Growth Hacking: How Startups Use Experimentation to Fuel Rapid Growth
Growth hacking is to startups what the assembly line was to industrialization.
A bit too strong of a statement? Maybe, but given what’s happened in the startup era so far, probably not.
Sean Ellis, CEO of GrowthHackers termed this buzzy term eight years ago, using it to describe the strategy of companies with breakout growth like Airbnb and Facebook.
A growth hacker, in the singular, is a person whose true north is growth. Because when you wish upon a star, and iteratively test this wish with a growth hacking team, you may just find the must-have benefit of your product or service was inside your business all along.
Image Credit: Nathan Latka
Out with ye olde, in with the new startup growth model
The old model for corporate growth suggests you put steel in the walls first, building up the infrastructure, then push the ‘go’ button. It’s an industrial-era formula of cause and effect, where you pay for all the overhead, then seek to recoup investments in operating profit. You hire specialized people and stick them in departments to do their special things: product development, marketing, sales, mergers and acquisitions, et al.
But now we’re living in an immaterial world. The farm’s been bought, and it’s no longer safe to stay in cozy functional silos. Agile, lean cross-functional teams are the logical way of navigating digital space.
We thus arrive at the growth hacking model, which is all about being iterative, feeling out consumer sentiment and building from there.
Growth hacking is the process of rapid experimentation across the marketing funnel, product development, sales segments, and other areas of a business. Growth hackers test incrementally to see if there’s demand for a product or service.
In other words, it’s a means of identifying the most efficient way of growing your business.
Growth hacking proceeds from the idea that we might not yet have grasped the true value of our business, even if it appears successful and we feel totally expert and secure in what we’re doing.
Because maybe there’s a low-maintenance way of boosting the conversion rate you haven’t thought about yet. Or maybe there’s an idea for acquiring new customers deep, deep in your team’s brains that will get you from 4,000 users to a million users.
And that idea need not be a profound epiphany, indeed it may well be some minute-seeming, data-derived insight that gives you a small yet decisive long-term edge over the competition.
Experimentation and data have allowed startups with modest funding to disrupt and usurp very well-entrenched, deep-pocketed corporate behemoths.
Case in point: Jeff Bezos’ Amazon rocked Sears and basically every other big-box empire with same-same but better product offerings over time. It’s not exactly like they re-invented the wheel.
Bezos promotes failure as a learning experience on the road to invention, because, “to invent you have to experiment, and if you know in advance that it's going to work, it's not an experiment.” Amazon’s Kindle worked out big time, but the Fire phone certainly did not. Still, if you’re going to reach space, you’re going to have to accept some infernal rocket explosions along the way.
When you think about it, Dropbox really didn’t do anything super special either. They built a user base and a brand around the most generic thing ever - cloud storage space.
For both companies, the stand-out reason for their successes is a commitment to growth hacking.
This strategy is all about going deep down the sales funnel, beyond the top layers of brand awareness and customer acquisition that informs most traditional and digital marketing. Growth hackers lower themselves into the depths, checking out activation, retention, referral, and revenue, all while running around to test new ideas for boosting conversion rate.
The true north is growth - understanding the mystical ‘North Star Metric’
GrowthHackers’ Sean Ellis was the first marketer in charge of growing Dropbox, Eventbrite, LogMeIn, and Lookout. He wrote a book about how he did it too.
Image Credit: GrowthHackers
For Ellis, startup growth is all about understanding the must-have benefit, otherwise known as the North Star Metric. This is the actual value created for the customer, which is generally derived from engagement.
For example, Airbnb’s North Star Metric is nights booked. A night booked brings benefit for the host (income) and benefit for the customer (accommodation). The more value delivered with this metric, the more the business will become sustainable over time.
Facebook’s North Star Metric is daily active users. The whole platform’s value is based on other people using it. So when the number of people logging in keeps going up, the platform becomes more useful and thus more profitable.
