Detailed Notes
In Part 1 of our interview with Dan Balcauski (Founder & Chief Pricing Officer at Product Tranquility), we break down minimal viable pricing â how to set pricing thatâs clear enough to sell, learn, and iterate without getting stuck chasing âperfect.â
We also dig into the real differences between freemium vs free trial, why trials create decision-making momentum, and how early-stage teams can use pricing as a feedback loop to validate value.
Key topics in this episode ⢠What âminimal viable pricingâ actually means ⢠Freemium vs free trial: why deadlines drive decisions ⢠The hidden segmentation problem with freemium users ⢠Trial length mistakes in B2B and how to think about time-to-value ⢠Positioning clarity: âTimex vs Rolexâ pricing signals
đ Develpreneur / Building Better Developers: https://develpreneur.com/minimal-viable-pricing
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Transcript Text
Apologies. name. >> I was uh I I was I don't know if you guys know who Steven Bartlett is. He runs a pretty popular podcast called Diary of CEO. Anyway, I was listen to another podcast and uh he interviewed somebody and they were the other podcast was talking about apparently he prepared for the wrong guest. So then, so then the guy showed up and apparently he handled it like a champ, but he I think I think I think his opening question was, "What would somebody need to know about you who knows nothing about you or your background?" as the opening question. That is uh Yeah, I was on that. I did one the other day that was um it was round two. So he did like we did a you do like a story background origin kind of thing and then you come back and do another episode that's really about like what's going on today and he was like he got about a minute into the pre-show about okay well here what we're going to do this song we're going to do I was like we've already done this once right and he goes oh and he started looking so he had to like reset all his notes go like completely different page I was like sorry sorry he's like ah we'll figure it out and I'm like yeah >> that's how these things go. So, let's see. I'm going to see if this works better. Maybe. Yeah, I'll just leave it like this for now. All right. So, what we're going to do is this is like this tends to be a very conversational kind of approach. We'll, you know, essentially what we'll do is I'll introduce myself, Michael will introduce himself, you can introduce yourself, and then we tend to just go off and take off running at that point. Um, so we'll, you know, be able to dive into some of your background, some of that kind of stuff, and just ask some questions and see where it goes. Um, it's always that'll be a fun one. Um, so yeah, it always starts out, um, like every time we get into the just the the introduction alone, we have questions and follow-ups and things like that. That works real well. One second. Do you have your little >> Yeah. And I'm like, >> so where's my little light thingy? >> Where are you guys uh based out of? >> Currently based out of uh Tennessee. I'm in the Nashville area and he is in the Jackson area. >> Okay. Jackson, Tennessee. >> Yes. >> Yeah. Between Memphis and Nashville. >> Okay. Okay. Very cool. Um because I can just I have to plug it into my laptop, right? And then it should just pick it up theoretically. >> Let's see what happens here. I got a spot for it and then I just pick one >> at least till Monday, right, Rob? Then you're a nomad. >> Yes. >> Oh, that sounds exciting. >> Vacation and then he's a nomad. >> Yeah, I'm actually Yeah, I guess it's a vacation first. So, one second. Let me get this. >> So, then you need to change it to pick to recognize that as >> I know I got to switch all those over. I've switched mics a few thousand times. So, let me see if this works. And then >> Oh, your lapel is covering the mic. >> I don't know if that cares. >> We'll find out. Um, guess this is the wireless microphone. Test test. How's that, Michael? Is that better? >> Yeah, it's better. >> Okay, excellent. >> How's this? Where's your mic? Where's your camera? >> Right there in the center here. I got it. Don't you know I'm going to be all greasy. You're gonna clean it with my mic. >> Yes, I'm gonna clean it with that. >> Do you Do you like the lapel mic? Do you find that it has pretty good quality? >> I will say I've used it a few times and um the quality these are like these are not super high-end lapel mics. These are like 40 bucks for a pair. >> And the the light quality is phenomenal. The light quality, the audio. Gosh, I've got somebody messing with my my setup right now, which is making me distracting me. So, like I have light. Um, so the audio quality is phenomenal. We were in a busy restaurant the other day. We were and it was like it was loud enough that I had a hard time listening to the person next to me. They had a lapel mic on and it came in like you could tell there's background noise, but it came in super clear. So, um I wasn't sure it was going to be very good, but I have been just ecstatic with the use of them. >> Well, uh >> they're recording. >> Yeah. I cuz I I I run a podcast myself and so I uh I think like the one thing a lapel mic would do is uh if there's especially guests have a tendency to do that and then you know it's like but which is fine except you have to do a bunch of audio leveling afterwards to make it evened out and That's that's part of what I do. Um as I tend to move a little bit and so that can cause some issues with that real quick. Okay, Michael, have you heard have you listened to the audio from last night? >> You didn't send it to me. >> Okay. >> Yeah, it's in the Christmas party Slack channel. >> It's in the Slack channel for the Christmas party. You can take a look at it or you can listen to it there. Okay, we need to actually got to kick kick people out of here. Okay, so now we can actually start the podcast itself. um we'll do the interview and then like so or the introductions and we will just dive in from there. We have had uh lots of success doing that. So feel free to just sort of dive in as we uh it'll be about an hour. As we get towards the end I'll swing back around and be like well you know obviously you guys must like him. Uh he's given us a great show all that kind of stuff. So what are the best ways to reach you Dan? And then allow you to throw that stuff out there. Plus we'll have links in the show notes and all that good stuff. So, uh, any questions? >> Oh, make it happen. >> All right. Yeah, get the popper. I I often wonder whether it does anything, but it, you know, the positioning always changes every time I move it. So, >> I I've I have I've had my I've had a couple times I think it actually helped, but it seems like very few. I guess because I probably pop too much or something and then it still gets picked up, but >> ah, well, technology. So, let's get to it. So, ths. Uno. Well, hello. And I should hit record unless we already have. >> It's recording. >> It is recording. Awesome. So, bonus material for everybody. I did hit record because I don't even hit record anymore. I now have it auto record. So, let's go back to that. Toss Uno. Hello and welcome back. We are continuing our season of building better foundations and we are building better developers the developer podcast. I am Rob Broadhead one of the founders of developer also the founder of RB consulting where we help you assess your technology and build a roadmap for success. Good things bad things. Good thing is technology. We've talked about this. Uh the New Year's was great. We did some specials around that. I like the ability to be a digital nomad and to be able to just pick my stuff up and go wherever I want and be able to have something that feels like studio quality, especially now with uh all the AI video and audio tools and things like that that can really clean stuff up. The downside is is that I have a technical adviser that goes with me everywhere and sometimes drives me nuts making sure that I look better. And let's face it, there's a lot of improvement that can be made here. And there's just only so much that technology, lighting, and filters can do. That being said, the better side of it can go introduce himself. Michael, how's it going with you? Hey everyone, my name is Michael Malash. I'm one of the co-founders of Developer, Building Better Developers. I'm also the founder of Envision QA, where we build and test custom software that helps businesses run smoother and grow faster. Uh, good thing, bad thing? Um, good thing was able to meet up with you. Uh, for those of you uh that watch the New Year's specials, uh, we finally have been talking for a while, getting together. We finally did. Finally were able to meet up in person and had a great time. Uh, bad thing is the drive home yesterday normally is a 2-hour drive took 4 and 1/2 hours. So, yeah, holiday traffic is crazy, especially when they decide to do construction and you have overturned semis. Yes, accidents do happen and they cause problems. No accident though is we have an interview guest today. And Dan, I'm going to go ahead and let you introduce yourself because you I am sure do it best. Yeah. Well, I appreciate the intro. Thank you, Rob and Michael. Well, I'm Dan Bowski, founder and chief pricing officer at Product Tranquility, a consulting firm based down in Austin, Texas. So I spent a couple decades now in software starting