How To Validate PMF EffectivelyㅣSean Ellis, Hacking Growth
Summary
TLDRIn this insightful discussion, Sean Ellis, the originator of the term 'growth hacking,' explains the challenges companies face in implementing growth hacking strategies. He emphasizes the importance of product-market fit and the necessity for cross-functional collaboration. Ellis highlights the significance of testing hypotheses across all growth levers, from acquisition to monetization, and stresses the value of a high volume of experiments over chasing a single perfect test. He also discusses how growth hacking can foster a more humble and cooperative company culture, focused on uncovering truths rather than asserting opinions.
Takeaways
- 📈 Growth hacking often fails because as companies optimize and test, the cost of acquiring customers through platforms like Facebook and Google increases, making it harder to find profitable customer acquisition strategies.
- 🧠 Sean Ellis, the coiner of 'growth hacking,' emphasizes that his strength lies in getting people to use good products, as evidenced by his work with companies like Dropbox, Eventbrite, and Lookout.
- 🎓 Ellis's initial foray into marketing was through formal education, but he found that it made him too academic and rigid, causing him to rethink his approach to marketing.
- 🤝 Growth hacking is a cross-functional effort requiring collaboration between product, marketing, engineering, design, and data teams, which many companies struggle to achieve as they grow.
- 🔍 Ellis advocates for a scientific approach to growth hacking, focusing on testing and analyzing across all levers of growth: acquisition, activation, retention, and monetization.
- 🎯 The most powerful lever for growth hacking is activation, which is crucial for driving customer engagement and retention.
- 🤔 Companies often fail at growth hacking not due to a lack of ideas or hypotheses but because they struggle to get different teams to collaborate effectively.
- 📊 The importance of running a high volume of tests cannot be overstated; the more tests conducted, the higher the chances of discovering a successful growth strategy.
- 📊 Product-market fit is essential before focusing on growth hacking; without it, customer retention is impossible, and any growth efforts will be unsustainable.
- 🤝 A shift in company culture towards humility and curiosity, driven by the iterative and experimental nature of growth hacking, can lead to more cooperative and effective teamwork.
Q & A
Why do most companies fail with growth hacking according to Sean Ellis?
-Sean Ellis suggests that most companies fail with growth hacking not because they struggle to come up with hypotheses or test ideas, but because they can't get different teams to agree on how to work together effectively. As companies grow, they often become more specialized and siloed, which hinders the cross-functional collaboration required for successful growth hacking.
What is the significance of activation in growth hacking?
-Activation is considered the most powerful lever of growth. It involves getting users to take the initial steps that lead to them finding value in the product, which is crucial for both engagement and retention. A great first experience is key to driving retention and encouraging users to return to the product.
How does Sean Ellis define growth hacking?
-Sean Ellis defines growth hacking as a scientific approach to figuring out how to grow the business, involving testing and analyzing across all levers of growth from acquisition to activation, retention, and monetization.
What is the role of product teams in growth hacking?
-Product teams play a significant role in growth hacking because there are many opportunities within the product to improve customer value and retention. However, they often spend half their energy convincing the product team to run experiments within the product.
Why is it challenging for companies to run experiments on products?
-It can be challenging for companies to run experiments on products because different teams, such as product, marketing, engineering, and design, may have differing opinions on how to approach growth and testing. This can lead to friction and a lack of agreement on the best course of action.
What is the importance of product-market fit in the context of growth hacking?
-Product-market fit is critical before focusing on growth hacking. It's the stage where users try the product and find it valuable enough to continue using it. Without product-market fit, companies can't retain customers, which is essential for sustainable growth.
How does Sean Ellis measure product-market fit?
-Sean Ellis measures product-market fit by asking users how they would feel if they couldn't use the product anymore. He suggests that if around 40% of users say they would be very disappointed without the product, it indicates a strong product-market fit.
What is the significance of the retention cohort in determining product-market fit?
-The retention cohort is significant in determining product-market fit because it shows the percentage of users who continue to use the product over time. If the cohort plateaus at a certain level, it indicates that those users find the product valuable enough to keep using it, which is a sign of product-market fit.
How does the volume of experiments relate to growth hacking success?
-The volume of experiments is crucial for growth hacking success because it increases the chances of finding high-impact tests that drive growth. Sean Ellis emphasizes running a high velocity of tests, as every test is an opportunity to discover what works and what doesn't.
