Hey everyone! In case you're new here, I'm Hsu Ken, Managing Partner at Iterative. This is our first AMA (and hopefully not the last), and I’m here to answer any questions you have about how to grow your startup. Ask me…
– What you should know about your users and how to learn them
– How to identify growth levers and use them to grow 5% to 7% every week
– The difference between good and bad growth
– The importance of retention when growing
– The funny tricks all successful startups use to grow fast in the early days
This thread will be open for seven days. Ask whatever questions you have on startup growth and I'll answer them in the comments. While you're at it, subscribe to our newsletter - it's full of startup advice and it's free :)
I think paid growth (specifically paid ads on Facebook, Instagram, Google, etc.) are great in the early stage as a testing ground to learn about who your users are and what they care about. In fact, we're running a validation program soon and basing the course around how to do it with paid marketing.
If you're doing paid growth only to increase your numbers and not learning about your users along the way then I think that's problematic. It's also likely that your CAC is super high since you don't know enough about your users.
Is growing 5% to 7% still applicable in a market downturn? Wouldn't growth be stunted during a time of slowed spending? [Thank you, this would be the last! Hehe, had a bit of time to be curious tonight.]
Depends on the space but unless you're very late stage (ie. saturating your market like Facebook) then it has no effect on you. Think about it, if you have 1% market share and the market contracts by 50%, you now have 2% market share. Still 98% left to go.
In the early stages, should startups prioritize growth over profitability? Which of the two do investors value more when evaluating a startup (if in case, growth and profitability cannot be achieved at the same time)?
Generally, it's about growth. Investors care about (1) whether people want what you're building then (2) if you can build a successful business on top of it. If you don't have (1) then (2) is moot. It's rare (I can't think of a case) to see a product people really want but are unable to build a business on top of it.
At which point do you know when it's time to grow your team? Should founders be cost-efficient and only consider growing the team when the founders can no longer handle the load? Or be aggressive and grow the team when the founders are expecting heavy load in three months?
Rather than good or bad, maybe I'll say more or less valuable growth.
There's certainly some types of growth doesn't retain. Typically that's doing something gimmicky to get people to sign up but they don't really care about what you're doing.
The other type of less valuable growth is expensive paid marketing that isn't really teaching you anything. I like paid marketing if you're early and trying to learn about your users or if you're later stage and can do it cost effectively (LTV > CAC or at least close)
There's no magic number where if you have it, any investor will say yes. All investors look at (1) whether you're solving a valuable problem, (2) have a order of magnitude better solution and (3) are formidable founders.
To try and answer your question, we have all of our startups target 5% to 7% weekly growth (not cumulative) during the batch. But for very early stage companies, you should be growing significantly faster than that. 5% growth on 10 users isn't impressive.
My favorite, that is probably not on those lists, is there was a YC company that helped you fight parking tickets in San Francisco. They figured the people who needed their product the most is people who just got a ticket. So every morning they got in their car, drove into San Francisco and found the person who gives parking tickets, followed them the entire day and stapled a flyer to every ticket they wrote. I just love that.
Probably worth an entire blog post but generally it starts with a strong understanding of your users and why they use your product. In almost all cases, companies that aren't growing fast are because (1) they don't understand their users well enough or (2) don't know how to turn those understandings into something that contributes to growth or (3) not enough people want what they're building.
How should your growth strategy change when growing to 1000 users, gathering feedback and iterating your product, to wanting to grow to 10,000 and then 100,000 users? Is there usually a step change in strategy?
Depends on whether you need to expand the type of users you're going after. If you're at 1,000 users and you can get to 10,000 without needing to target a new demographic, introducing a new value proposition, etc. then there isn't much difference. That's how you want to think about it rather than specific numbers. Every time you need to tap into a new user base who want different things, you're kind of starting the process over again.
The thing you need to be careful of when supporting more than 1 group is sometimes those groups want different, opposing things and you need to be thoughtful about how you make those decisions.
Depends on how early stage the startup is, how rapid and how strong the unit economics. Assuming that you're very early stage, I wouldn't worry too much about the unit economics if you have good ideas on how you'd improve them if you needed too. The biggest risk to early stage startups is do people want what you're building? Unit economics is the question that comes after that which is can you make a business out of what you're building? The 2nd question is only interesting if the 1st question is true.
Obvious caveats are don't have such bad economics that it (1) invalidates your growth and (2) causes your company to die. Don't die!
It's very hard to change customer behaviour. The only way you'll get them to change is if the problem you're solving for them is sufficiently painful and your solution is an order of magnitude better than what they're doing right now. There's a lot of nuance but if you're having a hard time getting people to change, I'd look again at those 2 things.
You should know what motivates them. What do they do the things that they do and why? If you can't do that, how do you make something they want? Great founders often understand their users better than the users themselves.
The process for learning this is (1) talk to your users, (2) based on what you learn, build an experiment to verify and (3) repeat. (2) is important for 2 reasons. First, users often say they want something but don't actually use it once you've built it. Second, you may have misinterpreted what you learned.
What are your thoughts on paid growth in the early stage? Using only facebook or tiktok ads for the first few users etc.
Depends.
I think paid growth (specifically paid ads on Facebook, Instagram, Google, etc.) are great in the early stage as a testing ground to learn about who your users are and what they care about. In fact, we're running a validation program soon and basing the course around how to do it with paid marketing.
