On Growth in Startups after Product-Market Fit
Fantastic beasts and where to find them
This article is 3rd in the ‘On Growth’ series. In the first article, we covered the objective and outline of the series. In the second article, we covered what the objective of the startup at the outset should be (i.e. achieving Product-Market Fit or PMF), how PMF can be quantified (profitability per customer as output metric, with retention as leading indicator), and pointed to some common ways of getting first few cohorts in to collect enough data to measure PMF.
In this article, we will cover:
- What the core objective of growth function in a startup is after PMF has been established?
- Who should be responsible for this objective?
- What are the common ways to achieve this objective and some common pitfalls?
Let’s begin.
Q: What is the objective of Growth function right after PMF has been achieved?
A: Building the go-to-market (GTM) model, while still growing 5%-7% week-on-week.
The attaining of PMF is a moment of creation. The founder had an insight that a value could be delivered to the market, built a product to deliver that value, and found that she was right.
Eric Ries, in his book ‘The Lean Startup’, categorizes the leap-of-faith assumptions the founder makes at the outset into: 1. ‘value hypothesis’ (someone will find this product valuable), and 2. ‘growth hypothesis’ (enough people will find it valuable and we will find a sustainable way to find them).
With attaining of PMF, the value hypothesis has been proved to be correct. The startup now has a working equation for the business where positive value is being created; it just needs a growth multiplier (while not fundamentally altering the equation).
Often taking this value to the market, beyond the early adopters, needs capital infusion, and this is the stage at which startups often raise a Series A round. With that, come in new people reporting to the CEO, who now own various metric and functional responsibilities.
As one joins the growth function of a startup at this stage, the existing team already has figured out some way to get some users in every week, already has some roadmap of experiments to be done, and already has some growth goals. It is essential that the cadence of what has been working till now is not suddenly disrupted and focus does remain on consistently growing in the short term: Y Combinator recommends a 5%-7% weekly growth rate at this stage to its portfolio companies.
However, as I look back at my experience, the value that the newly hired Growth function has to deliver at this stage is much bigger: less than 1% of the value of the startup has been realized and whatever has got them till here won’t take them to the next stage. The growth hypothesis remains to be proved.
And, beyond keeping the momentum going, that’s the larger role of the growth function at this stage: setting the foundation for future growth. But that sounds vague. So, let me break it down into 3 concrete parts:
- Understanding the Product-Market Fit (PMF)
- Building the Go-to-market (GTM) Strategy
- Laying foundation for a culture of growth and experimentation
1. Understanding the Product-Market Fit
It sounds pretty obvious but this is the first thing an incoming Head of Growth has to do at this stage: understand the vision of the founder; understand the strategy being used to realize the vision; understand the product that has been built to deploy that strategy; understand the market for which the product has been built; and, most importantly, understand the value that’s being delivered to the user (as user perceives it).
There are 3 sources of this knowledge:
i. For understanding vision, strategy, and (intended) market, you have to talk to the founder.
ii. For understanding the product and the PMF, you have to dive deep into the data and know and understand every variable of the PMF equation.
iii. For understanding the value being delivered to the user, as the user sees it, you have to talk to the users. This will feed into the next step you have to take: build GTM.
2. Building the Go-to-market Strategy
Irrespective of the label of the team (growth or marketing), or the sub-label (product-led growth or digital marketing), the core job of the function is always this: your business is creating value for a certain type of user, your job is now to find more of them and distribute the value to them. (That, by the way, was my one-line job description but I realized it two years into the job after an advisor put it to me that way, and since then I have employed a mnemonic to remember it: Fantastic beasts and where to find them.)
But before you begin to distribute the value, you have to first understand what that value is.
It starts with talking to the early adopters. You are trying to understand two things here: the market (beyond what the founder told you) and the value of the product as they see it. It’s important to approach these initial conversations with an open mind. The medium has to be an open-ended user interview; you can’t just shoot out a questionnaire with multiple-choice answers since you don’t know the questions or the options yet.
Once you have some qualitative insights on the market (e.g. most of my users are in white collar jobs living in metros, for example) and the top values (e.g. it saves them time), you can now quantify them and increase the sample size by using surveys.
At the end of this exercise, you will have one or more user persona for the early adopters and the core values (one or two, no more than three) they see in the product. This might either surprise you or validate what you have already learnt from the founder. Either way, it’s important to do this exercise regularly and keep a central repository of these insights which can be shared with the larger team.
3. Laying foundation for a culture of growth and experimentation
There will be two broad categories of experiments growth function has to run:
i. On the product side: optimize the existing product to improve the PMF; build new products to capture more value (in that order)
ii. On the market side: scale identified market; format of distributing identified value; channel of distributing identified value; identify new markets (in that order)
We will cover the above in the subsequent article in the series. But first, it’s important to lay down the foundation for these experiments. The following things to be done:
i. Establish the Objectives: While these are generally not very different for different startups, it’s important to agree upon what the core objectives are, which are the primary and secondary metrics to measure those objectives, and in what format they will be reported. Having clarity on this, and following this consistently, reduces the cognitive load on the group.
ii. Enable their measurement: Once the core objectives and the key metrics to measure them are established, you have to make sure that there is infrastructure to actually do it. Some of the common components of the ‘growth stack’ are covered in this excellent article (it’s specific to mobile growth but is a good, exhaustive framework of all growth-enabling components irrespective of platform: e.g. split-testing framework, attribution, measuring in-app events).
So, to recap:
0. Continue doing whatever team has been doing till now, in the short-term.
- Understand the PMF by talking to the founder, studying data, and talking to users.
- Build the GTM strategy based on the market and perceived value you got from step 1.
- Establish the growth objectives and ensure their measurement to build a culture of growth led by experiments.
Q: Who will be responsible for this objective?
A: Growth function. Start building it.
Until PMF is established, the business is yet to begin and, often, the founder-CEO is in-charge of this function, as I discussed in the previous article. Once PMF has been established, it’s time to grow and to start hiring the growth function.
[Note: Any opinion without a mathematical formula to back it is subjective anyway, but what I am about to say next is highly opinionated even by those standards and probably biased.]
Founder should start by hiring Head of Growth and then let her build the rest of the team. Head of Growth should first hire for task-specific roles (this person will bring data; this person will write content; this person will make the creatives; and so on).
Once growth hypothesis has been proved and it’s time to rapidly scale, Head of Growth should hire people for 1. owing metrics (this person will own activation %), or 2. functional specialization (all visual designers will report to this person), and let them build their respective teams.
I will cover this is more detail in the last article of this series, which will focus on the nuances of building a growth function.
Q: What are common ways to build go-to-market model and some common pitfalls?
I have defined the way to build your go-to-market model and setting the foundation for future growth above. Let me now talk about common pitfalls.
Two key qualities for any stage of growth, but specifically for this stage, paradoxically are: focus and patience.
Focus comes from establishing the objectives and ignoring everything else that doesn’t help in achieving those objectives. You have to be open to advice, both strategic and tactical, but you have to ignore more advice than to accept it (including this article).
Patience comes from having a strong mental framework of which experiments will achieve those objectives and having strong conviction in them (until they fail, when you have to move to the next one). A common pitfall is not not enough experiments, but too many experiments. Have patience to do one thing at a time: nail down one customer segment before experimenting with others; nail down one distribution channel before diversifying; nail down one format before experimenting with others.
We have now covered key questions for Growth function in post-PMF startups, that we set out to answer. Got a question or a comment? Please do share.
In the next article in this series, we will cover Growth function in companies which have achieved PMF as well as have a working GTM model. This corresponds to the phase around Series B and Series C in startups that have raised venture capital funding. See you there!
