🌱 5-Bit Fridays: The price ratio trick, bullshit management vs product management, strategic leadership, 10 actionable lessons on career/life/growth, and some visuals to change your thinking

#45

Oct 06, 2023

👋 Welcome to this week’s edition of 5-Bit Fridays. Your weekly roundup of 5 snackable—and actionable—insights from the best-in-tech, bringing you concrete advice on how to build and grow a product.

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Happy Friday, friends 🍻

In case you missed it this week:

I published the first post from my new series, From The Garden. Don’t miss it: Make your product hard to buy: The case for friction, exclusivity, and going left in a world of right turns

Was FTX an empire ‘built on lies’ or a startup that ‘grew too quickly’? This week, we got a glimpse at the opening statements at Sam Bankman-Fried’s criminal trial. I don’t believe he showed up in cargo shorts.
Meta has been using our public Insta and Facebook posts to train their AI. As mentioned last week, they just launched a bunch of virtual assistants (including Snoop Dogg, Tom Brady, and Kendal Jenner). Zuck said private messages and posts weren’t touched. Hmm. Ok. 🤥
The US’s national debt is exploding higher. While we put a band-aide on recently, the problem is very quickly getting worse. We saw an increase of $275B added to the debt in a single day, and the US is on track to add $1 trillion to the national debt in a single month. I’m no economist, but that seems…bad?
Speaking of money and charts. In Q3 primary rounds in venture trended upwards (more AI companies maybe?), but overall, the later the round, the larger the valuation knock startups were seeing. You can read Carta’s state of private market report (Q3 2023) here. But this chart tells a pretty clear story: this was a quarter of consolidation in VC.

Cool cool. Let’s get to this weeks post.

Here’s what we’ve got this week:

The monthly to annual plan pricing trick
How to become a strategic leader
Are you doing product management or bullshit management?
10 powerful lessons on career, growth, and life (this is pure gold)
Five visuals to change your thinking

Shall we?

Coronation updates today: King Charles's portrait unveiled as Prince Louis pictured at first royal engagement | The Independent

(#1) The monthly to annual plan pricing trick

According to Dan Layfield (the subscription sensei), all subscription companies eventually figure out the “monthly to annual plan pricing trick.”

Last week, when I launched a paid plan for this newsletter, I guess I technically became a subscription product. And I had no idea what the trick was until Dan shot me a message on LinkedIn.

His answer was really insightful, and given he just wrote a post to go even deeper into the topic of pricing ratios, I thought this would be the perfect way to kick this week off.

Okay, what’s the trick? 🪄 🐰

The trick is to price your 12-month plan to be slightly more than your average LTV for monthly users.
So, if your average user stays around for 4 months, just price your annual plan at 5 months.
You get to boost LTV for these users by 25%, which is a huge win for not a lot of effort.
We did this at Codecademy, and it was hands down one of the most effective tactics we have ever tried.
It shifted a material amount of users to long-term plans, which increases LTV, drops churn, etc.
The big implication of this is that you can look at any mature subscription business and basically guess their user retention by looking at the ratio between their 12 month and 1 month prices.
Netflix: Only offers monthly plans, meaning their average user stays around for over 12 months.
Headspace: $12.99 for a month vs $69.99 for a year. Ratio of 5.39, so their monthly users likely stay around for ~4 months.
Calm: $14.99 for a month vs $69.99 for a year, ratio of 4.67, so their monthly users probably stay around for ~3-4 months
If you want to see what company in each category is probably the best at retention, look at pricing ratios
— Dan Layfield

Now as Dan points out, this needs to be looked at through the lens of products that are short-lifecycle (generally outcome-based products like Codecademy or Hinge) and long-lifecycle (generally products that address ongoing needs, like Netflix or Spotify).

Obviously, short-lifecycle, by definition, and the nature of the problems they solve, means lower retention rates. Once you solve the problem, you don’t have a need for it anymore. For these types of companies, moving people to an annual plan is way more favorable and a clear win. If a user sticks around for less than a year, obviously selling them on an annual that’s priced 1 or 2 months more than what you’d make on a monthly is good business.

