Building Flywheels for Unstoppable Organic Growth with Andy Johns, Unusual Ventures

Emotionally and psychologically to then go on what I call a streak, which is they go from creating content once to creating lots of content. You can't get a lot of your users into that streak mode, but when you get the great ones into the streak mode, they're the ones that produce the vast majority of the great content on the platform, which then propels the rest of the flywheel. I need some traction. You need some traction. Let's get some traction.

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Every startup wants to be hyper growth. Hit that billion dollar valuation. 10 billion is the new billion and possibly next year, 100 billion is the new 10 billion. It's a reason for being a startup, but not many people that I know how to get that kind of growth. And our guest today, Andy Johns, partner at Unusual Ventures, has spent the last 15 years doing just that for Facebook, Twitter, Twitter, Quora and Wealthfront, where he was also president. Thanks for joining us, Andy.

Thanks for having me. Awesome.

And you joined as one of the first 20 employees at both Quora and Wealthfront. Despite having good fortune of being at these giants like Facebook and Twitter. What made you make that shift to Quora and Wealthfront?

Yeah, I've pondered that for a long time. And I guess the thing I've learned about myself is that I'm a bit of a glutton for punishment and I'm all about the journey. And so it's that early stage where you take a leap of faith and things are most uncertain, but also most exciting, that I'm just naturally drawn to it. And with Cora in particular, going from Facebook, I was there from about 100 million to over 500 million users. And then with Twitter, I was there from about 20 to about 150 million. And so I kept moving into the earlier stage and understanding growth at different stages. And then with Quora, I said, I want to be at almost inception level. And so I joined when there weren't many employees, weren't a lot of us in a small office in Palo Alto, and we had less than 10,000 users. And so I just wanted to understand that entire stack of what growth looks like at different stages, and managed to do that within the world of social. And then after about 10 years of social, I said, I'm ready for something different. I don't feel inspired by this anymore. And then that's when I happened to get involved with Wealthfront. And so, same idea. I really wanted to be involved from the beginning, but this time I wanted to switch sectors, switch business models and industries as a whole, and see if I could figure out growth for something that was very different.

Awesome. And then after working at these social companies, you moved over to Wealthfront and then also became president before you left to become a vc. Why the switch from sort of social companies to fintech?

At the core of it, I was personally just really interested in seeing it succeed. The best thing you can do when you join a startup, next to joining something that's growing really fast, is working on something that you're personally very passionate about. I was one of the very, very early beta customers for the product, and I had a specific experience with it where I experienced this moment of delight. And I just realized what the potential for automation and consumer finance meant. And so I was hooked. I wanted to work on it because I wanted to make it for myself, and because I had that much interest and passion in it, I. I completely devoted myself to that work for five years. And as a result, it was because I did a really good job there, due to my passion and interest and personal relevancy for me, that I was able to go from running growth to then being the head of product and eventually the president.

Awesome. And then now you're a vc. It seems like a lot of our growth Friends have been going to the VC route like Atifa. One LinkedIn started his own fund. Naomi is now at the Menlo. What drove you to leave Wealthfront? It's a rocket ship. But what drove you to leave Wealthfront to become a vc?

It was actually unexpected. I'd worked there for half a decade, become the president, and things were shaping up for me to step into the CEO role and run the company. But then I had unexpected health scare with my heart. And it turned out that cramming 30 years of work into a 15 year time frame was good for some aspects of my life, but not great for all. And it's what caused me to take a step back for about two months. And so I took a medical leave of absence and spent a lot of time researching and figuring out what was going on. The good news is, at least in the near term, nothing major or significant managed to understand and diagnose what was going on. But it was enough for me to have that sort of existential moment and say, you know what, I don't feel like I'm fit right now to step into this next responsibility. Because if I were to become the CEO of the company, I was going to dedicate everything in my life to it for as long as possible. And so that's what led to me taking a step back. But like my uncle says, and he's a old school classic farmer and so they always have funny quotes, he's like, when life gives you lemons, make margaritas. And that's what I attempted to do.

Awesome. Awesome. And then I know Jody, who's the founder of unusual ventures and AppDynamics, which was acquired for lots of money. And Jody was the closing keynote at Traction a couple years ago. Fantastic person. I still remember he was running late for the closing keynote and it was a fireside with TechCrunch and they asked him the question after a 3 billion plus exit, are you still flying coach? My flight was delayed. So super, super humble person. I don't join a better team. But what prompted you specifically to go to Unusual?

