Pay As You Grow
You've heard of "pay as you go." It's usage pricing. The more you use something, the more you pay for it. Your electricity bill is "pay as you go."
And that model seems fair, because it aligns cost with value, but it doesn't always work in software sales. The reason is that businesses want predictable costs. The only way you're going to get them to sign on for highly variable costs is to make the thing you sell incredibly cheap. That is, micro-pricing, or more like pico-pricing, is a way to convince people that they don't need predictability, since after all, fractions of a penny won't kill the company.
But there's a related business model I think of as "pay as you grow."
With pay as you grow, you might offer a free or super-low-cost startup tier. It's not usage that will make a startup meaningful to the vendor, but the very success and growth of that startup long term.
This is a much deeper incentive alignment, and it establishes one of the most valuable feedback loops between vendors and the customers they support. When you win, they win.
Lots of vendors with these dynamics end up being close to the money, or at least close to the traction. Two examples that come to mind are Stripe and Posthog. These are my poster children for "pay as you grow" companies, and their behavior in the ecosystem—the lengths they go to in order to help their customers succeed—tells me that their incentives are deeply aligned.
There's nothing in the world more valuable than a well-structured feedback loop. That is, a system that sends you valuable signals when you do things that benefit yourself and others. "Pay as you grow" epitomizes that.
This also incentivizes great companies to treat small customers like they matter, to get in early, support the upstarts, and make bets on the long tail of possible futures before others can see what's coming.
The Mood is the Message
Did you ever wonder why the blues was called the blues? I mean, it's actually some of the most vibrant, energetic, over-the-top, dance-on-the-tables music out there. Blues musicians have *fun*. Blues listeners have *fun*. (Think B.B. King or Lonnie Brooks.)
Even if the lyrics of a blues song are sad as hell, the vibe is not. The mood is a deep exuberance for life, a "damn I'm glad to be here" explosion.
If you just read the lyrics of popular blues songs, you'd come away with a wrong understanding of the blues. You'd think it was just moaning and groaning (and sure, there are really sad blues songs, but that's not what keeps the concerts hopping).
This is an example what I call "the mood is the message."
It's also true in a lot of children's books. No matter what they say they're about -- dinosaurs, garbage trucks, or grumpy monkeys -- the underlying message of the drawings and the plot is "Life's OK. Small bad things happen, usually misunderstandings, and then they get fixed."
The mood is the message.
This is important in startupland, too. Whether you are an investor or a founder or a service provider in tech, you're out there at conferences and panels and mixers and it's show time.
I've noticed some founders will start into their pitch and, while the substance is solid, the tone is low-key, almost abstracted from what they're actually doing. Lots of deeptech founders come from academia. Lots of govtech founders come out of bureaucracy. Enterprise software founders do too!
And most of them have been taught to put a damper on themselves, be cautious, wrap up what they're saying in excess verbiage and caveats. Make it analytic. All of that is non-threatening in environments where boats should not be rocked.
But in tech, you need to rock people. And industries. That's the whole point.
And once you have a great idea, a demo, a few dozen customer conversations under your belt, one of the most important things you can do is tell the story.
The story should be factual and true, of course. You should be able to back it all up.
But above all, the story should be exciting. The way you tell it should convey the drive you have, the momentum you feel, the promise and the vision. You have to amp yourself up. Dig into the emotions of your prospects who are struggling. The industry that's on a tipping point. Your own commitment.
And that should come through not in baked phrases like "we're superpumped", but in every innocent article of speech that you use to drive the explanation of why and how you're building what you're building.
So how do you do that? I start with the body. I used to do jumping jacks before sales calls, and deep breathing exercises before I got on stage. High-energy and calm is what I was aiming for.
People remember how you make them feel, like an iron filing remembers a magnet. They're in the thrall of an invisible field, the narrative and emotional forces you emit.
Because the mood is the message.
I Finally Understood Gamification
One of the upsides of being a startup investor is that you get to learn from founders and feed your own curiosity. (In a way, it resembles how journalists with a wide beat learn from their sources.) Today I learned a new way of thinking about "gamification" thanks to Melinda Jacobs.
Usually when I hear gamification, I think of someone tacking cheap, random incentives onto something users aren't motivated to do. It's trite and thin.
But today I understood it from a different angle, as a sincere approach to UX that paves the way for people to get what they really want in life.
