Understanding your Ideal Customer Profile for Net Retention and Reducing Churn

John Chen




Fika Ventures
John Chen
John Chen

Episode Summary

Today on the show we have John Chen, partner at Fika Ventures.

In this episode, we discussed the operations of Fika Ventures, a pre-Series A fund focused on B2B software, FinTech, and marketplaces. John emphasized the importance of building close relationships with founders and shares his views on the crucial role of culture and alignment in building a successful company. We also examined the common misconception that the Product Led Growth (PLG) approach applies to all products, which often results in the misapplication of the organic growth concept.

We then dove into the intricacies of applying the Product Led Growth (PLG) principle, acknowledging that while it can be valuable for many B2B companies, there are certain scenarios where a more hands-on approach is required. A major part of our conversation revolved around understanding stakeholder requirements and how to best utilize feedback from customers. We also explored the crucial stages of product-market fit and the importance of striking a balance in growing the team.

We wrapped up by discussing the challenges of customer acquisition, churn, and retention. John offers great insights on understanding the ideal customer profile and focusing on net retention over gross churn. He emphasized that having a clear understanding of PLG mechanics and mechanisms is key to its successful adaptation.

As usual, I'm excited to hear what you think of this episode, and if you have any feedback, I would love to hear from you. You can email me directly at Andrew@churn.fm.

Mentioned Resources




Chemistry within Founding Teams.00:04:00
Building a Community00:07:48
Common Mistakes of Early Stage Startups00:09:06
Importance of Customer Success00:13:13
Building a habit-forming product00:15:20
Treating early customers as partners00:16:49
Knowing when to scale00:26:11


00:00:00 John: The key insight here is that your job as a founder or co-founder, regardless of whether you're technical or not, is to be a chief product officer. Like that is the only thing that matters, you know, in that sort of starting with zero, trying to get to one phase.

00:00:15 VO: How do you build a habit-forming products?  How do you… Don't just guns for revenue in the door?

00:00:22 Andrew: This is CHURN.FM, the podcast for subscription economy pros. Each week, we hear how the world's fastest growing companies are tackling churn and using retention to fuel their growth.

00:00:37 VO: How do you build a habit-forming products ? We crossed over that magic threshold to negative churn. You need to invest in customer success. It always comes down to retention and engagement. Completely bootstrap. Profitable and growing. 

00:00:48 Andrew: Strategies, tactics, and ideas brought together to help your business thrive in the subscription economy. I'm your host, Andrew Michael, and here's today's episode. Hey, John, welcome to the show.

00:01:02 John: Thanks so much for having me.

00:01:03 Andrew: It's great to have you. For the listeners, John is a venture partner at Fika Ventures, an LA based boutique seed fund focused on B2B software, Fintech and healthcare IT. John started his career at the White House working on domestic policy and moved into tech when joining Google as a fellow. Prior to joining Fika, John was an investor at Emergence Capital. So my first question for you today, John, is what was it like in the early days of your career making that move from a government organization to a high growth tech startup?

00:01:33 John: Yeah, I had to say it was completely accidental. That was never part of the plan, and I just have a lot of gratitude towards a couple of really key people that allowed me to sort of make that leap. I think in the beginning, you know, government's still a very much a passion for me and a public service is something I think I would want to go back to later in life, but as a young person, I just saw a lot more opportunity to be on sort of the tech side to make effect a lot of change. And the sort of two experiences that really sort of shown a light on that were, you know, I started the White House, you know, for a fall, and then I did Google for another summer. The amount of autonomy I think that folks had, you know, on the other side was incredible. So that's how I made the leap and it was, yeah, haven't looked back ever since.

00:02:20 Andrew: Yeah, it's interesting. I think the economies of scale is, definitely people that are interested in, like making difference, making a change, is something that attracts them. I remember as well, we previously had a product designer from Facebook who was an architect at one point, and like her analogy was like, okay, I could design a building that could fit like what, a 1000 or 2000, 10,000 people or I can design an app that can impact the planet. And she was like, okay, like the impact and scale the tech provides is like next to none. And, if you're gonna do something, it's a really interesting place, definitely to move into. So you've been in tech now and then quite a while. Maybe tell us a little bit more about Fika. I gave a brief intro as well, but  what did you guys really do? And you obviously, based at, in LA, so not like the most typical spots for a venture firm, so. Yeah.

00:03:08 John: Absolutely. Yeah, so Fika Ventures, you know, we're a pre-series A fund. That means we do, you know, pre-seed, seed, post seed, mango seeds, whatever we wanna call it  these days. We're focused on B2B software, FinTech and marketplaces. And you're right, we're based out in LA, but we are so geo agnostic when it comes to investing. I think, we call LA home because we saw a really interesting opportunity where, you know, there were a certain incredible companies, like ServiceTitan, a Snapchat, SpaceX, that we're starting to create these mafias and and pools of talent that, you know, we were able to tap into to sort of create new companies. And Fika is actually a Swedish term that means an intimate coffee break. And so this is a very sort of common tradition in Sweden where you would invite your coworker out for Fika. Different coworkers every day. And there's no agenda on the table. 

00:04:02 John: And that's really, largely like how we view our relationship with our founders. You know, it's intimate, it's raw, it's very vulnerable. And as much as we want to put boundaries around, like what is business and what's not, you know, the reality is that you're stepping into, like a 10 year journey with someone and life inevitably happens. And so some of the examples we always like to bring up. So I went to a wedding a few weeks ago for a founder that I'm backing out for the second time. I've known this person for eight years. You know, we've done life together throughout two companies now. We've had founders, you know, lose loved ones and you know, we've helped in, you know, to come in and help steer the company, you know, while they've been out.

00:04:42 John: And you know, we've had some others that have gone sick right before a big conference and we've actually flown out to help, you know, take their place and to stump and to sell. And so, you know, the net of all this is, you know, we really believe that building a company is a close quarters combat sport. And, you know, to do that, it's all hands on deck. You know, we are effectively an extension of their management company, our management team, and we do whatever it takes to help them be successful.

00:05:07 Andrew: Excellent. That's really good too. I think, like, it is a very intimate journey as you mentioned, and like, building a startup alongside really good investors I think, is the best way to go. I think like a lot of times people say, okay, when your earlier stage, just take the money and get things going. But I think it starts to, when things get difficult, like, that really shows the two character of investors and if they can step into helping bring you things forward in those difficult moments, I think those are the ones that you wanna be around and the ones you wanna be working with. I can say like among [you and myself], I'm very, very lucky and fortunate to have the investors that we have as well today, like with us through the good and through the bad times as well. So it's good to hear that. 

00:05:48 John: Also interesting you mentioned sort of the mafia in terms from basics and so forth. I think this is definitely a common and interesting trend. I've chatted to different people about how you have these concentrations of talents that end up working together, understanding each other really, really well, and then spin off, and start to build different companies. How did that initial, like sort of thesis start for you? Like did you or was any of the team previously at one of these companies? Like how did you decide okay, LA's a good space because of this?

00:06:15 John: Yeah, I think we are, and SpaceX is a great example. I think we are on our third X, SpaceX team. And to your earlier point, I think there's a certain chemistry with having sort of a history working with one another. And that's something that, no, there's nothing to replace that level of chemistry. And we found that, again, all these teams that we've backed have, you know, some history of working with each other at that company. And there's already sort of a joint  mutual understanding and a joint trust that that's there, that you don't have to… there's just certain things that you don't need to explain and that sort of alleviates a lot of attention that I can… sort of conversely, I think a lot of founding teams that haven't worked together, known  each other for three months, you know, sometimes those do work, but it's such a long journey that, you know, this history does help and there's no shortcut to replicating it. 

