What’s common about businesses like AirBnB, Uber, Hubspot, Slack, Facebook, Blue Apron and Dollar Shave Club?
“They’re all from the US!”
Well played! Okay, let’s try that again.
What’s common about businesses in Australia, like Kogan, Brands Exclusive, Canva and Airwallex?
Growth Hacking! (Cringe)
You’ve heard it at conferences. You’ve read about it on every digital marketing blog. Even LinkedIn profiles haven’t been spared from it.
It sounds cool. Why be a boring marketer when you can be a growth hacker? Am I right?
In this article, I attempt to shed light on what we at Thrive believe growth marketing really is.
It’s not the latest hot trick everyone’s talking about (sorry!)
The Problem With Traditional Marketing
So, why did they have to go about and invent this new term? What’s wrong with good old marketing?
A couple of things:
- Law of diminishing returns – Every marketing channel will eventually saturate enough to the point where the ROI steadily reduces over time.
- Every marketer knows that half their marketing works, they just don’t know which half.
For most businesses marketing is synonymous with advertising. Advertising is only a channel. It’s not the be-all and end-all of marketing.
Marketing departments sit in silos in larger organisations. Their version of the truth is research by an agency and market research reports. The sales team sells what they like while marketing tries to do their fancy launch party. Data is a commodity few will give up on in a big organisation.
The problem isn’t limited to large businesses. Small businesses can’t afford a full-strength marketing team so they do whatever’s trendy. It was email marketing first, then Facebook, then Instagram, then blogs. It’s a tactics driven approach, without much consideration for market research.
Marketing in a crowded world is much harder. Yes, a great product can make this easier. But the average person is bombarded with 5,000 marketing messages a day (according to market research firm Yankelovich). You’re basically fighting for attention.
In fact it’s gotten bad that people have adapted to not even respond to ad messages. This heatmap from eyetracking research by nngroup shows how people don’t even let their eyeballs venture towards baaners on content websites.
I agree that good market research can fix this. But getting solid market research data (not just 100 survey results) is incredibly expensive. Can you figure out what to do with 150 pages of consumer research data? Insights get reduced to 10 actionable points and guess what – you’re not the only brand trying to make the most of it.
Look, I’m not saying PR, advertising and events are bad forms of marketing. There is a place for them – at companies with big budgets who don’t care about ROI so long as they make a profit.
It’s a term from a not so distant past. In fact, it was only coined in 2010 by Sean Ellis. Outside of Silicon Valley, few people knew of it.
It was born out of the need to scale up a startup fast, on tight budgets in order to make the next funding round and continue growing. Over time, however, the knowledge has permeated into corporations. Any business that transacts online can leverage the fundamentals of growth “hacking”.
In the book “Growth Hacking“, a Growth Hacker is defined as
“a highly resourceful and creative marketer singularly focused on high leverage growth”
What does that mean?
They try to get more bang for their buck.
But hacking is a misnomer. A hack is a shortcut to achieve the desired result (unlike in IT security). The success rate isn’t high. But the failures are also small.
While it might work initially, it doesn’t scale well since the tactic grows old fast.
For instance, AirBnB posted their bookings’ inventory on Craiglist to fill shared rooms, making both the owner and lessor happy.
Similarly, Dropbox built a massive user base by giving away more storage space for every new referral.
Remember Hotmail? All it took was an email signature – “Get your own Hotmail account”.
But these tactics catch on fast. When they do, they lose effectiveness. Just look at this chart on email click-through over the years. Andrew Chen’s article on the law of shitty clickthroughs explains this phenomenon better.
So if not growth hacking, then what?
Evolution – Growth Marketing!
If you look at any high growth company, success boils down to 4 core areas. It’s no longer about shouting the loudest or spending the most or being seen everywhere. It’s about methodically selecting the right channels and tactics that deliver compounding growth over time.
There are four core growth engines.
- Sales – you have an inside or outside sales team that calls upon prospects to sell your product. They can be affiliates, retailers, salespeople or even sales partners. You pay these people to sell your product and hopefully, you have a margin leftover to hire more such people and grow.
- Advertising – This is what most people think of when they think of marketing. This is the creative and emotional element of marketing. You advertise online, in classifieds, in magazines, on billboards and send catalogues to people’s mailboxes. People buy your product. You make a margin and you repeat the process.
- Word-of-mouth – This is perhaps one of the oldest ways the “word” gets around. Influencer marketing, public relations, referrals and multi-level-marketing fall in this category. Please don’t use MLM in your marketing strategy.
- Content – This isn’t just for content-heavy sites like Flickr, Pinterest and youtube where content creators bring in more users who then share the content and it creates even more users. This is a solid strategy for any business than needs to educate and entertain customers in order to convince and convert.
Core of growth marketing
At the core of growth marketing are four specialised areas:
- Behavioural psychology – We as humans are still driven by patterns of desires and motivation. Marketing seeks to intercept these patterns. So, understanding what customers do and why do they do it is important if we are to influence their behaviour. Red button or blue button? (the debate continues).