Yeah, so there was a couple things. I was catching up with an old mentor. He was one of the founders of Benchmark Capital. And I've learned to listen to him when he says that I should consider something and he said, hey, you should think about venture. I said, okay, sure. Said, you've shown good judgment in the past with the companies that you joined. If you demonstrate similar judgment as an investor, you'll probably do pretty dang well. And so I took his advice we chatted through it a bit more. It was clear to me that I wanted to be involved early stage again, that's where the leap of faith happens. That's where I feel most inspired. And you have to stiffen your spine to take those leaps. But I don't know, you live once, and so you got to go for it. And that's my version of going for it. And so I knew I wanted to be early stage. And so he mentioned a few folks that I should chat with that were amazing early stage investors. And one of those happened to be my now partner, John Briones, who'd been a very successful early stage enterprise investor. And he told me that he was partnering up with Joe T, who is one of the founders that I think maybe the second or third founder he invested in, that was one of his early investments in a big, nearly $4 billion outcome. So they built this incredible relationship. They were getting the band back together so that they could start this venture firm. And then when describing what they wanted to do, I became incredibly inspired by it. And so there's two aspects of why it's called unusual. And like any good nickname, it's not a name you give yourself, it's a name that others give you. And so when we describe these two aspects of the firm, members of the press, other investors, entrepreneurs, were all saying, oh, this is very unusual. It's a different approach. And that's where the name came from. And so part one is, we wanted to be extremely conscientious when it came to who we worked with as our investors. We refused to take money from anyone that wasn't representing a good cause. And so all of our LPs are nonprofits, research organizations, endowments and foundations representing good causes, anywhere from one of the largest orphanages for boys in the United States, to medical research for children, to university endowments, including a couple historically black colleges who have incredibly small endowments relative to the Stanfords and Harvard's of the world, and have never really been invited in to participate in the wealth creation that happens in venture capital. And we put in the extra work to make them aware of and familiar with what happens in the venture capital asset class. And the they've become investors in our funds. So that was one I said, great, that feels right. That's something I want to be a part of. Two is when you look at the life cycle of the company at the very early stages when startups could use the most help and support from external advisors and their investors and others. But the irony is that in the world of venture today, there are very few venture firms that are focused on being exceptionally useful in the early stage company building journey. So we said we want to do the opposite of what most investors do at early stage, which is give you a bit of money and then take a step back and see if you figure it out. We want to do the opposite of that. And so we tend to lead rounds and then we put the full weight of our firm behind those companies once we lead the round. And what we've done is we've hired now a team of six executive level operating experts across the fields of sales, go to market on messaging and positioning and strategy as well as talent and recruiting. For example, I hired the former head of talent at a Wealthfront. He's one of our employees here, the former VP of marketing from Okta, the number one salesperson all time out of MongoDB. Those are just a few of the folks that we have on our team. And then when we lead around, we can inject those experienced operating executives into the companies for a couple months at a time to help them build and scale and get to that next milestone. So when those two things were laid out, my sort of startup spidey sense went off. I said with John and Jyoti, the amazing people they are, and with this principled approach to capitalism, in addition to the excitement of early stage company building, for me it was a no brainer. So it didn't take very long for me to make a decision and that's why I ended up at Unusual.

Awesome, Fantastic Journey. But to me you're always going to be the top growth expert on the planet. I've been following you and reading your blog posts for a very long time, having grown Facebook, Twitter, Quora and Wealthfront. So let's get right into it. How do you define growth? There's a lot of buzz and we talked about this just a few minutes ago around growth hacking and the last decade was all about growth hacking. And Atif Awan, former head of growth at LinkedIn said, did a talk for us saying growth hacking is dead. Long live growth. How do you define growth?

My definition for growth draws a parallel to finance. So finance within a company. Their job is to measure, understand and ideally improve the flow of capital in and out of a business. The role of a growth team is to measure, understand and improve the flow of customers in and out of your product. That's my definition for growth.

Awesome. And where does a company start when it comes to growth? You've seen all stages. What are you looking at the earliest stages, where does the company start?

Sure, the methods for growth vary based on the business model and the sector you're in, as well as the size and stage of the company. Growth begins with a. Unfortunately a not a well studied or a long lost art of customer development, which was really well articulated by Steve Blank in his book Four Steps to the Epiphany. I think that is the most important but least known book in the world of growth and it predates the entire growth craze. And what Steve Blank did as a serial enterprise entrepreneur himself was effectively write what comes across as like an academic but practical guidebook to how you establish early customer traction through the traditional method of product market fit. And that's where it begins. Sometimes accidentally, entrepreneurs don't realize that what they are doing is establishing a value hypothesis and then testing a prototype on customers. Whether it's a flimsy prototype on paper or it's software that's in the wild, and then validating the value hypothesis and then moving on to the growth hypothesis around how you distribute that product. So sometimes entrepreneurs do this instinctively and those are usually the great entrepreneurs. But otherwise, if it's not a natural instinct or if it's a method you want to become more skilled in, like everyone should be reading Four Steps to the Epiphany, my aspiration is to try and figure out how to write the 2.0 version of it to then take its legacy and extend it from there. But that's where growth begins and it's that is true classic growth. I would argue that's the most important form of growth. And it has nothing to do with a B testing, it has nothing to do with hacks, and it has nothing to do with data. It predates all of that. It's at the originating source of where growth comes from. And it was the playbook we used to get Wealthfront off the ground.

And what were some of the ingredients you used to get Wealthfront off the ground from that place?