as an engineer myself uh and then moving into engineering management and then product. Uh early on I noticed that most tech companies obsess over acquiring customers but neglect how they capture the value that they create. So this insight, you know, crystallized for me during my MBA internship at a successful Silicon Valley startup where I led a premium pricing project, a decision on the CEO's desk uh among many that summer was should they go premium with their product offering. And so uh among a couple things I worked on for them was was that and through my research uncovered that this popular pricing model only works under very specific and surprisingly rare circumstances. So today I help B2B SAS CEOs transform their pricing from confusing liability into a strategic advantage. Whether that's helping them uncover millions in revenue through revenue leakage analysis or helping them establish a pricing process to become their standard approach for all future SAS products. That opens up like a whole season of questions practically. I think I want to dive into because this is a this is a world that I've been in. I go I my background goes back to freeware shareware stuff of that. uh crippled approaches to software, fremiums of varying sorts and especially I want to what are your thoughts and maybe some of the things you said are like you said it only works in some cases the the premium types of apps or or offerings that are out there in particular when you think of like there's a lot of I've seen a rise um especially in the last couple years of essentially their topof the funnel salesfunnel kinds of tools uh assessments and things like that. My favorite one that like example of it that you see all the time that businesses are starting to use are the like what Peanuts character are you or what u you know what what house would you end up in in Harry Potter. Uh but then it's really I think the places that I've seen it really well done are with like uh Inog and MyersBriggs and things like that where they are personality assessments of some sort and they suck you in with the the top of the funnel and then it's like hey we're going to give you a full report for money and stuff like that. I see very much as a premium type of approach. So what is sort of like to hear like expound a little bit more on on how you see those and where where the where would somebody use that properly a premium type of approach >> on the Harry Potter house. I think I'm a Dumbledore. I'm not quite sure. I'm not a huge Harry Potter fan, but uh >> you may have stepped into a bear trap on this one. I'll try not to spend the rest of our time uh giving my rant on premium. I want to make a couple of distinctions right off the bat. So, I think there is a distinction between premium and free trial. I'm very much a fan of a free trial. The idea of a free trial software folks like to think we invented everything. We did not invent everything. You know, you walk through the grocery store uh on a Saturday afternoon and they give you somebody hands you a sausage on a toothpick, right? That's sampling. That's been the case in consumer goods forever. Free trial is the exact same thing. You had no idea the sausage was so tasty and now you have idea that's so tasty. And why does that work? Because you actually eating that food has a much more impactful experience on your understanding of the value of that product than somebody just saying like, "Look, check out my sausage. It's amazing. It's all organic, all natural. No uh, you know, pesticides." Whatever you want to say about that sausage, tasting it is going to make all the difference. So, free trial really helps that because there's nothing like as good as marketing teams are, as much effort they put into their website, white papers, video overviews, nothing beats seeing your own data in the product. The distinction between a free and free trial is there's a burning fuse. There's a deadline. I have to make a decision. Where fremium as a model goes off the rails is folks think well look folks will become so enamored with our product over time that they will convert and this was part of that research that I looked at during that MBA internship. You know best-in-class companies convert one to 3% of those free users. So, it's a mirage usually. Uh, and this causes all sorts of, let's say, misaligned behavior inside of an organization because if you're a CMO, you've got a really hard job. You're trying to drive people to the website. You're trying to get give them to give your contact information, drive them to a a free trial or a download or whatever it might be. And so, if we have a premium, like, oh, wait, we have all these users. And if we just tried a little bit harder, we put a little bit more spice into it, we made some workflows better, they would all see how valuable it would be to upgrade. The the net net of it is is that you should really think of those free users as an entirely separate customer segment. And really the ability to drive those people to change their behavior to upgrade is going to be minimal. Uh and there you'd much rather see a free trial where there's a decision point and then the whole organization knows that's not a lead anymore. we want to move on. We also think when I talk about misaligned behaviors, there's often a implicit assumption of well, we don't give support for our free customers. Well, support is part of the product experience. So, what kind of experience do you want your users to have? Uh, you know, your support tickets are answered. You get when you're in a sales process, those emails get uh answered immediately. But if you're a free user and you have to oh go check out the knowledge base or use our AI chatbot that can't actually answer your question that's not going to help you in the long term. I will make a distinction going back to your other point. Uh I used to work for a company called Solar Winds. Uh not an energy company. They're in the IT operations management space. They they knew this very well. The core products had a free trial experience. This is pre-SAS days. Dating myself a little bit. So all the products were on premise installed software but the whole idea was a very we call it a high volume velocity go to market model kids today might call it a productled growth model and those all had free trial but we had separate products but we didn't even call them products we called them free tools and the free tools were different codebase they look different than the core products they all look the same to each other and they were really sort of single single function uses or use cases of our broader kind of portfolios. And what that did is it made it such that okay, we're going to have some engineering resource that's allocated to marketing for building some free tools. Okay, so that's well accounted for in the internal cost accounting in the in the business. And then downloaders of free tools would just go into a a marketing drip campaign. They would become part of the email list. They were never considered a hot lead. And so you didn't have very expensive sales or sales engineering time wasted trying to convert someone who just wanted a free tool into a paying customer. And so I think when folks jump to premium often almost almost there's a few rare exceptions but almost without question it's a BTOC strategy that people try to apply to B2B it almost never works. I'll stop there lest I take up our whole time together. Well, and that's what I think that's always been like because we've talked about pricing and software and things like that over the years quite a bit and I think that actually you you sort of stumbled in the at the end of that and something that I have found to be very different is BTOC strategies and B2B strategies is I find that those have been I think there's there's a lot of times they will work for one and they will not work for another. And I think particularly like the and this is a struggle I've had is the the premium shareware uh and even uh the time trials kind of things where you've got like 7 days or 14 days seem to be they're almost more BTOC kind of stuff because it seems like if you're in a business and to me it feels like when you're in a business you're looking for a product it's either like the really large sales cycles of like an ERP or something like that where you're just going through a whole lot of stuff and demos and free wear like doesn't really fit because you're not going to be able to get far enough into it to really get figure out what your value is. And I think you touched on it very much with the idea of support because you're going to have you really almost need to have that free thing be fullfeatured enough and have a full featured support to feel like it being sales like a true sales cycle is that you're like you're bringing people in that they're either hot leads or you just you know need to punt them out. And I think the demo side that I've seen from a B2B works a little better where you just say, you know what, we're going to give you cart blanch. We're going to give you like a a demo license for a while so you can take a look at it. We can walk you through it. We can do the trials and and actually maybe incorporate some of your processes, your data, your business, which of course is very sticky because once you're starting to give us some of your stuff, you're going to feel like, okay, I don't want