What is Growth Hacking: A Framework for Growth
(This advanced blog summarizes real growth insights Demand Curve has acquired from running marketing for hundreds of companies.)
What is growth hacking
Growth hacking is the process of continually optimizing the growth of a key business metric. That metric could be weekly active users (WAU), lifetime value (LTV), profit, revenue, or any other number that indicates success for your business.
The term has lost some of its meaning since Sean Ellis coined “growth hacker” in 2010. It’s commonly used to describe tactics and shortcuts used by high-growth companies to achieve growth in record-setting time frames.
Dropbox, as one example, is said to have used growth hacking to grow its user base by 39x in 15 months. And Airbnb used it to register its first thousand users — while it validated it was building something people wanted.
But hacks and tricks aren’t what make case studies like Dropbox and Airbnb multi-billion-dollar juggernauts. Instead, they used a methodical process for growth that is core to how their entire business functions.
What growth hacking is fundamentally about is identifying high impact opportunities, testing them, extracting useful learnings, and applying those learnings in a loop.
In this post, we’ll walk through the proper fundamentals of this growth hacking process. And how you can use it to grow your business metric that matters most.
Effective growth hacking starts with a single question, “Are you building something people want?” Growth hacking uses feedback loops to first make sure product development actually solves a problem worth paying for. This is known as achieving product-market fit.
First, you must accurately define the value your product creates for customers. That value may change over time. For example, say you’ve created an app that makes it easy to book events in cities around the world. Therefore, maybe the value your audience gets out of your app is making trip planning much easier.
Once that value is defined, you measure it by identifying the metric tied to its meaningful progress. In our example, perhaps the meaningful progress metric is the number of trips created in your app. That reflects the app’s stickiness.
You can also define counter metrics to monitor when a product isn’t trending toward product-market fit. For example, the number of people who download the app but don’t plan a trip could be a counter metric worth paying attention to.
With that context, now we can introduce the larger growth hacking equation: The growth of your product depends on a combination of (1) how well your product serves your market and (2) how well you optimize your growth funnel.
Let’s dive into what all that means.
The growth funnel
The growth funnel refers to the journey a customer takes from first introduction to your product, through becoming a paid customer, to referring their friends and beyond.
Without a product that people want, your growth funnel collapses. You may initially get lots of users through the funnel, but they won’t stick around (and ultimately refer others) if the product doesn’t live up to its promise.
There are 5 distinct phases of this growth funnel:
Each step of this funnel is subject to growth hacking’s process of proper metric identification and iteration. Let’s take a look at each in further detail.
Let’s say you do have a product that customers love. How do you get it in people’s hands in a scalable, profitable way?
You invest in acquisition channels.
The goal of acquisition is to drive qualified traffic to your website. This typically includes a combination of:
- Search engine optimization (SEO)
- Pay-per-click advertising (PPC)
- Social media marketing
- Content marketing
- Influencer marketing
- Email marketing
- Traditional marketing
- And other channels
Some acquisition channels are more likely to be successful than others. If you’re selling an e-commerce product, social media ads and influencer marketing will probably be more successful growth marketing strategies than PR.
For an in-depth look into the best growth channels likely to work for your startup, check out Demand Curve’s Growth Training.
Run quick tests for the most promising channels to determine which have the most potential. Invest in the ones that show signs of growth and double down on them. You can apply the learnings from one digital marketing channel to another for compounding wins. So if one of your Google ads has a particularly high conversion rate, use the headline copy as the subject of your next email promotion.
Once acquisition gets people into your funnel, you have to activate them.
Users must experience the core value of your product before they’ll habitually use it. This “aha” moment is the turning point when they become activated and are likely to continue to use your app. One goal of growth hacking is to get people to this point as quickly as possible. You want to shorten feedback loops so you can iterate more quickly and act on people’s interest while it’s highest.
For a user to engage with your product, their first use of it should hook them into returning.
That’s why it’s essential to have a well-thought-out user onboarding experience as a part of your growth strategy. So your product makes a great first impression among the million other products that people instantly forget about.
