I was excited to interview Sarah Leary, co-founder of Nextdoor, on the Starting Greatness podcast this week.
I’ve known Sarah since the late ‘90s when I tried to recruit her from Harvard Business School to be part of the early team at Motive, where I was a co-founder. Sarah decided to head west and has had an amazing career at Microsoft, Epinions, and most recently as a co-founder of Nextdoor.
Nextdoor is an amazing success story. In less than ten years they have become the unquestioned largest social network for neighborhoods. The world has needed this for a long time, but kick-starting a network effect for a neighborhood social network has proven too difficult for many who have failed.
Sarah and Nextdoor co-founders Nirav Tolia, Prakash Janakiraman, and David Wiesen found answers where others could not and today Nextdoor is used by 250,000 neighborhoods throughout the world.
Sarah carries her unapologetic ambitions with humility rather than arrogance. In our discussion on the Starting Greatness podcast, she reminded me of our mutual respect and affection for the late Bill Campbell, the legendary coach of Silicon Valley who helped Steve Jobs of Apple, Eric Schmidt of Google, and many other iconic Silicon Valley greats. Bill showed us how we can all learn from the human side of leadership that he represented.
You can listen to our interview here:
She also personifies a key lesson of greatness that every startup founder should know:
Hack value before hacking growth.
We spent a lot of our time discussing the importance of proving a value hypothesis before even testing a growth hypothesis. You can also listen to my summary overview here:
Hack Value before Growth
Time and again, the great startup founders hack value before hacking growth... If you hack growth, before you’ve proven your value proposition — this usually leads to disaster.
Sarah’s story at NextDoor illustrates Value Hacking perfectly.
So, what exactly is Value Hacking?
Value Hacking is the process of converting a unique insight into a unique value proposition for a niche of desperate customers.
Keep in mind that when a startup gets off the ground, it’s not a company yet. It only has the founding team and a compelling insight. It has to turn these two things into a company someday by next proving a value hypothesis and later proving a growth hypothesis. Value hacking is when the startup proves its value hypothesis.
You succeed in Value Hacking by checking three important boxes:
One, figure out: “What can I uniquely do that people are desperate for?”
Two, identify a focused group of customers that desperately need your solution;
And Three, iterate and improve your value proposition until you start seeing signs of exponential organic growth.
Value Hacking and Growth Hacking are fundamentally different, in some very important ways:
Zero-to-One is different from 1-to-X
In Value Hacking, the Startup is in the zero-to-one phase of customer development. Usually, there are no customers yet. The startup has a non-consensus insight (to learn more about the importance of non-consensus insights, check out this interview with Andy Rachleff and the follow-up episode), but it still needs to make a product that people will find so valuable that they are desperate to have it.
An entrepreneur hacks value by running a series of value hypothesis experiments. Each experiment is designed to learn something specific about what the early customers will truly value. For instance, in the case of Nextdoor, Sarah had a theory that neighbors would want to talk to each other if they could find an easy way to do it, especially in a world where it was happening less than in the past. But that’s different from determining the specific conversations that neighbors would be desperate to have if only Nextdoor could deliver a platform for them. A value hypothesis asserts what types of conversations would matter most and to what types of neighbors. An experiment would involve engaging with neighbors in such a way that Sarah would be able to declare the hypothesis valid, invalid, or not conclusive.
It’s important to note that every experiment (which I like to call a value iteration) must tell us something we didn’t already know for it to be truly useful. A negative surprise is useful as well as a positive surprise, because in each case we learned something, which we can apply to creating a unique value proposition in the future. An experiment that yields no new surprises is a wasted iteration in the sense that we got no closer to proving a value hypothesis relative to the time we spent.
In our discussion about Nextdoor, Sarah Leary shows the right approach. The engineers literally said, “we’re not writing one line of code until we’ve proved we have something valuable for real people.” She was empathetic to the needs of people in neighborhoods, starting one neighborhood at a time in the early days. From talking to users about how to draw neighborhood geographic lines to identifying the discussions they wish they could have with their neighborhood community — Sarah and her team asked potential users questions to identify how to provide a valuable service. In our interview, she gives an example where the team realized they had value hacked successfully when a user emailed them desperately wondering why the directory was down during lunch hour. It might seem like this user was over-reacting. I mean — c’mon, Nextdoor only had a dozen or so neighborhoods on the platform. But this is the type of “over-reaction” you want when you are a founder. It means that your users *care* in a visceral way about your vaue proposition.
Your value proposition should be so obviously true that the right customers would be irrational not to buy when they see the truth. One of my favorite scenes was when they had only a handful of users and took the server down for maintenance for lunch. When a Nextdoor user called, frantically asking about why the directory was down, Sarah knew users understood the value of the platform. Sarah didn’t have to sell them on it — they were screaming to get it back online when it went down.
Too many startups invest in tactics of selling and growth hacks to expedite growth before they prove their value. This is a mistake. If you try to grow without a clear value proposition, you will have to overcome the objections to your lack of value by throwing money at the problem with marketing spend. It is far better to discover the truth of your value first.
Invention and learning is different from execution
When you are discovering the truth of your value proposition, your task is fundamentally different than when you are trying to grow with a predictable pattern. In the invention and discovery phase of value hacking, there are very few rules. Your team has to channel its inner MacGyvers and invent new things that wow customers, that they have never seen before. It has to do create something that’s a breakthrough that changes people’s point of view.
So — when do you start to think about growth?
The answer is…After you believe you have proven your value hypothesis.
You start by creating some low-cost growth hacks to test your growth hypothesis. But you are still not ready to go all-in on pushing the accelerator. You want to test a few different sales techniques or growth hacks depending on your market and product category. You want to build confidence that you are ready to grow before you escalate your commitments to grow.
For Sarah and the NextDoor team, a great example of a growth test was the decision to partner with the government and police. She knew by then that they needed a flywheel to help spread the word organically. But she waited until she had high confidence she had proven the value hypothesis. She knew that partnering with the police and government would be hard to back-track from. When you are working with organizations like these, you don’t get many chances at the plate. When you swing, you can’t just knick the ball….you have to CRUSH the ball.
*Never* skip value hacking.
I’ve been in Board meetings at startups that didn’t have product-market fit in spite of a high burn, and a board member suggests “We need a growth hacker.”
This advice was wrong. The startup needed a value proposition.
The decision to grow is profound. It’s like making a forward pivot. It reminds me a lot of the Hertz car rental booth. We have all seen the sign that says, “Don’t back up or your tires will explode.” Trying to back away from the decision to grow aggressively is a lot like that.
When you decide to grow, you are literally making the decision to become something different: It’s like transitioning from a liquid to a gas. You move from unpredictable learning and discovery to predictable execution. You move from a raw startup team to an extended team that can operate a growth engine. You have to make a lot of changes to how you think about people, product, execution, planning, almost everything. This is why it is so hard to go back after you have committed yourself to be growth-centric.
I hope you will always remember to heed the lesson to Hack Value before Hacking Growth. If you get it right it will be your superpower, and I hope you will enjoy how Sarah Leary’s success with Nextdoor brings it to life.
Thanks for tuning into Starting Greatness with Sarah Leary. And thanks, Sarah, for taking the time to help others learn from your journey!
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