to switch to something else. I I I guess I see that a little bit more in the that world versus consumers are when when you get to the B TOC side, I guess people are a little bit more like maybe I'll do it, maybe I won't. You got to hit them at the right time and things like that. So, where maybe it's nice to have that in in the back of their mind where they're like, "Oh, I can't afford like I can't afford this cool tool and we'll just, you know, this cool widget for my videos right now, but maybe at the end of the year I get a bonus." And I'm like, "Oh, this is sort of cool." So, you hit them then with like that, you know, that light little drip campaign or something that says, "Hey, it's 10% off if you do it this week or something like that." And so I guess I'm going to to shift that into off of a soap box and into more of like a question is uh like how does that fit your your soap box how does that fit in with like time trials uh and particularly do you see a difference in what the the type of target market whether they're B2B B TOC or maybe even like the if it's B2B or or even C is like the the types of tools the industry or or tools that they are. >> Yeah. Let me touch on each of those. So the time being and then the the different types of tools. So just to be clear, I spend all my time uh these days and have for most of my career on the on the B2B side. I have opinions on the B2C side, but my uh most of my lived wisdom is is from the B2B side. There's a general practice in B2B on shrinking the number of days in a time trial. Uh at some point the default was 30 and then the default was 14. Now it seems like the default is seven. >> I don't think that that's necessarily good for anybody. Uh generally what I've seen is that there's some belief that oh we'll get people to make decisions faster. Uh but you know, as you might imagine with even si relatively simple B2B, I don't know if you've ever gone and evaluated a free trial, but you're like, "Oh man, I'm going to try out this tool. You get five minutes after sign up into using it. You get some urgent Slack message, then you get 10 other urgent Slack message. All of a sudden, it's a week later. You're like, you haven't gone back to play with that tool and your trials expired." So, I think that's just the reality. most B2B folks who are evaluating software are in. And that's just nothing but frustration. I've also run into issues with a 7-day trial where, hey, I ran into an issue trying to figure out how to use the thing, so I file a support request. It takes them one or two business days to respond. I run into another issue one or two business days. You do that two or three times, all of a sudden you're at the end of seven days. So, you've got to make sure that your customers or your prospects can actually see get that aha moment, see the value in the time period that you're allotting them. Uh, and generally there's been no uh data that I've seen that's been convincing that 14 versus 30day trial converts better. They're about they're about the same. So, shrinking it below that seems you maybe for I don't know a workout app or a fitness app or something like that it would be makes sense to do seven days, but for most B2B it doesn't. Then I think on the B2B side I there's parts I agree with and parts I don't. I think there's you know different ways to maybe slice the B2B market. So in general you might think of there's not a huge bright line but just to make it concrete for folks say below a 25k ACV folks might think of as a a productled motion and then above 25k more of a salesled motion. Um, and so, you know, definitely, you know, free trial type experiences work very well in that lower one, less so in the in the in the larger one because usually you have multiple you all of a sudden you're dealing with buying committees, not just a single uh buyer or champion. Um, there's usually, you know, if it requires integrations to a bunch of, you know, we got to pull in all of the data from other systems, right? being able to do that in a a time trial uh experience is could be can be difficult. But I will also say that you know we had a very successful motion like that at Solar Winds and I think one thing that surprised me when I was in product there was how much of my roadmap was focused on that easy to set up piece because the entire business was aligned to that was the go-to market motion. And so while other you know we used to have a lovehate relationship with some of the analyst firms because you know other you know the BMC's of the world or IBMs or whatever would have these beautiful like features dashboards etc. But yeah it requires 9 to 12 months of professional services and you know multi-million dollar uh fees and we might not have those features but what we did have is hey you don't need our professional services you could set this up yourself. your IT guy could consult in an afternoon. They could see all their entire network or all their servers and you're off and running. And so we put an incredible amount of our engineering bandwidth on that experience and making sure those products even though they were highly technical for any IT person, not just you know the best of breed person who could you know maybe do configure anything to be able to set that up uh on their own. I will push back slightly because you did mention something like an ERP which you know may not necessarily feel like it could be a fit but I would push back slightly in that if we think about uh a portfolio you know if I'm Oracle or SAP I may have multiple add-on modules or other products within a suite that I have existing customers that I turn trial experiences for those existing customers on because perhaps now they have those data integrations and so hey you know if you turn on our new uh AI planning module we already have the data you could just play around with it and see what it does for you and see how much it make your life easier and then you know that's available for the admin to to play around with for 14 30 days I think you you know so if we expand that lens from not just the original net new logo acquisition but expanding and customer usage. I think we could build in those models uh at that those touch points as well. >> Very good. Uh so I kind of want to take this a slightly different direction since we've been talking about the free versus trial. Um I want to start out by asking you, you know, for developers, entrepreneurs, um when we're launching a new product, what is the minimal value viable pricing that developers or your teams or the companies must do before launching the product? Because we could do this free, we could do the premium, but if we're trying to put value to this, what is, you know, what work must go into defining the value of your software. It's a very good question. I will say for most, you know, I'll use just early stage companies in general, maybe launching, you know, their initial product, you know, maybe they're generally sort of less than 5 million R. Pricing and packaging is probably not what's going to kill you. I used to be head of product at a startup. CEO had a great motto that's stayed with me forever, which is running a startup is like being in a knife fight in a burning building and you also have cancer. All three are going to kill you, but you have to deal with them in that order because you don't get to deal with the cancer until you deal with the knife fight till you get out of the building. And what I'll say there is that your pricing and packaging is probably rarely going to be the thing that rises to the level of knifight. What is going to rise to the level knife fight instead is going to be things like uh does the problem we're solving do people actually care about solving it? Um if they do care about solving it, do we actually solve it well for them? Um and then can we find enough of customers like that in a repeatable cost-effective way to sustain a business out of it. So those are usually the things that kill you in the early stages. And look, pricing is going to be a problem. You pricing and value are foundationally linked. And maybe we'll talk about that a little bit more. It pricing and value throughout an entire arc of a company's life cycle are always going to be not as good as you would like them. I don't know any product manager or any CEO sitting out there saying, "Yeah, our product's done. We just have to really fix our, you know, I support systems and that'll be, you know, no, everyone's always trying to increase the value." Uh, and your value and price are always going in lock step. So, but a couple of things I'll point out. So what should you be worried about sort of early stage? So I'd say one thing is making a decision around your price positioning. I'll use the example of Southwest Airlines. So Southwest Airlines uh the only airline of the last three decades that's actually been profitable. Uh when they launched, they launched here in Texas and they made an explicit decision. They were saying, "Hey, we're going to be a local provider in Texas." And there are folks who are doing business trips from Houston to Dallas or Dallas to Levik. And what are they doing today? They're driving or taking, you know, buses. And so we want to be cost competitive with those options. So yeah, like we should be understanding of other airlines, but you know, what is the cost savings of that person spending four or five hours, you