How to sell your ideas and rise within your company

Transcript

Casey Winters (00:00:00):
Every new person on the product team is acting like they work at Google and have these infinite resources and infinite time to make sure everything is perfect. It became such this focus on the right way of doing product management that no one's taken any risk. I felt like, oh, am I responsible for this? I've created a bunch of frameworks on Reforge. I'm onboarding these new PMs. Is this my fault? At Reforge, we're building frameworks that are tools in a toolkit. You pull them out when relevant. They're not a coloring book to stay inside the lines of.

Lenny (00:00:41):
Welcome to Lenny's Podcast, where I interview world-class product leaders and growth experts to learn from their hard-won experiences building and growing today's most successful products. Today, my guest is Casey Winters. Casey was one of the first ever guests on the podcast, and the first to make a return appearance. He's a legend in the growth and product community, having worked with or advised companies like Pinterest, Reddit, Canva, Airbnb, Tinder, Thumbtack, Grubhub, and many more. He recently led product at Eventbrite for just about three years, and recently returned to full-time advising, and he's exploring new opportunities.

(00:01:17):
In our chat, we cover something he calls the zero interest rate phenomenon product manager and how to avoid that, what he's found works best when interviewing product managers, what impact he expects from GPT-4 on the role of product management, when to trust your instincts versus your team's insights and instincts, what are all the different kinds of network effects, and how do you effectively leverage them? Plus a great story about what Grubhub missed that let DoorDash and Uber eat their lunch. I always learn so much from chatting with Casey, and I am 100% sure you will learn a lot from this episode. With that, I bring you Casey Winters, after a short word from our sponsors.

(00:01:56):
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(00:02:23):
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(00:03:37):
Casey, welcome back to the podcast.

Casey Winters (00:03:39):
Thanks, Lenny. Great to be here.

Lenny (00:03:41):
You are the first ever return guest to my podcast. How does that feel?

Casey Winters (00:03:46):
I feel honored, perhaps a bit unworthy, but I'll go with it.

Lenny (00:03:52):
Well, you're both worthy and I'm honored as well. Thanks for joining me again. I have a lot of stuff that I want to chat about, but first of all, I'm just curious, what are you up to these days? I know you left Eventbrite as CPO, I know you're doing a few advisorships with startups, but how are you spending your days, and what do you think is next for Casey Winters?

Casey Winters (00:04:10):
I'm still spending some time with Whatnot and Eventbrite as advisors. I stepped back from the CPO of Eventbrite in October, but still working on some long-term marketplace strategy stuff, some growth strategy stuff. I'm on the board of a company called Beek, which is like Netflix for audio in Latin America, and I'm doing some angel investing in marketplaces in what I call tech debt as a service, which is what are startups that are building out things that were hard for my teams in the past to build or maintain inside previous companies? The other thing I'm working on is revamping the product strategy program for Reforge. I got some things keeping me busy, but definitely not as busy as I was last year.

Lenny (00:04:53):
This is like a rare, free agent Case Winters time. Should people reach out if they're interested in maybe working with you? What's your advice for people listening?

Casey Winters (00:05:00):
Yeah. I always love seeing how I can help companies. Everyone should err on the side of reaching out and seeing if I have time to help, if there's something they think I can help with. I love talking to startups, so yeah, absolutely. I can't promise anything, but yeah, I just love talking to people about this stuff.

Lenny (00:05:19):
Awesome. We'll point people to how to get in touch with you at the end of the episode, and it'll be in the show notes too. Talking about the CPO role, you're at Eventbrite. You're a CPO. It reminds me of a post you wrote about how hard the CPO role is. There's some quotes that I recall in your post about how, one, if you ever ask a CPO, chief product officer how they're doing, no one's ever going to say, "I'm crushing it right now."

Casey Winters (00:05:41):
Yeah.

Lenny (00:05:41):
Then there's this other quote about how you basically, as a CPO, just try to put some points on the board before you inevitably get fired. Why is that? Why do you find that, and do you still believe that to be true after leaving that role?

Casey Winters (00:05:53):
Yeah, I would say I still believe those things I said. It was funny. A product leader who will remain nameless emailed me when I hit year three at Eventbrite, and they said, "Congrats. You didn't get fired after two years. What's your secret?" I think it's very hard to keep product-market fit as a CPO within a company for a long time. The needs of the business shift over time, and of course, we all have different strengths and weaknesses in our game. No one's perfect at everything. In general, as an executive, it's just impossible to do everything perfectly, and any little misstep, mistake, or something you just missed can blow up in a major way.

(00:06:33):
Frequently, CEOs have visions that can change and get misaligned with the product leader. Also, with leadership roles, you don't get put on a PIP. If a CEO loses confidence, it's over immediately. Nothing like that happened at Eventbrite. I started to see that the areas of leverage for a product leader were just less in my wheelhouse over time. I just talked to my boss about it, and we worked out something where I continue to advise on the things that I'm uniquely good at, and find other people who are better at some of these other things that were maybe more important at the time.

(00:07:09):
Yeah, I'd say it's a really hard role, or a really challenging role. It can be a lot of fun. I learned a lot from doing it, but yeah, I still believe, and I think I've still yet to hear someone say they've really crushed it.

Lenny (00:07:26):
Is there anything that you learned from that experience to have survived in that role for three years? I imagine you have a lot of skills and you were very valuable to the company, but I don't know, for someone in that's role maybe right now, just like, "Here's something that I did that maybe you should do."

Casey Winters (00:07:40):
The first one I can think of is a big change from being a product leader to a CPO or something equivalent is you're actually a company exec first and a product exec second. I think some mistakes I made early that I corrected successfully is you want to show that you are caring and paying attention to the overall business first before just taking care of your own product designers, product managers, researchers, whoever. That's advice I found myself doling out to other product leaders a lot more now that I've gone through it. You have to not only truly care, but create the perception that you care about sales, about marketing, about legal, et cetera. Because first and foremost, you're expected to lead the business at that level, so I think that's something that I think is really important.

(00:08:35):
I think something else is really trying to diagnose, without as much bias as possible, where are the strengths and weaknesses of your team? Where are the strengths and weaknesses of your product? Lay that out with your peers and say, "Here's where we are. Here's where I think we need to go. Here's the timeline on which I'm going to work to get us there." Because I think product's such a confusing discipline for people who aren't in it, like a sales leader, many CEOs, a marketing leader, that they don't necessarily know what great looks like.

(00:09:14):
The things they know about great leadership, they don't know if you know those things, so you have to make it really clear, "Yeah, I know our OKRs are not as quantitative as they should be yet. That's because this team isn't ready for X, Y, and Z. This is where we're going to get them to, but it's going to take some time." One of the things we did at Eventbrite that I thought was really helpful is, when you go public, you tend to rotate over your executive team and get public company execs versus startup execs. A few of us were new, and it's just like, "Hey, let's do a deep dive on product. Let's do a deep dive on customer support. Where's it at right now? What do you feel like your job is? What do you feel like are the issues you're facing? Where do you want to take it over the next three to five years? Then, let's talk about it."

(00:09:57):
Just forcing you to write it all down is really helpful, but then it forces you to explain it. It helps the rest of the executive team get better company execs because now they really understand product a lot more deeply, or understand finance a lot more deeply, whatever the function is.

Lenny (00:10:15):
Speaking of gaps and opportunities for people in the company to level up, you've been highlighting this trend that I thought was really interesting, something you call the zero interest rate phenomenon product manager. Can you talk about what that is and what you've been noticing?

Casey Winters (00:10:33):
Yeah, sure thing. This is something I started noticing while managing PMs and product designers at Eventbrite, and it's now coming up with Whatnot as I help them hire new PMs, is the environment in which a lot of product managers have come up is very distorted from when you and I started doing this kind of work. I think we used to always describe PMs as this gang of misfits. We all started in all different functions. We all had different strengths and weaknesses, and the PM team gained as a whole from that diversity of skills and previous experiences.

(00:11:12):
What I noticed is, when we started doing product reviews at Eventbrite, if there was any sort of uncertainty in a problem or a solution, the product manager, instead of shipping to learn, would talk about all this research they have to do to really learn the problems, really learn the solution.

