Course Curated By: Dr. G. Danford (London Business School MBA, Helsinki School of Economics PhD)


Advice Before Starting

The only proven method for measuring learning is to take a pre-quiz and post-quiz of the content.

[WpProQuiz 6]

Content: Scaling Growth

  • Why retention matters most for growth
  • The ‘North Star’ concept of growth
  • The ‘Magic Moment’
  • The ‘Sean Parker’ virality model
  • The ‘Two-sided Marketplace’ virality model
  • The ‘K Factor’ model
  • The three keys to effective SEO

 

Learning Moments

  • To survive the ‘Early Stare’ struggle, you need to, (a) make sure there is enough cash and, (b) clearly establish there’s product/market fit.
  • If retention metrics are not favorable, don’t go into growth tactics, virality mode, or hire a growth hacker (focus on getting product-market fit).
  • Retention is the single most important thing, and it comes from: a great idea, a great product to back up that idea, and great product-market fit.
  • What is the ‘magic moment’ for your product/service, and how to get people connected to that ‘magic moment’ as fast as possible?
  • The founders needs to be focusing on the ‘North Star’.
  • Choosing a random co-founder or someone you don’t have a long business history with, will result in trouble.

 

1. Startup Life-cycle

Every business goes through regular and periodic stages of growth, followed by decline. This pattern has traditionally been referred to as the business life-cycle. Les McKeown (CEO Predictable Success) recommends a way to take the startup from days of struggle to scaled success during each critical stage. Remember that 80% of businesses fail. Therefore, if you want your startup to succeed, there is only one right strategy: stop being one as quickly as possible! Do everything you can to get out of the early struggle stage quickly, and moving towards predictable success.
  • Stage 1 Early Struggle – a stage where two-thirds of all startups won’t make it through to the next stage. To avoid that outcome you need to, (a) make sure there is enough cash to keep going and, (b) clearly establish that there is a market for your product or service (product/market fit).
  • Stage 2 Fun – a stage that requires a Visionary to drive the business, and a ruthless Operator to deliver. Your key focus moves from cash to sales, and the business builds exponentially in a time of rapid, second-stage growth.
  • Stage 3 White Water – a stage during  which the Visionary and the Operator can no longer continue to improvise in what they are doing. The degree of complexity required reaches a tipping point. Systems and processes are required. A Processor  (policies, systems etc.), is needed: someone who lives by spreadsheets. Strong implementation actions are also needed, and actions to make them stick.
  • Stage 4 Predictable Success – a stage during which a business can scale successfully. This is the most critical stage in your organization’s growth. You need to set and consistently achieve your goals and objectives with a predictable and consistent degree of success. At this stage there are often weak-signals suggesting a decline in creativity, risk taking and initiative.
  • Stage 5 Treadmill – a sub-optimal stage.  At this point systems and processes begin to choke entrepreneurship, risk-taking, adventure and creativity. Treadmill is characterized by too much emphasis on data, and not enough emphasis on actions.
  • Stage 6 The Big Rut – a stage from which there may be no turning back. High market share + Prolific revenue stream + Paternalistic management + Denial = Big Rut. At this stage processes and administrative procedures are more important than actions or results, and the organization loses its ability to be self-aware.
  • Stage 7 Death…a final chance at life through bankruptcy or acquisition, before the organization dies in its present form.

2. Startup Roadmap

In the early stages of a startup, the roadmap gives directions for both the short-term and long-term. The roadmap can assist in completing necessary tasks and also anticipating potential challenges. A business-driven roadmap is all about asking ‘why.’ Asking ‘why’ gets to the heart of customer and market motivation. Aligning the “whats” and ‘hows’ of business to the ‘whys’ drives the product, supports team motivation and ultimately success.

Steps In Roadmap

  • Ideation.
  • Funding.
  • Validation (with outlier customers).
  • Creation – Pivot? (or iterations).
  • Repeatability (business model reworking, surviving near-death).
  • Scalability (team upgrade necessary?).
  • Profitability? (growth vs. leverage).
  • Predictability.

