When we read about fast-growing software startups, the question immediately arises, how did they do it?
Why do a few companies achieve rapid growth and others don’t?
And are there skills or techniques that a larger software company could learn from these successful startups?
Let’s start with the first question.
Who will lead the growth charge?
In 2010 Sean Ellis observed that many startups hire the wrong person to lead their growth charge. They tend to hire an experienced VP of Marketing. But Sean says they need something else at this stage of the startup.
After product-market fit and an efficient conversion process, the next critical step is finding scalable, repeatable and sustainable ways to grow the business. If you can’t do this, nothing else really matters.
So rather than hiring a VP Marketing (to establish a strategic marketing plan, build and manage the marketing team, manage outside vendors, etc.), I recommend hiring or appointing a growth hacker.
What do these growth hackers do? Sean says they have two characteristics:
The common characteristic seems to be an ability to take responsibility for growth and an entrepreneurial drive (it’s risky taking that responsibility).
An effective growth hacker also needs to be disciplined to follow a process of prioritizing ideas (their own and others in the company), testing the ideas, and being analytical enough to know which tested growth drivers to keep and which ones to cut. The faster this process can be repeated, the more likely they’ll find scalable, repeatable ways to grow the business.
In other words, the growth hacker must have tremendous will and drive to succeed. And second, the growth hacker must use a disciplined, exploratory, and scientific approach to rapidly test new channel ideas that could lead to growth.
Diversion: What is hacking anyway?
Before going any further, let’s clarify what hacking means.
Today the popular notion of hacking is restricted to activities of the person who breaks the security of a programmable system. But Richard Stallman, who was part of the original hacking culture at MIT in the 60s and 70s, explains hacking this way:
It is hard to write a simple definition of something as varied as hacking, but I think what these activities have in common is playfulness, cleverness, and exploration. Thus, hacking means exploring the limits of what is possible, in a spirit of playful cleverness. Activities that display playful cleverness have “hack value”.
Although sometimes hackers would find a way around “silly rules that administrators like to impose,” bypassing security was only a small part of the original hacking culture.
The most important characteristics of the hacker were “people who enjoyed exploring the details of programmable systems and stretching their capabilities, as opposed to most users, who prefer to learn only the minimum necessary.”
So it is with the best growth hackers. They have studied the details of online marketing and have practiced it in many environments. They enjoy looking for ways to stretch the capabilities of online marketing. They look for new channels and different ways to exploit them. They occasionally bend some rules or common practices, but they intend no harm. They only seek competitive advantage.
Isn’t growth hacking just another term for online marketing?
Recently Muhammad Saleem wrote that “growth hacking is bull.” He said that the term “growth hacker” could just be another term for online marketing, the blocking and tackling that all software companies must do to align with the buyer’s journey, add value at each stage of their journey, and convert buyers into customers.
He makes two great points. First, it’s critical to develop a system of online marketing. To refine and improve it every day. And second, that you can never expect to rely on a few hacks to be successful.
Mark Suster agrees that blocking and tackling of online marketing are vital skills for a startup to learn.
But he makes the additional point that startups must do more than the fundamentals. Why is this?
What I mostly see are companies trying yesterday’s playbook trying to drive extra-ordinary performance today. This. Doesn’t. Work.
Companies achieve extra-ordinary growth when they “continually testing new channels for growth.”
See the Internet and now the mobile ecosystems are one, big competitive playground where globally some of the smartest minds are focused on how to make money by driving user growth better, faster and cheaper than others.
The “smartest minds” are looking for unexploited channel opportunities with a lower cost of customer acquisition. They exploit the arbitrage opportunity that customers can choose between the new channel and the established, expensive channels their competitors are using.
Some examples of the ways growth hackers have stretched existing channels or found new channels
Growth hackers have used a variety of methods to make it easy and attractive to become a customer. In each case, they work to find better distribution, either for their product or for their media.
(Or, if you are a fan of the 4Ps of marketing, promotion and place.)