00:07:06 Andrew: I don't even think it's annoying thing as well. So I think you could know somebody your whole life and then just not be able to work with them and build a business. But I think what you're alluding to as well is like the…  I think it's a culture aspect, is probably already sold from day one. Like you all align to a certain culture and style of working in way and understanding. So it's one of the hardest things I think to do at an early stage is to sort of, cuz you're just generally thinking about culture at the early stage. You've got so many other different challenges to tackle and solve, but it's what really like enables the company to grow and succeed over time is like having that good common alignment, good understanding way of working and coming from a history, we've worked all together at a similar space and time I think definitely sort of accelerates that culture building and that understanding and way of working.

00:07:48) Andrew: Cause I think at these companies as you're talking about, they all sort of demand excellence from each other and there's a certain bar that's already set that everybody knows they need to be meeting. But yeah, very, very interesting cuz like I said, I've mentioned…  I've spoken to quite a lot of different people, like I know Segment is another one where they have their own little community, where Segment employees now investing in one another, doing angel investments. I actually selfishly started something like this for [Hotjar] as well recently to see how like as a community, we had really good relationships, like, how can we serve and help one another. And I think there's all the great companies out there where they're building similar  communities to service and help one another. I think you spent a lot of time with these people as well. And you also wanna see them go forward and succeed in their own different spaces and areas. 

00:08:33 John: Talking about success now though as well, obviously you get to see a lot of early stage founders and companies and at the same time with success I think also comes failure and we're chatting about this a little bit at the start, is today like maybe turning a little bit about some of the common mistakes that you see early stage startups going from sort of that zero to one phase making from a perspective. And I'm interested to hear your thoughts today from this, the different vantage points on from the outside seeing these companies and operating with some of them from within. What would be one of the problems that you see commonly that founders are making today?

00:09:06 John: Oh, absolutely. Yeah, so it's, for some context, I think we have a portfolio now, about 70 founders and many of them started, you know, with zero or near zero, we call them the day zero problems. And what do you do when, you know, your pre-product market fit your pre-team, sometimes your pre idea or pre idea insight. And so, you know, a couple of the key lessons that we've seen, you know, founders make early on, you know, the first and and sort of  maybe most prevalent is this idea of build it and they will come. And I think this is missing a key truth around how you're asking your users essentially to do work and figure out how a product should fit into their life. And so maybe even backing up, I think there's been a lot of optimism around, you know, PLG and before that, bottoms up SaaS, consumerization of enterprise and this basic premise that, you know, you can build a product that's so good, that users can't ignore it and that it can spread organically throughout an organization.

00:10:06 John: And there's a lot of truth to that. There's many companies that have succeeded in that, whether it be Airtable or Carta or Zapier. But many others have misapplied this concept and think that this applies to all different types of products. And I think what maybe one of the clearest ways to sort of illustrate how this has misapplied is, is to try to draw the, you know, very stark distinction between like a B2B and a B2C product. And there's a lot of PLG companies, are trying to employ the consumer handbook, the Growth Handbook and slick onboarding email drip campaigns to sort of pull you back into the product and teach you how to use it. And there's a lot of, again, truth and wisdom and all that. But I think the key thing to understand about what a B2B product and how it's different than a B2C product is that they're fundamentally work products.

00:10:54 John: Again, they do a job, they solve a problem, but they still require work from your users, both individually and collectively as a team and as an organization. And so you're asking your users for the time and the attention to figure out how this fits into their life and there's a certain mental load that it takes, you know, to do that. And so we joke that if B2B companies are framed as vitamins or aspirins, B2C is like candy. So it's totally different. It's not the same to ask your users to add seven friends on Facebook or to click on the [unclear]. It's B2B products require more work and more forethought, you know, from things that are lower complexity, like, you know, email, calendars todos, the things that are much more higher complexity like a CRM or new business analytics solution. And so again, I think the key takeaway for us is you cannot apply the PLG principle to all of these different products at different complexities.

00:11:49 Andrew: Yeah, absolutely. I think the PLG can be applied to a lot of different B2B companies, but as you say, there are definitely certain scenarios where you actually need a little bit of handholding. You need to have that good walkthrough, that good customer success call,  and good understanding to set yourselves up for success. I think actually, like one of the stories I love on the show talking about was Segment’s approach in the early days. So obviously, Segment has a freemium product, so they do [and also] the PLG motion, but what they really found was like to be successful with customers, they actually needed to install friction within the process. They needed to actually speak to people in order to be successful. Because what they found was that the value of Segment itself was really having good clean data and the way that you have good clean data is with a really good tracking plan.

