Growth Hacking is for Smart Marketers – Not Just Startups

Startups live and die by their ability to drive customer acquisition growth.  Of course many startups are doomed to failure and can’t grow because they never reach product/market fit.  But even with product/market fit, traction is tough. Startups are under extreme resource constraints and need to figure out how to break through the noise to let their target customers know they have a superior solution for a critical problem.

Breaking through the noise is very difficult when well-entrenched companies have the resources to dominate traditional channels.  The best a startup can hope for in traditional channels is to siphon off a few early adopters that are always on the look out for the latest emerging solutions.

This resource-constrained desperation is exactly the scenario that Malcolm Gladwell suggests leads underdogs to extreme innovation.

Desperation Leads to Innovation

For meaningful growth, startups must completely change the rules of traditional channels or innovate outside of those growth channels.  They are too desperate and disadvantaged to adapt to the old rules of marketing. They have to dig deep creatively, and relentlessly test new ideas.  If they don’t figure it out quickly, they will go out of business.

Some people would just call this marketing.  I call it growth hacking.  And the best growth hacks take advantage of the unique opportunities available in a connected world where digital experiences can spread rapidly.  Since most growth ideas fail, it becomes critical to test a lot of them.  The faster you can hack together an idea, the sooner you can start testing it for some signs of life.

Growth hackers don’t have time to waste around a white board strategizing marketing plans.  They are desperately testing trying to find something that works.

It was in this face of desperation that I was part of the team that invented the first viral embeddable widget.  We were a lightly funded online game company in the mid 1990s competing against the number one advertiser on the entire Internet – Sony Online Games.  Not only did they spend more money on banners than anyone else, they blanketed their television assets with promotion.  You couldn’t watch Jeopardy or Wheel of Fortune on TV without knowing that they offered the game play experience online for cash prizes.  And those shows had massive audiences.

At Uproar, we tried to spend on banner advertising, but even with obsessive optimization it was clear we would never catch them playing by their rules.   That’s when we decided to widgetize parts of our game play experience and make them free for any website.  We even offered to pay an affiliate bounty to those websites where people started the game and eventually played on our site.  These games spread virally to 40,000 websites.  Within a couple of years we were beating the 800-pound gorilla and had become the worldwide leader in online games (we were acquired by Vivendi Universal in 2001 who quickly killed the viral widget program).

Stories like this have been replicated in every startup that I helped build, from LogMeIn to Dropbox and Lookout.  You can also see similar patterns in the early days of almost any massively successful company to emerge in recent years.

How Traditional Marketers Have Reacted To Growth Hacking

The majority of traditional marketers like to say “that’s exactly what I’ve been doing – that’s just marketing.”  But rarely do I see any of them having a track record of building truly innovative, rule changing programs for driving growth.  Most just don’t have the need or motivation to change the rules or innovate new channels.  Unlike startups, big companies are rarely a magnet for risk takers who like to innovate.

However, some marketers at traditional companies and agencies have looked at the unprecedented growth rates that come out of emerging startups and have said: “Awesome! How can I build an innovative growth team in my organization and achieve similar transformative growth results?”  I don’t know the answer, but I’m certain that it is the right question for any large marketing team or agency.  Large companies have always looked for ways to improve their ability to innovate like startups (recently many have embraced lean startup principles).  I’m not surprised that the smart ones are now looking to replicate the innovative growth discovery approaches of successful startups.

Growth hacking was born out of startups, but it is something that every smart marketer should embrace.

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Milestones to Startup Success

Update added to end of post

When your startup accepts outside money (such as venture capital), you are obligated to focus on maximizing long-term shareholder value.  For most startups this is directly based on your ability to grow (customers, revenue and eventually profit).  Most entrepreneurs understand the importance of growth; the common mistake is trying to force growth prematurely.  This is frustrating, expensive and unsustainable – killing many startups with otherwise strong potential.