(00:11:30):
My feedback would be like, no, user research is a scarce resource. We have to reserve it for the areas that have extreme uncertainty and high leverage for getting to certain, so if you're redesigning the login page for Eventbrite, you don't need to use that resource to learn what to do. Just go see what FANG and the top unicorns did. They probably did a good job, and even if they didn't, all of our customers also use those products, so they're going to be familiar with us copying any approach that they've taken.

(00:12:05):
I think we sort of forgot in the industry that many times, the fastest way to learn is to ship, so that if you actually get them to skip research and just go look at competitors, another thing I was noticing is I'd get a list of options other companies have done, but there would be no analysis of why those companies chose different options and what's most applicable for us.

(00:12:31):
It got me thinking, okay, every new person on the product team is acting like they work at Google and have these infinite resources and infinite time to make sure everything is perfect. It became such this focus on the right way of doing product management that no one's taken any risk. I felt like, oh, am I responsible for this? I've created a bunch of frameworks on Reforge. I'm onboarding these new PMs. Is this my fault? At Reforge, we're building frameworks that are tools in a toolkit. You pull them out when relevant. They're not a coloring book to stay inside the lines of.

(00:13:10):
At one point, I got so fed up, I wrote an internal blog post, and I called it On Best Practices and Breakfast Rituals. I talked about how there were these articles about the morning habits of the most successful people, and if you try to do all those things, it'd take you like six hours every morning. There was this article, I think it was on Business Insider or something, about this futurist at Google. He talked about all the pills and food he eats for breakfast every morning to try to live longer. The reporter estimated that it cost him one million a year to have these habits, so I was like, "Hey, I want to make it clear. At Eventbrite, we don't have that much money. We don't have that much time. There's no framework that allows you to not use your brain at this company and just follow some sort of process for success in this profession."

(00:14:02):
I adopted this thing into a public blog post that's on my blog now, but now that I've had some time outside of Eventbrite, I feel like I at least partially missed the mark on what's really going on. I see this with Whatnot, because one of the things I'm helping them with is interviewing, I see PMs again, which I haven't done in a while. It's fascinating interviewing a PM or managers early in their career because Whatnot is a startup, and you know better than most of us as a former founder of one, startups typically require us to wear lots of hats. You have to write SQL. You have to talk directly to customers. You have to prep marketing and sales. Most importantly, you have to make a lot of decisions under uncertainty, which you wouldn't necessarily expect a PM to do at, say, a Google, but it all boils down to using your brain in different ways.

(00:14:54):
Lisa, who's on our legal team, she called Eventbrite a public startup because the pandemic basically erased her business and we had to build it back from scratch. Now that I'm doing these interviews, and whether they come from a small startup, a unicorn, or a public company, they all sort of look the same because there's been so much funding to all these companies. Every company's been acting like they're Google with Google margins, meaning a lot of engineering support, a lot of design support, a lot of research support, lots of analysts around them.

(00:15:22):
They actually seem pretty ill-prepared for a real startup, or even a public company with some uncertainty around it like Eventbrite, so you start getting these weird responses in the interview process. You ask them to solve a problem and they'd say things like, "I can't even begin to come up with solutions until I see all the data and talk to customers." I'm like, "Yeah, I get that's something you would normally do if you took the job, but you don't have the data. You can't talk to customers. Make a decision now. What would you do? I want to see how creative you are. I want to see how much you're intuiting about the real problem and solution," and they can't really answer.

(00:15:56):
Then my follow-up, which I don't ask, but what I really want to ask is like, "When's the last time you used your brain versus followed a process someone else designed at your company?" Because I want the former, not the latter.

Lenny (00:16:09):
Wow. Amazing. There's a lot of things I want to dig into here. I was going to ask why you call it zero interest rate phenomenon, but I think what I'm hearing is it's when interest rates are zero, everyone's got a lot of money, things are going great. Everyone looks like they're killing it, successful. Everyone thinks they've got it all figured out, and then when that goes away, it's like, "Oh, shit. Maybe not so."

Casey Winters (00:16:27):
Then also, I think zero interest rates allowed every startup to operate like it was a public company with billions of dollars. That's going to go away over the next five years, and it sort of takes us back to what product management used to be like, which was you didn't have all these resources around. You didn't have all this time to figure it out because if you don't figure it out now and make it work, you may run out of funding, right?

Lenny (00:16:51):
Yeah. Like a very concrete thing that's changed as a lot of research teams have been laid off because they grew really large and companies found, "Maybe we need don't need the ..." Like, "Of all the things we can cut, it's probably an area we can cut."

Casey Winters (00:17:02):
Yeah, for sure.

Lenny (00:17:04):
There's probably PMs listening to this wondering, "Shoot, am I one of these? Am I just following a bunch of frameworks?" What's your advice for someone that may fear that, "Oh, shoot. This is maybe who I am and I don't want to necessarily be this"? What could they maybe do?

Casey Winters (00:17:17):
I always advise going to companies where you can learn quickly and try things. I think it's certainly okay to learn a bunch of frameworks. There's a reason I've invested a ton of time in Reforge because I think it actually really does help people to see how other people build things in a way that they can scale it to their other companies, but you have to understand that the job is not to follow the process. The job is not to learn every framework possible. The job is to figure out how to add value to customers that translates into value to the business. Just reorient your North Star, if you've gotten away from that.

(00:17:53):
When I joined Eventbrite, there was this team that didn't ship anything in a quarter. I went to the designer who I knew, and I know that he likes to get stuff out there and likes to get feedback. I was like, "Dude, you didn't ship anything. How could you have gone the entire quarter, not shipped any of your designs and felt that that was okay? If you didn't feel it was okay, why did you censor yourself? Come to me. Tell me why this team is not letting you ship. There's just no way you can get better as a designer. There's no way you can have the impact on the company. There's no way you can have an impact on our users." Those are some things that come to mind to that question.

Lenny (00:18:36):
If you're a PM on a team that maybe isn't shipping, maybe is overusing research, do you have any advice of just like when it makes sense to invest in research? Say you have the resources, is there a rule of thumb you have of like, "Okay. Let's actually spend the time on this verse not"?

Casey Winters (00:18:51):
I think about it a little bit, depending on the type of job you have and the types of customers you have. The more scale you have tends to be you have less sophisticated customers because you're generally like a consumer thing where the customers are rational. They're not experts. That's generally where you just try things. You measure the impact they have, and you only really bring in USEARCH, research when the impact seems confusing, but you can run experiments. You can get data really easily, so bias towards getting stuff out there and seeing what users respond to.

Lenny (00:19:30):
In consumer product.

Casey Winters (00:19:31):
Right.

Lenny (00:19:31):
Interesting.

Casey Winters (00:19:31):
If you're super enterprise, it's the opposite. Each customer, first off, is sophisticated and tend to be rational. They're paying you like six figures or more, and you could talk to the customers and sales, who knows the customers really well directly, and they tell you want they want. They tell you what they're willing to pay for. You build it. They pay you. Bing, bang, boom. It's not, obviously, as simple as that, but you're basically doing the research directly with the customer and with the sales team, and translating that into things that are strategic to the business.

(00:20:02):
I would say those are the two extremes probably most people are familiar with, but we now have a lot of companies in the middle, where they have more customers. Those customers are more sophisticated. They're consumers. They're maybe employees at companies, or they're small businesses. That's where you have to be more nuanced. This, of course, is where Eventbrite was on, "Hey, when do I really lean in on research? When do I lean in on data? When do I pay attention to internal feedback?

(00:20:29):
" For Eventbrite, we really tried to focus research on the B2B side of Eventbrite, where the problems seemed big, but not well-defined enough. Or that problem's well-defined, but we just really don't feel like we have the right solution yet. If research is going to be a scarce resource inside the company, which I think it will in most places, you have to figure out where it's a high-leverage area, which means either really big problem, we don't understand it well enough, or we know the problem's big. We understand it well, but we're just not sure if our solution's going to, in any way, hit the mark.

Lenny (00:21:06):
Makes me think about some of the best researchers I've worked with, and they often tell me like, "We don't need to do research on this. We have enough information. We have other things we should be doing."