Yeah, this is a great story and at some point should be a wonderful case study in the traditional method of establishing product market fit. So any great entrepreneur, you start with an idea and with that idea you have some vision for the value that idea provides that the product provides. And the concept at the time was, hey, it turns out that really wealthy people have access to high end financial products and services. And those products and services are delivered by teams of people. And it requires you having millions of dollars in order to execute those sophisticated strategies and build those products for wealthy people. But software is really good at performing routine tasks. And most of those tasks that that team of people managing a multimillionaire's money would do are routine tasks. An example being, let's say the customer has an investment portfolio. It's globally diversified in a bunch of different asset classes. But then markets shake a bunch, and so the portfolio allocation gets out of whack. But it's a routine task for a group of portfolio managers to look at that portfolio, buy and sell some of the securities, and balance that thing back out. And so the idea was like, software does these routine tasks really well, can do it at incredible scale and at a fraction of the price of a traditional advisor or money manager doing that. So what if we could apply software to automate a significant portion of what really good investing looks like and then bring that down to the masses? And so we started with that concept, and then we said, we have this idea, but how do we validate this? And so we came up with a prototype in our head of the ideal customer. Somebody younger, technology forward, didn't have a lot of money, but had some money to invest. And. And so we started talking to people in the Silicon Valley we were friends with or we got introductions to. And then after a few hundred conversations, we made that customer profile even more precise. And the guidance I give to entrepreneurs is your initial customer profile, that ideal customer, it needs to be almost comically narrow. It needs to be so specific and precise that it feels foolish to focus on so few people. And so after a few hundred conversations, where we netted out was, sure, you had to be youngish, so early 30s or below, less than a million dollars to invest. Otherwise you probably were already using some other traditional financial service, which we didn't want to compete with. Psychographically, as an investor, you needed to prefer deferring to somebody else as opposed to wanting to make the investment decisions yourself. You had to be technology comfortable and technology forward. So you're already using things like Uber and Airbnb and things like that. But then two other things are really important. One is that if you had less than a million dollars to invest, that meant you were underserved by the existing market. And so there was an opportunity to serve the underserved. But the other was you needed to be on the verge of some life event forcing you to make a major financial decision. Because it turns out most people, when given free time, don't sit on their couch and think, maybe I should open an investment account. That's not how it works. A life event forces people to make A financial decision. So in our case, we said, what's the financial decision that's relevant in our backyard? It was somebody about to have an IPO because you're going to receive this windfall of money, but then you had to figure out what to do with it. And for those people, that was a significant pain point and a point of anxiety and fear. And you're looking for a significant pain, or what I call a hair on fire problem in your ideal customer profile. Because it's when the pain is so great, they're willing to test and try something new in order to resolve that pain. Otherwise they don't have the urgency to act and they don't have the urgency to try something new. And so we had that value hypothesis. We then talked to hundreds of customers and narrowly defined that ideal customer profile. And it pretty much came down to engineers within pre IPO tech companies who hadn't made a lot of money yet, but who were about to. And so we would cleverly make our way into Facebook's office, LinkedIn's office, Twitter's office, pre IPO companies, through personal connections and what have you. And then we would give these one hour investment seminars in a conference room with two or three engineers at a time. And we would just talk about what really good investing look like. And at the conclusion of that, they would inevitably ask, I really love this philosophy on investing. How do I do this? And we said, we built a prototype and software that you can try. And that's how we acquired all of our early customers. And we continued to iterate on the product such that eventually it became so good that we saw word of mouth scaling within the halls of those companies and exponential organic growth started to kick in. And that's when you know you have product market fit, exponential organic growth within your ideal customer profile. So that's how we got it started. And we grew it to a billion dollars invested on a platform basically without spending any money on marketing. Awesome.

That's a fantastic story and a lesson for many of us on early growth, if you will. You have a fantastic post on flywheels, and that's a concept you've used over and over again. And a flywheel is different than a funnel. And lots of companies, especially in the product LED space, are talking about that. What is a flywheel? How is it different than a funnel?

Yeah, a funnel is something you discreetly enter and then exit. A flywheel is a system we want you to continuously participate in. And flywheels, these virtuous loops in which a user gets into the flywheel and performs a series of actions repetitively tends to generate a lot of exponential organic growth for you and at very little cost, if any, other than the cost of providing the software to begin with. And in this article that I wrote, it talked about how in using Quora and a few other products as a great case study, how the best or the most powerful flywheels. It usually isn't one flywheel, but it's a series of compounding flywheels that play on top of each other. And the three main ones that I see in flywheels that drive online communities is a, what I call a, an acquisition flywheel, which is the core flywheel that allows you to acquire users. There's a consumption flywheel, which is the flywheel you get users in where they're consuming lots of content, and then a third, which is the creation flywheel, where if you get somebody into that consumption flywheel after enough time and momentum, there's a higher probability that they enter a creation mode and they start becoming one of the creators on the platform. And there's an art and science to accelerating that creation flywheel, which ultimately acts as like the supercharger to the rest of the flywheels. And if you want to build a truly massive online community, you have to figure out something clever with the creation flywheel.

