DevTools Brew #48: CEO Chronicles: Decoding PostHog's Success Story
Hey folks, welcome to DevTools Brew #48!
If you're new here, my name is Morgan Perry, co-founder of Qovery, and every Saturday, I share the stories, strategies, and insights behind the most successful devtool companies.
In this Issue #48:
📈 CEO Chronicles: Decoding PostHog's Success Story
⭐ Star History Weekly Pick
I hope you will enjoy this new edition.
Let's dive in!
📈 CEO Chronicles: Decoding PostHog's Success Story
Ever wondered about the magic behind PostHog's rapid rise in the devtools space? I've been following their journey closely and am super impressed. Today, let's dig into PostHog's CEO's brain, James Hawkins, and uncover the coolest lessons from their mistakes. From pivots to Product-market-fit to pricing wizardry, we've got the inside scoop on what makes PostHog tick 👇
Let’s start with this insightful timeline, highlighting the key moments, challenges, and strategic decisions that shaped PostHog's evolution from a startup with a unique vision to a thriving player in the tools space.
Timeline of PostHog's Growth
Jan 2020: PostHog's inception, born from the founders' realization of the engineering challenges in understanding user impact.
Feb 2020: Launch on Hacker News with an MVP, receiving an overwhelmingly positive response and signaling a shift from earlier startup ideas.
Apr 2020: Secured a $3M Seed round from Y Combinator's Continuity Fund, marking the beginning of funding and team expansion. Marius, Eric, and James G. joined the team.
May 2020: Surpasses the milestone of the first 1,000 users, indicating early product-market fit.
Oct 2020: Major update with ClickHouse support enables scaling to billions of events, showcasing PostHog's commitment to robust infrastructure.
Nov 2020: Recognizing users' needs, PostHog expands into supporting product analytics, feature flags, and session recording.
Dec 2020: Raises $9M in Series A, focusing on product development, design, and engineering. The team expands globally with people in 10 countries.
Jun 2021: Raises $15M in Series B, emphasizing strong product-market fit and expanding the team to 25 people across 10 countries.
Sep 2021: Achieves product-market fit for both open-source and PostHog Scale, setting the stage for revenue optimization.
Jan 2022: Builds a Customer Success team and hires additional engineers, marking a shift in handling customer inquiries.
Dec 2022: Experiences 6x revenue growth amid a challenging tech market, optimizes operations, and sets ambitious goals.
Feb 2023: Shifts focus to mass adoption, introduces a PostHog free tier, and plans for a standalone Customer Data Platform (CDP).
March 2023: Decides to ship its own data warehouse, retaining control over customer and product data for a more integrated solution. Aims to offer a more integrated solution, responding to challenges posed by companies streaming data to external warehouses and losing control.
Aug 2023: Continues impressive growth, doubling revenue, achieving profitability goals, and introducing a data warehouse in private beta. Adds 10 roles and maintains a lean approach to headcount. PostHog's exceptional growth in 2023, doubling revenue, achieving rapid CAC payback (5 days), and maintaining stability in infrastructure.
Jan 2024: 👀
Now, let’s dive into the profound journey of PostHog with the key lessons and insights from its CEO, James Hawkins
Building Something People Want
Key Insights from James Hawkins 👇
Starting with a Problem:
Persistent Pivoting: The journey commenced with relentless pivoting to address problems from previous careers. Each pivot revealed a recurring frustration—setting up product analytics from scratch.
Solving Pain Points: Post-pivot analytics setup brought challenges like data accessibility, opaque pricing, privacy concerns, and manual telemetry. These were conquered with a strategic Hacker News launch.
Ideas that Sound Bad, Might Be Genius:
Unexpected Brilliance: User feedback, even if initially deemed unwise, led to groundbreaking ideas. An initially dismissed request for session recordings proved to be a genius move, demonstrating the power of consolidating tools into one platform.
Throw Away Bad Ideas:
Perfecting the Startup Machine: A pre-product-market-fit startup should be a machine of continuous learning, shipping, and iterating. The decision to discard or iterate is crucial—James advocates starting over when necessary, shedding the costly burden of ego.