For short-lifecycle products in the subscription game, the goal is to increase their plan mix (the ratio of short to long-term plans), because as Dan says, for them it will:

Raise LTV, effectively increasing the value of your business by the same %
Allow them to collect more cash upfront. And cash flow is king, as it allows them to invest in growth, etc
Afford higher acquisition costs. If your LTV shoots up, you’re able to have a higher CAC, which in turn might open new channels or just let you bid more in the current ones you use.
Decrease their churn. Moving people to annual means they’re sticking around for longer. This makes your business stable and looks great to investors.
Motivate users commit to the product. Users who pay more upfront are more likely to use the product since they’re paying for it. Where they may have switched to an alternative, they’ll spend more time forming a habit around your product. A great way to drive renewals.
Make payment processing easier. It’s just easier to charge a card once a year vs. 12 times. There’s less risk of a failed payment and fewer opportunities for someone to consider canceling.

But, what should a long-lifecycle product do? 🤔

If your average user stays around for more than 12 months, then this isn’t really a tactic for you for obvious reasons: monthly plans cost more than annual ones.

Most big subscription companies and B2B products that solve ongoing problems generally offer small discounts on an annual plan.

However, they’re still in the business of increasing LTV. They just have different options to lift it. As Dan said, the big ones are:

Bundling products. Think of insurance companies like Lemonade, allowing you to bundle things together.
Selling packages. The best example is Spotify and Netflix selling family plans.
Service tiers. This is basically usage-based pricing, where products like Mailchimp charge you more if you use their product more.

Of course, there’s the other big lever…just increase prices. 🙂

For more top-notch writing on building and growing a subscription product, definitely stay tuned to Dan’s work over at his newsletter, Subscription Index.

Anyways, speaking of subscriptions…

If you find value in my writing, consider becoming a founding member and supporting this newsletter. It’s the price of a NYC coffee a month ($7), and would mean a ton to me. Why subscribe?

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(#2) How to become a strategic leader

I just keep becoming a bigger and bigger fan of product leader, Julie Zhuo, and each week I try to catch up on at least one of her pieces of writing.

This week, I sharpened the way I think about strategy thanks to this older post of hers published in MIT Sloan Management Review (paid).

Tl;Dr: By investing more time in three key activities, all levels of managers and PMs can become better strategic leaders.

Julie has quite the resume, and over the course of her career has evolved her thinking about strategy. First, here are the 6 things she thought being strategic meant, and why it’s not strategy.

Setting metric goals 📊
- Nope: Strategy is not goal setting. Yup, it’s part of it, but alone goals do not answer the important questions of how and why.
“Thinking outside the box” to come up with new ideas 💡
- Nope: Being creative is also part of it, but if you don’t know the problem you’re trying to solve, it doesn’t help to brainstorm a bunch of solutions.
Working harder and motivating others to work harder 😓
- Nope: Don’t confuse productivity for progress. Execution needs to be in the right direction, otherwise, it’s just cycle spinning for the sake of motion. Busyness ≠ strategy.
Writing long docs 📄
- Nope: Oh boy, could I not agree more. Yes, writing memos could be strategic, but it all depends on what the content is. Beware wary of long and sprawling epics. Good strategies are usually simple, memorable, and concise.
Creating frameworks and filling out templates 📝
- Nope: Having good frameworks is like having a clear map. You still need to chart a path. Also, templates are risky business. We’ve spoken about why, but in short, they don’t know your business context.
Drawing graphs on a whiteboard 🎨
- Nope: It may look cool and impressive, but it could well be classic bad strategy: a lot of jargon and fluff, and a lack of real substance.

So, what is strategy? 🤌

Simply (like good strategy)…strategy is a set of actions that are credible, coherent, and focused on overcoming the biggest hurdles in achieving a particular objective.

