Growth strategies for marketplaces: key takeaways from a fireside chat on growth
By boris, October 31, 2016
Last week I had the great pleasure of sitting down with Andrew Chen for a fireside chat on growth strategies as part of the Version One marketplace meetup. More than 75 marketplace founders and investors attended the event — coming from as far as South Africa and Nova Scotia.
As an investor and former founder, I know that scalable growth (and the pretty hockey stick graph) is the holy grail for every startup. And Andrew understands growth strategy as well as anyone in the industry.
Growth hacking and growth teams are so commonplace today, at least inside Silicon Valley, that it’s easy to forget that “growth” (as we know it now) is a relatively new phenomenon. Just a decade ago, most software/cloud startups used a traditional model where product and marketing were siloed: product teams created the product and marketing drove people to the website to buy it.
The evolution of the growth function changed this dynamic, mashing together product dev and marketing as integrated functions. About five years ago, we saw the early waves of growth — typically an individual or two (“growth hackers”) who were championing growth within product development. Today, it’s common to see entire growth teams and a dedicated growth PM.
As part of our fireside chat, Andrew and I discussed some of the most important growth strategies for startups. Since it was part of the Version One marketplace meetup, we geared the conversation toward marketplace companies, but many points apply to software/SaaS startups as well. Here are some highlights from the conversation.
When is the right time to hire a growth person?
When we think about this question, it’s important to remember that startups today fail due to lack of distribution and product-market fit — not because of technical problems that they were unable to solve. This means that growth needs to be baked right into the product idea from the start. The general path we like to see is: first, founders need to have insight into growth. Then, the startup needs to get strong product-market fit. And usually by Series B, startups start hiring a growth team.
It’s important to see organic lift first, and then you can begin optimizing. It’s pointless to focus on A/B testing before there’s any kind of traction. Both Facebook and Uber started their growth teams really late in the game, but these companies had a lot of organic traction first.
Best practices for growth: build your data infrastructure
Whenever Sean Ellis (who coined the term “growth hacker” back in 2010) joined a company, he wrote it into the contract that the team needs to build proper growth monitoring dashboards and A/B testing platforms.
Data is the cornerstone of the growth function. In order to optimize landing pages, sign up, and other user behaviors, you need data to find out what’s working and what’s not. There’s no silver bullet here. Growth teams need to invest significant resources to build the right infrastructure to experiment, monitor user behavior, tweak and repeat. It helps to have a KPI-driven mindset.
Most growth teams begin with commercially available monitoring and analytics tools, but over time, companies that have really scaled end up building their own custom data infrastructure. That’s because every company has its own strategy and metrics that mean something to one company won’t necessarily mean anything to another. In other words, if you’re looking at generic metrics, you’ll end up with a generic strategy. Yet with that said, it’s unrealistic for a startup to have the resources and time to build out a custom analytics tool until they reach a certain level.
Virality and marketplaces: generally low, but…
Generally speaking, marketplaces aren’t blessed with intrinsic virality. Many companies try to spark virality — with promo codes or gamification — but these artificial strategies don’t scale well. To create true virality, you need to build something where the frequency of consumption is high. It won’t work if users only need to visit the marketplace once or twice a year.
To get viral growth, a marketplace must give users a strong incentive to invite others onboard. The best incentive depends on the nature of your marketplace. Airbnb offers discounts for customers that bring in new guests/hosts. Dropbox offers more storage space when you invite others to join. Incentives don’t always need to be monetary; the key is to give users a better experience the more they tell others. For example, Facebook becomes more fun and meaningful as more of your friends join the platform.
New platforms as distribution tools
Every viral company is built on top of a larger, pre-existing platform. Facebook was built on top of .edu emails, and today, companies build on top of Facebook or Slack. If you’re building a marketplace, what social graphs are you building on top of? You can’t go it alone.
Study how people are using today’s newest platforms, but within a historical context as humans haven’t changed (just read about Claude Hopkins, an advertising pioneer back in the early 1900’s who used coupon codes to track response rates, tested different headlines/offers, and analyzed the data…sound familiar?).
New platforms can drive significant growth for some time. For example, Zynga was originally built on top of viral Facebook channels. However, the window of opportunity is very small: pretty soon either the platform will wake up and limit the free traffic or competition will flood the platform, making it too noisy.
Right now, the most interesting platform out there is Facebook Messenger; we’ll all be doing more and more within the chat window in the coming year and there are certainly untapped opportunities to use Messenger as a distribution platform.
If there is one main takeaway from our discussion, it’s that growth isn’t something you can just bolt on when you’re looking for funding or to reach a new level. You have to holistically think about your product, distribution platform, and virality from the start. While your data infrastructure and growth team will get more sophisticated as your company grows, it’s still critical to lay the foundation early on.
Originally published at versionone.vc on October 31, 2016.