Continued Digest of Growth Marketing Insights from Rachel Hepworth, Slack (2nd part)
Do this at the beginning, don’t do it at the end and question all of your assumptions. So the question is once you’re doing this customer discovery process, how do you actually know that you have this fit?
Rachel advises to look out for the following
- Organic growth – organic growth in the very beginning is fundamentally word-of-mouth – people like your product enough that they will tell other people about it. Slack grew for years and even now off the back of this word-of-mouth. People liked it so much they told their friend, who told her friend, who told their co-worker.
- Payment – so again it’s one thing to use a product for free, it is a very different thing to part with a dollar for it. And that is a breaking point that many companies painfully realise so before you’re going to invest a lot, make sure somebody’s actually willing to pay you some money. It is not the same thing to use something for free.
- Retention – retention is about repeated usage of your product and the key thing here is that repeated usage is different depending on the engagement pattern that your product should have. Are you something that should be used once an hour, is your product daily, is it weekly, is it monthly, is it yearly – different products have different expectations for what the repeat usage should be. You got to figure that out and then make sure that you’re hitting those markers so like a newspaper would be a daily use case. If you’re an apartment rental list, that’s a little challenging because maybe it’s once a year. So figuring out if you have retention is going to be a little hard and you’re going to need to find a leading metric.
- And then finally this is all about making the customer the centre of your development process and again this sounds very obvious, but it is really easy to forget in the midst of everything that you’re working on. And a classic example of this is again Climate Corp, when they did pricing for their insurance products — what they thought was a pretty classic model and that was: “you want a hundred dollars of insurance coverage, pay us ten dollars”. It felt straightforward. What they discovered later on is that farmers don’t budget that way. They budget in terms of acres. So they did not know what that meant when they said $100 of coverage for $10. What they knew is that my corn is worth $200 an acre, I budgeted $30 per acre of corn to develop it, and then they know how that fits into their financial planning. They never would have known that if they hadn’t talked to them a great deal.
If you have fit, how do you grow?
That’s the next question and a lot of people ask how I do growth and what Rachel tells them is that “growth is a funnel, not a stage!” So the big difference between growth and marketing historically is that marketing stops at acquisition and growth goes through the entire funnel, because what you ultimately really care about is revenue. If you get people to try your product and never pay, it’s still not that fantastic.
A lot of folks talk about the AARRR metrics and this is what Dave McClure came up with. This pirate metrics – acquisition, activation, retention, revenue and referral. Acquisition is about how people find your product, how do they get to your website, how do they try out your tool. Activation is how do they get to the value of your product, so this is often on-boarding and things like that. Retention again – are they using it with the cadence that you think that they should? Revenue – are they willing to pay you money? And then referral is a little bit links back to acquisition, where if people aren’t going to talk about your product it’s going to be a lot more challenging to grow.
So a few thoughts on three of these acquisition activation and retention so first is that acquisition is all about product channel fit – keep this in mind. All of these companies – Linkedin, Slack, Climate Corp, Yelp and Priceline – are very successful, they all acquire their customers in a very different way.
So Slack right now obviously word of mouth is big, but brand-on content is where we’re really investing. Slack is a new category people are not that familiar with it. We have to educate them a lot, we have to make them aware, so we’re investing a lot in the brand. LinkedIn – obviously viral loops. LinkedIn originated the address-book import, which everybody loves so dearly to spam all of your network to invite them to LinkedIn, but it’s helped them grow exponentially. The key about LinkedIn is that it becomes more valuable for its members the more people who are on it, so it’s really primed for that viral loop. Climate Corp was all about channel partnerships so it grew through sales, not through marketing. Again, because it is a new expensive consultative product and you did that relationship. Yelp is all about SEO – when you have a company where your users will create more content and they’re motivated to continue creating more content, SEO is going to be really useful for you. Pinterest is another example. And then Priceline as mentioned works off of ads: high-volume/low-cost quick time-to-value. Priceline is the largest purchaser of online ads – they spend three billion dollars in a year.
Activation is all about shrinking time to value: how do you get people to that aha moment faster. When people first try your product is when they’re the most motivated to invest in education, you need to make it easy for them to understand. One example of this is obviously on-boarding. This is right when people are willing to go through all the steps they’re the most motivated. On-boarding can dramatically increase the activation rate of your users if done correctly.