Let’s break that down:

a set of actions: there should be a concrete plan…
that are credible and coherent: the plan should make sense and believably accomplish the objective. There should not be conflicting pieces of the plan…
and focused on overcoming the biggest hurdle(s): there should be a clear diagnosis of the biggest problem(s) to be solved, and the plan should focus resources towards overcoming those hurdles…
in achieving a particular objective: it should be clear what success looks like.

Now that we know a little more about what good strategy looks like, how do you become more strategic? Julie lays out three simple and actionable steps.

1. Create alignment around what wild success looks like.

First, is there misalignment? To check:

As a litmus test, ask yourself this: Imagine your team is wildly successful in 3 years. What does that look like? Write down your answer. Now, turn to your neighbor and ask him or her the same question. When you compare your answers, how similar or different are they?
They shouldn’t be different. You both work on the same team.

This starts with agreement around where you are today. Only then can you talk about the future state you want to achieve.

The more senior you are as a PM, the more that context and driving alignment around strategy become your main point of leverage in the organization. This is what empowers independent thinking and folks to work autonomously.

2. Understand which problem you’re looking to solve for which group of people.

Whatever you’re working on, you’re going to have no shortage of problems in your purview.

But, a hallmark of having your strategy hat on straight is being able to rank the relative importance of each of those problems.

And how do you do that better?

Understanding the ecosystem around the problem. Problems don’t exist in a vacuum. There are likely many other people out there who are also obsessed with solving any given problem. How are they approaching it? What’s being done well and done poorly? Which groups of people are getting ignored? Where are the opportunities for a better approach? It’s silly to start inventing with a blank slate. Understanding a problem well means also understanding your competition, and understanding the systems around which this problem exists.
Understanding which problems suit your unique strengths and weaknesses. You can’t solve every problem equally well, so what problems can you solve better than anyone else? What are you or your team really good at, and what are your weaknesses?

3. Prioritize. And cut.

A good strategy is all about being laser-focused on overcoming obstacles in the path from A to B.

Focus is your strategic advantage that lets you move faster on what matters most.

The more your plans become long-winded and get diluted by trying to do too much, the less likely you are to have a competitive advantage. You have to have an opinion around what’s more important, because something always is.

And, as Julie says:

If you can’t figure [out what’s more important], go back and do more research to better understand the problem. The question to ask isn’t: “What more can we do to win?” or “How can we make sure none of the things we’re juggling are failing?” Instead, ask “What are the 1, 2, or 3 most important things we must do, and how can we ensure those go spectacularly?”

For more of Julie Zhuo’s work, the best place to stay connected with her is over at The Looking Glass .

(#3) Are you doing product management or bullshit management?

Let’s open with this: Without decision power, product managers can’t thrive and do their job.

Companies often tout flat org structures, velocity, and greenfield autonomy for PMs. However, it’s not uncommon to go through onboarding and be met with process after process, and extensive decision-making cycles routed in getting consensus from everybody…including Greg in finance.

There’s usually some correlation there based on company size and maturity. The smaller the org, the more those things are true.

But there’s also another correlation here: the more a PM (or anyone on a team for that matter) is empowered to make decisions, the more real product work they are able to do, and the less likely they are to be doing what David Pereira so beautifully calls “bullshit management”.

BS management = spending time doing things unrelated to product management.

If you’re doing anything, as David says, that is around “Leading teams to create value for end-users and businesses by identifying significant problems to solve and uncovering unexplored potential.” —then you’re doing actual product work.

But, if you’re doing something unrelated, you are potentially doing bullshit management.

Of course, that’s just part of the job of a PM, but I get David’s point. At some companies, BS management consumes more time than capital P product management.

