like they're candy. It's like the Oprah meme of like you get a discount, you get a discount, you get a discount, you get a discount. And more often than not, that's just gonna road your brand. So to get into specific discounting strategies that I think work really well, one is what I call an activity -based discount. So this is if a user hasn't converted into a trial, or if you don't have a trial, if they haven't converted into a subscriber, within the first, usually it's 24 to 40.

1:03:50eight hours after installing your app, because as we said before, a 75 % of trial starts happening on the first day, then you send them an email with a, often it's like a 15 to 30 % discount. And then here's one of the really clever tricks is that email will often lead to a web -based checkout flow, which means that you're avoiding the 15 to 30 % app store fees. And so your net revenue as the business is neutral, but you're converting subscribers that otherwise wouldn't have converted because the price point was too high. So I think that's one strategy that can work really well. A second one is specialized plans.

1:04:25So this would be things like family plans or student plans that modulate the average price per subscriber based off of either in the case of a family plan like you've got multiple users or in the case of a student they just have a lower willingness for ability to pay. So that could be a very effective strategy for certain products. And then the last one which I think is a little bit more hit or miss But the last one would be seasonal promotions. And so this is one where as somebody who worked in ed tech for almost four years, back to school is a really important time of year for education apps.

1:04:56New years is a really important time of year for health and fitness apps. And so knowing the psychology of your user and meeting them where they are during critical times of the year that are differentially important for your business can be a powerful way of accelerating growth. But can I ask you, if you have a seasonal behavior, like you said there with Quizlet or like you might have with diet apps where New Year is often a big time in terms of starting new habits, new routines, do you just say to them, when you're messaging to investors, embrace seasonality and say, hey, we can't help it? Or is there anything you can do to juice it to prevent the seasonal lows being as fucking brutal as they can be?

1:05:37Yeah, it's a great question. I mean, to a degree, you are beholden to the natural user dynamics of your category, right? Like, no amount of brilliant marketing or new product innovation is going to force students to use an education app in the middle of summer. It's just not going to happen. So then you as a twit team then just go, ah, fuck it. They're all on summer holidays anyway. Like, let's just prep product for the next. Well, this gets to what, but there are things you can do with it. Within the confines of those constraints, one of the things you can do is from an in -house operational standpoint, use summer as the time when you make bigger product investments, right?

1:06:20Because you know your students and teachers aren't around, and so things like putting the finishing touches on a huge product launch that you get ready for August and September back to school, or using that time to go back and clean up tech debt or improve the site speed and performance of your website and your mobile app. There are advantages to having a window like that where you're just naturally not getting as much usage frequency. So that's one thing you can do. A second thing you can do, which doesn't apply to smaller companies, but if you are a company that has gotten large enough that you can expand internationally, that's a very natural way of offsetting some of these seasonal patterns, at least in some categories.

1:06:57As you expand internationally, you can offset some of the seasonality. And so that was one of the biggest things I worked out at Quizlet was international and we did start to see some hedging on that seasonality as we got more users in Asia or in Latin America. And then I think the third thing you can do, but this is probably the hardest one, is you can start to expand your product offering in ways that aren't as sensitive to that seasonality. So like when you think about Quizlet, Quizlet started as basically a digital flashcards app. When it first launched, that's what it was. You go to Quizlet, either you create your own digital flashcards or you consume somebody else's digital flashcards.

1:07:34Well, now many years later, Quizlet's one of the largest online education platforms in the world, and it has a much more diverse suite of products that it offers to users. And so that includes tools that students can use to review for standardized exams over the summer. It includes tools that teachers can use over the summer to prepare for their upcoming school year. And so that's a third way that you can get around some of the inherent effects of seasonality. I'm going to give you a quick far round where I give you a statement and you give me your immediate thoughts. So what's the most common irreversible mistake you see founders make?

