The art and science of pricing | Madhavan Ramanujam (Monetizing Innovation, Simon-Kucher)

Episode Opening Highlights

Madhavan Ramanujam: The good founders need to be able to dominate both market share and wallet share. It is not a choice. You need to get better at both.

Introducing the Guest

Lenny Rachitsky: It feels like every company wants to be an AI company these days. How is AI pricing different?

Madhavan Ramanujam: The winners in AI will need to master monetization from day one. If you’re bringing a lot of value to the table and you start at training your customers to expect $20 a month and you anchored yourself on a low price point, you’re in trouble. 20% of what you build drives 80% of the willingness to pay. But the irony is that that 20% is the easiest thing to build often.

Starting the Conversation

Lenny Rachitsky: What would you say is the biggest lesson you want founders to take away?

Why Write the Sequel

Madhavan Ramanujam: If you think about market share and wallet share, let’s think about it as a two-by-two. The quadrant that you really want to be in is the outcome-based pricing model, the top-right quadrant where you have great autonomy and great attribution. About 5% of companies are probably in a true outcome-based pricing model. If you want to win in AI, figure out a way to get to that quadrant.

Lenny Rachitsky: Do you feel like the popular IDE startups, they’re going to be in trouble down the road?

Core Thesis: Market vs. Wallet Share

Madhavan Ramanujam: Some of them, yes, without naming names.

Lenny Rachitsky: Today my guest is Madhavan Ramanujam. Madhavan is the smartest person I know on pricing and monetization strategy. As managing partner at Simon-Kucher, he’s worked with over 250 companies, including 30 unicorns, to help them figure out how to price, package, and grow their products.

He’s also the author of the book on pricing called Monetizing Innovation. And now he’s back with a new book, a sequel, called Scaling Innovation, which teaches you how to architect your business for long-term profitable growth and also how to avoid the common traps that teams fall into that keep them from building real, durable, sustainable businesses.

Bill Gurley wrote the foreword. I had a chance to read an early copy. I absolutely loved it. It’s a book that every founder needs to read. And in this episode, Madhavan shares many of the biggest lessons from the book, including how pricing strategy is very different for AI companies, why you need to get your pricing model right from the start in today’s market, a very simple two-by-two to help you pick your pricing model, how to gain pricing power, a ton of tactical advice for negotiating more effectively, the most common traps founders fall into, and so much more.

If you order five copies of the book, Madhavan is offering a chance to win a free conversation with him, a signed copy of the book, an invite to the book launch, a t-shirt, and more. Just send a copy of your purchase receipt to promo@49palmsvc.com.

And some more good news, Madhavan is now more accessible. He left Simon-Kucher. He’s now investing full-time with his own fund. He focuses on early-stage AI companies. If you want to work with them, check him out at 49palmsvc.com.

If you enjoy this podcast, don’t forget to subscribe and follow it in your favorite podcasting app or YouTube. With that, I bring you Madhavan Ramanujam.

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Madhavan, thank you so much for being here. Welcome to the podcast.

Common Pitfalls for Founders

Madhavan Ramanujam: It’s exciting to be back, Lenny. Thanks so much for hosting me again.

Lenny Rachitsky: This is a very rare second visit to the podcast. You’ve got a new book coming out. I’ve got a very early copy right here. If you’re watching on YouTube, here’s the copy you sent me. It’s like 200 pages. Did you print this out on your printer, by the way?

Strategy 1: Ultimate Pricing Simplicity

Madhavan Ramanujam: Yes, I think I ran out of printer ink after that, I guess.

Lenny Rachitsky: I appreciate the early copy. It’s amazing. What we’re going to be doing with this conversation is going through some of the biggest lessons that you shared in this book to give people a sense of many of the things that you share, many things you’ve learned since writing the first book.

Let me start with this question. Why’d you decide to write another book? And what is the difference between Scaling Innovation, which is the name of this book, and Monetizing Innovation, is the name of the first book?

Contextualizing Pricing and Value Stories

Madhavan Ramanujam: So Monetizing Innovation, we actually wrote it eight years ago. Time Flies. And the core thesis of that book was, how do you build products that are not just cool but are products that people need, value, and are actually willing to pay for? And I think that took a life of its own.

And over the years, we kept getting another question from entrepreneurs that, “Hey, we built a great product, we know there is willingness to pay, but how do we build a great business? How do we scale this?” And the brutal truth is that even if you have a great product, you might actually not figure out a way to grow fast and grow profitably. So we wrote Scaling Innovation in an effort to actually solve that puzzle.

So you can think of this as a sequel to Monetizing Innovation. And Monetizing Innovation. Talked about how to build great products. Scaling Innovation talks about how to build a great business. And writing a book is… There needs to be a purpose for this. For me, the reason for writing books is about giving a bit back based on what I know to founders. And book writing is hard. Writing a good book is even harder.

And just like Monetizing Innovation, Scaling Innovation is not marketing fluff. It actually has real actionable stuff packed in that you can go on Monday morning and start implementing. And we wrote this book to give back a bit of what we know and to help companies scale and architect towards profitable growth.

Lenny Rachitsky: I love people like you that do the work for, I don’t know, decades at this point, learn from real life experiences over and over and over, and then just share all this stuff with people. This is the most… the highest ROI way to learn, is letting you do all this work to learn all these things and then you share all your answers with us. So that’s why I love these books.

If you had to boil down the thesis of this book into just a simple thought so that we can just start to plant this in founders’s heads, what would that be?

Mastering the Negotiation

Madhavan Ramanujam: So if I have to boil down the core thesis of the book, it is basically that if you want to build an enduring business, you need to be able to architect towards profitable growth. What that means is you need to be able to master two engines: market share and wallet share.

It sounds simple on the surface, but it’s actually quite complex. Because if you unpack that, for gaining market share and wallet share, you need to be good at acquisition, monetization, and retention, as in get customers, make an initial money on them, but also make money on an ongoing basis and have your customers actually refer more customers.

Many companies, actually, what they do is they focus on a single engine strategy. So they focus on one of those two topics and pretty much exclude the other one. That leads to all kinds of situations. You see companies saying, “I’ll grow at all costs and postpone monetization.” You see some who would say, “I’m going to monetize earlier on,” but they might miss out on acquisition opportunities. Or yet others who are so focused on a small set of loyal customer base that they’re neither monetizing nor are they actually acquiring.

So the good founders need to be able to dominate both market share and wallet share. It is not a choice. You need to get better at both. But this does not mean that you’re putting equal effort on market share and wallet share at all given points in time, but it means you’re putting equal attention on both those topics and being thoughtful about the trade-offs and saying, “How can I actually look at these two topics together so that I’m architecting towards profitable growth?” That’s the core thesis of the book.

We actually showcase nine strategies that actually allow companies to architect towards profitable growth. And every chapter ends with how this particular strategy circumvents a single-engine problem and helps you focus on market share and wallet share at the same time. And there’s also CEO questions and leadership questions that people should reflect on when they architect towards profitable growth and are they on the right track? I mean, think about this ways. If you’re flying a aircraft, you don’t want to flight on one engine. Why do you actually want to do that for your business?

Lenny Rachitsky: Okay. So I imagine many founders or people thinking about starting a company are not feeling like they’re in one bucket or another. Intuitively, you’re not like, “Oh, Of course. We’re going to just focus on growth forever, and that’s all that matters.”

You had these kind of traps that founders fall into that you referenced a bit. Can you just talk again about just the common traps you find founders fall into that people may recognize like, “Shit, that’s what I’m doing probably”?