What impact does growth hacking have on company culture, according to Sean Ellis?
-Growth hacking can lead to a less arrogant company culture where everyone becomes more curious and cooperative in seeking the right answers. It fosters a culture of testing and learning, which replaces assumptions with data-driven insights.
Why does Sean Ellis prefer to work with companies that have product-market fit but have not yet started growing?
-Sean Ellis prefers to work with companies that have product-market fit but have not yet started growing because at this stage, the stock is still cheap, and he can get more stock options. This strategy allows him to potentially make more money if the company's growth takes off after he joins.
Outlines
📈 Challenges in Growth Hacking
Sean Ellis, the coiner of the term 'growth hacking' and author of 'Hacking Growth,' discusses the difficulties companies face in growth hacking. He notes that while digital marketers are adept at testing and optimizing for return on investment, the challenge lies in the rising costs of customer acquisition as everyone adopts similar strategies. Ellis emphasizes that the problem isn't a lack of ideas or hypotheses but the increasing difficulty of finding profitable customer acquisition methods. He also shares his experience growing companies like Dropbox and his approach to focusing on product engagement and retention over traditional marketing.
🤝 The Importance of Cross-Functional Collaboration in Growth Hacking
Ellis highlights that growth hacking requires a cross-functional approach, involving product, marketing, engineering, design, and data teams. He points out that as companies grow, specialization can lead to siloed teams, which hinders effective growth hacking. The challenge is not just in generating and testing ideas but in getting different teams to collaborate. Ellis argues that growth hacking is not just about marketing but encompasses the entire customer journey, from acquisition to retention and monetization. He stresses the importance of a high velocity of tests and the need for a commitment to testing across all areas that can accelerate growth.
🎯 The Growth Hacking Process and Product-Market Fit
Sean Ellis outlines the growth hacking process, which begins with qualitative analysis to understand why users love a product, indicating product-market fit. He emphasizes the importance of understanding what users value in a product to grow effectively. Ellis then discusses generating ideas, prioritizing them, running tests, and analyzing results. He advocates for a high velocity of tests to increase the chances of finding successful growth strategies. Ellis also introduces a key question to gauge product-market fit: asking users how they would feel if they could no longer use the product. He shares insights from running this question across hundreds of companies and the significance of retention cohorts in determining product-market fit.
🧘♂️ Cultivating a Culture of Humility and Curiosity Through Growth Hacking
Ellis discusses the cultural impact of growth hacking on businesses, suggesting it fosters a less arrogant and more curious environment. As tests often reveal that initial assumptions are wrong, team members become more open to finding the right answers together. This collaborative approach improves the business culture, reducing arguments based on personal opinions and increasing cooperation. Ellis believes that this culture shift is a significant outcome of integrating growth hacking practices within a company.
Mindmap
Keywords
💡Growth Hacking
💡Product-Market Fit
💡Acquisition
💡Activation
💡Retention
💡Monetization
💡Testing
💡Cross-functional Collaboration
💡Customer Journey
💡Marketer's Dilemma
💡Hypothesis
Highlights
Most companies fail at growth hacking due to the difficulty in finding a profitable way to attract customers.
Digital marketers are aware of the need for testing, but the challenge lies in the increasing competition and rising costs on platforms like Facebook and Google.
Growth hacking is not just about marketing but requires a cross-functional approach involving product, marketing, engineering, and design teams.
Sean Ellis, the author of 'Hacking Growth' and the coiner of the term 'growth hacking', emphasizes the importance of a scientific approach to growing a business.
Ellis's strength lies in growing great companies, as evidenced by his work with Dropbox, Eventbrite, and Lookout, all of which reached billion-dollar valuations.
Growth hacking focuses on the entire customer journey, from acquisition to activation, retention, and monetization.
Activation is considered the most important lever for growth, as it influences customer retention and engagement.
Many companies struggle with organizing cross-functional teams, which is essential for effective growth hacking.
The challenge for growth hacking is not coming up with ideas but getting different teams to agree and work together effectively.
Product teams often play a significant role in growth hacking, as there are many opportunities within the product to improve customer value and retention.
Growth hacking is about improving the customer experience and simplifying the product, not tricking people into actions.
The volume of experiments is crucial for growth hacking; the more tests run, the higher the chances of finding successful strategies.
Product Market fit is a prerequisite for successful growth hacking; without it, customer retention and, consequently, growth are not possible.
