I led the growth team at Codecademy and helped the company grow from $10M in ARR to $50M ARR+ before it sold to a company called Skillsoft for $525M last year.
I learned a lot about the details that make B2C SaaS/Recurring revenue business models work well that I have yet to see written down anywhere.
My real motivation here is to help the companies that have achieved a good product market fit and have yet to figure out how to make money.
To survive in the long term, you need to do both, and plenty of great products have died because they didn't build out the business side fast enough.
These lessons directly apply to freemium/SaaS businesses and (probably?) apply to other recurring revenue businesses such as subscription e-commerce, agencies, consulting, etc.
I plan to cover the following:
Codecademy, for those unfamiliar, is a B2C tech education platform that focuses on taking total beginners and getting them to a medium level of technical skills.
The company started in 2011 and built what I still think is the best free learn-to-code product online.
As all "advice" really depends on the context that it's coming from, here is where we were at as a company in roughly 2017 :
TL;DR - We had a lot of free users but were terrible at converting them to paid and monetizing them.
The final bit of context is that I am a product manager, so most of our work was on the product rather than in marketing channels. We did have a great marketing team; however, I'll mainly talk about what I implemented firsthand and saw work.
Like most first-time growth teams, we made many of the classic mistakes in our first year.
The most painful/memorable of those are:
When we first tried to set up an A/B testing program, we got way too lost in the concept of "measuring" all of the impact that we were having and not making any "assumptions". That was dumb.
We actually debated if we should have a pricing page on the site and how we might measure that impact. I remember that adding a pricing page to the header had a small to medium size impact on conversion, which is great in theory...
However I would actually consider that one a loss as we should have had this in the header the whole time. Don't debate the best practices, just implement them and figure our where you should break them.
The flip side of this, is that you should not assume that A/B testing is an excuse to not due the due diligence that you need on big projects. I think we shipped 3 different pricing page "layouts" to see which was more effective.
I think that took 2 months to run, was super expensive from a design and engineering perspective, blocked other test and in the end we didn't learn anything. We should have just made a decision.
One of the tenants of "Growth" is that you should be able to test any idea that you have a solid hypothesis behind. While I think this is valuable, its way more important to start with a solid foundation of best practices in your area.
The "fancy" ideas (such as "running subway ads" or "partnering with influencer") only work if you have a solid funnel to drive this traffic into.
As I mentioned above, we re-designed our pricing page twice before realizing that a very small % of users purchase right from that page. Most purchased right from the product itself without going back to pricing.
In retrospect, we moved on way too quickly from ideas that we had decent confidence in that didn't work the first time.
If you are hitting a real customer problem, you did your research and V1 isn't working out, then I would take another shot.
Mentioned above, but if you don't A/B test the basics. Just ship them.
When you combine this with the friction of getting all the necessary tooling set up, learning how to run an A/B testing program, and building out the team.... this wasn't our best year.
Additionally, B2C SaaS and subscription businesses can be tricky to grow for a few reasons, especially when paired with a free product/tier.
Recurring revenue businesses are basically structured like the above diagram.
Many companies go wrong because they only focus on making acquisition cheaper and faster when in reality, you should also have been systematically improving LTV to afford higher acquisition costs.
There is a Dan Kennedy quote, which is something like:
"The business that can pay the most to acquire the customer will win."
Assuming that you don't have a bunch of VC money light on fire (and even if you do), the best chance that you have in the long term is figuring out to better monetize each monthly cohort of users and increase your overall LTV, which will allow you to spend more to acquire more customers profitably.
Here is what I would advise companies in a similar place to do. This is a path toward reliably making improvements, not seeing giant lifts.
Everything gets more expensive to change the longer you wait. It involves convincing people, changing more code, retraining more sales/customer service people, etc.
Every cohort that you under monetize during your early years is money that you're never getting back.
Subscription businesses are slower to scale than most B2B business because most of your customers will pay incrementally across their lifecycle and you are not likely to close a big enterprise account that allows you to collect a lot of cash upfront.
Because of this, every missed cohort of users that you didn't monetize well is a lost forever. The faster you get the best practices running, the more revenue you'll have to compound the following years. Don't overthink the fundamentals.
You're active paying users are hands down the most valuable to you. You don't want to lose them for things like payment failures that could have been prevented.
If you are in a company that drives decisions based on A/B tests, you will be beholden to a concept called minimum detectable effect (MDE).
Find all the dead ends and confusion across your product and fix those.
Your goal is to keep development and operational speed fast, so check that any changes you make are worth the maintenance costs.
Try to find the places in your product that most users are converting from and ensure that you're setting context correctly the step before.
Setting up the basics of a monetization system makes a world of difference as your company grows. The cohorts that sign up and don’t monetize are likely gone forever, so it really, really pays to set up a strong foundation.
If you can get to a place where a strong checkout page, pricing structure, paywall, payment processing and churn appeasements, then you’ll be better than 90% of early-stage companies.
Next Post in this series: https://www.subscriptionindex.com/blog/making-money-in-subscription-business-part-2-payments-churn