00:12:34 Andrew: And typically people aren't very good at laying these things out and sending up from start or don't have the expertise. So at some point in time they just decided, okay, like we're introducing a customer success call for every company that we deem as like a good fit for us and we're gonna run this through with them and we're gonna set this up for them and we add this friction to the process. And that sort of ended up increasing retention exponentially for them as a business and in the long run cuz customers really needed that handholding, that training, and then without the costs associated with it. But what sort of companies are you talking and have in mind when you say it's not a good fit for, like do you have any specifics that come to mind?

00:13:13 John: Well, I think it's just, you know, not to call out any specific companies, but you know, there's certain, again, products that are multiplayer, are highly complex and just again, require a lot of foresight around, you know, how do I download and like unbundle my current process, transform it into a new data model to fit into, you know, a new product and then educate my entire team on how this is all gonna work. And so it's as much as a people process change and problem as, you know, an actual product change. And that's really where I think there's a lot of under-appreciation to your point around customer success and sales, at sales especially at the very beginning of this conversation is essentially doing the work that that champion or that buyer, that power user does not wanna do, which is stick their neck out, you know, do the ROI analysis, create all the decks to get all the stakeholders aligned, all of the sort of munge, you know, dirty work that someone, you know, again, your buyer is probably thinking about a thousand different things, you know, does this, you know, and you should make this as easy as possible for them to say yes and to to know that, you know, you are a true partner in helping them be successful as they're, again, putting their social capital on the line to get this product and this new process in in place.

00:14:37 Andrew: Yeah, for sure, I mean, having listening to talk, as all reminds me of a very, very early episode of the show as well. And I might be getting the guest wrong cause it was very, very early. I think it was [Sean Clauson] and he was talking a little bit about the [unclear] and we're talking a little bit about this concept of like invites and you mentioned sort of applying the same principles as B2C, typically like a B2C product you'll sign up and then you'll have like a referer friend's email like maybe the next day or within that same signup flow and you get asked  to invite. So then a lot of B2B companies will install this in their flow of signup, like invite, their team. it's better with your colleagues and so forth. And for some products it's critical like Slack, you need to have team members to see the value of Slack, but for others it's not.

00:15:20 Andrew: And I think at that very early stage that individual sort of doesn't really know your product yet, they need to test it out. They need to build trust in your product so they don't wanna risk their social credibility within the organization as well. It's like, okay, why would I invite my team if I'm not convinced about this product to service yet? And there's these certain mechanics that we try to copy and move over from different, like B2B to B2C and some of them just don't fit in the environment. And it's definitely like, there's a principle around this, I can't remember what it's called, but just basically trying to see something that works in one ear and immediately assuming it's going to work in yours. I think I was reading actually this week or last week, Lenny's newsletter, if you're familiar with Lenny, he has B2B or B2C source.

00:15:59 John: He was talking about [Duolingo’s] concepts as well and like how they made similar mistakes where they looked at Uber and they said, okay, like this referral mechanism works excellent for Uber, let us apply to your [Duolingo] and like it should totally bombed like it was a waste of time and energy and it's more looking like underlying principles. What is driving the success of these things? And then like within our context, how can we take those principles and re-engineer them to work within the B2B environment or our product to service. Obviously, that's, first step is really as you said, like PLG is not necessarily working full types of business. It's really important for you to understand, like, what's required of your business, of the stakeholders. How much effort does this product need to get lifted off the ground and adopted within an organization will sort of help dictate what model works best for you. What are some of the other challenges and problems you see founders making?