Then finally getting people to activate is also about showing them their progress that they remain invested. This is an example of LinkedIn’s profile completion meter. It’s fairly famous in terms of one of the most successful and earliest types of gamification. This really hinges off of the concept of the endowment effect. The endowment effect is the idea that once somebody has invested a little bit of effort, it’s a little bit like sunk costs – they’re going to go all the way they spend a little bit of time “let’s complete it”. Every time you update your profile at all Linkedin says “you’ve done this much, do a little bit more to get from beginner to intermediate to advanced”. There is pretty much no way to get a hundred percent on the LinkedIn profile which drives people nuts, but it is really effective in getting them to keep updating. And even when you know what LinkedIn is doing to you, it still works. You just can’t help it.
So finally, it’s retention and retention is getting people to come back. This is all about increasing value and then pulling people back into the product, because the more value you offer the more people are going to stay with you, and then, if they’re not in the product, you need to find ways outside of the product to bring them back in. So this is email, SMS text things that are not inherent to the product. One of the best examples of a retention campaign is the LinkedIn “who’s viewed your profile” email. This is sent to folks who are a little bit more on the dormant side, talking about who’s viewed their profile. It doesn’t tell you – you have to click through and the kind of the mystery effect of this as well as how much it plays on people’s self-interest: everybody wants to know why they’re popular and who’s looking at them is incredibly effective – this had really high click-through rates, the click-through rates do not degrade over time no matter how many time you send this email, people cannot stop clicking on it. You ask them why and they say “I don’t know, but I want to know”. Nobody has yet figured out a true use case for who’s viewed your profile, except for LinkedIn, which monetises it really well, but it’s hooking into that psychology of wanting to be popular. And for LinkedIn not only does it reactivate a lot of people, but it creates habits for them. So what happens is they click through they look at who’s viewed their profile, they might click through those profiles they look at the homepage, they read some articles, and it’s creating a habit of checking LinkedIn, which is what the company really wants.
So you have all these different stages of the funnel and the key thing is that each one is equally as important and a lot of people get very distracted by acquisition. Rachel did a simple math equation where one could see that in the base case if you have a hundred customers, 30 percent activation, 80 percent retention, $10 a customer and you make $240, no matter where you double the funnel – whether its acquisition, activation or revenue, you end up with the same amount of money. And this is something that people often forget, because it’s really easy to focus on the top funnel numbers, but there are often other areas of the funnel that are much more important to optimise. And what you really want to think about is we’re going to get the most bang for your buck. So if you’re at a startup and you have limited resources where do you focus, if you’ve got this entire funnel that you should be looking at?
Rachel thinks about ROI as a combination of impact, cost and risk. Impact is not just moving the numbers, although that’s obviously important, it’s also how much you’re going to learn. The earlier the stage you’re in, the more important the learning is. All numbers are small, so impact on numbers will be minor, learning will be huge! How quickly can you reorient yourself away from the missed assumptions you have onto the right path? So in the early stages prioritise learning over anything else, because any number that you increase or decrease is going to be nothing compared to nailing the market or the channel or the product. Cost is a combination of time, money and people so depending on which you have more on you can invest more in and then risk is obviously how likely it will be to succeed. So the higher the risk, the more you should question it. And the key for the impact is to always be learning – so what is your hypothesis, how will you confirm or invalidate it?
Finding your North Star
There are a lot of metrics with the entire funnel with running a company. Metrics don’t really mean anything if you don’t do anything about them, but you can’t do everything about every metric – you’ve got to choose. A North Star metric is a great thing to align a company around. So a North Star metric is a metric that is indicative of the health and growth of your company that can’t be gamified and it can’t be influenced by spammy growth tactics. It often represents the growing value that your users receive. People often use activation type metrics for this, because they will be a combination of both growth and value, so you’re not limiting it to one or the other.
At Slack their North Star metric is about activated teams so that’s how many work teams did they acquire who reached three users and five hundred messages. And they often time-bound that to a week because they need to be able to experiment off of it quickly. So they can’t wait six months to figure it out, they need to know if they’re improving that metric or decreasing it with every initiative they do. At LinkedIn the Northstar metric was quality members. So this is about how many members did they acquire who have a minimum amount of their profile filled out and have a minimum number of connections because if you have a member who really just has to be an email address if all they have is an email address that’s adding nothing to the value of the network – they need a profile that people can search for, find, connect to and they need to connect to people so they’re strengthening that network and so that was how LinkedIn defined it.
Pretty much every company can have some type of activation metric. The key is that you have to be able to see it within a reasonably short period of time, because otherwise you can’t act on it. And that’s one of the reasons why revenue is pretty much never a good metric for this, because revenue is a very lagging indicator. Once you see that the revenue is going up and down it’s obviously something that occurred months ago, and you can no longer do anything about. So speed is super important with this metric. You need to find it, measure it, monitor it and then align your entire company around it because it’s also most powerful when every team is going towards the same number versus having different goals that often compete
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