Why Growth Hacking Could Be Killing Your Startup

Why Growth Hacking Could Be Killing Your Startup

demolition

 

Pre-mature growth hacking can suck the life out of your startup

 

 

What’s the best way to growth hack my startup?

I was asked this once by an entrepreneur via a 1-on-1 mentorship call. He recently read the book Traction by Justin Mares and Gabriel Weinberg. They list 19 different traction channels you can use to grow your startup.

I asked this entrepreneur how’s he doing with retention. Are his users coming back to his app?

To my horror, I find out that none of his users are coming back. They sign up. Then, they disappear.

I told him straight up, “bro, you’re crazy for thinking about growth hacking right now. Growth hacking could kill your startup.”

That sounds like a contradiction. How can growth hacking kill your startup?

It starts with product/market fit.

For most startups the root cause of growth challenges is a product/market fit (PMF) issue. Growth hacking requires a solid foundation of PMF. Sean Ellis, the guy who coined the phrase “growth hacking”, agrees in this essay:

Startups require a solid foundation of product/market fit before progressing up the pyramid and scaling the business.

The Startup Pyramid by Sean Ellis

In my opinion, focusing on “growth hacking” before PMF is stupid and dangerous. You’re wasting your limited money, time and energy trying to growth hack a product instead of building a product that’s worthy to be growth hacked. You’re not ready to drive sustainable growth if you are trying to sell the wrong product or sell in the wrong market. If you are obsessed about scaling growth in this situation, you will likely kill your startup.

That’s why at the early stage of a startup, instead of trying to market any shitty product, focus on building a product that is easy to market. Figure out who your early adopters are, what their needs are and building a product that will blow their mind. The best marketing decision you can make is to have a product or business that fulfills a real and compelling need for a real and defined group of people — no matter how much tweaking and refining this takes.

Ryan Holiday, author best-selling book “Growth Hacker Marketing: A Primer on the Future of PR, Marketing and Advertising”, agrees in this essay:

Your marketing efforts are wasted on a mediocre product — so don’t tolerate mediocrity. Isolate who your customers are, figure out their needs, design a product that will blow their minds — these are marketing decisions, not just development and design choices.

So if your users are not coming back to your mobile or web app, stop growth hacking. If you can’t even retain users, there is no point in growing the top of the funnel. Period.

How to get to product/market fit

PMF is a fairly abstract concept making it difficult to know when you have actually achieved it. As Sean Ellis mentioned in this post, a few startup experts have chimed in on how you get to PMF:

Paul Graham: The mantra at Paul’s successful startup incubator YCombinator is “make things people want.”

Steve Blank: In Steve’s book Four Steps to the Epiphany he writes: “Customer Validation proves that you have found a set of customers and a market who react positively to the product: By relieving those customers of some of their money.”

Marc Andreesen: A couple years ago Marc wrote the following on his blog: “…the life of any startup can be divided into two parts — before product/market fit and after product/market fit.” He goes on to write: “When you are BPMF, focus obsessively on getting to product/market fit. Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital — whatever is required.”

From what Paul, Steve and Marc said, you need to look at the different stages of the startup. In general, a startup goes through three phases of growing:

  1. Problem/solution fit (customer development)
  2. Product/market fit (customer validation)
  3. Scale (customer creation)

The goals, metrics, channels, optimization, focus and tools changes and evolves as you move through these three phases. Knowing where you are in this path helps you understand what you should be spending your time and money on. Focusing on the right tactics at the right time helps you move through the startup growth phases efficiently and successfully.

I’m going to make some generalizations to help you understand the differences of each phase. But understand that this can vary depending on your type of business.

Startup Growth Phases

Here’s a summary of the goals, metrics, channels, focus and tools for each of the three phases. Note that the following is inspired by this post by Brian Balfour, VP Growth at Hubspot.

Startup Growth Phases

Startup (Before Product/Market Fit)

Goal: The one and only goal should be to find product/market fit with a customer segment. One of the leading indicators of product/market fit is retention, which is your metric at this stage.

Metric: Your focus at this stage is retention. Look at your % of active users over time. Look at engagement data that tells a story that your users are getting meaningful value out of your product.

Note that at this stage, your cost per acquisition (CPA) will likely be greater than the long-term value (LTV) of your customers. As Paul Graham said, you’re doing things that don’t scale. That’s fine. Your focus right now is not scaling, but retention.

Channels: Experiment with 2 or 3 channels to find that one channel that will give you steady stream of new users. Don’t focus on too many channels at this point since this creates overhead and wasted resource.

Most large companies get 80% of their initial userbase from one channel: LinkedIn via variality (email), Hubspot via content marketing, Trip Advisor via search, Zynga via Facebook.

Optimization: Focus on macro optimizations. Try pivotting your customer, problem or solution. Don’t get caught in the trap of focusing on micro optimizations such as button colors, copy writing, etc.

Tools: Use the Lean Startup principles and customer development tools. Get out of the building and talk to people. Validate your problem, customer and solution.

Transition

Goal: The primary goal of the transition phase is to find, define and understand the growth levers for your business. If, for example, your success metric is DAU, you need to identify the factors in your product and marketing to move this metric up and to the right.

Metric: You need to start tracking a growth rate on a weekly or monthly basis. The growth rate depends on your business model and market. Read the book Lean Analytics if you have no clue what growth metric to start tracking.

At this stage, your CPA should be getting closer to your LTV. You should have enough data to calculate your LTV at this point.

Channels: Double down on the one channel that will give you 80% of your new users. Now is not the time to diversify. Focusing on too many channels creates overhead costs.

Optimization: You might still need to make some minor macro changes to your customers, problem or solution. But, by this point, you’ve figured out the problem you’re solving and the solution that the market wants. You can start making micro optimizations such as button colours, copy writing, etc.

Tools: You’re still using the Lean Startup principles but you’re starting to transition to experiment with different growth levers using the Growth Hacking experimental process.

Growth (After Product/Market Fit)

Time to scale, baby! Turn on the boosters.

Goal: the only goal is scaling as quickly and efficiently as possible. Focus on discovering and exploiting growth channels.

Metric: look at the growth rate on a weekly or monthly basis. Your growth rate is your true north at this point. You should also really focus on making sure that your CPA is less than LTV.

Channels: Identify that one channel that will give you 80% of your growth and focus your resources on that one channel. As mentioned before, most companies get 80%+ of their growth from a single channel. But now that you have more capital, resources and larger team, start experimenting with other channels of growth.

Optimization: at this point, you should know your customers, their problems and your solution inside-out. It’s time to focus on micro optimizations.

Tools: use the Growth Hacking experimental process. I’ve outlined that in this essay.

Why Growth Hacking Could Be Killing Your Startup

When I was in business school at Ivey, my strategy prof wrote on the board the following:

The first law of holes

As my classmates and I sat down after our lunch break, he asked what the first law of holes was. We all looked at each other dumbfounded. What is the first law of holes?

The first law of holes refers to a proverb “if you find yourself in a hole, stop digging”. The meaning behind it is that if you find yourself in an indefensible position, you should stop and change, rather than carry on exacerbating it.

The same is true with startups. If you’re not getting traction or seeing the results you want, growth hacking will not help you. In fact, it could suck your valuable and limited resources and end up killing your startup.

If you haven’t achieved PMF and you get the urge to growth hack, remember the first law of holes. Stop digging and change. Change your customer, problem or solution until you get to product/market fit.

[Medium]

July 13, 2016 / by / in , ,

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