The Art of Value Selling

Madhavan Ramanujam: So let’s unpack the traps that are correlated to the archetypes. If you’re a disruptor archetype, you might fall into one of two traps. The first one is you might land, but you might not expand. As in your eagerness for acquiring, you might have actually given away a lot at less and you have given the farm away, but you don’t have anything to expand to. That’s the first trap you’re likely to fall into.

The second trap that you actually fall into is you start… A market share that won, is different from a market share that is actually held. If you’re so acquisition focused, you’re actually focused on getting more and more customers, but you’re not spending enough time with customers that you actually got to keep them, upsell them, keep them happy, et cetera. So you might fall into that trap.

If you’re a moneymaker, you fall into one of two traps. The first one is you might nickel and dime your customers to death. Because you’re focused on monetization, you might come up with a very differentiated pricing model, different levels, hidden fees, things to charge for many different things and come across as just trying to nickel and dime your customer.

The second trap that a moneymaker actually falls into is that you fall into the price premium paradox where you think that pricing high actually indicates value, but your price is so high that you actually start hurting your acquisition, so it just becomes irrelevant for most people.

If you’re in the community builder, you actually fall into two common traps. The first one is you’re focused so much on the foundation that you actually miss the frontier, which is you’re so focused on your loyal customer base that you forget to attract different types of customers and you’re not acquiring.

And the second trap that you fall into if you’re a community builder is you train your customers to expect more for less. Because you’re so eager to satisfy your loyal base, you start giving them more and more, and you’re training your best customer base to expect more for less.

So these six traps are very common across these archetypes. Being a profitable growth architect means that you’re avoiding these traps. In other words, you’re simultaneously being a disruptor, a moneymaker, and a community builder all at the same time. And how do you actually have that archetype and the right strategies to actually go about your business?

Lenny Rachitsky: Okay. So this is what you want to not do. You mentioned you have nine strategies for how you actually want to approach pricing, monetization, scaling, monetization, and innovation. Can you share a couple of these strategies, maybe two or three, maybe some of your favorites?

Three Key Elements of ROI Models

Madhavan Ramanujam: Sure. So I will unpack a couple of strategies. Maybe the first one I would take is what we call as beautifully simple pricing. So in your early days it is by far more important to have pricing that is really simple and it’s not creating too much friction in the sales conversation. I mean, the asset test that you probably should go back on Monday morning and do is take some of your early prospects or customers and ask them to articulate the pricing strategy back to you, right? If they were to actually sell on your behalf, how would they describe the pricing strategy? And if they cannot contextualize that in a simple manner and actually explain, you don’t have a simple pricing strategy. It’s as simple as that.

And having a simple pricing strategy also means that your pricing needs to be able to tell a value story, as in you need to contextualize your price based on the value that you actually bring to the table.

A great example here is Superhuman. When they started, they were actually competing with free email products and they were coming up with a premium email experience. And how do you actually price that? And I thought the team at Superhuman with Rahul and others did a pretty good job. They came up with a $30 price point per month, which was pretty simple. But the way they kind of told the story was that you pay a dollar a day for actually getting four hours of productivity back in the week, and then suddenly the pricing doesn’t look too off. I mean, it’s like the price for a latte in a week to actually get four hours back. Why wouldn’t I actually do that, right?

And pricing contextualization and value story doesn’t need to just apply for premium products. If you take another example, like the Subway $5 footlong is a different way to say a story with pricing that, oh, for$5, you get a lot of value actually back. So beautifully simple pricing really means coming up with a simple pricing strategy that your customers immediately get and your pricing is actually telling a value story and how do you actually get that. So in the book, we have a checklist of 10 different things that you actually need to look at to make sure that your pricing is beautifully simple.

How AI Pricing is Different

Lenny Rachitsky: As we go through these strategies, is your advice try all these things, like you should do as many of these strategies as you can, or is it maybe pick a few that work for you or just one is enough?

Madhavan Ramanujam: So there are nine strategies. We have organized that into strategies that apply during your startup phase, like just when you get started, and strategies that apply to you in your scale-up phase. So there are four strategies that you need to do in your startup and five in the scale-up, so it’s quite manageable. I would argue that all four apply in the startup and all five actually apply in the scale-up phase, but it’s not like you need to start focusing on nine things from day one.

The Correct Approach to POCs

Lenny Rachitsky: So this first one was the startup phase?

Pricing Strategies for POCs

Madhavan Ramanujam: Yeah. The beautifully simple pricing is the startup. Exactly. And so in the scale-up phase, I think one of the most important strategies is to master negotiations and really get better at acing negotiations, especially if you’re in a B2B situation. And how do you actually do that? Because you need to be able to talk about the value and contextualize your price based on those kind of conversations.

So to master negotiations, it comes down to actually three things. Mastering gives and gets, being good at value selling, and third, having the right negotiation strategies. So let’s unpack that each at a time.

So giving and getting, why is that important? Because in a negotiation, typically you’re giving. I mean, you’re giving concessions. People are asking. If you don’t get anything back, you’re basically indicating to the other person that they can keep beating you up and you need to keep giving. But if you’re giving something but you ask for something in exchange, then you’re basically bringing authenticity into the negotiation because it actually means something to you to give, so you’re asking something back. It actually makes the negotiation way more effective.

And in the book we actually talk about the top 10 gets in B2B and the top 10 gets in B2C. One of my favorite gets in the B2B situation is what I call as conducting a value audit. So what this means is if you’re giving a concession, ask for a value audit in exchange where every six months a team internally from your customers would be commissioned to actually conduct a value assessment of your products so that it becomes their business case and you co-create it with them saying how much value is actually produced. And this is great because if they actually engage in that, that gives you tremendous pricing power for renegotiations because it is their business case, they’re championed it internally, and you’re pretty much making your products pretty sticky. So it’s a pretty harmless get, but it could be very powerful for future negotiations. So being good at-

A Second Approach to POC Pricing

Lenny Rachitsky: That’s really smart.

The Dangers of Under-Monetization

Madhavan Ramanujam: … gives and gets is… Thank you. Being good at gives and gets is really critical.

The second thing in mastering negotiations is being good at value selling. And for being good at value selling, you need to do three things. First, you need to be able to create the needs. Second, you need to be able to create affirmation loops. And the third one is creating a good ROI model. And let’s talk about each of those. So creating needs is very important because many founders show up and try to understand what are the needs of the customers. That’s one way to look at it. But you need to be able to create needs rather than just discover them.

So for instance, if you’re a marketing automation AI product and you save, let’s say, three weeks of work that actually needs to be done to actually get stuff in a dashboard that can be analyzed by marketing managers, the way you create the need is ask about existing processes and say, “Okay, so just so I understand, all of this stuff actually takes you three weeks to put data together to actually have meaningful dashboards for your marketing managers to take action. What if that was available to you instantaneously?” Oh, you have now just created a need, right? So being in that mindset of creating a need as opposed to just discovering them.

The second thing is creating affirmation loops. And this is really important. I’ve seen a lot of founders get into negotiations. They’re so eager to talk about their products. They keep talking about the products without any affirmation from the other side. You need to pause and create affirmation loops, things like, for instance, “Okay, so far, you’ve seen all of this. How does this actually play out in your company? Do you see it as valuable? What about this dashboard do you actually like?”

So when you ask these kind of questions and your customers are playing back the value that they actually see in your product, you’re creating affirmation loops, which become tremendously useful when you start selling the product finally. Because if they’ve agreed that there’s value that is being produced, then you also have a better commercial discussion.

And the third one is creating a good ROI model. And I see a lot of founders work on a POC. And after the POC’s over, they’ll show up with an ROI model and try to defend a price. You’ve already lost the battle. I mean, no one is going to believe an ROI model that you just cooked up. Everyone is going to challenge you on assumptions.

