Thoughts on Growth — Mar 9, 2018
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1. How much lift are you getting from second-order revenue?
WHY IT MATTERS
“Second order revenue” is typically left out of SaaS LTV projections and CAC calculations, but it could account for a pretty decent chunk of revenue, and that's good to know if you're doing precision-spending to acquire that revenue.
Jason Lemkin uses the term “second order revenue” to describe money that comes in indirectly, from sources like:
- your champion leaves their current company A for a new job at company B, brings your product with them (while your product is still going strong at company A)
- word of mouth between professional peers and friends
- organic virality from your champion inviting coworkers in as additional users (or buyers)
Working on that champion is so important not only because it leads to “second order” revenue expansion via organic growth, as in Jason's examples, but also because it staves off churn.
Brian Balfour has some extra context to share from his days as VP Growth @ Hubspot:
“It is really important to get a 2+ user on board no matter what, because if your champion leaves then it becomes easy to rip out. We saw this at HubSpot. There was a large correlation in revenue retention with instances that had 2+ users.
An important question to ask yourself is, How do you build initiatives around tracking where your champions go and reaching out when they do switch?
You also want to find ways to embed your product enough so that if a new person comes in championing a competing product, that there is enough friction there to keep you in place. The larger the company, the higher the friction. For example, ripping out Workday is incredibly tough for a larger company.
So, there are multiple ways that you can expand you LTV and afford a higher CAC by developing your champions.”
- Don’t Shortchange Second-Order Revenue (Jason's original post on the topic)
- What Are ‘Second-Order Effects’? (a worthy 1 min refresher on the concept of unintended consequences)
- Your First Thought is Rarely Your Best Thought (great read from Shane Parrish on “first order negative, second order positive” effects)
2. “Dark social” accounts for 80%+ of outbound sharing.
Image from The Atlantic, representing traffic sources to TheAtlantic.com
WHY IT MATTERS
“Dark social” refers to traffic that comes from private social channels like email, Messenger, Whatsapp, WeChat... you know, all the places where we actually spend our time.
It gets bucketed with Direct traffic in GA, so unless you're proactively and diligently assigning attribution for each URL, then you likely aren't shedding much light on “dark social.” (sorry, had to!)
Examples of “dark social” channels:
- WhatsApp, WeChat, Messenger, Signal, Telegram
- Native mobile apps like FB and Instagram
- Clicking from HTTPS to HTTP
A recent study claims it accounts for 84% of outbound sharing across the 1bn monthly active users tracked on the RadiumOne network.
This suggests that, more and more, people are discovering content and products from their actual friends not their “Friends” aka semi random acquaintances in their social graph.
How do you get in front of that?
I pinged a couple of folks on this topic, because I wanted to get into both the tactics for addressing dark traffic, and the big picture reason why it's happening (and will probably continue to grow).
Andrew Chen, General Partner @ Andreessen Horowitz, shared some thoughts on dark social from the broader context of virality-based growth:
“There are some interesting points to keep in mind here on acquisition and retention loops:
1. Publishing equals larger spread, but lower conversion rate overall since people don’t know to interact with the content. And a more general publishing action doesn’t generate notifications for the recipients. And it’s also hard to customize the landing page since you don’t know who's hitting it.
2. Messaging via “dark social” is interesting in that 1:1 yields higher conversion, but lower spread — usually 1-2 recipients only. But, it generates a notification. As a result, this can be a more targeted loop for virality or bringing people back. If combined with knowing who the recipients are, you can customize the link and landing page with the recipient’s info.
In the past, when social platforms were more open, a broadcast/publishing loop was strong, especially when coupled with tagging the recipient. Now that these things have been around for 10+ years, it’s weaker and harder to use for viral growth.”
Martijn Scheijbeler, Director of SEO and Growth @ Postmates, who shared two tactical ways to address “dark social:”
“It’s hard to track every source, but a few fixes will help get closer to it.
1. Make sure that for any email that you send out always has UTM tags attached to every link in the email.
Sounds obvious, but most organizations forget about this crucial step, and it usually already solves for a ton of the dark traffic.
2. Another trick that is less known is saving the full referral path that is being used by the user.
It’s something that most web analytics tools are using but aren't always displaying or showing that they’re completely parsing this.
With Google Analytics, I would recommend saving the full referral path. This sometimes displays traffic like app_name://blahblah that is sending traffic. For some social media channels, it'll also help you get insights into where that traffic is coming from.
As long as you add the right filters + additional channels in your analytics tool, you can decrease the percentage of dark traffic.
At Postmates, we see most people ordering directly through the app that they’ve already downloaded, so only a tiny % of traffic comes in dark.