Here are David’s examples of some anti-patterns that could mean you’re doing BS management: 🚩

Gathering requirements from stakeholders to solve their wants instead of establishing relationships with them to deliver on end-users needs.
Keeping an extensive product backlog to tell stakeholders their requests are registered instead of removing items unrelated to your current goals.
Preparing frequent performance reports for management instead of evaluating the impact of your deliverables.
Striving for consensus to please all stakeholders instead of seeking the best option for the product.
Signing off all items delivered by the team to ensure it matches your quality control instead of empowering them to reach goals.
Attending several meetings to avoid pissing off critical stakeholders.
Fear of saying no to pointless requests because your boss may get an email.
Bridging communication between business stakeholders and developers instead of being a catalyst and fostering collaboration
Prioritizing features based on opinions instead of learning from end-users.
Focusing on delivering features over maximizing the value.
Spending time explaining why an initiative failed instead of sharing what you learned from your failure.

Whenever you see one of these signs / red flags, it’s important to take a stand and help move from a dysfunctional product management function to a solid one. That’s part of the job.

Here’s how…

Breaking the anti-pattern 🏁

Moving from opinion to evidence. If you have stakeholders Slacking ideas or requesting something just get done because it’s “quick”, or worse, just dropping some link with minimal to no context and saying “We should do this”, then the first way to break this anti-pattern is to ask some questions. E.g:
- Could you help me understand how this feature relates to our goal?
- Which evidence would you have that this feature solves our users’ problems?
- What’s the problem you want to solve with this feature?
- If we do this, how would we measure success?
- If we don’t do this, what would happen?
Avoid bridging communication. Product Management goes well beyond just being a bridge between business and engineering. A better way is to provide the right context to teams (as we just spoke about in the bit above), empower them to make decisions, and encourage them to talk to business stakeholders whenever needed.
Prioritize learning over planning. Some stakeholders will push for overly prescriptive plans and commitment to deadlines. This is a waste of time. Plans rarely ever go as you think, and as soon as you get real user/market feedback, things change. Instead of creating a long plan for the shelves, focus on making lists of assumptions and hypotheses behind your ideas. Then you can build a roadmap around getting those tested and validated/invalidated. As David precisely writes…Solid product management has little to do with plans.

Obviously, it can be tough to fight anti-patterns. Stakeholders are often your boss, and thus your path to a promotion. It can be hard to push back against the money, vs just agreeing and making things easier. Saying yes is always easier. But, if you’re in a situation where pushback toward making users’ lives easier (AKA, that capital P product management) isn’t valued and heard, that’s a problematic situation to be in. One that can longer term hurt your product habits and PM progression.

So just be mindful of that. Obviously tread the rope professionally and respectfully, but at every opportunity, a good PM is thinking about elevating a team's product process and culture.

⚠️ Keep reading…(this next part is gold)

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(#4) 10 powerful lessons on career, growth, and life

Yesterday morning I listened to Lenny Rachitsky’s latest podcast episode. His guest was Brian Balfour who’s the founder and CEO of Reforge. Before that, Brian was the VP of Growth at HubSpot and co-founded three other startups. Over almost 2 hours, he shares 10 of the biggest lessons from his career, growth, and life:

It was one of my favorite episodes, packed with an insane amount of wisdom.

Now I know a good chunk of you folks reading this are also Lenny fans, so if you’ve already listened, feel free to skip to the next bit. 🫡

Otherwise, here’s the low down for you. 2 hours in 2ish minutes.

Lesson 1: Inspect the work, not the person.

It's really hard to truly (without biases) judge someone from a conversation. Whether that's a hiring conversation, a performance conversation, or something else.

So, how do you see what their output and outcomes are, the things they've either historically created or currently contribute to? Because that's, in the work world, ultimately the thing that shows you what a person is capable of.

Lesson 2: Tell me what it takes to win; then tell me the cost.

As a leader, you want people pitching you ideas around what the true ideal state is. And that winning plan should come with an honest assessment of what it will take to pull off. That’s from a time, money, and opportunity cost perspective.

I don't want my team spending time on watered down things that aren't going to ultimately help us win. That's just a waste of time and a waste of resources. I would rather be having the conversation on, "Well, here's what I think it's going to take to win at this particular item. Now we can be having the conversation of, 'Well, how do we actually go do that?'" That's the conversation I want to be having.