The right way to think about an ROI model is to actually co-create it with your customers from day one, which means agree and validate on the assumptions and the inputs. So like, “Hey, how long does this process take today? How many engineers are there?” So you create ask questions that are all inputs to an ROI model. And if you have done that process and the customer agrees on all the inputs, they’re very unlikely to push back on the output of an ROI model. So a POC needs to be framed as the purpose of a POC is to build a business case, and we are going to co-create an ROI model with the customer as opposed to it being a tech and product functionality feature test and you show up with an ROI model.

And when you’re building an ROI model, there are many buckets to focus on, but there are three that are very critical. The first one is, what are the incremental gains that you actually bring to the table based on KPIs and metrics that your customer is tracking? So this could be things like incremental revenue, reduction in churn. These are the immediate, tangible, clear impact to the business line based on the products that you actually bring to the table.

The second bucket is cost savings. Are you reducing headcount? Are you reducing license costs? What are the tangible cost savings?

And the third one, which is often overlooked, is opportunity cost. For instance, if you save 10 hours of time for a team, what do they actually do with that 10 hours? That can also be quantified. So when you put all of these three things together, you start building a proper ROI model that you can actually use in your value selling to defend the right price.

So we talked about three steps in mastering negotiations. The first one was gives and gets. The second one was getting better at value selling. The third one is actually getting better at even negotiations and what strategies would you actually use. And there are a couple of strategies that we have found to be really productive.

The first one is to show up with options. Many founders rush with one product and one price and say, “Okay, this is a hundred K product, and that’s what we are trying to sell.” Inevitably, what will happen is the immediate focus of the conversation will be on the price, and you’re only talking about price.

But if you have options on the table, let’s say if you have a good, better, best, if you’re a hundred K product, a 200K and a 300K option, then you’re not just talking price, you’re talking value. Because if your customer is budget conscious, they’ll say, “Hey, I like the hundred K price point, but I actually like the functionality in your 200K product.” Then your immediate question is, what in the functionality do you actually like? Why is that beneficial for you? So you switch the conversation back to value as opposed to just talking about price. And we have seen that with these kind of conversations, you’re by far more better off to actually land in a much better place than just showcasing one product and one price.

And showcasing options doesn’t need to be just different products. It could even be a pricing model choice. And I’d probably give a simple hack that people can try on Monday morning. I was talking to this founder who said, “Hey, I think the budget is about 100K. That’s what I believe from the key stakeholder, but my product really brings crazy value. I could even charge, let’s say, a 500K for this product, but I don’t have the courage to actually go and ask for a 500K price because I kind of know a hundred K is the budget. What should I do?” So for those kind of situations, actually show up with options in your pricing model.

So we coached him to go in with a hundred K, plus 10% on any incremental value that you bring, or it’s a 500K fixed. So now this is actually a great situation in negotiation. Because if you’re price sensitive, you’re focused on the hundred K. It’s a small fee to actually get started. But the conversation will gravitate towards, “What is that 10%? How do you measure value?” That’s a great conversation to have because now you’re talking about, “How you add value? Where’s the value generation? What portion would you take?”

And you see one of two situations. Either the customer say, “That’s great. You’re putting skin in the game. Let’s go with a hundred K and 10%,” or, 80% of the situations, you might actually want to avoid the outcome-based pricing as a buyer, but you’re not really fixated on the 500K at that point. It is the premium that you’re actually paying for the certainty. So no one is focusing on the 5K because of the hundred K option on the table, and you just put a 500K and got the courage to do that. And in this specific situation, that 500K got negotiated to 400K, and they just 4X the deal compared to where they would be. So having options on the table when you negotiate is critical.

And there’s also some tactics that we showcase in the book, like anchoring is important. If you start high, you’ll also end up higher. And also tapering concessions. How do you give concessions? I mean, the worst negotiators will start by giving a small concession and then give a bit more when someone asks like… You might give a 5% discount, and the procurement guy says, “That’s not enough.” “Okay, I’ll give you 10% more.” “Okay, that’s not enough.” “I’ll give you 15.” What are you indicating to the other person? You’re just basically indicating that I can keep beating you up and I can get more discounts.

The best negotiators who taper the concessions. So they would say, “I can give you 15%.” “Okay, I need more.” “I’ll give you five.” “I need more.” “I’ll give you two.” So you’re automatically indicating to the other person that the negotiation’s actually ending. So how do you taper concessions also become important.

So when you put all of these three things together, if you master your gives and gets, you get better at value selling, and you use the right negotiation strategy, you can extract full value from every deal. That’s probably way more important when you’re at the scale-up phase.

The Market vs. Wallet Share Trade-Off

Lenny Rachitsky: This is such great advice. I love that this is just one small chapter of your book. This could make or break your company. It’s interesting that you have a whole thing on negotiation in a book about scaling innovation and growing your company. Is the assumption here that your pricing and monetization is so impacted by how well you negotiate because that changes your entire pricing structure and how much you’re making? Is that why you put so much effort into this part?

Pricing Framework: Attribution and Autonomy Matrix

Madhavan Ramanujam: Exactly. I mean, in a B2B situation, you can set all the pricing you want, come up with great pricing models. But at least even today, it’s a human having a human conversation trying to negotiate. So if you cannot contextualize what you put on the table, how do you negotiate around value, how do you contextualize your price, you’re leaving a lot of money on the table.

So to us, negotiations is yet another monetization topic where you’re thinking about it as extracting full value from every deal. And this is not just negotiation tactics, like keep your boss at home and just negotiate and things like that. This is actual negotiation strategies that are rooted on value selling, gives and gets, and focusing on extracting full value from every deal.

Lenny Rachitsky: So useful. This idea of throwing out a third higher priced option, say 500K, it’s so interesting. Because usually the advice I hear is like, “Just throw out twice the number you used to… ” Just put it out there just in case, which is really scary to ask for like, “What about $50,000?” And this is like a much less scary way of doing that. “Okay, but we also have this 500K option. Here’s what you get.” And then they may be like, “Oh, that’s exactly what we want.” And you’re like, “Oh, wow. It worked.”

The Golden Quadrant: Outcome-Based Pricing

Madhavan Ramanujam: Exactly. It’s a very simple hack to get your courage.

Intercom’s Pricing Transformation

Lenny Rachitsky: That is so cool.

Madhavan Ramanujam: Put a good price point.

Packaging Strategies for Multi-Product Stages

Lenny Rachitsky: Wow, this is awesome. This is just like a golden nugget within golden nuggets of advice. Okay. So you have nine strategies. We’ve covered two. Let’s not get into them, but just what are a few more just so people know what else they might be able to learn?

Madhavan Ramanujam: Sure. We talk about how to land and expand, as in how to design your best free product in such a way that you are landing, but also expanding. We talk about things like how to have the right packaging strategy, how to stop churn before it happens, how to do price increases effectively. Because at some point in your scale-up journey, you need to increase price, but how do you do that meaningful fashion?

So we have various strategies that apply both for the startup and the scale-up phase. But in combination, all of those things help you articulate and architect towards profitable growth.

Frequency of Pricing Strategy Adjustments

Lenny Rachitsky: Awesome. Okay. Let’s talk about AI for a bit. A lot of your book is about how AI pricing is very different from other previous traditional pricing strategies. And it feels like every company wants to be an AI company these days, so I think this is going to apply to a lot of people. How is AI pricing different?

Madhavan Ramanujam: Yeah, AI pricing is very different from the previous vintage of companies. Why is that so? Because AI founders need to tackle monetization from the very early days, like day one in their seed stage pre-seed kind of thing, which was not probably the focus for the previous SaaS companies. Why is that? So because of two reasons.