1:08:07Maybe the most obvious one is it just raised too much capital too fast before they really understand what their product is and who they're selling it to. And that could just lead to a lot of inefficiency and a lot of bad decisions. And I'll add one more, which is after they've raised that capital over investing in paid acquisition to juice growth, before they've really figured out the fundamentals of their unit economics and how those unit economics are likely to change over time as they move beyond their high -intensity early adopters. What's the most dangerous myth around startup growth? I think some of the more recent ones are, if you build it, they will come.

1:08:42This idea that if I just build a really great product, then it will grow itself. I think that hasn't been true for a while, but it's getting harder and harder because an AI is gonna make this even worse, right? It's never been easier to create a product. You have more and more stories of non -technical people using LLMs to create an app in a weekend and then finding a niche audience and getting it out there. And there's only going to be more and more of that. And so, if you build it, they will come. It's a myth that has been debunked and will continue to be debunked because you really need to solve for distribution.

1:09:14And then I think the second one we talked about a little bit earlier is I can just pay my way to success. I can essentially buy growth. That can be true in the short term. And there are certain cases where paid acquisition can be a really effective tool for accelerating growth in nascent markets or introducing a new product and getting the flywheel going. But more often than not, especially as a consumer subscription app, if you don't have a high enough percentage of organic acquisition, then at some point it's going to catch up with you. Well, Gary's strategy has died of death. Well, I'll talk about two.

1:09:47So, and death is too strong of a word. I think that in my realm of consumer subscription, there was this playbook for a while of, you know, get to product market fit, raise your series A, and then just scale the hell out of your product on Facebook. And I think that has gotten really hard because one, it's gotten harder to raise funding. So it's harder for companies to get adequate funds to put large enough budgets against Facebook for it to be efficient. Two, that channel has become very, very saturated, which is just meant that the cost of installs and subscribers is going up. And three apples, app tracking, transparency, restrictions that they introduced in 2021 have made attribution much more difficult and opaque for performance marketers, which has just meant paid acquisitions become a lot less efficient.

1:10:30I think there have been some improvements on that recently, so I'm hopeful that paid acquisition is going to start to get more and more efficient again. That is one that has become much more difficult than it used to be. And then the second one that I think we're watching play out in real time is SEO. There's been a lot of fear mongering around how AI is just going to render SEO obsolete. And I've heard them describe as like answer engines now. So like chat GPT and Thropic, Gemini, whatever the case may be, is going to displace Google searches. And on the one hand, I think that is true. It's already happening to a degree.

1:11:00And I think it will accelerate. On the other hand, Ethan Smith, who's one of the top SEO experts out there, and I went to a recent ReForge webinar where he talked about this, like a lot of the underlying things that you need to do. to be really successful in SEO are the same things that you need to do to be really successful with these LLMs, right? You need to have a product that is relevant, you need to have content that people find interesting, you need to have a certain amount of credibility and authority on the internet, and so all of those underlying assets are the same or very similar for SEO versus for LLM prompts.

1:11:36The difference is just in the dynamics of how it looks, and I do think there will be arbitrage opportunities for clever growth leaders who can figure out some of those more nuanced differences in like how to get my product to rank for a chat GPT response versus for a Google search. Penultimate one, what if you changed your mind on in the last 12 months? I used to be of the mindset that onboarding flows should be short and sweet, especially for consumer apps, right? Like get the user in, explain your value properly within the first minute and convert them as quickly as you can. And I've realized through a combination of studying the onboarding flows of products like NUME and HIDNS and hers, as well as just working with clients where we've seen significant lift in everything from sign -up rates to trial start and even subscriber conversion rates, by actually intelligently expanding the length of the onboarding experience, provided that each of those additional screens is earning its place, and more specifically, it's leading to a more personalized and tailored experience that actually builds user intent rather than hurting user intent.

