YouSaid · the spoken record

Dan Hockenmaier

lines on the record: 68
first: 2022-10-09
most recent: 2022-10-09
sittings or episodes: 1
sources: podcast

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“Are short or long term growth. Now you have the ability to make much better kind of allocation decisions. So that would be like at the most macro level. And I think the more micro one is for an individual product pod, I had this North Star goal, which lever should I be pulling? They should be using their mini models to make that assessment. And if you look at like the strategy doc for a product group or team, I think that having a model like this should be a core part of that because that way they can articulate what it is that actually move them.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a very helpful input into a quarterly or annual planning process. Depends a little bit on the stage of the company, but say you're at the stage where you have maybe 10 or 20 product pods, which are allocated across various parts of the business, and you're going through annual planning. Often you want to do a zero-based accounting exercise where we say, we want to, from the ground up, decide how those people should spend their time. And there's some kind of pod allocation exercise where we're deciding which places those go to. The most difficult thing about making that kind of effort is developing a common currency. by which you can trade off their efforts. So like this team is saying they can move this metric by X and this team is moving this metric by Y. I have no way to make those two things comparable. The growth model is the function that lets you do that. And so you can have this analyst or this finance person we talked about who is operating this model work with the product managers to run those scenarios through this model and generate it into a common currency. So now we have a spreadsheet which says these are the things we could work on. This is roughly how it will impact.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think so, one tactical piece of advice I think the best way to start this is to find a smart analyst or smart finance person often is the right type of person to partner with and just start building it. So it may, you may have some intuition around this for the core operating model the business is running. This is a little bit different. You need to start building in more variables. But I would start there and start iterating on the model. And I think like this process of where you have leverage to move it is very hard to it. So I think you just have to start. And if there's a feedback loop between what kind of gains the team is putting up and how that impacts your model and over the course of multiple quarters of iterating on this, you'll build much more intuition for what works.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the immediate things that you see when you build these is that your growth is much more sensitive to customer retention than you can ever intuit because there's a lot of interaction between having a healthy, retained customer base and everything you care, everything else you care about, which is the rate at which they're referring new customers, generating content, generating contribution margin. And so it quickly makes it clear that actually getting a smaller percentage gain on retention is often much more valuable than making a bigger change in some other area. And as a result, you may be misallocated your product and growth resources in a pretty significant way.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah. So I think one thing I'll say is going back to 50% of the value being figuring it out that actually like negates the value of templates in some way. Like you kind of want to build it up for yourself from first principles to understand how the business works. So like the more painful the process of building it is, the probably the more you're learning. But I do think there's been a lot written on this that you can find online. I think probably the most work to build this into a discipline. And so if you want to go really deep on this, my top recommendation would be to start with ReForge.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Elements, you're often underwriting the transaction. That team is thinking about the tension between extending more credit and driving higher spend versus defaults on the other side. Like what's the contribution margin maximizing point at which we can offer credit? And so their models are going to look pretty different than like what a growth team is managing.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there's probably like two core archetypes for this. So if you have something that's more like a growth team, it's a little bit simpler. They're typically managing some kind of funnel and they can understand, do I want to work on driving more traffic, more conversion, more retention? And typically that's like a somewhat linear relationship. But then you have all these teams that are really managing some tension in the business, which is totally different than a funnel. So for example, you have a marketplace quality team. Like what they care about is driving some standard for quality for the suppliers on a marketplace. But there's not a linear kind of relationship between working on that kind of problem. So if I let on a bunch of new supply to a marketplace, probably the first thing that happens is our GMV or our revenue goes up because we have all these new suppliers which can transact demand. But if those are on average lower quality, it's going to degrade the kind of customer experience and reduce retention over time. And so the model that they're trying to build is like how to manage that tension. Similarly, like in a fintech business or many marketplaces now have fintech.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Very hard to side, something we've spent a lot of time thinking about in bears marketplace businesses. And so if you're not careful, you can have a junk in, junk out problem with marketplaces. And so the thing that I have gravitated to more as I've done more of this is like one very basic high level conceptual model. So that's like the building blocks you talked about, which as simply as possible describes how the whole system works. And so you start to get a feel for which levers are important. And then for each area of the business, so each product pod, each go-to-market team, they should have their own kind of mini model, which describes the piece of the business they're working on. So that team typically has a North Star and they should know what are all the inputs that drive that and a little model to articulate how that works. And you'll never kind of stitch this up into one master thing. I think that's a very difficult task, but you have the dual benefit of understanding the business works broadly and then understanding if you zoom in on this piece, what are the really the levers that need to be pulling to move my metric.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think one warning I will use. I built these for many businesses, built them at Thumbtack, Affair. Many of the companies I work with at my consulting firm, they break down a few places. As soon as you start stacking assumptions, you're highly sensitive to how many assumptions do you have to make and do you know how to make that assumption? And marketplaces kind of create complexity on both of those because for the first piece, you're modeling both sides of the business. There's a lot of assumptions. And second, there's a few pieces which are very hard to understand how they work. So the interaction between supply and demand is a big one. Like take Amazon as an example. There's a category manager in Amazon who's running their pets business and he decides that he wants to go at a bunch more pet supply to the business. He's going to go find pet food brands, pet toy brands. Those businesses will generate a bunch of revenue on the Amazon marketplace. But how much of that was actually incremental? Maybe there's a bunch of existing pet supply that customers would have bought anyway. And does having a bunch more supply create a happier customer who retains longer and drives those cohorts up? These things are”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, exactly. And the critical distinction there is like for SaaS business, your marginal costs are often very low. And so it's not an important part in a model, but for transactional business, you typically have very high costs or something else that you need to model.