Masters of Growth: Growth hacking—with Sean Ellis

Hi, I’m Sean Ellis and I’m the founder and CEO of GrowthHackers. I previously ran growth or marketing at LogMeIn, Dropbox, Eventbrite, a bunch of companies. I’ve been the author of Hacking Growth, as well, the co-author of Hacking Growth, and coined the term “growth hacking.”

Tell us about “aha” moments & setting clear goals for your growth team.

A huge part of growth in a business is the “aha” moment, that ultimately, that’s where most companies get it wrong. What they’re doing is they’re spending a lot of money on customer acquisition and most of those customers get lost before they really experience the product. And so all of that return on investment is lost when they fall out of the funnel. And what you’re trying to do is get them to an aha moment where they validate their decision to try the product, they get some value, and if you’ve picked the right aha moment, they’re going to stay retained on the product long-term.

So, a great example with that that we talk about in the book is Facebook, who realized that you need to get to seven friends to really get value from the product. So, if you have one friend, your feed is going to be pretty empty if you come back a second day. Two friends might have a little more activity, but it’s still not enough to retain you. But once you get to seven friends, you get regular updates in your feed on Facebook and you’re much more likely to then become habitual user on the product. And so that’s a big part of long-term retention for them. I recommend in trying to figure out what your aha moment is, it’s just to think about qualitatively, “what is the right experience with your product to really get the first taste of it?”. And then look at the data and see getting people to that point—does that actually help them stay retained on the product? And so you have a minimum amount of time that you have to get them there. If it takes a year to get there, most people will have given up.

So in that Facebook example, you have 10 days to get them to the seven friends, what Facebook’s realized that it takes you two weeks or 25 days to get to those seven friends, most of those people will give up. So that becomes your primary focus in the beginning of someone’s experience with your product, is to get them to that aha moment.

How do you make growth part of the company culture?

Growth culture is something that ultimately every company should aspire toward, but it doesn’t happen overnight. It really starts with the mindset. Everyone across the company needs to understand that everything that’s being done can be done better. And the only way to find out if it’s better or not is to test and measure and see if it’s better. And so as that mindset kicks in, then that should drive the behaviour, and the behaviour is going to be kind of hard in the beginning. But the behaviour will lead to some testing. And as that testing happens and you see improvement, the behaviour starts to lock in really the benefit for the company. And so you’ve got to push through that. But over time, the more people that have that mindset, have that behaviour and the habits of growth, you really start to see the culture kick in and those are the companies that really do well with growth.

Why should a company focus on revenue & retention first, & customer acquisition second?

It’s important for a company to focus on revenue and retention early in the process of growth, because if you can’t retain a customer and monetize a customer, you really can’t afford to acquire a customer. What happens is that essentially growth is going to flatten out if you keep losing them, and if you don’t have a return on investment, you can’t afford paid channels. But it’s really not even effective to focus on free channels if you’re not retaining the customers.

So the biggest driver of that is the core product value to start with, so that’s why you want to validate that you have product–market fit. Initially you’re going to need some flow of users coming in to validate if they keep using the product. But once you have enough of a flow, then you want to focus on that retention. And, again, core value is going to drive that retention more than anything. But if you can do reminders and really focus on getting them activated and using the product in the right way, then they’re much more likely to stay retained long-term. So start with retention and monetization, and then you can focus on customer acquisition.

What’s the importance of having growth at the core of the business?

The fastest growing companies all have growth at the core of the business. It drives strategy, it drives product. Ultimately everyone in the business is thinking about how do they extend the reach of the benefit that the product delivers? One of the hardest challenges of having that happen is that a lot of product organizations just aren’t wired to think about growth. They’re more wired to think about having a great product experience. But a product that is not used is not a great product experience. And so the more that everyone can be aligned around what is their role in driving growth, the more likely that the overall team will be pulling in the same direction. And ultimately the strategy of the business will be aligned around, “how do we get the product in the people’s hands?” so you can most benefit from it and really drive value to an overall expanding customer base.

How does growth change as a company reaches 40+ employees?

Growth is very different in the early days of a business compared to when the company gets bigger, and there’s a tipping point at some point within the business where it’s not simply an individual who’s driving growth and it’s more of a team effort. Around 40 employees, you really start to need to have more process and organization to get everyone working together in the right way. And so hopefully by that point, the culture has really taken root because as a company gets bigger, changing culture becomes harder and harder.