know, driving their own car or etc. And so they made a very explicit decision of we want to position ourselves as an alternative to getting a bus ticket or or driving yourself. So I think early stage so think like price positioning is a key strategic decision that you should make, right? Are we going to be the Timex or the Rolex? Both of them tell the same functional result, same time, but you know, you're probably not in the market for both. So that is a key kind of strategic decision that you should be thinking about early on. And I would say the other thing is this ties back to our premium conversation. You want to charge something because if we think about val the brain value is the pleasure and price is the pain. And if you're just going out there collecting users who aren't paying you anything versus customers who are, you're not really getting validated market feedback on one of those key questions I mentioned earlier, which was do people care enough about this problem? Because you know, you can go and talk to someone and say, "Hey, we're solving this problem. Is that interesting to you?" "Oh, yeah. It's super interesting to me." Cool. Will you give me $1,000 for it? No way. Right? So, you want to be able to get that feedback because if you just get a bunch of people say, "Oh, yeah. I'll sign up for your free app, whatever, and they're not paying anything, there's no buyin from their side." And so, you really want to get that validation over time. But, you know, keeping it simple. I could go on with other things, but um yeah, hopefully that helps. >> It does. So to follow up with that, so in your experience and over the years uh with your company, what are some of the biggest mistakes that you've seen companies do when choosing their pricing and um like how do like how would you or how could they have avoided it or what uh advice would you give to avoid those type of problems? >> Yeah. Uh so I'd say the biggest uh maybe misconception is that you know especially when it comes to SAS pricing most executives think that what you charge determines your success. In fact who and how you charge determines your success. So what I mean by that is that when we think about you know the world of uh you know price we always tend to think only about the number. Should our prices end in fives or nines? uh you know should you know our competitor charges $20 uh should we also charge $20? Those are interesting conversations. You'd be surprised how little of that work I actually do because it's at the very tail end and it's usually the easiest thing to change and it's not uh the thing that's really has the highest uh leverage point. So what do I mean by you know who and how? So who is really talking about? We need to understand our customer segments because each customer is going to be in a different context and that context is going to set the boundaries of what their problem is, what the barriers to achieving that problem is and how valuable is the result. Let me give you a simple example using the most commodity product in the world, water. So if we and I are on a road trip and we stop off at a gas station, you know, we're thirsty. I might pay $2 for a bottle of Dani. If you and I are wandering through the Sahara for a week and we come across a guy trying to sell water, we might be willing to empty our bank accounts for that same bottle of water. So the moral of that story is that the value is not in the atoms or the bits that you're selling. Value like beauty is in the eye of the beholder. So we need to understand the different customer segments because if we just go out there and broadly say, "Hey world, what do you think our product is worth?" We're going to get a bunch of different answers. And those answers are all going to be informed by the customer's context. And the last thing we want to do is just average those answers because there's no average person out there. So we want to think really clearly about who is it that we're really targeting which executives are usually pretty uncomfortable with because by definition that requires saying no to a huge group of people. Southwest Airlines when they say we want to compete with buses and self drive people driving themselves. Self-driving has a different term these days. uh with people driving themselves, they're like, "Well, hey, business traveler, you want first class experience with, you know, ultra leg group? Uh, sorry. Uh, you want built-in entertainment behind the headsets? Oh, sorry. Like, we don't offer that. We don't have meal service. Uh, you know, everything is all a cart. Uh, you don't get to, you know, we don't have boarding groups, so you get to feel special. Sorry. You know, so it means saying no to a whole bunch of customers, right? But, so we want to be very clear about that. And then how you charge is the when I say pricing we always I say pricing and packaging and packaging is all those elements. So price metric uh price model price fences uh offer configurations how are we dividing up our product purchase criteria such that that we are able to properly show the value and the price align at each stage. So, let me give you an example. When um uh there's a bunch of examples that come to mind. I think maybe the easy the most relatable one is uh Netflix versus Blockbuster. So, uh Netflix uh you remember the days of Blockbuster back in the day. You go in Friday night, rent a movie. Uh all of a sudden the clock is ticking. You had three days to return it. So, their metric was per movie, but it was also per day. Netflix said, "Hey, first of all, you don't have to come anywhere. We'll mail you DVDs. Uh, but you could get three DVDs, keep them as long as you want. When you're ready, return them. We'll send you the next ones in your queue." So, they changed how they were pricing in a way that was disruptive to that market. And so, we often have that ability to do so in the B2B SAS world, right? If we're charging per seat, well, is per seat the way that our product scales with value? Like, in some scenarios, it is. I'm not a believer that userbased pricing is dead across the board. Maybe we could talk about that. But you is it per API call or per gigabyte of data transferred or you per location or or whatever, you know, it might be, you know, um uh and you know there's examples on and on, right? This is how Uber disrupted the taxi industry, right? I'm going to pay for my trip. If you take a wrong turn, if we get stuck at a bunch of red lights, I don't care. I'm paying you for the trip, right? Versus I'm going to pay you versus how much time the meter was running. And that is where we will pause the discussion for now. Uh Dan is coming back with lots of good stuff. This I apologize in advance and I guess in a behind because we did go we've asked a lot of questions and have gone a lot of different directions. Uh this may be a little harder than some to sort of keep track of. But this is sort of the problem. This is a challenge at least I have always found when we talk about pricing whether it's for myself for my products for my services or when I've talked with other businesses and and especially other people in the service industry um in the software industry is like what is the value figuring that out and there are a lot of factors that go into it and it's the kind of stuff that I think is very valuable for you to think about if you're you're trying to price yours is like how do I do this? How do I attract exactly the market I want? And some of it too comes down to like you will find sometimes that you will make more that you'll have a bigger margin than you thought you could because the value is exactly placed with your customer. But we will return with him next episode and uh we'll continue that and then we are going to continue into this uh season. We're getting close though getting close to wrapping this one up and uh I think looks like we're going to just dive back in. is going to continue into interviews in the next season because all of these have been just so much fun and so informative to us. So go out there and have yourself a great day, a great week, and we will talk to you next time.
Transcript Segments
Apologies. name.
>> I was uh I I was I don't know if you
guys know who Steven Bartlett is. He
runs a pretty popular podcast called
Diary of CEO. Anyway, I was listen to
another podcast and uh he interviewed
somebody and they were the other podcast
was talking about apparently he prepared
for the wrong guest.
So then, so then the guy showed up and
apparently he handled it like a champ,
but he I think I think I think his
opening question was, "What would
somebody need to know about you who
knows nothing about you or your
background?" as the opening question.
That is uh Yeah, I was on that. I did
one the other day that was um it was
round two. So he did like we did a you
do like a story background origin kind
of thing and then you come back and do
another episode that's really about like
what's going on today and he was like he
got about a minute into the pre-show
about okay well here what we're going to
do this song we're going to do I was
like we've already done this once right
and he goes oh and he started looking so
he had to like reset all his notes go
like completely different page I was
like sorry sorry he's like ah we'll
figure it out and I'm like yeah
>> that's how these things go. So, let's
see. I'm going to see if this works
better.
