The Fuel Powering Enduring, Multi-Billion Dollar Businesses with Sarah Tavel, Benchmark

And so when I left Pinterest, we were doing about 100 million monthly active users. So I was lucky enough to have this inside view of both A company at the very, very early stages of 30,000 users to 100 million monthly active users. What does it take to build one of those businesses? So the first level is growing engaged users. The second thing is retaining those users. You don't want to have what they call the leaky bucket. The third is making your product self perpetuating. And that's about building virtuous loops into your the hardest thing to do. And very few companies actually have this as an authentic part of the product. But when you can build it and maximize it, you'll see that it just becomes this growth engine, this engagement engine for your product. And if you can build these three levels, I believe that you have an incredible chance of building one of these iconic companies. I need some traction.

You need some traction. Let's get some traction. Hey, what's up innovators, entrepreneurs, visionaries and disruptors. This is your Traction podcast host Lloyd Lobo. We're a community of over 100,000 people just like yourself on a mission to help you get the methods, the money and the madness to explode your business growth. Featuring stories and tactical advice straight from those who've done it before, like Shopify, Twilio, Asana, and many more, this episode is brought to you by Boast AI. Each year, the US and Canadian governments give out billions of dollars in R and D tax credits and innovation incentives to fund businesses like yours. But the application process is cumbersome, prone to frustrating audits, and receiving the money can take up to 16 months. Boast AI gets you access to research and development tax credits and innovation funding opportunities without the headache and red tape. Join thousands of North American companies leveraging Boast AI software to maximize cashback. Check out B oast AI. This episode is also brought to you by Launch Academy, an international tech hub that provides mentorship, resources, network and the environment for entrepreneurs to launch, fund and grow their startups. Since 2012, Launch Academy has incubated over 6,000 entrepreneurs, of which 300 have grown their startups past Seed and Series A and have collectively raised over $1.2 billion in funding. To learn more about Launch Academy's programs, check out LaunchAcademy CA. Special thanks to our Podcast partner Content Allies From Podcast Production and promotion content allies helps B2B companies build revenue generating podcast. We recommend them to any B2B company that's looking to launch or streamline their podcast production. Learn more@contentallies.com today I want to talk about engagement.

I know so much of the day and yesterday is about turbocharging growth. I actually want to talk about turbocharging engagement because I think that is the thing that you really have to be dead centered on and focus to make that one of these enduring billion dollar businesses. The big question that you guys are I'm sure all thinking about, which is as a product person, as a growth person, as a founder, how do you build one of these enduring multi billion dollar businesses? And I think about it as an investor, like when I'm looking at a company, the very early stages, how do I know if this company has a chance at being one of these big companies? We are so hyper focused on not just how do you build a big company, but how do you build one of these companies that can be iconic? This is my story too. So I started my career at Bessemer Venture Partners and was lucky enough to invest in Pinterest when it was a small five person company with about 30,000 registered users and ended up loving the company so much that I did something that's pretty atypical for a VC investor, which is that I joined the company and I became one of the first product people there, really the first product manager at Pinterest and ended up leading our discovery team which was all focused on how do we help our users get more value out of Pinterest. And so when I left Pinterest we were doing about 100 million monthly active users. So I was lucky enough to have this inside view of both a company at the very, very early stages of 30,000 users to 100 million monthly active users. 1 what does it take to build one of those businesses? I ended up deciding and realizing the more I kind of think about this is that really what it comes down to is engagement and understanding how to build a product for engagement, how to nurture the users that you have to make them engage with your product and then how to turn that engagement into what I call the fuel that will power your business. And the way I think about that is what I call the hierarchy of engagement. So the first level that you need to be focused on as people working these companies, founding these companies, investing in these companies, if that's any of you, is growing the foundation of the company which is growing engaged users. The second thing is retaining those users. You don't want to have what they call the leaky bucket. The third is making your product self perpetuating. And that's about building virtuous loops into your product, the hardest thing to do. And very few companies actually have this as like an authentic part of the product. But when you can build it and maximize it, you'll see that it just becomes this engine, this growth engine, this engagement engine for your product. And if you can build these three levels, I believe that you have an incredible chance of building one of these iconic companies. And I would love for you to speak to me. So, growing engaged users. So, you know, especially in Silicon Valley, there's this trope where we talk over