However, when I worked at TNW, that percentage was much higher because more people would share content channels that were dark to us. You have to assess based on your category and business specifics.
By setting up the full referrer path, we saw that a certain % of dark traffic was coming from Android Apps and another certain % was coming from Messenger. UTMs helped address a couple percentages too, which was quite a decent amount of traffic for us. We required every team to use a specific set of tags for their campaigns.”
- Dark Social: We Have the Whole History of the Web Wrong (the original essay coining the term in The Atlantic)
- The Increasing Influence of Dark Social (with some tips on tracking at the end of the post)
3. Everyone wants network effects. Build real identity first.
WHY IT MATTERS
We typically define a “network effect” as the magic that happens when acquiring your Nth user adds value back to your 1st user.
Everyone wants network effects because it creates defensibility and lock-in for existing users, and acts like a magnet for new users.
But it turns out that creating a network effect isn't as simple as throwing a bunch of people onto a platform and asking them to connect or interact with one another.
James Currier, Managing Partner at NFX Guild, has zeroed in on one attribute of the most powerful network effects — real identity.
“It’s no coincidence that the two most valuable online networks in the Western world were also the first networks to achieve stable growth with real names in their profiles — LinkedIn in 2002 for professional profiles, and Facebook in 2004 for broader social profiles.”
James reminds us that although getting people to use their real identities is a higher friction ask, therefore slowing growth in the initial stages, it builds deeper two-way or multi-way engagement in the long run.
“Using real names increases user engagement which causes networks to grow in size, density, and activity — all of which builds a stronger network effect in your company. The more active and committed the nodes on the network, the more powerful the network effects.
Networks with profiles that allow for more anonymity often grow more easily at the beginning because of the lower commitment required. Long term, however, we’ve seen them burn out and produce less value on average.”
- Does Real Identity Matter for Networks?
- The Network Effects Manual: 13 Different Network Effects (and counting)
- Reverse Network Effects: Why Scale May Be the Biggest Threat Facing Today's Social Networks (a worthwhile read for some extra nuance on curation vs scale in a network)
4. Before, during and after you ship...
WHY IT MATTERS
We've been on a user insights kick here at Reforge as part of upping our content game, and, as our growth marketer Lauren Bass recently said to me, “So often everyone in product and marketing SAY how important qual research is, it's usually the first thing to go. People skip it all the time, including me!”
Whether you're in B2B or B2C, it's easy to assume that you know WHY people do what they do because you can observe and measure how they do it. This is especially true the longer you've been at it.
I pinged Darius Contractor, who's a growth engineering leader over at Dropbox, for some more concrete thoughts on “talk to your customers” from a behavioral psychology perspective.
“Customer research is one of your Lifelines as a product leader. It's a chance to narrow down options by getting someone else's perspective. This is especially helpful in times of high uncertainty:
1. seeking Product Market/Channel Fit
2. experimenting on a new surface area
3. or, getting fresh ideas to take your product to the next level
To start off, you should make talking to customers a regular part of your schedule, ideally weekly or monthly. Next, set up channels for feedback: a customer advisory board and an email to users 2 weeks post-reg requesting NPS and feedback. The next level is using User Testing, or another customer research outsourcing group, or getting your own team in house.
It's valuable to revisit customer research when either your flow or user base has changed. Often the things that work for early adopters are not optimal for the early majority of users. Talking to a cross section of your current users as well as your extremes (ie most and less capable of independently using your product) can yield new, actionable insights into how to grow your product.
Oh, and PS — customer service and app store reviews are another great source of inbound customer feedback. You may already have more customer data than you think.”
- Optimize Your Funnel By Getting Inside Your Buyer’s Head (this David Skok talk is a good starting point)
- Reveal your customers' emotional behaviors
- Quantify Your Buyer Personas (what to do after all that talking)
- The freemium conversion ladder and other growth lessons from the Dropbox S1
- New Snap ads coming (and how good are they anyway?)
- Who's buying vs using your Saas?
- When do you need a (dedicated) growth team?
- The data behind discounting
- How to monetize in the direction of value
- How Duolingo aligns its growth vectors (incl. monetization) to hit a $700M valuation
- Google launches Auto Ads for AdSense — what it means for paid marketers
- AMP for email might change everything
- How LinkedIn 1000x'ed their user base with a strategy that most companies are ignoring
- A Quora ads follow-up
- Exponential growth is a myth?
- Content marketing CAC — no longer cheap, and rising at a rate faster than paid
- Virality is decaying, too :-/
- Netflix is moving “personalization-at-scale” up the funnel
- Quora just launched behavioral targeting for its ads
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