They poked around. They saw your pricing page and they didn't leave. They didn't even buy a competitor. They said, 'Okay.' They heard a promise on the website. They saw what that cost and they said, 'Okay,' because they bought it. That's what that means when they bought it is they said, 'That's fine. I agree to pay that price for that benefit.' Now, I don't know what was in their mind, but they already decided this was the right price and then later they canceled. So, how is it the price's fault? It can't be the price because they already agreed. It has to be something else. Now, it could be many, many things and it could still be related to price.
You're listening to Founder Mode where we talk about the moves that change the curve. Today's episode is about hidden multipliers. Not more hustle, but better leverage. A lot of founders think growth comes from doing more. But the book that we're going to talk about today makes the case that the bigger win is finding the few moves that matter the most. Kevin, you've seen a lot of companies scale. Do the best ones usually grow because of one giant breakthrough or because they find a handful of small advantages?
The breakthrough comes from trying a lot of, you know, trying a lot of things you think would be breakthroughs. So, I think it's just a lot of testing. You're trying things and a lot of things don't work, but very frequently I've seen when the thing does start to work, that thing was essentially a small thing, but it was not obvious at first or it took testing to get there or a lot of work to figure that out. I mean, but Jason, I mean, you've spent years studying the actual changes to the curve and you know, what's the most common mistake that founders make when they try to, like, you know, kind of force that growth?
Yeah, I happen to have a LinkedIn post kind of blow up this week that's top of mind for me about this exact subject, which is, you know, as when I was leading growth at Headspace, we were spending tens of millions of dollars on paid and performance marketing. And I see founders over and over again just default to, 'Let's just go buy customers and users. Let's just go to the paid channels first.' And it's such an easy thing to do reflexively because you're just like, 'Oh, well, if I just want to go get customers quickly, I'll just go pay for them.' But if you don't have product market fit, if you don't have kind of message market fit, if you're not kind of telling the right story to the right person at the right time, you're just lighting money on fire. And so I tell every founder I work with now, just start with the basics. Create content, create community, find those organic levers, use SEO and GEO or AEO to kind of amplify what you're already doing and have people discover you organically. Build an engaged community. There's riches in the niches. Go find 100 people that are crazy passionate obsessed with something that you like, they have a very painful problem that you are uniquely qualified to solve. Go solve it and engage with that community, get feedback, and feed that back into the product development life cycle and into your marketing communications. And then and only then, when all that stuff is working, then you could start testing paid ads, right?
It's a good segue into who we're talking to today because, you know, Jason's going to talk a lot about multipliers and leverage.
Yeah, Jason has spent decades building companies, investing in founders, and a ton of writing of practical advice for founders who just want better results.
His new book turns that experience into a field guide for finding the levers most companies miss. Should we bring a smart bear out?
Today we're talking about those hidden multipliers in your new book and how founders can use them right now.
Yeah, it's fun to be here. Thanks.
So Jason, you write about how founders often confuse effort with progress. I'm definitely guilty of that at times. When did you first realize that the real problem was not that people weren't working hard enough, but that they were working on the wrong thing?
I don't know the date, but I think it's easy to think of people that are working really hard, like way too many hours, putting all themselves into it. And you do need to work that hard to do everything. That's kind of the trick is that you do need to work more than a regular job. You do need to care that much. Most things are going poorly most of the time. That is the normal state of things even when things are going well. So, it's very hard to tell, well, is all that happening, all that chaos and melee and horrible feelings and wondering if you're worth it and wondering if tomorrow's when it's finally going to work or not. And usually the answer is no even when it does eventually work. And it's hard to tell like so, is this actually okay? Because that's how it looks regardless. But certainly there's such a thing as, you know, if you work really hard on the wrong thing, obviously, it's a complete waste of time. And so, I don't know that people spend a lot of time thinking about what is the right thing. So, what is most important now since it is true that most of it is not important and most of it you'll do poorly and that's actually okay. Because if you succeed, you'll succeed despite all those other things, not because. So, what are those one or two things I always want to ask are so compelling, so important that they will overwhelm all those deficiencies which certainly exist. Now, again, it's hard to say ahead of time what that is, but are you even trying to figure it out? Are you even asking? Are you seeing what those few things are that light up a customer so that even though you have bugs and this is a problem and the customer support's too slow and whatever, even though, they'll still love it because their eyes light up so much when this happens or when they see that. And it could be all kinds of things. It could be certain features or it could be stuff like I just like how this is designed so much that even though it's missing stuff, I'm going to do it anyway because it sparks joy. That works too. Or maybe it's a personal thing like sometimes we follow certain founders or even companies because we just like them and their attitude. We don't even know what their software's like. It doesn't even really occur to us whether that's the right software fit for what we need and our use cases and our pros and cons because that's not how we decided that. I feel like most of the people that use Basecamp like 37signals. I'm not sure that they think Basecamp is the best project management tool. Some of them do. But I don't think that's where most of them come from. But that's my point is like there's all kinds of ways to win. That's a good thing. All kinds of ways. And so, especially as a startup founder, you think of, well, you don't have almost anything. You don't have more money than everyone else. You don't have a brand. You don't have more reach. You don't have more features. Like, you don't have more of almost anything than an incumbent. So, some of these other aspects are probably how you're going to win or be differentiated, be better in some people's eyes than someone else because it's not going to be because you have more money.
