🌱 5-Bit Fridays: Turning costs into profits, retention pipelines, building second products, and are you fucking around enough?
🌱 5-Bit Fridays: Turning costs into profits, retention pipelines, building second products, and are you fucking around enough?
#52
👋 Welcome to this week’s edition of 5-Bit Fridays. Your weekly roundup of 5 snackable—and actionable—insights from the best operators, 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:
Apparently we have not learnt our lesson, and Chinese scientists are busy testing a mutant COVID strain on mice. This one has 100% fatality rate in humanized mice. Why oh why… (learn more ↗ )
It looks like Reddit, after much anticipation, is eyeing an IPO in March. I wonder if the Dumb Money in subreddits like r/wallstreetbets can meme it and help send them to the moon on debut day. (learn more ↗ )
ChatGPT, with the hinted 2024 release date of GPT-5, will be getting video capabilities. Or better said in Sam Altman’s words, it will now be "fully multimodal with speech, image, code, and video support." He also touted on Bill Gates’ podcast how GPT-5 will have ability to deeply understand personal details—things like emails and calendars, as well as further connection to "outside data sources" so that ChatGPT gets the full scope of you. Remember last weeks prediction? (learn more ↗ )
Taiwan’s president-elect is facing growing challenges with its chip industry. We all know how important Taiwan is in the global semiconductor supply chain, but Lai Ching-te and manufactures are dealing with escalating domestic and geopolitical issues. As he comes to office, protecting it is key on his agenda. (learn more ↗)
Meta workers brace for more cuts to technical program manager roles. The fears arose after the role was eliminated at Instagram, but also just surrounding a) job cuts throughout the industry already in 2024, and b) following a brutal year of layoffs last year. But constant cuts could be the new normal for Big Tech…(learn more ↗)
Nvidia has filed a new patent for a system that can infer emotion from speech in audio. Pretty interesting stuff from the most important company in AI. (learn more ↗)
Alrighty, let’s get to it. 🫡
Today at a glance:
The Experimentation Layer (AKA: are you fucking around enough?)
Turning costs into profits
Do you have a retention pipeline?
How to have "the talk" with your customers
When and how to build second products
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(#1) The Experimentation Layer
As
says, “You need to fuck around to find out.”And to do so, you should make sure you’re spending enough time in an unchartered Experimentation Layer. Because it’s by being “free to experiment as creatively and irresponsibly as the society can bear” that we generate variance in ideas and approaches, where the occasional crazy thing finds it way to the mainstream and changes everything.
Key quote 💎
The beauty of the system lies in millions of people trying new things, most of which will fail outright, some of which will succeed spectacularly, and many of which will survive only in pieces, contributing a new mechanism, concept, or feature to the pile of Lego bricks that the next group of tinkerers can play with.
This is true for products, research, and ideas, even the ones you disagree with. Especially the ones you disagree with.
The point isn’t to play it safe and get it right the first time; if any one person or group of people had The Answers, we might as well give real communism a try.
The point is to experiment with wild, clever, creative, novel things, get feedback from the market, and iterate until, maybe, something emerges that improves society in a fundamental way.
— via
Insight 💡
You’ll hardly every do the perfect thing on the first attempt. Even Steve Jobs launched the ROKR E1 phone in partnership with Motorola before the iPhone.
Sometimes total busts precede and chart the way for total home runs.
An example, as Packy points out, could well be the new r1 AI pocket device dropped by Rabbit last week. It’s the first device of its kind, and it’s by fucking around (like Jobs did) that we may find the next big device.
Same story with Humane’s recent ai pin phone…
Both Rabbit and Humane are betting on the future of devices and new operating systems.
Three things can happen:
their devices are a home run and go mainstream (least likely scenario)
their experiments pave the way for them to build something else more successful (more likely)
thanks to Rabbit and Humane’s fuck around, they help chart the way for some other innovation by another company in the future (most likely)
Either way, there’ a win in there.
That’s why we should all push the amount of time we spend playing freely in the Experimentation Layer. And sure, A/B tests can be part of that, but the idea is to be much bolder in what you consider a test here.
Sure, you might think that by experimenting too boldly you may let bad ideas slip through. There’s risk, of course. But the more interesting question is this what happens if we’re too risk-averse and we smother the good—or game changing—ideas out before they have a chance to sift down?
Take action 🛠️
Basically, the idea I’d like to leave you with is this: How can you try systematically institutionalize this Experimentation Layer and make space to “fuck around more”?
Could you do more to create a culture on your team that not only tolerates, but actively encourages bold, even audacious, experimentation?
Some loose ideas:
Google and Meta can afford full-fledged "Innovation Labs" with dedicated teams that operate with a mandate to push the boundaries of what's possible. That’s a big thing to pull off and invest in, but you can take inspiration here by either 1) carving out time for yourself to think that way, or 2) spin up a little pod with some folks at the company to periodically meet with the freedom to idea-jam around the unconventional and even the outlandish.