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's rough and right. And those three building blocks are true for most businesses. Most of what we're talking about is then nuance on top of that that makes the business unique.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Payback period is a much better measure of paid marketing performance than LTV to CAC because the speed at which you get enough money back to the then go acquire another customer has much more bearing on how fast your business can grow than just the raw kind of LTAC. So this is where it gets really interesting where you get some variables to play with.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Per month, what's the AOV? And you're also going to typically need to build in unit economics because those businesses often have higher costs. And so you're going to be thinking about COGs rather than major costs that you build into it. And then one click beyond that would be to build this for a marketplace business. So now what we've talked about is mostly modeling like the demand side of a business. So now you'd also need to think about supply acquisition and retention and how these two sides interact. So as we add supply, what's going to happen to demand? But those are the basic pieces. I think you can start pretty linear. Like requiring customers, they're activating, retaining and generating contribution margin, typically the output. But where it gets really interesting is we start making it a nonlinear. So the most basic example of this would be for reality. Your existing customers are referring new customers and those go on to refer new customers. And based on that coefficient, it has a lot to do with how fast your business grows. And similarly with paid marketing, as you generate contribution margin, you can reinvest that in growth. And actually, if you link those two up explicitly, it makes it really clear why thinking about something like”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so if you think about some of the basic building blocks and probably the simplest use case would be like a SaaS business, there's really kind of three components that you need to build for that. One is to understand your acquisition channels. Are you looking at paid marketing or sales or viral kind of customer referrals? And for each of those, you have some different assumptions around traffic or spend or conversion rate, those kind of things. So that's kind of the first section. Second would be retention. So at what rate are these customers activating? And then have some kind of basic monthly retention curve. So how long are they staying around? What's the survival rate? We can do these in those kind of stack over time. And then you have monetization. So in the simplest example, they might be paying you some monthly or annual fee. And so that translates to monetization. So actually like if you're modeling a relatively simple SaaS business, those are the only core building blocks you need. And then you can, you add a lot more complexity on it based on your kind of individual business that you're building. If you then are trying to build this for more of a transactional business, you need to layer on the way that your current kind of retained customers start to transact. So how many transactions?”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“The benefit of working on different things. I think importantly, it is not a forecasting tool. So it's not going to replace what your finance team is building to project the business. In fact, often the output can be highly variable because you're playing with lots of these assumptions, but it is a great tool for kind of opportunity assessment for the business.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I think it's useful in many contexts. If I apply it to the current work that I'm doing, the strategy analytics team affair does a bunch of work to help our other teams make better decisions. So we're typically diving really deep into a bunch of topics across the business. I think it's really easy to make that work kind of go off the rails or go too deep unless you have a conceptual understanding of how the whole business that it comes together. And that's how I think about a growth model. So it's an analytical representation of how the business grows. And it's typically built in a spreadsheet, which has a really nice feature of being very hard to fake. Like you can talk about a business conceptually, but when you actually have to get it to line up and link in a model, it's very hard to not force yourself to understand how the business works. And so I think it's very valuable for that. I think 50% of the value you get from it is simply building the model, right? Like it forces you to understand it. And then you get this artifact, which you can use to understand how to weigh different opportunities or understand”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, absolutely. So I feel very fortunate to have been able to work on a bunch of consumer and marketplace businesses. Time. I started in consulting at BCG and then in private equity. I don't think I learned much about how to actually run a business at those places, but I didn't learn a lot about how to think about them. I think my real education on this began at Thumbtack. So I joined when they were about 30 people and we just had to figure it out. I was there for a little over three years and we more than 10X the business in that time. From there, I built a strategy consulting firm where we worked with a bunch of the top growth stage marketplaces on a range of topics. And ultimately, that firm was acquired by FAR, where I am today. So I lead the strategy and analytics team at FAIR. I think this is probably the most fun I've ever had in my career. It's like just incredible mix of the team, the business is really strong. And I just love the customers we're serving. So it's a marketplace, connecting local retailers and independent brands. And I just think that's a really fun group of customers to build for.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“One lesson I've learned the hard way a bunch of times on this is that if you think about running a marketplace, you're basically like a gardener. You have to have a very light touch. Like if you're building a SaaS business, you're a construction worker. You're like building the product and the features and selling it and it's this very linear thing. For a marketplace, you're like messing with this ecosystem that you don't actually really understand how it works. And sometimes you might do something over here which drives this long-term effect two months later and then you're going to be pulling your hair out two months later trying to figure out what you did over here that made that thing happen. And so I think that the main advice is like to tread lightly. When you're messing with the core incentives or mechanisms of the marketplace, be very careful, particularly if you've got something that's working on playing with those variables.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source