Growth is not all there is to it…
When you first launch a company, there’s a lot of focus put on how you’re fueling growth. But growth, especially when it happens quickly, isn’t always the best thing for you. When it comes to building your company, that old mantra “quality over quantity” might be a better one to focus on.
‘Growth Hacking’ Isn’t Always a Good Thing
In the world of consumer startups, a lot of the magic of quickly building a company has been attributed to the mythical growth hacker or that founder who can defy gravity to find ways to dramatically grow their number of users and customers. Even though this drive for growth might come from #VCLogic, if the growth isn’t sustainable, you’re going down the wrong path.
If you acquire the whole universe of new users and then you churn through them over the next month or three months or twelve months, then it doesn’t really matter that you acquired them at all. You end up much further ahead if you split your efforts and instead acquire maybe just one-third of that universe but work hard to retain what you’ve gained.
Believe it or not, VCs want to see steady growth with high retention much more than cheap growth that you might have bought through paid acquisition or because you had a strong PR sprint.
Balancing Act
The narrative for the past seven years or so has been “growth cures all problems.” What we’re seeing now is that a lot of seemingly fast-growing companies have hidden baggage related from the methods they used to get there. It’s not entirely their fault. Figuring out what are the sticky parts of the equation for your product is never simple. And when you’re dealing with what seems like a demand for nothing but rapid growth from investors and media, it’s almost impossible.
In my mind, there are a couple of our portfolio companies that have done a good job managing to balance growth and retention. Mostly this has happened by them being thoughtful about the tactics they use to acquire people and customers.
ClassDojo has focused hard on getting the attention of all stakeholders for their services: teachers, parents, and students, and making a product that’s really sticky for all three. They’ve found that they’re able to acquire customers throughout the year but the ones who onboard at the start of a semester are the most engaged and stickiest. Instead of spreading their efforts throughout the year, they can narrowly focus on the the most optimal times to acquire and keep laser focused on retaining them.
Discord is another company that really impresses me on the acquisition and retention front. The product looks and feels a lot like Slack but is built for hard-core gamers. It’s replaced Skype or even in-game messaging tools for communicating when friends from all over the world are playing an MMO or a shooter game together. The team has sought to acquire users of games like League of Legends that are more like epic social events where players jump in and adventure or fight together for 30 to 40 minutes at a time. While the focus might sound narrow, once one player joins, they bring their friends along. And because a singular focus lets them tailor their product, it’s easier and more stable to use in-game than Skype or other competitors. The company has seen steady growth, but because they’re focused, their retention is insane.
Always Solicit Feedback
We see companies all that time that are happy to acquire new customers by giving discounts and bending over backwards to please them. At the same time, they will often forget about their most loyal users. They don’t reach out to them and ask “Hey, what are we doing right and where can we do better?” They probably are not even asking themselves what’s driving churn or how they can improve — growth, again, is “king” — but that is exactly what founders should be doing.
Founders and executives are busy focusing on “the important stuff” but that often leaves them out of touch with what’s really happening with their customers. Got a complaint? The customer support people handle that. At the most successful companies, even late stage ones, whenever they see an important user or an important part of the core demo quit, execs will email them or call them and see what happened. They don’t just have a CSR make the call, but they do it themselves. The best are always soliciting feedback. Don’t argue, but instead internalize what they hear and make a better product as a result.
If you want to impress an investor, even one who is full of #VCLogic, show that you understand your metrics, your trouble spots, how you acquire users, why you lose them and what you’re planning to do about it. In other words, show that beyond knowing how to just acquire customers, you truly understand them.