If you're doing paid growth only to increase your numbers and not learning about your users along the way then I think that's problematic. It's also likely that your CAC is super high since you don't know enough about your users.
Is growing 5% to 7% still applicable in a market downturn? Wouldn't growth be stunted during a time of slowed spending? [Thank you, this would be the last! Hehe, had a bit of time to be curious tonight.]
Depends on the space but unless you're very late stage (ie. saturating your market like Facebook) then it has no effect on you. Think about it, if you have 1% market share and the market contracts by 50%, you now have 2% market share. Still 98% left to go.
Thanks Hsu Ken! Makes everything clearer now. :)
In the early stages, should startups prioritize growth over profitability? Which of the two do investors value more when evaluating a startup (if in case, growth and profitability cannot be achieved at the same time)?
Generally, it's about growth. Investors care about (1) whether people want what you're building then (2) if you can build a successful business on top of it. If you don't have (1) then (2) is moot. It's rare (I can't think of a case) to see a product people really want but are unable to build a business on top of it.
At which point do you know when it's time to grow your team? Should founders be cost-efficient and only consider growing the team when the founders can no longer handle the load? Or be aggressive and grow the team when the founders are expecting heavy load in three months?
Hire when the opportunity outweighs your ability to capture it.
What's the difference between good and bad growth? Is there a bad growth?
Rather than good or bad, maybe I'll say more or less valuable growth.
There's certainly some types of growth doesn't retain. Typically that's doing something gimmicky to get people to sign up but they don't really care about what you're doing.
The other type of less valuable growth is expensive paid marketing that isn't really teaching you anything. I like paid marketing if you're early and trying to learn about your users or if you're later stage and can do it cost effectively (LTV > CAC or at least close)
What are attractive growth metrics for investors to directly say yes to investing in a startup?
There's no magic number where if you have it, any investor will say yes. All investors look at (1) whether you're solving a valuable problem, (2) have a order of magnitude better solution and (3) are formidable founders.
To try and answer your question, we have all of our startups target 5% to 7% weekly growth (not cumulative) during the batch. But for very early stage companies, you should be growing significantly faster than that. 5% growth on 10 users isn't impressive.
What are some of the "growth hacks" or "out of the norm", "funny" approaches that B2C startups can leverage on to boost their user growth? :)
Take a look at these.
https://www.first1000.co
https://www.lennysnewsletter.com/p/how-the-biggest-consumer-apps-got
My favorite, that is probably not on those lists, is there was a YC company that helped you fight parking tickets in San Francisco. They figured the people who needed their product the most is people who just got a ticket. So every morning they got in their car, drove into San Francisco and found the person who gives parking tickets, followed them the entire day and stapled a flyer to every ticket they wrote. I just love that.
How to identify growth levers and use them to grow 5% to 7% every week?
Probably worth an entire blog post but generally it starts with a strong understanding of your users and why they use your product. In almost all cases, companies that aren't growing fast are because (1) they don't understand their users well enough or (2) don't know how to turn those understandings into something that contributes to growth or (3) not enough people want what they're building.
Obviously (3) is a last resort.
How should your growth strategy change when growing to 1000 users, gathering feedback and iterating your product, to wanting to grow to 10,000 and then 100,000 users? Is there usually a step change in strategy?
Depends on whether you need to expand the type of users you're going after. If you're at 1,000 users and you can get to 10,000 without needing to target a new demographic, introducing a new value proposition, etc. then there isn't much difference. That's how you want to think about it rather than specific numbers. Every time you need to tap into a new user base who want different things, you're kind of starting the process over again.
The thing you need to be careful of when supporting more than 1 group is sometimes those groups want different, opposing things and you need to be thoughtful about how you make those decisions.
What is the right balance between rapid growth and strong unit economics as an early stage startup?
Depends on how early stage the startup is, how rapid and how strong the unit economics. Assuming that you're very early stage, I wouldn't worry too much about the unit economics if you have good ideas on how you'd improve them if you needed too. The biggest risk to early stage startups is do people want what you're building? Unit economics is the question that comes after that which is can you make a business out of what you're building? The 2nd question is only interesting if the 1st question is true.
Obvious caveats are don't have such bad economics that it (1) invalidates your growth and (2) causes your company to die. Don't die!
to add on this: what if you're building something that people want, but the unit economics is bad (cant monetize)? Isn't that also problematic?
Yes but if people really want it, you should be able to make $ off of it. If you can't, I'd suggest that maybe they don't want it that badly.
How do you successfully change customer behavior both in the early days and at scale?
It's very hard to change customer behaviour. The only way you'll get them to change is if the problem you're solving for them is sufficiently painful and your solution is an order of magnitude better than what they're doing right now. There's a lot of nuance but if you're having a hard time getting people to change, I'd look again at those 2 things.
What should we know about our users and how should we learn those things?
You should know what motivates them. What do they do the things that they do and why? If you can't do that, how do you make something they want? Great founders often understand their users better than the users themselves.
The process for learning this is (1) talk to your users, (2) based on what you learn, build an experiment to verify and (3) repeat. (2) is important for 2 reasons. First, users often say they want something but don't actually use it once you've built it. Second, you may have misinterpreted what you learned.