Was there a moment, maybe or the first moment, when you kind of first realized, I mean, you've been an entrepreneur for a while now, a bunch of different companies, like that one small shift mattered more than months of grind and like you're like, 'Oh, that was it.' Or is it only this come to you years later after looking back and sort of deciding that? Like, did you see it at the in the moment?
Yes, there were some moments. I always describe it as the camera finally comes into focus and you go, 'We were directionally right. Like, we saw the picture, but now all the pieces are in place.' So, I think, you know, sometimes you can see that in companies where their positioning and marketing just hits. And for whatever reason, that's what everyone wanted to hear. And they haven't really changed stuff like how they run ads or what do they do in SEO or blah blah. They haven't really changed that, but somehow it's working now. It's really obvious once that happens because something massive changes, you know, your growth starts going up. So, for us, for example, at WP Engine, one of those was in 2012 in January. We changed just a few things about our pricing and packaging. And our growth rate, which was already good, we'd already gotten to a million dollars in ARR in under two years. So, that's pretty good. You know, it's fine. And then it turned into rocket ship, where we went from one million to five million in one year and continued to, you know, just go crazy like that. And we had these changes, which individually doesn't sound like very much. The cheapest plan went from $49 a month to $29 a month. In the more expensive plans, we started allowing people to have multiple websites instead of just one. And there's a couple of things I'm happy to go even into detail of what they are and how we figured it out. Happy to say that, but we did these couple of tweaks, which on the surface look little, although of course there was a lot of research and thought behind these things. But okay, we did these things that look little, and we had this dramatic effect on the growth curve. So, obviously that was a big change. Obviously that hit somehow, you know, and you can argue why and how, and nobody knows because even after the fact you can't. You know, life is an experiment you run once.
There's so much there that I want to double click on, but I want to, first I'll say Jason, I am a very happy WP Engine customer, so well done.
By the way, by the way, in the book there's a chapter where among other things I explain exactly what we did, how we interviewed customers and how we figured out these things to make these pricing changes. But as much as I love to sell a lot of books, I'm happy to like literally say everything in that chapter right here. I don't need people to. There's no secrets here. I'm not trying to hook someone into buying the book. I'm happy to say whatever you like.
You don't even have to buy the book. We're going to hear it all right now. All right, well let's talk about it. So, the profit whale shows that a small slice of customers drives a huge share of the profit, right? So, what surprised you most when you first mapped customers that way?
