Podcast Summary
Ensure strong user retention before focusing on growth: Focus on improving user retention before scaling growth efforts, as a strong retention foundation is essential for sustainable growth.
Before focusing on growth, it's crucial to ensure strong user retention. Anu Hariharan and Gustaf Alstromer, partners at Y Combinator, emphasized this. Growth hacking, a buzzword for quick growth solutions, is not a sustainable approach. Instead, a growth team, which applies a data-driven approach, comes into play after achieving product-market fit. Retention is the foundation of growth, and companies should first check if they have stable retention that is better than benchmarks. This may involve assessing whether users remain active and engaged over the long term, depending on the specific industry. For instance, a social network would require a minimum of 50-60% retention. Therefore, before scaling growth efforts, it's essential to evaluate and improve retention.
Focusing on repeat usage or retention for valuable insights when starting out: Companies can gain insights into their product's evolution and effectively scale growth by prioritizing retention and measuring key metrics such as repeat usage or number of second fixes within the first few months after the initial purchase.
Measuring and evaluating the performance of a product or marketplace involves identifying key metrics that indicate meaningful usage. When starting out, it may be challenging to have a substantial amount of historical data, so focusing on repeat usage or retention can provide valuable insights. For instance, Airbnb tracked bookings as a sign of product usage, while Uber focused on completed trips. Stitch Fix, on the other hand, initially prioritized retention by measuring the number of second fixes within the first four months after the initial purchase. By improving retention, companies can better understand their product's evolution and effectively scale growth.
Understanding user retention in the early stages of a startup: Determine ideal user behavior, prioritize retention for cost savings, and establish a clear understanding of user behavior for growth foundation.
For startups, focusing on user retention is crucial for long-term growth. Stitch Fix, for instance, understood this concept early on and prioritized it for their first four years, leading to organic growth and a shift to growth strategies in the last one and a half years. Retention is essential because acquiring new users is costly, and retaining existing ones saves marketing dollars. When starting, entrepreneurs should determine the ideal user behavior and frequency of use for their product or service. This information can be obtained by understanding the use case or analyzing typical retained users' behavior. Having a single source of truth data is also essential for accurate and effective metric analysis. In the early stages, startups may not have all the answers, but establishing a clear understanding of user behavior and retention is a solid foundation for growth.
Building In-House Analytics Tools: A Growing Trend for Businesses: Businesses facing data management challenges may opt to build in-house analytics tools for better control and customization, involving setting up a database, ensuring data availability, and building tools for segmentation, event tracking, and experimentation.
As businesses grow and collect data from various sources, they often face the challenge of storing and analyzing that data efficiently. Initially, they may use external tools like Segment or mixed panels to manage their data. However, when they reach a certain scale, they may decide to build their own analytics tools in-house for better control and customization. This process involves setting up a data event database, ensuring data availability, and building tools for segmentation, event tracking, and experimentation. The decision to build in-house tools depends on the size of the growth team and the resources available. At Airbnb, for instance, they started building their own analytics tools when they had around 35 engineers, and within a year, they had the basic components in place. Although it requires significant time and effort, building in-house tools offers benefits like better integration, customization, and control over data.
Making Data Accessible for Effective Decision-Making: CEOs of early and later stage companies should prioritize making data accessible to everyone, not just data engineers. Use external tools for quick access, maintain a common source of truth, and engage CEOs for alignment and action.
For early and later stage companies, focusing on making data accessible and available to everyone throughout the organization is crucial for effective decision-making. A common mistake is making data someone's sole responsibility, such as a data engineer, rather than making it a company-wide priority. Building technology to make data accessible can take a lot of time, so starting with external tools like Mixpanel or Amplitude is recommended. Having a common source of truth is important, but CEO engagement and alignment on taking action based on data are even more essential. Balancing intuition with data is key for a CEO, and Zuckerberg at Facebook is an example of a successful CEO who did this. A great growth team can help quickly discover the impact of decisions and course correct when necessary, acting as a defense against potentially detrimental changes.