Most successful entrepreneurs have a good balance of execution intuition and luck.  This was definitely the case at the two startups where I ran marketing from launch through NASDAQ IPO filings.  While we didn’t follow a specific methodology, our CEO was intuitive enough to know the right time to “hit the gas pedal.”  We didn’t accelerate until verifying that the team had created a great product that met real customer needs and we could generate sufficient user revenue to support sustainable customer acquisition programs.  It’s taken years for me to realize that our growth was less a function of clever marketing tactics than beginning with something that customers truly needed.  Some growth would have been automatic; the marketing team simply accelerated this growth.

Several startups later I have a much better understanding of the key milestones needed for a startup to reach its full growth potential.  These are based more on observing universal truths than inventing some type of methodology.  Reaching the full growth potential of your startup requires focus, specifically focusing on what matters when it matters.  In my post on the startup growth pyramid I talk about the high level milestones you must achieve in order to unlock sustainable growth.  This post looks at it on a more granular level with links to several of my previous blog posts and other resources that provide additional details.

Day 1: Validate Need for Minimum Viable Product (MVP)

Before any coding begins it is important to validate that the problem/need you are trying to solve actually exists, is worth solving, and the proposed minimum feature set solves it.  This can best be achieved by meeting with the prospects most likely to need your solution.  Steve Blank published a great post on this today.

Eric Ries offers more details on the minimum viable product concept in this post/video.

Where’s the Love?

Vinod Khosla, one of the most successful Silicon Valley VCs in history, once suggested to me that startups should think of their early users as a flock of sheep.  He explained “the flock always finds the best grass.”

For you this means you should start looking for a signal about who loves your product and why as soon as you release your MVP.  Most products have at least a few people that truly consider it a must have.  These people hold the keys to the kingdom.  Learn everything you can about them including their specific use cases and demographic characteristics.  Try to get more of these types of people.

A good place to start collecting this information is the survey I’ve made freely available on Survey.io (a KISSmetrics product).    You can read more about this product/market fit survey in this blog post.

If you’re lucky you’ll be able to use this early signal to find the product/market fit.

Expose the Core Gratifying Experience

The majority of our project focus at 12in6 recently has been helping startups find their core user perceived value and exposing it in messaging optimized for response.  Your objective should be to remove complexity from the initial user experience and messaging in order to highlight this core user perceived value.  Often this means burying or even completely eliminating features that don’t relate to this gratifying experience.

Metrics

Metrics don’t matter until you achieve product/market fit – then they are critical to your success.  Dave McClure has a great video on startup metrics that matter (relevant part is at about minute 2:20).

Most of the tools out there provide way too many irrelevant metrics and miss the essential few.  Both Dave McClure and I are advising KISSmetrics on a solution to this problem.

Start Charging

Another key step before growing your business is to implement a business model.  The ideal timing for implementing your business model is discussed in this blog post .

I’ve often heard the argument that startups are focused on user growth and prefer to delay revenue in the short term.  I believe the fastest way to grow is with a business model and explain why in this blog post.

Extreme Customer Support

Now that you have a business model in place, your first marketing expense should be to expand the customer support team.  Anyone that cares enough about your solution to contact customer support is a great source of insight about your target market.  Also, customer support will uncover issues that will help you grow faster without spending.  And fixing these issues will make it much easier to grow when you do start spending.

If your customer support team is overwhelmed now, I don’t recommend trying to grow until you address the issues driving most support calls. Once you’ve addressed these issues you’ll have fewer barriers to adoption and will be able to grow without overwhelming customer support.

This will enable customer support to go above and beyond expectations, which is an important way to drive customer loyalty and enhance word of mouth.  This approach pays more dividends today than ever before – as I explain in this post on Social Media.

Update: See comments for additional thoughts on extreme customer support.

Brand Experience Over Brand Awareness

Back in the “Dotcom Bubble” days billions were wasted on brand awareness campaigns for startups.  Today most entrepreneurs understand that brand awareness campaigns are a waste of money for startups.

Instead, it’s much cheaper and more effective for startups to focus on creating a fantastic brand experience.  While startups often realize the importance of brand experience, they focus on it too early, fine tuning things that customers don’t care about.  Instead, wait until you understand why certain customers love your product; then obsess over every element of this customer experience.

