Growth… But at What Cost?

The Context

Startups put a lot of time and effort into growth. They’ll try pretty much anything to get more visitors to their website and this is not necessarily a bad thing. In fact, it’s what makes growth hacking so awesome. Growth hackers will come up with the most creative ways to gain new users.

But sometimes it can come at a cost to startups if it is not done properly. If a startup neglects infrastructure, its onboarding strategy or simply working on a monetization plan, it can have a negative effect on the startup and lead to its failure. Today’s post will focus on that last point.

I see many startups trying to get as many users as possible, preferring to leave monetization for the future, inspired by the likes of Tumblr, Instagram, Twitter, Google and Facebook. I’ve met tons of VCs who also promote this type of startup behaviour. They want you get as many users as possible to validate the product/market fit before they invest in you. This isn’t crazy but be very careful when doing this.

The problem is that many startups don’t already have the financial backing or personal savings to pull off this type of strategy and won’t survive for very long if they try to do so.

If you run a startup or plan on starting one, don’t neglect your monetization strategy and be sure your strategy fits with your personal budget and the financial reality of your startup.

This article is inspired by one of my first startups, Techno.FM.

The Case Study: Techno.FM

technofm-logoBack in May of 2005, my brother founded an online radio station called Techno.FM. I joined him shortly after he launched it and helped him to create a buzz. What started as a hobby grew into a great radio station.

Initially, I was just throwing tons of parties locally in Montreal to gain awareness. It’s what I was good at! I was just a power user with very little “online” experience. I knew html, css and very basic PHP but not much more than that. The parties were fun but didn’t quite have the best results in terms of driving traffic. (parties recently worked for the startup Tinder as a great way to gain users)

So I quickly became very knowledgeable in SEO and over the following 2 years grew the radio station to a size we had never imagined!

On top of that, the hundreds of DJs who performed on our station (either weekly or occasionally) also promoted our site.

It helped that we had an awesome product! The station specialized in producing and broadcasting live radio shows from around the world. Barely anyone did this at the time.

The station was listed in Winamp, in the Icecast directory and eventually even in the radio section of iTunes! We were tracking more than 50,000 unique IPs a month on our stations. This was incredible for a musical style that wasn’t mainstream at the time. (today, it is thanks to Tiesto, David Guetta, Swedish House Mafia, Armin Van Buuren and many more artists)

There was one major problem with all of this… we weren’t making any money and could barely pay for the bills! Our hobby had become pretty damn expensive.

We were consuming around 18 TB of bandwidth a month. In those years, that was A LOT! Our monthly server bills were reaching nearly 2,000$/month and we were paying for it with the little ad revenue we were making off of Google Adwords and covering the rest from our own pockets. (Not an easy thing to do when you’re a full-time student)

Why was it that we couldn’t monetize? Our main revenues were from Google Ads. This made nearly no sense to me at the time because how can you make money off of visual ads when your product is consumed by listening.

I spent so much time contacting ad agencies trying to get audio ads. Heck, we were able to track ads way better than traditional radios. The only problem is that if you spoke to the radio department of an agency, they sent us to the online ad department. When we would speak to them, they would send us back to the radio. No agency knew what to do with us.

It seemed that the only way left to monetize was with video ads. It’s what all the bigger stations did (and it is nearly still the case today). How could an entire industry depend on ads that you needed to look at when the product is consumed by listening? If we adopted this model, we would have had to remove our station from all the primary sources that drove traffic to our station because showing video ads wouldn’t have been possible on iTunes and Winamp.

We eventually had to cut the growth and do everything possible to diminish our bandwidth consumptions.

We came close to getting two investors to help us but things turned sour and we never got the investment.

At the end of 2008, I eventually left because I couldn’t afford to dedicate the time nor the money to the project anymore. I also felt that the team couldn’t align on priorities.

After my departure, the team left in place focused on cutting costs and listeners to a level that they could afford to pay out of their own pockets. Monetization didn’t quite get them importance as cost cutting. The station continued to shrink.

It still saddens me to think that I never managed to develop the station to its full potential.

Try to Have a Plan to Monetize from the Start

monetizeWhat started as a hobby and not as a real startup blew up to become a pretty big online radio station.

Because it was a hobby, there was no clear plan to monetize in the first place. I still believe that for some of the team, it always just remained that… a hobby.

Please don’t get confused between monetizing and charging. You can offer your product/service for free for any period of time while still having a plan to monetize (either short-term or long term). For example, your plan may be to roll out ads at a future date while continuing to offer your service for free. I consider neglecting to validate that the ads will cover your expenses to be “not having a plan”.

I can think of a few other services that either died or came close to it while being very popular but failing to become profitable. XMarks (formerly Foxmarks) came close to closing because they couldn’t monetize their large user base. Shortly after announcing they would close, they received tons of donations to keep the service alive and eventually gained enough traction to sell the company a few months later.

