By: SEAN ELLIS, MORGAN BROWN
28-MINUTE AUDIO / 3,500 WORDS (12 PAGES)
How can you reach new customers, keep them active, and grow your revenue with a dash of programming smarts and a shoestring budget? Traditional marketing methods cost millions of dollars for uncertain payoffs. Growth hacking, on the other hand, uses an analytical approach to build marketing into products themselves and stimulate organic growth.
This book uncovers case studies that explain why your competitors are doing what they’re doing, and why you should be growth hacking, too. Read this summary to learn how to turn growth on autopilot with high-tempo testing and experimentations.
TOP 20 INSIGHTS
PayPal grew from being eBay sellers’ preferred mode of payment. Once PayPal knew that sellers liked their product, they created AutoLink, a tool that would automatically embed the PayPal logo and sign-up link into all of those sellers’ active listings.
Hotmail was a pioneer in growth hacking. Introduced at a time when free email was practically nonexistent, Hotmail included a hyperlinked line that reads “p.s. Get your free email at Hotmail” at the end of every email.
Growth hacking experts found that phrasing customer survey question using the word “disappointment” is much more helpful than asking customers about their level of satisfaction. When over 40% of customers surveyed would be “very disappointed” if they could no longer use the product, the product has very strong potential to benefit from growth hacking.
In just 14 months and with absolutely no traditional marketing spend, Dropbox grew its users from 100,000 to 4 million. This was done by offering 250 megabytes of free storage to each user who referred a friend to try Dropbox.
Facebook spurred its tremendous international growth through an ingenious growth hack. Rather than hiring dozens of people to promote the platform in various countries or translators to translate the entire site, Facebook software engineers built a best-in-class "translation engine." This method crowdsourced translations and led to countless new users who were now able to access the site in their language.
Airbnb had a very slow start, struggling to make ends meet until a software engineer discovered a way to get more traffic to their listings by cross-publishing on Craigslist. Airbnb staffers engineered the posts such that searches for short-term vacation rentals displayed Airbnb listings and redirected them to the Airbnb booking website.
Growth should be a priority for all firms, large or small. A Harvard Business Review article stated that "on average, companies lose 74% of their market capitalization…in the decade surrounding a growth stall."
LinkedIn has over 120 employees solely focused on growth. These staffers are spread across five units: network growth, search engine optimization operations, onboarding, international growth, and user engagement.
Renowned economist and business strategist Michael Porter writes that, to drive future growth, businesses will need to maximize the lifetime value of customers rather than sell to new customers. Tesla Motors is best-in-class at keeping connected with customers in this way. Rather than putting model years on cars, it continually sends software updates and makes upgrades available.
While a traditional marketing budget certainly has its place in some contexts, a McKinsey study showed no direct correlation between marketing spending and growth rates.
BitTorrent was surprised to find the #1 reason customers weren’t upgrading to the paid version. The simple fix of highlighting the “upgrade” button on the home page led to a 92% increase in revenue.
Zillow CEO Spencer Rascoff began an annual growth effort called “Zillow Play”. Knowing that its competitor Trulia had mastered SEO, Rascoff made SEO improvement Zillow’s growth “Play” for the year, thus allowing the company to grow tremendously and ultimately acquiring Trulia.
Etsy’s runaway success with independent artisans and crafters was due to a combination of “boots on the ground” research and smart customization of Etsy’s online capabilities. After discovering that many talented crafters were members of tight-knit crafting social circles, Etsy built online community forums to drive communications among the sellers.
Business intelligence company RJ Metrics discovered that free trial users who used the software to edit a chart were twice as likely to convert to paying customers than those who didn’t. They then crafted their new user orientation to include editing a chart.
Pinterest began as a more traditional commerce app called Tote. After analyzing user data and behavior, they realized that users were stockpiling massive collections of things they coveted instead of making the purchases. So Pinterest shifted to a business model that facilitated browsing and pinning instead of buying.
Every company has a fundamental growth equation that it must identify before growth hacking can begin. These are the key data points and levers that increase revenue. For example, for Facebook, these metrics were the number of items users are sharing and the time spent looking through their News Feed.