Casey Winters (00:21:13):
I love it when they say that. Yes.

Lenny (00:21:15):
Yeah. This would have been a really good segue to another topic I want to talk about, which is around gut instincts versus team expertise, which we're going to get to, but I have a couple more questions along these lines.

Casey Winters (00:21:24):
Sure.

Lenny (00:21:25):
You talked about interviewing PMs at Whatnot. Can you actually describe Whatnot? Just because you mentioned it a couple times, just so people know what we're talking about here.

Casey Winters (00:21:33):
Oh, sure. Whatnot's a livestreaming marketplace, mostly focused on the collectibles market. Sellers, whether it's like baseball cards, or women's handbags, or sneakers, they'll go live on video and show you the products they have that they're selling. People that are watching the stream can engage with the sellers and bid on different items, so kind of like Twitch meets eBay would be a good way to describe it.

Lenny (00:21:54):
Awesome, awesome. I'll just mention, I'm a tiny angel investor in that company.

Casey Winters (00:21:56):
Oh, that's why you brought it up. Okay, I get it.

Lenny (00:22:00):
Yeah, I just wanted to make sure people understood what this word was because it's like a fun word, Whatnot. What I wanted to actually get to is you said you were interviewing a lot of project managers for them.

Casey Winters (00:22:09):
Yeah.

Lenny (00:22:09):
What is your approach to interviewing PMs? What do you find is a really good signal for someone that's going to be successful?

Casey Winters (00:22:14):
I feel like the whole thing's gotten so performative. It's like interviewing is handing out Oscars based on who's prepared the best tell me about a time response, versus actually assessing who can do the job we're hiring for. It's like most PMs are better PM interviewers than PMs now. There's this quote from a movie called The Way of the Gun. I don't know if you've ever seen it.

Lenny (00:22:35):
No.

Casey Winters (00:22:36):
Benicio del Toro says in it, it's like, "These days, they want to be criminals more than they want to commit crime." I think about that quote a lot when it comes to interviewing. I would say I'm a bit contrarian here in my approach. I don't ask about your work history. I don't care about your perfectly practiced answers. I'm going to give you real scenarios that I expect from the role. I want to hear how you'd approach them. If you can't come up with a few reasonable ideas, figure out how to test them quickly without analyst support or research, I'm just not interested.

(00:23:10):
I'm not saying this is a perfect approach. Interviewing is a very lossy format, but the more I can see them do the job we're hiring for with questions, whether it's a presentation, a prompt, that gets me the most comfortable that they know the job they're signing up for, that they've shown in a practice scenario they can do it, and they actually enjoyed it in some way.

Lenny (00:23:29):
Are there red flags you look for in these interviews? One is maybe you said of like, "I can't even begin to answer this without research and data." Is there anything else?

Casey Winters (00:23:36):
Some things I pay attention to is if they're talking about solutions that are going to take a long time to get signal from, whether it's months and months of engineering time before you actually see the impact on users or the business, I think that's always great. If they're not factoring in the amount of time it will take, in general, is not a good sign, and not thinking a bit more holistically about the types of metrics they expect to improve versus track to make sure they haven't gone down. Those are some things that I pay a lot of attention to.

Lenny (00:24:11):
How much do you think they're intimidated by being interviewed by Casey Winters? How much do you think that factors in?

Casey Winters (00:24:16):
I think you overestimate my importance or awareness in the community. I think most people have no idea who I am when they start talking to me.

Lenny (00:24:25):
Mm-hmm. [inaudible 00:24:25] Another thought is there's this meme that GBT-4, or 5, or 6, or 10 is going to replace product managers, and anytime some new feature comes out, people will put out these videos of, "Oh, look. They're doing all the PM's jobs." What's your take on the future of PM in AI, if any?

Casey Winters (00:24:41):
Well, I think if you thought the PM job was just filling in the latest Reforge or Shreyas framework, and then getting that automatic FANG promotion every year and a half, then yeah, you're going to get replaced by AI. I think the real PM job is the least likely to get replaced over time because you need real subject matter expertise. You need to be trading off a lot of different types of things, and making good decisions for the company and for your customers.

(00:25:10):
In terms of using AI now as a PM, I'd actually be cautious in the current iteration of the cycle for PMs. It's a tool that's trained on sounding smart rather than always necessarily being smart. I was at Eventbrite the other day, and someone was telling me how they were loving the new Notion AI integration. She asked me if I used it. I said, "No." She's like, "Ah, you totally need to. Hey, go ask it your bio. It's really cool." I said, "All right. Let's just do it on your screen," so she did and my bio said I started my career at Google, and worked on Google Trends, and a bunch of other products, none of which happened. It was just complete nonsense.

(00:25:52):
It did have some stuff that did happen. It knew I worked at Eventbrite, and it knew I worked at Pinterest and stuff, but half of it was just completely made up. It sounded plausible, but it wasn't actually true. I think where I'm more inclined for PMs to try to get leverage out of something like GPT-4 is a lot of the tedious work that's maybe not their specialty to begin with. If you're not great at Excel or Google Sheets and you need to model something, you can ask it to format something. That'll probably be perfect, or how to get some Zapier integration to work. It probably knows how to do that really well.

(00:26:28):
I think, at this point, it's a pretty good no-code to low-code tool. It's obviously going to become a lot more than that, but for a lot of these other use cases that people are touting, there's a decent chance, confidently tells you the wrong thing, and that would scare me as a PM.

Lenny (00:26:45):
I've had the exact same experience. I had to describe what I've done, and it was like 70% mistaken.

Casey Winters (00:26:52):
Yeah.

Lenny (00:26:53):
Is there anything you've found value in yet with GPT of any kind in your work, or is it still kind of just poking around and novelty for you?

Casey Winters (00:27:00):
Yeah. I've had a couple of those things where it's like, "Hey, how do I actually get this weird thing done?" It's been like clear bullet points, take these steps, and I'm like, "Oh, great. This was actually really hard to find on Google." Things like that, I actually quite like it for, so that's where my head goes to more confidently use it. Of course, I'll try it and if it's wrong-

Lenny (00:27:24):
Just throw it away.

Casey Winters (00:27:25):
... I'll learn where it's wrong, so it's low-risk, but it's been right on some of those things and it's like, "Oh, cool. I couldn't figure out how to do that." There was something on Google Docs that I needed to figure out how to do that was kind of fancy. I asked ChatGPT. It told me how to do it, and I was like, "Oh, great."

Lenny (00:27:39):
I had a similar experience where I just needed a formula in Google Sheets, and just told it like, "I need this thing," and it just gives me the actual formula.

Casey Winters (00:27:45):
Yeah, that's so magical when it happens.

Lenny (00:27:47):
Yeah. I don't know. I'm not that good with Sheets formulas. Shifting course a little bit, you also wrote this really interesting post on founder intuition versus team expertise. There's a lot to it, and I think it's a really interesting topic because it's this classic discussion that startups have. How much should a founder trust their gut, and how much should it be top-down, "Here's what we should be doing" versus the team, bottom-up, figure out what to build? I'd love to spend a little time here. Maybe just to start broadly, what is this? You came up with a framework of how to think about when founder intuition should overrule, say, team expertise, and how that change over time, so maybe just talk about that.

Casey Winters (00:28:26):
Yeah. If founders are lucky/good enough to find product-market fit, they've usually built up all this intuition about their customers, about their product, and their business that are really hard to explain to others and may even be subconscious. When they start to hire people, these people will come in with a lot of excitement, ideas, maybe even really relevant experience, especially senior leaders. I've seen some founders are like, "Cool. I need to let these experts start to own these areas and get out of the geek house." I think that's actually the opposite of what you want, because none of these people know the business as well as you get it. You actually need to direct them until they show you they've really got it and are making better decisions than you would.

(00:29:17):
This is not a founder example, but I remember when I hired Erika Warren to build out our loyalty program at Grubhub, and she now leads growth at Change.org. After a month or so, she was like, "Dude, you're in all my meetings. I got this." That let me know she was in a different part of the situational leadership framework than I had put her in, so I backed away, and she crushed it from there.