Maybe.
Yeah, I'll just leave it like this for
now. All right. So, what we're going to
do is this is like this tends to be a
very conversational kind of approach.
We'll, you know, essentially what we'll
do is I'll introduce myself, Michael
will introduce himself, you can
introduce yourself, and then we tend to
just go off and take off running at that
point. Um, so we'll, you know, be able
to dive into some of your background,
some of that kind of stuff, and just ask
some questions and see where it goes.
Um, it's always
that'll be a fun one. Um, so yeah, it
always starts out, um, like every time
we get into the just the the
introduction alone, we have questions
and follow-ups and things like that.
That works real well. One second. Do you
have your little
>> Yeah.
And I'm like,
>> so where's my little light thingy?
>> Where are you guys uh based out of?
>> Currently based out of uh Tennessee. I'm
in the Nashville area and he is in the
Jackson area.
>> Okay. Jackson, Tennessee.
>> Yes.
>> Yeah. Between Memphis and Nashville.
>> Okay. Okay. Very cool. Um
because I can just I have to plug it
into my laptop, right? And then it
should just pick it up theoretically.
>> Let's see what happens here. I got a
spot for it and then I just pick one
>> at least till Monday, right, Rob? Then
you're a nomad.
>> Yes.
>> Oh, that sounds exciting.
>> Vacation and then he's a nomad.
>> Yeah, I'm actually Yeah, I guess it's a
vacation first. So, one second. Let me
get this.
>> So, then you need to change it to pick
to recognize that as
>> I know I got to switch all those over.
I've switched mics a few thousand times.
So, let me see if this works. And then
>> Oh, your lapel is covering the mic.
>> I don't know if that cares.
>> We'll find out. Um,
guess this is the wireless microphone.
Test test. How's that, Michael? Is that
better?
>> Yeah, it's better.
>> Okay, excellent.
>> How's this? Where's your mic? Where's
your camera?
>> Right there in the center here. I got
it. Don't you know I'm going to be all
greasy.
You're gonna clean it with my mic.
>> Yes, I'm gonna clean it with that.
>> Do you Do you like the lapel mic? Do you
find that it has pretty good quality?
>> I will say I've used it a few times and
um the quality these are like these are
not super high-end lapel mics. These are
like 40 bucks for a pair.
>> And the the light quality is phenomenal.
The light quality, the audio. Gosh, I've
got somebody messing with my my setup
right now, which is making me
distracting me. So, like I have light.
Um, so the audio quality is phenomenal.
We were in a busy restaurant the other
day. We were and it was like it was loud
enough that I had a hard time listening
to the person next to me. They had a
lapel mic on and it came in like you
could tell there's background noise, but
it came in super clear. So, um I wasn't
sure it was going to be very good, but I
have been just ecstatic with the use of
them.
>> Well, uh
>> they're recording.
>> Yeah. I cuz I I I run a podcast myself
and so I uh I think like the one thing a
lapel mic would do is uh if there's
especially guests have a tendency to do
that and then you know it's like but
which is fine except you have to do a
bunch of audio leveling afterwards to
make it evened out and
That's that's part of what I do. Um as I
tend to move a little bit and so that
can cause some issues with that real
quick. Okay, Michael, have you heard
have you listened to the audio from last
night?
>> You didn't send it to me.
>> Okay.
>> Yeah, it's in the Christmas party Slack
channel.
>> It's in the Slack channel for the
Christmas party. You can take a look at
it or you can listen to it there. Okay,
we need to actually
got to kick kick people out of here.
Okay, so now we can actually start the
podcast itself. um we'll do the
interview and then like so or the
introductions and we will just dive in
from there. We have had uh lots of
success doing that. So feel free to just
sort of dive in as we uh it'll be about
an hour. As we get towards the end I'll
swing back around and be like well you
know obviously you guys must like him.
Uh he's given us a great show all that
kind of stuff. So what are the best ways
to reach you Dan? And then allow you to
throw that stuff out there. Plus we'll
have links in the show notes and all
that good stuff. So, uh, any questions?
>> Oh,
make it happen.
>> All right. Yeah, get the popper.
I I often wonder whether it does
anything, but it, you know, the
positioning always changes every time I
move it. So,
>> I I've I have I've had my I've had a
couple times I think it actually helped,
but it seems like very few. I guess
because I probably pop too much or
something and then it still gets picked
up, but
>> ah, well, technology. So, let's get to
it. So, ths.
Uno. Well, hello. And I should hit
record unless we already have.
>> It's recording.
>> It is recording. Awesome. So, bonus
material for everybody. I did hit record
because I don't even hit record anymore.
I now have it auto record. So, let's go
back to that. Toss Uno. Hello and
welcome back. We are continuing our
season of building better foundations
and we are building better developers
the developer podcast. I am Rob
Broadhead one of the founders of
developer also the founder of RB
consulting where we help you assess your
technology and build a roadmap for
success. Good things bad things. Good
thing is technology. We've talked about
this. Uh the New Year's was great. We
did some specials around that. I like
the ability to be a digital nomad and to
be able to just pick my stuff up and go
wherever I want and be able to have
something that feels like studio
quality, especially now with uh all the
AI video and audio tools and things like
that that can really clean stuff up. The
downside is is that I have a technical
adviser that goes with me everywhere and
sometimes drives me nuts making sure
that I look better. And let's face it,
there's a lot of improvement that can be
made here. And there's just only so much
that technology, lighting, and filters
can do. That being said, the better side
of it can go introduce himself. Michael,
how's it going with you? Hey everyone,
my name is Michael Malash. I'm one of
the co-founders of Developer, Building
Better Developers. I'm also the founder
of Envision QA, where we build and test
custom software that helps businesses
run smoother and grow faster. Uh, good
thing, bad thing? Um, good thing was
able to meet up with you. Uh, for those
of you uh that watch the New Year's
specials, uh, we finally have been
talking for a while, getting together.
We finally did. Finally were able to
meet up in person and had a great time.
Uh, bad thing is the drive home
yesterday normally is a 2-hour drive
took 4 and 1/2 hours. So, yeah, holiday
traffic is crazy, especially when they
decide to do construction and you have
overturned semis.
Yes, accidents do happen and they cause
problems. No accident though is we have
an interview guest today. And Dan, I'm
going to go ahead and let you introduce
yourself because you I am sure do it
best. Yeah. Well, I appreciate the
intro. Thank you, Rob and Michael. Well,
I'm Dan Bowski, founder and chief
pricing officer at Product Tranquility,
a consulting firm based down in Austin,
Texas. So I spent a couple decades now
in software starting as an engineer
myself uh and then moving into
engineering management and then product.