Just that that shape was real. And so, yeah, what you're describing for those that don't know, and I guess for those who do know as well, I always think that phrase is funny, is when you line up your customers, just imagine lining them up on a wall, most profitable to least profitable, and then let's say you added up their profit from one end to the other, like a cumulative sum. So, at first it would grow really fast because oh, all these customers are really profitable, so the total profit's going up a lot, and then it's sort of leveling out with most of the customers. Then you get to customers that are costing you so much in, let's say, tech support or usage or who knows, depends on your product obviously. And then the customers that are just using so much of your time or resources or whatever that they're actually net negative, and so the cumulative sum is now falling because you're adding up these unprofitable customers. So, this shape that I've described is called a profit whale, and I've never seen that used in software, but it is actually pretty common in other things like manufacturing, even retail, even insurance, and it's always this shape. Like the shape for all companies is this particular shape, which is very interesting. Shows that it's some kind of systematic thing, and that's something that's probably true for everybody, because if it's true across that many industries and sizes of companies, nothing's 100% but hey, that's probably relevant to you. And so, both the head and the tails, I call it, of the so-called profit whale, in the head, where people are extra profitable, you can afford to spend like 20 times more to acquire customers like those. Not just more, because it's obviously you can spend more to acquire good customers, but like 20 times more. And of course, every one of those is so much better and actually even more fun. It's more fun to serve people who are giving you lots of money and they're happy and they're not calling tech support too much. Like that's fun, you know. So, to really analyze, wait, what is that? Not just what they have in common, because often what they have in common is also in common with everyone else in your customer base because it's just what's common in your industry or for your customers. So, it's not just what's common to them, but also what is different from the ones that are especially unprofitable, but let's even say the median customer. So, what's common to them and not usually common with other customers and that is, you know, by seeking the answers to that question, you find these are my ideal perfect customers and I can actually afford quite a lot to acquire them and I should because just getting a few more of them has this massive increase in profit and revenue. So, that's a good idea. And similarly on the other end in the tail, unprofitable customers, they just drag you down so much and again, not just financially, although obviously financially, but also in how fun it is. There's no way that's fun. There's no way it's like, 'Oh, that's a great customer. We love having them. Everyone knows them by name and not for bad reasons.' Yeah, right. So, you know, it's good in many ways to handle that. Now, but handling that, you could think, 'Oh, I should fire my customer.' And occasionally, you should help them find another place and I mean that. Like, maybe there's a competitor or another way that is in fact better for them. It's a better fit. You should suggest that. But anyway, that's not the only way. Sometimes, a lot of times it's your own fault. For example, 'This customer's calling tech support all the time. Every day they need us to do this and that.' Really, how come the product doesn't let them do it themselves? Why do they have to call tech support every day if this is something they need to do every day? Isn't that your fault for having a bad UI? Maybe you should add that. That's all your fault. That's all on you. This customer, they're complaining, but they're just showing you the way to a better product. So, you don't fire them. You fix your product, right?
Yeah. No, I think I have a reason, like there's these other attitudes. Now, sometimes, how would you know like, well, maybe you should fire them. How would you know? This goes back again to well, who is your ideal customer? Who's the right customer for you? It's why it's so important to figure that out. When you have taken the time to do that and you really know who that is, then when your ideal customers are asking or are in trouble and calling tech support all the time, then you should fix the product because that's your ideal customer that you're supposed to be optimizing for. On the other hand, when you're like, 'Oh, wow. They're not right in all these different ways. They're here. They signed up anyway. Maybe we even sold them. Maybe not, but anyway, they're here and they're not really a good fit.' Well, then doing what they want is strategically wrong because that's taking your product in a direction you just said wasn't right. You should spend all your time like you said, 'How do I, you know, what if I'm busy, but I'm not going in the right direction?' The right direction is your ideal customer. That's the right direction. So, this customer that may be paying you a lot, but they're a bad fit, it's the wrong direction to talk to them and do stuff for them. That's how you know because you've defined, hopefully, and that's why you should, the ideal customer, so you realize they're not. And you realize it's okay if they leave. In fact, maybe they should. And you know that and you feel comfortable with that because you figured out who that ideal customer is. And besides articles and besides the book, another thing you can do also for free is I made a bunch of AI skills and I'm still making more to help you implement this. And for me, if AI's thinking for you, that's bad and it doesn't make you better, but if AI's facilitating you thinking and making decisions and if it's forcing you to not be wishy-washy, then AI's pretty helpful because it's a facilitator that you otherwise can't afford or get to and you can get it right now. That's what all my skills are, 100% of them. Do not answer any questions. They facilitate you doing things like finding your ideal customer so that you could finally have that definition and go use it. I just believe in this so much and it's so hard to get outside the, to read the label from inside the jar that I find that AI is sometimes, if it's designed that way, can actually help with that.
Yeah, I think it's incredible. You make this case that the right customer doesn't really tolerate your weakness. They actually prefer you. Like, how did you get the idea for this, like Carol?