Balancing Data and Company Vision: Growth teams should find a balance between data-driven decisions and the company's long-term vision. Involve the entire team in the experiment review process to make informed decisions.
Having a growth team in a company requires alignment between the CEO and the team's goals. Experimentation is crucial when dealing with complex products, but relying solely on data and ignoring the company's vision can lead to unsatisfying results. Facebook's famous "move fast and break things" approach may be effective for large companies with billions of users, but for smaller companies, breaking things can be detrimental. Experimentation is essential to understand the impact of changes, but the results are not always clear-cut, and different people may have varying opinions. Therefore, it's essential to involve the entire team in the experiment review process to make informed decisions. Growth teams should not rely solely on data and ignore the company's vision. Instead, they should work together to find a balance between data-driven decisions and the company's long-term goals.
Coexisting Product Vision and Growth Strategies: Companies can have both strong product visions and optimized growth strategies. It's essential to communicate the purpose behind growth tactics to avoid manipulation and maintain authentic user experiences.
While optimizing a product for growth and maintaining a strong product vision can seem like opposing forces, they can coexist. Companies like Facebook and Instagram, which have both strong product visions and optimized growth strategies, prove this. However, it's crucial to communicate the purpose behind growth tactics to avoid coming off as manipulative or "hacking" people's minds. For instance, SEO is not an abusive tactic, but rather a way to help people find the best answers to their queries on search engines. Similarly, Facebook and Instagram, despite being part of the same company, have distinct growth strategies due to their unique team dynamics and product visions. The key is to establish clear guidelines and heuristics for what growth tactics are acceptable within each team. Ultimately, the goal is to create a user experience that feels authentic and beneficial, rather than pushy or manipulative.
Establishing initial heuristics for a growth team: Founders need to understand users and establish a growth team with essential disciplines like engineering and data-savvy product management. Flexibility is crucial for international expansion and adapting to local tastes.
When building and scaling a growth team for a company, it's crucial to establish initial heuristics while remaining open to adjustments for local adaptation. Every founder knows their product best, but understanding the users and their unique needs is essential for growth. A growth team typically includes disciplines like engineering, product, design, data science, and user research. In the beginning, engineers and a data-savvy product manager are essential. The term "growth team" is used to define a specific role in the company dedicated to growth, as it's challenging to assign this responsibility to an entire team. Being flexible with guidelines while maintaining core values is essential for international expansion and adapting to local tastes.
Aligning Growth and Product Teams: Having a growth team within the product team reduces tension and ensures alignment. Ideal growth team members are data-driven, experimenters, and quick movers. CEO's endorsement is crucial. Effective communication between product and growth heads is essential.
Having a dedicated growth team within an organization can help optimize specific areas of opportunity and eventually teach the rest of the company to adopt similar growth-focused mindsets. However, the location of this team within the organization, specifically whether it's part of the product team or a separate entity, can lead to tension and communication issues. The majority of growth experts recommend keeping the growth team within the product team to reduce tension and ensure alignment. The ideal growth team members are those who are willing to experiment, data-driven, and able to move quickly. The CEO's endorsement is crucial for the success of a growth team. The main reasons for potential tension include differing perspectives between product and growth teams and the perceived ownership of growth within the organization. Effective communication between the heads of product and growth is essential for success, regardless of the team's location within the organization.
Defining clear accountability metrics for each team: Clearly defining metrics for growth and product teams ensures focused efforts and prevents confusion, allowing for optimal scaling of a company.
Having clearly defined accountability metrics for each team, whether it's a product team or a growth team, is crucial for success in scaling a company. This was discussed in the context of Facebook, which maintains separate growth and product teams, and Uber, which had separate rider, driver, and marketplace teams before merging. The importance of this structure lies in ensuring that each team has a clear understanding of their specific responsibilities and metrics, preventing overlap and confusion. For founders, transitioning from a hands-on product development role to a more data-driven approach at scale can be uncomfortable, but the introduction of growth thinking is necessary for making informed decisions and achieving optimal results.
