The Art of Listening: How to Bring Customer Focus Back to Everything You Do
When it comes to pricing and developing products, being as close to the customer as possible will always lead to better results. By gaining a shared sense of empathy and ideally walking in your customers’ shoes, only then can you really design something that speaks to your customers and price it accordingly based on their willingness to pay and the perceived value they are gaining.
Join me (@SwEvangelist) and David Cancel (@dcancel), CEO of Drift, as we discuss from our personal professional experience why placing the customer in the center of everything you do and ensuring you base your development and pricing on that closed feedback loop are some of the most important disciplines for achieving the ideal product/customer fit.
Gabe Smith 0:00
Hi, everyone, welcome to Pricing Matters. This time we are going to chat with a serial entrepreneur and legend in the startup in martech worlds, David Cancel the CEO of Drift. Hi, David!
David Cancel 0:10
Hi. Thanks for having me.
Back to the Beginning – Drift
Gabe Smith 0:11
Yeah, my pleasure. It’s really my honor to have you as a guest. Before we get started, for the audience members that might not know Drift or be familiar with your background, do you want to explain what you do over there and a little bit about your background?
David Cancel 0:23
Sure. So it’s a long background, I’ll give you the abbreviated version. Drift is my fifth company that I started. So I’ve been a serial entrepreneur, which after five companies is kind of totally certifiable. They’ve all been largely in the marketing and sales software space. And Drift is no different. And Drift is a conversational marketing and sales tool that basically helps businesses talk to their customers at the right time to increase revenue, accelerate revenue, and really take their website from something that looks like an empty store today, with nothing but a form to convert them into a customer to something where that in real time we can qualify them, talk to them mostly through using pops and make your sales force appear to be available 24/7.
Gabe Smith 1:08
Yeah, and we’re Drift customers, which is how we got connected. And we’re big fans. And we’re just, I think, starting to think about how we can fully leverage that. And we’re actually going to be redesigning our website and incorporating more of the ABM type of approach. I went to a Hypergrowth conference a couple few years back in San Francisco. That’s actually where I met Patrick Campbell. And I just found out listening to a podcast that you guys did last year that I guess they were your first customer over at ProfitWell.
David Cancel 1:34
They were our first customer and they paid us at $20 for the luxury of being our first customer.
The Importance of the Engineer-Customer Relationship
Gabe Smith 1:40
Wow. But I was listening to that podcast that you guys did. And it was all about customer centricity and staying closest to the customer. Jeff Bezos says, if we can, you know, focus on the customer and keep our competitors focused on us, then we’re going to win. I definitely feel that we have that in common at both of our companies. Pricefx was really focused on that from the get go of having a problem out there that was being solved in a certain way in the market that it provided value. But there were so many problems with it from a customer’s perspective on having to take all this risk on, spent lots of money, do this massive implementation and then not have a lot of flexibility. I’m not sure if you have similar experiences in your background. But I certainly, from the onboarding, that we’ve had at Drift, it seems like you kind of have that down in terms of being really easy to kind of activate flexible, and then we have really good engagement at our customer success people over there so far.
So, can you tell me a little bit about that? I mean, some of the things that I thought was interesting in that podcast, where you’re talking about how engineers should be close to customers, and that you saw like a really difference in their reaction when they would speak directly to a customer versus when you would tell them. An interesting topic to kind of talk about a little bit of that customer focus.
David Cancel 2:48
Yeah, I think, well, you know, it’s funny that you brought up, Patrick, because, you know, Patrick was someone that I first met back at performable. And Performable, was the company and it was around the time that I met him that I had this kind of epiphany. And, you know, my background, even though I started companies as a software engineer. So, I’m an engineer, I think that way. And the epiphany that I had was that I was trying to convince them, our ragtag group of engineers, to implement or to build something and can’t remember what the feature was at this point. And, and there was all sorts of pushback, which, if you’re used to dealing with engineers, you’ve heard it all before about, like, you don’t understand how complex it is, we’re gonna have to re-architect the whole thing. It’s going to take bah, bah, bah, like going and going and going and going in circles. And then, at the same time, in parallel, I had, or forced, I should say, probably is the right word, everyone in the company to do support.
And that was the lightbulb moment to me, right, because all of a sudden, they had heard it directly from the customer, they had felt the pain themselves, and they were not hearing it second, third, fourth hand for me.