Ellis developed a question to identify product Market fit: asking users how they would feel if they couldn't use the product anymore.
A retention cohort analysis helps determine product Market fit by looking at the percentage of users who continue using the product over time.
Growth hacking can lead to a more humble and cooperative business culture, as teams work together to uncover the truth rather than argue about opinions.
Transcripts
what I would say is that most companies
fail with growth hacking it's
unfortunate but it's it's the reality
most digital marketers today are clever
enough to know I need to do a lot of
testing the the problem with it though
everyone else has gotten very smart at
that too if everyone's testing
everything and optimizing on return on
investment Facebook and Google and all
of these other platforms are making it
bidding every anytime someone gets good
at these things the prices keep going up
now it's harder and harder to find a
profitable way to get people to the
website and so so they get frustrated so
then they stop trying to run experiments
in the product want to run all their
experiments on Facebook or on Google or
some something external and then it's
not growth acking anymore than they're
just doing marketing and so but I don't
think it's because they they have a hard
time coming up with a hypothesis or or a
hard time coming up with the right test
idea I think it's
because uh hi I'm Sean Ellis I am the
author of hacking growth I'm also the
person who coined the term growth
hacking which has become pretty well
known around the world over last 12
years I think or 13 years since I came
up with the term what I'm really good at
is getting people to to use good product
when I'm uh responsible for growing them
I did that for a number of years and
that's when I went to Dropbox I joined
Dropbox Dropbox was less than 10
employees at the time Dropbox became the
fastest SAS company to reach a billion
ion Dollar in Revenue so faster than any
company before it soon after I left
Dropbox was was when I coined the term
growth hacking but really the techniques
that I had used to grow these companies
were the techniques that are are really
what what we talk about when we say
growth hacking today I also did a
interim VP growth role with with
Eventbrite also reached the billion
dollars valuation right after event
bright I went to Lookout also reached
the billion dollar valuation I really
think my my strength is is growing great
companies and so you can read a book but
when you actually try to do it it's
really hard so I I do a lot of workshops
that's a lot of what my focus is these
days so in in the first company I told
you I started in sales when they said
you know we want you to do this and
we'll make you the the marketing guy I
never took Marketing in school I don't
know what I'm doing so then I decided I
would go back to school and take some
classes in marketing and I went to New
York university did really well got a
got an A in the class and then and then
I went back and tried to to do it and I
got I was really bad at it after the
class the class kind of broke me made
made me think about it the old way of
doing marketing I I became too kind of
academic and so it was a very like I had
to like okay get that out of my head now
and go back to it so that was kind of
the first time I realized like my
Approach is a little bit different than
and how they teach marketing but then I
just kind of forgot about it and I was
just focused on how do we grow these
businesses how do how do we do our very
best to grow these businesses I moved to
Silicon Valley in 2007 I also had a lot
of venture capitalists who were
introducing me to Founders they said can
you help this founder they're really
having trouble growing and and so I said
sure and then I would sit down with the
founder and the first thing they would
say is we really need your help to build
awareness I've never focused I'm
building awareness I want them to
actually use the product and so for me
it was like how do I get them to sign up
for the product to use the product get
value from the product pay me money for
the product and then I take that money
to get more customers and and create
something that's much more sustainable
so kind of this mis idea from the
founders that they needed to build
awareness you know just in general I
just that's when I started to recognize
that my Approach was different and so
coming up with the idea of calling it
growth in we need to stop calling this
marketing because I Define growth
hacking as a scientific approach to
figuring out how to grow the business
are testing and analyzing across all of
the levers of growth from acquisition to
activation retention and monetization
most powerful lever of any of them
activation is like the the most
important one that I would generally
focus on it's the first one that I focus
on when I work with a company engagement
and retention there's there's a sense
entially what you're doing is what what
brings someone back again and again to
come in and use the product and so of
course the most powerful thing to bring
people back is a great first experience
which is actually the activation so the
biggest driver of retention engagement
is a great activation step in the
customer acquisition process then you
can still be tactical about you know
what are the what are the prompts what
what do I do to bring someone back and
then how do I make sure that every time
they come back and use the product that
even more likely to come back and use it
again the next time how do how do I get
them to actually invest something into
the product so maybe do a little bit of
customization that makes it a little bit
more valuable each time and makes them
feel like they they have some ownership
around that experience so and and what I
would say is that most companies fail
with growth hacking it's unfortunate but
it's it's the reality but I don't think
it's because they they have a hard time