When Melinda talks about gamification, she talks about giving people "a clear next move." Gamification helps turn their own "messy ambitions into small, doable actions." I love that. It lines up with two other writers who have helped me understand motivation and ability: B.J. Fogg and Andrew Huberman.
B.J.'s book is called Tiny Habits. He shows people how to create new behaviors out of nothing: just a desire to make their lives better and a single hook in the day to hang a habit on. Highly recommended!
Andrew talks about "Duration, Path, Outcome." These are the aspects of any situation or problem to solve that the brain must grapple with before it moves you to act. If you can get clarity on what to do, how much effort it will take, and what it gets you, then you've pulled yourself out of confusion, which is a behavior killer.
If, as B.J. shows, you can make the step small, the reminder easy, and the reward clear, then you might have just enough juice to get yourself over the action threshold. And all that can be in the service of life-changing behaviors, like putting yourself on the road to better health, emotional calm, or meaningful connection with loved ones.
Duration, path, outcome—getting a clear next move for yourself—is crucial because most of the time, we think of our problems and goals in lofty abstractions, grandiose ideals that are useful as part of an internal narrative but useless when it comes to pragmatic planning.
If gamification is giving people a clear next move to achieve their goals, I'll take it!
GTM Thoughts
Last night I met an expert in GTM and sales, Brandon F. Goldman. He's 10x'd startup revenues to mid-eight figures. He's seen companies to IPO. Now he's an operations partner for ventures firms in the Bay.
He said two things that struck me:
- "If you can't buy a contact list based on how you describe your ideal customer, you don't have a business."
- "Lazy CEOs say they only hire A+ players. I hire the right person for the right job." This applied especially to sales people, because different folks will be a better or worse fit for different products and industries. And even if they beat their quota by 270% last year, the real question is: were they just taking orders from customers because the product was so good, or did they have to fight for it?
"The Venture Track"
There's an idea that's not widely known outside of venture, which startup founders should be aware of. It's called "the venture track." Being on the venture track roughly means that you and your company are investable, and being off the track means that you'll have a hard time raising.
Being on the venture track is not a single end state -- it's dynamic over time, and changes with fund-raising stage, markets and technology waves. Even though the concept is squishy, there's something important to be learned from it, if only to understand how you'll be perceived.
Two smart technical graduates from a respected school who have built things together and have a prototype of a decent software product are on the venture track. That doesn't mean every firm will invest in them, but it means they'll get a hearing. Statistically, they have a good chance.
A firm with a decade providing services, whose founders realize that some of their work can be productized and who decide to build the product and seek funding is probably "off the venture track," and will need to do some work to make the leap (eg a spinout, a prototype with early customers). Early-stage funding tends to go to new ideas, and companies that are just getting off the ground.
Likewise, a startup that received early-stage funding, and whose growth plateaued, can fall off the venture track. They're just not posting the month on month increases any more. In the earliest rounds, you can raise on promises, but later you raise on proof, and the best proof is revenue (for software), and working prototypes for certain kinds of hard deeptech (space, energy).
The purpose of this post isn't to discourage founders who are off the beaten path. It's to calibrate mental models on what investor perception will be, so that the company with an unusual story can make the necessary adjustments to be venture ready. The question to ask yourself as a founder thinking about raising is: Am I on the venture track wrt my stage? If not, how do I get there? Do my proof points match my perceived maturity as a company?
Homeostasis vs Allostasis
We all learned the term homeostasis in high school biology. When your body adjusts itself to maintain a constant temperature (by sweating to cool down, for example), that's homeostasis. The state that is the same is 98.6 degrees F (37 C). The thermostat in your house supports homeostasis. You set it at 68 degrees and then it heats and cools the rooms to keep the temperature close to the fixed point.
But there's another idea that's more important and less well known: allostasis. Just like homeo+stasis means "same state", allo+stasis means "different state". An allostatic system adapts when it antipicates change. When your going into a stressful situation, your body might pump adrenaline to get you ready for the stress. So allostasis goes beyond control systems into prediction. It gets you ready for something. As opposed to a normal thermostat, an allostatic system is like a smart device. (Real-world example: a smart insulin pump that learns the peaks and troughs of your blood sugar and doesn't wait until you're in crisis.)
For me, the idea of allostasis is important because knowledge workers have a rhythm of attention and mental energy. It fluctuates throughout the day. If you can do the hardest work in what you know to be your peak hours, and then take a 15 minute break before your energy is fried, then you're adapting to a rhythm you can predict (so that you can come back for another attention bout). You're managing yourself as an allostatic system.