(00:29:40):
Founders will put a lot of new leaders in that delegate bucket too quickly. It's like, "Ah, they got it. They know more than me," when founders actually know the right answer and should just tell them. This can, of course, change like in the case of Erika. If you hire the right people, they do get smarter than you. You can and you should start delegating. Many founders don't notice the signals where their founder intuition has been usurped by team expertise, or maybe it's just ebbed in effectiveness over time. That, of course, makes sense. Founders have all these different things they're dealing with, and your employees can really dive deep in certain areas. I encourage employees to proactively signal both directions, like, "Hey, I need direction from you." Or, "Hey, I got it from here. Trust me on this one."

Lenny (00:30:27):
Interesting. You're saying, as a founder, the heuristic should be if you feel confident about a decision, generally, you should be clear, like, "Hey, I think I know what we need to be doing here," and don't just make people feel better, necessarily, by just saying, "Okay. You tell us what you want to do." Then on the flip side, as an employee at the company, if you feel really confident about something, make it clear to the founder like, "I really think this is the right move." Is there anything more you want to add there?

Casey Winters (00:30:55):
Yeah. Well, there's obviously the feedback loop of that, of what happens when you do either of those things. Depending on the founder's response to that or the employee's response to that, there's different approaches you can take.

Lenny (00:31:13):
Part of this, you have this cool chart of just over time, the founder expertise becomes less and less relevant. I guess, is that because they just don't spend as much time with the customers because they have other stuff going on or they hire people that are smarter, and then over time, the team expertise goes up?

Casey Winters (00:31:26):
If you're lucky enough to scale a company, there's just more and more things going on that all will reach the founder in some way, but it means more breadth and less depth on any particular issue, and the reverse is true for people you hire. They're able to get really deep into things that maybe you were really deep into two years ago but you just can't stay deep in anymore. I built this chart on, or I guess I should say table on the different phases of a startup. When you're finding product-market fit, everything goes through the founders. You cannot outsource that.

(00:32:08):
Then when you start scaling the company because you found product-market fit, it's the first time that founders run into this classic problem of what got you here won't get you there. What got you to product-market fit was iterating on product and doing things that don't scale. Guess what? You found a product that works. Don't do that anymore. Make it scale. Don't come up with new products. You found the one that works. The reason I came up with this framework originally is when I was at Grubhub, we were scaling pretty nicely and fairly organically.

(00:32:39):
I think Mike and Matt, the founders, had intuited these phases of building a company pretty well, but we acquired a competitor and I saw how that company we acquired operated. Even though they were largely in the same phase as us, they still operated like they were founding the company. Everything was going through the founder. Intuitively, I was like, "Oh, this is why we're acquiring you, and not the other way around."

(00:33:09):
I think it's really hard for founders to get those signals organically, and I think it's up to us as employees to help. The founders can listen to the signals or not listen to those signals, but that's part of why we're here, but we should also give those signals when we're confident we really get it. Not come in day one being, "I know what your sales strategy should be. You're doing it all wrong." Because chances are, the founders weren't doing it all wrong. They knew something you don't know about yet.

Lenny (00:33:34):
What is it that you think made it such that you won and they didn't? Is it because they didn't invest, they didn't shift to scaling and delegating to their employees as much as the founder just telling everyone to do it?

Casey Winters (00:33:43):
Correct, right. Everything was not moving as quickly because everything had to go through the same person to get done. It just allowed them to not launch as many markets, not sign up as many restaurants, to not figure out as many growth channels, yeah, as we had done.

Lenny (00:33:59):
Got it. They just bottlenecked themselves and they weren't able to move as fast because the founder thought they needed to make these decisions, and they were still the ones that knew everything.

Casey Winters (00:34:08):
Yep.

Lenny (00:34:09):
That makes me think about most companies. Maybe not most, but many founders just believe they have the answers. They are confident they know what to do, and it's rare they get to a place of like, "Nah, I actually don't."

Casey Winters (00:34:22):
Well, I would say no one gets to it super intuitively.

Lenny (00:34:27):
Any advice for either as a employee at a company with a founder like that or leader, of just how to push back and help the founder understand, "Maybe you should let go and trust people to make decisions"?

Casey Winters (00:34:40):
I think the first thing is you have to understand that it's their company, not yours, and the founders have impossible jobs. They're not going to scale perfectly with the needs of the company. It's just something's going to be off. It may be because there's a whole lot of hubris by being the one of a thousand startups that made it, or they just have personal styles, but they can run the company any way they want.

(00:35:08):
I think it's sometimes surprising when founders actually want to run things suboptimally. I think we've seen examples where founders just want to build cool shit versus focusing on what customers want, or they're too obsessed with the design. They're always rebranding, redesigning things in ways that confuse customers. Of course, that's going to happen and those are some of the worst cases. I think if you do state your point, you've actually built up the expertise, you're confident and you are refuted for whatever reasons, you have to find ways to be contrarian and prove you're right.

(00:35:43):
Different founders have different forms of feedback they listen to. It might be talking to other CEOs, or other operators, or trusted advisors, certain customers. Some might be very data-oriented, so you just run the experiment and ask for forgiveness after you proved it works, whatever. Everyone's got a different thing they respond to. You try to figure out what actually influences the CEO and build that case, whether it's through an experiment, the right customer intro, the right external advisor. If they rebuke that as well, then you got to disagree and commit, or find a new company to join, or start your own. Like I said, it's their company. They can make the call.

(00:36:25):
I remember when I joined Pinterest, I was just coming off 100X increase in user growth from Grubhub. I was ready to drive the same sort of impact at Pinterest, but no one knew who I was. I didn't come from Facebook or Google like most of the other people, or Pinterest. No one gave a shit about Chicago startups at the time, so when they didn't trust my proposals, I just went and talked to the heads of growth at all the startups they did respect. I talked to Dropbox, I talked to Facebook. When they said all the same things I was saying but I said that they said it, not me, that was, sadly, more convincing. I didn't care because I still got what I wanted out of it, which is to do the right thing to grow the company.

Lenny (00:37:09):
Now you're one of those people that people go to. If Casey says it, it's probably the right way to do it.

Casey Winters (00:37:13):
Whether I'm correct or not, it is a role I sometimes play in the ecosystem, I will admit.

Lenny (00:37:17):
Is there an example where you were convinced something was the right way to go and the founder at one of the companies you worked at had a different opinion and they had ended up being right.

Casey Winters (00:37:25):
When I was at Grubhub, one of the ideas one of the founders came up with was to build an app for delivery drivers. At the time, restaurants had their own delivery drivers. They did not work for us. We wanted to build an app for the delivery drivers so you could see where the food was along the way, so you could know if it's five minutes away, whatever. Domino's was the first to have done this at the time, and we thought that would make a bunch of sense.

(00:37:48):
I was just like, "How am I supposed to convince the delivery driver, who doesn't have a relationship with us, to download the app from Grubhub, to actually turn it on, to create anxiety for the consumer of they maybe didn't take the right turn or, whatever?" I was like, "I don't think this makes sense. No one's going to use it," and Mike and Matt overruled me and pushed us to do it.

(00:38:10):
In the long run, it ended up being quite necessary because of the innovations around DoorDash, and Postmates, and later, Uber Eats having their own delivery network and us needing to counter that. That's, of course, a key piece of technology that needs to have parity with those new services. That was an area where perhaps, they were thinking a little bit more longer term than I was, and I was not able to get where they were going on the longer-term time horizon of how this would be actually ultimately adopted and useful.

Lenny (00:38:39):
This is an awesome segue to the next area, but real quick, how did they get drivers to start using this app? Was there anything really clever they did?

Casey Winters (00:38:45):
I think it was fairly low adoption for a while, and leveraging basically restaurant authority. If we're able to push on our restaurant customers effectively to say like, "Hey, if you use this, it'll get you more orders. We'll get you prominence in the UI," things like that to then push down to their direct relationships with the drivers to get them to adopt.

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(00:40:00):
Okay. Shifting to our last topic that I was excited to chat about is around network effects, and marketplaces, and SaaS, and how those things connect. I feel like you have the clearest way of thinking about and explaining network effects, so maybe just to start, can you just simply explain what is a network effect and then the different types of network effects that exist?

