longterm greed

Long Term Greedy

imagejas
Jasdeep Garcha
·
07/29/2024

In a recent conversation with Farhan Manjiyani at Grafana Labs, we explored all things monetization at Grafana and how being long term greedy can help others operate with a more customer-centric frame of mind.

The discussion yielded lessons on how companies should approach their monetization, emphasized the importance of long-term thinking and informing decision making with customer conversations, and how vital operational alignment is to successfully execute ideas in any scenario.

Key takeaways

  • Create the right internal incentives - to really use monetization as a lever, organizations should be culturally primed with the right motive and establish shared empathy. 

  • Embrace dissonance - Be open to data that challenges your assumptions.

  • Create feedback loops - build a pricing committee and avoid common mistakes and misconceptions that tank pricing initiatives.

Create the right internal incentives

Monetization is fundamentally a product so creating the right cultural conditions for it to thrive is step one in determining how it should be formed or how it should change. Without that basis, there are very few guard rails, and you’re likely to run into a lot of misalignment across the organization due to competing incentives (e.g. lowering the resistance of a sale, maximizing profit, lowering costs, etc.).

One way you can do that is tie it directly to roadmap and use that as a tool to create organizational alignment. Another is to drive consistent tenants into the organization by which all ideas are evaluated and measured.

There are a couple of core tenants that Grafana tends to live by: 

  • Be long term greedy - sacrificing near term gain for long term loyalty in growth is always the right decision

  • Focus on the customer - Nothing is a substitute for customer conversations, which should ultimately drive decision making

Both ground decision making and create shared incentives for all functional areas to operate against a common set of principles (even engineering). This is meaningful because sometimes short term changes may result in revenue contraction, but over the long run may actually create a more durable business.

For instance, Grafana recently noticed their customers were paying for more storage than they were actually using across many of their products. They felt this wasn’t a great customer experience and the fact that it was going unnoticed was likely a result of how opaque that was in the product. As a result, they introduced tools to help customers right size storage utilization, which resulted in near term revenue contraction.

At most organizations at scale, this would be nearly impossible to sell internally or to a board. However, there’s a deep belief that this will result in higher retention and net-positive growth for the business overall.

Embrace dissonance

We often think of pricing initiatives as one-and-done because they take so much time and energy to deploy. We tend to think that once they’re deployed we should be disciplined about supporting them, let it play out, and stop listening to the market for a while. However, this is the exact opposite of how you should operate.

Instead, use them as active experiments. That means entering the fray on the front lines, embracing feedback, and being open to being wrong (in fact, you probably are).

You should absolutely practice being hypothesis-driven, however, avoid being rigid. For instance, if how you monetize does not work for a particular prospect, explore what does, run two pricing models at once to accommodate them (within reason), and continue exploring with others.

Over time, it may become clear that one cohort is way more meaningful than another, and the distinctly different pricing model you built to support them is the right next evolution of your model. It’s hard to recognize that without actively listening and being open to iterating.

Create tight feedback loops

We’ve written quite a bit about building pricing committees - they’re core to finding out what works best for your business and customers, and maximizing pricing as a lever for growth. Once you’ve found the right set of stakeholders to include a committee (including both non-technical and technical parts of the business), create the right conditions for feedback.

That often means periodic meetings, discrete assumptions, and tight measurement of initiatives. Grafana runs 5 experiments a quarter, and uses their feedback loops to isolate winners and losers, as well as form the next set of experimentation.

Finally, as you get momentum, avoid these common mistakes:

  • Don’t get bogged down in theory; talk to real customers - it’s convenient to use internal data or intuition to form monetization hypotheses, but rarely does that form a useful opinion. You can accelerate these types of conversations by simply talking to customers and letting that drive decision making.

  • Don’t hold price sacred; far more important is unit of measure (or value metric) - Price can change rapidly, but unit of measure can’t. Often, teams spend an inordinate amount of time thinking about price point … but that matters far less than the value metric.

  • Invest in creating shared empathy - You likely don’t own all the pieces of monetization, but it’s responsibility to ensure all stakeholders appreciate both the opportunities and constraints that exist across the business. Often those gaps manifest themselves as cross-functional frustration (e.g. with the pace of engineering on billing work, with the inability for GTM to hold the line with pricing) – recognize that tension and bring folks across the line.

Conclusion

Monetization is a complex subject because it can completely change the perceived value of your product or service, and it can be hard to get internal stakeholders on the same page. Operators focused on it should take a few practical lessons away from this piece:

  • Without the right internal incentives, you’ll get variable results. Just as culture allows human capital to scale, it also creates the right conditions to productively improve monetization.

  • You’re probably wrong about your price point, your value metric, and/or your packaging – that’s OK and expected. Keep listening and avoid being rigid or defensive.

  • Get out of your head and into customer conversations as much as possible to inform your perspective.

  • Create real structure to increase a) trust and b) learning.