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.

I first became a fan of funnel optimization at one of my early startups where we had hit a wall trying to develop scalable customer acquisition channels.  We decided to temporarily stop trying to find new customer acquisition channels and focus instead on improving conversion rates.  A few months later we resumed channel building and were able to scale the same previously tested channels to support 100X the marketing spend with the same target ROI per dollar spent.  Beyond the clear benefit of enabling scalable marketing campaigns, the improved user experience also resulted in a multifold increase in free organic growth.  User growth immediately hockey-sticked and years later still  hasn’t diminished.  All the while, the company maintained cashflow positive results.

These benefits probably have you chomping at the bit to start your own optimization program. But be careful, optimization can easily kill a startup when not done right (or at the right time).

Here are the three most common optimization mistakes startups make:

1) Premature optimization – Optimization is about improving the path that users take to reach a certain destination within your website. For most sites it’s ultimately about getting people to experience and buy your product. While this seems like an important goal from the beginning, it’s not. If the value of your core product is weak, doubling the percentage of users that get there won’t help much. And it will actually hurt you because every unit of effort put into optimization is one less unit that you can put into improving your core product. Products that don’t become a “must have” almost always fail.

My recommendation for startups is not to begin optimizing until at least 40% of your randomly surveyed users say they would be “very disappointed” without your product. That doesn’t mean you shouldn’t try to have a great first user experience, rather it means you shouldn’t start iterating flows until the core product meets this threshold.  The only exception to this is if your value proposition will increase because of a network effect (like eBay). I’ll try to write a post on this scenario soon.

2) Not being deliberate –To execute full funnel optimization you test multiple changes at every step in the acquisition process. Since every change is also an opportunity to screw things up it’s extremely important to measure the actual results of a change. Unfortunately traditional analytics programs aren’t helpful here since they don’t track specific user cohorts moving through the funnel (AKA groups of users). In the early startups I worked with we spent months building systems internally to track conversions at the user level. Fortunately “off the shelf” systems are now cropping up that make user level funnel tracking much easier (I’ve been advising KISSmetrics on such a system for over a year and I’m now using it in a couple projects). With the right system you can track your “measures of success” and roll back any changes that havea negative effect on these metrics.

This presents a new problem. Anyone with a basic understanding of statistics will realize that optimization is a numbers game. If you test enough things you will definitely find something that improves your key measures. That’s the theory, but the reality is that you’ll never get past the first few tests if the early ones don’t yield improvements. People quickly lose faith in the process. Therefore it is essential to vet every test idea before asking the development team implement it. Prioritize test ideas so that the easiest and/or most likely to improve results are implemented first.

3) Killing the love – One thing that is rarely measured in an optimization project is a reduction in the core value perceived by your most passionate users. Your ability to deliver an experience that creates passionate users is your most important asset as a business and must be protected. It can be improved, but it must be done very carefully. The first step in protecting it is to understand it. I never attempt an optimization project without first doing a project that helps me understand the use cases of the most passionate users. After this initial project, which I combine with messaging optimization, I am in a much better position to safely optimize the full conversion funnel.

Effective optimization requires the right tools, qualitative research/understanding and a systematic approach to testing. When executed properly it can easily result in 2X – 10X improvements in conversion rates. No business will come close to its potential without a concerted optimization effort, but be careful to avoid the mistakes listed above.

For more context on where optimization fits into the overall startup marketing priorities, see this post on The Startup Pyramid.