Casey Winters (00:40:21):
Yeah. No pressure after you say that. Yeah, so at it's core, a network effect is when a product or a business gets better with more users or customers using it. There's three types that I tend to focus on. The first and probably the most well-known is called direct network effects. That's when every additional user makes the product better for all the existing users. When someone joins WhatsApp, other people can talk to them that wouldn't be able to talk to them before, and that makes WhatsApp valuable, more valuable for everyone.

(00:40:55):
Then there are cross-side network effects where there's two distinct types of users, and adding an additional user on one side of the network makes it more valuable for all the types of users on the other side of the network and vice-versa. When a restaurant joins Grubhub, it creates more selection for users to order food, and when more users start ordering more food, Grubhub becomes more attractive for restaurants to join so they can make more money from delivery orders.

(00:41:21):
The last network effect I focus on is data network effects. That's when the quality or cost of something improves as more data is collected through the product. When you say content to Pinterest, to a board, it gives Pinterest signal on the quality of that content, its relevance to other pieces of content, since they're shared to the same board, and more signal on your preferences. This allows Pinterest to better recommend more content to you as well as to other people who look like you and share similar interests.

(00:41:55):
One thing that's tricky about these network effects is most people talk about network effects in the context of social network, not marketplaces or SaaS like my background. The thing that's really tricky in understanding social networks is they're traditionally described as these direct network effect businesses, but all of them have to become either cross-side and/or data and network effect businesses over time. The only companies that stay direct network effect businesses are these pure communication tools like Messenger, iMessage, WhatsApp. There isn't a clear path to make money with those, but you want to sell ads, you're becoming a cross-side network effect business. Also, creators verse consumers creates a cross-side network effect business. If you want to get better at personalization, guess what? You're recommending content by leveraging data network effects.

Lenny (00:42:45):
I love that. You nailed it. I imagine marketplace founders listening to this may be wondering, "Hey, can I add on these additional network effects? Can I evolve towards one of these?" What you're saying is not only can you, you need to, eventually.

Casey Winters (00:42:58):
I agree. I think they're a great form of defensibility, first off. Do they make sense for every business? No, but in a lot of cases, in order for you to evolve properly and continue to grow, they can become a necessity.

Lenny (00:43:11):
Are there any other examples of marketplace companies that come to mind that did a great job evolving or adding one of these network effects or are just interesting?

Casey Winters (00:43:19):
Let's take some inventory. I think Zillow is really interesting in that a real estate listing site is not particularly an interesting product, but the ability of saying, very rarely do both sides of this network, people who are buying homes and selling homes need to connect, but I can find a way for the brand to connect with both of them by giving real time pricing information on the value of homes, and that creates a much stickier product for both sides. I think that was a pretty genuine innovation that other people have tried and rarely been as successful with. That's one that definitely sticks with me off the top of my head.

Lenny (00:44:04):
Great. We've been talking about Grubhub a lot. Grubhub had some pretty strong network effects, in large part, thanks to the work you did. One of the benefits of network effects is it creates a barrier to entry. It's hard to replicate and compete with a company where they already have all this network effect, but famously, Grubhub got disrupted by DoorDash and Uber Eats. Maybe you can talk about how that happened and why that happened. It'd be cool to hear just like, what do you think they could have done differently and what happened where their network effect got eaten for lunch? Pun intended.

Casey Winters (00:44:35):
Sure. It's a great question. I think people do mistake any form of network effect as this perfect form of defensibility. They're the best form of defensibility, but that doesn't mean they're immune to disruption. I think the main way this happens with cross-side network effects that we typically talk about for marketplaces is when a disruptor dramatically expands selection. I want to be clear, I left Grubhub at the end of 2013 before said lunch was eaten, so what I'm communicating is more like public knowledge of watching these amazing companies compete, rather than being inside the fire at the time.

Lenny (00:45:10):
Great.

Casey Winters (00:45:11):
But one important thing to remember is Grubhub was an asset-light marketplace model. Restaurants did their own delivery through their own delivery drivers that they hired. I wrote this post for Andreessen Horowitz a few years ago about supply strategies and marketplaces, so in that you really need to be comprehensive or have exclusive inventory, and Grubhub strived to be comprehensive. We'd show every restaurant that delivered to you, even if we didn't work with them directly for online ordering. What happened about a year before I left Grubhub was that these competitors started to raise their seed rounds or series As to build delivery networks.

(00:45:51):
Postmates and DoorDash were the first two that rose to prominence. Uber Eats would come later, but they actually started with a pretty different business model, and this is an extremely different business. You're hiring drivers, you're managing logistics. We call this a heavily managed marketplace model, as you are now facilitating the transaction versus just connecting buyers and sellers and taking payments like Grubhub did.

(00:46:18):
On the one hand, you have Grubhub, this extremely high-margin business, and these businesses coming up are actually negative-margin businesses. At least they were for a long time. In 2013, Grubhub acquired Seamless, its closest competitor at the time. Seamless still had a lead on Grubhub in New York, partially because it had this corporate program where law firms, and banks, and consultants got lunch stipends you had to redeem by ordering the food through Seamless. Grubhub operated in these dense cities and suburbs like in New York because those were really places that had restaurants that had delivery.

(00:46:58):
DoorDash, when it started, operated in less dense suburbs and worked with restaurants that had never done delivery before, and they would provide the delivery drivers themselves. This allowed DoorDash to grow without much competition in the early days. These companies also took some real gambles. One of the things they did is they delivered from restaurants they didn't have an agreement with, and that caused controversy and lawsuits. What it meant is when these companies did launch in the cities to go after Grubhub, it felt like DoorDash, and Postmates, and Uber had dramatically larger selection of restaurants to choose from, and Grubhub was definitely no longer near comprehensive.

(00:47:40):
Back when we talked about cross-side network effects, the more selection of restaurants, the more attractive it is to users and vice-versa. At that point, Grubhub's put in a very peculiar position. It had gone public after raising $80 million in venture capital and raising a $100 million in an IPO, telling investors it's an extremely profitable, high-growth, asset-light marketplace, but now it's got disruption pressure from operationally intensive negative-margin delivery services that were raising $100 million every six months from the private markets.

(00:48:14):
What Grubhub assumed is that these businesses were just structurally unprofitable, and that VCs would stop subsidizing them eventually. Of course, that didn't happen. They kept raising more money. DoorDash eventually raised multiple billions of dollars in this market. Part of what they used that money for was to lock up agreements with national chains, which Grubhub never worked with. It was always like the local mom and pops, and promotions and discounts on the demand side. All of this is happening, and then the pandemic hits, and all of those negative margins turned positive for DoorDash for the first time, if I understand things correctly.

(00:48:53):
On top of that, all this corporate ordering that we got from Seamless no longer mattered because no one goes to the office anymore, so this gambit really paid off and DoorDash just took the market. Grubhub then tried to copy the approaches of DoorDash and Postmates. They wrote this famous letter saying that they still thought the approaches were stupid, but their hand was forced, which is kind of funny to read in retrospect. A lot of armchair thinkers are like, "How could Grubhub have been so stupid to let DoorDash take the market that they built?"

(00:49:24):
Look, I'll admit Grubhub made some mistakes, but I think it would have been extremely hard for Grubhub to come out on top here. Let's say in 2014 after you IPO, you do actually think what DoorDash, Postmates, and Uber are doing are smart. What do you do? Go to investors that you promised high growth and high profits and say you need to raise more money in debt to compete with negative-margin upstarts in a way that will destroy all that potential profit you mentioned? The stock would drop 90%. A lot of your employees would leave because their stock is now worthless. On top of that, building a delivery network is a heavy operations play that matches none of your core competencies, so to me, that feels like a death sentence.

(00:50:10):
I think the only play here was to buy DoorDash as early as possible, and let DoorDash and their operationally-heavy culture eat Grubhub from the inside out. I think Grubhub probably could have acquired them multiple times. For whatever reason, it never happened. It would have seemed pretty risky had Grubhub done that. Investors probably would have hated it, but it would have been their Netflix moment, where Netflix bet it all on streaming and they bet right. This is all incredibly easy to say in hindsight.