coming up with a hypothesis or or a hard
time coming up with the right test idea
grow grow is cross functional growth is
something that requires a product team
to work with a marketing team to work
with Engineers to work with designers to
work with data people most companies
aren't organized that way as they get
bigger companies essentially have more
and more specialist teams that become
separated that's what causes growth
hacking not to work in most businesses
most digital marketers today are clever
enough to know I need to do a lot of
testing the the problem with it though
every everyone else has gotten very
smart at that too if everyone's testing
everything and optimizing on return on
investment Facebook and Google and all
of these other platforms are making it
bidding any anytime someone gets good at
these things the prices keep going up
now it's harder and harder to find a
profitable way to get people to the
website and so the only way to really be
competitive on acquisition is to
actually focus on the entire customer
journey and so this is where growth
hacking then becomes so marketing is
more how do I just get them to come in
growth hacking starts to look at the how
do I get them to come in how do I
convert them how do I give them a great
experience once they come in how do I
get them to come back a lot more often
how do I get them to tell their friends
what's the right way to get money from
them and these are all areas that you
can test so grow attacking is going to
cover a lot more and and it turns out
that probably the product team does more
with growth hacking than even the
marketing team because there's a lot of
opportunities within the product to
improve the value of the customer and
retain the customer but half of their
energy is spent trying to convince the
product team to run an experiment that's
inside the product they get frustrated
so then they stop trying to run
experiments in the product and so then
they want to run all their experiments
on Facebook or on Google or some
something external and then it's not
growth decking anymore anymore than
they're just than they're just doing
marketing and so the main point of why I
believe companies fail with this is is
because they can't get these different
teams agreeing on how to work together
effectively once you get the teams
working together then some of the other
challenges become important challenges
so how do you identify what the best
opportunities are how do you come up
with the good ideas how do you
prioritize between those ideas the
biggest thing is that commitment to
testing and the ability to test
anywhere in the business that can
accelerate growth is the part where most
people get stuck it may be the brand
design side of things that feels like
all this testing is going to make our
website ugly or our product ugly it
could be the product side that said oh
man these growth hackers they're going
to come in and start making our product
awful because trying to trick people to
do things but that's a that's a
perception thing the best growth hacks
are not things that trick people they're
finding where people get confused in the
product to day and finding a way to make
it easier and simpler for them and it's
about improving the customer experience
around the things that matter you know
when you build something initially
you're building it maybe based on some
best practices but a lot of times it's a
guess it's a guess that this this is
going to be what's going to work the
best and sometimes you did a pretty good
guess but a lot of times it takes a lot
of people going through there to realize
like no this is actually very confusing
and we need to understand why it's
confusing so with a lot of usability
testing and serving and the more that
you can diagnose the problem then you
come up with ideas maybe if we tried it
this way maybe if we tried it that way
and those new additional things can can
make a huge difference so there's a
great quote from Amazon's uh founder
former CEO where he said our success in
Amazon is a function of how many
experiments we run per day per month per
year and so volume of experiments really
starts to matter and when we talk about
the growth hacking process proc it's
it's uh it starts with analysis and so
that's really the first analysis I'm
doing is is more of a qualitative
analysis of who loves the product and
why do they love it so the first thing
that I do when when I validated product
Market fit is I figure out why do I have
product Market fit because if I don't
understand why I have product Market fit
you know then I'm not going to be able
to grow very well let's say I think that
people love the product for this reason
but they really love it for this reason
of my advertisements all of my messaging
is pushing them to do something with a
product that it's bad at doing then then
I'm probably not going to keep those
people it's really important if you have
product Market fit to to understand what
is the main benefit that those musthave
users are having so it's really hard to
improve something you don't understand
so that's where the analysis starts then
you start to say okay I have ideas to
improve the situation and so that's the
next step is to generate some ideas the
next step is to actually prioritize
which of those ideas you want to test
first then you start to run the test and
you analyze the results and it's just
that that repeating process of you need
to try a lot of ideas to figure out
what's going to work and what's not
going to work and so one of the most
important things in growth hacking is
just running a lot of tests a high
velocity of tests I'm going to emphasize
that over and over because it's really
important and I think what we realized
was that nobody knew consistently what
was going to be the the best and so the
only way to figure out what was the best
was just to test a lot of things uh a
great analogy is is one that comes from
the sports world where you have there's
a quote from a a hockey player Wayne
