For several years now, the term growth hacking has been growing in popularity among entrepreneurs. Understood by few, mastered by even fewer, growth hacking nevertheless captures the imagination. The idea of instantly building a customer base is a sexy one. But what is growth hacking really, and is it safe? Does it really work? And is it detrimental to brand building efforts? To dig deep and get a better idea of growth hacking, you can download a related PDF here.
In this post, I’ll explore these ideas as they relate to brand building and provide a framework for growth hacking for those who wish to pursue it. If you would like a primer on brand building these resources may help.
Finally, I’ll put a spotlight on some of the risks of growth hacking. Read on.
What is Growth Hacking?
Growth hacking is a process through which a—typically new—business engages in robust experimentation across various marketing channels to identify the most effective and efficient ways to grow. The term was coined by Sean Ellis, founder of Startup Marketing. According to Ellis, there are three primary steps:
• Find market fit
• Grow business and penetrate the market
• Scale growth
This view fits nicely with the AARRR model for growth hacking, which we will explore shortly.
Ideally, a growth hacker accomplishes all this while spending as little money as possible. After all, if the budget were not a concern, then the most efficient path to growth may simply be pay-per-click advertising.
So, to summarize, growth hacking is an umbrella term for any strategies that focus solely on fast, cheap growth. The goal of any growth hacking campaign is to acquire as many new customers as possible, as cheaply as possible.
A growth hacker, then, is likely to employ creative, low-cost techniques to help businesses acquire and retain customers. You may have also heard growth hackers referred to as ‘growth marketers.’ However, it’s important to note that a growth hacker is not necessarily a trained marketer. Indeed, a growth hacker’s primary training might be in management, engineering or computer science. After all, understanding the underlying technologies on which many of today’s services run can help a growth hacker find ‘exploits’ that can lead to rapid growth.
Growth Hacking Success Stories
The following nine examples illustrate the potential power of growth hacking. But note that each of these companies built on their success by focusing on improving brand recognition.
Many marketing experts consider what Hotmail did in the late ‘90s to be one of the earliest examples of growth hacking. Instead of spending precious money on advertising their newfangled browser-based email service, Jack Smith and Sabeer Bhatia chose to leverage another resource: their early adopters. The service had already gained 20,000 active users by 1996. The founders knew that most of them were using Hotmail to communicate with family and friends.
So, what did they do? What would you do?
They added a footer to every outgoing message, which read, Get Your Free Email at Hotmail. The strategy worked so well for Hotmail that the company grew exponentially and was quickly acquired by Microsoft.
Would this simple strategy work today? Probably not, but only because consumers today are more tech savvy and demand more choice and control over their tools. Tech savvy consumers today may not put up with a forced footer.
PayPal, which began life as Confinity, was a relatively unknown way to transfer money in the early 2000s. Indeed, the concept of sending money online, which many of us take for granted today, was a bit of an alien concept back then. However, PayPal co-founder Elon Musk was determined to make the service a household brand. To that end, he manufactured the idea that PayPal was already popular and successful by levering the success of their new partner, eBay.
The company created a bot that sold goods on the site, but this bot would only accept payment via PayPal. Noticing this, successful sellers on the platform began offering PayPal as a payment method as well, fearing that they would miss out on sales if they did not. This helped sellers realize that the fledging service really was an easier way to accept payment.
Eventually, all of this led to the general public adopting PayPal as well.
The net effect is that PayPal made itself appear more successful and popular than it really was. They created a self-fulfilling prophecy.
When YouTube was getting started, and well before it was acquired by Google, it faced a dilemma. Consumers knew ‘video’ as this thing that existed on VHS or DVD—and it was often something that was created by professionals. Video wasn’t something that regular folks created just for fun, and if they did create it with hand-held camcorders or similar equipment, they weren’t doing it with the purpose of sharing their videos with strangers.
So could YouTube shift consumer perception to the point where people would start creating their own videos to share with the masses? Like Hotmail before them, they decided to leverage our innate desire to be social.
At the time, Myspace was all the rage. The service was revolutionary, in fact. Myspace was connecting people in new ways, but their technology for sharing music, videos and other files was somewhat lacking. Looking around, YouTube realized that other video sharing sites didn’t allow blogs and other websites to embed their videos because those services feared losing direct traffic.
Sensing opportunity, YouTube created what we know today as ‘embed code,’ and the rest is history.
