Category Archives: Scaling Growth

January 24, 2014

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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May 17, 2010

Key Elements of a Massively Scalable Startup

VC backed startups generally aspire to valuations in the hundreds of millions or even billions of dollars, but very few really consider all of the elements they’ll need to make it happen.  After analyzing several startups I’ve worked with that have reached or are approaching these valuations I’ve boiled it down to four interdependent commonalities that always seem to exist.  While they are easy to describe, they are of course very difficult to achieve.  Still your best chance of achieving them is to know what they are.

Element 1: Gratification engine

 

Your gratification engine is the repeatable process of turning cold prospects into highly gratified customers. Whether you are aiming big or small, an effective gratification engine is probably the hardest of the four elements for a startup to get right.   Tenacious execution works for a lot of things, but you can’t force customers to want, need or like what you have created.  Building an effective gratification engine is an iterative process driven by a lot of prospective customer feedback.  Once you get the basics right, your process of gratifying users can be optimized with tools like Performable for landing pages and KISSmetrics for full funnel tracking/improvement (I’m an advisor to both).

Element 2: Economic engine

Once you have figured out how to gratify prospects, your next challenge is creating a viable economic engine.  For your business to be sustainable in the long run your average revenue per user will need to exceed your average cost per user.  Beyond business sustainability, the right monetization approach will also be based on the value users get from your solution, the competitive environment and your ultimate growth strategy.

Element 3: Growth engine

Your growth engine is very dependent on your economic engine.  If you have relatively limited revenue per user, you’ll need to pursue tactics with a very low marginal cost such as PR, SEO or viral marketing.  With a higher revenue per user, you’ll also be able to effectively arbitrage growth through paid tactics like display advertising and SEM.  The most valuable companies generally choose an approach that allows them to capture the biggest share of the market in a sustainable way.  This often means a strategy with lower revenue per user.  They don’t invest too much time in one off gimmicks, instead they focus on growth drivers that can be repeatable and scalable.

Element 4: Huge addressable market

The best opportunities generally have the hardest markets to accurately size.  That’s because these are fast growing or whole new markets that are based on potential rather than existing customers.  Perfect accuracy on market sizing isn’t important here.  Instead creative scenarios that show how it will likely be big should generally suffice.  You also want to breakdown potential segments and people that are new to the market or coming from an existing related market.  Again, you just want to have approximations that are believable and big.

Start with a Hypothesis for Each Element

It is important to have a realistic hypothesis for each of these elements before you even get started with the business.  If you are having a hard time creating a realistic hypothesis for one or more of these elements, your vision probably isn’t viable.

I can often look at a business for less than an hour and decide if I believe it is massively scalable opportunity based on my hypothesis for each of these.  If I’m not confident on a specific element, I spend a lot of time vetting this with the CEO before committing to a project

Of course it won’t happen exactly the way you plan.  The best opportunities have multiple contingency plans in case your initial theory doesn’t work.  But if you can’t even creatively come up with a viable theory for each, you’ll likely have a very hard time raising VC funds.  Once you have a theory for each, start with the practical bottoms up execution described in the startup pyramid post.