1:12:44I guess I've reframed my mental model of what the ideal onboarding experience looks like from time to value is everything to as long as every experience in your onboarding flow is building user intent and not hurting user intent, then longer onboarding flows can work, especially in categories like health and finance, where the purchase decision is a more considered and complex decision. Final one, Phil. What's the best growth strategy you've seen enacted in the last 12 months? Yeah, so I will say right up front, I am investor in this company called Ladder. They are a fitness app that has really built a following around a group coaching product.

1:13:26They started by recognizing that a lot of people struggle to maintain motivation with their fitness, whether that's going to the gym or running or working out at home. And so having a coach who holds you accountable, but specifically a coach with a group of members who are all doing the same or similar workouts with that coach every week can be a really powerful way of maintaining user motivation. And that's great for the, it's obviously great for the user because they'll they'll experience better fitness outcomes. It's also great for the business because it leads to much higher subscriber retention rates.

1:13:57But getting to growth strategy, what this company ladder figured out over the last 18 to 24 months is they realized their product was perfectly tailored to TikTok because these coaches, many of the coaches on ladder are influencers. So they already have a following on channels like TikTok and Instagram. And they can build this really compelling, very authentic content organically on TikTok. And then what ladder does, And this is where the innovation comes in is they take the best of that content. They promote it into Spark ads or even into brand ads that get broader reach. And then on top of that, they've built this really sophisticated web based on -boarding flow.

1:14:37So this gets back to the power of web based on -boarding flows where they get deterministic data back because they're not dealing with Apple's ATT restrictions. And they can literally predict the LTV of a new user based off of how they're responding to these onboard inquisitions. And so all of this works together to create really strong, not just product market fit, but product market channels that where a user is discovering a coach on TikTok, they fall in love with the coach, they go through the onboarding quiz, now they're dropped into the app and they have this perfectly personalized experience.

1:15:08And that has led to 6X subscriber growth over the course of 2023 and then they just crossed 100 ,000 subscribers recently. So it's working very well for them. My question to you, you said you're an investor in that company. You're going to hate me for this. Isn't that the definition of a company that can get to 30, 40, 50 million in revenue? But even 100 million in revenue. It's not enough. With a three -hour multiple applied to it. Yeah. You may be right and time will tell. And what can I say at the end of the day, I'm a bit of an optimist, maybe to a fault sometimes. But what made me fall in love with this company was two things.

1:15:44One, the metrics that I saw are significantly, significantly above all of the benchmarks that I teach about in my course and that I see with other companies. And then two, and this is, again, more art than science, is the approach that I have seen the founder and the team they're taking to growing their business is just one that's very rooted in divergent thinking, like thinking from first principles around how we're going to beat the odds by not doing what everyone else is doing. Like they tried, he talks about this on a subclub podcast. They tried during the pandemic to just run Facebook and Google ads like everyone else.

1:16:15And it didn't work at all. It was an invisible failure. And so then they said, well, what can we do differently? and they thought about it through the lens of how is our product different and they figured out TikTok as this You know this channel that's just growing rapidly and has a lot more uncapped upside time will tell Where things land, but I was excited to take a bet on them. I'm a big believer in those guys Phil, I've loved doing this. Thank you so much for putting up with my wayward questions You've been incredible in terms of bringing me back from from that, but I've loved it So thank you so much for joining me of course.

1:16:45It was my pleasure. Thanks for having me here What can I say I told you, the most granular and tactical episode we've done in a long time. I so love doing shows like that and you can watch it on YouTube by searching for 20VC. That's 20VC. But before we leave you today, as this is my growth podcast, I'm so excited to share with you the story of the fastest growing company in my portfolio, voyantist .ai, who isn't being asked by their board to improve unit economics. Voyantist This is the first and only company I've seen that has found the way for you to crack this nut by not only leveraging your first party data to predict customers' lifetime value, but truly coupling these predictions with a prescriptive layer integrating with and influencing each and every step of your customer's growth journey.

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1:19:01As always I so appreciate all your support and stay tuned for an incredible episode. The first time Demetri Gersky co -founder at Flow has ever been on a podcast. This is the number one period tracking app on a podcast on Monday on 20VC.