And I did that sheerly out of need, because we didn’t have enough people in the company to have dedicated people in support. And I overheard a conversation that was happening, because we were all in one room at the time. And I overheard an engineer who did not want to do support talking to someone on the phone. And that person is bringing up an issue that had been brought up a few times and was related to the feature that I wanted implemented. And then I saw the engineers do something and the engineer went in, fixed something, asked the customer to refresh. And then the problem was solved. And there was the feature that I was asking for. And then I was just sitting there watching it. And then afterwards, I pulled that engineer aside and had a conversation with him. And I said, “How come, was that just the thing that we had been talking about?” He’s like, “Oh, yeah, a bunch of people kept asking for it so I just made a quick thing. And I implemented it.” And that was the lightbulb moment to me, right, because all of a sudden, they had heard it directly from the customer, they had felt the pain themselves, and they were not hearing it second, third, fourth hand for me.
And there was credibility there, there was a cause and effect of the feedback loop, most importantly, and that was my epiphany of like, we have to build the entire company, to be customer centric, and to be as close to the customer as possible, because it will be less frustrating for me and less frustrating for the people working in that company with me, but it will lead to better results when we do that. And so that was an epiphany. That’s what happened. And then I built an entire development methodology around that, that I did at Performable. And then really, really put into scale at HubSpot, where I went after when we were acquired. We’ve taken that development methodology and now made it like a company methodology at Drift, which really centers everything that we do around the customer.
How to Merge Customer Needs with the Market’s Demands
Gabe Smith 5:17
Yeah, that’s great. And I do have a product background, I’ve been in product management for many years prior to this role. One of the things that I think could be a bit of a challenge in that customer centric approach is listening to the customer, but then designing and architecting things in a way that are fit for the market. Can you talk a little bit about how you’ve walked that line?
David Cancel 5:36
One of the things that engineers and product managers are good at is kind of making this argument or trying to make this argument again, you can listen to customers, customers don’t, you know, they’ll bring up the job quotes and other quotes about like, the customer doesn’t know what they want, and etc, etc, etc. And to me, yes, literally, like a customer’s not going to design something for you, because they don’t know the scope of what’s possible. But you have to gain a shared sense of empathy, that you can only get by listening to the customer being close to the customer, and ideally walking in that customer shoes. And only then can you really design something that speaks to customers. And so it’s super important to do that.
I developed something, I call the Spotlight Framework. It’s just like a bunch of phrases for you to look for, when you’re analyzing what a customer is saying. And or looking at patterns of what customers have said. When you hear a lot of customers saying something about a specific feature in your product, and they say something like, what happens when… So, “what happens when’ tells you that they know that it’s possible. Or they think it’s possible. And if it is possible, then you have to figure out like why can’t they do it? Why can’t they reach their goals? What’s going on? If it isn’t possible, and they do believe it, then there’s a whole another issue like at the top, which is in the marketing or the sales pitch or something.
But it gives you like a frame to understand the feedback that’s going in, and what type of problem it is that whether it’s a product marketing problem, a UX problem, or something in between, and that I think helps people because you know, as engineers, and product managers, we get so fixated and so myopic on like, exactly, literally the words that the customer is saying, versus saying what I think which is like, it’s more like listening to music or listening for themes, you’re listening for pattern. And then every once in a while a pattern will jump out at you. And that’s what you should be listening to.
It’s Not Us, It’s (About) You.
Gabe Smith 7:28
That’s a good point. So you need to have the context of the customers and kind of know what they’re experiencing, and then raise it up a level and recognize the patterns and then architect it in a way that can address those needs, ideally, is flexible enough. So, it’s not just solving that one customer’s need but solving a broader set of customers’ needs. As I mentioned, I did attend Hypergrowth, I thought it was actually a really cool conference the way that you did it. And I thought it was really useful and not super salesy.
It seems like with Drift, you’re kind of defining this like hyper growth is like your mantra or your you’re kind of taking this, this theme and kind of being at the center of it and creating this content around it. And you have the like the stages of hyper growth on your website, where you talk about like Edison, the Model T to P&G, and it reminded me a bit of the the HubSpot Academy, and I know you were at HubSpot before for the listeners that may not know, and re-architected the whole platform, right as the leader in engineering there and went through taking them public and everything. So that’s something that we’ve actually also been trying to do is like with regards to pricing, right is take the center and create more content and education and not just talk to the same people but really broaden the audience. Is that a purposeful thing that you’re doing there?