Let’s take Twitter, for example. They studied the behavior of new users and realized that if someone didn’t follow at least a handful of accounts right after signing up, they were unlikely to keep using Twitter. So, they redesigned their onboarding flow to make new users follow at least 5 people. And they made it dead simple — showing you celebrity accounts related to the topics you say you care about.
The key to great onboarding design is decreasing friction. One way is to minimize the number of steps between first using the app and getting to the “aha” moment, where its value is maximally enjoyed by the user. Consider this: Make your signup forms half as long. Better yet, don’t even have signup forms until the user is ready to pay. Once they’ve actually gotten value from your product, then you could prompt them to register an account so they can save the work they’ve done.
Activating a user is ultimately in pursuit of actually making money from them. That brings us to the next step in the growth funnel: revenue.
Activities for optimizing revenue growth include:
- Implementing new pricing structures
- Testing new business models
- Up-/cross-selling complementary products and services
For example, if you only have a monthly subscription, try rolling out an annual plan. This provides you the funds upfront to invest in other growth opportunities. And, it ensures that those customers are staying with you for a whole year.
Also consider what other related needs your customer base has. How can you line extend your product?
Where founders get lost is forgetting that cash is everything. It doesn’t matter how many users you have on your platform. If you aren’t able to generate profitable revenue from them, you typically don’t have a real business.
Revenue goes hand-in-hand with the next step: retention. You maximize revenue by retaining customers for a longer period of time.
Retention includes all of the activities that keep users coming back.
Some retention activities include prompting users to re-engage with your product through push notifications and drip emails.
It’s far cheaper to keep current customers than it is to acquire new ones. So invest in giving the people who already pay you a 5-star experience. That could mean providing live chat support for paying clients. Or surprising them with bonus credits on their birthday. Delighting current customers is how billion dollar companies like Zappos retain their millions of users.
The most potent form of retention is that which happens naturally: Your product is so good that people come back out of habit or necessity. And as a result, they eventually spread the word among their friends. Or their friends see them using your product and start asking about it.
That leads us to the last step in the growth funnel worth growth hacking: referrals.
Tip: If you’re measuring good early indicators of retention, such as people continually engaging with your product, but they’re not performing any meaningful conversions, be careful not to be misled. Don’t over-index on early indicators and solely rely on them for driving the decision-making process. True retention means repeat customers who pay you.
When someone becomes an active, engaged customer, you’ll want them to invite the people they know who could benefit from your product. This is a cheap, repeatable, and scalable source of customer acquisition.
For some products, users will, on average, refer more than 2 users after joining the app. This helps create a viral loop, which can lead to runaway growth.
Dropbox is the classic example of a company that did this to massive success. They rewarded users with extra storage space for each friend referred to the service. This turned their user base into a free, enthusiastic sales force. Dropbox acquired new customers for practically no cost.
They built virality into their product by making the product more valuable to a user once they’ve invited colleagues. That’s the trick. Plus, the users that referred their colleagues were far more likely to stick around on the platform — because their colleagues were on it too.
Why did this work so well? Because Dropbox referrals leveraged meaningful social interaction. As opposed to the low-quality invitations users are bombarded with to join LinkedIn, Dropbox invitations provide real value that improve the experience of the product for both the invited and the individual inviting. They get to share files.
This makes the invitation appear more like a positive opportunity than as spam.
Not all companies will be able to rely on referrals and virality. It depends on your product and business model, as well as your ability to embed your product’s value into your referral incentives — like Dropbox did. If your product is highly niche or expensive, then achieving viral growth through referrals is unlikely.
Growth hacking in a nutshell
Successful growth hacking isn’t a destination or a series of tricks. It’s an ongoing process of learning what works and what doesn’t at each level of the growth funnel. And it’s recognizing that each stage of the process is connected to the others.
The best part? Any business can apply growth hacking strategies to quickly remove bottlenecks and identify rapid growth opportunities.
Adopt a learning mindset rather than a strictly doing mindset.
Interested in getting trained on the growth hacking process and how to do it well? Check out Demand Curve’s Growth Training.