For your project to be considered a startup, have a plan to monetize it or it will just remain a hobby and nothing more. Whether your plan to monetize works or fails, you’ll have to run tests over and over again to optimize your revenues.

Additionally, by having a monetization plan, you won’t depend as heavily on external investors.

In Retrospect – Through The Eyes of a Growth Hacker

A growth hacker’s job is not just to drive traffic or think to think of branding as would a marketer. Rather, a growth hacker’s job is also turned towards the product with the purpose of onboarding visitors, monetizing them and retaining them as active users. (growth = acquisition + retention)

In the case of Techno.FM, it took too long to figure this out. We spent a lot of time, just before I left, trying to get users to pay for a premium service. We had some success but we didn’t optimize the site enough in order to get the best results. Forget about A/B testing, we had no idea what that was! I’m also pretty sure the churn rate was really high. I doubt that those that paid for a 1 month package ever renewed but heck, we didn’t even really track that.

Restrospect

Our main goal should have been to drive every listener to the website and to collect email addresses.

We should have had a really basic homepage with the primary goal of getting visitors to create an account. We weren’t collecting emails so we had very little means to reach out to our current and past listeners.

The radio should have only been available for 15-30 mins before cutting out and requiring the listener to create an account on our site.

The stream quality on iTunes and Winamp should have been pretty low, encouraging listeners to sign up on the website to enjoy a better quality sound. Having users on our site to listen would have ensured that we could present visual ads to the majority of our listeners.

This better quality as well as our high quality radio (paid service) should have only been available from our site.

Fail Fast and Learn Quicker

But then again… Perhaps none of these ideas would have worked. I am no longer an expert in Internet radio since the industry has changes so much. But even if I was… “One accurate measurement is worth more than a thousand expert opinions” – Admiral Grace Hopper.

The important thing would have been to continuously run tests based on hypotheses formulated from the assumption – like the ones I made in my restrospect – to measure, to learn and then to quickly run another. Our goal should have been to fail fast and to learn even quicker, the lean startup way. Today, this is very much part of the job of a growth hacker.

A growth hacker needs to define clear objectives (in this case, increase registrations and premium accounts), to define various hypotheses and then run a series of tests to gather data on user behavior to confirm or reject the hypotheses. (rinse and repeat)

I hate to tell you but… There is no magical solution. Even the opposite scenario is possible. Putting too much effort on monetizing before finding the right product/market fit can also really hurt you. Heck, I’ve done that too!

Perhaps one of these day I’ll also write about my startup that failed (in part) because we tried to monetize too quickly. (LOL)

Do you have any examples of other startups that failed to monetize their traffic quickly enough?

Focus on The 90%

I might be jumping a little ahead with this post (I had a roadmap of articles to write) but I’ve had something on my mind over the last ten days on my still unfinished road trip through New England.

I’ve mentioned that, unlike a marketer, a Growth Hacker doesn’t settle for the product he’s dealt. He adjusts it to find the perfect product/market fit to achieve growth.

A Growth Hacker measures everything and should know what features of their product are used 90% of the time. Accordingly, you should adjust your product to make sure that it is as easy as possible to use those features. They will also be closely knitted to or part of the “ah ha!” moment when value is created for a new user during the onboarding process.

As I’ve experienced as both a user and a product manager, adding more features to your product (when not done properly) can ruin the user experience if it distracts or makes using that “90%” more difficult.

You might be wondering why I’ve wanted to write about this… It stems from daily frustration with the Tom Tom GPS app for iOS during my recent roadtrip. I’ve included a video below that explains why I believe that the UI/UX on that app is horrible. Granted, it has way more features than Apple Maps and even Google Maps for iOS but it does so by ruining the most important features which are mapping, real-time navigation and directions to searched points of interests.

Although I don’t mention it in the video, we even started a game in the car with Tom Tom and it’s inability to find a Taco Bell. 5 out of the 6 Taco Bells it gave me directions to didn’t actually exist. On the bright side, at least it didn’t send me on an airport taxiway.

Are there any applications you have to use but wished that the UI/UX was so much better? Tell me about it in a comment below.

 

Additional info added after trip: I’d used Tom Tom a couple of times in the past but I relied on it continuously for 2 weeks for this trip. We drove nearly 3,000 km with it during this trip. My girlfriend who has used it even more than me during this trip is very tech-savvy and very much a power user (we met in a PHP class back in College 5 years ago) so her horrible experience is not related to any inability of hers to understand software.

Edit: We started to get use to the app after 2 weeks.

Intro to Growth Hacking

Before you read any further, let me stop you now.

If you are familiar with growth hacking, you won’t likely learn anything from this post. I’ve chosen to write this “intro to” article on the subject because I want this site to be useful to all types of readers regardless of their experience and background. In a way you could say that I want my sales oriented mother, my programmer brother and my political sister to all be able to follow this blog without wondering what language I’m speaking.

