My Worst Mistake Ep 271

Summary Notes


In this candid discussion, the host reflects on a significant error in his entrepreneurial journey, emphasizing the importance of learning from mistakes rather than just celebrating successes. He shares a personal anecdote about incorrectly believing his company was suffering from high churn due to misinterpreted data, leading to a drastic and unwise decision to slash prices by 25%, which resulted in a $5 million annual profit loss without impacting churn. The host advises against price reduction as a solution, stresses the need for proper benchmarking, and echoes Jeff Bezos's approach to decision-making based on reversibility. Ultimately, the host's experience serves as a cautionary tale for other entrepreneurs about the critical importance of informed decision-making and the potential high cost of errors.

Summary Notes

Introduction to Entrepreneurial Challenges and Mindset

  • Speaker A acknowledges a personal history of making more mistakes than correct choices.
  • Emphasizes the importance of discussing failures as well as successes.
  • The speaker aims to share lessons learned from entrepreneurial failures.
  • A belief is presented that mistakes can have a more significant impact than successes.

I personally have made a lot more mistakes than I have correct choices.

The quote reflects the speaker's candid admission about the frequency of mistakes in their entrepreneurial journey, setting the stage for a discussion on the importance of learning from failures.

Welcome to the game where we talk about how to get more customers, how to make more per customer and how to keep them longer, and the many failures and lessons we have learned along the way.

This quote outlines the podcast's focus on customer acquisition, customer value, retention, and learning from past failures.

And it's your mistakes will break you more than your wins will take you.

The speaker shares a belief that mistakes can be more detrimental than the benefits gained from wins, highlighting the significance of managing downside risks.

The Philosophy of Managing Downside Risk

  • The speaker has adopted a belief from more experienced and successful individuals.
  • There is a focus on mitigating downside risks rather than solely pursuing upside gains.
  • The philosophy applies to business, personal life, and relationships.
  • Speaker A has shifted focus from seeking big wins to avoiding critical mistakes.

The longer I've been in this, the more I've adopted a single belief that I've inherited from people smarter than me that make more money than me.

The quote indicates that the speaker's philosophy on risk management is influenced by mentors who are more knowledgeable and financially successful.

The downside, many times it's more important to mitigate downside risk than it is to try and maximize upside return.

Here, the speaker emphasizes the importance of risk mitigation over the pursuit of high returns, suggesting a conservative and protective approach to entrepreneurship.

Reflecting on a Major Entrepreneurial Mistake

  • Speaker A prepares to share a significant mistake from their entrepreneurial career.
  • The mistake is related to an issue with customer churn experienced by the company.
  • The speaker implies that this mistake offers valuable insights.

So this is one of the biggest mistakes I've ever made.

The speaker introduces the forthcoming story about a major error, setting expectations for an important lesson to be shared.

At one point, it's probably a year or two ago, our company was struggling with Churn.

This quote reveals the specific problem (customer churn) that the company faced, which was a contributing factor to the mistake that will be discussed.

Misconceptions About Churn

  • The company was mistakenly believed to be struggling with churn due to incorrect extrapolation of data from one industry to another.
  • Proper benchmarking and setting realistic expectations are essential to avoid unnecessary stress and misguided efforts.

I believed my company was struggling with churn. My company was not struggling with churn. I believed it. And it was because I was extrapolating data from one industry to another.

The quote indicates a misunderstanding of the company's churn situation, caused by comparing it with different industry standards.

And that's why expectations and proper benchmarking is important, right.

This quote emphasizes the importance of accurate benchmarking and setting proper expectations to assess a company's performance correctly.

Impact on Team and Performance Metrics

  • Team members' bonuses and performance were tied to churn and lifetime value metrics.
  • There is a distinction between churn and lifetime value, with churn being the percentage of customers who leave and lifetime value being influenced by pricing.

their bonuses, and what they were being measured on was churn lifetime value, right?

The quote highlights that the team's incentives were based on churn and lifetime value, which are critical business metrics.

lifetime value and churn are very different, right?

This quote clarifies that churn and lifetime value are distinct concepts, each affected by different factors.

Attempted Solution and Financial Consequences

  • The company decided to provide more services for less money to address churn, which was believed to be a problem.
  • The decision, influenced by frontline employees concerned about churn, led to a significant loss in profits.

So we decided we're going to do this crazy great idea and provide more for less.

The quote describes the company's strategy to reduce churn by offering more value for a lower cost.

And it cost me $5 million a year of profit.

This quote reveals the financial impact of the decision to reduce prices and add services, which resulted in a substantial loss of profits.

Churn Rate Unaffected by Price Reduction

  • Despite the drastic measures taken to reduce churn by cutting prices and adding services, the churn rate remained unchanged.