David Cancel 8:41
From day one, the way that it came in, I mean, it’s forward as the company and more about how I think about things, at this point. Like all good things it came from pain from learning from pain from doing it the wrong way. And so, for years, I had those companies and products and created things. But I had created it from egocentric standpoint of like, this is what I want to create, this is what I’m doing, this is what’s interesting, and then later try to figure out how do we sell it? How do we get people interested? How do we market it? How do we do that? Which is totally, as you can imagine, backwards, but that’s how most people do it right? Because of that egocentric view.
Yeah, and so like after failing and enough pain, and being punched in the face enough times, I started to smarten up a little bit and say like, “Okay, let’s not make it about us, let’s not make it about what we think, let’s make it about us serving, and I use that word on purpose, serving a specific type of customer, right, which, you know, we have to have a type of customer that you’re really trying to serve, serving them. And then learning from them, adapting and then developing kind of wisdom as you build something and the best way to do that is to actually identify with a big change or set of changes that are happening in the world that you believe are going to impact this type of customer, and you start to speak about those changes that are happening, right.
And that like, you came to the conference, we might have spoken about things that interested you or had, I should say, we had speakers who did that. And that gave you an association of Drift as a company, and maybe even as a product, although that wasn’t the intent, not at Hypergrowth, to you know, those themes or those shared beliefs or those things that you were interested in. And then here we are a year later, two years later, you’re Drift customer, right, and I think it’s not easy for most companies to draw straight lines through those things. And because of that, they tend to not want to invest in those things that I think like, in the world today, we believe that we have infinite choice. And in the world of infinite choice, you’re gonna have to figure out new ways that you can be a bit of a standout as a company. And I believe this is probably one of the most effective ways that I’ve seen to do that.
Hyper Growth Models: Edison, Model T and P&G Walk into a Room
Gabe Smith 10:51
Yeah, absolutely. I’m interested in this idea of the stages of hyper growth that you were talking about on the website, I’m not sure if the Edison, the Model T to the P&G, do you mind, I could try to paraphrase it, but maybe you can describe it? And then I want to ask you a couple questions about like pricing as it pertains to those different stages.
David Cancel 11:08
You know, one of the blessings and curses of my like, my personality is that I can only understand things really by thinking about them in terms of like frameworks, right? And, you know, so like, I have to understand the system and how the system works, or could work for me to really understand what’s happening. And so, I created this thing, which I call the three stages of hyper growth. And basically, they try to explain where we are in the world, kind of what I was mentioning earlier, of this idea of like, there’s infinite choice, right.
And so, the first stage is the Edison stage. And this is not just for our specific product, I think that all markets go through these phases. So, like whether the car market or the software market, or whatever your submarket, or vertical is, like you go through these stages. And when you first, the Edison stage starts with this idea of like, when you actually invent a new type of product in the product line, in this case, you really are focused on this idea of invention, we have to invent, we have to create a market, we actually have to answer questions like, can we actually build this thing? Is it possible to build this thing? In this world it’s very, as you can imagine, because you’re inventing this very scarce supply. And so like, you can charge a lot of money probably for what you’re doing, or because you have very little competition, you can hide behind patents and trademarks, and things like that, because what you’re doing is so difficult to replicate, because you are one of the inventors of that.
And then the market matures over time, and then you enter the second stage, which I call the Model T stage, which makes reference to the beginning of the assembly line and the production and in the world that I come from, which is the SaaS world, you know, that’s the stage that we’ve been in for a long time, which is like, all of a sudden, everybody understands how to build software or build a car or whatever. And so, all of a sudden now, it’s a race for who can build the most efficient model, right? Like, what is the most efficient go to market model? How do I slice this market? How do I expand the market? How do I slice the market? How do I like verticalize software? How do I do all that stuff, and all of a sudden, it’s all about building factories, and then start creating not technical modes anymore, but really operational mode.
