Casey Winters on optimizing for long-term value, sequencing business models, and prioritizing network effects
Product State Q&A
Casey Winters is a Partner at Reforge, Advisor at Whatnot, Advisor (and former CPO) at Eventbrite. He has advised top tech companies, and has held roles at Pinterest, GrubHub, and Apartments.com.
https://caseyaccidental.com / Linkedin
EC: This year, many tech companies are getting back to business fundamentals. They’re driving towards efficient growth and profitability. Do you think there is a risk of customer-centricity being underemphasized? How can product leaders ensure engagement and churn reduction doesn’t become an afterthought?
CW: I think we have lived in an environment for too long where product managers, designers, and engineers can get away with not understanding how the business operates. Businesses have to make money, and there isn't some other function that is going to take care of that. The product is the driver of the business. The most customer-centric approach is to give everything away for free, which means we cannot pay salaries, and the product goes away.
What I teach my teams is that their missions all need to have a semi-colon in them. The first part of the sentence is the value you're creating for the customer. The second part of the sentence is the value that creates for the business. In times of glut, that business value can be more long-term oriented than in times of uncertainty, but it has to be there. Sometimes churn reduction can be good. Unprofitable customers; customers that aren't your core target audience and want features and support that don't fit your strategy — or are tough to maintain. Sometimes, you can add by subtracting.
Will some companies swing too much in the opposite direction? Almost certainly.
What I advise startups on is that they should always be optimizing for what creates the most long-term value of the business. But, if what the business needs to be around long-term is more investors, and what investors want is something slightly different from what is right for the business long-term, sometimes doing what investors want is the most optimal play in the short term. Public market investors care about profitability right now. Private market investors shouldn't want that per se, but they do want lower burn rates, longer runways, and profitable unit economics. Startups should have always wanted those same things too, but in chasing growth may have sacrificed many of those elements.
I do see some startups being advised to get profitable as a whole, which I believe is a mistake. If you're growing via the venture route, you need growth balanced with these other elements. And profitable, but not growing, still makes you uninvestable.
EC: After a long history as a marketplace, Eventbrite recently started offering SaaS tools for event marketers. We’ve seen similar ‘market network’-type explorations by Houzz, Honeybook and Zillow. What should product teams keep top of mind when considering major expansionary moves and big, risky bets — in a time of uncertainty?
CW:I think you have the causality backwards on this one. Eventbrite throughout its history has not been a marketplace, but what we call a SaaS-like network. We work with buyers and sellers like a marketplace, but the value prop we provide to supply has historically been monetization and efficiency, not demand. Our event creators did their own marketing to bring demand to the platform. This is similar to Square, Gofundme, Substack, etc., but very different from Airbnb, Doordash etc. whose entire value prop is driving demand. Over time, Eventbrite has built more tools to help creators, and gotten better at driving demand for our event creators. Now, 25% of the orders come from Eventbrite driving the sale, not the event creator. So, we're becoming more of a marketplace by driving demand. Now, our primary goal is to help event creators grow their business, and we will do this by driving our own demand as well as selling them tools like Eventbrite Boost that help them get better at driving their own demand.
Sequencing business models is something I think about a lot, and have built an entire program for Reforge around it (Advanced Growth Strategy). As for market networks, I think the concept is pretty much a failed thesis at this point for startups. The idea is almost a decade old, and has not produced a single IPO, or even anything on the IPO track as far as I can tell. The idea that a SaaS business can bootstrap the supply side of a network and then the business can focus on driving demand as a second marketplace product works in theory, but 1) SaaS businesses take a lot of work to maintain, 2) you've trained the entire company on how to build SaaS, not marketplace products, and 3) there may not even be a viable demand side discovery product to unlock product/market fit for the marketplace. I discuss this more here. When possible, it's much harder than you think, and in many industries, it's not even possible.
The platform route, where you aggregate SaaS customers, and then sell them as demand to external developers, has a lot more proof points. I think what makes Eventbrite unique in this area is that finding things to do personally and professionally remains a real and largely unsolved problem, and our scale allows us to have great search and discovery tools, as well as access to great acquisition channels to drive demand to help our creators.
As for your examples, Houzz did not start as a SaaS business, but a content network. A Pinterest for home decor. The problem with niche content networks is that they cannot reach the scale of non-niche networks, which means they can't make advertising work as a singular business model the way most network businesses do e.g. Pinterest, Instagram. They just can't get enough users and impressions. So niche networks have to launch multiple revenue models to reach profitability. This is what LinkedIn has done successfully with ads, consumer subscription, recruiter subscription, and job listings. Houzz is attempting the same, but I have no insight on how well it is working. But their journey is not really related to the market network concept.
Zillow is a different story. Zillow is a marketplace in the low frequency, high value space of home buying. To not be totally reliant on SEO, Zillow built a second product that was non-transactional, but kept users engaged in between home purchases with estimating the value of you and your neighbors' homes. Then, OpenDoor came along and started buying homes outright, and this was a disruptive threat. So, Zillow attempted the same model, but they were not able to make money on it, and have shut the project down. This would be an example of moving from a lightweight marketplace model to owning inventory directly, which dramatically changes the financial model of the business.
Sequencing business models more generally is something all companies have to go through as they scale. My general philosophy is that ‘there is always more money in the banana stand.’ When you think you need to expand into new businesses to scale, you generally haven't tapped your core business enough. So, in times of uncertainty, re-analyzing the core business to find growth that is less risky makes a lot of sense.
But of course, eventually you do need to expand. Times of uncertainty are not a great time to do it as those efforts are always unprofitable at the beginning, and you're unsure of what the prize is at a time when investors want profits and certainty. But sometimes it is the only way to drive growth, or the only way to make sure you're not disrupted.
The way I think about it is if you forecast your current growth loops with your current product, when do they stop growing? And how can I make sure well before that point my expansion opportunities or potential new growth loops are growing the business at a high enough clip to make up for that at that point in the future. This helps make the project less of an experiment that can fall out of fashion and more a commitment the entire company knows they need to support. At Pinterest, we knew we didn't have product/market fit outside the U.S., and eventually goaled the entire company to change that, and we did. Now, Pinterest has more international actives than U.S. actives.
EC: With software teams thinking/feeling/sensing they may have to ‘do more with less,’ how should product leaders emphasize and pursue meaningful defensibility, differentiation and moat-building?
CW: Teams shouldn't do more with less (unless they weren't working very hard before). They should work on fewer, but more important things. Stephen Covey coined the phrase, ‘The main thing is to keep the main thing the main thing.’ Teams should dramatically stop working on non-main things. Main things are things that allow you to sustainably grow. They should continually be one of the top three goals of a company.
I try to look at a company's core competencies and how they can be leveraged further. I also think my main job as a product leader is to understand the growth model of the business, and prioritize resources towards the areas of the growth model that can unconstrain the business the most. This can be as deep in the stack as improving technical leverage so engineers can do more with the same amount of time, to optimizing a flow, to adding a feature, to launching a new product. And at scale, it will be a combo of a few of those at once.
I also mainly work on network effect businesses, where the answer to this question is fairly obvious. The network effect is the main moat and differentiator, so how do we make sure everything we're doing is strengthening it? If we don't have a network effect, is that the expansion the business needs (like in the previous question)? If so, how do we get as much of the company as possible to help build that and know if we are on the right track?
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