Uh early on I noticed that most tech
companies obsess over acquiring
customers but neglect how they capture
the value that they create. So this
insight, you know, crystallized for me
during my MBA internship at a successful
Silicon Valley startup where I led a
premium pricing project, a decision on
the CEO's desk uh among many that summer
was should they go premium with their
product offering. And so uh among a
couple things I worked on for them was
was that and through my research
uncovered that this popular pricing
model only works under very specific and
surprisingly rare circumstances. So
today I help B2B SAS CEOs transform
their pricing from confusing liability
into a strategic advantage. Whether
that's helping them uncover millions in
revenue through revenue leakage analysis
or helping them establish a pricing
process to become their standard
approach for all future SAS products.
That opens up like a whole season of
questions practically. I think I want to
dive into because this is a this is a
world that I've been in. I go I my
background goes back to freeware
shareware stuff of that. uh crippled
approaches to software, fremiums of
varying sorts and especially I want to
what are your thoughts and maybe some of
the things you said are like you said it
only works in some cases the the premium
types of apps or or offerings that are
out there in particular when you think
of like there's a lot of I've seen a
rise um especially in the last couple
years of essentially their topof the
funnel salesfunnel kinds of tools uh
assessments and things like that. My
favorite one that like example of it
that you see all the time that
businesses are starting to use are the
like what Peanuts character are you or
what u you know what what house would
you end up in in Harry Potter. Uh but
then it's really I think the places that
I've seen it really well done are with
like uh Inog and MyersBriggs and things
like that where they are personality
assessments of some sort and they suck
you in with the the top of the funnel
and then it's like hey we're going to
give you a full report for money and
stuff like that. I see very much as a
premium type of approach. So what is
sort of like to hear like expound a
little bit more on on how you see those
and where where the where would somebody
use that properly a premium type of
approach
>> on the Harry Potter house. I think I'm a
Dumbledore. I'm not quite sure. I'm not
a huge Harry Potter fan, but uh
>> you may have stepped into a bear trap on
this one. I'll try not to spend the rest
of our time uh giving my rant on
premium.
I want to make a couple of distinctions
right off the bat. So, I think there is
a distinction between premium and free
trial. I'm very much a fan of a free
trial.
The idea of a free trial
software folks like to think we invented
everything. We did not invent
everything. You know, you walk through
the grocery store uh on a Saturday
afternoon and they give you somebody
hands you a sausage on a toothpick,
right? That's sampling. That's been the
case in consumer goods forever. Free
trial is the exact same thing. You had
no idea the sausage was so tasty and now
you have idea that's so tasty. And why
does that work? Because you actually
eating that food has a much more
impactful experience on your
understanding of the value of that
product than somebody just saying like,
"Look, check out my sausage. It's
amazing. It's all organic, all natural.
No uh, you know, pesticides." Whatever
you want to say about that sausage,
tasting it is going to make all the
difference. So, free trial really helps
that because there's nothing like as
good as marketing teams are, as much
effort they put into their website,
white papers, video overviews, nothing
beats seeing your own data in the
product.
The distinction between a free and free
trial is there's a burning fuse. There's
a deadline.
I have to make a decision.
Where fremium as a model goes off the
rails is folks think well look folks
will become so enamored with our product
over time that they will convert and
this was part of that research that I
looked at during that MBA internship.
You know best-in-class companies convert
one to 3% of those free users.
So, it's a mirage usually. Uh, and this
causes all sorts of,
let's say, misaligned behavior inside of
an organization because if you're a CMO,
you've got a really hard job. You're
trying to drive people to the website.
You're trying to get give them to give
your contact information, drive them to
a a free trial or a download or whatever
it might be. And so, if we have a
premium, like, oh, wait, we have all
these users. And if we just tried a
little bit harder, we put a little bit
more spice into it, we made some
workflows better, they would all see how
valuable it would be to upgrade. The the
net net of it is is that you should
really think of those free users as an
entirely separate customer segment. And
really the ability to drive those people
to change their behavior to upgrade is
going to be minimal. Uh and there you'd
much rather see a free trial where
there's a decision point and then the
whole organization knows that's not a
lead anymore. we want to move on. We
also think when I talk about misaligned
behaviors, there's often a implicit
assumption of well, we don't give
support for our free customers. Well,
support is part of the product
experience. So, what kind of experience
do you want your users to have? Uh, you
know, your support tickets are answered.
You get when you're in a sales process,
those emails get uh answered
immediately. But if you're a free user
and you have to oh go check out the
knowledge base or use our AI chatbot
that can't actually answer your question
that's not going to help you in the long
term. I will make a distinction going
back to your other point. Uh I used to
work for a company called Solar Winds.
Uh not an energy company. They're in the
IT operations management space.
They they knew this very well. The core
products had a free trial experience.
This is pre-SAS days. Dating myself a
little bit.
So all the products were on premise
installed software but the whole idea
was a very we call it a high volume
velocity go to market model kids today
might call it a productled growth model
and those all had free trial but we had
separate
products but we didn't even call them
products we called them free tools and
the free tools were different codebase
they look different than the core
products they all look the same to each
other and they were really sort of
single single function uses or use cases
of our broader kind of portfolios.
And what that did is it made it such
that okay, we're going to have some
engineering resource that's allocated to
marketing for building some free tools.
Okay, so that's well accounted for in
the internal cost accounting in the in
the business. And then downloaders of
free tools would just go into a a
marketing drip campaign. They would
become part of the email list. They were
never considered a hot lead. And so you
didn't have very expensive sales or
sales engineering time wasted trying to
convert someone who just wanted a free
tool into a paying customer. And so I
think when folks jump to premium
often almost almost there's a few rare
exceptions but almost without question
it's a BTOC strategy that people try to
apply to B2B it almost never works. I'll
stop there lest I take up our whole time
together. Well, and that's what I think
that's always been like because we've
talked about pricing and software and
things like that over the years quite a
bit and I think that actually you you
sort of stumbled in the at the end of
that and something that I have found to
be very different is BTOC strategies and
B2B strategies is I find that those have
been I think there's there's a lot of
times they will work for one and they
will not work for another. And I think
particularly like the and this is a
struggle I've had is the the premium
shareware
uh and even uh the time trials kind of
things where you've got like 7 days or
14 days seem to be
they're almost more BTOC kind of stuff
because it seems like if you're in a
business and to me it feels like when
you're in a business you're looking for
a product it's either like the really
large sales cycles of like an ERP or
something like that where you're just
going through a whole lot of stuff and
demos and free wear like doesn't really
fit because you're not going to be able
to get far enough into it to really get
figure out what your value is. And I
think you touched on it very much with
the idea of support because you're going
to have you really almost need to have
that free thing be fullfeatured enough
and have a full featured support to feel
like it being sales like a true sales
cycle is that you're like you're
bringing people in that they're either
hot leads or you just you know need to
punt them out. And I think the demo side
that I've seen from a B2B works a little
better where you just say, you know
what, we're going to give you cart
blanch. We're going to give you like a a
demo license for a while so you can take
a look at it. We can walk you through
it. We can do the trials and and
actually maybe incorporate some of your
processes, your data, your business,
which of course is very sticky because
once you're starting to give us some of
your stuff, you're going to feel like,
okay, I don't want to switch to
something else. I I I guess I see that a
little bit more in the that world versus
consumers are when when you get to the B
TOC side, I guess people are a little
bit more like maybe I'll do it, maybe I
won't. You got to hit them at the right
time and things like that. So, where
maybe it's nice to have that in in the
back of their mind where they're like,
"Oh, I can't afford like I can't afford
this cool tool and we'll just, you know,
this cool widget for my videos right
now, but maybe at the end of the year I
get a bonus." And I'm like, "Oh, this is
sort of cool." So, you hit them then
with like that, you know, that light
little drip campaign or something that
says, "Hey, it's 10% off if you do it
this week or something like that."