One, for the first time there’s cost dynamics to actually navigate. So you need to think about monetization from day one. But there’s also a more critical reason, which is value capture. Because with AI products, you’re actually bringing a lot of value to the table. And if you don’t capture that from day one, then you’re training your customers to expect more for less.

So for instance, think about this. If you’re building a agentic AI product that taps into labor budgets, labor budgets are 10X compared to software budgets. So if you use all the old playbooks, then you’re under monetizing, again, from day one and training your customers to expect more for less. So how do you come up with foundational models that actually allow you to capture the value that you bring to the table?

And why has this become critical? Because with AI, finally, founders can really solve the attribution problem. In the previous vintages… For instance, if you take Slack, you can say that the productivity went up, efficiency happened, but you cannot measure it, monitor it, attribute it to Slack. Okay, that’s probably why they were in a seed-based pricing model.

But in today’s situations, you see companies that say, “In a Fortune 100 company, I was able to improve throughput by 10%, reduce crap by 5%.” And when you get into those kinds of situation where an AI is creating core value and it’s attributable to the AI, you get a lot of pricing power.

So the two questions that we commonly hear from AI founders is, “How do I set the right pricing model?” as in, “How do I charge?” which becomes way more important than how much you charge. Because the underlining business model has changed. We have moved from software being a pay for access to now you’re paying for work delivered. So the monetization model’s become key. That is the first question that people actually ask us.

The second one is, “How do I navigate POCs, commercial discussions early?” Because the buyer on the other side also wants to see the value before they engage in a commercial discussion.” So those two topics become very critical, and we have showcased a lot of this in the book.

Axioms from Scaling Innovation

Lenny Rachitsky:

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Let’s talk about this POC piece because I think this is something a lot of people deal with. And then I want to talk about this two-by-two that you have in the book. And I’ll actually pull it up. So let’s talk about POCs first.

The Anti-Churn Axiom

Madhavan Ramanujam: So POCs, when we talk about POCs, many founders think about a POC as a proof of technical functionality, and is their product actually working in their customer environments. And they set up the expectation that we are saying, “Hey, we are going to put the product, and we’re going to see if it actually works.” And they would probably say, “Should I charge for a POC versus not?” And we’ll unpack that in a bit, should you or should you not.

And that’s actually a completely wrong way of framing it. The POC should be framed as the entire goal of the POC is to create a business case, period, full stop. It is not to demonstrate product functionality fit within your customer environment’s ability to integrate. All of that stuff is a consequence of the business case.

So if you frame it this way is you can say, “Look, it is a 30-day pilot for co-creating an ROI model and building a business case along with their users. If we see value at the end of the 30 days based on the business case, we can get to commercial discussions.” So that way you’ve actually not talked about your price. You’re only focused on co-creating a business case with the customer. And based on the business case, you can actually come up with a proper commercial agreement. And if they see value, they’re going to pay you for it. So thinking about the POCs in that kind of manner.

And the question that I often get asked is, “Should I charge for a POC?” And the answer is yes, but smartly. Let’s talk about why it’s important to charge. The reason you need to charge for a POC is you start isolating people who are just tire kickers versus serious buyers. It becomes a lead qualification mechanism. If you didn’t have that, you’re going to attract all of these curious buyers who are just curious about AI. They just want to see if it works or not. They will say, “Yes, I’ll engage with the POC.” They will take 30, 60, 90 days with you. They will burn a lot of resources, never buy. You’ve just wasted your time. Time is of the essence. So having a price tag to your POC actually indicates that there is seriousness on both sides, so you should charge.

But how do you actually charge for it? You need to charge for it smartly. What this means is that you need to make sure that your POC pricing is not a reflection of your actual commercial deal. Because let’s say if you just say it’s a 10K POC for a 30-day pilot. If you don’t talk about the fact that it is not the same as your commercial discussion, you have now set an anchor that, okay, it’s 120K per year kind of deal if the POC works. So you have to be clear that the 10K is only for building a business case. Commercial discussions will follow after that. It is not an indication of the actual commercial discussion.

But your buyer on the other side might still push you saying, “That’s all great, but I need a price or a budget, otherwise I won’t move forward with it.” So there are two ways to actually deflect those kind of questions. The first way is contextualize the price on the value. So you can say something like, if you’re pushed for price, “Hey, for customers such as yours, we have been able to at least unlock 10 million in very similar situations. And our pricing is… One is to 10X when it comes to ROI.”

So you basically said that you’re a million dollars to actually get started, but you actually didn’t say it. You just said, “It’s a 10 million, and I’m taking one in 10 in exchange for it.” So you’ve given the buyer an indication, but you’ve framed it in such a manner that actually is justifiable, right? A one in 10X ROI. So that’s one way to do it.

They might still say, “Yeah, that’s good, but I need a budget.” So then rather than just give them a budget saying, “It could be a 200K option,” don’t do that. That’s the worst thing you can actually say. Give them a range. You can say something like, “Look, the final pricing would be anywhere from 500K to a million. And based on the business case that we would co-create with you, we can pick a point in that range that justifies the value that we bring to the table.” So you’re giving budgetary ranges, right? So that’s the other way to actually go about POCs.

So how you navigate your early wins, who you choose is very critical when you’re building companies at scale and fast in AI because that actually dictates the destiny for the rest of your future. And picking those early wins is very, very critical. And having buyers who are serious, lead qualifying, having the right POC process, and thinking about POCs as, frankly, not just trying to see if your product actually works and delivers value, but it’s a great chance to have a commercial test-and-learn experiment and have fun with it and try to see what you can bring to the table in terms of your value and what portion can you actually take.

The Biggest Lesson Learned

Lenny Rachitsky: So the core takeaway here is, for AI companies, you no longer can just grow and figure out monetization later. Your advice here is what you start with is what you’re going to end up with, and it’s very easy to under monetize because people aren’t realizing that they’re now helping with actual labor force savings versus just SaaS software that’s making people a little bit more efficient.

Madhavan Ramanujam: Yeah, absolutely. I mean, I strongly believe that the winners in AI will need to master monetization, and they need to master it from day one. And when we talk to early-stage founders, it is a topic that keeps many people up at night, but that’s also why we wrote Scaling Innovation and other assets so that they can get some more courage to think about pricing correctly from day one. And it’s become very critical for AI companies to do that.

Book Recommendations and Lightning Round

Lenny Rachitsky: Do you feel like the popular IDE startups, I won’t name names, do you think they’ve under monetized and they’re going to be in trouble down the road?

Movies and Monetization Mindset

Madhavan Ramanujam: Some of them for sure have. I think they will probably run out of it because they might show a lot of, let’s say, fast revenue growth, but is that enduring revenue? Are people actually going to stay? And is there going to be churn? And so there are a lot of aspects to marketing profitable growth. It’s not just growing fast, but also growing profitably and having an enduring business. So some of them, yes, without naming names. But yeah, I think that’s why it’s important to be thoughtful about market share and wallet share.

Favorite Products Right Now

Lenny Rachitsky: Well, those are different. I think what you’re saying here is the retention may not work for some of these companies. But on the other hand, they’re really cheap. 20 bucks a month to help your engineer be 10 times more productive potentially, is that too good a deal? Do you think they should have priced a lot higher?

Madhavan Ramanujam: Yeah, for sure. I mean, if you’re bringing a lot of value to the table and you started training your customers to expect $20 a month and you anchored yourself on a low price point, I think there are companies that have actually done that. And they try to undo it with having more sophisticated, let’s say, products that are actually higher priced or much higher priced, et cetera. That’s one way to undo that situation.

So it’s really a trade-off between getting more customers and making money at the same time. That’s the whole point of the book, market share and wallet share, and how do you dominate both. So if they’re being thoughtful about both and have a vision to not just grow market share, but also have a clear strategy to land and expand and increase wallet share, those strategies might pan out for those types of companies. If you just threw out a $20 product hoping to just accelerate your market share, you’re in trouble.

