This is the first post one in a four post series co-written by Brian Balfour, Casey Winters, and Kevin Kwok. Subscribe here to get the rest of the series. To go deeper on this concepts, join us for one of our upcoming fall programs - Growth Series, Deep Dive: Retention + Engagement, or Deep Dive: Growth Loops + Models.
Founder/CEO @ Reforge. Former VP Growth @ HubSpot.
Growth Advisor, Former Pinterest, Grubhub.
Former Greylock Ventures.
Not growth at all costs, bad unit economics, dark patterns, spam your users, shark fin growth. But authentic growth built on a solid foundation of retention and engagement.
This advice isn't new:
“Poor distribution - not product - is the number one cause of failure.” - Peter Thiel
“The best product doesn't always win. The one everyone uses wins” - Andrew Bosworth
“Most value creation takes place not at the startup phase, when new companies are formed but at the “scale-up” phase, when a select number of these companies grow at dizzying pace.” - Reid Hoffman
We've gone through three phases as a tech ecosystem. The early phase in the 90's was all about “Can it be built?” The main risk was technology risk. Mid 2000's we transitioned to the second phase, where the main question was “Can you build a great product?” Then the tools and technology got better and cheaper. Tech and product risk decreased, and distribution risk increased.
Let's make this clear. We aren't transitioning into the the third phase of distribution risk. We are in it!
Yet, it still seems we are stuck one phase behind. We've seen countless presentations, blog posts, Q&A's where the answer and guidance to every growth question seems to be “Build great product.”
The ecosystem is littered with deaths of great products because they never got distribution. One of many reasons is Product Channel Fit. These get overlooked though. Andrew Bosworth, VP @ Facebook has probably the best explanation for this:
“Later we all tell ourselves a story about why and how that product was really the best all along in an impressive display of survivorship bias.”
But let's think about it from the reverse direction. There are plenty of products that people consider “terrible products” that are $1 Billion companies. How many users of Salesforce have you met that proclaim they think Salesforce is a “great product?”
We aren't saying you shouldn't build a great product. Our point is that “build a great product” receives far more weight, discipline, and thinking then “build a great growth strategy.”
Why Growth Wins
It is worth digging into why growth wins. There are a lot of reasons why, but here are four:
Distribution = Defensibility = More Distribution
More distribution leads to more defensibility which leads to more distribution. There are two reasons for this.
From the company perspective, the more distribution you have, the more you can leverage it into other products and features to gain more distribution. You muscle competitors out of the market. Google has been doing this for years, but the more recent visceral example is Facebook copying Snapchat's features.
This is also true for B2B. HubSpot over recent years has used their stronghold of mid market customers in the marketing automation space and massive content presence to expand into the crowded but lucrative CRM, Sales Automation, and most recently Customer Support verticals.
We can also look at this from the user perspective.
“Habit and user expectation remains a stronger moat than people appreciate." - Ben Thompson
Habits are extremely hard to break. That goes for diets, a work out routine, and our use of various products. The switching costs of when a habit has been built are consistently underestimated.
One of the most defensible things you can have is a large distribution base that habitually uses your product.
Growth = Resources = More Growth
Between the three of us, we've sat in hundreds (maybe thousands) of company pitches across multiple VC firms. If there is one thing that trumps everything, it is growth. Growth very simply attracts capital and when applied well, creates more growth.
The same dynamic occurs with attracting top talent. The market for top talent has grown increasingly competitive with no end in sight. With more and more software startups to choose from, compensation aside, the best talent typically wants a few things:
- Validation that “it's working.”
- Opportunity for personal professional growth.
- To work with other talented people.
All of these stem from a product and company that is growing. Similar to capital, when applied directly more talent leads to more distribution and the cycle fuels itself.
This isn't just at a company level, it applies internally as well. Projects that are seen as growing or having a direct impact on growth have capital, attention, and people flow to them. If you want to position yourself well internally, find a way to to work on a project that is growing.
Growth = Learnings = More Growth
Teams that learn more about their users, product, and channel and apply those learnings win over the long run. The more users and engagement you have, the more experiments you can run, and the quicker you can get feedback to learn.
Growth = More Growth
The best companies are built on a system of compounding loops. The returns you get from these compounding loops are typically a function of the existing user base. Just like in finance, where you earn more interest dollars the larger the base principle is. We'll talk more about this concept in a future post, and have the Deep Dive: Growth Loops + Models program dedicated to it.
The Game Has Changed
Distribution HAs Become More Competitive and Expensive
Distribution across every major channel has become more expensive.
- According to ProfitWell Content CAC has grown 50% in the past 5 years.
- Tons of companies have seen costs for Facebook Ads drastically rising. CPC's increased 171% just in 2017.