Gretzky that essentially says you miss
every shot that you don't take so but
that also applies to soccer uh or or
football as they call it in most of the
world but essentially if you only take
one shot maybe you make it but if you
take 10 shots in a game or 50 shots in a
game you're much more likely to win
because every shot is an opportunity to
score and it's the same thing with
testing every test you run is an
opportunity to find that one big test
that ultimately is a lot more successful
than everything else that you do and so
it's a mistake often when teams are
obsessed on trying to run one perfect
test they get so excited about an idea
that they they only want to focus on one
it's much better to to make sure that
every week we're running three different
tests every single week or five
different tests every single week
depending on the size of the company you
just don't know which one's going to be
the one that that ends up being super
high impact and and uh making a big
difference in the growth of the
[Music]
business I think the most important part
you can't grow something that people
don't really like when they try it and
so in the startup world we call that
product Market fit a lot of times I'll
tell people I got lucky and they'll
they'll say oh you're just being humble
no it really is like if if you give me
something to grow and nobody likes that
product I will fail every time what I
focused on was we need to get people to
experience the product in the right way
if people don't like the product all you
can do is get really good at getting
people to try the product and then they
disappear what we call product Market
fit when when someone tries the product
they enjoy the product they keep using
the product so if you can't retain
customers you can't grow so it's really
you know validating that you have
product Market fit is is really critical
before you get obsessive on on growth
hacking and and trying to grow the
business for me picking product Market
fit became really important so I came up
with a question that really helped me
which was I asked users on the product
how would you feel if you couldn't use
this product anymore I only asked people
who had really used the product so they
they've come in they've used it
hopefully the right way and even more
than once but then it's a a random
sample of people who've used the product
more than once hopefully recently when I
asked that question if say 5% of the
people said that they'd be very
disappointed without it that's not
enough I'm I'm not going to be able to
grow that business was was really what I
told myself what I eventually I had run
that question across hundreds of
companies so ones that I worked with and
ones that I didn't work with and what I
found is that about 40% of the users
said they would be very disappointed
without the product those companies were
generally successful to some level
whether I worked with them or not that
question a good leading indicator of
product Market fit the obviously more
important thing is if people keep using
the product and so that's what we call
we call a retention cohort so if you get
100 people who start using the product
and after you know 30 days zero of them
are still using the product you do not
have product Market fit but you're not
going to have all hundred of them using
the product that's that that would be
nearly impossible and so usually what
happens is 100 people start using the
product one week later it's down to 70
and then down to 60 then down to 50 if
it keeps going to zero you don't have
product Market fit but if it goes down
to 50 and then those 50 keep using it
over the long term now you have a signal
that for half those people it was
something that was so valuable they keep
using it that's product Market fit and
you can grow that so uh we call that a
retention cohort that plateaus so it
essentially runs parallel to the x-axis
at some number it depends on on the
business so some businesses like Comm
the uh the meditation app they they
Plateau only about 5% of the users
because they have to they have to
develop a a habit of doing meditation
which is hard for people where Instagram
plateaus more like a 50 or 60% um part
of it too Instagram is free and C costs
money so that's another reason why
people might stop using it so it's it's
less important where it plateaus but if
it if it always goes to zero eventually
you're not growing you're just replacing
you're replacing the original people who
signed up and and so for a while you can
grow but eventually you're going to
flatten out and so product Market fit is
something that you can quantify for me
the best company for me to work on is
one that has all the signs of product
Market fit but no growth yet because the
minute that it has growth is when the
investors say wow this will be valuable
and they start pouring money into it
what I want is if I see ass signs a
product Market fit it doesn't have the
growth yet that stock is still very
cheap and so I get my stock options and
then then I can make good money off of
that if I come in later like once the
company's already growing really fast
they they of course won't give me very
much stock so for for me one of the
important things is trying to pick after
product Market fit but before
growth one of the biggest impacts of
growth hacking on the culture of a
business is that everyone becomes less
arrogant they if they used to think they
had the answers and tests keep revealing
that they're wrong a big part of the
time they stop being so insistent that
they have the right answer and they
start being curious about what is the
right answer and that to me creates a
much better culture where where business
starts people start working together to
find the right answers in the business
and and they work together more humbly
there's less arguments about my opinion
versus your opinion and more cooperation
and how how do we actually uncover the
truth
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