And then finally, you’ve hit, you know, at some point, there’s so much supply. And so many people are doing what you are doing whatever that product is, you hit what I call the third stage, which is this Procter and Gamble stage, which makes reference to Procter and Gamble, the company who sells everything from Tide soap to 20 other types of laundry detergent, right, and many, many other things that we consume. And in this world, it’s about something totally different. Because now it’s mass, commoditization, everyone can replicate what you’re doing, there are no longer any operational modes, there are no technical modes anymore. And so like, you have to convince your customer why they want to spend 20 cents more for Tide, versus the next cheaper alternative, right? It’s a totally different thing. And in this world, the only modes you can build is around brand and you can create a brand preference or loyalty with a customer. And I think, you know, coming back to what we both do in this world, which is SaaS software, I believe the SaaS market is in this third stage right now. And that’s why it’s really important, right? It’s an infinite supply of software. Anything that you can build can be replicated, you cannot hide behind any technical patent, any operational modes are gone. And so all sudden, it’s like, “Okay, how do we build brand preference? How do we expand that in the support?”
Gabe Smith 14:28
Yeah, and obviously, there’s some implications to pricing. And since we are a pricing company, I want to talk about that a little bit. So in the Model T, where you’re talking about, you know, in that stage where you’re talking about scaling and kind of gaining operational efficiency, we’re a kind of generation two or some people say generation three provider of cloud data provider in our space. And we have an operational efficiency because of that over the gen-one providers that have a bunch of on premise stuff, these crazy support matrices and different culture. We price things kind of according to that and with the idea that, if we can be faster to implement, we can be more flexible, and we can be more friendly in a commercial way and have less risk, then we’re going to gain an advantage from that. And it’s worked, right. But yeah, now I think we’re, we’re kind of everyone’s now moved into that even the gen one providers or have moved into the cloud, they still have some baggage, but they’re, they’re getting better and better at that. So now it is more about the branding. That has implications to our pricing model, right. So and because what we’re hearing now is, we’ve established a brand in so far as being fast and flexible and a cool company to do business with. So we don’t have to price at a discount necessarily as much as we did before, to kind of establish that that market share and leverage that operational efficiency. We’re both, I agree, kind of in that P&G phase. And I would say, in that phase that the pricing takes on a more strategic kind of mindset. And you really have to be in order to create a good brand, you really have to really understand customers what they value, and what they don’t value in terms of brand perception, awareness, obviously, the features and capabilities and the value in a software setting. A lot of it has to do with just like marketing and the way that people perceive your company. Right. When you started Drift. There wasn’t I don’t think as nearly as much competition is there is now. How are you looking at that?
A Pricing Perspective of the Hyper Growth Model
And how are you, when you look at it from a pricing perspective, how are you looking at the market and how the brand is valued and how your services and offers are valued, and incorporating that perception into it.
David Cancel 16:26
So, the way I think about it is like I’m one and we didn’t have much direct competition or any for like specifically what we did, or what we brought to the market. But on the other side. So, like that, because that was a new category that we were creating. But on the other side, like we were taking those dollars away from existing sales and marketing budget, which has kind of an infinite supply of competition. So, we were competing from a dollar basis on something, though, maybe from a product we weren’t. And so, like we were kind of like actually competing on both of those things. And so when we had to know that we had to take those two dimensions into account, but like the way that we thought about that was that the market that we’re in, the total SaaS market, is in this third case, right . And because of that third stage, like, it doesn’t matter if like our innovation right now doesn’t have competition, we are operating as a company from the beginning that we assume that if we’re right, and, we would have this in our decks and everything internally from day one, if we are right, and we don’t know, we’re right, right, because hypotheses, that this proves that there were right, then all of these companies, and we named a bunch of companies and a bunch that don’t exist, or that, you know, we don’t know about, will have to become competitors, not because of us, not because of our products, but because the major theme is right and because the time is right for this to happen. And so all of that came to pass, right? We’re not Nostradamus, we didn’t predict much, but like kind of obvious in some ways. And if you zoom out, if you think about things that way, then it becomes obvious that in a mass commoditized market where there are no operational modes, there are no technical modes, if whatever you’re doing is even a slight bit successful, then those incumbents and new entrants will come in and try to compete with you head to head on that product.