Suddenly, any Myspace user could easily share video by pasting some code into their page. But in order to do that, they would have to upload their video to YouTube, and YouTube only.
Today, YouTube is one of the biggest search engines in the world.
At its inception, Dropbox faced a similar dilemma: how to get consumers to use their product? This frustrated founders, because from their point of view, the product should sell itself. But consumers weren’t accustomed to thinking in terms of ‘the cloud.’ If they wanted to back up their data, they used external hard drives or USB sticks.
Dropbox founders figured they could solve this problem by throwing money at it, and they tried. But what they found was that the cost to acquire a new customer via paid ads was much higher than the average customer lifetime value. Ouch.
Perhaps out of desperation, the company chose to look elsewhere for growth. Their solution? An easy-to-use referral program that rewarded users with free server space on the service. After all, the cost of memory was low compared to the cost of on-going pay-per-click campaigns.
In 2010, Dropbox invited thousands of users to their new referral program. At that point, they had around 100,000 users. 15 months later, they had over 4-million.
One of the advantages Facebook had over Myspace was its more professional appearance. In an era before LinkedIn, Facebook appealed to budding professionals in ivy-league schools. But this alone would not have been enough to allow it to compete with Myspace, which was, at the time, the biggest social network. Yet Facebook had another trick up its sleeve. It generated buzz for its service by restricting access.
At first, Facebook was only available to students at Harvard. Then, access was granted to other ivy-league schools. After this phase, all college students gained access. At every juncture, people were raving about Facebook. Indeed, Facebook was cultivating brand ambassadors the whole time. The effect was so powerful that by the time the network allowed anyone in, they began to grow exponentially.
Like Facebook before it, Pinterest decided to bet on exclusivity. The network was somewhat novel: it put the focus on images rather than text. But the site was initially invite-only. Anyone could sign up, but in reality, they were signing up for a waiting list. You see, after giving up their email, they received a message letting them know that Pinterest wasn’t being rolled out to everyone just yet, and that they would be allowed access as soon as possible.
Meanwhile, the people who already had access were raving about the site.
Whether or not this was all just an elaborate fabrication is anyone’s guess. All we know is that it worked. The site was adopted by eager users and has enjoyed popularity since.
The idea of a social network that limited everyone to 140 characters appealed to many people. It would seem, then, that Twitter would be an easy sell. Not so. Twitter found that while they had no issue getting people to sign up for the site, they had a real retention problem.
Many users would sign up, use the site once or twice, and then never visit again. It was seen as a novelty, nothing more.
For a company with dreams of turning traffic into money, this was a big problem. Instead of spending money to get more users—in effect hoping that the problem would sort itself out if more people came to the platform—the engineers at Twitter dug into their data for a solution. What they found was that if new users were prompted to follow at least 10 people at sign-up, they were much more likely to actually use the service.
Twitter made this a standard part of the sign-up process and engagement site-wide exploded.
Like many companies on this list, the folks at Airbnb struggled to get people to adopt their service. It was, on the surface, an odd idea: rent out your spare room to strangers. What’s more, at the time, the people willing or able to do this were already advertising their service on an established site, Craigslist.
But Craigslist was a free service, and Airbnb wanted to make a profit. The question Airbnb faced was, How do we become the middle man?
They inserted themselves into the market, creating a need for their service, almost overnight.
The founders created a bot that allowed users to list their properties on Airbnb and Craigslist simultaneously. At the same time, they optimized their service to ensure that their customers saw high booking rates. The end result? As with eBay, users came to find that they could make more money, more reliably, if they simply used Airbnb in the first place.
In an impressively short span of time, Airbnb became the go-to solution for part-time bed and breakfast operators. Note that Airbnb didn’t try to out-compete Craigslist. They co-existed with Craigslist, but offered a tailored-made, focused solution for power users.
Instagram offered social media users a quick way to take engaging photos—well, let’s be honest here—selfies. But they, like many others on this list, faced a problem. People couldn’t use their solution if they didn’t know about it, and competition in the app space was fierce.
Like YouTube before them, they got around this by making people’s lives easier. At the time, people were struggling to post their fabulous photos to Facebook and other social media sites. Instagram solved this issue for users by making it very easy for them to post Instagram photos to Facebook, Twitter, Tumblr, Foursquare and others.
They owed their initial success not to their cool filters, but more to the fact that it was easy to transfer images from their app to other social networks. Only then could their innovative filter technology become relevant. But that tech ultimately led to a nearly $1-billion acquisition by Facebook. The brand story of Instagram, in particular, speaks to the fact that it’s often not enough to have the best product. You have to get that product out to the people who need it most.
The AARRR Model
If those stories of rapid success make you want to do some growth hacking of your own, you’re in luck. In this section, we’ll explore a model that you can use to guide your own growth hacking campaigns. As you can see from the above section, the actual ‘hacks’ used to achieve rapid growth are varied. With the AARRR framework, you’ll know where you are on your journey once you get your big idea.
To start, we can break the above stories down into a few general methods:
• Leverage the success of someone else
• ‘Hack’ an existing platform or process
• Manufacture prestige
Think back to our earlier definition of growth hacking. Its purpose is to generate growth for as little money as possible, and as quickly as possible. Keep this in mind as you explore the components of the AARRR model. It’s these components that a growth hacker looks to optimize.
So What Is It?
AARRR consists of:
Acquisition is the process through which users find you and then convert into paying customers. It’s important to take a top-down view here. For instance, if you were starting a SaaS, you wouldn’t want to look solely at your traffic data. You would want to dig deeper and find out how many of those initial visitors go on to convert into paying customers.
In our SaaS example, and for any online business, really, there are mini-conversions that occur along the way to a sale. It might look like this:
• The potential customer visits your site for the first time
• They sign up for your newsletter or agree to give you their email in exchange for a free resource
• They participate in a webinar
• They have a chat with the sales team
• They convert into a paying customer
You need to identify all of these micro-conversion points in your own funnel so you can minimize friction. Friction is any point at which the lead may be having second thoughts.
Also, keep in mind the difference between a lead and a qualified lead. For our purposes, a lead is any visitor who has given you permission to send them information, either via email or phone. A qualified lead is anyone who completes the first micro-conversion in your funnel. You should aim the bulk of your growth hacking efforts at qualified leads.
In addition, before you attempt growth hacking, you must be able to answer these acquisition-related questions:
• What is driving most of my traffic?
• Which channel is providing the most valuable traffic?
• Which channel has the lowest customer acquisition cost?
Once you have the answers to these questions, you’ll have a better idea of which general growth hacking methodology will work best for you—listed at the top of this section.
Activation is all about the user’s first experience with your product or service.
As you’re no doubt aware, in today’s crowded marketplace, it’s not enough to get a customer to download your app or try your SaaS solution. After all, if they’re going to drop your product after playing with it for a bit, then what’s the point?
You must provide your customers with a clear aha moment as soon as they use your product. This is the activation. By the way, activation is crucial for the cultivation of brand ambassadors.
The aha moment occurs the first time your customer realizes just how valuable your product or service is. For Dropbox, the aha moment was when a customer realized the value of the cloud. For YouTube, it was the moment that bloggers and Myspace users realized they could easily embed videos. For McDonald’s, it was the moment customers realized they didn’t have to get out of their car to get dinner.
Recall that Twitter solved their user retention problem by guiding users to the aha moment. If new Twitter users were made to follow between 10 to 30 other users, they were vastly more likely to use the platform. Aha.
In terms of growth hacking, you want to clarify what your aha moment is—if only internally—so you can either refine it or else put a spotlight on it.
A healthy business will have high customer retention. Think Amazon. People didn’t just use Amazon once and then go back to buying books only from brick and mortar stores.
To continue the SaaS example, retention means that people subscribe and then continually renew their subscription.
The opposite of retention is, of course, churn, and churn is the enemy. Consequently, you must monitor your churn rate at all times. If churn is creeping up, evaluate your offering and ensure that you are giving value.
Remember: your most unhappy customers can teach you the most about your product or service. If people are leaving, reach out to them and find out why.
With regards to an ongoing growth hacking campaign, what matters is that your customer churn rate is lower than your customer acquisition. A lot lower. That’s the only way to achieve growth.
A growing business with high churn is like a bucket with a hole in it. It doesn’t matter how much water you put into the bucket, it will never fill up.
Finally, according to Harvard Business Review, it’s 5 to 25 times more expensive to acquire a new customer than it is to retain an existing one—just one more reason that brand building shouldn’t get lost in the shuffle.
