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How and when to focus on growth
We sit down with Pascal van Steen, co-founder & Head of Growth at Spike to discuss how and when to focus on growth.
DISCLAIMER: This interview was recorded and introduced as a lecture for our free online 10-week program, StartupLeap. It has been edited for clarity purposes. Watch the recording for the full conversation.
When should startups focus on growth?
If you look at it from a consulting perspective and different stages a startup can be in, you can divide it into three stages:
Stage one: building a product people want
Stage two: marketing a product people want
Stage three: scaling the business
Growth hacking for me, is making your marketing processes more efficiently to have a sense of scalability and multi-disciplinary collaboration within the growth focus of your company.
In stage one, if you’re still figuring out whether you have product market fit or not, who is your ideal customer, what value proposition resonates with them. That’s the stage where you don’t want to focus too much on the digital tools and making your processes as efficiently as possible, because you still want to figure out a lot of qualitative information that you want to get back from your customers.
You want to make sure and validate that they actually value your product as being a must-have product. That’s something you need to focus on then. Paul Graham from Y Combinator says about this stage that it’s way more important to focus on the things that don’t scale, because these things generate way more value further down the line, then for example, using the next snapchat or advertising platforms that allow you to reach as many people as possible. You first really need to understand who is your best customer.
You get to the phase of marketing a product that people want and you have validated that people want your product, and this might be difficult to quantify, when you have a good retention rate. So people should engage with your product.
What are good retention rates?
It really depends on what kind of business you run. I would say, having some baseline retention rate of people that keep using your product is already good enough. If you look at the best apps in the app store, the 90-day retention rate is below 20%, so you shouldn’t be afraid that people drop off, because usually the most active users are a small subset of the people that actually get acquired and sometimes even activated.
What are some misconceptions about growth for startups?
Thinking about the term growth hacking, it’s more susceptible for misconceptions, because there’s no marketing in that definition and I think growth is better defined as the activities of working as a multidisciplinary entity to facilitate growth. People that haven’t heard about the term before think it’s some kind of magic, where these people can do anything with the snap of their fingers. Where they make sure that people get into your product and start using it and that’s definitely not the way it works.
It’s a rigid process of testing rigorously among the areas of data science, technolocy and developing tools and automation and behavioral psychology. And you need to be at least a little bit proficient in any of these areas to be able to facilitate growth.
Is growth hacking something completely different or just a new way of doing marketing?
It depends on how you define new. I guess you could say it’s an innovative of executing on marketing. Growth hacking came from the opportunity of seeing what the possibilities were with using these new domains that are developing very rapidly, among the entire job market in data science and developing front-end, back-end, AI, blockchain technology. Using all that and some other frameworks that are already used in for example development and design teams, like agile, scrum and running in sprints.
Marketing didn’t really used to do that, so in practice, you saw where design teams and development teams were already very attuned to each other, marketing was mostly still an afterthought.
Especially the bigger companies utilize what’s called a waterfall strategy, where they would create an enormous budget and then just see what happens. And if you don’t spend all your budget, you get less budget for the next quarter, so you need to spend it. But it’s highly inefficient to do it like that, so I think the most innovative thing about growth hacking, or growth mrketing, is that people started looking at other departments and how they were operating and found a way that streamlines with them. So now there’s a way better way to work together and experiment with different perspectives.
Who should be responsible for growth?
This depends on how big your company is. If you work at a large corporate you might have to start out with a small subset of a team that focuses on growth. So try to pick one developer, one designer, one marketer, one data scientist. And see if you can run some experiments, because a big factor in working with large companies, is that you need to get buy-in from C-level. They need to know what kind of return on investment they can expect and why it’s more efficient than the old way. So you need to produce some results, to have them see the value of what you can do running experiments in sprints and influencing the KPIs are important there.
That being said, in a smaller environment, in a small startup team, it’s easier to walk over to another department. Usually your team consists of less than 20 people and it’s easier to instill this culture of experimentation, because by definition, you have to influence less people.
What’s important when you start out with experimenting is see whatever data you already have. See if you can figure out or design your ideal customer profile, which are the perfect channels, where you can find your ideal customers. And most of all, fundamentally, define your north start metric. What one number defines success for your company. That gives you clarity and a focus to move further with the experiments that you have to brainstorm.
Can you give an example?
If you’re not a social media or media company, your north star metric is usually revenue focused. Depending on your business model it might be average revenue per user, it might be average revenue per booking, it might be average per purchase. Something like that will make it easy to steer on.
If you are building something that’s dependent on a network effect, that you can monetize, but before you have a large number of users on your platform, you’ll be looking at engagement metrics. This might be daily active users or weekly active users or monthly active users. Some startups even measured engagement in a sense that the natural behavior was that users only used the service once or twice per year. But when they used it in those periods, they would use it very heavily.
This is something you have to figure out from your own data. What does activity mean for our user base.
What type of people are great in growth marketing?
I think it’s difficult to define one specific good growth marketer. It depends on what your business needs.
If you have high value or high volume touch points and people are generating events on your webiste, then it might be interesting to look for a growth marketer that is more on the data side of things.
If you have a more sales-oriented company, you might be looking at someone who’s more proficient in marketing automation, so they can automate parts of the pipeline that take up a lot of time. Where activities are very manual and don’t add value if you keep doing them manually.
How do you find the right channels?
There are a couple of frameworks for this. I think Growth Tribe’s GROWS process is nice. It consists of five steps. 1) Gather ideas, 2) rank ideas to prioritize them, 3) outline experiments, 4) work, basically execute the experiment, 5) study results, analyze the data you generated. You want to see if the results produce some conclusive results to define if you could call the experiment a success or a failure.
When it’s a success, obviously, in the next sprint, you want to scale it up and see if you can produce the same results. And if that’s the case, you want to playbook it, turn it into a process so that other people in the team or new hires, can also execute upon it.
A lot of people don’t know what kind of channels are available. You can use paid marketing channels, like Facebook advertising or TikTok advertising or Snapchat or whatever. You have organic channels like content marketing and then you also have viral channels. So maybe you can build in a referral program, because people are highly engaging and already inviting their friends. You can stimulate that and incentivize it. Maybe even so that people get a higher k-factor. K-factor being the virality factor. For more inspiration, I highly recommend the book Traction by Gabriel Weinberg.
Do you focus on few channels or on many?
I wouldn’t go at it that way. I would do the non-scalable things, so that you have a small base of very enthusiastic users or clients. Then interview them and try to figure out where they hang out online. Use that a frame of reference for your first experiments to see if you can find these people in the online domain as well.
What are the first steps in growth marketing?
There is definitely a transition period from doing the things that don’t scale, and you’re still building a product and pivoting. At some point, you need to make a decision and start doubling down on something that works.
That being said, it’s difficult to quantify this moment. However, if you have some form of organic acquisition that just keeps going and you have users who just keep using your product, so retention is good, then try and start doubling down. So whatever channel you then have. Just try and scale it up.
It’s better to have one channel that works, then having experiments running in ten channels and it doesn’t work or it’s not efficient.
If you have a channel that works, try and double down on that one. Maybe start experimenting with one channel the side to see if you can get some traction going.
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