Sean Ellis on Growth Hacking: Focus on a number related to your value to customers
What is the most important thing for a startup? Growing your business by focusing on the value to the customer is the answer given by Sean Ellis, founder and CEO of GrowthHackers, a service that helps 200,000 members with their growth strategy. According to Ellis, “growth hacking” is more than a buzzword in Silicon Valley—it’s a marketing strategy with actionable methods that prioritize business growth.
As the first marketer at Dropbox, LogMeIn and Eventbrite, Ellis coined the phrase growth hacking on his blog in 2010 when he realized that for early startups the key thing is to get your product into the hands of those who need it and give a great first user experience.
Unlike traditional marketing, which may take branding as a its primary purpose, growth hackers, Ellis says, aim to drive real growth. Effective growth hacking involves decision-makers, product managers and marketers working together, and there will be a key number to grow—a number related to the real value of the company.
In this interview, he explains what growth hacking is, the differences between it and traditional marketing, as well as how growth hacking works in small and big companies
Q. What is the difference between traditional marketing and growth hacking?
A. I think traditional marketing, especially in tech companies, focuses most on customer acquisition and external branding, whereas growth hacking is more focused on the customer and looking at the whole customer journey from where they’re discovering a product to when they first experience it, what brings them back to keep using it and to how they tell other people … so it’s really covering every part of that customer journey so that you can run experiments and improve that customer journey.
Q. So it combines marketing and product management?
A. Yes, it really extends to customer success and product management. Probably the best growth hacker loves sitting inside the product team rather than inside marketing.
Q. Do you think the reason growth hacking approach became so popular is because it’s cheaper than a traditional marketing strategy?
A. I don’t necessarily think that’s cheaper, it’s just more focused on growth. It’s about getting the most growth for the resources you’re investing. Sometimes it’s more expensive because you can get 10 times more growth and maybe only spend twice as much money, but you’re still spending more money. It’s not cheaper, but you get return on investment.
Q. When compared to the contribution of a traditional marketing department, the result is more easily assessed, right?
A. Yeah, it’s definitely tied to growth results. Traditionally, a lot of the time marketing didn’t get a return on investment and only got some brand value. How much brand value? There’s just a lot of intangible things that you could say was a return on investment.
Q. But intangible assets are very important, right?
A. The question is how do you really create a brand? Do you create a brand by spending money on putting images out somewhere? Or do you create a brand by getting more people to experience a product in a way for them to understand the true promise of that product and help to spread the word around it? Marketers may think they can buy branding, but branding to me is more a function of the entire experience with the company and with the product.
Q. Does that lead to the conclusion that we don’t need traditional marketers anymore?
A. I don’t think that’s necessarily the case. When I first thought about growth hacking, I was thinking about it more from a startup perspective. Startups just don’t have the luxury of trying to invest in awareness and brand building. They’ve got to focus on getting customers to experience the product and get a return on investment. That’s what’s important. I think what you’re saying is more established companies saying, “We should probably hold ourselves more accountable to that as well.”
Q. In a company, C-level executives should be accountable for growth. What’s the difference between the growth department’s responsibility and C-level people’s responsibility?
A. I can’t speak for all types of businesses, but first of all, when you talk about growth, what is growth? Are you talking about the growth of people? The growth of dollars? It means something different to different people. The starting point is just defining, when we’re driving growth, which growth is most important.
Q. Most may say the growth of revenue or profit, or users.
A. I will say it’s neither of those; it’s the growth of value, it’s growth of impact on the customer problem that you’re trying to solve. To me, this is where it becomes a little bit less tangible. What is the mission of the business? What is the business actually trying to accomplish? Very few businesses have a mission statement that says make more revenue or profit. Usually it’s about impacting a certain type of customer in a certain type of way. And to me, I think that’s really the point when you can say how do we focus on a number that is really around the impact on the customer need that we as a business are trying to solve.
And if you focus on growing that, usually revenue growth correlates directly with it, but it’s actually more sustainable. For example, Facebook. If you say, OK, revenue growth is the only thing that matters, let’s put 10 advertisements on every page instead of just one, that’ll give us more revenue growth, right? But the customer experience becomes awful. In the short term, you have more revenue, but in the long term you have less customers. So ultimately it’s figuring out what is the value that we provide to customers and if we can expand that over time, then we can think about how do we layer sustainable revenue on top of that.
It’s a metric on growth that we call the “North Star metric.” A specific example for Airbnb is “nights booked.” How many nights they are booking in the system ties to revenue directly. But it also ties to why people use Airbnb. Do they use it to find a place to stay? Or are they’re using it to rent a room in their home? Focusing on the metric around the value that the company creates is much more motivating for a product team than just focusing on revenue or profit.
Q. It seems like the growth department has to be working with nearly every department in the company. So does the growth hacking approach work better in a small firm?
A. It will be easier to do. But eventually it works great at Facebook, and Facebook is big now. But they did it when it was small.
Q. Is there any condition or premise for growth hacking to work better?
A. The biggest place that you get a drop-off in value delivered is in the first experience that the customer has with the product. So you’ve got your product and marketing team. The marketing team brings people to the front door and the product team makes the product better. In between, what happens is marketing can’t really shape that first user experience very much, and product doesn’t think that way. The product team thinks about what’s the next feature to add to the product. As a result, you have all these new customers, but no one is holding their hand to say this is how you get value from our system. So I think that’s the first place where the growth team helps to bridge product and marketing. Over time it really helps to think holistically about that full customer journey, plan the experimentation and improvement, and have the analysts say this is where we are most broken.
But it’s not the expertise that’s the hard part. It’s the permission. So if they want to run an experiment deep inside the product to get users to bring in other users, most product teams are going to say no way. So that’s why you have to find that common success metric that everyone agrees on, like “drive more nights booked on the system” or “have more rides on Mobike.” Then everyone will be thinking about how do we grow that metric. That’s also why if you just say dollars, product teams aren’t going to get excited about just growing a dollar metric. But if they’re growing a metric around the real value that the product creates, they can get more engaged around that.