(00:50:43):
I think what I've learned now that I'm more senior in my career is during existential threats, it's like when Nassim Taleb says, "The only rational reaction is overreaction." Unless you have a real viable reason to assume otherwise, you got to assume the disruptor is right and base your strategy on them playing an optimal game. Whereas, I think Grubhub assumed the disruptor was wrong and that it would all play out eventually in their favor, and it clearly didn't.

Lenny (00:51:14):
Wow. I have never heard that full story. That was amazing. Thank you for getting in so much detail there.

Casey Winters (00:51:19):
I don't know how much of it is right, but-

Lenny (00:51:22):
It seems right, from the outside. It's interesting that it's like a version of innovator's dilemma. Usually, innovator's dilemma is people come and do something cheaper at the low end of the market. In this case, it was more they were doing something that they didn't believe would scale. It was just much more inefficient-

Casey Winters (00:51:36):
Correct.

Lenny (00:51:36):
... even though it was a better experience. Is that innovator's dilemma, or is that some other version of innovator's dilemma? Because to your point, they couldn't almost go after it.

Casey Winters (00:51:45):
I think it is in spirit, for sure.

Lenny (00:51:48):
The takeaway there that you've learned is don't underestimate someone that's trying to do something that's going to eat your lunch eventually, even though it feels like a terrible business model.

Casey Winters (00:52:00):
Right. If the market's rewarding it, the market will probably find a way to make it profitable. It's essentially, when everyone's find a more efficient network effect for demand on the marketplace side, you probably need to copy that as soon as possible, and if you can't copy it, own it, buy it. I think we've seen this a few times. Rover and Wag was another interesting example of this, where they found a more frequent use case that fit the same supply and demand, and Rover just copied it as soon as possible. That ended up working out for them in a way that it didn't as much for Grubhub.

Lenny (00:52:37):
I just did a talk recently on marketplace growth strategy, and someone asked me a really interesting question. "If you were trying to go up against a DoorDash or an Uber today, what would you do?" My answer is just like, money was so freely available at that point that they were able to ... A lot of this was spend. They had so much money raised. You said they were raising $100 million every six months. Is it even possible in today's climate, where you can't actually raise that much money, to have any sort of chance to beat a DoorDash or an Uber?

Casey Winters (00:53:05):
Yeah, clearly, they took advantage of the zero interest rate environments that we talked about earlier. That is not a replicable strategy in 2023. Any approach to compete with them has to be competing on a very different angle because, yeah, they can spend you into the dust. We'll see if anyone's able to build a way that creates new supply in market. I think you and I have seen a couple of earlier stage examples of that. We'll see if any of them scale, or something that feels cheaper or more fun on the demand side. That would be another way to potentially disrupt things.

(00:53:40):
I think another thing that was working pretty well before the pandemic in building disrupters was focusing on the pickup use case, which DoorDash cannot do as easily. They've tried, but their whole value prop is the delivery network, which you don't need for pickup. Of course, the pandemic put a lot of those startups grinding to a halt as well. There's always angles, but you're going to need to be incredibly clever because just attacking with a war chest is not really going to work.

Lenny (00:54:09):
Yeah. I noticed a lot of startups launching that are trying to do white label delivery for restaurants so they don't have to rely on DoorDash, but maybe that's a wedge to get in, and eventually they do the DoorDash sort of thing.

Casey Winters (00:54:20):
Yeah, and I would say I'm pretty skeptical of those because they're just not really building the network effects on the demand side. They're just more like SaaS businesses. I think those struggle to be multi-$100 million in revenue businesses because the take rate is typically like a third or a fourth of what a DoorDash can charge.

Lenny (00:54:39):
Perfect segue to my next question, and I only have a couple more. There's this concept and I think pull from marketplace founders to add a SaaS tool, eventually, and have both business models. Then there's often the reverse, where a SaaS company wants to add a marketplace. I know this question is something you get a lot, and so just a question for you. Does this work? Are there examples where they've added this additional way of making money? Which direction do you find is most often successful and not successful?

Casey Winters (00:55:11):
The canonical example that a lot of these founders use is OpenTable. That always felt really unfulfilling to me because it's very old at this point. Probably the younger people listening to the podcast are like, "What's OpenTable?" I think that business has incredibly underperformed the market it operated in. It had a good exit. It sold for $2.6 billion, I think, to Booking.com, but Booking subsequently wrote that value down below a billion, so that's not really the outcome I think we're looking for, traditionally, in marketplaces.

Lenny (00:55:43):
Maybe explain what it was initially, the SaaS tool versus a financial marketplace.

Casey Winters (00:55:47):
Oh, sure. OpenTable promised both a SaaS tool that would help you understand what tables are open and where to seat people, so for the host in the front of the house in a restaurant, but also bring in additional reservations to fill up your restaurant. Because I think what people misunderstand about restaurants is they're, "Oh, these restaurants are these incredibly low-margin businesses." It's like, yeah, they are because they're paying the rent no matter what.

(00:56:14):
Once you're already paying the rent no matter what happens, you're incentivized to pump as much food out the kitchen and to get as many people seated in-house as possible. People would say like, "Oh, Grubhub and DoorDash are charging too much." It's like, no, delivery orders and catering orders are basically pure margin to restaurants. The chefs are already there. The rent is already being paid. "The more things we pump out of the kitchen, the more money we make," which is why restaurants are willing to pay higher fees. These restaurants are not stupid. They're not being misinformed. OpenTable, well before there were any delivery startups, was like, "We're going to fill up your tables, and we're going to give you software that helps you manage your tables most effectively to make the most profit."

Lenny (00:57:01):
Got it. Okay, great. If you've got-

Casey Winters (00:57:05):
That's OpenTable. Look, this is definitely the strategy we are working on with Eventbrite, where we started with something that was more SaaS-like, enabling easy payments and certain tools to make event creators' business more efficient, and we're layering in more of the traditional marketplace value prop of demand, driving more ticket sales for these event creators. I would say it's got a ways to go to be working really well.

(00:57:29):
What does working really well look like? It's when the marketplace model unlocks those cross-side network effects that make it easier to grow. Event creators, when Eventbrite started, they would just go do their own marketing to bring people to Eventbrite to transact on their events that they had listed there. Now Eventbrite drives 25% of the ticket sales itself, and that percentage is growing faster than-

Lenny (00:57:52):
Oh, wow. That's amazing.

Casey Winters (00:57:52):
Yeah. It's growing faster than the rest of the business, which is great, but it probably needs to be closer to 50% to unlock those really cross-side network effects. That would mean that creators start selecting Eventbrite because of all the demand Eventbrite has versus the quality of the SaaS tools. That's obviously something we're working on. Faire is a company I advised more recently that I think has unlocked this model in the reverse, where Faire is a wholesale marketplace between independent retailers and brands so that you could sell products at these retailers, like a boutique in your local neighborhood.

(00:58:29):
Faire built the marketplace first, and then it later built a SaaS tool that allowed the brands to onboard their current retailers into the platform and get better terms on payments and free returns. It didn't charge anything to use the SaaS tool for any rebookings that happened through that platform. What that did is it onboarded more independent retailers that they could cross-sell to other brands without needing to use a sales team. When they cross-sold, of course, Faire did take their percentage on those transactions. I think that model's worked out really well, and Faire has grown quite quickly.

Lenny (00:59:06):
The examples you gave, Eventbrite was a SaaS tool trying to add a marketplace.

Casey Winters (00:59:10):
Yep.

Lenny (00:59:10):
Faire is an example of a marketplace adding a SaaS tool. Is the takeaway there that it's, in your experience, it's generally more ... You're going to have a better time if you're a marketplace adding a SaaS tool versus the other way around?

Casey Winters (00:59:24):
Yeah. I think that's right. I think, I don't know when it was. Just maybe like 2015 or whatever. A bunch of investors started writing about SaaS to marketplace transitions, and that's the transition Eventbrite's going through. It's going to work, but it's hard. It's not replicable for a lot of other SaaS businesses. You need to have a direct relationship with your customers' customers, first off. Those customers need to have needs beyond that single supplier.