Apple is probably the best tech company out there on coordinating a perfect brand experience for its target users. I cover more on brand experience in this blog post.

Driving Growth

Once you’ve achieved all of the previous milestones, then you can focus on driving growth.  CEOs must take an active role in driving customer growth whether or not they have an interest in marketing. Nearly all of the risk and upside in a startup is in your ability to gain customer traction and then drive scalable customer growth. The CEO should not abdicate this responsibility to the marketer.

It’s important to stay aggressive and take all slack out of the market (make it completely uninteresting to pursue the market for any other competitor).  Your early advantage is the ability to iterate on the customer feedback loop and leverage strong customer loyalty to drive word of mouth.

While ROI lets you know if a user acquisition channel is sustainable, the key focus should be on exposing lots of the right people to your fantastic product experience.  It’s much easier to get passionate and creative about this than purely thinking about things from an ROI perspective. Of course positive ROI is essential for any customer acquisition program to remain in the mix.

When it’s time to hire a marketing leader to partner with the CEO, this post explains my recommendations for an ideal startup marketing leader.  The most effective startup marketers are relentless about experimenting with channels until finding things that work.

Start by building out free channels such as listing in directories and basic SEO.   When you begin building paid channels, extra effort should be put into channels that show strong potential for scale.

Unfortunately you can’t count on effective online tactics working forever.  I’ve seen many hot online marketing tactics lose their effectiveness over time.  This is because online tracking makes it easier for marketers to quickly figure out what actually works.  As a result we start piling into the most effective tactics.   Eventually online tactics get saturated, as explained in this post.

Business building

Fast growing businesses are difficult to manage.  This is the point where you should bring in some experienced operations people if they aren’t already on the team.

It Won’t be Easy

Finally, the top three risks to growing via these milestones are:

  1. You lose patience and decide that one or more of the milestones really aren’t that important.
  2. VCs and/or board of directors lose patience because you did not achieve conceptual agreement on this approach from beginning.
  3. You delude yourself into believing that for “our type of business” customers really don’t need to consider our product a “must have”.  For us, “nice to have” is good enough.

Building a successful business is hard.  Hopefully this milestone driven approach to growing your startup will make it a bit easier.

Update: It’s hard to write a blog post on “milestones to startup success” that covers every type of startup.  Some startup types may need to reverse the order of some of these milestones.  For example, with marketplaces (EBay, social networks, eduFire, dating sites, etc.) user gratification increases with more users so there is a bit of chicken and egg here…  Ad supported sites also benefit from early scale. Many of the articles linked to from this blog post also cover exceptions such as when a startup should start charging (it’s different for enterprise targeted startups).

Free Customer Development Help – Survey.io

I’m excited to announce a project that I’ve been working on with KISSmetrics called Survey.io, which provides startups with a free and easy way to prepare, distribute and analyze an initial customer development survey. It includes the content of the survey I use to verify that a startup is ready for 12in6 to work with them.

I recommend sending the survey to a random sample of people who have:

  • Experienced the core of your product offering
  • Used your product at least twice
  • Used your product in the last two weeks

Determine if you are ready to scale

For startups, this survey is an ideal way for you to determine if you should begin the final preparations before aggressively scaling customer acquisition.    The most important question for determining how well your product is resonating with early users is question 2:

How would you feel if you could no longer use [product]?

  1. Very disappointed
  2. Somewhat disappointed
  3. Not disappointed (it isn’t really that useful)
  4. N/A – I no longer use [product]

If most of your respondents are saying that they would only be “somewhat disappointed” without your product, they are really telling you that it is only a “nice to have”.  When asking users why they selected this answer, I often find that they are focused on commodity aspects of the product and they know of a replacement product.  It’s very difficult to build a business around a “nice to have” product, so you should keep your burn low while you iterate your core experience to make it a “must have”.