00:16:49 John: Yeah, I think a related one is, you know, treating your early customers as consumer of a product versus being true partners, you know, to the company. And obviously maybe it's obvious when you say it, but especially when you're starting with zero and you don't really have a product that's fully working and fully baked, your customers, your early customers are not buying your product. They're really buying into you as founders, as people. They're buying into the vision of the company and they're buying into your success and that's really what you have to convince them of and you know, at the very beginning. In fact, they're probably getting negative value, you know, from using your quote product because, you know, they're essentially signing up for the weekly hour long call where they're gonna tell you all the things  that are wrong about something and be thoughtful about like why it's not working and try to help you troubleshoot it.

00:17:40 John: And so what you're trying to accomplish, again, with that early set of customers and what we call 'em design partners, you know, is a group of people that are again, committed to your success and will endure, you know, the embarrassing product that you're likely, you know, to put out in market. And the other thing I would also say is like, again, during these early phases, you're talking to a lot of prospective customers. The couple, you know, key things to keep in mind, you know, we always tell founders is like, you know, number one, do not owe you the truth. And so don't assume that every customer that you hop on a call with will tell you, you know, actually what is wrong with your product. Very few strangers are incentivized to tell you, you've had… your product sucks for X, Y, Z or to come up with all the coherent reasons why. And so really, again, figuring out which customers again are committed versus ones where there may be no feedback or bad feedback is important. 

00:18:31 John: The second thing is that they don't owe you extra time as well. So, you know, many founders assume that they can just call that person right back up, you know, a couple months later and, you know, they'll get the same time. And I think, again, the key here is if you feel like this person can be like a needle mover for the company and can change its trajectory, like you need to sell them on, you know, being part of that journey and that vision today versus, you know, letting them go and expecting that they'll show back up in six months. And so that's another sort of key area that we try to coach founders on is just, you know, again, don't focus again on trying to have a transactional call about what you need to learn about building a better product. Sell them on, you know, being part of the long-term journey here and, you know, make  them feel special for being part of something new in this movement that you're creating,

00:19:28 Andrew: This one's a little bit mind boggling to me as well that founders think in this way. Cuz I don't think it's like within my circle, founders that we speak to as well. I think, also maybe coming from actually Hotjar, where… Hotjar in the early days, they set up an actual webpage on their site. It was like one of like five pages on the whole site. I think they had at some point, recognizing the early adopters that had used the product and service and added value. And I think like at an early stage, like feedback is like gold and as you said, like definitely early customers… at any stage, your customers, you should never treat them as consumers alone. And really like there are evaluated partners. We also did something similar, at Avrio where we had a customer advisory board where we identified those customers.

00:20:10 Andrew: I think we got this from a good, really good first round post, will link it in the  notes on how to set up a good customer advisory board because ultimately like having some, like you said, design partners join you in that early journey is like super charging. That feedback loops on the cycles and having those people that are really motivated. We had a Slack channel that, like, people just drop feedback in and every time. It was like gold because the team could see it coming directly from customers, somebody that they knew, a familiar face, they knew the use cases, how they're using the product, and you can really then like feed off that, but not appreciating them and not taking advantage of those moments for me I think would be like a critical mistake at a very early stage when like you're really trying to get from that zero to one phase and figure things out for you.

00:20:51 John: Absolutely. No, we had a founder drive, I think six hours through like a Vermont Storm to go visit one of their customers. And again, they said it was one of the best decisions they've ever made because that type of conversation, it was a three hour conversation, that customer will never forget, you know, that type of whatever it takes, move, you know, that you you did. And it's emblematic of what is to come in terms of how you'll be alongside them, making them successful, you know, in the future as well. So that type of thing goes a long way.

00:21:23 Andrew: For sure. So I think those sort of interactions are critical. I think there was one episode as well, I was really blown away, can't remember at the time was like this person was describing to me that there's certain organizations like IBMs or Salesforce where that big, that like smaller software vendors would actually have an office within their workspace so they could interact with their customers directly. So they actually hired a software company. There was maybe 200 people. I'd say in one person to just work out of IBM's office and go and understand the customer better. And IBM gave them that space because they were there to educate their team on how to use the product and service and get the most value on, just sort of like mind blowing to me that companies would invest so much time and resources to actually have many offices situated in some of their key clients work. And I think that's obviously at a larger scale, but at the early stage, like these interactions, like these three hours you spend with a customer are critical to help shape what needs to be the product to get you so that one end point where you can start to scale. What else are you noticing in the market?