Personal Life Motto

Lenny Rachitsky: Okay. This is a great segue to this two-by-two, which goes much deeper into this. So it’s easy to be like, “Here’s what you shouldn’t do.” Here’s your advice on what to actually do. So I’m going to pull up on my screen this two-by-two that you have in your book. So if you’re watching YouTube, you’ll be able to see it.

So talk about this. This is essentially how to figure out the best possible pricing model and where you have the most power.

Madhavan Ramanujam: So when you talk about AI companies and monetization models, we get asked this question. “Should I be usage-based? Should I be outcome? Should I be a copilot mode? Or how do I actually think about my pricing model?” So we came up with this framework, which is a relatively simple, straightforward framework, but very powerful.

So there are two axes here. One is attribution, and the other one is autonomy. And when you have high attribution and high autonomy, that is when you have high pricing power, and we’ll come back to that in a bit, right?

So let’s take the first bottom-left quadrant. That is the quadrant where your attribution is low and your autonomy is low. In that situation, the best pricing archetype that actually fits is it is actually a seed-based or a subscription model because there’s not much to do about it because you’re not being able to attribute a lot of value to what you bring, but you’re in a copilot mode and you’re not in an autonomous mode, so a seed-based pricing would actually make sense.

But if you’re at that quadrant, the immediate thing to think about is, how do you actually build more attribution and move to the right so that you actually get more pricing power? So if you think about the bottom-right quadrant, those are companies that have actually done that. They can prove more attribution to what they actually bring to the table, but they are still not in a fully autonomous mode, as in there is still humans in the loop.

If you take Cursor, for instance, it definitely improves productivity, can actually bring down the time to actually do code, the attribution is clear, but it’s still in a copilot mode. In those kind of situations, a hybrid pricing model is the best option where you still have a seed-based model for the copilot kind of use case, but you also layer in a consumption model which actually says there are a certain number of AI credits or tokens that can layer in the usage aspects. So if you use more and more, then you’re actually paying more on consumption. So it’s a hybrid model that actually works there.

If you look at the top-left quadrant, those are products that are very autonomous but are not strong on attribution. So these tend to be mostly backend or infrastructure kind of products that are core critical to run businesses, can be autonomous, but they’re not directly impacting the KPIs that businesses are tracking, and hence cannot prove attribution very effectively. So in that situation, you need to be on a pay-for-what-you-consume and a usage-based model. A seed-based model would not make sense because it’s autonomous. There’s no human in the loop. But that’s why you’re also in a usage-based model, saying the more you use it, the more you’re actually charged. And usage becomes a proxy for the value that you bring to the table.

The quadrant that you really want to be in is the golden quadrant, which is the top-right one. That’s the outcome-based pricing model where you have great autonomy and great attribution. And here is where I think AI can be really magical. So this means you’re not only charging for work delivered, but you’re charging for work delivered that was delivered by AI without no humans in the loop. So that becomes more of an outcome-based model situation.

So a classic example here is Intercom for Fin. What they actually do is they charge based on an AI resolution. So if an AI is able to resolve the ticket completely independently without a human in the loop, then they charge for it. If a human intervention is needed, they don’t charge for it. So they’re more on an outcome-based model. Or companies like Charge Flow would charge up to 25% on a charge bag that they’re able to actually recover, because these are core savings that you actually bring to the table based on your AI. It is highly attributable, highly autonomous so you can start moving towards an outcome-based pricing model.

If you look at the state of where AI is today, as of the day of recording this podcast, now, the most popular model is right now a hybrid pricing model. So because this is also expected, because the previous SaaS playbook was usually on the seat-based model, but they’ve all now moved on to at least a hybrid to actually incorporate AI credits and usage, et cetera, about 5% of companies are probably in a true outcome-based pricing model as of today. But those companies, some of the best ones are able to recover 25 to 50% of the value that they actually bring to the table.

In the classic SaaS situation, we used to say if you can charge 10 to 20% of the value, that’s actually great. But in AI, you can actually charge 25 to 50% because it is autonomous, you’re doing it with the AI. There’s no humans in the loop. You are creating incremental value to the business metrics. You are producing hard-cost savings. There’s opportunity costs. You can justify all of that. It’s attributable. So you can actually take 25 to 50% of what you bring to the table.

In a lot of benchmarks and studies that actually show, and this is also my belief, that in the next three years that 5% number will move to 25%. So what this really means is if you want to win in AI, figure out a way to get to that quadrant because that’s a magic quadrant. If you can truly price based on outcomes, you’ve achieved and unlock tremendous value.

Transition Investing: For Early AI Founders

Lenny Rachitsky: Wow. Okay. I’m just going to pause again. This is amazing. Madhavan, thank you so much for it. I love, again, that you just spent years, decades studying this stuff, come here, tell us all the answers of what we should be doing. This is incredible.

Let me ask you this. By the way, for folks not watching on YouTube, the companies you have in the golden quadrant, outcome-based pricing, Sierra, Fin, and Chargeflow. We’ve got the founder of Sierra and Fin coming on the podcast soon, so we’ll talk about all this with those guys.

Madhavan Ramanujam: Awesome.

How to Connect and Book Discounts

Lenny Rachitsky: So is the way to use this two-by-two figuring out your model? Is it like, “Okay, I’m like Cursor. I’m going to go in this quadrant,” or is it, “How do I get to outcome-based no matter what? That’s where I need to be”?

Closing Remarks and Thanks

Madhavan Ramanujam: Yeah, so that’s a great question. The first one is to actually figure out what is your right archetype based on where you are today. I think that is most important. If you try to rush into an outcome-based pricing model but cannot prove attribution, you will fail. So it is really coming up with what is the right archetype based on what I’m doing today, but also use this two-by-two to say, “How do I paint a vision to actually get to outcome based? And can I get close to that? Or can I be purely an outcome-based model? How do I evolve into that?”

What that would mean is, how do I build functionality in the products to actually show attribution, how do I build more agentic workforces to take the human out of the loop and be more autonomous, and being thoughtful about your vision and strategy so that you will orient yourself towards more outcome-based pricing models. So when you think about increasing attribution, that means, first of all, understanding what are the KPIs of your customers. How do they track their business performance? Can you impact it? Can you productize things in your product that showcase that you are actually affecting those KPIs in a positive manner? Can you build dashboards to show value attribution? Can you do those value audits that we talked about on an ongoing basis to actually show that you’re bringing a lot of value to the table and is attributable to you? So how do you create these kind of attribution mechanisms become important and also autonomous based on building more agentic workforces that can actually be on an autonomous mold?

So pick the right archetype and plan to get to as close as you can to the outcome-based pricing model. That’s how I would use the two-by-two. And you actually kind of see this happening with certain industries, right? If you think about coding as a overall category… Like back in the day with GitHub, everyone, they started with a seed-based model. They’ve now moved to the hybrid-based pricing model with Cursors and everyone else, but the natural move would be more towards a outcome-based pricing model where a AI agent can probably code everything at the same time, debug it, and you’re kind of almost hiring a AI developer or AI QA person. And that actually becomes more closer to a outcome-based model because it’s attributable and autonomous. So that is picking the right archetype and then figuring out your pathway is the key way to interpret this two-by-two.

Lenny Rachitsky: This explains why everyone’s pulling agents. That’s where the money’s at, what you’re telling us here.

Madhavan Ramanujam: Yeah. It’s going to be the age of The Matrix. Too many agents.