Gabe Smith 18:08
I feel like that. I was recently playing around with some new software from this company called Synthesia that does AI-based videos. So you can type in a script and they generate an AI avatar that talks about it. And I don’t know if you’ve ever seen any of that stuff, you know that deep fakes and I started reading about it, there was a good article on it. And so I signed up for a subscription, they’re in beta right now. And the technology is not quite there yet. But you can kind of see that it’s pretty close. And when you think about the economics of it, it just makes a whole lot of sense, where I can see that becoming the de facto standard for video production over the next two to three years. It’s like why am I gonna hire a video crew to go do all this stuff? And it’s kind of similar to what you’re doing with the conversational marketing, if I can really get this right, and I can create the right content and get people to the website and then engage them in the right way versus like in the past, I think marketing has spent tons of money on trying to get people engaged and then kind of not done a good job of engaging them on the website. I remember you were talking about your initial interaction with Salesforce where there was like some barriers. That you had to check that you wanted to write them and, it’s impossible to spend the money and I’ve seen that in a few companies, both as a customer as well as unfortunately, as an employee. In some cases, that’s really the the crux of what you’re doing. And it totally see how being on the edge of that then projecting out like what it’s gonna look like. And I’m really excited about leveraging the technology to get closer to our customers. We’re doing some work around a sales-ready product. And the idea is there to create this very customer and industry focused content and messaging that resonates and really addresses the problems that those buyers have. And then we were actually using that same thinking to both redesign the website and the buyer journeys into the website and even the user journeys into the product, and we’re planning on using Drift as a key component of that to present content in a way that makes sense and especially because some of the things that I’ve seen where Drift can figure out like what industry or what company someone’s in and kind of cater messaging to them. So we’re, we’re excited about that. And we’ll have to see it’s it’s going to be an interesting project.
David Cancel 20:11
That sounds super, super exciting.
Pricing Drift: Monetization Innovation & Outcome-Based Pricing
Gabe Smith 20:12
Being on the product side, Patrick and I were talking about “Monetizing Innovation”, the book that Madhavan Ramanujam and Georg Tacke wrote from SKP. It just reminded me of it when you were talking about that a lot of things are done with the egocentric, like, there’s this cool new technology, I want to build then we’ll figure out how to market it and sell it and price it and all this kind of stuff. And they make a very similar argument in that book, right, they talk about, you should really actually be thinking about the willingness to pay and how you’re going to price something when you’re designing a product. And actually, using that to decide like, what is my MVP or my SRP, right, like, what features and capabilities should I be designing into this from the get go, right? If there’s a feature that people want, but I can’t deliver it in a way that’s cost effective to get to the price point that they’re willing to pay, then what’s the point of it right? It’s kind of the ideal, do you take that into account when you’re when you set up your pricing? So, you had this idea with Drift, and it was this kind of new conversational marketing, you kind of invented that that whole category. How do you then go about figuring out how to price something like that? Can you walk us through kind of the thinking?
David Cancel 21:15
From the very beginning, we had the idea of like where we thought this was going to go, and we had a future kind of pricing model in our head from the very beginning. And we’re still not there, still haven’t hit where that future pricing model is, because a lot of things have to be completed, validated, built, etc, etc, before we actually get there. So, there’s a model. So, I will say we’re unusual in that what we’re trying to do is there’s a model of where we want to get to from a pricing standpoint, and we’re taking years to get there. And so in the early days, willingness to pay was less around how much they valued something for us. It was at the beginning, it was really just a test to test the hypothesis and to see like, do they care? It was more of a do they care? Right? Like, do they care? Can they be bothered kind of thing. And I think it’s important to mention that because like pricing, and to mention that we have this future idea of where we want to go like pricing as a context, right? Like, and you might not be in the right context right now, or this context that we’re in right this time, and space, and competitive dynamics, dictate your price, right? Like, we often talk about prices, like we talked about everything else.
From the very beginning, we had the idea of like where we thought this was going to go, and we had a future kind of pricing model in our head from the very beginning.
And in total goal kind of sense, like scientific, like, how should we optimize price and all this kind of stuff. But there’s a context right, the competitive dynamics is like where the market is, is the maturity in that market of like, where are they in terms of willingness to pay for where we are in the market, there’s where there’s the maturity of your products, there’s a whole bunch of things that go into pricing that really dictate where your price is. And so, because of that we’ve taken each quarter, we’re constantly tuning our price and changing it to match not only where we are for maturity and a market sampling, but also what we’re learning from our customer. And we continue to do that, we did the same thing when I was at HubSpot, we were constantly tweaking the price and trying to figure it out. Because you know, the capabilities were changing, the market was changing, but also our platform was expanding at the same time. And so like someone who bought two years ago, like it was a totally different product in terms of how many more capabilities there were this year. So it’s a very dynamic thing. And I think that’s an exciting thing for everyone listening like we live in a world where, you know, you can do dynamic price, hard goods, you can dynamic price software for sure.
