Pricing and retention strategies of a $200M+ exit (Patrick Campbell of Profitwell)

This next session is with Patrick Campbell. This is from our Leveling Up Founders event. Patrick recently sold his company for about $250 million, and he is going to be talking about pricing and retention strategies. He's also gonna be talking about people as well. Patrick is amazing. Without further ado, check it out.

When we closed April 28th, literally that night, I went out to dinner with kind of like the closest folks inside the company. The question, without anyone prompting it, without anyone setting the agenda, was, why weren't we a billion-dollar exit? Long story short, what was really interesting is this type of question was really powerful for us because what we had realized is that throughout the journey for a decade, we were not always professionals as we should have been. The thing that was really, really fascinating about it is as we went deeper and deeper on this particular question, we started to realize there were so many different things that we waited too long on. we were penny-wise and pound-foolish on, and also things that we were just so insecure about doing that it definitely eroded our opportunity and eroded our growth in different ways. Even though we had a really, really good outcome in the whole situation, it's one of those things that, this is the thing that keeps me up at night right now of, oh, I need to be better, I need to be that professional. The reason I'm bringing it up to you today is because a lot of you are also, maybe not amateurs overall, but you're having a lot of amateur moments when you're building out your business. There's a lot of reasons why you have this particular fear. It's really important for you to understand why, but also understand these little points within your business where you're saying things like, well, what if this doesn't work? Are they going to quit? Oh my God, I have to appease them. Ultimately, what if they don't like me? Which, even if you're the most confident person in this room, you're still gonna have that, especially in the early days. What we're gonna walk through, just based on that kind of reflection that I've had the past couple of months, is really how we can not necessarily get over this fear, 'cause I think fear is something that's just innate in building a business, and there's this founder and this executive fear that happens that ultimately does drive you, but how can we have these little nudges that make it a little bit easier? What are these frameworks, what are these little things that we can do to get over some of these little fearful parts that permeate throughout our business? I got 3 big points. First, people. In the first couple of months of founding the company, someone told me, you'll fail if you don't focus on people and culture. I thought this was the biggest crock of shit that I'd ever heard. I was like, no, it's gonna be the product, it's gonna be the marketing, it's gonna be the sales, something's gonna happen. And then at the end of the day, you're like, oh, you're such an idiot, Patrick. Of course it's the people, because as you continue to grow, even if you get to a dozen employees, let alone 50, let alone 100, let alone 500, your people are the thing that build the thing, right? The problem is, is that we tend to suck at people. For those of you that know me, I always bring data, so here's some interesting data that I did to research here. The average time it takes to fire someone is 7.8 months, which is insane, right? And this is from the point of like, I should fire this person to like, they're actually outside of the business, right? The average tenure of leadership, managers, directors, and VPs, is 18.7 months. So we spend all this time trying to go find the person, we spend all this money on bringing this person in, we hopefully train this person a little bit, but as we'll find out in a second, we don't really do that even, and then they're gone within a year and a half, right? And then my personal favorite is only 1 in 5 companies has some sort of onboarding, some sort of recruiting and hiring formal process. And this doesn't mean just a recruiter, but actually alignment within the recruiting and hiring processes, right? So we all retweet the articles that tell us that people are really important. We all talk about how bad it is at recruiting. We all talk about how bad it is to find leaders so that we can get out of our businesses. But then we don't have any of these things that actually help us get out of our business. And the one piece that I found was really, really difficult for us is just reinforcing our values and making sure that our values and the behaviors that we wanted to encourage actually permeated throughout our culture. And with values, a lot of people talk about these things, but what really unlocked this for me and for us was that if you have a value that doesn't have a trade-off, you don't really have a value or a principle that you're trying to build your company around. And that's a little fluffy, it's a little too fluffy for me, and so let me give you a little bit of an example. We really believe in this whole concept of giving the most charitable interpretation. And what this basically means is that there's always going to be conflict within a group, but when a conflict happens at ProfitWell, we basically believe that your job, no matter who you were, was to look at that conflict and go, ah, John didn't really know that that thing was going to bother me. Let me give him the benefit of the doubt and move on. And if I couldn't do that, my job was to then go to John and be like, either positively or negatively, John, that really aggravated me, maybe you didn't know, or, John, hey, that really pissed me off, right? I need to go to the person and actually have integrity with that conflict and have a conversation. If I found that I couldn't do that, that's when I went to a manager, another manager, or an executive, or someone like that, and then finally, if I couldn't feel like I could do any of those things, that's when I went to HR. So this was the order of operations that we believed in handling conflict at ProfitWell, and then of course, for the God forbid things, we're all adults, so in terms of judgment, if you feel like there's a God forbid thing, that's when you go right to HR, right?

Right?

