5 Questions Startups Need to Ask to Assess Their Growth
Every founder looks at growing his startup fast and efficiently. Given the data, customers and targets, the growth strategy needs to fit the stage at which the startup is.
“How fast can we grow” asked a founder I met recently. He had just shared his trajectory for the past 6 months. Things were looking good at first, but not so well once I saw that more than 90% of the growth came on the back of aggressive cash backs and high Customer Acquisition Cost (CAC). The referral rate was low but once the users came on board they were transacting. Though some things were working well forecasting sustained growth from this position was very tough.
Growth is a fundamental characteristic of a startup
Every founder looks at growing his startup fast and efficiently. Firstly, a startup needs to develop a product targeting a huge market. And secondly, it needs to crack distribution rapidly before the incumbents can innovate. Growth for the sake of growth can be a death knell if it is not well thought out. Given the data, customers and targets, the growth strategy needs to fit the stage at which the startup is.
The early-stage startup founder I spoke to, was driving growth using a strategy that a typical series C startup would use. Early-stage startups do not have enough data handy, they are better off talking to customers or conducting user surveys to get insights and drive growth strategy rather than extrapolating the small number of data points they have gathered.
To begin with, early-stage startups should consider asking themselves these 5 questions before embarking on their growth strategy:
1. How’s The Product-Market Fit?
Founders are often misled by good acquisition numbers into thinking that they have a product-market fit. Engagement and retention tell the real story. Are your organics and referrals contributing to a significant chunk of the acquisition? Is the repeat usage encouraging? Look for signs of high retention and engagement. Essentially you will know that you have a great product-market fit when consumers are purchasing your product/service, the reviews are great, they are commenting about it and recommending it to others. Some telltale signs can be seen in:
Time on Site
Pages per visit
Net Promoter Score
Product-market fit is a process. Configure the team for experiments, iterations and updates. Every team member beyond the product and marketing folks need to be a part of this process.
Ben Horowitz busts some myths about the product-market fit in his blog.
Myth 1: Product-market fit is always a discrete, big bang event
Myth 2: It’s patently obvious when you have product-market fit
Myth 3: Once you achieve product-market fit, you can’t lose it
Myth 4: Once you have product-market fit, you don’t have to sweat the competition
2. What’s The North Star Metric?
This is a single metric that you care the most about at the current stage of your startup. It is a leading indicator of success. Metrics like ARPU or Average Order Value do not give you an early signal and are lagging indicators. They tell you what happened in the past rather than being able to predict future revenue. North Star Metric, on the other hand is a great way to measure sustainable growth based on value.
To uncover your North Star Metric you must understand the value your loyal customers get from using your product. Then you should try to quantify this value in a single metric. Once you identify the North Star Metric, figure out what variables work together to move this metric. Understand the relationship of these interdependent variables and your current conversion rates, now work with different parts of the organisation to move the metric forward. Identifying a North Star Metric forces the company to have clear goals.
A good NSM is a leading indicator of success
Do not fall in the trap of using something as simplistic as DAUs or registered users as the metric. It needs to be as close to revenue generation as possible for it to be effective in driving the company towards clear goals.
The famous story of facebook choosing its North Star Metric as “# users adding 7 friends in the first 10 days” is known to many. The company chose this metric only after figuring out that this was the ‘aha moment’ when it could have an engaged user on facebook. Some say that’s not true. Here’s an interesting blog on this
3. How’s The Growth Stack?
To enable the company to drive the users to transactions, you will first have to lay the data foundation and track events at both the user and aggregate level. Get visibility into the customer journey to understand what levers need to be developed to drive growth.
The Mobile Growth Stack is a framework that helps marketers develop and evolve a strategy for growing the user base of a mobile product or product portfolio – Andy Carvell
The growth stack has three layers – Acquisition, Engagement & Monetisation, supported by Insights & Analytics. Start simple by getting by using tools like Google Analytics to get an insight into aggregate level data and see how your marketing is performing and then move on to marketing automation and advanced analytics. Tools like Segment will get you started on collecting clickstream data. Keep investing in the growth stack as the company grows to focus on each stage of the funnel with laser precision. Growth sits at the intersection of product marketing and data. The growth stack will help you to invest time in mapping out and defining the key engagement milestones in the user lifecycle. It will also enable teams to run multiple experiments and create funnel interventions.
Here’s an idea of various startups evolve their growth stack courtesy Segment
4. Is The Focus On The High Impact Stuff?
Assess if the teams are working on the biggest area of opportunity. Prioritise ideas based on their potential impact and your confidence on if they will work. Assess how easy are the ideas to implement and get started with experimenting. Keeping track of these tests and ensuring they are directed at the highest leverage opportunities takes discipline and a consistent process.
For each idea that you come across ask the following questions
1. If executed successfully, what impact would it have?
2. How easy is it to execute?
3. Does this idea fit into the grand scheme of the business strategy?
5. Have We Developed A Growth Mindset?
Growth is about implementing rigorous experimentation, customer insight and data-driven process. It is about creating an ‘aha moment’ of value, then working across functions to get customers there as quickly and as frequently as possible.
When it comes to cultivating growth, founders should know how to combine strategic plays with continuous optimisations. Instead of just going over a summary of the last month’s metrics and milestones, shift your focus to the month’s learnings.
A quick word on Growth Hacking - it over promises and has often under-delivered, unfortunately hurting the function’s reputation. Instead of trying to “hack” your way to instant success, commit to a long-term, customer-focused and data-driven plan of action.
Osterman’s five practices help build a growth culture in the company
Engaging every internal resource
Founders will relentlessly need to ensure that everyone across functions has a stake in the company’s growth. Encourage cross-functional collaboration to drive key outcomes. Ensure that there is ample communication on success and failures during the course of growth experimentation.
There is no set playbook for growth. Each startup needs to leverage the limited resources at its disposal to identify the strategy that is right. Start with the customer insight, develop a data-driven process of experimentation, encourage learning and drive growth in a sustainable way.
Have any questions in building growth teams and driving the growth culture at your startup? Would love to help and share ideas.