How did you, or did you even use this at Wealthfront?

No, we didn't. That was one of the hard parts about Wealthfront is in my mind, I break growth into two different general categories. At least on the consumer side, there's growth for network driven businesses, which can be a marketplace, can be a social product community, and then there's growth for non network driven businesses. Historically, the flywheels play a major role in the network driven businesses, but in the non network driven businesses, not really. There are flywheels there, but they're incredibly weak, they're infrequent. The momentum in the flywheel consequently tends to be much, much lower relative to the momentum you can put in the flywheel of something like TikTok. So at Wealthfront basically wasn't used whatsoever. Interestingly, I think that's the next generation of consumer finance is somebody's going to figure out how to make a consumer financial product truly network driven to where, for example, you could find a stock trading platform with more than 100 million monthly active users. I think that's the holy grail that's on the horizon.

That's good to know. And we'll dive specifically into Wealthfront a little later. But what are the different types of flywheels and the key ingredients to making them successful.

Yeah. So there's some prior art on this. I think the team at Reforge does an incredible job of describing flywheels and their own nomenclature. Again, for me, it comes back to three constituent parts. The acquisition flywheel of how you get some system running that allows you to acquire users. So, for example, the classic one using something like Reddit is a user signs up, and then once that user signs up, you get them to consume content on the platform. And then once they consume content, some of them will actually create content. They might post a new thread or leave a comment, and then because of the creation of that new content, it creates this new asset, which can then be shared on social or indexed in search engines and generate new traffic for you, which I call the harvest phase. So it's harvesting more traffic for you through the active creation, and then once it's generated more traffic, you then convert some of that new traffic into a new user who then consumes content, creates content, harvests more traffic, and so on. So that's the acquisition core acquisition loop, and that is the most common one that I see, because it's not too hard to architect that. The hard part is like going from 0 to 1 and getting the first people to create that content. But once you get that going, that's not incredibly difficult. The second is the consumption flywheel, where then there's a whole host of different mechanisms where you can increase the rate at which a user is consuming content. Anything from. In Quora's case, we have this kind of famous weekly digest email that we used to send out that was actually responsible for a massive portion of our weekly active users, was one email that we would send every Sunday, as well as more advanced tactics around. I think what TikTok is showing that they're exceptional at from a machine learning standpoint, which is just ranking a feed that is increasingly personalized to you and pulls you into that ongoing consumption experience. YouTube's pretty damn good at it as well. So there's a whole host of mechanism for the consumption flywheel and then the creation one, that's the really hard one. And the question is, how do you get somebody to not only create content on platform for the first time, but to create something great? And then once they create something great, how do you give them feedback that what they created was valuable, such that it inspires them emotionally and psychologically to then go on what I call a streak, which is they go from creating content once to creating lots of content. And you can't get a lot of your users into that streak mode. But when you get the great ones into the streak mode, they're the ones that produce the vast majority of the great content on the platform, which then propels the rest of the flywheel. And figuring out how to do that, that's kind of secret sauce that every company comes up with. But the core constituent parts, and I hinted on it, is, as a company, you can do this with human moderation or you can do this with software. You need to become really good at detecting or identifying when somebody has put something great into the platform, like an amazing answer. You need to be really good at identifying when somebody has put an amazing answer into Quora. And then once you identify it, you need to give it a boost. You can increase its ranking in Newsfeed. You can send it out via push notifications to a certain set of users. You just need to do whatever you can, sometimes manually just forcing the ranking in Newsfeed to give it a lot of eyeballs. And then once it gets a lot of eyeballs, it gets a lot of user interaction. It could be upvotes and comments and likes and shares. And then you have to aggregate all of that interaction and send a notification of some sort back to the original creator to let them know, hey, that answer you wrote has been viewed 10,000 times this week. And for the average person, that's a moment of celebrity. This is what a lot of these core social products are built on is you realize, wow, I have more distribution and more of an impact than I've ever had before. And that's what inspires them to go into the act of creating more. So each product is unique in how they figure that out. But that's an essential piece at Quora.

Let's start there. Because you joined, really, when there were less than 20 people, how did you create that unique hook that pulled users into your product to create the initial momentum?