00:22:23 John: Maybe the last thing, you know, that's important that, again, we tend to see a lot and we try to help force correct is this idea that more people means faster product market fit and more people on your team specifically. And this is obvious not because, you know, again, burning money is a, you know, burning too much money is a bad thing. That's obviously like an obvious point. But the key insight here is that your job as a founder or co-founder, regardless of whether you're technical or not, is to be chief product officer. Like that is the only thing that matters. You know, in that sort of starting with zero, trying to get to one phase, everything that  else that you're doing, you know, that's taking time away from that and testing hypotheses on how to get to product market fit is very expensive.

00:23:08 John: And so when you're trying to throw too many bodies at the problem, trying to create and then scale up a team too quickly, you know, you end up managing instead of a product, you're managing sort of the hopes, the expectations, the dreams of this team and that's important that there's a time and place for that, t will come later, but not before, you know, you figure out and really dial in with your customers. What is it that's gonna really add, you know, exponential value? So, you know, common mistake, again, like in tangibly speaking, like we see as like hiring, you know, you first go to market hire and especially if it's a sales quota bearing sort of higher,  increases the pressure to put points on the board, put revenue on the board before you're ready. And the way that we also like to frame this as well is like a good litmus test is, does the organization have a bias towards action or bias towards alignment? Because if we've seen, again on the alignment side, it just means you have too many people. Like when you're trying to steer the ship and turn and pivot and zig and zag, you end up doing these very wide turns trying to get everyone on board, everyone you know, communicating up, down and across the organization. And so I think it's just important to sort of keep that in mind. Chief product officer is priority one, job one and everything else, you know, should fall second to that.

00:24:30 Andrew: Yeah, I 100% agree with this as well. Like I think at the earliest stage as well, you need to be able to embrace uncertainty and to be able to make really quick changes in order to be able to survive in the market. And I think like having a large team, like you said, like then it becomes a point where you really need to manage expectations. You need to like, okay, now if we totally change strategy tomorrow, like how's the team gonna be impacted by this? Like what are those mechanics gonna be like? And I think, like you say, if you're hiring a GTM and you’re having yourself, like, as founders proven model that a sales repeatable model that can work, then like, at first, you hear this over and over again. But I really believe it is odd, it's too early to hire someone if you can't do the work yourself.

00:25:09 Andrew: Cuz nobody's essentially, to be able to sell the product better than you'll be able to sell the product itself and nobody will have the freedom to offer the customers what they need in order to close deals. So like if you can't do it with the powers that you have to be able to close those deals, it's incredibly selfish of you to set that responsibility onto somebody else without proving it. But yeah, I've seen this as well like chatting to other founder friends and stuff  who raised quite a bit of money and they ended up having to grow in the team quite substantially and then they’re sort of feeling the pain as well as they're needing to try and iterate towards product market fits. And just like, I feel for them as well because you can see like they're sort of stuck between a hard place now.

00:25:47 Andrew: It's like okay, I really need to do the hard work and cut the team down so we can make these and become a lot more nimble. Cause at the early stage, like you say, you don't wanna be managing people if you haven't got product market fits, like that's the worst position. But then as you grow and scale the device is to try and offload whatever you can [onto team] and build and grow the team. But maybe it's like you say, starting too soon and getting too ahead of your boots before the time is right.

00:26:11 John: No, absolutely. And we get this question a lot too on the flip side, which is like, when do you know you're ready to start scaling? And specifically at that first go-to-market hire. And I think the short answer, if there was one way to put in one sentence, is like when you get overwhelmed by the number of second and third calls, cuz every call that you have it with a customer requires pre-work to prepare for it, the call itself. And then there's a bunch of follow ups afterwards. And typically if, you know, again, you're doing a good job of getting new customers on the books and having those conversations, it's like… and they want second and third and fourth calls. Yeah, that's a good sign that something's happening. And at the point where you cannot handle all of that yourself or with a co-founder, that's actually usually a good time to do it.

