Why we need to stop talking about growth… (and what to do instead)
Growth is sexy. It’s exciting. There’s nothing like a spike on a graph to send the fizz of excitement up an entrepreneur’s spine. But I’m here to argue that growth is next to worthless without value.
Growth might be sexy to you, but your customers are attracted to value. Without value, you’re over promising in your promotion and under delivering in your product.
Defining ‘value’
What does your product or service mean to your customers? Do you make their lives easier, inspire them, save them money or save them time, in a way that no one else does? Do you provide something better, cheaper or quicker than others in your market?
Your value is the reason that your customers choose you over others; it’s the difference that your product makes to their lives.
Your value proposition is the elevator pitch for this value; it’s a clear statement that explains how your product can improve your customers’ lives and how you’re different from the competition.
Successful startups always add value
If your product or service doesn’t give value to your customers, then your business will fail. Free trials won’t convert, or you’ll waste time and money on creating features that customers don’t want. Both of these situations will take your product even further away from the value that your customers need to get from you.
But get the value proposition right and your business with thrive; growth will be easier as your customers will delight in spreading the word for you. And, if you get it spot-on, growth can occur rapidly without you even trying (if you get it really right!)
In this article, I’ll show you how to get your value proposition right, how it should fit with your growth plan — and finally, why this affects who should invest in your business.
NB: throughout this article, I’ll be referring to products, but the narrative is just as applicable if you’re selling a service.
Prove value, achieve growth: 4 learning points
1. First determine (and prove) your value hypothesis
If everything comes from defining your value — from the growth strategy you adopt to the message you give to investors (more on this later) then you’d better get your definition right.
But how do you know that your customers are using your product in the way you think they are? What if you go out into the market with an incorrect version of your value proposition and end up attracting the wrong customers in all the wrong ways? How are you supposed to drive more time and money into developing your product if you can’t trust that you’re developing the most valuable features?
The answer is to test and prove your value hypothesis — the assumption that you’ve made about what value your product brings to your customers once they are using it — before you attract extra attention with growth.
An entrepreneur’s first value hypothesis about their product is likely to be wrong; the product might not solve the user’s problem adequately or customers might use it in a different way than was intended. Either way, it’s crucial that you are acutely aware of these issues and you can make adjustments to resolve them.
Focus on what customers are saying about your product using metrics that prove that customers are willing to use your product. This doesn’t include vanity metrics such as traffic or free trials; it includes pre-orders, engagement (usage, loyalty and so on), customer feedback and conversions after a free trial has finished.
As Brett Hardin writes in his article Value Hypothesis and Growth Hypothesis:
“Do not pull the wool over your own eyes… Customers identify and vocalize a product’s value, not employees of the organization.”
Too many entrepreneurs rush head-first into advertising a product that has not been proven to be valuable. Their initial assumption (hypothesis) turns out to be incorrect and they’ve wasted money by getting a weak product into the market, in turn damaging the reputation of their product (and their nascent brand).
Because if you do turn out to be wrong, then failure will come no matter how much money you throw into advertising.
Action points:
In order to prove your value hypothesis, build the following points into your action plan (this is a very basic overview):
- Define your value hypothesis as a question: “Do customers use [product] because they want to [value outcome]?” For example, “Do customers use Uberly because they want to view maps offline?”
- If you haven’t done so already, read Eric Ries’ The Lean Startup and Tren Griffin’s blog on the key takeaways.
- Get ideas for testing your value hypothesis from David Teten’s article on Entrepreneur.
- Use The Lean Startup process to refine your MVP until you have proven your value hypothesis (being careful not to rely on vanity metrics or internal feelings).
- If your value hypothesis turns out to be wrong, try a new value proposition or a different type of customer.
A word of caution: what’s the point of your MVP?
You won’t get far in any growth conversation without mention of minimum viable products (MVPs). Everyone loves talking about them; they sound easy to achieve and they’re known for saving time and/or money.
But proceed with caution. There’s one major issue with talking about MVPs out of context of their original place in Eric Ries’ value and growth hypotheses strategy; MVPs are just a vehicle for the bigger picture, which is proving your value hypothesis.
The adoption (or not) of an MVP among core users allows you to prove (or disprove) that there’s potential for a sustainable business to be built around your product.