Gabe Smith 23:27
Yeah, yeah, there’s some interesting models coming out around different monetization models, consumption base, you know, obviously, there’s the typical user base. One of the things that Patrick Campbell and I were talking about is that the user base model is actually not a very good one. It’s not a very good value metric or a lot of software. But it’s so ingrained because of Salesforce. And you know, it’s just accepted. Yeah, and it’s easy math, although part of the issue with it is, depending on if you have a lot of fluctuation in consumption or users, then you don’t really know what to budget for. Right. And, like with our software, we argue that the our value metric is around revenue under management, because that’s going to dictate how much value you get out of the software. You might only have five users using it, if they know what they’re doing, you can get a huge amount of value by optimizing your prices versus another company might have 500 users and not be getting as much value or getting that same amount of value because they have a more negotiated model. And they have all the salespeople using it and getting guidance and that kind of thing.
David Cancel 24:26
We lived on that because we have part of our pricing access right now with a user base model. But if you look at what we’re doing, and that’s something where we’re trying to go to but like that’s that is the model today. If you look at what we’re actually implementing and what the product is and where we’re going like, everything will tell you that that model is actually in conflict with what you know what we are trying to bring to the world right if we are bringing more and more automation more bots into place of someone on your team and they’re not available, therefore, you know, it’s totally upside down to have a user base model right, because we are trying to have as few users as possible? And in some ways, if you look at it from that way. And so I do think one of the most exciting things that I see happening and where we’re trying to go in this, is this kind of this idea of an outcome based model or consumption based model. And so I think that’s how things are going to go. And that’s where I think dynamic pricing is interesting, because if you look at, again, we go back to the beginning of the conversation, we think about the three stages of hyper growth. And if we’re in this mass commoditized part of the market right now, then software pricing should look a lot closer to utility based pricing. And if you think about how you get charged for electricity, or something else, there is no fixed price on the unit, you know, kilowatt hour, right, it changes depending on the context, and you are charged for what you use. And so like, we already have models in our life for that, or whether it’s other utility based models of like, if we believe we’re in this phase, the models will have to move to be closer to that, because that’s just the model that works for this type of environment that we’re in
Gabe Smith 25:58
The outcome based. Yeah, that’s absolutely something that’s, you know, I think there’s a unique position of subscription based pricing and companies where one of the benefits of it is really that it establishes this relationship, right, and the relationship has to be centered on the value that customer gets, because a lot of times they can walk at any time, or at least we don’t try to lock companies into like long term subscription or our customers into that. So, it puts the onus on us to always make sure that they’re getting value out of it. But the other thing that it does is it lets you look at what the real value metrics should be. Those could change over time, especially as new models are more or less accepted. And I’ve heard this kind of described to as the move from software as a service to value as a service, right, and then that that would be in that kind of outcome based pricing is I don’t actually care about your, your software, I care about the outcome that I get from or the value I get from it. And if you can price those where it makes sense where I can, I might have different ways of going about that. I could have a call center, I’m gonna have a cost model there versus like having the ability to engage in a more conversational way via chat bots, but then have the people in behind it. So if you look at it from that perspective, then that could lead you in different directions in terms of those types of pricing models. And it sounds like you’re already kind of thinking about that.
David Cancel 27:13
One of my biggest rants, and it has to do with the three stages of hyper growth. So, what that’s where I bring it up in this mass commoditized market, that nobody cares about software, we’re not at that stage anymore, right? That’s the thing people don’t care about chips, you know, what chip is in your computer. I don’t know. What chip is in your phone, I have no idea. Like software is this old thing that people of a certain age, myself, and probably yourself and others that we sell to still think is a thing. But it is not a thing. Nobody cares about software. If you look at how you live your life, and you look at everything else that you buy that, by the way, or use every day, whether it’s Amazon or Google or Facebook, or any of the things that you use every day on your phone, you don’t think about them in terms of software, you don’t think about in terms of configuring, you think about them in terms of an outcome that you want. You want something done, right. And so that’s the way that all of corporate software has to move, because that is just a natural pattern like we are as humans going to. But you know, we’re still stuck in an old context. And we’re holding on for dear life, this idea that people care about this thing called software, which which I don’t believe they do.
Gabe Smith 28:22
Yeah, I’m with you on that. And I think about that sometimes when you think about what I try to describe what I do to old like people, like my mom, I think about it kind of conceptually, sometimes it’s like it’s so abstract what we’re selling, right. And it’s like an idea that your life is going to be better off in this way, by buying this or subscribing to this right.
David Cancel 28:45
Your mom probably uses some of the things I just talked about, Facebook, Google, some combination of these things. She doesn’t think about them as software. And we’re still stuck trying to explain what we do as a living in terms of this weird construct of software. Which, people don’t care about.
Outcome-Based Pricing, Value Metrics & SaaS Pricing
Gabe Smith 29:04
So can you talk a little bit more specifically, I know you talked about kind of outcome and how you thought about pricing. But can you talk a little bit more specifically about like, what value metric that you use? And maybe how that’s changed over time, and how you think pricing in the SaaS world or the value as a service world is going to change over time as a whole?
David Cancel 29:22
Yeah, that’s a hard one. I think, because it’s always going to be specific to your product. Or the outcome, I should say that you’re delivering. In our case, we help companies on the revenue side of things so create more revenue from the same amount of spend. We do that by basically converting or making turning those conversations at the top of the funnel into more of a sales kind of ready type of customer or prospect, if you want to use that word. But because of that, all the ways that we track our success of our customers and internally is really around a set of revenue metrics, whether that is called sales pipeline, and that’s called the revenue, the opportunities that were closed that came out of that pipeline, those are really the two numbers that we’re looking at the most, and the ones that we had the biggest impact. And so, in some fictional world where we’re not there yet, you could, you could imagine that more better that we had over time and helping you create, convert more of their revenue that maybe wasfrom the price that was associated to that performance that we were bringing. Or maybe a reduction in the number of people that you needed, because the staff or something like that. So those are, you know, our outcome is revenue. And so there’s two things that go into that on the cost side, which is basically people and then the, you know, the efficacy of it, right, the conversion rate of it.
Gabe Smith 30:43
If you take that to its logical end where the pricing model could be almost like a percentage of revenue that was generated, you know, through this channel, right, or something like that, then you’re taking on very little risk. And you’re just yeah, it’s interesting, because some people have moved to those types of models, like in some of the digital commerce platforms, they just charge a percentage of GMV, rather than charging this ongoing fee. So yeah, I think we’re gonna see more and more of that. Think you guys have the essential premium and enterprise at Drift, right? So, one of the key things is Patrick Campbell, and I were talking about the freemium model. And actually, I wrote an article on Slack and Fortnite as really stellar examples of companies that have gotten the freemium model, right. And I actually quoted him and it has done a breakdown there. Can you talk about, like how you went about that, like figuring out what to put into each of those different offers?
Sure. Pain and suffering. I think it’s totally dynamic. We keep optimizing over time, I think, really they map towards the type of audience that we built each of those solutions for, each of those skews for.
David Cancel 31:36
Sure. Pain and suffering. I think it’s totally dynamic. We keep optimizing over time, I think, really they map towards the type of audience that we built each of those solutions for, each of those skews for. So when we started the company, we were 100% a tech company, right? We were a premium based product, and we didn’t have one salesperson, everything converted online. And that brought in, that was great, I got started that brought in a certain type of customer and that customer pretty much looked like a startup or a very small business, in some cases, an SMB, or maybe a mid market company. And then what happened over time, as we matured it and the idea became more popular, or people started to hear about it, or maybe they experienced it actually on somebody else’s website, then we started to see more people coming in from what we would consider kind of mid market and everyone has different segment sizes. But what what we consider like a mid market company, and then later on, when we started getting enterprise companies and so they wanted different things. And that, you know, they value different things. And so and so they expect models to work differently, or the pricing to be different. And so we started to develop solutions that was specifically tied to those segments. So our additions are less about individual capability, which is a common practice, and more have to do with the type of business, the size of the business that is using it because that size then brings in a certain complexity that we need to solve in the product.