Lenny Rachitsky: Agent Smiths everywhere. They didn’t turn out too great. So what I’m hearing is if I were Canva… So Canva here in your model is bottom right. They’re in a hybrid pricing model. They have a base fee and consumption fee. What you would do if you were helping Canva is what can you build that creates more autonomy, an autonomous version of Canva? And it’s not like you need to do this. It’s just you have more pricing power if you figure something out there.

Madhavan Ramanujam: Exactly. And a good case for that is the Fin product from Intercom. Because traditionally, all of those kind of companies used to price based on an agent basis. How many customer service agents are actually using the product? It used to be seed based, but they built out Fin, which is a completely AI resolution for those kind of support tickets. And then that actually enables them to move to the outcome-based pricing model quadrant.

Lenny Rachitsky: Amazing. So say you’re an AI founder today. You’re thinking about your pricing strategy, your monetization strategy long term. Your advice is work with design partners, create these POCs where you work on this ROI model with them to ideally find some outcome-based pricing strategy. Is that a good way to summarize it? What would you add to that?

Madhavan Ramanujam: Yes. I mean, at least be able to contextualize the business case. Even if you’re not moving to an outcome-based pricing model, be clear on the outcome that you’re actually creating for your customers through that business case, which actually will enable you to charge a fair price in exchange for that outcome. And if your customers agree with the business case, then you can actually take a portion of that.

Lenny Rachitsky: Fin, actually, they’re a new sponsor of the podcast, and I learned… I didn’t know this. It costs 99 cents for every support ticket they solve [inaudible 00:49:51].

Madhavan Ramanujam: Through AI.

Lenny Rachitsky: Through AI.

Madhavan Ramanujam: Exactly. If it needs a human intervention, then they don’t charge for it.

Lenny Rachitsky: Yeah. And it’s just like, what? That’s such a simple story. Your agent costs 20 bucks. This thing costs 99 cents

Madhavan Ramanujam: Yeah. That is two chapters in one beautifully simple pricing and an outcome-based pricing model.

Lenny Rachitsky: And interestingly, they were the most hated pricing model initially. I did a survey on Twitter ones, like, “What products do you pay the most for?” and it was always Intercom. And everyone hated their pricing, and they found a solution.

Madhavan Ramanujam: I think they found a great solution.

Lenny Rachitsky: Okay. So is there anything else along these lines that you think companies, especially AI companies, should be thinking when they’re thinking about pricing that you’d want to share before we move on to other stuff?

Madhavan Ramanujam: I think we’ve covered most of the topics. Like we said, it’s being thoughtful about POCs, choosing the right pricing archetype or the pricing models. Those things become very critical in the early stages. But when you start scaling and, let’s say, you become a multi-product company, then you need to start focusing on, “What kind of packaging strategy should I have? Is it a platform plus add-ons? Should I have versions of the products like good, better, best? Should I tackle different use cases because now my AI can solve an insurance use case and a healthcare use case? Should I productize to different use cases? Is that my packaging strategy? Or should I keep it completely modularized for people to pick and choose?”

So these kind of questions become more critical, and that’s why the chapter on blowing up your packaging from your early days and coming up with your packaging strategy for your scale-up phase become very critical. So I think that’s the next thing that founders would be hit with, as in when they build multiple products, they need to think about the whole packaging, cross-selling, up-selling motion.

Lenny Rachitsky: This touches on something I was about to ask, which is a change in your pricing strategy. How often is it a success to change the way you price? I know we’re talking about you need to get it right from the beginning if you’re an AI company. In your experience, how often… What does it take to successfully shift the way you price down the road if people are listening to this and are like, “Shit, we already have this pricing strategy”?

Madhavan Ramanujam: Back in the day, we used to say that you should revisit your pricing strategy, overall pricing model, how much you’re charging at least once in two years. With AI, that’s probably reduced in half because of the scale with which and the speed with which companies are built and competing.

So I would say that it is an ongoing journey. It is not like you just solve it in day one, fill it, and forget it. You have to be thoughtful from day one, but also be ready to pivot, iterate, and you’re going to learn along your journey. So the whole point is to think about pricing as also a test-and-learn opportunity in your early days.

And there are things that you would change more often, and there are things that you probably don’t want to change too often. Things like pricing model, unless you really changed your attribution autonomy, there is no need to shift your pricing model. Stay within that archetype. Don’t confuse things.

But there are things like price points. Should I increase my price because it’s been six months a year? Yeah, you should. Because in a year there’s probably prices go up three to 5% for everything that you consume. But how can you actually increase your prices and be thoughtful about it? So that entire chapter on how to do price increases smartly become very important in the scale-up phase.

I think Warren Buffett summarized this really well. He said the true definition of a company is a pricing power. And if you have a prayer session for doing a 10% price increase, you have a terrible business. So you have to be able to increase prices over a bit of time. But how do you do it strategically that does not affect too much churn, but you’re also able to pass on the increase as a value exchange, those things become critical.

Lenny Rachitsky: Awesome. Zooming out a little bit, something that I love about your book is you structured it around these axioms. You have a bunch of these really clever axioms that get stuck in your head and help you think about pricing. Can you share some of your favorites, maybe two or three referred axioms from the book?

Madhavan Ramanujam: You talked about Sierra being in your park founders. I don’t know if that’s Clay, but here’s a shout-out for Clay. So Clay actually read the entire book and gave me feedback, Scaling Innovation, the similar copy that he actually had. I called it Scaling Innovation Axioms throughout the book. And the whole point of the axioms was that at the end of the day, if you can just take all the axioms, put it in a printout next to your desk is the summary of the book. And it’s like PT statements that you’ll just remember what to do.

So he came up with this idea that, “Hey, rather than calling them just generic scaling innovation axioms, you need to brand each and every axiom.” And I thought that was a brilliant idea. So I went about coming up with a unique… He even contributed to some of the names. We came up with some unique names for each axiom.

And here’s the other fun fact. Probably I’m geeking out too much. But when I counted the number of axioms, there were 42 axioms. And I didn’t try to make this up. And if you’re a Hitchhiker’s fan, then you know that’s the answer to everything.

But jokes apart, let me unpack a few axioms. One of my first favorite axioms, what I call is the 20-80 axiom. Especially in tech companies, 20% of what you build drives 80% of the willingness to pay. But the irony is that the 20% is the easiest thing to build often. So what founders do is they take this 20%, build it, put it out in the market almost for free, and then they’re chasing their tails to build 80% stuff that’s only driving 20% willingness to pay. So if you have not been thoughtful about that, you’ve given the farm away unintentionally.

So truly understanding what drives willingness to pay in your product is critical. And I think people call it the MVP. I think we should change the definition of MVP. It shouldn’t be minimum viable product, it should be the most valuable product. And be thoughtful about what are you actually giving out as your early products I think is key. That’s the 20-80 axiom.

Probably my second one is the price paralysis axioms. So what that means is your reluctance to do a price increase is often internal and emotional and it’s not external and logical. This goes back to the same prayer session to actually do a price increase. If you’re holding hands, you have a terrible business. So it’s mostly internal and emotional, and how do you be thoughtful about price increases become important.

Probably my third favorite one is stopping churn before it happens, so stopping churn axiom. So to stop churn, you need to attract customers who won’t leave. That sounds counterintuitive, but that’s the best way to actually stop churn. What does this actually mean? Most companies will try to stop churn when someone actually says, “I want to go.” It is too late, and you’re being reactive. At the most, you’ll throw some offers. They will stay for another six months, and they will leave. They’ve already made that determination.

The way to stop churn is to start acquiring customers who won’t leave. And that is the most important thing. So if you look back at your data and say, “Who are the types of customers who actually tend to stay longer? What are their characteristics? How can I focus my acquisition dollars in getting more of those?” then you stop churn before it happens. And that’s the key.

