The following is a guest post by William Griggs. William is the Founder of Startup Slingshot, the resource for battle-tested startup strategies. Access the audio interviews of today’s featured growth practitioners, the full 43 page guide, and tons of resources here (free for now).
“A startup is a company designed to grow fast.”
Growth is what founders and investors alike are constantly searching for. Growth enables startups to quickly create tremendous value in the market. Without growth you’re dead in the water. But accordingly to Paul Graham, there’s a silver lining: “…if you get growth, everything else tends to fall into place.”
“For a company to grow really big, it must(a) make something lots of people want, and (b) reach and serve all those people.”
Unfortunately for most founders, viewing their startup from this altitude isn’t extremely actionable. In this post, we’ll uncover the methodologies and tactics you will need in order to validate your business and systematically reach and serve your target market.
How do you ensure you are making something lots of people want?
Making stuff is the easy part. The key, however, is making something a lot of people want. Market selection and product/market fit are critical here.
This is where a lot of startups end up spinning their wheels. As you build product early on, how do you determine if you’re on the right track or heading towards a dead end? While every business is unique in terms of exactly what it needs to do to achieve product/market fit, the process for quantifying it is consistent.
Assuming you can’t use sales as an indicator of product/market fit, below you will find several ways Brian Balfour, VP Growth at Hubspot suggests quantifying product/market fit for your startup. The further down you go on the list, the more customers are required to receive meaningful insight.
Indicator Surveys — What do people say about your product?
Leading Indicator Data On Engagement — How are people using your product?
What are you seeing inside the product? How active are your customers?’
Retention Cohort Curve — Does your retention curve flatten off?
If people consistently use your product over a certain period of time, you’ve reached product/market fit for at least a subset of the market.
Unsure how to get started with cohort analysis? Read this.
Don’t have enough data to do any of these steps? Focus on executing “trickle marketing campaigns.” Sean Ellis, CEO at Qualaroo was right to say that in order to understand what your target market thinks of your solution you have to expose it to them. The trick here is to not spend money and time on a big launch, instead focus on highly targeted marketing campaign that puts your product in the hands of the target market.
Before moving on to the second piece of Paul Graham’s growth equation, it’s important to emphasize that you have to get this right.Without product/market fit you’re wasting time even thinking about growth. As a founder, your startup is like a ticking time bomb says Andy Johns, Director of Growth at Wealthfront. You have a certain amount of time before everything will explode. To extend the time allotted, you need to show growth and the first step is establishing product/market fit.
How do you ensure you reach and serve all those people?
You’ve built something that solves a problem, for at least a part of the market, and now it’s time to get it into their hands.
Three Principles For Driving Quantifiable Growth
Learning how to reach and serve your target marketing isn’t rocket science but it isn’t obvious either. Those that drive quantifiable results do so by following these three principles:
Triage: They work on the highest return on investment activities, suggests Ivan Kirigin, CEO of YesGraph.
Test: They don’t assume they know what’s going to work. Instead, they focus on generating and testing hypotheses, Ivan adds. If you don’t take the time to get your analytics straight, so you can validate assumptions you’re flying blind.
Set Goals: They have a target metric they focus on. Doing so will help you focus your efforts.
Now let’s dig into the specifics.
How To Ensure You Reach Your Target Market
When starting to think about how you are going to really invest in reaching your target market, it’s important to revisit your business model. To start, you will need to formulate your target customer acquisition cost (CAC). Doing so will help guide you in determining which channels to test. To calculate your target CAC, you must estimate the average lifetime value (LTV) of your customer (learn how to calculate LTV) and subtract your profit margin. Hitting this CAC will allow you to profitably acquire customers. While most bootstrapped companies target a CAC that is 30% of their LTV, many VC backed companies that are trying to own their market typically spend to 100% of their LTV.
With this in mind, the next step is selecting what customer acquisition channels to test first. Below, I’ve briefly summarized Brian Balfour’s blog post titled, “5 Steps To Choose Your Customer Acquisition Channel.”
In this matrix, you will have a list of potential marketing channels on the left and a set of channel attributes at the top. Keep your business model, competition, and target market in mind, and begin to fill out the matrix by rating each channel using the words “low,” “medium,” and “high.”
Review your current constraints (time, money, target audience, legal, etc.) and select the top one or two channels to test for viability. The viability of a channel is determined by its ability to drive predictable returns on the time/money invested. Once you find a channel or two that works, it’s time to double down and to continue to invest in optimizing the channel.
Not sure where to start with each of these channels? Check out these videos from 500 Startups’ WMD conference.
How To Ensure You Serve Your Target Market
In addition to reaching your target market, you must also focus on optimizing the process with which you use to serve them. In this case, serving them means getting them to your product’s “wow moment.” To get more of your target market to your product’s “wow moment,” Sean Ellis suggests that you focus on increasing desire and decreasing demand.
Increasing Desire: To increase desire you are continually working to test and optimize your messaging and positioning. The thought is, “with enough desire, people will overcome a lot of friction” says Sean Ellis. To execute on this and track your progress, you will need a combination of qualitative and quantitative data. Sean emphasizes that it’s paramount to keep the ultimate product experience in mind, so that you don’t increase desire for a product promise that your product is not designed to deliver on.
Decrease Friction: This step in the process is all about conversion rate optimization. It’s about seeking out and fixing all that’s preventing people from converting, whether that’s a macroconversion, like signing up for your product, or any of the microconversions that lead up to it. To dig in further on this topic, I suggest you read Qualaroo’s, “The Beginner’s Guide to Conversion Rate Optimization.”
In this post, we’ve covered the essential elements to designing a startup for fast growth. If you’re farther along or you just want to dive deeper into growth for early-stage startups, you can access the audio interviews of today’s featured growth practitioners, the full 43 page guide, and tons of resources here (free for now).
Read more: onstartups.com