Experimenting With Your Pricing
Gabe Smith 33:06
Yeah, that makes a lot of sense. It’s very similar to the environment that we face. Alright, so we only have a couple more minutes. You had this idea that I heard you talk about saying, “assume all of your ideas are wrong”. And I don’t know if you remember talking about that. But do you think that applies to pricing? You talk a lot about kind of experimentation.
David Cancel 33:26
100% I mean, I think, you know, this goes back to kind of something that we talked about at the very beginning of this, which was this idea that we build things from an egocentric way. And so and that’s what I had done for more than half of my career. And so because we are humans, we slip into patterns that are comfortable for us. And so I had to develop for me and then later for the company, like a set of guardrails that would prevent us, right, like bumpers, you know, like when kids go bowling, and they put up with bumpers,. We needed the bumpers, right? Because without the bumpers of the constraint, we were going to drive off the road and go back to doing what we were doing before. So we created these artificial constraints. And one of them, you know, was this really kind of creating a philosophy that we use internally that we just repeat all the time, “assume all your ideas were wrong, assume or ideas are wrong”, because you know what, they are all wrong. And so I think what we’ve been taught in the world through film, and media and make believe is this idea of like that you have these amazing ideas, and these ideas become reality. And then it’s a straight line. And as you know, as someone who’s building a company, there’s never a straight line, right? There’s a straight line, if you zoom out far enough. The reality is that you create an idea. Or you have an idea or product or whatever it is. And then you go out and you validate it and you figure out how wrong you are and you come back. And then you iterate again. And you do that again. I think the same is for pricing and I think this is true because, one we’re humans, two because all creation has In this way. For some reason, in technology, we have some weird notion that it doesn’t, right because like, if you look at all the way on one extreme of the spectrum with the sciences, you see that it’s a game of in discovery there’s the game of constant iteration, constant accident, that happened fortune or unfortunate accident. And out of those things, new discoveries are made, right? And then if you look all the way, on the opposite end of that spectrum, you look at the arts, you know that, if you ever tried to write a paper, have you’ve ever written a book or you’re like a sculptor, or painter or what have you, it’s always a game of iteration and trial and error. And so this is like the natural order for humans. Like we have to iterate our way. And there is no perfect plan that we just lay down. And that comes when you have a shower and awesome, that’s the perfect pricing plan.
Books that David Cancel Has Read
Gabe Smith 35:52
That’s right. Yeah, good point. I think yes, sometimes our rational and the ego side of things kind of gets in the way of that, that artistic process. And, and that iteration that you’re talking about. That is that is much more of the natural way that things come to be. So that’s, that’s interesting. We’re about out of time here. I just wanted to ask you, you’re a big reader, and I read a lot of your stuff. And I was just wondering, what’s, what’s your favorite thing that you’ve read over the last month?
David Cancel 36:17
That’s hard? I’ve read so much, I will say that I’ll answer in a different way to say that a book I’ve read a couple times , and I’ve just picked up again today, and I just started today, again, is this book called “Play Bigger”. And this book is really a book that helps companies figure out how to create a category and why the importance of creating category is really relevant today. And given what we were talking about hyper-growth in the context of the market, it’s like the apropos book.
Gabe Smith 36:40
Yeah, absolutely. I love what you guys do with that book club, too. I was reading about that on one of your blog posts, and I think that’s great, I’m actually gonna recommend that we do the same thing at Pricefx.
David Cancel 36:50
We just published the full book list and maybe you can start with that if it’s helpful.
Gabe Smith 36:55
No, I saw it. Yeah, there’s some good ones on there. And I’ve read a bunch of them but not all of them. So but thanks a lot for the for the time and insight, a really interesting conversation and I really have enjoyed it. Anything you want to add, just kind of in conclusion for the listeners of the pricing world?
David Cancel 37:10
If you ever want to reach out you ever want to chat I’m on all social at DCancel. And just say hi. And thank you for having me again on the podcast. I really appreciate it and for being a customer.
Gabe Smith 37:22
All right, our pleasure. And yeah, we’re looking forward to like I said, continuing to grow with Drift and and leveraging some of the capabilities to get closer to the customer and and hopefully get more of them. That’s the goal right?
David Cancel 37:35