Why Your Tech Startup Probably Won’t Grow
Is it just me, or has the tech scene taken on an eerie romantic glow?
Joining a tech startup used to be a big risk for someone’s career. It’s now considered pretty vogue. Most people love the romance of working in a tech startup — you can say you’re solving problems, changing the world and doing things differently.
But there’s a tough reality to startups — around 80% of them will fail. They’ll seek funding, build a great product, try to solve great problems and still flame out.
But on the flipside, it’s cheaper than ever to create a tech company. The cost to develop code has plummeted with offshore resources and today it’s cheap to get products to market. So why is building a new startup still a tough thing to do?
It’s to do with scaling
A lot of startups have this awful problem with scaling. It’s also why Andreessen Horowitz picked up on the massive, later stage rounds that are now driving technology businesses. There’s a lot of risk (and therefore a lot of capital) required to take a business into the next stage.
The challenge with most products is even if they’re really clever and solve a compelling problem, it’s really hard to communicate that back to people in a way they ‘get’. They’ve just got no capacity to understand how something completely new will be a game changer for them.
And when you’re in a startup, you’re in your own ivory tower. You think your product is great and so why wouldn’t others take the time to get to know it? In reality, you’re forgetting that you’ve had hundreds of hours to know what makes it ‘great’.
It’s hard to know how to scale a product
Peter Thiel famously said that sales and marketing were just as important as the product. And he’s dead right. Great sales and marketing people might make this process look easy, but in reality, it’s much tougher. Marketing and sales requires people implicitly understanding your product in those short, hard to find moments. The best thing is, they know how to put you into those moments and communicate them back to an audience.
Scaling, then, is remarkably inefficient. You may find one group of customers who readily adopt your product — but how big is that market? Do they refer users quickly? How rapidly do they churn? How does your marketing help shape the network effects of your product? And how do you find the next set of users?
If people don’t understand your product quickly, they’ll drop it. Good marketing might look easy, but it’s actually the art of making it look easy to everyone else. Including your audience.
Getting people to use your product is a difficult task. If you can’t win the micro-moments throughout your interactions with an audience, you’ll find that you quickly struggle to win their (macro) loyalty.
It’s even harder getting people to refer others
Most people assume that if they get people to use their product, they’ll love it and refer more people. But the other sad truth is this — most customers don’t give a shit about referring other people to your product. Even those that might love your product won’t necessarily tell others about it.
There’s a reason for that: namely, it’s not cool to talk about a product to someone. You come across a bit like a second-hand car salesman. And who wants to sound like that?
So here’s the tough truth about referrals/viral co-efficient. You’ve got to build it into your product in such a way that it’s easy, effortless and makes it easy for someone else to convince their friends (without them putting in any effort whatsoever).
Here’s how a few leading companies did it:
- Money: Uber literally offered ride credits in exchange for referring friends. $20 cost per acquisition seems quite high, but evidently it paid off. Airbnb does similar sorts of things.
- Product hacks: Hotmail added a default signature offering free web email. Every single one of their users would now have to opt-out of referral marketing (6 months later they hit a million users).
- Forced invite: Facebook, Yahoo and SnapChat all asked you to invite friends on sign up and made it difficult to skip. They forced you to invite friends knowing you probably would.
Great marketing and scaling is as much about understanding how to communicate, and win, that referral moment as it is understanding what people want in the first place.
And scaling is often expensive to get right
The final sad truth about scaling is most founders of startups assume one thing: pour money into the marketing, and you’ll be able to hit a critical mass and scale. That’s simply not true.
Most founders tend to skip the efficiency part — gearing their product and embedding marketing within it to make it simple, and effective to drive scale. But the critical thing is this: you need to find efficient conversion paths, often driven by your product, for your dollars to matter. Otherwise you may as well go and burn money.
So, how should I scale my startup?
Scaling your startup is hard, but it is achievable. Here’s what I would do if I was helping you out:
- Find a good marketer: someone who can understand, and synthesise what your product means to people, and most importantly knows how to communicate that back.
- Get them to optimise your product: they should be looking for ways to embed marketing into your product, to help define metrics for success and to build out how you plan to win over audiences.
- Work on creating an efficient conversion funnel, using a mix of channels that captures users effectively (and combines that with an understanding of what will drive good user experience).
- Scale your product around an efficient marketing product.
At the end of today, what the proliferation of startups today has told me is this: it’s not enough to have a brilliant product. You’ve got to understand what makes people tick, and win those small moments where you can shift their perception of your product and their habits.
It isn’t easy. That is, in part, why so many startups this year will crash and burn.
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