And so I guess I'm going to to shift
that into off of a soap box and into
more of like a question is uh like how
does that fit your your soap box how
does that fit in with like time trials
uh and particularly do you see a
difference in what the the type of
target market whether they're B2B B TOC
or maybe even like the if it's B2B or or
even C is like the the types of tools
the industry or or tools that they are.
>> Yeah. Let me touch on each of those. So
the time being and then the the
different types of tools. So just to be
clear, I spend all my time uh these days
and have for most of my career on the on
the B2B side. I have opinions on the B2C
side, but my uh most of my lived wisdom
is is from the B2B side.
There's
a general
practice in B2B on shrinking the number
of days in a time trial. Uh at some
point the default was 30 and then the
default was 14. Now it seems like the
default is seven.
>> I don't think that that's necessarily
good for anybody. Uh generally what I've
seen is that there's some belief that oh
we'll get people to make decisions
faster. Uh but you know, as you might
imagine with even si relatively simple
B2B, I don't know if you've ever gone
and evaluated a free trial, but you're
like, "Oh man, I'm going to try out this
tool. You get five minutes after sign up
into using it. You get some urgent Slack
message, then you get 10 other urgent
Slack message. All of a sudden, it's a
week later. You're like, you haven't
gone back to play with that tool and
your trials expired." So, I think that's
just the reality. most B2B folks who are
evaluating software are in. And that's
just nothing but frustration. I've also
run into issues with a 7-day trial
where, hey, I ran into an issue trying
to figure out how to use the thing, so I
file a support request. It takes them
one or two business days to respond. I
run into another issue one or two
business days. You do that two or three
times, all of a sudden you're at the end
of seven days. So, you've got to make
sure that your customers or your
prospects can actually see get that aha
moment, see the value in the time period
that you're allotting them. Uh, and
generally there's been no uh data that
I've seen that's been convincing that 14
versus 30day trial converts better.
They're about they're about the same.
So, shrinking it below that seems you
maybe for I don't know a workout app or
a fitness app or something like that it
would be makes sense to do seven days,
but for most B2B it doesn't. Then I
think on the B2B side I there's parts I
agree with and parts I don't. I think
there's you know different ways to maybe
slice the B2B market. So in general you
might think of there's not a huge bright
line but just to make it concrete for
folks say below a 25k ACV folks might
think of as a a productled motion and
then above 25k more of a salesled
motion. Um, and so, you know,
definitely, you know, free trial type
experiences
work very well in that lower one, less
so in the in the in the larger one
because usually you have multiple you
all of a sudden you're dealing with
buying committees, not just a single uh
buyer or champion. Um, there's usually,
you know, if it requires integrations to
a bunch of, you know, we got to pull in
all of the data from other systems,
right? being able to do that in a a time
trial uh experience is could be can be
difficult. But I will also say that you
know we had a very successful motion
like that at Solar Winds and I think one
thing that surprised me when I was in
product there was how much of my roadmap
was focused on that easy to set up piece
because the entire business was aligned
to that was the go-to market motion. And
so while other you know we used to have
a lovehate relationship with some of the
analyst firms because you know other you
know the BMC's of the world or IBMs or
whatever would have these beautiful like
features dashboards etc. But yeah it
requires 9 to 12 months of professional
services and you know multi-million
dollar uh fees and we might not have
those features but what we did have is
hey you don't need our professional
services you could set this up yourself.
your IT guy could consult in an
afternoon. They could see all their
entire network or all their servers and
you're off and running. And so we put an
incredible amount of our engineering
bandwidth on that experience and making
sure those products even though they
were highly technical for any IT person,
not just you know the best of breed
person who could you know maybe do
configure anything to be able to set
that up uh on their own. I will push
back slightly because you did mention
something like an ERP which you know may
not necessarily feel like it could be a
fit but I would push back slightly in
that if we think about uh a portfolio
you know if I'm Oracle or SAP I may have
multiple add-on modules or other
products within a suite that I have
existing customers that I
turn trial experiences for those
existing customers on because perhaps
now they have those data integrations
and so hey you know if you turn on our
new uh AI planning module we already
have the data you could just play around
with it and see what it does for you and
see how much it make your life easier
and then you know that's available for
the admin to to play around with for 14
30 days I think you you know so if we
expand that lens from not just the
original net new logo acquisition but
expanding and customer usage. I think we
could build in those models uh at that
those touch points as well.
>> Very good. Uh so I kind of want to take
this a slightly different direction
since we've been talking about the free
versus trial. Um I want to start out by
asking you, you know, for developers,
entrepreneurs,
um when we're launching a new product,
what is the minimal value viable pricing
that developers or your teams or the
companies must do before launching the
product? Because we could do this free,
we could do the premium, but if we're
trying to put value to this, what is,
you know, what work must go into
defining the value of your software.
It's a very good question.
I will say for most, you know, I'll use
just early stage companies in general,
maybe launching, you know, their initial
product, you know, maybe they're
generally sort of less than 5 million R.
Pricing and packaging is probably not
what's going to kill you. I used to be
head of product at a startup. CEO had a
great motto that's stayed with me
forever, which is running a startup is
like being in a knife fight in a burning
building and you also have cancer. All
three are going to kill you, but you
have to deal with them in that order
because you don't get to deal with the
cancer until you deal with the knife
fight till you get out of the building.
And what I'll say there is that your
pricing and packaging is probably rarely
going to be the thing that rises to the
level of knifight. What is going to rise
to the level knife fight instead is
going to be things like uh does the
problem we're solving do people actually
care about solving it? Um if they do
care about solving it, do we actually
solve it well for them? Um and then can
we find enough of customers like that in
a repeatable cost-effective way to
sustain a business out of it. So those
are usually the things that kill you in
the early stages.
And look, pricing is going to be a
problem. You pricing and value are
foundationally linked. And maybe we'll
talk about that a little bit more. It
pricing and value throughout an entire
arc of a company's life cycle are always
going to be not as good as you would
like them. I don't know any product
manager or any CEO sitting out there
saying, "Yeah, our product's done. We
just have to really fix our, you know, I
support systems and that'll be, you
know, no, everyone's always trying to
increase the value." Uh, and your value
and price are always going in lock step.