 

Roadmap (3:00)

Michael Skok, Harvard i-lab

NOTE: this video will start and stop at the pre-assigned times 10:55-15:37


 

3. Retention

Alex Schultz (VP of Growth, Facebook)

Facebook’s monthly user base is now larger than the population of China. Monthly active users (MAUs) were 1.44 billion in March 2015, +13% year-over-year (mobile 1.25 billion). 

What do you think matters most for growth? According to Alex Schultz, retention is the single most important thing for growth. If you end up with a retention curve that is asymptotic to a line and parallel to the X-axis, you have a viable business, and you have product-market fit for some subset of the market. However, most companies that you see fly up, and then their retention curve slopes down toward the axis, in the end it intercepts the X-axis.

In order to measure retention what you measure is all of the users who have been on your product from day 1 …day 30…etc. and the percentage of them who are monthly active for each consecutive day. But then you look at days 31 etc. This allows you, with only a small number of customers, to get a real idea of what the retention curve is going to look like for your product. If it is asymptotic, it’ll get noisy towards the right side of the curve. Therefore, you must be able to get a handle on whether the curve flattens out or does not. If it doesn’t flatten out, don’t go into growth tactics, virality mode, or hire a growth hacker. Rather focus on getting product-market fit. In the end if you don’t have a great product, there’s no point in executing more growth, because it won’t grow. The number one problem Alex has seen inside Facebook for new products, and the number one problem he’s seen for startups, is they don’t actually have product-market fit when they think they do.


 

4. Growth Rate

Different verticals need different terminal retention rates for them to have successful businesses. If you’re in eCommerce and you’re retaining on a monthly active basis 20% to 30% of your users, you’re going to do very well. If you’re in social media with 80% retained, you’re not going to have a massive social media site. So it really depends on the vertical you’re in, and what the retention rates are. Retention is the single most important thing for growth, and retention comes from having a great idea, a great product to back up that idea, and great product-market fit.

How do you attack operating for growth? Alex says, the whole company should be the growth team. However, you need someone to set a ‘North Star’ (where the company wants to go), and that person needs to be the person leading the company and who is focusing on the ‘North Star’. If you’re a messaging application, sends is probably the single most important number. Inside Airbnb they talk about ‘nights booked’. For eBay, North Star was gross-merchandise-volume (how much stuff people actually buy through eBay)? However, everyone externally tends to judge eBay based on revenue.

 

Magic Moment

How do you drive to the ‘magic moment’ that gets people hooked on your service? Alex says that the number one most important thing in a social media site is connecting to your friends. Without that, users have a completely empty news-feed, and clearly they’re not going to come back. So for Facebook the ‘magic moment’ is when a user sees their friend’s face. For Linkedin, Twitter, and WhatsApp, the number one thing all these services look to do is show you the people you want to follow, connect to, send messages to… and to do that as quickly as possible. In those verticals the ‘North Star’ is mostly what matters. However, Alex says that every startup should think about what the ‘magic moment’ is for their product/service, and get people connected to that ‘magic moment’ as fast as possible, because then they can move up to where the retention rate is asymptotic. A startup can go from 60% retention, to 70% retention easily, if they can connect people with what makes them stick with the site (magic moment).

 

Rocket Ship: Alex Schultz (3:30)

NOTE: this video will start and stop at the pre-assigned times 9:14-11:55


 

5. North Star

When operating for growth, every startup really needs to think about what is the ‘North Star ‘for their company: that one metric everyone in the company is thinking about, driving product towards it, and all their actions are moving that metric up. If that is the case, in the long-run those companies will be successful.

Alex says you should pick the one metric that fits your business and you know that you’re going to stick with it for a long time. Therefore, it’s essential to have a ‘North Star’, and to know the magic moment when each user experiences that moment. Alex thinks we should also think about marginal users, and not only think about yourself. These are the most important points to keep in mind when operating for growth.

The last important area is tactics. For companies who have found their niche market that the’re going to have a monopoly inside that (the mousetrap market), and their mousetrap is better than anybody else s for that market, what typically happens in Silicon Valley is everyone thinks marketers are useless. This is because the prevailing thought is; ‘build it and the customers will come.’ Alex says that is the mantra in the Valley, but he doesn’t believe it’s true; He believes you actually have to work hard to get customers to come, and marketing is a key part of that.