Related, try and bring 20% time or some variation of it to your team, where 1 day a week, you get to work on whatever you want. Combined with a little “crazy” pod, and you might have a little skunkworks team going on Fridays.
Create a 'Fail Fast, Learn Faster' culture. Celebrate not just the wins but also the instructive failures. You should really encourage teams to share their 'failed' experiments openly, as this shows taking risks and failure is part of the growth process.
Create a “Portfolio Mindset” culture. Rather than viewing each project or idea as a make-or-break situation, encourage a portfolio approach. Just like investing in the market, not everything will pay off. But it’s the diversification of ideas and experiments that will increase the chances of hitting upon something big.
Ready to fuck around?
(#2) Turning costs into profits
In the early 2000’s, Amazon was a rapidly scaling, low-margin, retail business.
As a result, they had invested heavily in building out their own architecture to support their operation, which resulted in them having an extremely reliable and cost-effective datacenter.
In on of the greatest strategic moves in modern history, Amazon found a way to flip this power-house (their biggest expense) into a revenue generating platform.
This insight led to cloud infrastructure, and what now generates ~70% of Amazon’s profit.
Key quote 💎
I remember Jeff presenting at an all-hands, he framed the idea in the context of the electric grid. In 1900, a business had to build its own generator to open a shop. Why should a business in 2000 have to build its own datacenter?
— Dan Rose via Twitter
Insight 💡
Every company on the planet wants to make more profit and minimize expenses.
Amazon pioneered the strategy of “platformisation” which showed one of the best tactics to do both simultaneously, so as you’d expect, many sharp operators have copied the playbook.
PayPal: They spent considerable money to prevent fraud on their platform by having their own sophisticated systems. So, they pulled an inside-out and started selling fraud detection. This now brings them $50-$100 million per year.
Walmart: While logistics and warehousing were once big expenses, Walmart went on to platformise 3rd party fulfillment services for vendors.
Washington Post: Having built out their own content tech stack and spending money to maintain it, they realized they’d built real value for media companies. So, they packaged and sold it as a CMS system which now brings the, $100M+ in revenue.
Take action 🛠️
Not everyone has something they’ve built internally that they could flip to a product, but this bits inspiration should leave you with a quick thought experiment:
Carve out some time to audit your unique internal strengths. Comb through expenses and your operations, and ask yourself, “Is there anything we’ve developed significant expertise or efficiencies in, even if it's in a domain traditionally seen as a cost center?” Don’t limit your thinking.
Ask: Can we sell it? Once you've identified your strengths, consider how these can be packaged into a service or product for external customers.
Who know’s what you’ll find. Remember…you have to fuck around to find out.
(#3) Do you have a retention pipeline?
Well, do you?
Key quote 💎
Most businesses know their customer acquisition costs.
But hardly anyone is willing to invest the same kind of money into customer retention. Crazy since keeping an existing client is just as good as acquiring a new one (and often easier).
— Jakob Greenfeld via
Insight 💡
Every company worth their salt has a sales/customer acquisition pipeline, but far fewer have a thoughtful pipeline for managing retention.
Keeping your customers is far more important than brining in new ones in my view, even if your net acquisition is positive.
For example, you can send customers gifts when relevant. Here’s how Stripe does it:
Substack, for example, could send writers who cross a certain number of subscribers something like a high-quality sweatshirt. Small details like that matter and compound over time.
says:Just like you can identify sales triggers (data points that indicate a specific company is ready to buy), you can identify retention (anti)-triggers. What data indicates that a customer is about to churn? Once you identified a trigger, you can develop a process to minimize the odds this happens
Take action 🛠️
If you’re in the business of having customers—which if you’re not, you’re not in business—you should have a holistic journey of users and customers mapped out.
It should detail the journey beyond the purchase point and cover all the triggers and behaviors than signal things like 1) upgrade patters, and 2) churn patterns.
Use logic. Use hard data. Use customer feedback.
With your map, use it to find the touch points where engagement can be maximized. Getting ahead of things that precede churn is the name of the game when it comes to retention pipeline management.
And when it comes to engagement and getting ahead, consider things like:
Leveraging customer success to check in with customers and offer personalized support based on the issues you think they may be facing
Recognizing loyalty with things like exclusive offers and preferred pricing for longstanding customers
Use customer data to personalize your communications and offers. This can be as simple as calling out a customer’s anniversary with your product
Have a PM or founder speak to the customer to get product feedback
Consider this: If you were about to churn from a product, what might change your mind?
For more of Jakob’s thoughts, subscribe to his newsletter here.