Yeah, that's a great question. Especially in a world in which a newsfeed, as an architectural sort of construct of a consumer product, is now so ubiquitous. And because it's so ubiquitous, the average person, when they attempt to use a new app now and they see that there's a newsfeed, just like consumers can go ad blind, I think they can go newsfeed blind for, like, create another newsfeed. And so you have to find a way to make it stand out. And so this comes down to a content beachhead strategy, which is, what are you going to specifically focus on? To prove that you're great at least one thing. And so whenever you're entering an existing market, let's take a step back and talk strategy. When you enter an existing market and, you know, creating another social product with a newsfeed is definitely an existing market, in order to succeed or to have a chance at winning in that market, you have to shrink the market. Say, okay, I'm not trying to serve everyone at first. Let me just identify a very small sliver of that market that I believe is most underserved, and then let me give them something that's ten times better relative to the alternatives that they've seen in the market. Right? That's the strategy. And so you have to think, who am I serving a precise customer, and what do I give them that's 10 times better? And for us at Core in the early days, we said, let's stick to what we know, let's play to our strengths and let's just serve some people in the Silicon Valley or in the tech sector by giving them access to insider expert knowledge on various aspects of building technology companies and how the Silicon Valley operates by asking questions and getting answers from some of the best people in the world. And let's just build this beachhead strategy around amazing content for Silicon Valley techies. And so we leaned on our personal relationships with sometimes friends and family, often former colleagues and co workers, and our personal relationships, and we said, look, here's what we're doing, Mr. Or Mrs. High Profile CEO or Amazing Investor. We're going to give you questions in the platform and we need you to write something amazing. And here's what amazing looks like, right? So it's this very handheld onboarding method. And after a while, we built up several thousand questions and answers with this exceptionally high quality all around Silicon Valley expertise. And that was enough for people in the early days of Quora to be like, holy shit, I can't believe that I read this answer that Marc Andreessen wrote. And I can't find that quality of information anywhere else in the world. This is exceptional. And so within a world of common newsfeed constructs, at least when they came to Quora and they saw the feed for the first time, or they got that weekly digest email, they saw greatness in the form of human experiential knowledge. And it was knowledge that you wouldn't be able to find anywhere else. And that was our version of what was 10x better relative to the alternative? The alternative was go read a blog post written by somebody who's quoting Marc Andreessen or go use Yahoo Answers, which is just a disaster of a product. In our case, we said, nope, you can get the answer directly from the expert themselves and you're not going to find that experiential knowledge shared elsewhere.

We talk a lot in growth about experiencing that magic moment and experiencing that as often as possible and then keeping users engaged, coming back over and over. And you talked a lot about that through this Quora example. How did you guys do that at Wealthfront? Beyond the getting people to sign up through information sessions, like once it became an actual product and self serve, how did you guys do that same thing to get curious users hooked into the product?

Again, it comes to that question of who specifically are you serving and what is 10 times better for them? And what's implied in 10 times better is something that surprises them. Right? So they're not even expecting it. And so you won't necessarily get these answers through customer research and development. Some of this has to come down to instinct and judgment. And in our case, when we first built the product, the first several hundred users, once we talked to them, the gist of their feedback was, yeah, this is cool. I really buy into the philosophy. I love that it's software that's doing this, but for what it does today, I can mostly do this by myself. Meaning if the software just rebalanced. If it built and rebalanced an investment portfolio that wasn't incredibly complex and it was somewhat of an infrequent behavior as well, because you're not rebalancing all the time. You generally only rebalance after there have been some rather significant shifts in the portfolio, the makeup of the portfolio. And so it's this lower frequency, interesting, but not incredibly delightful thing. And so we took that feedback and we said, basically our customers are telling us that this is cool. They like the direction we're going in, but it's not great yet. And we don't do anything that's really valuable that they can't use yet do themselves. And so we said, all right, we got to figure out what's amazing that they can't do themselves even if they tried, and that you can't find and isn't available anywhere else in the world. And so we spent some time researching a variety of different investment strategies and different investment products. And then one we narrowed it down to is known as tax loss harvesting, which is a big word, but it's a fancy way of saying, as your portfolio is invested in the market, sometimes markets get volatile. And when markets get volatile, you use that opportunity to make some trades that at the end of the day will lower your taxes while still keeping you invested in the market. That's all it really means. And if you're wealthy, you had access to stuff like tax loss harvesting. But for example, you needed $10 million at JP Morgan or a minimum of $5 million at Morgan Stanley in order to get some version of this. But the version that they applied again, because they did it with sort of people involved in placing trades on your behalf, they would do it once a year. They'd look at your portfolio at the end of the year and say, what can we buy and sell to lower your taxes, but then still keep you invested? And we said, again, software is great at doing things that are routine. This is a routine strategy from the perspective of software. So we said, let's build it. And we did a lot of customer development on it to try and validate the concept and to see how interested our potential customers found it before we built it, because it was like a bet, the company moment. We were still small, we didn't have a lot of money left. Traction was okay, but not great. Thankfully, we built it. We applied the customer development method effectively. Our instincts were right. And once we launched the product, that's when delight kicked in. And that was one of the instances where I fell in love with it. Where it was June of 2013, markets were very volatile at the time. I went to bed one day, woke up the next. Because of the volatility, the algorithms kicked in, and found an opportunity to lower my taxes. It conducted some trades for me, figured out what to trade, what to buy and sell, and then did it at no cost. Because we were offering it as a free service. And because it's done in software, you could basically do it continuously. You didn't have to wait till the end of the year. And I checked my account one morning and it had harvested $3,000 of tax losses for me and assuming a marginal tax rate of 33%, just to keep the math simple. I was like, this thing saved me about 1000 bucks last night when I was asleep. And then we just had to put that on center stage and make it obvious to everyone. So it was when we launched that that that was a game changer. People were fascinated by it. They felt like they were getting access to something premium because they were. It was the world's first direct to consumer tax loss harvesting service. And it was incredible. And it was off of that innovation that it showed delight to the user. Unexpected delight in a magnitude that was hard to find elsewhere.