(00:59:50):
Usually, it's like a discovery value prop for other suppliers, and you need to build this totally new skill set to build tools for your customer's customer, who is very different from your current customer. Whereas, marketplace is that added SaaS component. It's a customer acquisition tool like Faire, or a workflow, or a retention tool to increase retention or reduce disintermediation. I think you'll see that be a lot more common approach and much more replicable.

Lenny (01:00:20):
Is this just rooted in the fact that marketplaces are incredibly hard, no matter whether you start with them or whether you add them? Is that the root of the issue here?

Casey Winters (01:00:28):
I think that's a good way to frame it. If you're building a startup in 2023 and you're like, "Oh, I'm going to build a SaaS business, and then five years later, I'm going to build this marketplace business on top of that," it's kind of like it's going to take a long time for you to de-risk the hardest part of that strategy. Whereas, if you get the hard part done upfront, it opens up a lot of amazing adjacencies, different ways to grow. I think there's definitely truth in that statement.

Lenny (01:00:54):
The takeaway here is that if you're trying to add a marketplace, it's going to be very hard. You shared a couple things, a couple attributes that tell you that maybe it might work. Maybe just share those again real quick.

Casey Winters (01:01:07):
Take Square, or Substack, or Patreon, or Eventbrite. All of these are examples of SaaS businesses that in providing a SaaS service, deal with the customer and the customer's customer. That makes it a lot easier because you already have a relationship. They already know your brand, whereas, Stripe, we buy things. We don't know if we're buying it through Stripe. It's just a SaaS tool that's white labeled on the backend. We have no idea. I think that's the first element. There's a lot of businesses that look like that, but it is a subset of SaaS businesses that look like that.

(01:01:38):
Then secondly, those customers that you're building a relationship with, they need to have a reason to transact with more than one of your current customers on the supply side, so if you're always going to use that same supplier, there's no need for me to show you the rest of the inventory.

(01:01:57):
Basically, all marketplaces win on, like we mentioned, selection and you needing selection. Then there's, of course, the marketplaces that win with standardization of like, I can get it at any time. It might be from different people, but I know that Uber car is going to be there in five minutes, or whatever. I don't care as much who the driver is. One of those has to be there. You just find in a lot of these examples, there isn't really that much of a discovery need for who the demand side would be in this theoretical marketplace when you dig into it.

Lenny (01:02:31):
It might be helpful just to define what makes it a marketplace. In my eyes, it's you're driving demand through supply. That's like the nuance, right? Because otherwise, you're just a tool that they're using to do something they want to do.

Casey Winters (01:02:42):
Yeah. Exactly, right. It's like the primary value prop of why supply signs up is that you're going to bring them extra business. If you have customer, buyers and sellers, but the primary reason supply signs up is for tooling or payments like how Eventbrite started, that's not really a marketplace. I call it a SaaS-like network. Some people might just call it a SaaS business, a payments business, whatever the case may be, but it doesn't really have those cross-side network effects that we associate with marketplaces.

Lenny (01:03:10):
What this makes me think about is Patreon and Substack. Interestingly, when I was looking at early Patreon days, what I understand is they wanted to be a marketplace. They wanted to be a place where artists come. They collect payment, and then people can discover artists to patronize. What they found is nobody needed ... That wasn't a problem anyone had.

Casey Winters (01:03:29):
Exactly, exactly.

Lenny (01:03:30):
I'm not looking for- [inaudible 01:03:31]

Casey Winters (01:03:30):
I'm not looking for other people to donate money to. Same with GoFundMe, right?

Lenny (01:03:33):
With that story in mind, when I was chatting with the Substack people early on, it was like this is exactly what you're going to run into. No one's sitting around looking for more newsletters to subscribe to, but shockingly, they've actually pulled it off.

Casey Winters (01:03:47):
Yeah.

Lenny (01:03:47):
They have a really wild network effect going now and marketplace.

Casey Winters (01:03:50):
I've been very impressed with what they've built. I don't know if I'd call it a marketplace yet, but I think they were able to abstract a way, the version of what you just said to something that was actually useful, which is, yes, I don't want more emails to subscribe to, but I do ... I am fundamentally interested in more articles relevant to my interests. No one has really solved that super well.

(01:04:15):
Twitter was a very hacky form of that, where I follow you and then I see you when you post a new blog because you tell everyone on Twitter you posted a new blog, but it isn't built for that. Whereas the Substack reader will now allow me to be like, "Ah, yeah. Sure, I'll subscribe," so I really like what they've done. It'll be interesting to see how big a business that is and how it all plays out. I think their execution has been really solid.

Lenny (01:04:39):
Awesome. I feel the same way. I also wasn't sure whether it makes ... it's worth calling a marketplace, but for whatever it's worth, 80% of my new signups are coming from Substack's network, the recommendations feature and their onboarding, things like that. Like-

Casey Winters (01:04:52):
Do you think that's unique to you because you're already a top one percenter Substacker? Or is that a meaningful number for new-ish players? If I finally switch my email list to Substack, which has been on my list for a long time, that probably won't be the same percentage for me, right?

Lenny (01:05:11):
Absolutely not. Yeah, no, I think there's definitely, if you're there first and people know of you, more people will recommend you. I think, over time, more and more people start to recommend you. I think they released a stat that something like 40% of their new users are coming from a recommendation, or new signups or something like that. It's pretty widely happening, but I don't know how much-

Casey Winters (01:05:31):
That's excellent.

Lenny (01:05:32):
... of that is just the top 10, so it's pretty incredible. It was a really innovative feature and good job, Substack. We had a product on this podcast talking about that exact feature for a whole hour, if you're interested.

Casey Winters (01:05:43):
Awesome.

Lenny (01:05:43):
Okay. Final question, and then we have our very exciting lightening round. This is around consumer companies and consumer subscription companies. I know you work with a lot of founders that are building consumer subscription companies, and just consumer startups in general.

Casey Winters (01:05:57):
Yep.

Lenny (01:05:58):
You often tell me how they're incredibly hard to build into thriving businesses. Can you just talk about why consumer subscription startups are so hard and products are so hard?

Casey Winters (01:06:07):
I feel like we're making this quite a downer podcast, Lenny, but-

Lenny (01:06:10):
This is, people need to hear the truth. There's a lot of happy talk out there, and a lot of posts, "Here's how you do this."

Casey Winters (01:06:16):
Sure.

Lenny (01:06:17):
Sometimes, you can't.

Casey Winters (01:06:18):
I think in order to understand these businesses, you have to start with, why do investors like B2B SaaS? Why do they like B2B subscription? I think the way most people respond to that question, they say like, "Oh, predictable revenue, right?" It's like, ah, sure. That's cool and all, but I think that's actually not the most important. I'd argue there's two great attributes of B2B SaaS. One is that businesses are more predictable in how well they're routine. They're rational. You can understand who are good versus bad businesses for your product, as well as which ones are going to grow versus go out of business.

(01:06:53):
More importantly, the second thing that's great about B2B SaaS is net dollar retention. What is net dollar retention if you don't work at SaaS? Well, as a SaaS company, some of your customers are going to churn. Some of your customers are going to stay. Normally, normally outside of potentially current macroeconomic conditions with all the layoffs, when customers do stick around, they tend to spend more. Either they buy more seats if you're a seat-based model, or they use the product more if you're a usage model. The SaaS company just makes more money in year two, year three, et cetera.

(01:07:27):
Consumer subscription just doesn't have any of these benefits. Consumers are way less predictable. They tend to retain worse than businesses, and they also don't have net dollar retention characteristics. If the user retains paying you in year two, you probably making the same amount that you made from them in year one, not more. What that means is you need higher user-based retention than B2B SaaS businesses with more unpredictable users, and it's a lot higher than, I think, founders tend to think. We're talking annual retention that needs to be north of 60, perhaps even 70%.

(01:08:04):
You look at who's actually been able to do that at scale, and it's a really small list. Netflix in the U.S., Amazon Prime, Spotify, Duolingo, I think, is emerging as one of these players that's making it work. When you look at how they do it, they're either doing it with massive OPEX and economies of scale, or through a network effect, or some other bespoke growth loop that's not that easy to replicate. Duolingo has a strong data network effect. The lessons get better the more people use it. Beek, the company I'm on the board of has a cross-side network effect between creators who create the content and the listeners, and the creators bring a lot of distribution from their existing social networks to bring new people in the app to listen. Netflix and Amazon, they spend billions of dollars on content.