- New distribution channels
- Quickly recognize a new channel and jump on it — Zynga and the new Facebook platform.
- Use social engineering to create demand for your channel. Create wait lists that build pent up demand — Mailbox, Google’s Chrome book.
- Make it easy for people to switch to your channel – AirBnb who made it simple for advertisers to cross-list their rental with both Craigslist and Airbnb. HotMail famously used the “This mail sent with Hotmail, join Hotmail now” to ask people to switch from their current email to Hotmail’s free, online service.
- Existing distribution channels
- Give people access to an existing channel by combining forces with them – Individuals want to be visible in Google, but have no domain strength. LinkedIn wanted more users, so they lent their domain strength to users and made their profiles visible on Google search pages.
- Lower your price to a level where it’s easy for customers to decide to buy — and to tell their friends. Amazon’s prices on books were lower than prices at bookstores. In a B2B market, Fog Creek Software used this strategy to grow with almost no other marketing and sales efforts.
- Pay people to use your channel. Or pay them to recruit others. Or both. PayPal, Dropbox.
- New media channels
- Make it easy for people to use your new media channel to communicate with others. Twitter knew that people who followed more than 30 people were more likely to stay. New Pinterest users were automatically given a group of high-quality users to follow to help people get started and avoid the cold-start problem.
- Existing media channels
- Invest in a channel when others will not – “Mint focused on building out a unique personal finance blog, very content-rich, that spoke to a young professional crowd that we felt was being neglected. Eventually the blog became #1 in personal finance, and drove traffic to the app.”
- Make it easy to cross-post to existing channels. Instagram did this by making it easy for people to post on Instagram and on both Twitter and Facebook. This cross-posting also brought Instagram to the attention of many more people.
You might think growth hackers and established companies aren’t a good fit.
Established companies by definition have long since passed their rapid growth phase. Though they are still growing, it is not through relentless focus on creating the first distribution channel. It is more likely through a combination of product extensions, channel expansion, and acquisition. They have an installed base and a large organization.
Predictability and stability are more important to established companies than people who will stretch capabilities and push the envelope.
An established company can’t optimize on one channel at the expense of others. It has to keep all the balls moving forward at once.
You can still apply growth hacking attitude and methods in established companies
But established software companies have some things going for them that startups do not. Lots of resources to apply to new opportunities. Organizational experience with getting things done.
Of course, they have some downsides also. Inertia. Organizational conflict. Turf protection.
But that creates opportunity for you
This makes for opportunities within a larger organization for growth hacking. And an ambitious marketing person can look for those growth hacking opportunities and exploit them.
Of course your system for online marketing should be a well-oiled machine before venturing into growth hacking territory.
The key to growth hacking is to look for opportunities to improve where you have constraints in the flow of customers through their buying stages. Focus on these bottlenecks.
Here are some examples:
- Tradeshows – Most B2B companies are not happy with the return they get from their investment in tradeshows. Lance Kalish and Ido Leffler of Yes to Carrots have described how they learned to dominate tradeshows. They learned how to be more strategic, to link all the pieces together, and to follow up, follow up, follow up. You might have to bend a few rules, but trade shows are fertile ground for growth hackers at established firms.
- Email marketing – Email marketing is still the best and most profitable online channel, especially for B2B companies. As you build your email list and create campaigns at various stages of the customer lifecycle, you can send valuable material to people who have told you they want to receive it. You can educate and build trust. You can move them through their buying stages. But most companies, especially larger ones, do a poor job with email. That just means another competitive opportunity for you!
- Onboarding – When people register to try your software, they are showing serious interest. This is the time to watch their behavior carefully and provide as much handholding as they need. You can do this automatically by instrumenting your software to see what they do. Then let their behavior trigger responses. The responses could be an educational email sequence, the opportunity to chat live with a real person, or to watch a video. You’ve made an investment to help your buyers get this far, don’t lose them at this sensitive transition.
Growth hacking is not restricted to startups looking for their first distribution channel. Established software companies can practice growth hacking too.