(#4) How to have "the talk" with your customers
In a great (as always) post by SaaS legend
, Kyle unpacks how to increase average contract value (ACV) by sharpening how you price your products based on real-life customer conversations.In short: Go and ask your customers (indirectly, of course) about their willingness-to-pay. This helps you find hidden opportunities for you to optimize pricing and increase ACV through things like product expansions, add-ons, new business models, and run-of-the-mill price hikes.
Key quote 💎
Insight 💡
Increasing ACV is a great way to grow your revenue. It’s also, as Kyle has found in his research, the natural evolution of SaaS. But it brings with it the risk of churn and backlash (if say you just chose to increase your price).
So, to minimize that risk—outside of having your retention pipeline, of course 😉—you need “Clear insight into how much value people see in your product relative to alternatives, how much they are willing to pay and what you could build that people would actually pay more to access.”
Take action 🛠️
Go and make time to speak to customers about the stuff you’re probably not: their willingness to pay.
Kyle’s question list is excellent, and you should really be asking them to people that have influence over the spend. Remember, users and buyers are not always the same.
And lastly, in your roadmap, make sure you’re also thinking about building things customer want to buy, vs what they’re just asking for.
Read the full post from
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(#5) When and how to build second products
Speaking of increasing your customer account value and growing revenue,
wrote an excellent piece on product expansion.Key quote 💎
Why do we even care about second products? Don’t some of the best companies in the world win with one dominant product? Well, increasingly that’s not the case. Companies can rarely ride one product into the IPO sunset anymore. Yes, the headlines are filled with many of these examples, such as Google in the 2000s or Zoom in the 2010s, but these examples reflect an environment that is becoming increasingly rare. The tech IPO narrative used to reflect stories that would include much of the below:
Large markets
Low or stagnant competition
Rapidly growing markets
Strong network effects or economies of scale
Scarce talent pools
A lot of those bullets can be explained by just the growth of the internet, and there being no entrenched internet-first competition. The maturity of the internet means most of these are no longer the case. Almost every recent tech IPO is multi-product at time of IPO, and the dynamics of their markets appear much different:
International competition
Multiple startups in the same space
Incumbents are tech native, no longer asleep, and copy what works from startups quickly
There is talent across a wide range of companies and skills
Network effects are no longer impenetrable
— Casey Winters, via
Insight 💡
Expanding a product can come in many flavors with varying difficulties to pull off. For instance
Geographic and category expansion: Companies build a deep understanding of how they achieved product-market fit in the first market, and then make a few tweaks while still leveraging their core competency and product to adapt their PMF to these related audiences.
e.g Marketplaces and social networks
Expanding your format: Basically you take the same product in the same market, but you deliver it on a different platform. Think web to mobile. This can be difficult and expensive.
e.g Apple is doing this with the Vision Pro now
Strategic diversification: This involves leveraging your existing tech or operational competencies, and finding a way to turn them into a product and enter a new market
e.g Amazon with their AWS cost → profit center
Creating new value: Here you generally remain in your current market, and for the same customers, you solve new problems packaged as new products. Very much related to what we just spoke about with Kyle and ACV, this is about creating a new value proposition for your existing audience so that you can acquire, retain, and/or monetize them better. This is the classic “second product” Casey mentions.
e.g Stripe and their product expansion from payments to fraud, identity, lending, etc.
When it comes to creating new value and launching that “second product”, here’s some standout points from the essay:
The need to build second products usually arises because the sequencing from an original product’s S-Curve to a next S-Curve is the key to long term sustainable growth. That sequence can come from finding a new growth loop, but eventually that next S-Curve will require new product value to be created.
via Sequoia Capital in Evolution of a Product And B2B products need to build second products sooner than B2C because of shorter S-Curves. Simply, because B2B companies usually have smaller network effects and higher level of competition who are all racing to build platforms with bundled products.
Second products don’t need to find PMF the same way that the first product does. They key to their success is whether the second product is able to influence either acquisition, retention, or monetization for the overcall platform/company.
As Casey wrote: “If a second product has high retention and can effectively acquire new users, but can never inflect the growth of the overall business, it’s not successful.”
Take action 🛠️
Honestly, I’d say the same next step as from the last bit. Go and speak to customers with your “willingness to pay” hat on.
Lean into your existing strengths and advantages
Find those complementary markets
Find complementary problems you could bundle together
And dare I say it…be comfortable fucking around to find out :)
And with our main 5 bits for the week done...
Laugh of the week 👀
🌱 And now, byte on one of these 🧠
Here are some of my favorite reads from this week:
Ten Charts I Can’t Stop Thinking About by
The reckoning of the cringe lunatic economy, by
Markets/Finance:
The Lazy Tyranny of the Wait Calculation by
And that’s everything for this week, folks.
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Thanks so much for reading. I hope you have an awesome weekend.
Until next time.
— Jaryd✌️