Simply, it’s about working backwards from the perfect world instead of working forwards and incrementally getting to something. Maybe you’ll never get there, but at minimum, it’s a nice forcing function.

We spoke about a similar idea a few weeks ago: Building a breakthrough…the secret of Backcasting

Lesson 3: Problems never end (and that’s okay).

It’s a trap to think, "If I just solve this one thing that's X problem, everything's going to get easier.”

The more problems you solve, the more and bigger problems you take on over time.

That’s just how she goes.

Hoping it gets easier is the thing that just sets you up for this frustration, this anxiety, this stress. And I think switching to that mentality of getting rid of that hope and more of like, "If I solve this thing, I get to take on an even harder thing" I think is the thing that actually reduces the stress.

Lesson 4: The year is made in the first six months.

To make your year, it's really about the first six months and the things you accomplish in those first six months. For a lot of products (especially B2B SaaS), the buying cycle or the decision window for a lot of customers is long.

So, any new insights from the first half of the year that you action in H2—or really any big features shipped then—have a lag time. A lag time to impact the customer, and then for the customer to make a buy decision.

Lesson 5: Growth is a system between acquisition, retention, and monetization. Change one and you affect them all.

Don’t underestimate how deep this lesson goes, as Brian makes clear.

It's not just about understanding your growth model. But, it’s equally about realizing that your growth model operates as a system. When you have a problem in one area, sometimes the solution is in a different part of the system.

Say you have a retention problem. That could well be because you have an acquisition problem, like acquiring the wrong people. Same thing with monetization issues. If you step back and look at the system, it could well be coming from engagement problems.

The big takeaway is if you see a problem somewhere in your growth model, don’t go straight to trying to work on levers within that specific part of the system. Pause, step back, and examine things holistically.

This system type of thinking is probably the number one thing that I think separates great folks who work on growth from your average good folks.

Lesson 6: Do the opposite.

When Reforge went to market, the norm in the education space was short form, self-serve, low-priced, available for everybody courses.

But Reforge did the total opposite. They didn't let everybody in. Their GTM was for a small group of people, and it wasn't purely online. It was priced very high, and it wasn't purely self-serve. You even needed a professional recommendation from someone if I recall.

If you missed this week's post, Make your product hard to buy, we spoke about how to think about a similar strategy for your own product.

If you want to gain traction around something, you often should be looking at what everybody is doing. And the purpose of looking at what everybody is doing is not to necessarily understand those best practices so that you can repeat them. Rather, your goal is to understand them so you can ask the question, “What is the opposite?”

With most major trends, there's almost always an opportunity on the other side.

That’s category creation 101, baby. Swim left when they swim right.

Lesson 7: Use cases, not personas.

I actually think most of the meat that is actionable, that helps you define, not only what to build from a product perspective, but how your growth motion and growth model should work, is actually defined in the use case that you're going after, and the different uses of your product

We spoke a lot about personas in How Miro Grows.

Use cases focus not so much on the who, but on when/how/why. They start with the problem you’re solving, your value prop against that problem, the alternative, and then why are someone would choose you over the alternative.

The benefit of thinking in terms of use cases (or similarly, jobs-to-be-done) is that those components help you on the growth side of the equation.

Simply, once you understand the situation and problem, you can figure out how frequently people experience it. That then starts to define your retention metrics, which then starts to define your activation metrics, etc.

It’s just an interesting angle to think about TAM from. Instead of looking at how many people there are in a persona, you look at the size and frequency of a pain point / use case.

Ideally, you figure out both though. ✌️

Lesson 8: Solving for everyone is solving for no one.

We all know that knowing who you’re targeting is important.

But, a lot of product and growth mistakes come from is the flip side—not being specific about who you aren't solving for.

Why? Because if you haven't clearly defined who you product isn’t for, then you can almost always make a case for how some person fits into a use case.

