Designing a Growth Strategy

Growth hacking is a a buzzword. We see many tips and tricks, but none of that can be of real value without a more comprehensive strategy. Even though each startup has its own path for growth, one can see a pattern common to all the greatest hits in the Entrepreneurial ecosystem. In reality, growth can be analyzed chronologically but also by business model. Hence, the first distinction to make is between community businesses and intent businesses.


Community vs. Intent

Community-driven startups are looking first and foremost to create a habit amongst their users. Therefore the most important thing is engagement: do they use the product enough? Let’s take a company like Menu Next Door as an example: their goal is to make sure people order food through their platform as many times per week as possible.

With an intent-based business model, what matters is building a constant and profitable stream of incoming users. Hence you need an affordable and liquid acquisition channel. The whole thing to nail is how to find the right individuals at the right time (when they need your product) and at a cost that’s lower than the revenue they’ll generate.


Product/market fit

The second distinction to make is whether the startup has found its product/market fit. This term, coined by Marc Andreessen, means a strong demand from the market for a product. It’s rather simple to define but really hard to apply. Three main points must be taken into account: understanding, purchase and referral.

Understanding

Understanding is pretty straight-forward: in order to purchase something, people have to understand it! That being said, it’s not that easy. What matters is finding a value proposition that makes sense for your target. So figure out what your target is and then find a way to talk to them.

You have to know what a DDoS is to be attracted by such a web page!

Purchase

Understanding is not enough. Sometimes, people get what you do but just don’t sign up. Maybe your product doesn’t look that good, maybe they don’t see the value. Purchase (or sign up if the product is free) is about conversion. The goal is to turn a simple visitor into a buyer or a user.

Purchase: how to make your website attractive enough

Referral

Even though purchase means commitment, nothing beats referral. Referral is what produces those so-called “hockey-stick curves”. Actually, referral is the strongest form of commitment: it’s the ultimate piece of evidence that your users absolutely love your product.

One good example is Slack’s growth, based on users inviting each other.

When can we say that a startup has found its product/market fit? It would be impossible to give a precise figure: success is obvious. If you’re still asking yourself whether you reached it, chances are you haven’t yet…


The 3 steps of the startup life

Brian Balfour made a very simple and useful framework to give a chronological approach to startup life. There are three phases: traction, transition and growth.

  • Traction: Traction is about discovering a product/market fit. You can’t rely upon any scientific method to get there, nor can you decide on a product/market fit. The only way to figure it out is to experiment, test and get user feedback.
  • Transition: Once you’ve figured out a product/market fit, a transition phase begins. This is where you implement processes in your company, with more automation, a better product, better customer support, etc.
  • Growth: Once your processes are streamlined and automated, a growth phase begins. This is about automating acquisition and finding a way to acquire a lot of qualified users cheaply.

Your growth strategy

A growth strategy is built around an AARRR funnel. This tool, invented by Dave McClure, symbolizes the 5 steps of the user life cycle: acquisition, activation, retention, referral and revenue. The goal is extremely simple: maximizing conversion rate from one step to another.

Now, where it gets interesting is to distinguish two parts in this funnel:

  • The growth engine: it’s the basis of a strong growth. It’s made of three steps: activation — retention — referral. In other words, it’s about having your users love your product, sharing it with their friends so that these friends will convert and become fans in their turn, so that they can invite their own friends, etc.
  • The growth fuel: once your growth engine is built, let’s make it run at full speed. To do that, you will need acquisition and revenue. The former will help you grow faster through a sustainable acquisition channel while the latter will help you maximize your return on investment.

For each step in your startup’s life, you can make use of specific parts of the AARRR funnel.

  • Traction: How do you make a first group of clients convert at an acceptable price? Given the number of persons you need to validate your assumptions (something between 10K and 50K), you can do it by hand. Whatever works: #flyers #scraping #facebookAds, etc.
  • Transition: Now that you have figured out who you’re selling to, how do you optimize your processes? It’s about making the product better but also building a first version of the growth engine. Make sure your users are addicted (or at least satisfied in an intent business). Tools: #analytics, #viralloops, #chat, etc.
  • Growth: Once you’ve made sure that early adopters were addicted to the point they share your product, now comes the growth phase. Here everything is about finding sustainable, large and profitable acquisition channels to reach millions of people. Tools: #ads, #seo, #content, etc.
Three stages of your growth strategy

In a nutshell, we can categorize startups according to their business model (community vs. intent) but also according to their growth stage (traction, transition or growth). For each point of this matrix, there’s a given growth strategy. Here’s a table that puts it all together: