The freemium fallacy 🚧
Why (some) friction is good, building features users don’t know they want, and extending PMF with the 70/20/10 framework.
Welcome to the 83rd edition of The SaaS Baton.
A fortnightly newsletter that brings you hand-curated pieces of advice drawn from the thoughtful founder-to-founder exchanges and interviews taking place on Relay (curated with 💛 at Chargebee for Startups) and the interwebz. So, stay tuned! And thanks for reading!
In this edition, you’ll find the following instructive and inspiring pickings:
#1: Equals’ co-founder and CEO, Bobby Pinero, offers a snapshot of their (now discontinued) freemium experiment: what drove their first convictions, the decision’s unexpected impact on growth, and the adaptive switch to free trials.
#2: Vimcal’s co-founder and CEO, John Li, recounts how a “do-or-die necessity” of having to manually onboard all new users didn’t just save them from shutting down but also brought predictive (“surprise and delight”) product powers.
#3: Shippo’s co-founder and CEO, Laura Behrens Wu, explains how they’ve approached furthering existing product-market fit while chalking out future bets.
Finding these discerning founder takes valuable? Please consider sharing this edition with an ever-curious teammate or a much-cherished SaaS friend. 🙂 New readers can sign up here.
🗞 Recently on Relay:
➡️ Heuristics and Hunches (October 6th) — The Necessity and (Unceasing) Magic of Doing Thousands of User Onboarding Calls with Vimcal’s Co-Founder, John Li
— How onboarding users manually saved Vimcal
— Unlocking what-users-don’t-even-know-they-want features
— Why they prioritized retention above all else
— The 50-75-100 process for running product reviews
— The subtle philosophy that makes Vimcal unique
— Driving a freemium motion with an iOS app
➡️ Heuristics and Hunches (September 29th) — The Trouble with Building too Close to User Love, Why PLG Requires Balancing 4 Different Roadmaps, and Other Earnest Notes from Winding Down a Startup with Kairn’s Co-Founder, Patricia Bernasconi
— The importance of validating all early assumptions
— What an extraordinary Product Hunt launch uncovered
— Reasons that made a pivot incredibly hard
— What product-led growth really demands from startups
#1: The freemium fallacy 🚧
(From: Equals’ Bobby Pinero) (Source: Wrap Text)
…we were watching the darlings of SaaS – companies like Notion, Figma, and Airtable – envying their massive adoption. Naturally, we thought it must be because they have a free tier and consumer-like pricing. It was obvious. We should do the same. At least, that’s what we thought.
…
So, when we announced our Series A, we opened up Equals to the world:
✅ No more onboarding call required
✅ Prices slashed for current and future customers
✅ A generous new free plan
We sat back, ready to watch the masses sign up.
And sign up, they did. For a little while.
The needle moved until it didn’t
Almost immediately, we 4x'd the number of companies using Equals on a daily and weekly basis. But then, over the course of the next six months, the business really stalled:
⛔ We struggled to retain customers
⛔ We struggled to turn free workspaces into paid subscriptions
Why? Our funnel was long. To hit a paywall, you had to:
🚧 Create a workspace
🚧🚧🚧 Connect to a datasource (a *big* hurdle)
🚧Invite teammates
🚧Run a query before seeing a paywall
All the while, we continued shipping innovative products, making big splashes with each release.
But we were unable to move the needle back in the right direction meaningfully. So, after six months, we decided the risk was too significant. We had plenty of runway, but we knew we had to get back to building a growing business. And perhaps there was something unintentionally incorrect about free – for us.
In June this year, we launched 25+ new datasources. And we killed our free plan at the same time. In order to use Equals, you could start a free trial, but you had to put a credit card down.
Now, I know what you’re thinking: why on earth would we introduce even more friction? Well, as it turns out, not all friction is bad. Within a couple of months, we were back on an exciting growth trajectory with the most engaged user base we’d ever seen.
This leads me to one of the most interesting learnings I’ve had while working on Equals – introducing more friction in order to use the product has proven to work better for our business. This was something Ben and I had seen first-hand during our respective tenures at Intercom as well.
…
We all hear it. All the time. ‘Make onboarding simpler! Get people into your product as fast as possible! Make it free! You'll figure out how to monetize later!.’ It makes sense. And it obviously works for some. It just didn’t work for us.
…
Will Equals ever be free again? Maybe. It’s very possible that down the line, we’ll revisit a freemium path to using Equals. Perhaps we’ll just always be in pursuit of that elusively perfect pricing model.
Related Relay reading:
Nira’s co-founder, Hiten Shah, on sequencing freemium at the right time (“Folks are usually debating whether to have a free plan or not instead of focusing in the early days on exactly what needs to be built for customers in order for them to pay for the product.”)
Wethos’ co-founder, Rachel Renock, on how they trialled their way to a freemium hypothesis (“We saw that Shopify had a 14-day trial, but quickly found out that setting up an e-commerce business is a very different value chain in general.”)
#2: How manual user onboarding saved Vimcal 🛟
(From: Vimcal’s John Li) (Source: Relay)
When we launched Vimcal back in early 2020, I did all the onboarding calls in the beginning. Partially, strategically. Partially because we only had a month and a half of runway left.
We needed revenue on day one.
To summon up a specific, stressful memory from that time: We were in touch with our lawyer, asking them about the prerequisites for shutting down, including how much money we had to put aside for legal fees.
How did we get there?
