Growth Diagnosis Part II
Based on 12 Key Factors & 53 data points
The 12 key growth factors deserve a 12 Days of Christmas Edition…right?
In the previous post we covered our quest to create a better growth score, and 4 of the 12 factors that impact our Growth Diagnosis. To review, the Growth Diagnosis is our own holistic assessment of a startup’s Growth prospects and allows for us to prescribe specific growth strategies and tactics. Once a Growth Model and direction is set, we will prescribe things like customer development, funnel analysis, content creation, or paid marketing.
Key factors 1–4 were covered in our previous post:
- PMF (Product Market Fit) the proverbial partridge in a pear tree
- Growth Model Two Turtle Doves flyin’ up and to the right
- Founder Factor The Three French Hens with awesome pedigree
- ABT: Always Be Testing Four Calling (a test winner) Birds
Now it is time to dig into the remaining 8 factors! Huzzah!
What’s that you say? You don’t like the 12 days of Christmas song? Too many growth factors to comb through? Come on…
#5 Retention
#6 Customer Focus
#7 Week over week growth
#8 LTV : CAC Ratio
#9 Stage recognition
#10 Ability to ship product
#11 Focus
#12 Team Culture
Behold! The growth version of the 12 days of Christmas!
#5 Retention / Churn / Growth Multiplier
Retention: Another large influence on me, the Round Barn Labs team, and the growth community is Alex Schultz. His talk at Y Combinator start up class on retention is foundational. Retention is an area that is often neglected by startups and even mature companies.
“Different businesses will have different retention rates.” — Alex Schultz
We need to look at your competitors and their retention rates or similar companies rather than comparing an e-commerce site and a social site.
The ability to retain users signals product market fit, it lowers our overall acquisition costs, and improves our revenue and growth.
A very helpful illustration of retention presented by Andrew Chen in the Reforge growth lecture series.
When we evaluate retention we really need to understand how it fits with the individual business. Often we see founders, marketers, and data folks not considering the business model.
When looking at retention it is important to understand the segments of users e.g. users coming in from paid search will behave differently than content / organic, as a result be sure to look at these segments separately to better understand how cohorts of users stick around using your product over time. As usual, Brian Balfour and Reforge have been instrumental for our team and I highly recommend you look into them for more insights around retention.
Similarly you will want to look at retention at different stages e.g. users in the on boarding stage will have a very different behavior than dormant users. You will want to ensure that you segment by the very different stages of retention. If you can address retention by stage, you will be in a much better position to retain users.
Churn: The flip side of retention of course is churn. The method by which we measure and prioritize will vary by business model. Here is a good illustration of the impact of churn
Lincoln Murphy outlines the Two Reasons Why Customers Churn
With Growth or even acquisition focused projects we mind retention churn and growth multiplier to ensure that we are focused on the right things and not sending users to a broken funnel.
As growth marketers, cohort analysis is a key to understanding retention and churn over time.
“I would argue that the single most telling metric for a great product is how many of them become dedicated, repeat users.” — Andrew Chen
So what if you know you have issues with retention, what can be done to improve it?
- Gathering customer feedback has been emphasized heavily in this post for a reason. Lapsed users can share with you needed insights on why and offer up critical learnings. UserTesting is a great tool for this.
- Reviewing Customer Service policies and best practices
- Insightful post from HelpScout on 20 Customer Retention Strategies
Retention is based on people’s existing habits, habits you create for them via: Triggers, Channels used to trigger users, Reward, and Action.
#6 Net Promoter Score & Customer Insights
Your true love better deliver customer insights, not just 6 geese.
In the previous factors, we have mentioned the importance of gathering customer insights, so it is no surprise that we mention it in more detail here.
Net Promoter Score or NPS. Bain invented it. It’s the subject of millions of dollars in corporate spend, and a best selling book The Ultimate Question. Two thirds of the Fortune 1000 adopted it to measure customer happiness and loyalty. Dubbed “One Number You Need to Grow” by Harvard Business School article in 2003.
Making sense of the score. -100 everyone is a detractor. 100 everyone is a promoter. >50 is excellent. Apple’s NPS is 72
Here is a very comprehensive post putting NPS into context for startups from Mike Volpe, former CMO HubSpot.
It is surprising the number of startups and companies that do not gather customer feedback, learnings and satisfaction data. Tools like UserTesting, Intercom, Drift, HelpScout have made feedback, live chat, and customer service much easier and allow teams to more readily gather data to improve the product, product market fit, and growth.
Combining the qualitative and quantitative data available from your analytics tools like: Google Analytics, Heap, MixPanel or Amplitude, can drastically improve learnings and insights. For earlier stage businesses we find that is even more critical to combine the qualitative and the quantitative data and even look at tools like heat map analytics from companies like HotJar to look even further into user behavior.
Customer Feedback and Insights
One of our favorite concepts especially for early stage startups is the importance of “getting outside the building” and talking to customers to learn how to better serve them with your product offering. This concept was made famous by Steve Blank, author of Four Steps to the Epiphany. It’s been called the book that launched the Lean Startup movement. We typically see that the earlier the stage, the more critical this piece is.
Some of the most successful companies we work with are those that are frequently talking to many segments of their customers at each stage of their own growth, not just beta or early stage, and not just to boost their NPS score, but to really dig into insights that will allow their business to thrive in the long term.
#7 Week over week growth
Paul Graham made famous the concept of growth in this post defining a startup as a company that is growing at a specific rate, stating that Startup = Growth.
Shocker that Graham is all about revenue growth rather than audience or vanity metrics. He outlines the three phases of startup growth as well as potential week over week growth rates. While those growth rates will vary by business model, stage and market, it is critical to striving toward a weekly growth rate and focus engineering, marketing, product and operational resources and effort on moving that one metric forward each week.
If an achievable week over week growth goal is set but being missed regularly, we might have operational obstacles or we might have a PMF (Product Market Fit) issue. Either way, we need to go back to the drawing board…
Let’s review our plan / execution, and gather additional data to uncover what is not working with this product, in this market.
We often work with clients to determine week over week goals, then build plans to hit those goals aligning tasks in our weekly sprint schedules to line up with impact that goal. Often we will also have clients that already have a week over week goal that we can plug into and drive to hit. Depending on business needs, scope, and where we estimate the largest impact, we will strive for one key metric. It might be: week over week revenue, email sign ups, purchases, downloads, conversion rate, retention rate, MAUs depending on the situation.
Aileen Lee of Cowboy Ventures featured in a great recent article by Product Hunt stating that 20–50% month over month growth can be a good indicator warranting VC investment.
#8 LTV : CAC Ratio
Unit economics are critical to growth. Before launching a marketing plan, not to mention specific channels we need to have some estimates based on some actual data.
As the marketing plan evolves we will need to frequently look at LTV and CAC to ensure that we update it to reflect reality. If LTV is lower than CAC of course we have a problem…
The ideal LTV: CAC Ratio for many companies should be 3:1
Well, we hope that you enjoyed our 12 days of Christmas version the key factors that lead to our Growth Diagnosis.
If you like the post let us know with a 💚 like our friend Quincy here…
Stay tuned for our third and final post featuring factors 9, 10, 11 and 12 part 3 of our epic Growth Diagnosis trilogy!
About The Author
Tye DeGrange is the CEO of Round Barn Labs, a growth marketing consulting firm. You can connect with him on Twitter, LinkedIn or follow the entire Round Barn Labs crew on Twitter.