So, but a couple of things I'll point
out. So what should you be worried about
sort of early stage? So I'd say one
thing is
making a decision around your price
positioning. I'll use the example of
Southwest Airlines. So Southwest
Airlines uh the only airline of the last
three decades that's actually been
profitable. Uh when they launched, they
launched here in Texas and they made an
explicit decision. They were saying,
"Hey, we're going to be a local provider
in Texas." And there are folks who are
doing business trips from Houston to
Dallas or Dallas to Levik. And what are
they doing today? They're driving or
taking, you know, buses. And so we want
to be cost competitive with those
options. So yeah, like we should be
understanding of other airlines, but you
know, what is the cost savings of that
person spending four or five hours, you
know, driving their own car or etc. And
so they made a very explicit decision of
we want to position ourselves as an
alternative to getting a bus ticket or
or driving yourself. So I think early
stage so think like price positioning is
a key strategic decision that you should
make, right? Are we going to be the
Timex or the Rolex? Both of them tell
the same functional result, same time,
but you know, you're probably not in the
market for both. So that is a key kind
of strategic decision that you should be
thinking about early on. And I would say
the other thing is this ties back to our
premium conversation. You want to charge
something
because if we think about val the brain
value is the pleasure and price is the
pain. And if you're just going out there
collecting users who aren't paying you
anything versus customers who are,
you're not really getting validated
market feedback on one of those key
questions I mentioned earlier, which was
do people care enough about this
problem? Because you know, you can go
and talk to someone and say, "Hey, we're
solving this problem. Is that
interesting to you?" "Oh, yeah. It's
super interesting to me." Cool. Will you
give me $1,000 for it? No way. Right?
So, you want to be able to get that
feedback because if you just get a bunch
of people say, "Oh, yeah. I'll sign up
for your free app, whatever, and they're
not paying anything, there's no buyin
from their side." And so, you really
want to get that validation over time.
But, you know, keeping it simple. I
could go on with other things, but um
yeah, hopefully that helps.
>> It does. So to follow up with that, so
in your experience and over the years uh
with your company, what are some of the
biggest mistakes that you've seen
companies do when choosing their pricing
and um like how do like how would you or
how could they have avoided it or what
uh advice would you give to avoid those
type of problems?
>> Yeah. Uh so I'd say the biggest uh maybe
misconception is that you know
especially when it comes to SAS pricing
most executives think that what you
charge determines your success. In fact
who and how you charge determines your
success. So what I mean by that is that
when we think about you know the world
of uh you know price we always tend to
think only about the number.
Should our prices end in fives or nines?
uh you know should you know our
competitor charges $20 uh should we also
charge $20?
Those are interesting conversations.
You'd be surprised how little of that
work I actually do because it's at the
very tail end and it's usually the
easiest thing to change and it's not uh
the thing that's really has the highest
uh leverage point. So what do I mean by
you know who and how? So who is really
talking about? We need to understand our
customer segments because each customer
is going to be in a different context
and that context is going to set the
boundaries of
what their problem is, what the barriers
to achieving that problem is and how
valuable is the result.
Let me give you a simple example using
the most commodity product in the world,
water. So if we and I are on a road trip
and we stop off at a gas station, you
know, we're thirsty. I might pay $2 for
a bottle of Dani.
If you and I are wandering through the
Sahara for a week and we come across a
guy trying to sell water, we might be
willing to empty our bank accounts for
that same bottle of water. So the moral
of that story is that
the value is not in the atoms or the
bits that you're selling. Value like
beauty is in the eye of the beholder. So
we need to understand the different
customer segments because if we just go
out there and broadly say, "Hey world,
what do you think our product is worth?"
We're going to get a bunch of different
answers. And those answers are all going
to be informed by the customer's
context. And the last thing we want to
do is just average those answers because
there's no average person out there. So
we want to think really clearly about
who is it that we're really targeting
which executives are usually pretty
uncomfortable with because by definition
that requires saying no to a huge group
of people. Southwest Airlines when they
say we want to compete with buses and
self drive people driving themselves.
Self-driving has a different term these
days. uh with people driving themselves,
they're like, "Well, hey, business
traveler, you want first class
experience with, you know, ultra leg
group? Uh, sorry. Uh, you want built-in
entertainment behind the headsets? Oh,
sorry. Like, we don't offer that. We
don't have meal service. Uh, you know,
everything is all a cart. Uh, you don't
get to, you know, we don't have boarding
groups, so you get to feel special.
Sorry. You know, so it means saying no
to a whole bunch of customers, right?
But, so we want to be very clear about
that. And then how you charge is the
when I say pricing we always I say
pricing and packaging and packaging is
all those elements. So price metric uh
price model price fences uh offer
configurations how are we dividing up
our product purchase criteria such that
that
we are able to properly show the value
and the price align at each stage. So,
let me give you an example. When um uh
there's a bunch of examples that come to
mind. I think maybe the easy the most
relatable one is uh Netflix versus
Blockbuster. So, uh Netflix uh you
remember the days of Blockbuster back in
the day. You go in Friday night, rent a
movie. Uh all of a sudden the clock is
ticking. You had three days to return
it. So, their metric was per movie, but
it was also per day.
Netflix said, "Hey, first of all, you
don't have to come anywhere. We'll mail
you DVDs. Uh, but you could get three
DVDs, keep them as long as you want.
When you're ready, return them. We'll
send you the next ones in your queue."
So, they changed how they were pricing
in a way that was disruptive to that
market. And so, we often have that
ability to do so in the B2B SAS world,
right? If we're charging per seat, well,
is per seat the way that our product
scales with value? Like, in some
scenarios, it is. I'm not a believer
that userbased pricing is dead across
the board. Maybe we could talk about
that. But you is it per API call or per
gigabyte of data transferred or you per
location or or whatever, you know, it
might be, you know, um uh and you know
there's examples on and on, right? This
is how Uber disrupted the taxi industry,
right? I'm going to pay for my trip. If
you take a wrong turn, if we get stuck
at a bunch of red lights, I don't care.
I'm paying you for the trip, right?
Versus I'm going to pay you versus how
much time the meter was running.
And that is where we will pause the
discussion for now. Uh Dan is coming
back with lots of good stuff. This I
apologize in advance and I guess in a
behind because we did go we've asked a
lot of questions and have gone a lot of
different directions. Uh this may be a
little harder than some to sort of keep
track of. But this is sort of the
problem. This is a challenge at least I
have always found when we talk about
pricing whether it's for myself for my
products for my services or when I've
talked with other businesses and and
especially other people in the service
industry um in the software industry is
like what is the value figuring that out
and there are a lot of factors that go
into it and it's the kind of stuff that
I think is very valuable for you to
think about if you're you're trying to
price yours is like how do I do this?
How do I attract exactly the market I
want? And some of it too comes down to
like you will find sometimes that you
will make more that you'll have a bigger
margin than you thought you could
because the value is exactly placed with
your customer. But we will return with
him next episode and uh we'll continue
that and then we are going to continue
into this uh season. We're getting close
though getting close to wrapping this
one up and uh I think looks like we're
going to just dive back in. is going to
continue into interviews in the next
season because all of these have been
just so much fun and so informative to
us. So go out there and have yourself a
great day, a great week, and we will
talk to you next time.