While the true north is growth, getting there requires a rigorous understanding of the full customer journey, as well as testing across that whole journey.
It’s entirely possible you will benefit from something unanticipated in the funnel.
As such, you really have to crowdsource with customers and make sure you identify who considers the product a must-have and what benefit they get from the product. When you figure that out, you can develop an end goal.
A growth hacking team comprises marketers, developers, engineers, and production managers that specifically focus on building and engaging the user base of a business.
There are two models for growth that growth hacking strategies gravitate towards.
Number one: the independent model. Organized by flows and features, the independent model is all about working with feedback loops and multipliers - in other words, looking at user flow, pain points, and conversion opportunities.
An independent growth team has speed and agility on its side. However, as a consequence of this freedom, it has to be careful it does due diligence on growth metrics, making sure they don’t come at the expense of user experience. If user registration explodes, but the user experience is trashed as a consequence, that ain’t so good.
Number two: the functional model. Organized by metrics, the functional model is data-driven and iterative. It requires coordination with the functional heads of different departments and oversight from someone who knows how to crunch numbers.
Both models have their pros and cons, depending on size, type of business, and your specific business culture.
Growing companies exponentially and upping conversion rate: legendary case studies
Here’s a couple of case studies from companies steered by the enviable Ellis.
At LogMeIn, Ellis found they had got to $10,000 a month in ad spending, without positive ROI.
LogMeIn was offering their service using the freemium model, an unthinkable concept at the time. After spending weeks documenting the customer journey, and soliciting qualitative feedback from customers about why they abandoned the platform, Ellis and his team found that people just didn’t believe the service was free. Users weren’t pursuing the product because they thought there was a catch involved.
So they added a simple link to buy the paid version, thereby removing skepticism. As a result, LogMeIn signups tripled.
Now they got people to sign up but had too much friction in trying to get them to do a remote-controlled session and actually use the product. Without users converting to premium, they hit a wall in acquisitions.
After spending weeks documenting the customer journey, and soliciting qualitative feedback from customers about why they abandoned the platform, Ellis and his team achieved significant results. With some careful tweaks and optimization throughout the journey, they met a 1000% increase in the number of people who signed up and actually used the product in a four-month period. They took the channels that used to scale for $10,000 and scaled it to $1 million dollars.
Elsewhere, Ellis was responsible for growing Dropbox’s user base through user interface innovations. In the olden days, when you hovered over your Dropbox app icon on the top of your desktop, you’d get a ‘share link’ prompt. But after some research into onboarding through optimization, they realized the toolbar link to Dropbox was a good place to drive retention/revenue by encouraging people to save backups of their photos.
People kept uploading more and more content to Dropbox, quickly hitting their data limit. Needing to upgrade their storage space, people became reliant on Dropbox as their ‘safe space’ for cloud storage.
Dropbox turned the opportunity of increased storage space from water to wine with their double-sided incentive program. Basically, when storage space runs out, a user can either purchase more space or refer a friend and get an extra 500MB of space for free. Able to repeat the process up to 32 times, this is a lucrative offer for both the Dropbox user and the company itself.
Ellis suggests it’s a great idea to use other people's’ existing platforms as a means of ascertaining demand and finding customers. Effective growth hacking is, after all, often obtained by an unholy blend of best practice and subversiveness.
For example, the Dropbox referral program was inspired by PayPal’s refer-a-friend program, which rewarded users with cash.
Another great example lives in Groupon, which grew into a giant on the backs of social networks. Because you needed so many people signing up to get a deal, people would share the Groupon they wanted with friends on Twitter and Facebook. As this process repeated itself over time, most social network users knew what Groupon was and why it was valuable.
PayPal wanted to be an online bank, but they realized sending payment through email was a business unto itself and way easier to do. In their early days, they contacted top sellers on eBay and had them advertise on behalf of PayPal, building word of mouth and notoriety from there.