and over again about growth hacking and how do you tweak your product to grow it. So there's just like this huge focus on growth. And like when you look at Facebook, when you look at any of these companies, you see that they're big and you think, how do I get big? But the fact is that a lot of companies have growth early on. You know, growth is not easy to get, but actually there are ways to get, there are ways to get cheap growth. And so what you see as an investor and as a founder is that growth comes in many different forms. And what really matters is not growth of users. It's not about focusing on monthly active users or driving downloads. It's about what I call growing users that are completing the core action of your product. And so core actions is the action that you need to be hyper focused and vigilant about getting your users to do. And it's a thing that when your users do it, it's like the foundation of your product. Your product would not exist if your users weren't completing this action. So for Pinterest, that was pinning. What would Pinterest be if people didn't pin on Twitter? It's pretty obvious also, if you don't tweet, you're not really engaging with the product. You're not understanding the value of the product in the same way. And that's one of the big challenges Twitter has right now. And even YouTube. You would think maybe the core action on YouTube is watching a video. But YouTube wouldn't exist if people weren't uploading content into YouTube. And that's actually like the UX, the innovation that YouTube had many, many moons ago was really about figuring out how to make it super simple to get people to upload content into YouTube. And if you're growing users without growing users that are completing this core action, I call it the empty calories of growth. Like, you feel good, you see your ranking going up, you can report a growing number to your investors or your employees. But at the end of the day, it feels good, but it's not actually good for you. It's not the thing that will build enduring value in your company. And so then ultimately, the question that you have to have when you're trying to see whether you can build this base of the foundation to be broad enough to build one of these big iconic companies is whether that action will scale to enough people. I don't know how many of you are familiar with the FOG behavioral model, but there's these two axes, which is motivation and ability. And you just have to make sure that the action that you're focused on, that you're building your product around, is easy enough with enough motivation to get enough people to do it. And if you can do that, then I believe you have a very great chance of building a strong foundation for your company. So let's talk about the next level, which is retaining those users. So let's assume you've got this foundation. You're growing the number of people that are completing the action. You're actually growing the percentage of new signups that are coming in and completing the action. So you've got something really good going. You've got, like, the foundation is feeling really good. Now. The question is whether the users will stick around. And maybe this is an obvious point, but if users aren't sticking around, then you've got what people call a leaky bucket, right? You can kind of bring people in, but then you're going to be losing them as fast as you can bring them in, and your growth ultimately slows down. And so the question then is, well, how do you build a product that will retain those users that will be sticky? The way I think about that is I call it building a product that creates accruing benefits and mounting losses. So accruing benefits means that the more I use the product, the better it gets for me. It's because either you're translating my data, my implicit or explicit actions, into data that you then use to make the experience better. So as an example, on Facebook, I'm sure all of you guys use Facebook. When you connect with a friend on Facebook, your news feed gets better. That's an explicit action. The more people I friend with or follow to diminishing marginal returns. But ideally, as you connect with someone on Facebook, your newsfeed gets better. And then the implicit data of what I read, what I click on, who I comment on, is another factor that Facebook uses to tune my newsfeed to make it better and better for me. The more I engage with the product. The other side is mounting loss. So the idea of mounting loss is that the more I use the product, the more I have to lose by leaving the product. And let's talk about Twitter. You know, I'm a big Twitter user, and it is something that I use now to spread my ideas. When I write a medium post, I tweet it out and get the word out. That way I've got the people I follow on Twitter who I think of as influencers, and I want to learn from them. And I have all my followers. And so now for me to leave Twitter would be incredibly hard. I have such a mounting loss there. And so Twitter's done an amazing thing job for me of creating that another product. How many of you guys use Evernote? Okay. It's like, I don't know if you guys are like me with Evernote, but I'm like an addict. Like, whenever there's any bad news about Evernote, my heart skips a beat. Because if Evernote were ever to go under, I think I would forget my name and everything about me. Because Evernote is one of these products where the more you use it, the better it gets. So you start using it more and more. Like, you take notes for things. I start dumping PDFs in Evernote. I forward emails and articles to Evernote because now I know that if I do a search, it just is this repository for me. And then at the same time, if I were to leave Evernote, I would be screwed. It would just be a terrible thing. And so I will never leave