09/10/2014 – Growth – Alex Schulz, VP @Facebook

startupclass.co

Retention is the single most important thing for growth.

If you have a retention curve parallel to the X axes, it means that you have a viable business, and you have a product/market fit for some subset of market.

But most companies that fly up, that talk about virality and growth hacking, have a retention curve slowing down towards X-axes and at the end to sub X-axes.

The red line is the number of users that have been on your product for certain number of days.

All of your users have been using your product at least 1 day, but if your product has been around for a year, you have zero users that have been 366 days there using it.

You have to look at all of your users that have been at least 1 day, what percentage of them are monthly active – 100% obviously (since they have signed up on one day).

Then you look on 31st day. Every single user on 31st day after registration, what percentage are monthly active. 32nd day, 33rd day… and that allows you with 10 000 customers to have a real idea of what this curve is gonna look like for your product. It will be noisy towards your right hand side but you will be able to get a handle of does this curve flatten out or not.

If it doesn’t, don’t do growth tactics or growth virality, don’t hire a growth hacker, focus on product/market fit. Because Idea – Product – Team – Execution – all this matters. If you don’t have it all, there is no sense in trying to make it grow.

And the lack of growth is actually sign of product/market misfit.

How does a good retention look like?

You have to figure it out yourself. Different verticals have different terminal retention rates for them to have successful businesses.

If you are in ecommerce and you are retaining 20–30% of your users, you probably will do pretty well. If you are in social media and you have this retention rate there, you will not have a good social media product. What you can do is to look at your competitors and compare to what a retention success looks like in your vertical.

So, retention is the single most important thing for growth and retention comes from having a great idea and a great product to back up that idea and product/market fit.

Operating for growth

Let’s say your have an ecom startup, you have 60% or retention rate. It seems like it is the right time to scale. And now you think the growth team should come in. But, you SHOULD NOT have a growth team.

Startups SHOULD NOT have growth teams. The whole company should be a growth team. The CEO should be a head of growth.

From the beginning the whole Facebook team was on Facebook, not only just registered users. Moreover, Mark Zuckerberg was also publishing externally Facebook MAU (monthly active users), showing things as they are and making the whole company accountable for that.

The same with Whatsup: they always publish the number of messages sent that is the single most important number. Airbnb publish the nights booked compared to the largest hotel chains in the world.

At each of this companies they have a different North star (reference point). The North star doesn’t have to be the number of active users for every different vertical.

For eBay, it was gross merchandise volume. How much stuff did people actually buy through eBay? Everyone externally tends to judge eBay based on revenue. Actually, Benedict Evans has done this amazing breakdown of Amazon’s business, which is really interesting to look at their marketplace business versus their direct business. So eBay is all marketplace business, right? So eBay’s being judged by its revenue, when it actually has 10 times Gross Merchandise Volume going through the site.

Every different company when it thinks about growth, needs a different North star; however, when you are operating for growth it is critical that you have that North star, and you define as a leader.

The reason this matters is, the second you have more than one person working on something, you cannot control what everyone else is doing. And it should be deep in their heads what is the most important metric they should be working on.

Registrations don’t matter unless they become long-term active users.

A great example of this was when I was at eBay in 2004, we changed the way we paid our affiliates for new users. With the affiliate program you pay anyone on the internet a referral for sending traffic to your site, but it’s mostly about getting access to big marketers who do it on their own. We were paying for CRU (confirmed registered users), so all of our affiliates were lined up on getting confirmed registered users to the eBay site.
We changed our payment model to pay for activated confirmed registered users. So you had to confirm your account and then bid on an item, or buy or list an item, to become someone that we paid for. Overnight when we made that change, we lost something like 20% of confirmed registered users that were being driven by the affiliates. But the ACRUs (activated confirmed registered users) only dropped by about 5%. The ratio between CRU to ACRU went up, and then, the growth of ACRUs massively accelerated.
The cause of this is, if you want to drive CRU, if someone searches for a trampoline, you land them on the registration page because they link you have to register and confirm before they get their trampoline. If you want to drive ACRUs, you land them on the search results page, within eBay for trampolines, so they can see the thing they want to buy, get excited, and then register when they want to buy it. And if you drive JUST CRUs, people don’t have an amazing magic moment on eBay, when they visit the site. And that’s the next most important thing to think about: How do you drive to the magic moment that gets people hooked on your service.

How do you drive to the magic moment that gets people hooked on your service?

What is the magic moment is for when you’re signing up to Facebook?

See your friends, see the first picture of one of your friends on Facebook, it is when you go ‘Oh my God, this is what this site is about!’ The number one most important thing in a social media site is connecting to your friends, because without that, you have a completely empty newsfeed, and clearly you’re not going to come back; you’ll never get any notifications. So FB’s the most important metric is to get 10 friends in 14 days.

The same for Linkedin registration flow Twitter, WhatsApp does when you sign up, the number one thing all these services look to do, is show you the people you want to follow, connect to, send messages to, as quickly as possible, because in this vertical, this is what matters.

When you think about eBay, it’s about finding that unique item, that you really cared about and want to get ahold of. When you look on Airbnb and you find that first listing, that cool house you can stay in, and when you go through the door, that’s a magic moment.

Similarly on the other side, when you’re listing your house, that first time you get paid, is your magic moment or when you list an item on eBay, the first time you get paid, is your magic moment.

Think about what the magic moment is for your product, and get people connected to it as fast as possible, because then you can move up where that blue line has asymptotic, and you can go from 60% retention to 70% retention easily if you can connect people with what makes them stick on your site.

The second thing to think about is that we often optimize for ourselves when we think about growth.

For example notifications. We think ‘I’m getting too many notifications, I think that’s what we have to optimize for on notifications.’ Okay, are your power users leaving your site because they’re getting too many notifications? No. Then why would you optimize that? They’re probably grown-ups and they can use filters.

What you need to focus on is the marginal user. The one person who doesn’t get a notification in a given day, month, or year.

Building an awesome product is all about think about the power user, right? Building an incredible product is definitely optimizing it for the people who use your product the most, but when it comes to driving growth, people who are already using your product are not the ones you have to worry about.

We looked at new users, resurrected users (people who weren’t on Facebook for 30 days and came back) and churned users. The resurrected and churned numbers for pretty much every product I’ve ever seen dominate the new user account once you reach a sensible point of growth a few years in. And all those users who are churning and resurrecting, had low friend counts, and didn’t find their friends so weren’t connected to the great stuff that was going on on Facebook. So the number one thing we needed to focus on, was getting them to those 10 friends, or whatever number of friends they needed. So think about the user on the margin; don’t think about where yourself, when you’re thinking about growth.

So for operating for growth, what you really need to think about, is what is the North star of your company: What is that one metric, where if everyone in your company is thinking about it and driving their product towards that metric and their actions towards moving that metric up, you know in the long-run your company will be successful.

By the way, they’re all probably all correlated to each other, so it’s probably fine to pick almost any metric, whichever one you feel the best about, that aligns with your mission and your values — probably go for that one.

Just have a North star, know the magic moment and know when user experiences that, they will deliver on that metric for you on the North Star, and then think about the marginal user, don’t think about yourself. Those are the most important points when operating for growth.

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