(01:08:58):
I think the default path of like, "I'm going to spend money on paid acquisition. I'm going to retain half of my audience year-over-year." That's just a path to go on eventually. I think what's interesting about these businesses is you can model it so you can learn when it's going to happen. You can learn when the retention dips, and when you can no longer profitably acquire users. If you want to look at a model in real time, just look at Blue Apron. The company raised $300 million in an IPO that valued it at $2 billion. It's worth $50 million today on the New York Stock Exchange.

(01:09:35):
I think people understand now, if they didn't before, that paid acquisition tends to get worse as you scale. You target the best customers first. They have great conversion, great retention, and then as you expand your targeting of new customers, every one of those metrics gets worse until it's no longer profitable. Maybe two years from now, it may be be five years from now, but eventually, it'll be no longer profitable. What network effects allow you to do is they allow your product to get better faster than the customers you target get worse, normally, through increased selection, like some of the examples we gave with DoorDash and others.

Lenny (01:10:11):
This is such a cool topic. I actually have a post about this that I recalled now as you're talking about it. Just to double-click on the retention point and it's like, freaks you out when you really get into it. That say your retention is like 70% cohort retention for a year. I forget the math, but every three or four years, you basically have to rebuild your entire user base because it just, it keeps trickling out, so your growth just has to continue-

Casey Winters (01:10:34):
It's mind-boggling. You run out of humans. Yeah, it's really hard. If you can retain people incredibly well, meaning those people just never churn, yeah, you've got a great business, but look at the effort the companies that have done that are doing to do that. Spotify doesn't make profit. Netflix, Amazon just spend so much money to try to do that. How replicable is that for a startup? I'd rather say like, "Let's try and get some network effects involved here. Let's get our customer acquisition cost to zero. Let's think about other ways to monetize because this alone feels like [inaudible 01:11:07]."

Lenny (01:11:08):
This is also why a lot of these companies pivot to B2B. They realize they're not going to get anywhere with B2C. The other lesson I took away ... Because I interviewed a lot of these early B2C subscription app founders and employees, and I think about companies like Grammarly, Duolingo, Noom. Forget. There are a few more. One of the other trends across them all is they're all very efficient and very small for a long time because they needed time to figure out how to make anything work and then just continue to stay small and super scrappy.

Casey Winters (01:11:37):
I think that's a great point. It was an interesting case study between Calm and Headspace. Because Calm remained like 10 people forever.

Lenny (01:11:44):
Wow.

Casey Winters (01:11:45):
Headspace had gone into like hundreds of people. Calm basically never lost money, and that allowed them to pivot easier during massive changes, like app tracking transparency threw a wrench into all paid acquisition. If you're not losing money, cool. You have time to figure out how to grow again, but if that increases your burn by like $100 million, you have a lot more of a panic on your hands.

Lenny (01:12:12):
Maybe just to tie the loop, tie the knot, close the thread on this topic, if you're a B2C subscription founder, what would be some takeaways that you would want to put in their head to think about how to maybe survive?

Casey Winters (01:12:26):
Yeah, so if what your plan is is to use paid acquisition on top of a freemium model to get a percentage of people to convert, and hopefully, stick around forever, I'd pivot right now. It's like, I just cannot see it working. How do you pivot? Well, how do you make it social so that people are bringing in other people? How do you get a supply side to the content, or education, or whatever you're building and make it in the supply side's interest to refer people?

(01:12:55):
You have to do something that's either building some more organic growth loops into the business, or building network effects into the business, or else we could go spend two hours and model out exactly when you're going to run out of money. It's just that predictable. A lot of founders don't like to hear it when I tell them that, but I'd rather them hear it now than learn it three years from now.

Lenny (01:13:15):
Well, we've reached our very exciting lightening round. I'm just going to dive right in. What are two or three books that you've most recommended to other people?

Casey Winters (01:13:23):
Definitely The Goal by Eliyahu Goldratt, which explains how my brain works, pretty well. Thinking, Fast and Slow by Danny Kahneman. I took a lot of the behavioral economics classes in my MBA program, and then his book came out the year after, so I just absorbed it as quick as possible.

Lenny (01:13:48):
Was he your professor, or that was just the topic?

Casey Winters (01:13:51):
Some of his pupils were professors of mine, yeah.

Lenny (01:13:54):
Amazing. Very cool.

Casey Winters (01:13:57):
Then the third is a book called Profit from the Core by Chris Zook.

Lenny (01:14:02):
Amazing. That's a new one. I love when there's new books being added to the collection.

Casey Winters (01:14:05):
There you go.

Lenny (01:14:06):
Okay. Next question. Favorite recent movie or TV show?

Casey Winters (01:14:11):
Well, Party Down just came back and that's like-

Lenny (01:14:14):
I've been watching that.

Casey Winters (01:14:15):
That's one of my favorite-

Lenny (01:14:16):
I'd never heard of it.

Casey Winters (01:14:16):
It's one of my favorite comedies of all time. Yeah, go back-

Lenny (01:14:18):
Cool.

Casey Winters (01:14:19):
Go back and watch the first couple seasons if you haven't.

Lenny (01:14:20):
That's what I've been doing. That's what I've been doing.

Casey Winters (01:14:21):
Okay. Great, great. Other things like The Last of Us is great. I really enjoyed the video games. Severance is great. Station Eleven is great. I loved the book too, but I thought that was really good. Movies, there haven't really been a lot of great movies lately, but I did rewatch Kicking and Screaming from the '90s. I think it really holds up well. I don't know how many of you have heard it, but it's about a group of college kids who graduate, but they just decide not to leave campus and start their lives, and they just stick around campus. I really enjoyed that one.

Lenny (01:14:58):
Amazing. We have a drinking game any time someone mentions Last of Us, so if you're driving to work listening to your podcast on your commute, take some coffee or whatever you got.

(01:15:09):
Two more questions. What's something relatively minor you've changed in your product development process, or maybe that you've recommended people change that has had a tremendous impact on people's ability to execute?

Casey Winters (01:15:21):
I preach cross-functional teams and alignment pretty aggressively, so how to get people from all the different functions aligned on the same OKRs and working together. I used to say like, "Look, if someone in that cross-functional team is pulling rank, it means something's fucked up on the team."

(01:15:39):
Something we started doing more recently at both Eventbrite and Whatnot is just designating the person on the cross-functional team who drives the project. At Eventbrite, we call it the driver. At Whatnot, we call it the DRI, directly responsible individual. Once that person makes the call, it's disagree and commit time. There's no escalation path. If you're not the DRI and you're on the team and they made the call, all right. It's time to sign up and go forward on that decision. If they made the wrong decision later, okay, we'll learn once we ship.

Lenny (01:16:11):
Final question. Something I love that you do in your own newsletter and blog is you share what you're listening to. What are you listening to these days?

Casey Winters (01:16:19):
Sure. Kelela recently came out with her second album, Raven, which is really great. I've been listening to that. Orbital came out with a new album called Optimal Delusion that's been pretty good. Then an oldie but goodie is De La Soul's music finally came out on Spotify, and the Stakes Is High is one of my favorite hip hop albums ever, so I've been jamming to that.

Lenny (01:16:45):
Amazing. Where can folks find you online if they want to reach out, learn more, and how can listeners be useful to you?

Casey Winters (01:16:50):
I blog not near as frequently as you at caseyaccidental.com. You can find me on Twitter @onecaseman. Yeah, just pay it forward. Help your companies build better products and better businesses. That's all I care about.

Lenny (01:17:06):
Casey, thank you so much for being here. I feel like we're building some kind of network effect, you and I, doing these podcasts. Hopefully, you'll be back for a third time someday. Thank you again. Really appreciate it.

Casey Winters (01:17:15):
Yeah. Thanks for having me. Hopefully, they don't get sick of me by then.

Lenny (01:17:17):
Bye, everyone.

(01:17:22):
(singing)

(01:17:22):
Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at lennyspodcast.com. See you in the next episode.

(01:17:45):
(singing)

How to sell your ideas and rise within your company | Casey Winters, Eventbrite

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