Guiding Principles of How to Approach Growth

So far, we’ve discussed what growth is and why it matters. Now, we’ll turn to a few key principles to consider as you develop your growth strategy. These principles are essential to remember because they’ll keep you focused on strategy, productive learning, and achievement.

Here are the five principles we’ll cover:

1. Focus is key
2. Try fewer channels for more concentrated growth
3. Growth = learning
4. Leverage compounds
5. The staircase of growth

Focus is key

Summary: Focus on strategy. Not ad hoc attempts to grow.

We see too many teams spread themselves thin. They write tweets, draft email newsletters, publish guest blog posts, etc., without knowing how these activities will lead to customers and revenue.

To establish focus, we will help you identify and perform repeatable activities that drive meaningful results for your revenue and customer base.

You won’t be able to find those meaningful growth activities without testing them, which leads us to the next principle.

Try fewer channels for more concentrated growth

Summary: Focus on getting a few channels right to avoid getting a lot of channels wrong.

We work with many founders who have adopted the mentality that they should always be "doing more"—and doing more faster.

Especially when it comes to growth.

Startups that have hardly started marketing tell us about 10 different channels they'd like to test. Or they ask us how to implement a sophisticated experimentation program, so their team can start churning out at least 20 experiments a month.

Or, on the other side of the equation, they'll excitedly tell us how they found a channel that's consistently and profitably generating new customers, only to immediately follow it up with how they think they should start testing more channels to "diversify."

We understand where these founders are coming from. Intuitively, testing as many things as possible makes sense to figure out what works. But this mentality has some pitfalls.

Why “more” isn’t better in acquisition strategy

In the world of personal finance, we're taught that diversification is the name of the game. ]

Why? Because you're trying to reduce risk by spreading your money across stocks, instead of putting it all in a few stocks that you hope will take off. You're probably not in a rush—retirement might be years later. So diversification serves a great purpose: It reduces risk and increases security.

Contrast that with your typical startup. You don't have 30 years. You may have enough capital only to last six months. This is an entirely different ballgame. You likely can't survive on 10% annual growth rates. You need more significant growth, faster.

To do that, you must concentrate on only the channels that are most likely to work for you. They’re the ones that will kick-start your growth.

It’s riskier to try too many channels at once than to pick the ones best suited for your product, launch them, and evaluate their performance for continued optimization.

Let's look at the two extremes:

1. You run a massive company like Microsoft and Amazon

You have many billions in cash reserves, you stockpile more each year and can raise money from the public market. You're trying to stay at the top of the game by continuously investing in new technologies and opportunities.

If you miss out on the next big wave, you could die.

You take 0.01% of your resources to spin up multiple teams to tackle the same problem. If one of them hits, it more than pays off. If it fails, it's no big deal.

2. You run an early-stage startup

It's you and maybe a handful of others. You have a few months of cash in the bank.

You're trying to stay alive and grow revenue so you can grow the team and cash reserves.

You only have so many bets you can make before you get completely wiped out.

You need to aggressively prioritize the surest bets. If you find something that works, you keep doing that.

Just like in poker, the house plays differently than someone with only a few chips left. The latter needs to only play hands they know they can win.

Fewer channels means more concentrated investment, too

Getting a single channel to work takes a lot of work (and often money).

You're competing with many other companies for the attention of your market. Many companies have entire teams dedicated to one channel alone. To give yourself a chance to succeed, you need to give a channel the time and attention it requires.

Here's what goes into launching a single channel, such as Facebook ads:

• Prepare for launch: You'll conduct research, design ad creatives, write copy, set up your ad account, build your campaigns, set up pixels and conversion tracking, create landing pages, and more.
• Launch: You'll likely be spending at least $2,000/month (and more if you want to accelerate your learning). Plus, you'll be closely monitoring and optimizing results. This takes time. And since you're new to this, there will be a learning curve. Things often take longer than expected.
• Iterate: If your initial test looks promising, you'll invest more resources into putting together new creatives and campaigns on an ongoing basis, as well as continually analyzing results and optimizing. You may also want to increase your spend to, say, $5,000 or $10,000/month.

Imagine if you tried to test four other channels at the same time. Each channel requires its own research, ads, tracking, and so on. Plus, now your initial cost has increased 5x. And once you launch, you'll have 5x as many channels to analyze, optimize, and continue creating new assets for. This often leads to subpar results since your time and budget are spread so thin. You can't give each channel the attention it requires.

Imagine testing all five at once and finding only one that works.

Great, right?

Possibly, but not if it took six months of slow, watered-down results to get there. Now, you've burned through a good chunk of capital. You may not have enough in the bank to begin investing heavily in and scaling up your winning channel.

Our intention isn't to scare you into thinking growth is impossible. But focus matters, especially in the early stages of a company's life.