Having that said, let’s get down to it.

Definition

Ryan Holiday, VP of Marketing at American Apparel, defines a growth hacker as such:

A growth hacker is someone who has thrown out the playbook of traditional marketing and replaced it with only what is testable trackable, and scalable. Their tools are e-mails, pay-per-click ads, blogs, and platform APIs instead of commercials, publicity, and money. While their marketing brethren chase vague notions like “branding” and “mind share,” growth hackers relentlessly pursue users and growth-and when they do it right, those users beget more users, who beget more users. They are the inventors, operators, and mechanics of their own self-sustaining and self-propagating growth machine that can take a start-up from nothing to something.

The term “Growth Hacker” was coined by Sean Ellis (Dropbox, Qualaroo, LogMeIn) in 2010 because there lacked a specific title for this type of job position. Growth hackers are often product managers or marketers with a technical background. Alternatively, they can be programmers with a great understanding of marketing and product management but it is the skill set and mostly the frame of mind that it is important here (product, marketing, technical).

Growth hackers have emerged from the startup culture where you have to do more with less. Startups lack an advertising budget so they need to leverage every user and tool available to drive traffic to their sites and to ultimately convert those visitors into active users.

Growth hackers need to measure everything and leave nothing to guesswork or gut feeling as is often the case in traditional marketing. Through their metrics, they continuously optimize their strategies to achieve better results.

Ok ok, I can already hear you: “Alex… get to the point! You’re still too vague.”

hotmail-growth-hackingLet me give you a few examples of growth hacking that will allow you to better understand how you can achieve so much with so little.

Growth Hacking Examples

One of the most used growth hack examples comes from Hotmail. Sold to Microsoft for $400 million after only 30 months in business, they had reached 10 million users in this short span of time. They did not gain this traction from advertising in magazines or on billboards but rather took the advice of Tim Draper, the famous venture capitalist. To sum things up, he suggested that they add this to the bottom of every email being sent: “P.S.: I love you. Get your free e-mail at Hotmail.” Genius! Every user was advertising their free email service.

facebook-growth-hackingFacebook became a giant by building growth mechanisms directly into their product. In order for the site to be useful, you need to find your friends when you sign-up. Facebook encourages you to import your address book to find them quickly and then encourages you to invite all those that aren’t members to also join. It’s perfect because they already have your entire address book and an invite is just a click away. This is the most obvious example I can give you of growth hacking but keep in mind that Facebook has employed countless growth hacks of the sort since the beginning.

dropbox-growth-hackingIn the beginning, Dropbox wasted money on advertisements that weren’t profitable until one day they developed a kick-ass referral system. You got 2 gigs of free storage when you created an account but they gave you tons of additional free storage every time you got a friend to use their product. Over the years, they have launched plenty of great growth strategies (e.g. the Space Race) that have brought them to where they are today.

These three examples are quite different from one another however a couple of quotes from Aaron Ginn will sum up the common ground nicely.

Growth hacking is more of a mind-set than a tool kit.

The end goal of every growth hacker is to build a self-perpetuating marketing machine that reaches millions by itself.

Lastly, unlike a marketer, a growth hacker doesn’t settle for the product he is mandated to promote but rather he is involved in the product development process. The goal is to achieve the perfect product-market fit by measuring and iterating (over and over) because in the end, would you promote a mediocre product to a friend? By having the growth hackers involved, you get a ripe product with growth mechanisms built-in… bringing you one step closer to that perpetual growth we all dream about.

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If you’re interested in learning more about the mind-set of growth hackers stay tuned for future posts… but I also suggest reading Growth Hacker Marketing by Ryan Holiday. It’s only 40 pages and skips the technical mumbo-jumbo so it’s an excellent starting point for marketers.

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Keeping in mind that the goal of this post was to offer a birds eye view of the subject, what would you add to help inquisitive readers better understand growth hacking?

The First Post

For nearly 12 years, I’ve started up various web projects. Some succeeded, some almost, others failed miserably. I was excellent at the more “traditional” online marketing strategies like SEO, SEM and more recently SMM but often failed at retaining traffic and converting them once they got to my site. In parts of 2011 and 2012, I slowly became a product guy. I didn’t know that at the time because I was in charge of strategy but in the end, the job description was pretty damn similar.

I’ve made a lot of mistakes in my various ventures but I’ve learned a lot too. Thankfully I’ve even gotten better at the whole fail/learn scenario. I can thank Eric Ries for my new motto of “fail fast and learn quick”.

With this blog, I hope to share with you some of the lessons I’ve learned on my own and from others. I’ll write about cool new growth hacks, comment on those of others, feed you new material I’ve read (and think you should read too) and touch from time to time what I call the more “traditional” online marketing strategies like SEO, SEM and SMM.

Overall, most of what I’ll write will relate to startups because my background mostly consists of working for them or myself and I’d rather stick to what I know.

Here’s to many posts to come…