If however, you find that over 40% of your users are saying that they would be “very disappointed” without your product, there is a great chance you can build a successful business on this “must have” product.  This is the time to reallocate some development resources to optimizing your funnel and messaging as described in this blog post on the Startup Pyramid.

Survey.io to develop value proposition

The survey also provides some useful early feedback for verifying use cases, developing your value proposition and positioning against the most common alternative solutions.  This feedback is directionally useful, but I recommend significantly more research (via customer surveys and interviews) before finalizing your value proposition and positioning.

I strongly encourage you to setup and run your own customer development survey via Survey.io.  It only takes a few minutes and it free.  Here’s the link again.

To Pay Or Not To Pay To Acquire Users?

I recently heard a VC say that startups “should spend the least amount of money possible on marketing.”  This is a healthier attitude than the opposite prescription of undisciplined land grab, but a better approach is pure ROI marketing.  Marketing opportunities that offer a fast payback with additional profit margin are a key component for reaching your startup’s full market potential.

Work from Free to Paid Drivers

Ultimately my goal with any startup is to acquire the highest number of qualified users possible – at a positive return on investment.  But it often takes several months after “launching” to transition to aggressive scaling. 

I like to start with free customer acquisition channels since they obviously offer the best opportunity to generate a positive ROI. Free drivers may include viral marketing, self-implemented SEO and listing with any directories that are appropriate for your product.  Leveraging this early user flow we optimize the first user experience for the right target users and introduce a business model that generates sufficient revenue to fund future paid user acquisition.  When we start developing paid channels, we work our way through the lowest hanging fruit first, beginning with demand harvesting channels, later adding demand creation channels. 

Kill the Opportunity for the Competition

If your growth is accelerating, you will attract competition.  And this competition will likely be savvy enough to replicate the customer acquisition and monetization approaches that you worked hard to invent.  So it is important to make it as difficult as possible for them to get traction.  I know some of you are saying “but your recent post told us to ignore the competition.”  My point was not to ignore the competition forever, simply to ignore them while you are figuring out a repeatable, positive ROI way to acquire customers. Competition (especially those that are spending irrationally) will distract you from this critical task.

But once you have optimized the first user experience and introduced a business model that generates sufficient revenue to fund user acquisition, it’s time to focus your marketing efforts to aggressively build new customer acquisition channels and scaling existing channels – both free and paid.

Indifference is Your Real Competitor

Your Competitors are Clueless (initially)

If you are creating a new market (as is often the case for tech startups) your best chance of success is taking the time to figure out how to become relevant to the right people.   Most startups spend way too much time obsessing over their clueless competition. If the competition is going for a land grab, they feel compelled to do the same.  The likely result is mutually assured destruction. 

Take the Time to Understand Early Users

It’s OK to passively monitor your competition (in case they figure something out), but spend the majority of your time getting to know your early users.   They hold all the answers for reaching your full market potential.  If you don’t have any users, get some.  Acquiring several hundred users is relatively easy for a funded company.  Don’t worry too much about the acquisition cost on these initial users (but don’t go too crazy either). 

Once you have around 1000 users, shift all your energy to engaging/understanding them.  Who is most/least satisfied with your product and why?  What is the primary benefit they are getting from your product?  Why did they decide to try your product?  Did they have a problem that they thought you might be able to solve?  Or are they early adopters that often try interesting new software even if it isn’t likely to have a real practical application?

Context Creates Relevance

The key to effectively scaling customer acquisition is applying this understanding through the entire customer acquisition process.  And remember, a person isn’t actually acquired until they have a gratifying experience with your product. Start by trying to reach prospects when they’ll be most receptive to your message.  Obviously the most receptive users are the ones that are actually searching for a solution like yours.  Of course if your solution is truly creating a new market, don’t expect much relevant search volume. 

Next, look for other contextually relevant ways to reach prospects.  Getting their attention through the clutter is much easier if you reach them at a time they are likely to be experiencing the problem you are solving.

Be sure to have the relevant messages through the entire acquisition process (from landing page to actually using the product).   This post gives more insight on getting the full user acquisition flow right.