Awesome. That's a great story. And I think everyone needs to find that or companies need to find that sort of key differentiating piece or something that's super painful and done very manually and how can you automate it so it's done and adding value in their sleep. How you what have you done to make users a source of repeatable organic growth? You have examples from Quora. Let's say even you can go back to Facebook, Twitter and then compare it to Wealthfront. I love the difference is there because it's several examples.

In a network driven world, you have to, you know a product that's driven by network effects, you have to deliver them some delight. The newsfeed and TikTok or the original one from Facebook, that's a form of delight. It's different than say giving you hardware delight. It's less tangible. But you have to delight them. There has to be something there where they're like wow, this is different. This is cool. I find this valuable because that plants the seeds for word of mouth growth. You have to be able to elicit a strong emotional response from the customer and if you do, you will give them the activation energy to use like chemistry speak, you'll give them the activation energy to then tell somebody else about it. So in the network driven world, that's essential. It happens to be accompanied by the fact that if I delight you through a newsfeed, I'm likely to also get you to a point in which you start creating content on the platform. And so I'm not only spreading it through word of mouth, I'm also spreading the product through my contribution of content into the platform to begin with. So it's got the combinatorics of it. The multiplication of those two things is what explains the rates of growth in those products that you can't find it in any other industry. In a non network driven world like Wealthfront. At the core of it is still you have to massively delight the person and you don't have the benefits of the network driven growth, so it's inherently harder to grow it, which puts even more pressure on your ability to continuously delight the customer. So you can't just make them happy once. You have to give them unexpected value multiple times over and over. So you have to be great at innovating multiple times. Right. I just call it re innovation. And you have to be able to shed your skin every year or two as a company to create even more value for the customer to keep pushing that word of mouth Growth. So at the core of it is value, the more holistic sense of things. When I think about how anything grows sustainably, it can grow at large scale. There's four pieces of a core equation that I look for versus magic, right? This is this like at least one part of the experience where the user is like wow, Uber, first time you ever took a ride, that was a magic experience, right? So you have magic times value, which is the core product value. So the magic is just how you express that value in a very clear and emotionally compelling way. And then the core product value has to be sustaining over time. And then you need a dynamic market. It's either a large market with incumbents who are not technology first, who are then open to bottoms up disruption through new software innovation, or it's an emerging market where you're just trying to put a surfboard on that wave and you're going to ride that wave. And then the last is a somewhat sophisticated acquisition strategy. So it's magic times value times market times acquisition. The beauty is if you get magic times value, right? Especially if you get magic times value times market, it tends to solve the acquisition piece for you because all of a sudden customers are spreading the gospel and telling others about it.

Definitely at Wealthfront, what percentage of your customers were coming from referral and what were some of the other channels or the top channels that you guys invested in?

90% organic from day one and still to this day.

And when you say organic, meaning that Google search something, they find you or they.

It's a mix of all those. Some viral invitations, some word of mouth, some going to Google and being indirect direct traffic. But that's. That all goes back to what we figured out in those early days, which was the beachhead strategy, the right customer with the greatest pain or the M.O. they were the most underserved with something 10 times better. And then you just keep delighting them.

Definitely switching back to flywheels because not really a flywheel at wealth front. But I love the comparisons. Have you seen successful flywheels in B2B?

Yes, increasingly I can't speak as deeply on the B2B side. I can consumer. But the broad trend right now is that enterprise products are increasingly bought, not sold. An example of this would be slack through bottoms up adoption. That's what I mean by bought, not sold. As opposed to a classic heavy top down enterprise go to market motion. You're then seeing the consumerization of enterprise products that are then being adopted bottoms up by the employees. As a result, some of these bottoms up Adoption products also have community elements to it, especially in the open source world. So if you're bottoms up adoption plus open source, where then you have a network of bottoms up adopters who are contributing content or in some cases code to the underlying product itself, then yeah, that is increasingly becoming a common go to market method. So much so that I'm seeing more and more startups building tools for what are called pre sales, meaning like for those companies doing bottoms up adoption before they get big enough, such that they require an enterprise sales method building tools to enable more bottoms up adoption.

So Amrita says what does value mean exactly in that quadrant? Isn't quite value the basis of the existence of the company? Unclear what you meant. What specifically should be we be thinking about?

Yeah, and so it's good question. It's sufficiently generic when I say value. But yes, that's what it comes down to is value, which is what can the software do to solve a significant point of pain coupled with the business model that supports it. That's what value. The value hypothesis contains the benefits of the software to the customer. Right? So you may say the software gives them a world class Investment portfolio at 1/10 the price at 1000x the accessibility and it's automatic so that the customer never has to do anything. And the business model is a SaaS business model. So this product is provided for a low reasonable monthly service fee that then has 80, 85% gross margins, which makes it a highly profitable business to further accelerate the development of software to add more value. So it's like identifying a couple bullet points of this is what the software does that's unique and solves the pain for the customer combined with the business model that supports it.