Yes, it was a long time ago. I think the first time I wrote about Carol was almost, I think it was 15 years ago. So, I think what I realized, and this was at a previous company, SmartBear, I remember we, I was in a, I guess it was a sales call, but I had my champion. This is more like enterprise sales. So, our customers were people like Qualcomm and Intuit, IBM, stuff like that. Anyway, so I was in a sales call with the champion and the boss was saying something like, 'But it doesn't do this,' or something like this. And the champion said something like, 'Oh, yeah, they can fix all that.' I mean, they had other issues, but they listened to my feedback and they actually did it. So, they work with us. And I realized, see, the champion doesn't even, it's actually good for the champion and his career and what his boss sees in him that he is so good and so prescient and so smart that we listen to his insights about the product and do it because that's how good he is. So, our weakness turned into like his career is going well. And so, I was like, 'Ah, so that's by the.' Just total sidebar, in enterprise sales, you often have a champion and you probably know that because every book about enterprise sales says that, but something that people don't necessarily think about is you're making the sale to the buyer, okay? And of course, you want the users to be happy and also want that to happen. The champion though doesn't want money. The champion wants something else. It's like prestige or they want to be able to tell someone at a cocktail party that they're working with the startup and telling them what to do or they're trying to look like something or trying to bring some process into the company and be the person who brought this process into the company. Like, there's something that they want that you can provide and you need to find out what that is.
It reminded me of like acting class. Like, what's my motivation?
Yeah, like what does this character want, right? Even if we never say it out loud, it's still there and if you know it then you can write the play, right?
You go beyond demographics and you talk about keystones, deal breakers, inciting events. Why is that the real shape of the market?
Well, so each one of these things is an observation in itself about why people buy. And so, for example, a person decided I'm going to go search for this software or search for a solution to this problem. And why the hell did they do that? Something happened because in the words of Bob Moesta, who was the first person I heard to say it and maybe he invented it, he says, 'No one wakes up in the morning and says, today's the day I'm going to buy, you know, anything. Bug killer, WordPress hosting software, whatever. No one goes like, geez, that'd be really fun is to buy some bug killer.' Like there's some reason why they're like, 'Damn it, I'm buying that now.' So that's what I call the inciting event. And this is what I found when I was interviewing people before starting WP Engine. I was interviewing about the pain of WordPress hosting. And what I would find is, for example, people would not care about security unless something happened to them. So like if you were just like, 'Tell me about security,' they're like, 'Ah, I don't know. I have a small site. Nobody cares about my website.' And they didn't realize that that's not how it works. What the way it works is hackers go trolling around looking for sites with holes so that they can exploit it and do crap. What crap? Anything. Sending spam emails, using it to click a browser. I mean there's all kinds of things bad guys do. They don't know what your site is. They're just looking for a site with a hole they can exploit. And if you try to explain it to them, it doesn't work. It's like evangelism. They're not interested. This is just not a useful sale. On the other hand, had the person had the site hacked already and they went through that, it feels like you feel violated. And often you've paid someone like way too much money per hour because it's an emergency to go fix it. And then is it fixed or will they just hack it again in a week? Nobody knows. I mean that's a really uneasy feeling. So it's just really bad. So once that happens, that's the answer to why you're ready now to pay even 10x more for hosting that guarantees that won't happen and if it does we'll fix it for you. That's a message I want to hear right now because this event happened. That's what I call the inciting event. So, you know, you think about a market for people that want secure hosting. When I say it that way, see how that sounds logical? It is logical. But it's so far away from what I just said. And so, when I talk about that inciting event, right away you know what to put in advertisements, don't you? Are you, did you just get violated from a hack? Never have that happen again. It just almost writes itself. Of course, you still have to A/B test the words and stuff, but like it's really obvious what to do, where to start anyway, how to position the thing when you understand this inciting event that the person has got in their mind. Whereas, if you just say a market for hosting that is secure and fast, it's like, yeah, that's accurate. But man, I don't know what to put in an ad. See how it's so little understanding of what is this market about really? And so, you end up with after thinking through all this stuff, and again, these skills help you that I mentioned help facilitate exactly this stuff, you end up with some kind of definition of your ideal customer that's actually, again, you can act because it has this kind of detail. So, what you don't want is stuff like, 'I sell accounting software to small business.' It's like, well, I don't know what any of that means. I don't know what to say. Small businesses, there's literally hundreds of millions of small businesses around the world, so I still don't know what you mean. Just nothing about that tells me anything. It's demographic. It's maybe even true, but it's so generic and broad that like it's not actionable. And what it really means is you haven't decided what you actually do best for whom best. And so, going through these exercises to narrow that down, then you have the really clear message, and you can sell to that segment really well.