Who Does What:
Efficiency in Roles: Streamlined responsibilities for speed and efficiency. James focused on user acquisition, website and documentation creation, while Tim, the CTO, engaged with existing users through continuous product shipping.
Ship for Real-Life People:
Strategic Growth Loop: The focus shifted to a growth loop before the Hacker News launch, involving finding interested parties, offering them early access, and incorporating valuable feedback. No emphasis on monetary gain at this early stage.
Engaging Users Effectively:
Iterative Feedback Loop: Establishing a community Slack group, creating private channels, and acting promptly on user feedback became the heartbeat of progress. Continuous user engagement through this loop led to bug reports, UX improvements, and unexpected insights.
How to Engage with Users:
Optimizing Communication Channels: Slack emerged as the preferred channel due to its high response rate and informal nature. Challenges arose with growth, leading to the development of Squeak! to enhance communication.
Enter the Ideal Customer Profile (ICP):
ICP Revelation: A critical mistake was made by not defining an Ideal Customer Profile (ICP) earlier. James emphasizes the significance of creating a detailed list of characteristics and behaviors for specific user types.
Listen to Users:
Humbling Lesson: Despite being the creators, the team realized the importance of users. James urges creators to check their ego, listen to users, stay agile, and learn by doing as the ultimate recipe for building something people want.
A story About Pivots
Key Insights from James Hawkins 👇
Pivoting, Persistence, and Y Combinator:
Pivot Odyssey: PostHog underwent five pivots in just six months, ultimately finding its stride. The journey led them to Y Combinator, where they pivoted once again, paving the way for thousands of deployments, global expansion, and a substantial funding of $12M in under a year.
The Early Struggles:
Startup Realities: James shares the candid reality of the startup journey—convincing oneself and others of a great idea, quitting a job, building a product, and facing the harsh realization that the initial perception might be flawed.
User-Centric Focus: To survive, startups must engage with users. James recounts his relentless focus on getting meetings with potential users, understanding their problems, and adapting to their feedback.
Diverse Product Attempts:
Sales Territory Management Tool: An attempt to address the challenges faced in the VP of Sales role. Predictive analytics and data-driven decisions aimed to streamline sales efforts. However, it proved challenging to find the right market fit, especially with smaller teams.
CRM with Predictive Analytics: A pivot based on a friend's success story. Positioning as a CRM for small companies with predictive analytics proved challenging in a saturated market, highlighting the importance of differentiation.
1:1 Tool with Predictive Analytics: Focusing on sales prioritization, this tool aimed to optimize 1:1 meetings. Despite positive initial responses, user adoption remained low, revealing the importance of understanding user needs and behaviors.
Technical Debt Monitoring Tool: Addressing the impact of technical debt, this tool garnered initial success and Y Combinator entry. However, struggles emerged as product teams weren't fully utilizing it, emphasizing the need for solving problems rather than just logging them.
Engineering Retention Tool: A short-lived idea based on external suggestions, met with unenthusiastic responses during validation, showcasing the importance of genuine interest and user needs.
Open Source Product Analytics Platform: The breakthrough idea—PostHog. Fueled by frustration with third-party data sharing, the shift to an open-source strategy led to genuine user adoption and community growth.
Learnings and Reflections:
Local versus Global Maxima: The toughest pivot occurred when PostHog had the most traction. Recognizing when to let go of a seemingly successful product is crucial for long-term success.
Thoughtful Pivoting: Establishing a rule to pause and think before pivoting prevented impulsive decisions, a common pitfall in startup journeys.
Seeking Expert Advice: Engaging with industry experts provided clarity on strategic decisions, such as the open-source approach, and offered valuable perspectives that differed from online narratives.
Continuous Building: Emphasizing the importance of continuous product development and real-world usage, even if it means embracing imperfection. Quick iterations and production use help validate concepts early on.
User-Centric Approach: Reflecting on the importance of understanding the target audience. While building for oneself is valuable, aligning with broader user needs ensures a more stable product-market fit.
The Journey's Conclusion:
Early Decisions Matter: The early decisions in a startup journey are the most impactful. Finding a strong product-market fit early on simplifies future challenges.
Embracing Zig-Zagging: Startups involve a lot of zig-zagging. Pivoting might make you seem non-committal, but it's a necessary exploration until the right idea clicks.
Persistence and Product Fit: PostHog's success lies in building something people want and enjoy working on. The message to struggling entrepreneurs: persistence pays off, and building what users want is key.
Raising Money Vs. Bootstrapping
Key Insights from James Hawkins 👇
Myth #1: VC Boards Demand Growth at Any Cost:
Board Dynamics: Contrary to the myth, PostHog's experience with VC boards focuses intensely on finding the Ideal Customer Profile (ICP) and building a great product for specific end-users.
Board Meetings: Preparation involves a few hours of focused discussions, emphasizing one or two topics rather than overwhelming updates.
User-Centric Approach: Revenue and signups are seen as outputs, highlighting the significance of understanding and catering to the right user base.
Myth #2: Losing Control of Your Company:
Control Negotiation: PostHog maintains control with co-founders having a majority on the board. Control negotiation occurs during each fundraising round.
Runway Advantage: Having sufficient runway enables more control, better salaries, and the luxury to focus on product development before revenue.
Myth #3: Fundraising is a Drag:
Requirements for Fundraising: Clear project explanation, fast progress, big idea, proven team, and favorable market conditions are crucial for efficient fundraising.
Time and Focus: Success in these aspects reduces the time spent on fundraising, allowing more focus on product development.
Myth #4: Investors Become Your Boss:
Retaining Accountability: While investors become an additional reporting party, accountability remains. The dynamic depends on the relationship with investors and understanding user needs.
Lack of Personal Stress: VC funding removes personal financial stress, encouraging intentional and reasoned spending, backed by investor accountability.
Myth #5: IPO or Bust Mentality:
Secondary Sales Option: Exiting VC-backed companies doesn't solely rely on IPOs; secondary sales are possible. Founders can sell a portion of their stake, providing financial relief without total exit.
Personal Happiness and Mission Alignment: PostHog founders see this path as ensuring happiness by removing financial stress while pursuing their mission.
Myth #6: Getting VC Backing is Stressful:
Comparative Stress Levels: Although not without challenges, getting VC funding is deemed less stressful than bootstrapping.
Bootstrapping Dilemmas: Bootstrapping choices involve personal sacrifices or significant reliance on savings, contrasting with the relative ease that VC funding brought to PostHog.
Truth #1: Some Companies Are a Terrible Fit for VC:
Scale and Ambition: Companies seeking VC should aspire for substantial scale, aligning with VC expectations. Lifestyle businesses might find VC incompatible.
Truth #2: Terrible Reasons for Raising Money:
Avoiding Common Pitfalls: Hiring to find product-market fit, outsourcing early sales, or raising for ego reasons are considered standard paths to failure.
Why VC = Less Stress (for PostHog CEO):
Personal Finance Freedom: VC funding eliminates personal finance concerns, allowing a singular focus on long-term goals.
Control Stability: Control dynamics remain consistent, with VC not altering the hierarchy or decision-making.
Easier Long-Term Thinking: Raising funds reduces stress, enabling thoughtful, intentional spending for long-term benefits.
Mission Alignment: PostHog's model, involving a broad platform and open-source innovation, aligns well with the VC approach, contributing to a less stressful journey.
Lessons About Product-Market Fit (PMF)
Key Insights from James Hawkins 👇
Fundraising + Press ≠ PMF:
Big Rounds ≠ PMF: A substantial funding round or media buzz doesn't guarantee product-market fit. Sustainable growth based on revenue is a more reliable indicator.
Strength in Numbers:
Importance of Co-Founders: Persistence is key in the challenging journey of finding PMF. Having co-founders, especially with technical expertise, enhances endurance. Having one co-founder dedicated to sales is critical.
Define Your Ideal Customer Profile (ICP):
Turning Point - ICP: PostHog's pivotal moment was defining their Ideal Customer Profile (ICP), specifying unique needs. Without an ICP, achieving PMF is doubtful. Users need to retain before ICP definition.
Speed, Momentum, and Iteration:
Optimizing for Shots on Goal: Swift validation, familiarity with your software stack, rapid response to user feedback, quick feature shipping, and avoiding prolonged debates contribute to PMF.
Passion is a Catalyst:
Excitement as a Motivator: If your idea doesn't excite you, consider a pivot. Motivation is crucial in the PMF journey.
Diverse "Signs" of PMF:
Positive Indicators: Positive customer feedback, consistent retention, eager post-trial purchases, word-of-mouth growth, scalability, usage despite minor issues, and a simplified process are signs of PMF.
$1 Million ARR Isn't a Guarantee:
Cautions on ARR Milestone: Reaching $1 million in Annual Recurring Revenue (ARR) isn't a definitive sign of PMF. Other factors, like customer acquisition costs and reliance on a few high-paying clients, must align.
User-Product Loop Closure:
Listening Compounds: Closing the loop with users accelerates progress to PMF. The more you act on user feedback, the more users share valuable insights, fostering continuous improvement.
Avoid Multitasking in Ideas:
Single-minded Focus: Working on multiple ideas simultaneously hinders PMF achievement. A concentrated effort on one idea, with a quick shift if needed, is the optimal approach.
Measuring PMF:
Rahul Vohra's PMF Survey: Use the PMF survey to gauge user sentiment. Rahul's approach at Superhuman, with 40% or more users feeling "very disappointed" without the product, is a strong indicator.
Fractional Pivots are Hazardous:
Learn from PostHog's Experience: Attempting fractional pivots may lead to wasted time and confusion. Learn from PostHog's tech debt monitoring tool journey.
User Interaction is Mandatory:
Everyone Talks to Users: Involvement of all team members, including CTOs and engineers, in user interactions is crucial. Diverse perspectives lead to a comprehensive understanding.
PMF is a Milestone, Not the Destination:
Post-PMF Challenges: Achieving PMF is a milestone, not the ultimate success. Startups must evaluate their trajectory – are they default alive or default dead?
Counterintuitive Lessons About Pricing
Key Insights from James Hawkins 👇
Don't Let Pricing Hinder Adoption:
Focus on Adoption, Not Just Charging: PostHog's success lies in prioritizing product adoption over immediate revenue. The journey from free users to paid customers follows a natural progression based on user needs.
Free-for-Life Tier: Offering a perpetual free tier ensures users experience the product's value without upfront costs, using open source features and free cloud usage.
Enable Easy Upgrades:
Credit Card Entry for Paid Features: Encouraging users to input credit card details, even for $0 starting fees, facilitates easy evaluation and frictionless upgrades.
No Minimum Spend: Allowing users to start small without commitments fosters gradual commitment, eliminating stressful decision points.
No Annual Contracts by Default: Defaulting to no annual contracts reduces customer risk, avoids prolonged evaluation periods, and aligns with a less commitment-heavy approach.
Transparency and Self-Serve Approach:
Transparent Pricing: Being clear about pricing from the start eliminates the need for users to engage in sales discussions, fostering a self-serve model.
Self-Serve for Immediate Problem Solving: Relying on a self-serve model ensures users can become paying customers to solve immediate problems without the need for a sales team.
Balancing Big Contracts and Easy Start:
Features Differentiation: PostHog stands out by differentiating on features, allowing usage to scale with customers' products.
Avoiding Cheap Perception: Although easy to start, the product doesn't compromise on pricing, debunking the notion that easy beginnings equate to a cheap product.
Gradual Evolution in Pricing Strategy:
Optimize for Learning Early On: In the initial stages, focus on learning rather than optimizing for revenue. This approach involves gradual implementation of minimums and manual sales processes.
Accelerate with a Formula: Once a reasonable formula is established, accelerate growth by eliminating manual sales processes and introducing minimums where appropriate.
Pricing to Value is Short-Sighted:
Preference for Happy Customers: PostHog challenges conventional wisdom by avoiding "pricing to value." The focus is on fostering customer happiness, momentum, and sustainable growth, especially crucial for a VC-backed company.
Tailoring Pricing for the Largest Customers:
Logarithmically-Declining Pricing: To cater to growing usage in large customers, PostHog implements logarithmically-declining pricing. As usage increases, incremental prices decrease, preventing large customers from feeling gouged.
Avoiding Money Extraction from Struggling Startups:
Focus on Product-Market Fit: PostHog emphasizes the importance of targeting teams with established product-market fit rather than attempting to extract money from struggling startups.
