Monthly Archives: June 2010

June 29, 2010

My Mixergy Interview

The video from yesterday’s interview with Andrew Warner is now live on Mixergy.com (see embed below).   While Andrew initially characterized me as the “secret weapon behind start-ups that have had incredible growth” I explained that a lot of their growth was based on the pre-existence of great products that met important user needs. I helped these startups build a strong growth foundation around early users’ passion, but the continued momentum is the result of product/engineering teams that keep enhancing the products and great marketers accelerating customer acquisition. Startup success is truly a team accomplishment and if the team starts to focus on who deserves the most credit, success will likely evaporate.

As a successful entrepreneur himself, Andrew did a great job of steering the conversation to the topics most interesting/useful for entrepreneurs. It took me a while to get warmed up (it was a Monday morning after a weekend in Vegas), but there is a lot of new and useful information – particularly in the second half.

Successful startups are only possible with founders who have the guts to go for it so Andrew and I spent a lot of time at the end of the interview trying to analyze the qualities of the best entrepreneurs. Each of the founders I’ve worked with deserve to be on this list, so I regret not mentioning all of them. If the video isn’t loading below, try this link.

June 29, 2010

Deconstructing Startup Growth

Elements of a startup growth curve

After product/market fit, driving sustainable growth is probably the most important/difficult part of creating value in a startup.

For most of the last 15 years of my startup experience, I’ve been the point person responsible for primarily one thing: driving growth.  Even after two IPOs, I didn’t really have a firm grasp of the essential elements of driving growth.  My view has evolved from externally focused metrics-driven marketing, to a more holistic approach built on a solid foundation of product/market fit.

Growth Foundation

Even the greatest marketers can’t sustain growth on a weak foundation.  Eventually, their growth curves crater.

So what is required for a strong foundation?

Must Have Product

The most important element is having a large percentage of users who consider your product a “must have” (over 40% is a good benchmark).  This gives you two key benefits:

  1. The first is that your churn will be relatively low (if it’s a “must have” why would users leave?), so you won’t be wasting resources filling a leaky bucket.
  2. The second is that “must have” products generally maintain strong word of mouth.

Together, these two elements give you a steady upward trajectory of your growth curve until you reach market saturation (hopefully you are in a big market!).

Must Have is Perishable

An important caveat is that your product will stop being a “must have” if a competitor offering a viable substitute enters your space. If they are really a good alternative to your product, then you’ve been downgraded to a “nice to have” and your foundation starts getting shaky.  Therefore, once you become a “must have” it is critical to get to the growth phase of your business as quickly as possible.

Check out my earlier post to determine if your product is a “must have.”

Conversion Optimization

Your ability to accelerate growth will be greatly enhanced if you optimize conversions.  There are many ways to define a “conversion” but for me, it’s a person who reaches the “must have” experience.  If 1000 new visitors come to your website and only 50 experience the “must have” benefit, it’s very difficult to efficiently grow your business.   However, with focused attention on fine-tuning the first user experience, startups often see a 2x – 10x improvement in conversions.

This immediately enhances your growth curve since word-of-mouth referrals begin “sticking.”  It also greatly enhances your ability to find viable, scalable ways to grow your user base (especially when combined with a good monetization approach).

Driving Growth

Most startups entering the growth stage obsess too much on finding a VP marketing capable of building and managing a large marketing organization.  At this stage your more immediate challenge is finding sustainable, scalable growth drivers to augment the organic growth achieved through solid product/market fit and conversion optimization.  If you are compelled to bring in a VP Marketing at this stage, make sure he/she has a track record of developing scalable growth drivers and is willing to make this their core focus until it is figured out.  Otherwise, I recommend instead bringing in a scrappy growth hacker to generate a strong flow of ideas for experiments that will scale if successful.

The faster you run high quality experiments, the more likely you’ll find scalable, effective growth tactics. Determining the success of a customer acquisition idea is dependent on an effective tracking and reporting system, so don’t start testing until your tracking/reporting system has been implemented. Once scalable growth tactics are developed, then a VP Marketing may be important for building and managing the marketing team that will execute these tactics.