Well, this concept, although a lot of you who are operators are like, yeah, of course, this is how you should do this, this is a pretty controversial thing if you really think about it. Because people are like, well, I should be going right to HR, right? That's the trade-off. This is a little bit of a different way of actually doing things. And if you really believe in something, if you believe that's gonna be your basically competitive advantage in building a culture, you have to be willing to hire, you have to be willing to fire on it. Couple things that we ended up doing. We put these concepts that we thought were trade-offs and controversial in jobs descriptions. We wrote a memo and basically sent it to them before we were gonna give them an offer and be like, hey, this is what you're getting into. Are you okay with this? And it wasn't just this. It was feedback culture, how we think about things, how we run things, et cetera. And then ultimately, we also designed interview questions around this. And this is where I think a lot of people are missing out on. 2 questions that really helped with this that are a little ironic, it took a little bit of A/B testing to get this. What are the 5 happiest moments of your life? And then the second question, what are 2 of the top 10 worst moments of your life? I didn't inherently care about their answers, like, I'm not a psychologist, so I'm not looking for it. But what was really powerful about this is that I'm asking them to get a little personal, and they don't— like, I don't know if these are actually their 5 happiest moments or anything like that. But we would get people who'd be offended by these questions. Oh, these are too personal. And we would say, listen, no judgment. But we're like 50 people, we're 100 people, we're gonna have to get personal, we're gonna have to have conversations, and if this is something that offends you, we're just not the place for you, and that's totally okay. You gotta define and defend your people. And then last thing on people, you get what you pay for. This is where we screwed up so much. We were paying, we'll get a sales manager for 120 OTE, right? That's gonna be amazing. And it's like, if you're not uncomfortable with how much you're gonna pay someone to take over a function, You're probably not paying them enough, and you're not getting the right people. Let's talk about pricing and retention. You should ask yourself this question every single month. I don't really care what type of business you're in. If you're in SaaS, not in SaaS, basically like what if a private equity firm bought us tomorrow? I have this on a recurring calendar invite at the first of every month because it's a forcing function since private equity firms, I love them to death, but they are vampires for lifetime value, right? They are professionals. Their goal is to buy a company. and do all of the things that you were too much of a wuss to do in order to get more value out of those particular customers, right? So this is why I asked this question. Well, here's what they would do. It's a little bit generalized. I can go really, really deep on SaaS and subscription companies. But first thing, if your NPS is over 20, raise prices. Even right now. We're after the third wave of cuts in most products. But if your NPS is over 20, which is a very bad NPS, like, raise your prices. How do we do that? I know it's shocking. Here's an email that I found works really, really well no matter the type of business. It works for everything from car washes all the way to enterprise SaaS companies in terms of messaging, and it happens not only to raise your price, but also if you're making any pricing changes. First thing, over the past year, we've added so much value to our product. We've made you this much money. We've added this feature and this feature, and it's used daily by you. I'm bringing actual data from that customer, and it works for consumer products as well. For us to continue to invest in making this product more valuable for you, We're gonna have to raise your prices. Notice it's about them. It's about bringing more value to them. It's not about me. It's not about my costs or anything like that. It's all about them. It's always a shock when you're saying you're raising prices. So what I'm gonna do is I'm gonna say, because you've been so loyal to us, you've been with us for 4 and a half years, as of today, we're raising prices on all those disloyal people who haven't ever used the product, all those new people who haven't used it, but for you, we're not raising prices.

That's awesome.

We're gonna give you the same product, or the new product for the same plan for the next 6 months, right? And then you're gonna get bumped up. It's known as a legacy discount. And then give them always an out. Thanks for letting us be a part of your mission, or your life if you're a consumer product. If you have any questions at all, let me know. All replies go directly to me. Most important part, and I swear to God, if you all use the same text, it's gonna ruin it for everybody. So adjust it for your business. P.S., if this materially impacts your business or your life, let me know and we'll work something out. It's basically for everyone in this room. None of us want to spend more money, but when we see all of that, if we believe everything they said and then we see that, we're going to go, oh yeah, we do get value. We're not going to make it difficult. Or it's for people who are actually affected, and basically they can reply and get a discount, essentially. All of these companies, PE firms, they have at least 3 to 5 add-ons. More offerings. Lifetime value for a customer that has basically one or more add-ons is typically 20 to 50% higher, mainly because they're not only paying you more, but because they're using more of your products, they retain at a higher rate. What products should you have as add-ons? Think of things that basically less than 40% of your user base would use, but they're willing to pay for it. That's kind of the hack. And then a couple of last things to be really helpful. Price localization. Even if you only target people in the States, You should have different prices for different regions or different segments. If you're selling internationally, make sure your US price versus European price, etc., is different. If you're a non-discount brand, cap your discounts at 15%. Every time you go over that, you're not gaining more users. You're just killing your churn. You're killing your repeat purchase rates. If you test 15% versus 25% and 25% works better, surprise, you're a bit of a discount brand, at least for that particular 15% to 20% of your new monthly revenue should come from your existing user base, meaning your new customers should be— or your existing customers should be spending more with you on an exit or on a continuous basis. And you got to make sure you have 10+ offerings over time, not as of today, but like the best and fastest growing companies out there, they have 10 or more offerings.

All right, so that's it for this session. Hope you enjoyed it. If you are interested in learning more about the Leveling Up Founders Private Event. It's basically an annual thing where we gather the top founders and also the top speakers and ultimately just help each other grow our businesses faster. Last event was rated a 9.8 out of 10, and everyone said it was more so about the people. The speakers were amazing, but the people are even more amazing. So you can go to live.levelingup.com to learn more if you are interested, and we will, we'll catch you later.