Sean Parker, founder of Napster and former president of Facebook, wrote the "virality equation”, which is: virality = payload x conversion rate x frequency. The payload is the number of people to whom each user will likely send the promotion or link. Conversion rate is the percentage of those people who will sign up, and frequency refers to how often people will be exposed to these referral invites.
It’s best to survey users in two circumstances: 1) When their activity on the app signals “confusion,” such as staying too long on one page, or 2) When they take an action that others are not taking, like signing up.
Adobe designed game-like missions instead of forcing users to go through lengthy and unengaging tutorials. This lead to a 400% increase in users who upgraded to paid version.
44% of all reviews on Yelp are written by members from a group known as the “Yelp Elite Squad.” Yelp consciously identifies and rewards these reviewers based on their level of activity in the app and others’ evaluation of their reviews’ usefulness.
Growth hacking is an iterative process of analyzing, ideating, prioritizing, and testing to discover ways to drive viral growth through acquiring, activating, retaining, and monetizing users. Rather than employing blunt force marketing, leading firms such as Facebook, Airbnb, Tesla, BitTorrent, Zillow, Adobe, Yelp, and many others have discovered the incredible effectiveness of growth hacking. By embedding marketing in the product itself to gain new users, employing high-tempo testing to understand what customers want out of a product, and using big data to better retain and monetize customers, these companies have hacked their way to market leadership.
What is Growth Hacking?
Growth hacking is a novel way to build your user base, make users more active, and ultimately convert them into paying customers. It was originally pioneered at Dropbox, among other companies, in the mid-to-late 2000s, as a way of leveraging technology to help their products go viral. Growth hacking relies on high-tempo testing and data analysis rather than costly traditional marketing approaches.
We’ve condensed the “core elements” of growth hacking into this chart:
Growth hacking relies on cross-functional teams. Functions such as marketing and engineering must work together to analyze user data and behavior, conduct interviews and surveys, facilitate a “rapid generation and testing of ideas,” and ultimately analyze the key metrics and levers to see which interventions have made the greatest impact.
1. Having a must-have product:
The product needs to deliver an “aha moment” to customers. Two examples of products that were “growth hacked” but did not take off due to the value proposition of the product falling flat are Microsoft Zune and Amazon’s Fire Phone. What exactly is an “aha” moment? “An aha experience…is one that is simply too remarkable not to value, to return to often, and to share.” In other words, the product is very good and meets a glaring unmet need. A myth in the start-up world is that an incredible product is sufficient to achieve unicorn status. This is false. Team members must put significant time and effort behind a product, through either growth hacking or some degree of intentional branding and marketing.
2. Growth Levers Identified
Growth hacking is not merely running an endless number of small experiments (like where the “sign up” button is placed on your home page) and meticulously analyzing the results. To be effective, one must identify the key metrics that will increase revenue. Attempting to improve other metrics will be a waste of time and money. One case example is Everpix, an online photo storage company that ultimately failed. Everpix used a freemium model, meaning that their growth lever was paid subscribers. But instead of focusing on how to get more users to subscribe, the founders focused on new product features to add. This ultimately led to their demise.
3. Team Members
Executives might be tempted to tap their smartest engineers and coders to be on the growth team. While technical expertise is certainly needed, so too are skills for qualitative analysis, surveying, marketing, and design. At BitTorrent, a star marketer was given the leeway to collaborate with the product development team. She surveyed customers and found that upgrades to the paid version of the product were lagging because most customers didn’t even know that upgrading was possible. Product development took orders from her on key design changes to the website, and BitTorrent saw a 92% increase in revenue as a result. Marketing and engineering must collaborate for success in growth hacking.
High Tempo Testing
Once the pre-requisites are in place, you can begin the actual growth-hacking process. The four steps of growth hacking are: 1) analyze, 2) ideate, 3) prioritize, and 4) test.
This requires a deep dive into customer data to unearth insights. Consider segmenting customer data into cohorts. For example: customers who spend the most money on your products, versus those who spend the least. Then, ask questions about those customers and answer with data, as well as with qualitative interviews.
After reviewing the data reports as a team, the next step is to generate as many ideas as possible, limiting self-censorship or criticism of others’ ideas. Expert growth hackers recommend allotting at least four days for all members of the growth team, and ideally others from around the company, to submit as many ideas as possible into an idea pipeline. Use a project management system and identify clear fields to be populated by such ideas. A template for idea submission is below.
Now it’s time to sort through the ream of ideas your team has generated. Expert growth hackers recommend using a method for prioritization called ICE. ICE stands for Impact, Confidence, and Ease. Give every idea scores based on each of these three dimensions, then take the average of the three-dimensional scores into a single score for that one idea.
The Impact dimension is the level of change you expect your idea to affect the growth areas you have identified. The Confidence dimension is a judgment (ideally data-backed) as to how likely you believe change will occur. And finally, the Ease dimension is the time and resources that will be required to execute the idea.
With the prioritized list of ideas, the team has aligned on which ideas should be tested. The cross-functional nature of the team makes this step much easier than it would be otherwise. Each growth team member can return to his or her respective function (e.g., marketing), and inform other colleagues about the next steps. The actual testing of ideas will likely require effort from all functions. An example test might be redesigning the “shopping cart” experience on the mobile version of the company’s website.
As high-tempo testing is cyclical, the growth team should then begin again, analyze whether the tests generated the hypothesized outcomes, ideate the adjacent or additional tests to run, prioritize, and once again assess the outcomes.
Growth Hacking at Each Stage of the Customer Funnel
Hacking to Acquire Users
There are three categories of growth hacking possibilities to increase the number of users that are exposed to and begin using your product. They are: 1) honing your language and brand to fit your market, 2) find the right channel for your product, and 3) create customer loops.
1. Language & Market Fit
Your language and market fit is how well the way you describe the benefits of your product to resonate with your target audience. Choosing the right language to describe the product and its function is more difficult today due to the proliferation of mediums through which potential customers may encounter your product. The good news is that growth hacking can be put to work to carefully refine the language such that, at the end of experimentation, it is sure to resonate with users. Growth hacking is designed to bring the rigor of scientific experimentation to the creative process.
Upworthy is an online news source that has mastered the art of language and market fit. For each news story, the responsible Staff Writer produces more than 25 different headlines. The Curator then selects 5-7 favorites from these 25+ suggestions for possible testing. The Managing Editor then makes the final decision on which headlines to test. Ultimately, the Growth Team selects two similar markets, creates trackable links for each possible headlines, shares article via trackable links in both markets, and determines the winning headline from its tracking of clicks and shares. Upworthy's story illustrates how hacking for language and fit can be done very cheaply while still achieving results comparable to companies with much larger budgets.
Another method of hacking language and market fit besides A/B testing is leveraging the language that customers themselves are using to describe the value of the product. This language can be found in social media posts, customer reviews, emails, surveys, or other feedback customers give.
2. Channel Fit
Growth hacking can also be used to find which channel is the best fit for marketing your product. Take care in identifying channels, as PayPal founder Peter Thiel cautions that success through more than one channel is exceedingly rare. "Most businesses actually get zero distribution channels to work. Poor distribution – not product – is the number one cause of failure. If you can get even a single distribution channel to work, you have a great business. If you try for several but don’t nail one, you’re finished.”
Possible channels include users discovering your products through social media, platform integrations, friend referral programs, public relations and speaking engagements, search engine optimization, sponsorship, or native content ads, to name a few. Growth hacking principles can be used to test various channels and determine which may be the most successful. Specific tactics include analyzing customer data to determine where else your most active users spend time online, surveying customers to learn more about when they use the product, and doing the initial planning to rank possible channels. Some dimensions to consider when ranking channels include: cost, possible degree of targeting to the intended audience, the time needed to develop the channel experiment, the time to realize the results of the channel experiment, and breadth of exposure the experiment will provide.
3. Customer Loops
Lastly, one of the "older" or "traditional" versions of growth hacking is what is known as customer loops or customer referral programs. Customer referral programs incentivize existing users to convince others in their network to use the product by offering the existing user (and sometimes the new user as well) something in exchange. When using customer loops, growth hacking experts share two pieces of advice: First, the incentive and language must be on-brand. Second, marketers should increase the perceived value of the incentive as much as possible. Incentives that aren’t easily quantifiable, such as Dropbox’s incentive of 250 megabytes of free storage for referring a friend, are great options. Although Airbnb uses a quantifiable incentive - $25 towards their next stay – Airbnb’s description reinforces the brand. They use language suggesting that customers share the great experience of living like a local that Airbnb delivers, rather than just blatantly offering the cash.
Hacking to Increase User Activity
Improving activation about increasing the rate at which you get new users to your “Aha” moment.
As a foundation before beginning high tempo testing, one must first do two things to identify the highest impact activation experiments. First, you must map the route to the “Aha” moment. This “Aha” moment is the core value proposition the product offers – something too good not to share. Users won’t share the product or use it actively themselves if they’ve haven’t experienced what makes the product so special. If there are stumbling blocks or a poor experience along the way, then users might never reach the “Aha” moment. So first, trace this route as a way to identify the moments that should be analyzed closely. Second, create a user activity funnel as another way of identifying the places where your users are falling off. Analyze the data and find the percentage of users that move from each step, beginning at 1) visited site, to 2) signed up, to 3) active in the application, and finally 4) customer billed. Be sure to create a funnel for each of the most frequently used channels, such as users that arrived through Google search versus those that found you via Facebook.
Be open to out-of-the-box ideas when designing experiments for this stage. For example, HubSpot developed Sidekick, a product that tracked the effectiveness of email marketing. Through growth hacking, they discovered that users who signed up with their work emails were much more active than those who provided a generic personal account. Therefore, they asked for a user’s work email at the sign-up stage. This change, among other experiments, dramatically increased user activation.
Hacking to Retain Users
Acquiring customers costs time and money, so keeping the same customers means more revenue and fewer costs. Also, the longer that customers are loyal to your product, the more you learn about them and their desires, and the better you can make your product as a result. Growth hacking to retain users follows the same process of analyzing, ideating, prioritizing, and testing, but it's helpful to think about retention in three ways: initial, medium, and long-term retention.
In the initial term, growth hacking looks like user activation to some extent. The goal here is to keep users engaged for the short term. The exact time frame will depend on your product. In the medium term, to retain customers, you will need to make your product a habit for users, or part of their daily routine. In the long term, retaining users requires ongoing improvement to the product and renewed appreciation by the customers for what it offers them.
Initial retention hacks include experiments that accelerate the time to the “Aha” moment or trigger initiatives such as mobile notifications or emails that prompt the user to action. Medium-term retention hacks that create habits may follow the “engagement loop” as defined by customer behavior expert Nir Eyal. A "trigger" leads to an "action," followed by a "reward," which leads to greater "investment." Designing and reinforcing this loop for your product leads to medium-term retention. Lastly, long-term retention hacks should focus on improving both existing product features while also slowly introducing new product improvements.
Hacking to Monetize Users
HotelTonight is a mobile app where customers can book last-minute hotels at steep discounts. After digging into their user data, they found that customers who were using the app on 3G or 4G networks on their phones were much more likely to book with the app than those users who were surfing over WiFi. After realizing that this was because loading competitor apps over 3G or 4G took longer and were more difficult than it would be over WiFi, they decided to target customers not on WiFi proactively. This led to more bookings and therefore increased revenue and growth.
You can increase the customer lifetime revenue through mapping the “purchase funnel” and running experiments that identify new opportunities for revenue generation or pain points that are decreasing the likelihood of purchase along the funnel. Some typical key points include screens displaying items for sale, the shopping cart, and the payment page. Making these experiences as smooth, delightful, and clear as possible can greatly improve monetization. An additional lens of analysis is to once again segment your customers by cohorts or demographics and experiment with different ways to increase revenue from lower revenue-generating groups.