Conversation about SaaS Churn & Climate Change with Gustaf Alströmer
On this episode of Moments of Growth, Zalster CEO Albin Stööp chats with Y Combinator Partner (and previous Product Manager of Growth at Airbnb) Gustaf Alströmer about:
- How to optimize churn in a subscription SaaS
- How to build an optimal growth team
- How climate change will affect and become a part of tech companies
Nuggets from the chat
- Build something. Launch something. Talk to the users and measure their behaviour to learn what to iterate to grow.
- The first person in a growth team should be an engineer. Secondly a data scientist.
- Climate change is about math, just like marketing.
Gustaf's recommendation on reads:
Gustaf: I currently work as a partner at Y Combinator which is a kind of startup program here in San Francisco. Before that I worked on the growth team at Airbnb so I spent about five years on that team where I I worked on things like referrals, SEO, online marketing and general growth optimization so onboarding sign ups things like that.
Albin: How do you work with churn? How do you evaluate churn when you look at companies?
Gustaf: I mean there's different things you can measure churn but like whether you're talking about revenue churn or just usage in general I think both of them are in some way a representation of the value that their customers get on a product. So if you build something and people are not coming back and use your product and repeatedly then over time then it's a representation that you haven't built something that they value. That's something that's pretty poor which is why it's so important to always focus on that. This concept is relatively new. I mean like that last like five or 10 years before that it wasn't something that people were actively measuring I think. So the world will have changed and it's something that probably an investor will be one of the first questions that will ask you about.
Albin: Yeah yeah. And how do you relate churn to like current metrics of lifetime values and the customer acquisition costs?
Gustaf: The first thing you want to do is like if you think of like lifecycle of a startup the first thing we do is is build something and then launch something. The second thing you want to do is talk to those users because you won't have that many in the beginning. Once you have enough users that you can't individually talk to all of them you should start measuring sort of how they're using your products and measuring churn and this is before you even think about calculating the ratio because you're not really acquiring it anyone sustainably through paid channels at that point. So that point you're still actively measuring through their usage as if you if you haven't used payments how often they're paying and how often they are using a product. Now when you start to paid marketing like the world have changed over the last couple of years towards paid channels away from free channels. If you look only like five or seven years ago it was a lot more free channels available versus now Google ads and Facebook Instagram ads are sort of the standard that people grow their products which means understanding the lifetime value of a company is critical. There are many drivers of that value. It's not just sort of like how much am I charging is a combination of what is my conversion rate but even more importantly if you model it out what is my actual retention rates and churn. So if someone is sticking around your pipe for a long time they're worth a lot more. And every month you wait that that higher LTV you acquire. And over time you can. You can then spend more money on online marketing. If you look a company like Airbnb, we were able to very actively predict our value for the first year. Eventually we were able to print that value over multiple years. So. So if you have that level of prediction you could acquire people with multiple years of LTV. Both companies do not have anything close to that when they get started. They maybe have a couple of months of of good prediction on how valuable the customer will be. And that would not spend any more than that that time that you're very certain your customers will stick around and pay for it if you are on the market. To me that the primary metrics that you're trying to strive towards is efficiency you're trying to just sign up and get used to using your products at an efficient CAC/LTV ratio where you're not spending more than you predicting to make. If you're the founder of the company or somebody runs product then that's not really your goal at all. Your goal is to get build something that's great. That's really a lot of value for users. And one really good way to measure that if people are retained as users and people are coming back to use your product.
Albin: How would a successful growth team for someone in that phase when they are just about to scale look like? What kind of roles (designers, developers, marketers)?
Gustaf: Yeah. So say the that there's if you look at Airbnb each team had like four or five disciplines that were true for every team. So it was product manager it was a number of engineers wanted to designers one or two data scientists. We also had research support use research is critical as well. Often it starts with just an engineer or two who is sort of like take on a specific set of the product and say I'm going to optimize this. That might be sign up or onboarding or retention and then that kind of starts expanding into a point where you can just draw the entire funnel of the product and try to prioritize and say is the most important that we work on right now. And then if you have enough people you work on several things at the same time that sort of like typically how they look like I would say over time and this is my insight at Airbnb. Over time most for most of these team the most important leverage point is data science and engineering. Whatever you're doing can be automate in some way and can be you can use more data to make better decisions. And that's true for all the marketing is true for SEO it's true for referrals true for nearly every single aspect of this which I think why I think growth teams are so powerful because they so like ask they use more new data science there. They're still making a massive impact even though they're very small.
Albin: How do things like CSR will be a part of these regular tech companies in the upcoming years, the ones like Spotify?
Gustaf: Climate change is about mass and growth is about math. So if you're inside and like understanding our numbers explains problems then it's actually not that big of a jump from working and growth teams working on climate change. Most people though that think that they're doing a difference for the environment don't understand the math which is why they do things that don't matter and where we don't things we don't do things that really do matter. When I say math like basically the unit that you're valuing in climate change is how much does it cost to stop emitting a ton of CO2. Or how much it cost to remove a ton of CO2 from the atmosphere. That's the unit economics is the unit that you're looking at. And then you want to basically look at all the different technologies that can do that. And like nature is pretty good doing that pretty cheaply but there are also losses and technologies that can help you do that. Buying a new electric car which I recently did is not a good use for that unit of economics because it's very expensive right now. But the way I view it we're basically well if I buy something maybe they'll be better electric car brands in the future and other people would buy them too. But that's not actually a very good way of removing as CO2 in terms of the cost there. Other waste are much cheaper and I think we should spend more time on it. In regards to what companies should be doing one way and you'll probably hear more about this actually later this spring from Y Combinator. One way you can look at it is sort of like what you people want to work. People want to work for companies that are very responsible. And there was a huge change in how companies view diversity over the last couple years here and so on. And if it's like it's a given now that companies have some strategy around how to handle diversity and end discrimination. And so like all the way through through hiring and across the company I think that the same thing will happen when it comes to, I wouldn't call CSR, I would just say kind of their position towards climate change in general because I think if you take that position then companies will will value that and say that that's a value that I can attach myself to and companies so spending more and more time building out these values where they want to or not. Because corporations is in the motion like working for a company these days is a very important emotional decision. You want to make sure that the value of that company is actually similar to the values that I keep. So I think that's the motivation. I think companies will get more involved in this. How they end up doing it; I think the the most natural thing is company will start going carbon neutral. If we look at Lyft you look at Stripe you look at to some extent Google and Apple. They are nearly carbon neutral is a combination of changing the energy sources to which you run your servers and then buying carbon credits on their own the offsets market. That's one way there might be a bunch of others going forward but that's sort of where I think the role of those companies will play going forward. If you want a good example you can go to stripe.com/environment. That's a great breakdown of why and how they are carbon neutral.