I think at the point where you’re in the 30-, 40-, 50-person range, you want to have really a dedicated team around driving growth, but you want to have beyond that team everyone having a perspective on what their role is in driving growth and passion for driving growth. Because the mission of the business is not just to create a great product, but it’s generally to affect the customers who need that product, and that can only be done if you can get the product in the hands of the right people at scale. It takes a lot more process as you get bigger to be able to make that happen.

When should the focus shift from building a great product to building a high-growth company?

In the early days of a business, it’s really about creating a product that’s worth growing and you don’t know how long it’s going to take to get there. And so that’s why in the beginning of a business, product–market fit is your primary focus, and it’s really about iterating on the product, getting it into the hands of the minimal number of people to be able to get that feedback. And if you’ve got it or not—if you don’t have it, that feedback can help you steer toward it—but eventually you shift into growth mode where you never stop trying to improve the product. But particularly, a product team now needs to focus a lot more of their effort on the first customer experience and getting people to use the product in the right way.

For a consumer product, I generally recommend about 50% of product development resources go into optimizing that first customer experience and so you can already see that big shift. It essentially means that the core product is good enough that you can start to focus on that first customer experience. And ultimately a growing company starts to look a lot different than a early-stage, pre-product–market fit company.

If things are going well, how do you start to systematically accelerate user growth & acquisition?

When things are going well in a business, acceleration is always the goal of the business and accelerating customer growth, in particular, is always a goal of the business, and it gets harder with scales. Ultimately, your growth trajectory is going to generally be based on how things are working today. But if you can drive an improvement in your customer activation rate or an improvement in how much monetization you can get per customer, then you can start to spend more on the actual acquisition of customers and all of these interdependent parts of the business start to take your growth trajectory up to a higher level. It’s all about optimization and retention as you get bigger. And optimization and retention leads to more resources being able to be invested in driving acquisition on the front end.

As a company scales, what traits do you look for as you expand the growth team?

As the company starts to scale, the team make-up is really important. And what I always for are essentially really driven people—it takes a lot of tenacity to drive growth—but driven people who are focused on creative problem solving. Each of the opportunities for improving growth are really mini-problems that you’re trying to solve, and to solve those problems you need to understand them, contextualize them, and then try different solutions. And so being curious about the results of those solutions is important, being disciplined about looking at the data as it relates to those is important. If you’re looking for the designers within a growth team or the engineers, they have to be people who are comfortable with throwing away a lot of their design work and throwing away a lot of their engineering work and being able to work fast and in a prototype-like way in the beginning and then being able to make things perfect later on.

But if they’re looking for perfection early on, they’re probably not the right type of fit for that growth team. But overall, it’s about just being really focused on continuing to drive expansion of customer value and holding accountability to that. And then also having the accountability for the inputs that will drive that expansion. So, lots of ideation, lots of testing and lots of work in implementing those ideas and testing.

Tell us about growth mistakes you have seen or been part of.

Mistakes are really commonplace when it comes to growth. But hopefully most of those mistakes are small mistakes, which are in the form of a test. And so even a test that’s a mistake that you ran that test, isn’t really a mistake. You’re essentially learning about what didn’t work and a lot of times that can inform what works. The challenge that I see is when people take big bets and don’t have really evidence that it’s going to work and it could have been tested in a smaller way. So sometimes that’s a very big investment in a customer acquisition campaign that may not have a tracked return on investment.

I would say one mistake that I made early on in my business that kind of relates to that, not in my current business but in the game company that I first worked for called Uproar.com, a lot of it was through purchased advertising. A lot of the growth was through purchased advertising, and one company had gone public and they shot up a record gain, that company called The Globe, and they were all over CNN and all over all these other places. And I had bought advertising from them in the past, but I thought, “What a great opportunity to try to get our ad on their homepage and we’d get the double the benefit. Normally we would just pay the CPM, but I’m going to get the double benefit with CNN and all these other news outlets.”

But it required a big bet on my part and my CEO was not very happy with that big bet when he knew my regular approach was very small buys that scale when they’ve proven to work, and so I had to go and get that purchase order cancelled. Then the only person I could find in the office was a very young-looking guy who didn’t seem like he would have the authority to cancel my purchase order. But it turned out it was actually the CEO of the company. Fortunately, he was able to cancel that order. And so that was a mistake, one that I was able to reverse out of, but they happen and it’s about hopefully minimizing the size of the mistakes that you can move on.