And in the context of flywheels or otherwise, how do you measure that value? Is it, how do you look at that? Is it primarily user retention? Is it them taking certain actions, is it them paying for it or is it all of the above?

It's all the above, but it's historically for the majority of the users it's some retention characteristics. If they're telling you through their behavior that they're willing to give you an hour a day of their time or two hours a week of their time, that is a wonderful measure of value. And then for some portion of the users, they will also show you that they're willing to give you an hour a day of their time to create content. So not all users are alike when you look at retention as a whole, but when you unpack it into different sort of cohorts of retention or different retention characteristics. That's what you look for because the business model to support it there is how many eyeballs and how much time do you get from those eyeballs supported by this monetization through advertisements shown against those eyeballs? That's the model we all know about today.

Definitely. And you've been a part of some great flywheels there. Realistically, what percentage of people go from acquisition to consumption to creation in that flywheel? Or how should one think about it from a pass fail perspective that I should adopt this model or just ditch it or change things around?

It's a good question. For most of the products that I've seen, the percent of people that go from acquisition to consumption is very high, at least for the elite products. And if you defined it by rolling 28 day window because you don't want to just look at one day, but let's say the percent of people who end up consuming with some frequency within a 28 day window, the high water mark I've seen in the best products is probably something around north of 50% of those using the product at least a handful of times in a 30 day window. And then of those somewhere around as low as 5% up to as much as 20% are posting content within that 30 day window. It's rare to find a platform where the rate of creation is higher than that because that's the highest hurdle that a customer has to go through. And I would love to see the network dynamics of something like TikTok because I think it's somewhat famous for. There's a lot of creators, but I don't know, it feels like its creation characteristics are fundamentally different than something like YouTube.

I'm switching back to customer development, customer discovery for new features or some of the things you talked about. On the wealth front side, how do you reach out to or how have you reached out to individuals to get them to have these conversations with you when they're not part of your network?

Oh, you want to exhaust the network or the referrals from your network for as long as humanly possible. Assuming you do that and you manage to have a couple thousand to a few hundred conversations and then you want to get people who are not part of the network to participate. Some of the tricks that work are simple financial incentive. We used to do this with wealthfront, like here's $100Amazon gift card if you come and talk to us for an hour. But we would focus on somebody who wasn't in our network but whose characteristics fit Our ideal customer profile. And even by doing that, by filtering people who should be an ideal customer and giving them a small financial incentive for those people who then booked a session with us for customer development, we'd still only get about 40 or 50% of them that would show up. So it was if we wanted to talk to five customers in a week, we would get 10 to 15 of them to commit and give them a gift card and then half or slightly less than half would actually show up. That's what worked for us there. The other that I've seen is there are some companies I work with where one of them is live streaming of amateur sports. So it's like Twitch but for high school level sports. The beauty there is when an event is taking place, you have parents in the audience or what have you, you could just go up to the customer as they sat in the stands or shortly after the game and just ask them, hey, customer, I came to meet you in the middle of you actually using the product in the ideal environment. Are you willing to spare some time and chat with me for 15 or 20 minutes? And again, half the time they're like, no, who are you? And so a bit of it's a numbers game, but those are some of the methods that I've used.

Fantastic. Let's move to tools. I think no conversation on growth complete without tools of the trade. So what are some tools you've used or now you're unusual. You said you invest in companies at the earliest stages. What do you recommend they have in place to measure and grow and track and all kinds of stuff?

Yeah, at the earliest stage, the most powerful technology. I'll show you these two things, right? Like these are my fundamental growth tools. Even when I'm like modeling out the growth of how a product grows. Keep it simple. I don't need Figma to make that. If anything, I want the technology to be simple so that the emphasis is on my thinking as opposed to the emphasis being on the tool. I think the issue with most growth tools today is that it ends up becoming the crutch. And it's something you lean on more and more such that you don't know how to walk on your own anymore. And what this means in this case is you don't know how to take a step back and think bigger picture. So I think there's some products that are cool, but at the end of the day, the biggest impact on growth I've seen from a tools perspective comes from sitting down, having a small conversation or a conversation with a small group of folks and using the classic tools of human conversation mixed with pen and paper. And there's an awful lot you can figure out there because that's where the core strategies unfold from. And if you get the strategy, then you can use tons of commodity tools off the shelf to then measure whether or not it's working.

How does the startup you say you've got product market fit, you're growing, you're growing. How do you get stuck in this rut of optimizing things to death versus focusing on driving growth? You wrote a great post on innovation versus optimization. Tell us all about that.

