Startups go from an MVP (Minimum Viable Product) to finding Product/Market Fit to Growth. The Growth phase often looks like a string of s-curves. A new Growth lever is found, exploited, saturates, and a new one is needed. This article deals with the search for the next source of growth after initial growth slows down.
Before we jump in, we need to agree upon what we mean by “Growth” because a company can grow in size, customers, employees, or other factors. In this case, I’m specifically talking about revenue. There are multiple ways to increase revenue: more customers, lower cost, higher revenue per customer. However, the goal here is to increase growth of incoming revenue, not total revenue, which can be achieved by lowering cost.
From a strategic point of view, there are 4 basic levers:
- Growth loops
- International expansion
- New features/products
- More revenue per user
You can build another Growth loop on top of the viral loop that unlocked the first wave of growth. Almost all startups grow from a viral loop, in the beginning – its inherent in the definition of Product/Market Fit because when a product is really good users tell other users about it. But there is a way to stack Growth loops on top of each other, for example, an SEO loop on top of a viral loop.
The right loop to stack on top of your initial viral loop depends on your business model, which dictates what channel(s) are suited at all. A marketplace with a lot of User-Generated Content would do well with an SEO loop. A SaaS business might do better with a Sales loop or even Ad loop. It’s tempting to do what’s “hot” at the moment or what you have the most experience in, but that’s a trap!
Over time, every business plays the whole multi-channel keyword, anyway, meaning over time every business tends to be present on all channels. It makes sense for mature companies, but startups have to be smart in the way they invest in channels.
Another way to grow is by expanding into other countries. This is a hairy one: done too early, you risk imploding. Your staff is spread too thin, your infrastructure can’t handle the load, your brand isn’t strong enough in local markets, and your cost eats you up. Done too late and you risk losing an opportunity that’s often taken up by local competitors that suddenly start to grow all over the place.
International expansion is powerful but comes with high effort because in most cases sheer translation of your content or site is not enough. You need to build:
- Localized content
- Local inventory
- Local sales pipelines
- A local brand
- Specific payment methods and currencies
One big factor to consider is local marginal cost because it’s different per business model. It’s more expensive to extend your inventory or part of it to other countries because you need to pay for logistics, customer support, and other costs. However, if you offer a service, like AirBNB, the marginal cost may be much lower, even close to zero. Both cases need a different approach that allows for a certain speed, resources, and strategy. Not all products have the same demand in other countries and not all sides of a market are equally balanced in other countries, for example.
A typical topic to burn your fingers on is local culture. In the US it’s not that big of a problem, because it’s a large market with mostly homogenous language and behavior. But Europe is a very different beast. French users behave differently in some cases than German, Polish, or Italian users. To understand these differences, there’s no way around being locally present, either through a proxy, like an agency, or with a team.
There is a lot to entering markets in other countries, which is why you have to do it systematically, step-by-step, and with someone who knows what she’s doing. Test new markets before you go all-in, for example, with a waiting list or gauge them through organic search volume of your brand in the local market. The more data you can collect without offering something concrete, the better you can prepare.
New product features – if done right – can lead to higher engagement, longer retention, lower CAC and higher revenue. New features – if done wrong – lead to feature bloat. That’s the case when a product is simply overloaded with features, to a degree that interferes with the core value of the product.
Feature bloat can lead to the death of a product because it’s hard to swing back. You usually end up with lots of fragmented customer segments that all like a different part of the product but nobody is really blown away by it. Plus, it’s getting exponentially more complicated.
There are a couple of ways to understand which features to build. Let me give you three from various aspects of Growth:
- Customer segmentation, an analysis in which you group your customers by attributes, can help you understand what features your most important customers or customers with the highest potential need.
- Organic Search volume is a way to understand the demand behind certain features.
- Customer feedback, the classic, is a robust way to understand the need for new features, either through NPS, direct feedback, or surveys.
More revenue per user
Increasing revenue from existing users is more cost-efficient than acquiring new users.
Again, there are three ways:
- Up-/cross-selling, lifting customers into a higher price category or charging them for additional features.
- Increasing retention, a.k.a. how long customers stay with you.
- Selling more seats, adding more logins or instances to an account.
Increasing retention is always a good idea because it doesn’t just mean more money through higher LTV. It also means more satisfied users, which can lead to more referrals, and higher business stability because you can predict revenue for longer.
Increasing retention is a science on its own, but in a nutshell, it’s about identifying user behavior of well-retaining clients, understanding the value they get from a feature/function, and then trying to lead other customers to that experience.
Up- and cross-selling is not only a question of sales but often also about finding the right time to pitch a higher price tier. That can be done through notifications or Emails that are triggered when a user provides several signals that indicate she’s ready to be taken to the next tier. It’s an approach also used by publishers that work with paywalls nowadays, as I outlined in “Building a triple-looped Growth model for newspapers“.
Selling more seats is most viable for SaaS businesses that scale monetization through accounts, instead of additional features. Jira is a classic example because user value increases with more seats. This cases happens somewhat organically but can be supported with the right pricing model, i.e. cost per additional seat.
Growing too fast can be dangerous
With all that being said, be aware that the next level of growth is also a question of readiness. It’s always tempting to add “more”, but it’s more advisable to take a perspective of maximizing one step before taking the other. After all, you still want to be as resourceful as possible.
Before investing in the next big source of growth, you should be sure that your current source is satisfied and your growth rate (month over month growth) is slowing down. It’s really hard to scale back, especially with investor pressure in your neck.