My co-founder and I had quit our jobs early in the journey, as soon as we had gotten into YC. We had already pivoted twice, previously having attempted an AR product and a fitness app. Then building out Vimcal’s MVP had taken us much longer than we had anticipated.
We were well into our third year of starting up, without much to show for it.
The weeks preceding the launch were certainly nerve-racking, but there was also this sense of nothing-to-lose lightness. At any rate, the launch was a complete Hail Mary.
Luckily, people loved Vimcal enough to pay us from the get-go.
A lot of them even asked to invest.
The other (more technical) reason we did those onboardings was because we just hadn’t had the time to develop a self-serve onboarding and payments into the app. We had to get on calls to onboard all users and charge them manually.
These calls were a do-or-die necessity at first. But they soon turned into — given the amazing lessons they produced — something we wanted to continue committing to.
The good thing about a calendar is that everybody uses one, so we had a lot of experience going in. Plus, this was a product we wanted to build for ourselves. Us wanting certain features really drove the first leg of development.
Post launch, when we started spending 30-45 minutes talking to people (asking them about how they used their calendars, observing them as they clicked around in the app) we quickly began to get a better idea of Vimcal’s best-fit users.
Founders, VCs, and other people who were scheduling a lot of external meetings really liked Vimcal. They still do. Vimcal is a product anyone can use, of course, but zeroing in on an ICP was still crucial to figuring out who was willing to pay for a calendar.
We then became hyper-focused on qualifying and bringing in just that group of power users from the waitlist. We got better at discerning feature requests. And in figuring out, not just what people wanted, but also, what we could safely say no to.
Then came a real element of surprise and delight.
We found ourselves shipping things that solved problems people didn’t even realize they had, because they were so used to operating the old way.
If I was to place a feature set on a 2x2 matrix, you’d have on one axis:
- Features users asked for
- Features users didn’t ask for (note: they didn’t explicitly say they didn’t want these, they just didn’t talk about them)
And on the other axis:
- Features they want
- Features they don’t want
This is where we, as a team, have excelled at.
Having closely surveyed thousands of calendars across all the years of talking to users, we’ve developed an eye at figuring out the quadrant that makes up what users want, but that they didn’t ask for.
These types of features are what lead to the most delight and pleasant surprises in an app. Users get an “holy crap I didn’t know I need this” type of euphoria, and this deep know-how is something no one can take away from us.
It’s SO clear what we’re going to be building next that we always have a roadmap for the coming 2-3 years. Today, I can close my eyes and pick the next set of features out of a hat. 🙂
Related Relay reading:
Sunsama’s founder, Ashutosh Priyadarshy, on why they decided on (and then against) concierge user onboarding (“And very quickly, within a few weeks that is, we got to a point where our calendars had literally nothing else but onboarding calls, perhaps 12 a day, each.”)
#3: The (next) horizon framework ⏭️
(From: Shippo’s Laura Behrens Wu) (Source: In Depth)
So a framework that I've really enjoyed here the horizon framework. And the high level explanation of that framework is that you've got a horizon 1 product that is working and it works really well. It's the core part of your business, probably the majority of your revenue and it's all about optimizing [that].
It's about making it work better. Like really building this revenue engine there, but you don't want to take too much of a risk there… And I think then you have your horizon 2 and horizon 3 products that are forward looking and you're making a forward looking investment.
You don't have product market fit in those products, in those areas, just yet. Horizon 2 is kind of you have a good hunch that there's something there and it'll work. Horizon 3 is, these are insane things and you're just dabbling. You have no idea whether or not that could be something, a business line in the future.
And I think the mistake that a lot of founders make is that when they get excited about Horizon 2 and 3, because those are exciting forward looking things, they get distracted from Horizon 1. The organization just gets distracted…
But in order to be able to enter Horizon 2 and 3, you need to have Horizon 1 work really well and drive a whole lot of revenue. That framework also suggests that like the majority of your team members should be working on Horizon 1 products. And then you have, let's say, 70% doing Horizon 1.
20% doing Horizon 2 and then 10% playing around with Horizon 3. But I think, yeah, it's just so important to not just focus on the big shiny stuff in the future and forget about what is actually generating revenue today.
…
We try to do it really strictly. And I say that because we've gotten distracted in the past. We've made those mistakes where I got excited about a new thing in the future. And then suddenly everyone thinks they should be paying attention to that.
So I think from a founder perspective, it's totally fine for the founder to be thinking more about Horizon 2 and 3 and to be paying more attention to that.
But the rest of the organization should be split up this way where the majority of the organization takes care of Horizon 1 because that's where revenue comes from today.
And then it's just really key to make sure that the team members who are working on Horizon 1 feel like they're doing something really important for the company and not that they're working on, I don't know, an overlooked part of the business.
So yes, when we talk at all hands or we, when we like just give shout outs in the company, [we are] really trying to make sure that we're not just calling out the big shiny things that are forward looking, but are talking about our revenue engine and like making that work and, and really like praising that part of the business.
…
I'm for sure spending more time thinking about horizon 2 and 3 compared to what the organization is doing. And I think it's important because we're seeking product market fit in those areas right now.
So for example, I've been sending some like outbound sales emails myself this last week. When I go to conferences I pitch kind of the forward looking ideas to future customers and get feedback there.
So, yes, I'm spending more time on the forward looking stuff myself, but I'm just careful to, to make sure that the organization is not following that lead.
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Team Relay (Chargebee for Startups)