Growth Is A Bullshit Metric
tl;dr. F**k growth. Get pricing power.
Growth is now a bullshit metric.
Thanks in part to growth hackers, growth is usually laughably easy to manipulate. Especially for pre-seed startups that focus on percentages.
“You lie!” you might say. “VCs want growth. Acquirers want growth. YC wants growth.”
True. And they all want real growth. That means growth that looks very much like it’s leading to market domination and huge profits someday.
Not the fake growth that abounds in Silicon Valley.
Great companies and startups differ vastly.
Great companies can — at will — grow profits and grow positive cash flow, in both dollars (esp.) and percentages.
Startups, however, lose money and have negative cash flow.
So startups grow other things, like revenue, daily activations, monthly active users, letters of intent, time spent.
But these numbers are far too often bullshit. (Of course there are exceptions. One example is SaaS per Dana Severson.)
You can’t “make it up in volume” when customers don’t really value what you’re making.
Here are some examples where growth is a bullshit metric:
Use percentage growth off a low base. In his essay “Startup = Growth”, Paul Graham writes in part:
“A good growth rate during YC is 5–7% a week. If you can hit 10% a week you’re doing exceptionally well.”
- PG is right as usual. But you can manipulate this with a low base, such as five dollars of revenue or 3 users in week one. One time another investor and I met with a startup that bragged about their 5%+ weekly growth for 30 weeks in a row. My friend replied “Yeah, but you’re at $300 a week in revenue.” We didn’t invest. They failed.
Cut prices. Anyone can grow revenue by basically selling $100 for $20. And that’s what most on-demand food delivery startups were doing in 2015.
Cutting prices only works if you can later raise prices without losing business. Otherwise you are a company the likes of Warren Buffett would never invest in. Buffett Says Pricing Power More Important Than Good Management
(Pic source: https://www.linkedin.com/pulse/20140802123746-14435808-shopping-guide-for-buying-a-p-g-brand)
Grow revenues by growing expenses. Only in startup-land can companies get away with pitching revenue growth (at least to angels and equity crowd investors) without talking about expenses.
Reply: “On a fully-loaded basis?”
Grow followers and likes. Many growth-as-a-service businesses will grow your Instagram and Twitter followers or Facebook likes for next-to-nothing. Who cares? What matters is building a clear path to paying customers that will pay you enough so you can make huge profits, i.e., pricing power.
Grow ratings and reviews. You can get your friends and family to rate and review your app in the app store or your product on Amazon. You can also pay others to do so. This is great only if you already have product-market fit. In 99% of other cases founders delude themselves on this b.s. metric and fail to iterate fast enough.
Grow headcount. At least in the past startup analytics companies measured headcount as a positive sign of progress. When in fact it can just signal good but not great recruiting, above market pay and perks (like free massages onsite) and massive over-hiring before real product-market fit.
Grow users. You can show fake-growth by growing users. In contrast Buzzfeed had both clickbait and content folks wanted to read, share and comment on.
- Grow engagement. You can do this by making your app or site suddenly slow, cumbersome and frankly annoying. Add slides that you have to click 5 times to see the entire listicle of 5 clickbait things. Folks might put up with it a bit and then abandon you forever.
- Grow retention. For startups growing retention is bad when you are doing so without being able to grow users at some point. Otherwise you may just have a tiny niche that may not even amount to a lifestyle business for one. Nothing scares a VC away like a tiny market you can’t or won’t evolve out of. To get non-VC investors, maybe try charging someone to show that this can be a real business. Even media companies like Pando and The Information with a modest number of subscribers can be sustainable in the age of free content.
Thanks for reading this far or skipping to the end. Here’s what some great folks think are the metrics that matter for startups:
Answer (1 of 5): Damn, I've got to start following Terrance Yang on Medium. That is a helluva article. If you're just…www.quora.com
Thanks to Ari M Nazir for reading an earlier version of this and sharing his thoughts here.