Let's move on from hypotheticals to how we'll help you apply this concept throughout the program.

Acquisition channels

We will teach you our strategy and research framework, which will help you identify the one or two channels with the greatest chance of success. This course will also guide you in choosing the channels that are most likely to move the needle for your company.

This is a major shortcut. You won't need to test dozens of channels. You'll be able to jump straight to the ones best suited for your company and goals.

Experiments & A/B tests

Early on, when you have limited resources, site traffic, users, and time, you have to be exceptionally thoughtful and intentional with what you decide to test.

Why? Again, because we need big wins. Squeaking out 5% improvements isn't going to cut it.

Here's a simple but powerful chart to illustrate the point:

Credit: Andy Johns - https://review.firstround.com/indispensable-growth-frameworks-from-my-years-at-facebook-twitter-and-wealthfront

Large companies have tons of traffic and can collect massive sample sizes. This allows them to run lots of A/B tests that may only move the needle by a couple of percentage points. But a 1% improvement is significant for a company like Google (which explains their famous experiment in which they split-tested 40 different shades of blue on a single toolbar).

It also allows them to be less thoughtful with what they test. If you can launch and conclude a test in a single day, it makes sense to lower your bar.

Startups don't have this luxury. Whatever we prioritize, we need to have high conviction that it will produce major results.

(We'll cover experiments in detail in later sections.)

Growth = learning

Summary: Apply all learnings—from successes and failures—to future growth initiatives.

A good growth strategy emphasizes feedback loops. These allow you and your team to quickly learn what’s working and what needs to be improved.

Growth is data-driven. You will learn how to apply the scientific method to your activities: hypothesis, test parameters, observation, and analysis.

Most founders and startups struggle to learn from a failed experiment.

Let's look at some examples:

• You launch an ad campaign, but it yields few new signups.
• You launch a new feature, but it doesn’t improve your customer retention rate.
• You create content for a new channel, but hardly any sales come through.

You've learned nothing if you can't understand WHY each failed and HOW to ensure that it doesn't fail again.

The opposite can also be said: If something is working, but you have no idea why or how to continue growing it, you don't really have a strategy.

You got lucky.

You'll learn how to create a growth strategy that includes systematic experiments. Being systematic will help you know whether or not your experiments are worth continuing.

You'll also learn how to prioritize which activities to focus on. You'll find out how to collect the right information to know when it’s time to double down or move on to the next experiment.

Leverage compounds over time

Summary: Focus on high-leverage activities for compounded growth.

How do startups with only a few people experience explosive growth and win out against established industry players that are hundreds of times bigger?

They apply an extreme amount of force to a single point of leverage. Leverage is what allows tiny companies to create massive change.

Leverage compounds, meaning that the high-leverage activities you do today will allow you to do more with fewer resources in the future. As you learned in the last principle (growth = learning), those learning fast generate compounding effects earlier.

Therefore, to create maximum leverage, you'll want to learn as fast as possible in the beginning to turn that knowledge into growth and growth into leverage.

Our program focuses on only high-leverage activities.

We know your time is valuable, so our program focuses on HOW to execute high-leverage activities.

Soon, you'll have a growth strategy that will keep you laser-focused on the opportunities with the highest likelihood of producing meaningful results.

The staircase of growth

Summary: Continuously optimize your business model for your channel.

Growth often occurs in a step function, like stairs going upward. Here's how it works:

• You'll get a growth activity to work well. You'll acquire new customers consistently, and your revenue will steadily increase.
• Then, for seemingly no reason in particular, growth will begin to slow. You'll see all your growth outputs plateau.

This tends to occur when you reach the upper ceiling of a channel, market, or tactic—you've reached all the customers a single channel can reach. This is a sign that you're ready to take a step up the staircase to the next level of growth.

For example, let's say you're selling a pool toy, and you start by selling door-to-door in your hometown. You know there are 10,000 pools within your town. The ceiling of selling using door-to-door as your growth channel is about 10,000 sales. Once you reach that point, you'll have to find another way to reach pool owners.

(You'll learn about conducting market research and the specifics of each growth channel in later modules, so don't worry about the details of this example.)

Let's fast-forward

You've begun selling your pool toy through Facebook ads. You've now sold over 100,000 units, and things seem to be going well. But then you hit a plateau again.

Was it because of a market ceiling? Considering that over two billion people are on Facebook and over 10.4 million residential swimming pools in the US alone, it's highly unlikely that you've hit a ceiling.

What's more probable is that you've hit the point of diminishing returns.

We'll explain this concept in more detail when you learn how to scale a working growth channel. But essentially, it means that you will need to optimize your business model to match the channel you're selling through.

In future modules, we'll share ways to identify whether you will need to find a new strategy and how to pivot when the time comes.