Equals CEO Bobby Pinero’s Lessons on Freemium, Friction, and User Activation
The allure of freemium models can be tantalizing, promising rapid user acquisition and market penetration. However, the story of Equals, a next-gen spreadsheet startup, takes a cautionary turn as CEO Bobby Pinero shares the tumultuous journey of how embracing freemium nearly derailed their business. I’ll share my key takeaways from this story, but you can check out the full article on one of my go-to product blogs, Lenny’s Newsletter.
The Temptation and Initial Success
Equals launched in April 2022 with a high-friction onboarding strategy — every user had to engage in a one-on-one call and pay upfront. This approach worked exceptionally well, propelling Equals to a successful Series A funding round of $16 million from a16z within five months.
However, the initial success led to growing demands for less friction. Users clamored for a self-serve option, the ability to skip data source requirements, and, above all, a free plan. Seeing an opportunity to emulate successful SaaS companies like Notion and Figma, Equals decided to take the plunge into freemium.
The Freewheeling Descent
The introduction of freemium initially led to a fourfold increase in daily and weekly users. However, the honeymoon phase was short-lived. Engagement, retention, and revenue soon took a nosedive, leaving Equals in a precarious position.
Two key lessons emerged:
- The Customer Can Be Wrong: Despite user demands and industry trends, what users want isn’t always what’s best for the product. Initial user surge post-freemium didn’t translate into long-term engagement, highlighting the gap between user requests and the product’s sustainable success.
- “Freemium” and “Friction” are Tied at the Hip: The success or failure of freemium is directly tied to the onboarding friction. Attempts to reduce friction, such as allowing CSV uploads instead of live data sources, led to a decrease in engagement. Friction, it turned out, was crucial for driving both short-term adoption and long-term retention.
Undoing the Damage: Adding Back Friction
To reverse the downward spiral, Equals had to act decisively. The solution was counterintuitive — add back some friction to the onboarding process. Requiring every sign-up to start a 14-day free trial and input a credit card turned out to be the game-changer.
Lessons learned:
- Onboarding is More Sales than Product: Onboarding is not just about getting users into the product; it’s about ensuring they experience the first moments of value. The allure of a new product is a powerful motivator for users to complete essential setup tasks.
- Friction Can Drive Commitment: Forcing users to invest upfront, through a credit card and a limited-time decision window, increased their commitment to complete challenging steps. Adding friction to onboarding can enhance user commitment.
Reflections and Guiding Questions
The freemium model may not be suitable for every product, as Equals discovered the hard way. Drawing from their experience, here are some guiding questions for startups contemplating freemium:
- Is your product aligned with successful freemium models?
- Have you considered the true goal of onboarding — user activation?
- Does adding friction to onboarding align with your product’s goals?
Equals’ rollercoaster journey with freemium serves as a valuable case study for startups grappling with the decision to embrace or resist the allure of free plans. Ultimately, the path to success may involve understanding that what users ask for and what a product needs for sustainability can be two different trajectories.