Yeah, and I think that's the single biggest issue that I see with technology companies today. And I'm going to share a link really quickly. It'll take me 20 seconds to pull it up, and I think you'll appreciate what it shows you. It's from one of my favorite tools, which is Google Trends. And then I compare the relative search interest in two keywords. What it shows you is the relative search interest for the Keyword Growth Hacking vs Product Market Fit over time. What I see here is that for almost a decade we thought growth hacking was more important than product market fit. I'm happy to say that it looks like product market fit has established product market fit. It's growing.

Right.

And growth hacking is being questioned on your own free time for everyone here, filter it by country and filter it globally as well. So this is by the United States, but if you look globally or worldwide, you actually see that the situation is far worse. We have a lot of work to do and that's because these, these ideologies are being adopted at different rates in different markets. This for me is concerning and it tells me that we've had the wrong priorities. So to your question about getting caught in this optimization versus innovation trap, I think we pay too much attention to the hype around A B testing and the stories of the Facebooks and what have you. And sure, our approach to using data and experimentation to drive growth was very effective. But there's no way in hell Facebook would have become what it is today without the innovation on news feed, the innovation of the developer ecosystem and the app economy created there, the innovations around photos and sharing, even the innovation where we crowdsource the translations of the product worldwide. And growth was the side dish that helped accelerate it once those innovations had taken place. So I often talk to companies where I hear them talking about trying to solve growth through experimentation. And that culture slowly creeps in because you find success in the original products you built. And then you think, how do I squeeze more juice out of this orange? And then the next thing you know, you've been doing that for two to three years and then you've trained yourself to only think about the growth problem through a growth lens when you probably need to think about it through an innovation lens. And so the way I made this change previously and I had the good fortune of having complete support from the founder and CEO at the time, is at Wealthfront, we said, look, we've done this growth work, it has helped. We, we've optimized certain parts of the core onboarding experience, but our goal is to be a trillion asset firm that's with a t and we're 1000x away from that. And we said, how do we get to that point? It's fundamentally going to be through huge innovations around financial products and services that have never existed. It's not going to be because we have a more optimized signup flow than Schwab or Fidelity. It's going to be because we build the world's first fully automated mortgage. And so we shut down the growth team and in its wake, we put three new product teams in place where the initiative of those product teams was to fundamentally restart innovation, to build more value for the customer and to build products that have never existed before. The way you do that is you have to shock the system. Because in a startup you start getting comfortable with this incremental approach because you have the tools. And it's because you have the tools that you often lean on the tool. You say, let me a b test it. Because I don't have conviction. And I don't have conviction because I have the tool. And it's because I have this tool. I haven't thought long and hard around how do I build something great. Instead I'll build something okay or good and then I'll ab test if it works. So we got rid of not only the growth team, but we got rid of the ability for teams to ab test their products for almost 12 months. So take the tool away, shock the system, force them to think bigger and innovate.

Fantastic. I love that advice. What do you look for in early stage startups before investing?

Look for founders with an exceptional fit for the problem they're trying to solve. So it's an authentic problem for them in their prior life experiences or work experiences makes them most suitable to solve it. And because they have that suitable experience, they have unique insights around the customer, the product in the market that I can't hear elsewhere. And that forces me to fundamentally rethink the product. The problem, A dynamic market which can either be fast growing wave, where it's at the beginning stages of it, you want to jump on that wave, or a large market that's dominated by non technology incumbents who are open for disruption. Bottoms up. Disruption through software companies and then terms of the investment that work well for everyone. That's what I look for.

Awesome parting thoughts. What do you wish you did more of? What do you wish you did less of?

More of Just have more fun. When you work hard, you should also have fun and enjoy it along the way. And I think I took things so seriously for a while and I realized actually I'm better when I'm having fun. And part of that is just working with people that you imagine you want to work with for the rest of your life. The more of those folks you can find and the more time you spend with them, the more fun you have along the way, the more you're gonna find what your art is. You're gonna think about these problems differently and innovate. And what do I wish I'd done? Less of worrying. I worry about everything. It's how my mind works and it's something that I work on every single day, which is just to put that tendency to think negatively aside and to realize that every day is a dance, not a race.

Fantastic. And the last one before I let you go. Top lesson you've learned over the last 15 years.

Top lesson I've learned. There's a great quote, and it's about life. It's about discovering yourself and understanding how you work. And the quote is, until you make the subconscious conscious, it'll rule your life and you'll call it fate. And there's an inner discovery that everyone needs to do or to go through a process of understanding why they're wired the way they are. And there's some farmer. I come from a farming background. My family, you know, ran a small family farm. There's a farmer saying that says kids are like trees. And what they mean about that is like when you see a tree that's growing nicely in a cityscape or in a park or something, and it has this beautiful shape to it. It's like that for reasons, because when it was small, you put braces around it, you groomed it, you shaped it so that it works to conform with its environment. And kids are no different. And because of that, what the experiences you have and what you go through growing up, it shapes who you become. And that's the subconscious piece that if you don't really dig in and figure that out, it'll rule your life and you'll call it fate. But once you do figure it out, you realize I can actually determine a lot of what my destiny is. That is single handedly the most important thing I've learned.

Awesome. That was fantastic.

I need some traction.

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