- CTR's on organic results on page 1 in SEO decreased 25% on desktop and 55% on mobile in just 2 years.
On top of all these, we've seen salaries across all roles in technology companies including sales and marketing roles increase over the past few years which directly flows down to your fully loaded CAC. So what is going on here?
- The number of new major channels has decreased as we've seen consolidation.
- Those channels have tightened control in an effort to monetize.
- The number of companies that are competing in these channels has increased.
The three combined equal more competition and higher costs.
The Lifecycle Of Channels/Tactics Has Accelerated
In the Growth Series we touch on how every channel goes through a lifecycle of new, to golden age, to saturation and how to predict and plan your strategy around it. This lifecycle is evident at the macro level (channels) and the micro level (tactics):
But the bigger point is that due to an increase and competition, the age of a lifecycle has decreased. As a result, every team needs to:
- Understand where they are in the lifecycle for their strategy.
- Expect more change and adapt more quickly.
- Move away from a collection of tactics, to thinking about growth in a more defensible way.
Increase In Accessibility Of Data
Let's rewind 10 years ago. If you wanted to implement a robust data and analytics solution you basically had three options:
- Google Analytics
- Double Click (and some other big enterprise solutions)
- Build Your Own
No matter the solution you were spending tons of money and/or ending up with an ineffective solution. Mixpanel, Segment, Amplitude, Heap, Looker, Chartbeat and many more hadn't been founded yet. Let's fast forward to today:
With the slew of data tools, data has become cheaper and more accessible. More people in the org have data at their fingertips especially those working on growth initiatives. We are at the tip of the iceberg on new methods of personalization, machine learning, and deeper insights via data to drive growth. Yet, most companies are still stuck in the Data Wheel of Death.
The Blurring Lines Of Product/Engineering/Marketing/Sales
We use to have very clean lines between marketing, sales, and product. Customers experienced the product in that segmented way. But this is not how software and technology products spread from the customer's point of view.
Consider what a user might experience in a bottoms-up SaaS product like Slack or Dropbox, or some of the new players like Front, Airtable, Loom and Pipefy.
- A user is likely to first experience the product through some invite via collaboration feature.
- That user then signs on and experiences the product.
- They then go through an activation flow to create something themselves.
- They then hit an upsell in the product, schedule a call with a salesperson, and buy some seats.
- Then they roll it out to some people within the company.
It isn't just bottom-ups SaaS. It's all software companies. Data, technology, and product play a much larger role in outcomes like acquisition, retention, and new sales. The lines have blurred, but most of orgs are still in silos.
We see this in the Retention Series. A company needs to improve retention, they assign a marketer or two to own the metric, the marketer can only change some emails to drive the metric, so they get frustrated because they can't get product and engineering resources. This is a lose-lose situation for that employee and for the company.
Marketing/sales begging for product/eng resources, product/eng saying marketing/sales don't understand product, divides between product and growth teams. Whatever it is, it stems from the fact that all these lines are blurring and we need a different approach.
Growth Wins + The Game Has Changed = ????
We know that growth wins and we've seen major foundational changes. The combo of these two might feel like gloom and doom. That isn't the message at all. It just means we need to embrace the change and develop new frameworks and tools to approach the discipline. In the next few posts we are going to walk through:
- What a system towards growth that embraces these changes looks like. The term “Growth” has been slapped on everything causing mass confusion. We'll wipe the slate clean and talk about a foundational approach.
- Funnels are dead. The funnel framework was a good starting point, but we need to move beyond it. Funnels do not represent how software companies actually grow. We'll introduce a new framework.
- The new tool/skill every practitioner needs to know to properly do things like set goals, prioritize, and make investments... the Growth Model.
Sign up here to receive the rest of the posts in the series. If you or your team are practitioners with 3+ years of experience, check out one of our upcoming Fall Programs:
- Growth Series - A comprehensive program on how to construct and operate a repeatable, predictable, and sustainable growth machine. Created and hosted by Brian Balfour (former HubSpot) and Andrew Chen (Andreesen Horowitz and former Uber).
- Retention + Engagement Deep Dive - A deep dive on how to measure, analyze, and improve retention and engagement. Created and hosted by Casey Winters (former Pinterest/Grubhub), Shaun Clowes (Metromile and former Atlassian), Brian Balfour (former HubSpot) and Andrew Chen (Andreesen Horowitz and former Uber).
- Growth Loops + Models Deep Dive - One of the most impactful frontier topics, this program dives deep on establishing compounding, defensible growth loops and how to model them quantitatively. Created and hosted by Casey Winters (former Pinterest/Grubhub), Brian Balfour (former HubSpot) and Kevin Kwok (former Greylock Ventures).