Lenny Rachitsky: That’s interesting. I’m surprised you didn’t say what was my favorite, which is… I think it’s like, “If you land, make sure to expand.”

Madhavan Ramanujam: Yeah.

Lenny Rachitsky: That one really stuck with me.

Madhavan Ramanujam: That’s a good one, too.

Lenny Rachitsky: Maybe talk about that one. Yeah.

Madhavan Ramanujam: Sure. I mean, so if you land, you need to also make sure you’re expanding, in the sense that if you give the farm away in your entry-level product, you don’t have much to actually monetize later. So being thoughtful about what is the fence between your land product. Is it a free experience? What is the getting? And the getting is typically based on are you getting based on features? Are you also getting on usage? And how do you be thoughtful about that? So you leave stuff for the expansion.

Lenny Rachitsky: Okay. So zooming out even further, to kind of wrap up, what would you say is the biggest lesson you want founders to take away that they think they understand but they probably don’t?

Madhavan Ramanujam: Yeah, I think this comes back to what you started with. I think intuitively people get it that they need to think about market share and wallet share if they’re growing. And even if you ask them, they’ll say like, “Yeah, yeah, I’m thinking about wallet share,” but have they really thought about it equally and paid equal attention? Have they postponed one of them? Are they operating in a single-engine strategy consciously or subconsciously? I think that’s the key takeaway I have.

So the contrarian take is not to put equal effort on both the engines at the same time. In certain stages of your company, you might need to be more market share dominating. In certain stages you might need to be wallet share dominating. It’s not equal effort, but it’s equal attention and really developing that mindset of being a true profitable growth architect. And that is the main takeaway that I have for people. And if you are not in that mindset already, there’s a book for you.

Lenny Rachitsky: I’ll point them to it. So just so folks know what to do when they’re like, “Okay, I need to focus on wallet share more,” is the main focus figure out a pricing model that aligns well with pricing power, what’s in the bucket of work to do to invest more in wallet-share thinking?

Madhavan Ramanujam: So it’s actually all of those. Market share, wallet share, acquisition, monetization, retention are all kind of correlated. You can’t think about them in isolation. So I wouldn’t say only for wallet share what do you need to do. If you want to grow on both the market share and wallet share… Let’s say, for instance, you need to have the right land-and-expand strategy. The land helps you with acquisition. The expansion helps you with wallet share.

If you have a pricing model, then you need to have a pricing model that lets you acquire faster because it’s intuitive, but it should also help you recover value, which is like your monetization. And if people understand your pricing model, they’re actually going to stay. So it’s all sort of goes hand in hand. So I wouldn’t isolate thinking one way or the other. That’s why the nine strategies actually are very powerful. Because if you follow those strategies, you are not going to fall into the single-engine strap. These are tried and tested strategies of how to build businesses in such a way that you’re being thoughtful and paying equal attention to both market share and wallet share.

Lenny Rachitsky: All right. That is a very reasonable answer. Madhavan, is there anything else you wanted to share or leave listeners with before we get to a very exciting lightning round?

Madhavan Ramanujam: Read the two books in sequence, Monetizing Innovation and Scaling Innovation. Because it’s one thing to build a great product, it’s yet another thing to build a great business. You cannot build a great business with a not-so-great product, and you cannot do it the other way around either. So I think it’s thinking about pricing early, especially for AI companies, being thoughtful about it, price before product, and then thinking about how to actually scale, developing a profitable growth mindset. All of these things become critical. And I’m looking forward to the feedback from the audience.

Lenny Rachitsky: I feel like your books are in the staple of founder reading. There’s all these things you just don’t know what you’re doing. And there’s a few of these books that are like, “Okay, here’s all this advice that’ll answer so many questions and save you so much heartache.” And so I’m really excited you’re adding something to that bookshelf. With that, we’ve reached our very exciting lightning round. Are you ready?

Madhavan Ramanujam: Okay. Let’s go.

Lenny Rachitsky: Let’s go. What are two or three books that you find yourself recommending most to other people?

Madhavan Ramanujam: The first one that comes to mind is Business Model Canvas by Alex Osterwalder. It’s a classic and one of my favorite books. I recommend a lot of people to read that because I think it nicely ties a lot of what we are also seeing from a more strategic business model angle.

I like this book, Thinking Fast, Thinking Slow. I think that’s also a classic because, again, there’s always a human element to things. And understanding the customer psychology is important whether you’re in B2C or in B2B. Because if you’re in a B2B situation, it’s humans having a human conversation. So it’s as much behavioral as it’s actually numbers. So I love that book, and there’s a lot of nuggets in there, so I recommend a lot.

And probably the third one that I recommend is a book called Contagious by Jonah Berger. I love that. He was in the PhD program at Stanford in marketing, and he actually wrote this book on how to make messages viral. And he’s actually seen the best viral messages and boiled it down to a framework. And if you follow that, then you can make those messages viral. And I’ve tried to use some of those in my own outreaches and things of that nature, so I think it’s a fantastic read.

Lenny Rachitsky: Wow.

Madhavan Ramanujam: Have you read it?

Lenny Rachitsky: Got to check this out. I have not. I haven’t even heard of it. All right. We’re going to go viral because we got the playbook.

Madhavan Ramanujam: Contagious. That’s the name of the book.

Lenny Rachitsky: Contagious. Okay. We’ll link to that. Is there a recent movie or TV show you’ve really enjoyed?

Madhavan Ramanujam: I guess a movie. Sure, let’s pick a movie. Definitely enjoyed Mission Impossible, the final one, eighth in the sequence. I think I find that a whole… I love those, the entire genre, one through eight. But what I kind of like about it is my willingness to pay has constantly increased over a period of time. They could have charged me whatever they wanted for the eighth movie. I would’ve probably gone and seen it, when I wanted to. So I thought that’s an interesting example of a durable brand where your monetization power actually increase over a period of time. So I think I enjoyed the movie. It was great. Yeah.

Hey, by the way, I just realized MI stands for Monetizing Innovation and also Mission Impossible. Maybe subconsciously that’s why I liked it, too.

Lenny Rachitsky: And you’re the Tom Cruise character.

Madhavan Ramanujam: Yeah, exactly.

Lenny Rachitsky: I love how you’re the only person in the world that thinks of Mission Impossible through a monetization, willingness-to-pay lens.

Madhavan Ramanujam: Exactly. I think there’s too many of these dinner conversations also gravitate towards pricing and monetization. I think it’s become my life.

Lenny Rachitsky: Oh, man. We need a version of this movie, like a Mission Possible of Madhavan.

Madhavan Ramanujam: Sure.

Lenny Rachitsky: I’d pay anything for that. All right. Next question. Do you have a favorite product you’ve recently discovered that you really love?

Madhavan Ramanujam: I would probably talk about two products. The first one is Delphi, the Digital Mind representation. There’s a Lennybot that you actually, I think, put out. I find that product fascinating, and I also love the founders, Dara and Sam there. I truly believe that that is going to be the future for thought leadership and how thoughts are consumed by consumers.

And I’ve used your Lennybot. I really enjoy it, like if I can co-create some thought leadership piece with talking to you, but it’s not you, your AI, and it’s actually living and breathing your brain. How cool is that? And I think that I really love the product category. There’s a lot of different use cases, longevity, extension, use cases, things of that nature. I’m excited about the product. I think it’s been great. I plan to, taking inspiration from you, plan to create a Delphi of myself-

Lenny Rachitsky: Okay. I was going to ask.

Madhavan Ramanujam: … at some point.

Lenny Rachitsky: Okay.

Madhavan Ramanujam: I think it should be [inaudible 01:05:17]-

Lenny Rachitsky: So that one would… Yeah.