 

North Star: Alex Schultz (2:00)

NOTE: this video will start and stop at the pre-assigned times 19:22-21:11

 


 

6. Tactics

  • North Star’ Focus: Facebook is focused on achieving 10 friends in 14 days for every user.
  • Magic Moment: How to Get users to the magic moment?
  • Internationalizing: This is an important barrier we needed to knock down, and knocking down barriers is often important to think about when achieving growth targets. Facebook have managed to get more than 104 languages translated by Facebook for Facebook, 70 of those are translated by the community. Facebook took the time to build something, that would enable them to scale. Building for what the world is today is an easy mistake to make, and it’s a lot of what other social networks did. Facebook built a scalable translation infrastructure that actually enabled them to attack all of the languages, so they could be ready for where the future is going to be.
  • Virality: Alex shared Sean Parker’s virality model based which was based on three things. First, payload – how many people can you hit with any given viral blast. Second, frequency – how many times can you hit them. Third, conversion rate – what is conversion. This gives you a fundamental idea of how viral a product is. Everyone thinks that Facebook was a viral marketing success, but according to Alex, that’s actually not how it grew. It grew through word-of-mouth virality, because it was an awesome product people wanted to tell their friends about it.

Another way to look at virality is as a two-sided market place. For example, you get someone to contact import. Essentially you want people to sign up to your site and to import their contacts. You want to then get them to send an invite to all of those contacts – ideally all of those contacts-not just some of them. You want a percentage of those who are contacted to click and sign up. If you multiply all the percentages/numbers for every point in between the steps, this is essentially how you get to the ‘K Factor’.

Example: 100 people get an invite per person who imports, 10% of those click, 50% sign up, 10 to 20% import, and you’re going to be at 0.5 – 1.0 K factor, and you’re not going to be viral. However, the really important thing is still to think about retention and not so much about virality. Think about virality after you have a large number of people retained on your product per-person who sign up.

  • SEO: There are three SEO things every Internet startup needs to think about. The first is keyword research. Alex says that people do this badly all the time. First you must do your research about what you’re going to go after (what do people search for that’s related to your site, how many people search for it, how many other people are ranking for it, and how valuable is it for you… supply, demand, and value?). The next most important thing is links. Page ranks is essentially how all SEO is driven, and even Google is based on authority. However, the single most important thing is to get valuable links from high-authority websites if you wish to rank in Google. Then you need to distribute that ‘love’ inside your site by internally linking effectively. The last thing is that there’s a whole bunch of table stakes stuff for XML sitemaps, and making sure you have the right headers.
  • Message Delivered: The number one thing to think about regarding email, SMS, and Push Notifications is that you have to get them delivered. Beyond that, it’s a question of open rate, click rate. Alex says you must think about what is the compelling subject line you can place, so people will open the email, and how then to get them to click when they visit? The critical thing to consider when sending; emails, SMS, and Push Notifications, is what notifications should you be sending. The second thing you need to be thinking about is how you can create great triggered marketing campaigns.

    ‘Facebook just worked really, really hard, and we executed fast. I strongly encourage every startup to do that. Growth is optional’.

     

Hotmail & PayPal Virality: Alex Schultz (3:00)

NOTE: this video will start and stop at the pre-assigned times 29:31-32:23


 

Conclusions

  • Do everything you can to get out of the early struggle stage.
  • What do you think matters most for growth? RETENTION!
  • The ‘North Star’ is mostly what matters.
  • Every startup should think about what their ‘magic moment’ is, and to get people connected to that ‘magic moment’ as fast as possible.
  • Find your niche market and have a monopoly inside it.
  • Work really, really hard, and  execute fast.
  • For those founders who are not technical, they probably need a technical co-founder.

 

[WpProQuiz 6]

Slide Deck:

Growth

CONTENT: Customer acquisition (Kevin Hale (Partner, Y Combinator), growth (dating & marriage), first-time interactions, support-driven development, injecting values into team, SDD, discipline of market leaders and more. LINK TO 7/20 BELOW

Presenter: Kevin Hale (Partner, Y Combinator)