One benefit that is emerging from advising multiple startups is that our rate of collective discoveries is accelerating across the non-competitive network of startups. With sharp, creative growth hackers in each startup we are able to brainstorm and test many more tactics.  The best ones are exchanged across the network for everyone’s benefit.

Growth

As the preceding paragraphs hopefully demonstrate, growth is a function of multiple factors.  Focusing on the right factors at any given time offers the best chance of ultimately becoming a high growth startup.  One exception to this rule are startups like eBay, Facebook, and Twitter, where “must have” status could only be achieved after critical mass.  In these startups, they did not have the luxury to focus on one element at a time – instead they had to work on the full growth ecosystem at one time.  But for most startups, you will approach your full growth potential by obsessively focusing on the most important goal for your particular stage.

June 8, 2010

Figuring Out Your Way to Startup Success

“Team.”  It’s the cliché response from VCs when asked about the most important factor in deciding to fund a new startup.

But what separates great teams from weak teams? I believe it’s the team’s ability to “figure stuff out.” Founders figure out potential customer problems that are worth solving.  Engineers figure out how to build a well functioning product that meets this need.  Marketers figure out how to reach people who really need the product and how to convert them into customers…

While natural talent is a big part of figuring stuff out, we can all benefit by improving our work environment.  There are two areas in particular that prevent creative problem solving.

1) Too much focus on financial rewards

It is obvious that the effort required to raise VC funds can be a major distraction from executing the business, but few realize that the repetitive discussions about financial outcomes can also shut down your ability to figure stuff out. In my 15 years in startups, I can’t think of a single breakthrough epiphany we experienced while fundraising.

Daniel Pink demonstrates the potentially negative effect of financial incentives in his new book Drive, The Surprising Truth About What Motivates Us.  He describes several experiments where people who were offered a financial reward to quickly complete a challenging task actually performed worse than those who simply did it for enjoyment.  An important part of figuring things out is getting into a state of flow (sometimes known as being in “the zone”) and a focus on financial incentives often prevents this state of mind.

The book mostly challenges the effectiveness of typical incentive structures inside more established businesses, but I believe the implications are even stronger in startups where survival is contingent on our ability to figure stuff out and the financial rewards of doing so are potentially enormous.

2) Too much pressure

I’ve also realized that I’m not good at figuring stuff out when I put too much pressure on myself.  A few months ago I had a beer with a friend and successful serial entrepreneur, Antony Brydon, and he zoomed right in on my problem.  I had put myself under so much pressure to help the startup with which I was working, that I had virtually shut down my creative abilities.  He mentioned that he’d been reading Andre Agassi’s autobiography where similar self-induced pressure had destroyed Andre’s ability to play tennis.  His career only recovered when he remembered to loosen up and have fun.   Every time I feel myself getting tense, I now remind myself to loosen up and immediately feel my creative problem solving abilities return.

While self-induced pressure is common in startups, pressure can also be applied externally by the Board (or the CEO to the rest of the team).  Most leaders don’t realize how counterproductive this can be in a startup.  It is OK to apply pressure for better execution of things that have been figured out, but it should be applied very sparingly when trying to encourage the team to figure out the remaining unknowns.

The solution: loosen up and have fun

When breakthrough thinking is needed, a fun, collaborative and supportive environment will generally yield better/faster results than the pressure of sticks and carrots.  This is especially important in the early days of a startup while the team is still figuring out a viable formula for the business.

Also, given the likely negative effects of fundraising, I recommend fewer/bigger rounds of financing (if possible).  Run leanly on your first round while you figure out the key success elements of the startup.  Then raise another round while executing the formula.  This may result in more dilution, but a more valuable company should offset this dilution.

Finally, encourage the team to obsess about solving customer problems rather than their potential financial outcome from success.  The best breakthroughs initially come from immersion in customer problems and then later from understanding the customer experience and benefits of your solution.