And Churn didn't change $5

The quote indicates that the churn rate did not improve despite the costly efforts to reduce it, demonstrating that the initial problem was misdiagnosed.

Invitation to Access Additional Content

  • An invitation is extended to the listeners to check out the video version of the podcast on YouTube for more effects, visuals, and graphs.
  • The video content is offered as a complementary resource to the audio podcast for those who prefer visual learning.

Hey, guys, love that you're listening to the podcast. If you ever want to have the video version of this, which usually has more effects, more visuals, more graphs, drawn out stuff, sometimes it can help hit the brain centers in different ways.

The quote serves as an invitation to the audience to engage with the podcast's content in a different format that may enhance their understanding and retention of the information.

Price Adjustments and Business Strategy

  • Lowering prices does not necessarily solve business problems or reduce churn.
  • It is possible to raise prices simply based on the company's decision.
  • Understanding benchmarks and expectations is crucial before making pricing decisions.
  • Quick decision-making can be applied if the decision is reversible; more caution is needed for irreversible decisions.
  • A 25% permanent price reduction was a significant and ultimately poor decision that did not address churn as expected.
  • Employee retention is not solely influenced by salary; factors such as fulfillment, growth, contribution, impact, and work relationships are important.

"Many times, lowering your price is pretty much never the solution. Ever. Like, ever, number one."

This quote emphasizes the speaker's strong belief that reducing prices is not an effective solution to business problems, based on their experience.

"You can raise your price because you feel like it. You can, number two."

The speaker suggests that businesses have the autonomy to increase prices without needing to justify the decision beyond their own discretion.

"Understand benchmarks and expectations before making these types of decisions."

The speaker highlights the importance of being informed about industry standards and what is expected before making significant decisions such as pricing changes.

"Jeff Bezos has a thing about making decisions quickly, which is if I make a decision, I decide whether it's reversible or irreversible."

The speaker references Jeff Bezos' decision-making strategy, which prioritizes speed for reversible decisions and caution for irreversible ones.

"This was an irreversible decision because I couldn't just lower it and then be like, yeah, just kidding. You guys are back at higher price. My bad."

The speaker reflects on their own experience with an irreversible decision, recognizing that once a price is lowered significantly, it is difficult to raise it again without negative repercussions.

"It was a 25% permanent, permanent discount. Imagine cutting your top line by 25%. For most people, that's your profit."

The speaker describes the magnitude of their decision to permanently reduce prices by 25%, which could equate to the total profit margin for many businesses.

"It's like retaining employees. The price is usually never the thing, right? It's not like people don't stay for higher pay. They stay for other reasons."

The speaker draws a parallel between pricing strategy and employee retention, suggesting that just as lowering prices doesn't solve churn, increasing pay alone doesn't ensure employee loyalty. Other factors like job satisfaction and personal growth are critical.

Key Theme: The Mistake of Unjustified Price Reduction

  • The speaker reflects on a significant mistake made in their entrepreneurial journey: reducing prices without a clear reason.
  • They observed that customers' churn rates did not improve after the price cut.
  • Some customers even complained about being charged the original price post-discount.
  • The speaker emphasizes the lack of benefits from this decision and warns against making similar mistakes.
  • They quantify the mistake as costing them more than a million dollars.
  • The speaker suggests that such a price cut would require an unrealistic reduction in churn to be justified.
  • The story is shared as a lesson to prevent others from making the same error.
  • The speaker compares the mistake to life choices that statistically reduce chances of success, such as getting a DUI or pregnant before 16.
  • They conclude by advising to maintain pricing unless there is a strong rationale for a decrease, as it will likely lead to higher revenue.

Increase. They have a momentary blip, and then they return back to baseline. And so to the same degree, we didn't decrease churn at all.

This quote indicates that the speaker's attempt to reduce prices did not have the intended effect of decreasing customer churn, which returned to normal levels after a brief change.

That was the single greatest mistake I have made. It was the single greatest mistake that I have made.

The speaker emphasizes the severity of the mistake by repeating the statement, highlighting it as the most significant error in their business career.

Understand how much churn would have to be reduced in order for this to make it worth it. And the answer is by so much that it wouldn't even make sense.

This quote explains that the churn reduction needed to justify the price cut would have to be so substantial that it is practically unfeasible.

That one is the single greatest mistake I've made as an entrepreneur.

Reiterating the gravity of the mistake, the speaker labels it as their biggest misstep as an entrepreneur.

If you don't just cut your prices for no reason, 25% of your top line, then you will likely make more.

The speaker offers a final piece of advice, suggesting that avoiding unnecessary price reductions is a better strategy for maintaining or increasing revenue.

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