I love how Brian explains that this line of thinking goes beyond customers:

This actually extends into a bunch of other places, hiring culture being one of the biggest ones. I've seen so many super generic culture statements, and they end up being generic because they are trying to accommodate for everybody. And so they just get watered down, and watered down, and watered down. But, culture is really about being super opinionated, and actually acknowledging this is not a place for everybody.

Lesson 9: Find sparring partners, not mentors or coaches.

A coach gives you direction, and yells at you on the sidelines.
A sparring partner is somebody who's in the ring with you—throwing blows back and forth. And the thing about that sparring partner is they probably share a common set of goals, and they're probably trying to get better at the thing that you're getting better at. They are on a similar level, but maybe have some slightly different strengths to you. They're not afraid to push and throw punches to help you get better, which I think is often missing sometimes from a mentor or coach relationship.

AKA, find someone who’s in the arena with you and at a somewhat similar level. Challenge each others thinking, and become better ~~boxers~~ PMs together.

Lesson 10: 2x+ the activation energy for things that need to change.

If something needs to change, like shifting away from paid acquisition because or rising CACs to say, SEO, then a new bet needs to be taken.

But, a common mistake is that when people lean into new things, they lean in slowly. They dip their toes and take it super incrementally along the way.

Herein lies the problem with that.

If you have an existing business or an existing growth channel and you're trying to layer on something new or make a change—that existing thing has some baseline growth rate.

So, for whatever new thing you’re doing to actually have a meaningful impact, it has to be growing at at least the same multiple to actually start to show up in the numbers.

To make that happen, you need to inject it with a lot of activation energy.

I think a lot of folks think these new bets are going to come and save them in a much shorter time period than it actually takes them to play out because of this dynamic of having this inertia of an existing machine.

Well guess what?

If you want the new thing to take an effect, its slope on its line has to be a much steeper slope than whatever your baseline thing is. And I think that's just something that people tend to overlook.

…

Such great lessons. 🧑‍🎓

You can listen to the full show on Apple, Spotify, and YouTube.

(#5) Five visuals to change your thinking

Finally, let’s cap off the week with some beautiful illustrations by PJ Milani.

To add just two words here…quality >> quantity.

And I guess these words too: 👀 Apollo wrote a great (short) post with 6 tips on how companies can think about this. Read it.

I’ve found one of the biggest sources of anxiety to be overthinking. And, overthinking really boils down to believing you have far more control than you actually do.

Things are much easier when you realize reality is much simpler…you can control very little.

Here here. When I started this newsletter it took me a lot longer to actually sit and get thoughts out of my head. But with over a year of just sitting at my desk (almost) daily and learning in public, it’s become way easier.

Writing is truly something we can all do, and should consider doing. I wrote about that here.

The key, if you want to do it, is just to show up and slowly build a habit.

As you can tell by my logo and branding, I’m a plant lover. And plants have a lot to teach us—one of which being getting rid of things is key to growth.

You can take this lesson in pretty much any direction. But with product, subtracting is an important function of focus. It means dropping things from the backlog. Saying no to ideas. And as we saw in our Headspace deep dive, being willing to unship features.

If you’re a visual thinker, you can get more of PJ’s work in your inbox each week by subscribing here.

🌱 And now, byte on this 🧠

CansaFis Foote is one of the funniest writers on Substack.

He’s also a top-notch commentator, and those two things together are magical.

If you’re a Lord of The Rings Fan, you’ll love this.

If you’re not…you will also love it.

Gollum is emblematic of the modern man in several resonant ways. An unending devotion to attaining power, existence filtered tightly through devoted self purpose, philosophy lensed through the 3rd person, and a balding combover masking thoughts of world domination.

Read: …my precious…

And that’s everything for this week, folks.

If you learned anything new, the best way to support this newsletter is to give this post a like or share. Or, if you really want to go the extra mile, I’d be incredibly grateful if you considered upgrading. The first 500 folks who become founding subscribers get 30% off this newsletter ($7/m, or $70/year), as well as any other products I sell, for life.