PayPal also famously created the previously mentioned refer-a-friend program. With a $10 referral incentive, the program ended up costing the company a whopping $60M. However, as Elon Musk points out, this is peanuts in relative terms.
Growing companies sustainably with a growth hacking team
Extreme competition has made it more and more difficult to reach breakout success. A decade ago there was a third of the amount of money running after online users. To clinch the opportunities nowadays, it’s gonna take some deliberate, sustained thinking about growth.
Many companies are focused on a business outcome when really, customer value is the means to sustainable long-term growth.
You need to deliver value so that people will come back to derive more value. The more value delivered, the more your business will become sustainable over time.
Growth hacking involves testing across all of the levers of growth to determine value. That’s challenging because a lot of the specific levers are not controlled by marketing. You need to have a team with permission to test in any area that can affect growth.
You need to be coordinating the product team, customer support, sales, and business development. Your team needs to involve business marketers, designers, engineers, data analysts to figure out strategies to overcome whatever obstacles are hampering growth.
The growth hacking team needs to be led by a ‘growth master,’ whose role spans product organization, project management, and leading the growth meetings.
It’s best to find a growth master and build an ad hoc team to get it running fast, designers, analysts, engineers, and/or key figures at your business. A growth master needs to come from a relative position of authority or some strata of management, ideally with some background in analytics. They’ve got to be dedicated to the process and obsessed with maintaining it.
On top of that, the growth master needs to be somewhat aggressive, providing a bit of friction and conflict. Their philosophy is that it’s better to put the thing out into the world than to have it perfect. A healthy dose of competitiveness and a fearlessness of failure are other useful traits for them to have.
Apart from a growth-obsessed leader, you need to have broad participation and transparent communication of what’s been learned to the entire company. It’s crucial to communicate wins and fails in equal measure, even if you think it reflects badly on the company because failure is often the gateway to later success.
If there’s a lack of expertise in your business, you can work with outsiders, bringing them into the process as you explore channels for growth. But building a growth hacking team doesn’t necessarily mean hiring more people. When Dropbox was just 8 or 10 people and didn’t have a high-flying budget, they conscripted everyone into the growth team rather than hiring anyone new.
First, you develop a hypothesis.
What’s your idea and why do you think it’ll work? Do you have data backing it up, or are you just guessing? Not that there’s anything wrong with guessing, per se.
You test the ideas and discuss your goals. After analyzing the data in terms of growth metrics, issues, and opportunities, you might want to score ideas to make them legible in quantitative terms. One way to do that is the ‘ICE’ method, scoring for impact, confidence, and ease.
Growth hacking effectively means building a big backlog of growth ideas and testing them all out. Having a sizeable backlog of ideas is beneficial because you’ll always have new angles to work.
If the test didn’t work out the way you’d expected, you’ll have enough data to see why. Follow-up tests can then be informed by the data you’ve piled up.
On that point, you’ll have to run tests for enough time that you’ll gain data to make an informed decision. It’ll take weeks to get a sufficient sample size, so you can meaningfully analyze the results.
For example, when it comes to acquisitions, you can build a model for determining ROI and check on your results a month or six weeks-ish later. You’ll have an informed idea of whether or not the model is working, and whether users are converting through a channel in a way that’s cost-effective for your business.
Hacking your way through decentered times
Process or number oriented marketing can result in a drift from the purpose of what you’re doing. Product initiatives can kill growth hacking because marketing and growth are proactive rather than reactive. It takes discipline to keep investing in and driving the growth process.
Growth hacking ain’t easy.
You have to make sure your efforts to reach out to customers doesn’t seem like spammy email marketing stuff. And if you’re not careful, your testing can drift you away from the purpose of your business.
But if you get it right, growth hacking delivers the value needed to drive sustainable growth. It helps the right users get value from your product, and provides a coherent idea of ‘value delivery’ that your team can rally itself around. That strengthens your organization’s self-understanding, which will bear many a fruit over time.