00:26:59 John: And we've seen different models of this obviously. I think the two most common  ones are, you know, the first is founder augmented sales or we have an SDR, BDR someone that's responsible for either just booking the meeting or making sure that, you know, the founder is prepared and is joining all the calls all the time. And someone that's sort of, again, turbocharging founder led sales. The second obviously is, you know, hiring your full stack AE, someone that has their Rolodex, has, you know, the right skillset that can help, you know, close deals end-to-end. But even if it's the latter, even if you're again hiring that fullstack AE, I think it's important to remember that you always show up and make the customer feel special and valued, especially, again, at the early stage, you should be able to know your first 20 to 30 customers and again, at scale, you know, they're still buying into your, you know, future success, you know, given, you know, fierce competition. And so yeah, showing up is important.

00:27:54 Andrew: Yeah, and the other challenge I think is all of, like you say, going too early. It's very difficult to set good goals and targets for these individuals as well if the goalpost is constantly moving and the product is constantly changing as well. So it's really important that you understand and, I think, like I said, it's a good tell when you're having too many calls to take  and repeat calls with customers who are having follow-ups. Nice one. And I wanna make sure I have time for two questions I ask every guest who joins the show. First question is, hypothetical scenario. Let's imagine you joined a startup tomorrow and channel retention is not doing great at this business and the CEO comes to you and says, hey John, we have a problem. You've got 90 days to turn it around, you're in charge, what do you do? The catch is you're not gonna tell me I'm gonna go and speak to customers or look at the data and figure out the pain points and then start there. You're just gonna take a tactic that you've seen work at another company and run with that playbook blindly hoping it works at this. What would you do?

00:28:49 John: This is a good question. I think in the context, candidly in the context of a lot of the companies that we're working with, it is much more… we're much more focused I guess on the first, you know, few legs of getting customer acquisition down and getting customers successful, sort of end-to-end. Yeah. One interesting example is, so there's this company that is fairly well known, that had started really as sort of an open source repository of data that is building a business on top of it. And they experienced a lot of sort of episodic users, folks that would come through looking for a job, looking to build a list and experience pretty high churn. There's a lot of the same patterns around churn users and then resurrected users three months later, whenever the next project comes up, their first take on how to do this was just change everyone to the annual plan, get everyone sort of locked into the full year.

00:29:55 John: They would obviously still get folks that are churning through and asking for refunds, you know, in between. But that helped sort of weed out again, a lot of the… smooth out a lot of the bumpiness and weed out a lot of the one-time use case users that would have to find a way to solve their problems sort of elsewhere. So that's one that we've seen. And actually, I mean obviously it helped the churn retention numbers almost immediately, but yeah, that's one tactic maybe.

00:30:26 Andrew: I think one of the challenges with this question is there's no really good answer to short term effects cuz like really these problems are normally deeply rooted in other product or the service or marketing and these things take time to change, but this is definitely one thing that has the ability to have an immediate effect. But I think also hearing from others like it has a long-term negative effect because the learning cycles are so much longer to understand what the problem and pain point is. And I've actually seen, like spoken to founders, have taken the opposite approach where they say, okay, like we have a yearly plan, like we're not learning from these users. Like let's make sure we are only having monthly because we're gonna feel that churn immediately and we're gonna be working harder to fix it. So I think, like it's a good fix, but there's no good fixes to this problem cuz churn is definitely like a more deep rooted problem that requires a lot of research and analysis and understanding to really make an impact, but switching to yearly plans similarly as well. Hotjar, we saw a really good increase in retention overall, but it had been a monthly business for so long that the yearly customers just added to the revenue. They were more going to be like your ideal customers to be in with anyway.

00:31:34 John: That’s a great point actually. Yeah, you're totally right that switching to annual does mask the underlying driver and mechanism of churn. But yeah, if you're asking me, [is it more than] and fix it immediately, that is the fastest fix, but you're right, is not a long-term strategy.

00:31:50 Andrew: Absolutely. What's one thing you know today about channel retention that you wish you knew when you got started with your career?