Without a benchmark of success (ie. early adoption), how will you know whether to reiterate at each stage or press on with the product you have?
2. Only once you’ve proven value should you plan your growth hypotheses
Now that you’ve tested and proven your value hypothesis, we can get on to the task of proving how you can find more people who love what you do: your growth hypothesis.
A growth hypothesis is your assumption about how new customers will discover your product. Much like the assumption you make about the value you bring to your customer, you also need to prove that your ideas for promotion are actually leading to more conversions, so that you can continue doing the things that are working (and ditch the ones that aren’t).
Eric Ries explains that growth is achievable using one of three engines:
- Sticky growth: focusing on your current users and keeping them coming back month after month will ensure that organic growth is greater than churn rate. This is perfect for achieving long-term growth through loyal users.
- Viral growth: giving your existing users the tools to advertise your product for you, either through using it (eg. Gmail or iPhone) or telling their friends. If one user acquires a few more, then growth can happen organically and very quickly. However, this engine requires your product/market fit to be spot-on and can be very difficult to predict or control.
- Paid growth: acquiring users through any type of advertising. The lifetime value of each user (including expenses) must be greater than acquisition costs per user. Growth can then be accelerated by using these funds to buy more advertising.
As Ries himself puts it: “New customers come from the actions of past customers.”
Awareness of what constitutes a vanity metric for your product is key here, too. For example, hype does not automatically lead to growth; you might be getting coverage on websites but it’s how much of that coverage converts that counts. Continuous experimentation and tracking the results of everything is imperative here: AB tests, net promoter score, feedback and conversion rates can all help prove or disprove your assumptions.
Once you know what you’re tracking, you can take bigger leaps of faith with your experiments because you’ll notice if something isn’t working. Ries explains that ignoring the status quo can lead entrepreneurs to the best opportunities: “You need the ability to ignore inconvenient facts and see the world as it should be and not as it is. This inspires people to take huge leaps of faith.”
Even growth hypotheses that are working can be tested; the best entrepreneurs know that there is always extra efficiency lurking in successful strategies and always money to be saved on conversions. Never stop questioning your own assumptions.
Action points:
- Focus on one growth engine (sticky, viral or paid) that suits your strategy.
- Read Zach Bulygo’s The 7 Ways Dropbox Hacked Growth to Become a $4 Billion Company for inspiration from Dropbox’s incredibly successful growth.
- Also read Ahrefs’ Growth Hacking Tactics That Every Startup Needs To Know and Search Engine Journal’s Epic List of 100 Growth Hacks for Startups to ensure you’re not missing a trick.
- Consider how you can make it easier for your existing fans to convert others, even if this means refining your product (eg. Dropbox’s simple homepage, Linux compatibility and two-sided incentives for sharing).
- Test, test, test… and keep experimenting!
3. Only step on the gas after you find your product/market fit
Prove your value hypothesis (achieve product/market fit) before attracting attention to your business with your growth hypotheses experiments. Once you see such experiments are working, double down on them and invest more (bit by bit) in that channel. It’s really that simple.
Rushing into promoting a product that’s based on your own assumptions or vanity metrics — without finding a core group of customers who are willing to pay for your product — means you risk damaging your product/brand’s reputation.
As Andy Rachleff puts it, “Hope springs eternal, and many [entrepreneurs] believe they have found product/market fit because they have traffic… growth may seduce the entrepreneurs into believing they have achieved their value proposition when they actually haven’t.”
4. An investor who’s interested in growth over value is not worth your time (for enterprise companies, too)
Coupled with an entrepreneur’s misplaced confidence in a redundant product, investors who don’t understand the importance of value before growth are a recipe for disaster.
Either the investor will steer the entrepreneur’s attention away from proving their value hypothesis toward growth before the value hypothesis has been proven, or they compound a founder’s own desire to push for traffic before the product is ready.
The person who invests in your business should be all about your value. In fact, the very best investors will be interested in investing before you’ve even got to growth. They know that if compelling value is there, then a plan for growth will come easier and the numbers will help themselves.
Which is about as sexy and exciting as you can get!
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Thankyou for reading… I would hugely appreciate some claps 👏 and shares 🙌 so that others can find it!
Nic
Nic Newman