Madhavan Ramanujam: … the book maybe. I’ll try to. That’s the promise. Try to keep it ready. So I think if you want to talk more about the book or things of that nature and talk pricing, you can talk to my AI, too, right? I mean, I find the product fascinating.

The second one I would probably say that’s been super useful in terms of just productivity is Granola. We love that product. I think just the ability to take notes and during all the meetings and organize it and being able to query things, et cetera. I think it’s been a great product that we recently started trying and we’ve been really liking it.

Lenny Rachitsky: Cool. That’s been the most mentioned product recently. How cool is that? Love Granola. Get a year free of Granola if you’re a paid subscriber to my newsletter, lennysnewsletter.com. Click bundle, one year free for not just you, your whole team. What an offer they offered. It’s crazy.

On Delphi, what’s interesting about LennyBot is it’s not just my knowledge, it’s every single podcast guest’s insights and lessons also fed into it. What an oracle of knowledge this thing’s become. And it’s free at this point, completely free. Lennybot.com. No, I get nothing from it. It’s just out there.

Okay, next question. Do you have a favorite life motto that you often come back to and find useful in work or in life?

Madhavan Ramanujam: Create value in everything and anything that you touch. Everything else will follow. That’s my life motto.

Lenny Rachitsky: That resonates deeply. Okay, last question. You recently moved into investing. So what’s cool is it used to be very expensive to work with at Simon-Kucher, I think it was called. Very expensive. A lot of big company stuff. Now a lot of more founders have access to you because you’re investing in startups. So just talk about that. Talk about what you’re doing these days.

Madhavan Ramanujam: Sure. I mean, at Simon-Kucher, I got to work with over 250 companies. And my co-GP now, Josh Bloom, he also had an opportunity to work with our 250 companies. So combined, we worked with our 500 companies, more than 50-plus unicorns. It was a great ride.

And often, we were actually working with them in much later stages when series D or pre-IPO, post-IPO, private equity companies, et cetera. But the two of us actually now started a venture firm with an explicit goal of working with early-stage AI founders. And it goes back to the topic that we started with. AI companies needs to deal with monetization from day one. But for those kind of companies, fee-for-service transaction model doesn’t necessarily work. And that’s also why we pivoted to venture.

So our business model is pretty standard right now. You get access in the cap table. We roll up our sleeves and work with the founders in all things monetization. So we are invested in their success and we will partake in the value creation. There’s no fee for service, no friction on those kind of manners. But on the flip side, we get to concentrate our efforts in fund one and probably 20 to 25 companies, and that’s where we will be spending our time.

Lenny Rachitsky: What a deal. Madhavan, two final questions. Where can folks find you if they want to reach out and talk about this offer? And how can listeners be useful to you?

Madhavan Ramanujam: Ways to find out, I think just google for Monetizing Innovation and Scaling Innovation. You’ll probably land in a lot of pages. You can also go to Amazon, I think, if you want to purchase the books. Actually, Scaling Innovation is now available in pre-order. I think we’ll have the pod released before the book is actually out. The book is going to be out on August 5th. So there’s an opportunity to pre-order.

And maybe I will take an inspiration from your master bundle, which I really think is the world’s best bundle, and come up with my own bundle for getting users to pre-order. So if you love Monetizing Innovation, I can tell you you would really love Scaling Innovation. So go buy it for your teams. Buy it for yourself.

And here’s the offer. So for anyone who’s able to buy more than five copies, send us a screenshot of your purchase pre-order, right? Send us a screenshot of your purchase to promo@49palmsvc.com. So that’s promo, as in promotion, @49 P-A-L-M-S-V-C .com.

And here’s the bundle offer that I have. 10 people will get access to bundles as a raffle, and the bundle is going to include a signed copy of Scaling Innovation, a 30-minute ask-me-anything session, an exclusive invite for a Scaling Innovation book launch, and also a Scaling Innovation t-shirt. So that’s my coming up with a bundle. I didn’t get Granola and others to put in for me just yet, but I think this hopefully suffices and is exciting for folks to buy.

And, yeah. I mean if you like the book, please do leave a review on Amazon. That always is helpful. Because if more people review it, the book takes a life of its own. And I’m really thankful for also the support that I got over the years from founder community, from the venture community for Monetizing Innovation. I think there’s been, over the last eight years, thousands and thousands of fans of the books. They’ve done a whole lot talking about it, writing reviews, posting on LinkedIn, and making things like price before product or product market price fit and things as a part of founder vocabulary. So I’m very passionate that people actually did that and very thankful for them. So there’s also probably an equal measure. If you’re excited about Scaling Innovation, I would love for you to talk about the book.

Lenny Rachitsky: Amazing. And I think the reason people do that is because you give away so much for free. You just shared so much wisdom for free that is going to help so many people, so it all comes back to you.

Madhavan Ramanujam: I just tried to plan my give and get right there.

Lenny Rachitsky: There we go. Oh my God. A good callback. Madhavan, this was incredible. Thank you so much for being here.

Madhavan Ramanujam: Thank you so much, Lenny. Was a pleasure.

Lenny Rachitsky: Same. Bye, everyone.

Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review, as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at lennyspodcast.com. See you in the next episode.

Glossary

English	中文
20-80 axiom	20-80 公理
acquisition	获取
agentic AI	智能体 AI
Alex Osterwalder	Alex Osterwalder（人名，保留原文）
AMA (Ask Me Anything)	AMA（问我任何事）
attribution	归因
attribution problem	归因问题
autonomy	自主性
beautifully simple pricing	极致简洁的定价
Bill Gurley	Bill Gurley（人名，保留原文）
Business Model Canvas	Business Model Canvas（书名，保留原文）
cap table	股权表
churn	流失
Clay	Clay（人名，保留原文）
community builder	社群建设者
consumption model	用量模型
Contagious	Contagious（书名，保留原文）
cross-selling	交叉销售
Dara	Dara（人名，保留原文）
Delphi	Delphi（产品名，保留原文）
disruptor	颠覆者
GP	GP（普通合伙人，保留原文）
Granola	Granola（产品名，保留原文）
human in the loop	人类在环
hybrid pricing model	混合定价模型
Jonah Berger	Jonah Berger（人名，保留原文）
Josh Bloom	Josh Bloom（人名，保留原文）
land and expand	着陆与扩张
Lenny Rachitsky	Lenny Rachitsky（人名，保留原文）
Lennybot	Lennybot（产品名，保留原文）
Madhavan Ramanujam	Madhavan Ramanujam（人名，保留原文）
monetization	变现
Monetizing Innovation	《创新变现》（书名）
moneymaker	赚钱者
MVP	MVP（最小可行产品）
outcome-based pricing	基于结果的定价
packaging strategy	打包策略
pay-for-what-you-consume	按用量付费
POC (Proof of Concept)	POC（概念验证）
price paralysis	价格瘫痪
price premium paradox	价格溢价悖论
pricing power	定价权
profitable growth architect	盈利增长架构师
Rahul	Rahul（人名，保留原文）
retention	留存
Sam	Sam（人名，保留原文）
Scaling Innovation	Scaling Innovation（书名，保留原文）
seed-based pricing	按席位定价
Simon-Kucher	Simon-Kucher（公司名，保留原文）
single-engine strap	单引擎陷阱（strap 疑为 trap 的口误）
Superhuman	Superhuman（公司名，保留原文）
Thinking Fast, Thinking Slow	《思考，快与慢》（书名，使用公认中文译名）
tire kicker	随便看看的人
upsell	向上销售
usage-based model	按使用量计费的模型
wallet share	钱包份额
Warren Buffett	沃伦·巴菲特
willingness to pay	付费意愿

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Reformatted by reformat_english.py