Broadly speaking, a startup goes through three phases of growing.
The goals, metrics, channels, focus, team structure, everything evolves and changes as you move through these three phases. Knowing where you are in this path helps you understand what you should be spending your time on. Focusing on the right tactics at the right time helps move you through this path efficiently and successfully. I’m going to take some very broad strokes to help you understand the differences of each phase, but understand this can vary depending on your type of business.
The traction phrase is where more startups are.
The one and only goal should be to find product-market fit among some audience segment. Part of this is understanding how large that audience segment is to make sure you can build a compelling business.
Plain and simple your eye should be on retention. If your product does not retain users, there is no point in growing the top of the funnel. In a future post (link) I’ll talk more about how to do retention analysis at this stage of the business.
The primary goal is to just turn on the faucet and get a steady/consistent stream of users coming in the front door. You can not run experiments or understand product/market fit with out some minimal volume. Your resources are very limited at this stage. So resources spent increasing volume past the level you need to understand product/market fit are resources that could be spent understanding retention. It’s a waste.
In addition, your CPA will likely be greater than LTV. Mostly because you don’t really know what your LTV is at this point. That is fine as long as you aren’t spending so much you are putting the runway of the company in jeopardy. Optimizing CPA and LTV come after finding P/M fit.
Try a few to find that steady stream, but once you find one that provides that stream focus in. Managing multiple channels creates overhead. With limited resources you want to keep overhead at a minimum. Avoid taking a “shotgun approach” and dibbling/dabbling in a bunch of channels at once. Go through the thought process to choose 2 - 3 channels as your leading hypotheses.
Focus on large macro optimizations. Try big changes in messaging, user flow, target audience, etc. Don’t get caught in the trap of focusing on micro optimizations such as button colors, word tweaks, etc. There are certainly cases where tiny tweaks have lead to big results. But they are more the outlier rather than the rule. Big changes will lead to big insights.
You should have one person leading growth (probably a founder) who is thinking about it 80%+ of their time. That person probably needs part time support from a developer and/or a designer.
The transition phase is like the awkward teenage years. There are going to be some growing pains. But this is where you start to lay the foundation of a team, tools, and process to really crank on growth.
The primary goal in the traction phase is to identify, define, and understand the growth levers for your business. For example, if your success metric is DAU’s, you need to uncover the variables in your product and marketing that lead to an increase in DAU’s.
The primary metric to start tracking is growth rate on either a weekly or monthly basis. Your growth rate will be your guiding star from here on out. Part of that is to start paying attention to your CPA and LTV. You should finally have enough data to have some idea of what your LTV is. Your payback period should probably be less than 3 months otherwise you’ll have cash flow issues at this stage.
Now is the time to start turning up the faucet. But be careful and pay close attention to retention as you turn up the faucet. You may find that retention doesn’t hold as you turn up volume.
Now is not the time to diversify. Now is the time to focus. Identify the one channel that has the most ceiling room and double down. Multiple channels creates overhead. You want to minimize that overhead as you build out your growth team and process.
This advice may sound counter intuitive. The goal right now is growth rate. The fastest way to increase growth rate is to expand on something that is already working (until you’ve saturated the channel) rather than trying new channels that you know nothing about.
Most large companies get 80% of their growth from one channel anyways. Zynga —> Facebook, LinkedIn/Facebook —> Virality (via email), Instagram —> Virality (via sharing), Hubspot —> Content Marketing, TripAdvisor —> Search. Do I need to keep going?
During the transition phase there are typically large macro optimizations that still need to be done. But as you move from the transition phase to the growth stage micro optimizations will come into focus.
During the transition phase you should start to build out a dedicated growth team. This typically involves one growth leader. Either a PM or VP of Growth. The supporting team varies depending on your business and channels but will typically consist of a developer and designer at a minimum. Possible additional resources may be a data scientist and channel specific resources (i.e. a content marketer/writer if you are doing content marketing).
Lets do this!
Simply put, the goal is “up and to the right.” Focus on your growth levers to tweak and crank them up.
Growth rate is still the primary focus. But one other metric comes into play at this stage. Payback period. Payback period typically increases as a company grows as channels become saturated and competitive and the company’s capital restraints become looser. The larger the payback period you can afford, the more channels and options you typically have at your disposal.
If the analogy for traction and transition was a faucet, the analogy for the growth phase is a firehose. Turn up the volume as much as you possibly can.
As mentioned before, most companies get 80%+ of their growth from a single channel. So a lot of your time in the growth stage will still be spent on one primary channel. But a few things happen in the growth stage. One, your growth process should be humming like a machine. Two, you should have more capital and team resources available. Three, you may start to saturate your core channel. At this point it is time to diversify your channels.
Micro. At this point you probably know the big things that work for your audience. So this is the time to focus in on micro optimizations. Small changes across a very large base can have meaningful results.
The growth stage is where you team starts to really expand. It typically consists of one growth executive, multiple growth PM’s, with each PM leading a team of developer, design, data, and channel specific talent.
Subscribe to my email list to get exclusive advice and tips on growth. Follow me on Twitter or Quibb to see recommended reading on growth.