00:31:56 John: I think what's become clear to me, again, I focus so much on the early stage that I like to see net… again, this is caveat of at early stage, but net retention on the customer level is actually more important to me than gross, you know, churn sort of overall. And what I mean by that is in the early phases, you're gonna be serving a lot of customers that are not the right fit, they're too small, they're price sensitive, so you know, you end up, you know, firing them or they fire themselves. But the more important thing is on a trendline trajectory perspective, like are there an increasing number of customers that, you know, see the value of what you're doing and are spending more with you over time and that you can't see sort of leaving. And so that's the one thing we look at cuz like if you just look at churn on sort of the broad level, it sort of again, masks whether you're targeting the right types of customers and you know, focusing on the right profiles.

00:32:54 Andrew: Absolutely. I think there's a lot of ways you can chop up and look at churn as well. And definitely at the early stage, there is a lot of noise in the data that you see and really understanding and being able to segment that effectively and say, okay, this is what our ideal customer profile looks like. This is who we are building for, this is what churn and retention is looking like for this segment. Can really give you a good understanding of like the business that you want to build because obviously at the early stage, you don't necessarily have the luxury of years of data that you can dive into and then get to the stage where these things have actually normalized and you've got rid of the noise because the ideal customer profile's making much more of the case. But yeah, it definitely can be very misleading just looking at the surface level and looking at the top line metrics and saying, okay, this business is doing phenomenal or they're doing terribly. It really takes a little bit of digging to understand.

00:33:43 John: Oh, absolutely. Yeah, and that's, I mean I think when we do diligence on our companies, I think calling the customers is obviously, extremely important. Just understand, like  what is the underlying driver of value and yeah, and attention on the individual level.

00:33:58 Andrew: Awesome. Well John, it's been a pleasure chatting to today. Like to recap as well, I think as we've started off the show, just really understanding like PLG itself is not for every business and the certain mechanics that we might try to copy over from B2C or B2B, and  it's really about understanding like what are the underlying mechanics and mechanisms that work and how these can effectively be adapted within your context. Definitely shouldn't be treating your customers as consumers at the early stage. Treat them like goal, treating them like  partners that you design partners and they're there for your success just as much as you are there for theirs. And don't hire too many people at the early stage until you reach product market fit. You don't wanna be managing people, you wanna be building product and working your way towards there. Is there any other final thoughts you wanna leave us with today before you wrap up, like how can people keep up to speed with your work?

00:34:47 John: Absolutely, yeah. You know, any early stage, founders or folks that are thinking about leaving their company like, there's no founder that's too early and we wanna be a helping hand sort of in your journey. So please let us know John@fika.vc and yeah, thank you so much for having me.

00:35:05 Andrew: Awesome. It's been a pleasure. Thank you for joining and wish you best of  luck now navigating through these turbulent times. I think definitely in your world as well, things are very uncertain, so interested to see how things pan out in 2023.

00:35:18 John: Absolutely. No, thanks so much, Andrew. Really appreciate it.

00:35:21 Andrew: Yeah, John. And that's a wrap for the show today with me, Andrew, Michael. I really hope you enjoyed it and you're able to pull out something valuable for your business. To keep up to date with Churn.fm and be notified about new episodes, blog posts, and more, subscribe to our mailing list by visiting Churn.fm. Also, don't forget to subscribe to our show on iTunes, Google Play, or wherever you listen to your podcasts. If you have any feedback, good or bad, I would love to hear from you and you can provide your blunt direct feedback by sending it to Andrew at Churn.fm. Lastly, but most importantly, if you enjoyed this episode, please share it and leave a review as it really helps get the word out and grow the community. Thanks again for listening. See you again next week.


John Chen
John Chen

The show

My name is Andrew Michael and I started CHURN.FM, as I was tired of hearing stories about some magical silver bullet that solved churn for company X.

In this podcast, you will hear from founders and subscription economy pros working in product, marketing, customer success, support, and operations roles across different stages of company growth, who are taking a systematic approach to increase retention and engagement within their organizations.


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