Once you’ve built a service with low churn, it’s a good bet that you’ve got some brand ambassadors out there. Why not incentivize them to spread the word about your product? A referral program is one of the very best ways to drive business growth, and as we’ve seen, it plays a key role in most growth hacking schemes.
Once you’ve established a referral program, you’ll want to keep an eye on your Net Promoter Score and Viral Coefficient. These two metrics will tell you how effective your referral program is. The Net Promoter score is a value between -100 and 100 and gives you an idea of how likely people are to promote your product. The Viral coefficient, on the other hand, tells you how effective your referral program is overall.
A Viral Coefficient of two means that, on average, an existing customer brings you two new customers. To see growth, then, your VC must be larger than one. This also means, however, that even incremental increases in this metric—say from 1 to 1.1—results in high growth.
As Twitter, Reddit, Facebook and Instagram learned, growth hacking doesn’t mean much if you can’t convert traffic into revenue. A solid monetization plan is crucial for any startup. In the AARRR model, you increase revenue over time by increasing Customer Lifetime Value and by decreasing Customer Acquisition Cost.
A solid ratio for CLV to CAC is 3:1. If you aren’t hitting this through your growth hacking efforts, you’ll need to take a step back and find the friction. Often, this means optimizing the sales funnel.
Okay, But What Are the Risks?
As discussed, one big risk of focusing on growth hacking is that brand building takes a back seat. Over the long run, establishing a powerful brand that stands out will do more for you than achieving rapid growth will. However, there are more specific risks that need our attention.
#1 Growth Hackers May Not Care about Your Business
It’s becoming common for startups to reach out to self-proclaimed growth hackers to give their business a boost. The problem with this approach is that these individuals are not invested in your business. They are there for a payday, nothing more. Moreover, growth hackers often aren’t team players.
They’re often mavericks, and while their ideas may be genius, they’re not always great at consulting the rest of the team before they act. They might come to you and say something like, “I’m about to launch this new program. It won’t cost you much. It’s going to result in 10,000 new users by next week.”
You should instantly respond with, “Sounds great. Have you checked in with Operations to make sure they can handle 10,000 new users by next week?” Often, the growth hacker will respond with a sullen, “No,” or else, they’ll stare at you blankly.
#2 Growth Hacking Focuses on Short-Term Outcomes Only
You’ve no doubt seen clickbait titles online like, “The Quick and Painless Way to Increase Your Social Media Following by 200 Percent!” Well, growth hacking fosters a similar mentality. It encourages a focus on outputs and outcomes that may or may not be in alignment with your higher brand priorities.
What’s more, growth hackers looking for work will flash these numbers in your face as if they mean anything. Say they want to run a campaign to get 100 new free trial sign-ups per day. Great! To the growth hacker, that might be where they stop caring. They said they would get you a specific type of growth, and they did. Now they want to be paid.
But what does 100 new sign-ups mean to your business, or your brand? All that matters after the fact is the percentage of those users who went on to convert, but by the time you figure that, the growth hacker is cashing your check.
#3 Growth Hacking Sometimes Takes Place in a Legal Gray Area
Growth hacking often takes advantage of vulnerabilities in existing services or platforms. While this isn’t typically illegal on its own, it can potentially get you into hot water. Furthermore, dodgy growth hacking software often requests your credentials to existing services like Twitter, Facebook, etc. How can you be sure the process is secure?
Finally, keep in mind that if you’re not paying for the tool, then you are the tool. The software vendor will sell your data to a third-party for a profit.
#4 Growth Hacking Promises Quick, Big Wins
Growth hacking appeals to founders because it doesn’t require long-term planning. But long-term, strategic thinking is a requirement of building a successful brand. A reliance on short-term gimmicks could blunt your analytical skills. What’s the point of achieving success in the short-term if you don’t know how to build from there?
If you were stranded in wilderness, and you could only have one survival tool, would you choose a tool that allows you to instantly create a spark—if you don’t know how to build the fire up once the tender ignites? Creating the spark is just a small part in the overall process of starting a roaring fire.
Learning growth hacking techniques may be putting the cart before the horse.
I hope this concise guide has demystified growth hacking and has helped you decide whether you want to pursue it as a growth strategy. What do you think? Is it worth the risk? Is it a viable marketing strategy, or is just a fad? Let me know in the comments section below.