Ongoing Improvement and Future Initiatives:
Transparent Enterprise Pricing: PostHog is actively working on standardizing and making transparent their enterprise pricing by engaging with users.
Enhanced Clarity for Upgrades: Future plans include providing greater clarity on what users get when they upgrade, fostering transparency and trust.
Expansion into Enterprise Cloud: PostHog envisions an enterprise cloud offering to cater to diverse user needs and capture market share for high-volume, low-marginal-value users.
Pricing as a Product - Results:
Revenue Surge: PostHog's revenue trajectory showcases a significant upward trend, demonstrating the effectiveness of treating pricing as a product and aligning it with user needs.
6 Mistakes PostHog Made (And What They Learned)
Key Insights from James Hawkins 👇
Waiting too long to hire a product person:
Early Resistance: Initially, PostHog hesitated to bring in a product manager, fearing it might slow down the process. However, they realized the significance during an all-company offsite when an engineer took a proactive product management approach, offering deep user insights.
Lesson Learned: Bad experiences shouldn't dictate decisions; they should inspire better solutions. PostHog recognized the need for technical product people – product engineers who understand both realms.
Being intimidated by "more successful" companies:
YC Entry Challenge: Pre-Y Combinator, PostHog founders faced imposter syndrome as they lacked the conventional credentials. Despite the odds, they secured a spot in YC.
Lesson Learned: Startup success isn't a zero-sum game. Comparing yourself to others can be counterproductive. Fundraising and press don't equate to product-market fit.
Believing people wanted to solve their problem:
Deceptive Validation: PostHog invested time in building a tool based on users' claims of a problem, only to find none of them used the product upon launch.
Lesson Learned: Acknowledging a problem and actively wanting a solution are distinct. User interviews should delve into why a problem hasn't been solved, questioning its actual importance.
Enforcing metric-based OKRs on engineering teams:
Struggle with Conventional OKRs: PostHog, formalizing quarterly objectives and key results, found that predefined metrics caused unnecessary stress and didn't align with subjective progress views.
Lesson Learned: One-size-fits-all approaches seldom work. Providing teams the freedom to set goals and define their metrics fosters better alignment and team-specific objectives.
Taking too long to re-hire roles:
Talent Retention Dilemma: PostHog's value on talent led to quick decisions on letting people go. However, a fear of re-hiring after unsuccessful roles resulted in lost time and opportunity cost.
Lesson Learned: Rapid evaluation of hiring mistakes without losing sight of the role's necessity is crucial. Delaying re-hiring due to past failures hampers growth potential.
Trying to nail enterprise instead of self-serve:
Misguided Strategy: PostHog initially aimed for enterprise success but faced challenges and long conversion times. They eventually realized the success in the self-serve model.
Lesson Learned: When a strategy is proving successful, it's essential to double down on it. PostHog recognized the effectiveness of the self-serve approach and shifted focus accordingly.
Influences From Books and Other Companies:
Books: PostHog draws inspiration from "No Rules Rules" by Erin Meyer and Reed Hastings, exploring unconventional corporate culture, and "Principles" by Ray Dalio, emphasizing a principled approach to decision-making.
Companies: Atlassian, a multi-product, dev-centric company, serves as a benchmark for dominance in categories. AWS, with its unique pricing model and UX, sets a standard. Pager Duty's innovative pricing model and product-led growth, Hubspot's success against Salesforce, GitLab's transparency, Sentry's branding, Algolia's developer-focused marketing, and GitHub's enterprise go-to-market strategy all contribute to shaping PostHog's strategy.
And there you have it, friends! PostHog's journey is a fascinating ride through the highs and lows of the devtools industry. James Hawkins spills the beans on fundraising myths, pricing strategies, and the real deal about achieving product-market fit.
—> Full credit to Posthog's blog where I could draw all these lessons and share these incredible learnings with you.
⭐ Star History Weekly Pick
The Star History Weekly Pick is:
Trigger.dev: “The open source background jobs framework for TypeScript. With features like API integrations, webhooks, scheduling and delays”.
⭐️ 5.6k stars reached
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Thanks for reading,
Morgan
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