It is also the first venture growth methodology we’ve implemented at MaRS that moves beyond high-level go-to-market growth tactics and deeply examines the internal and external friction points that slow technology venture growth.
In today’s environment, it has never been easier to start a company—but it’s also never been more difficult to scale. This is why we need a new way to describe how technology companies grow.
Enter the growth flywheel.
What is the growth flywheel?
Andrew Mahon, Marketing Fellow at HubSpot, deftly explained the growth flywheel while at MaRS earlier this year. Catch his video here. Andrew is the person who popularized this methodology that was presented by Brian Halligan, co-founder and CEO of HubSpot, at INBOUND 2018.
The flywheel matters for many reasons, including:
The flywheel has essentially become a new metaphor for growth, replacing the traditional sales funnel. It is fitting considering how we help ventures grow at MaRS, where there is a deep emphasis on aligning functional roles early on and later on aligning teams and departments as the startup scales. In emphasizing a flywheel approach, MaRS is able to get ventures to think holistically about growth—not just about how to acquire or sell, but also how to turn existing customers into the next channel of growth.
|“The flywheel helped us identify and work through gaps in our sales and marketing journey. We looked at those gaps and developed solutions to continue moving our customers through each iteration of the cycle. Most importantly, we were able to find tangible next steps in closing the loop to turn our top clients into proud brand ambassadors.” –Fiona Gao, Senior Director of Marketing, eSight|
What are the key differences between the sales funnel and the growth flywheel? The funnel treats customers as outputs (rather than considering how they can help your company grow as an input). The funnel is linear in terms of how it measures growth, which happens usually on a quarterly basis, depending on the sales cycle.
This approach may have worked a few years ago prior to the movement toward cloud and freemium business models and self-serve product offerings, but it doesn’t work today and doesn’t accurately describe how technology ventures grow.
The customer buyer journey is anything but linear.
The flywheel places the customer in the centre of all growth forces, which are marketing, sales and service. Doing so helps technology ventures identify inefficient forces, maximize delight, and fix dreaded “friction,” which slows company growth.
|“Whereas funnels lose their momentum at the bottom, flywheels leverage their momentum to keep spinning. Also, because they preserve momentum so well, all of the additional energy used to spin it faster adds to the capacity as a whole.” –Greg Karelitz, Global Head of Partnerships, HubSpot|
At MaRS, in our advisory sessions with ventures, we often find the greatest growth challenges are not the tactics being deployed or the tools being used. They are how teams are organized holistically around growth.
Oftentimes companies don’t realize the interdependencies of how their own internal inertia can slow growth. This is especially true of ventures who are past product–market fit, where repeatable and scalable processes are being implemented.
We guide them out of the weeds of their day-to-day processes and help them see how they can collectively align to growth.
The new growth formula we organize them around is as follows (where force = marketing + sales + service):
Of course, growth doesn’t happen without first reducing friction. To reduce friction, ask your team:
Once you have answers to these, you get better alignment as #oneteam to reach your ultimate growth revenue goals and what I call the Narwhal metric that ventures must achieve to get to $100 million or greater in revenue.
growth = [average revenue per account / year (ARPU)] × # of customers × % annual retention ≥ $100 million
As mentioned, today’s buyer journey is anything but linear.
Customers often connect with the buyer journey at different points and are armed with more information at every point. Simply put, they are more informed than ever and don’t rely on sales reps to educate them on the product. They rely on their colleagues, peers and friends. In fact, according to Casey McGaw at HubSpot’s Inbound 2019, more than 30% of customers buy based on referral in a B2B setting.
This is why technology companies must meet their customers wherever they are in the buyer journey and arm them with the correct information at each part of the stage for them to make better buying decisions.
Watch how Airstream describes its flywheel and how it connects with customers on the buyer journey.
Today, it’s not what we sell, but how we sell and how we differentiate based on experience.
As Brian Halligan said in his INBOUND 2019 address, “startups must obtain experience/market–fit”—i.e., removing all friction points the customer experiences with the product. This means startups must move away from designing products and services based on personas, and develop products and services based on a “segment of one,” thereby creating a highly personalized experience.
Examples of companies that have successfully reached experience/market–fit include Glossier, where they sell through their customers, and Warby Parker. In the case of Glossier, its customers actually do a lot of the work for it.
The key insight is that startups need to start embedding experience in key areas of their business model in order to differentiate.
This article kicks off a new series on the growth flywheel. In upcoming articles, we’ll discuss how technology companies are attracting (marketing), engaging (sales) and delighting (customer success) customers.
We’ll look at the latest in self-serve product-driven marketing, conversational marketing and automation. We’ll also examine the latest trends in sales, from pitching, prospecting and closing to how to properly map your buyer journey and implement a sales process. And we’ll see how technology companies can delight customers and empower them through community.