Evernote. You can check in on me in 30 years and see if that's still true. But I think that I am going to be a lifetime user of this product. But let's take the other side of that, which is what happens if you don't have level two. I think about anonymity apps. I don't know any secret users out there or former secret users. It's no longer a company. Okay? Very few. So secret was this product that you would post an anonymous secret, and it would basically look at all your contacts and see who you were connected to. And then it would just give you this feed of anonymous stuff. In the beginning, it was so much fun. I was at Pinterest at the time, and we would all make fun of each other on it. And so you had level one growing really well. But then what happens is that level two is not there because I could delete the product, not use it for three months, have one of my friends say, hey, did you see that thing on Secret? Reinstall it. And my experience between those two touch points would be identical. If I had stayed on Secret and used the product for those three months, my experience of the product would not have been any different. Twitter, on the other hand, also has anonymity. It's something that is causing a lot of problems for them now. But they have a better form of anonymity for the level two, which is that they have persistent identity. So if you're Startup L. Jackson, the fake profile on Twitter, you have persistent identity, you're accruing value and your followers and you have mounting loss if you leave Twitter. And so it's a much more successful version of anonymity when you think about it, in the way of accruing benefits and mounting loss. So let's talk then about the third and hardest level, which is to make a product self perpetuating. So we've got growing base of engaged users. You're building in accruing benefits and mounting loss into your product to make it sticky. Now the question is, can you build virtuous loops into your product? Virtuous loops is the most powerful thing that you can have in your company, whether it's a consumer product or a SaaS product or anything in between. The strongest virtuous loop that you hear about is a network effect. At Pinterest we had this in a very strong form, which was that if a user pins something, they're bringing that recipe or article into Pinterest. We then circulate that new article or image and we are able to create a better discovery experience. So the more people that pin, the more people that find content that they love and classify that content, the better the experience is on Pinterest. But there are other forms of virtuous loops. I'm sure you guys think a lot about these, which is growth virtuous loops and re engagement virtuous loops. This is something that Pinterest has in spades, which is that as a growth example, I find a pin that I like and I think my sister might like it too. So I send it to my sister, she's like, what's this Pinterest thing? Comes to Pinterest, signs up and then she does her own. The loop continues. And this is actually, I think this speaks when you're thinking about growth. You can't have your users create growth for you if you don't have users engaging with the product. So that's why I think engagement really is the thing that has to be focused on above all Else. Virtuous loops are so hard and so rare to have exist authentically in the product. Most companies try to create virtuous loops in the product. It's the thing that makes the growth engine in your product. And so just talking about Evernote, I mentioned I love Evernote. It's great on level one, great on level two. But now what's happened to Evernote is that they're actually not there on level three. You don't ever send a note from Evernote to someone else. That is the rarest of occurrences. They've tried to create virtuous loops. I don't know if you guys experienced this, but there's this new chat button that I always press by accident instead of the new note button because they're trying to get people to engage, but it's just not really part of the product. Tinder is another great example. I kind of give this one a little bit tongue in cheek. Tinder has virtuous loops. If you swipe left on someone or right, but I think it's left and you match, that sends a notification to the person you match with, which brings them back into the experience. But ultimately what Tinder has and all online dating sites have is an off ramp. So rather than like when you match with someone and you have a successful date, ideally that means, oh, I'm having a great experience in Tinder, I want to get more engaged in Tinder. And it's like this virtuous loop that intensifies my engagement. Instead, what happens ideally is that I have a successful date and that's actually the off ramp. I don't need to use Tinder anymore once I find someone I want to date. And so that's why these types of companies always are having to pour money into the acquisition because their product doesn't naturally keep people retained over a long period of time. But when you do have those virtuous loops, your company just propelled forward by the activity of your users already that they're already doing in the system. So just to recap, talked about growing engaged users and how it's so important to focus on what I call the core action. We talked about retaining users and why that's like you have to think about accruing benefits and mounting loss. We talked about making a product self perpetuating by building in virtuous loops into the product. If you can do all those things, I really believe you have an incredible chance of building one of these iconic companies. Just in closing. Engagement. Engagement. Engagement. If you miss engagement, you're not going to be able to grow your business. I need some traction.

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