- Creative marketing – Think about PR stunts such as Richard Branson dressing as a stewardess because he lost a bet. Embedding marketing into the product such as Uber’s referral request also belongs here. The intent is to break the monotony and get attention.
- Data and Analytics – Growth marketing, in stark contrast to traditional marketing isn’t about “let’s throw it on the wall and see what sticks”. Instead, growth marketing is about measuring results, learning from facts and then adjusting course.
- Tools and automation – Since growth marketing looks at doing things more cost-effectively, automation and software tools play a huge role. However, the underlying process must be sound, to begin with. Accelerating a bad process won’t get results. It’s not unusual for growth marketers to get their hands dirty with code to develop a new tool. Look at Phantombuster, for instance – it’s an amazing automation tool in any growth marketer’s toolkit.
Growth Marketer – A Strange Breed
Growth marketers are engineers, analysts, traditional marketers, coders and even UX specialists. They come from a wide variety of backgrounds because most skills can be learned.
Growth marketers possess a T-shaped skill-set. They understand the fundamentals of marketing such as consumer research, behavioural psychology, pricing and promotional mechanics.
This is what the 3 core areas entail (source: buffer)
They have a good understanding of the marketing toolkit too. However, they go deep in knowledge in a couple of areas.
This unique array of skills helps them manage the outcomes with a wide array of tools at hand.
Let’s have a look at the fundamental skills, adapted from Brian Balfour’s view (ex Hubspot) that a growth marketer must possess:
- Storytelling/copywriting – People buy stories. They buy why you do what you do. They buy why they should care about your product. That’s the power of storytelling. Storytelling makes good products stand out in a crowded market.
- Data modelling – Since growth marketing relies on data and analytics, it helps to understand whether a particular initiative will yield sustainable results in the future. Regression modelling and being able to wrestle with data to make sense of it all is paramount. Otherwise, it’s just your opinion against mine.
- Behavioural psychology – Marketing is more about persuasion than interrupting people going about their business. Understanding behavioural psychology helps growth marketers anchor their work onto what matters most. Without persuading users there will be no sales or user growth. Have a look at the dopamine delivery systems created by social media.
- Coding – You have to understand at least the basic web technologies and have the ability to manipulate them. You’ve got to be able to build your own tooling if none exists.
- User Experience (UX) – You don’t have to be an expert but in order to truly walk in the customer’s shoes you need to understand UX. UX will make the difference between returning users and a high churn rate. UX is why people feel warm and fuzzy about Gmail but absolutely loathe ERP solutions.
Growth Marketing Mindset
Now, let’s delve into the mindset of a typical growth marketer. You won’t find them prescribing the latest tactic hey learned at a conference. Why? No one really knows if it’ll work for your customers and your business in your market.
So the growth marketer sets out to test. They set out to collect data and use facts to determine whether their plan of attack will be successful. Nothing is sacred, so long as it follows the principles of growth marketing outlined above.
Growth marketing aims to deliver repeatable and sustainable results. To achieve this you have to first understand the ultimate objective and associated constraints. Use this knowledge than to reverse engineer the shortest path to your customer. For instance, if you only have a 10% gross margin on a $1000 product you cannot afford to spend more than $100 in acquiring that customer. Well, unless you’re going for bust!
So now that we’ve got the objective and constraints sorted let’s look at the channel selection. A growth marketer seeks new and emerging channels. Channels that haven’t been saturated by big dollars. Channels which even with little spends can deliver a big impact.
One way to find new channels is to get out of your comfort zone and do things others won’t. By exploring and learning about new areas you’re bound to come up against untested channels which you can leverage until it becomes commonplace.
Growth Loops vs Sales Funnels
Businesses that achieve explosive growth do so by building loops. It’s why the subscription business model is so popular for software products. It’s why this model is now disrupting car rental, retail and even grocery.
Why? Once you acquire a customer, they remain a customer much longer. By retaining them longer you make more revenue per customer than if you do by serving them just once. It makes more economical sense to retain a customer than acquire a new one.
Growth loops typically have a way to channel more customers into the sales pipeline, or they tend to be based on sticky retention models.
If given a choice between 100 customers who pay you $10,000 or 100,000 customers who pay you $10, which would you choose? Let me know in comments.
Sales funnels, while great in their own right, need to be fed constantly to make money. As a result, they can be quite ineffective in the long run. Don’t get me wrong, sales funnels do belong in growth marketing but they can’t be standalone. It’s best if they’re connected to a retention program or referral program.
With the right growth mechanism, growth loops are almost self-fulfilling i.e. they grow themselves. 10% growth on 100 users becomes 11% growth on 1000 users fairly quickly. Small incremental improvements on compounding baseline give you explosive growth.
The End of Traditional Marketing?
Does this spell the end of traditional marketing?
Well, not quite. At least not until distribution channels i.e. ways to reach customers change fundamentally.
For instance, applying growth principles as a supplier to a supermarket is unthinkable because of data opacity and lack of bargaining power. Similarly, selling medication online is still heavily regulated making access to medication across international boundaries a major challenge.
However, it’s good to see corporate marketers embrace more methodical and quantifiable approaches to marketing, not too dissimilar to growth marketing.
One of the biggest challenges that still holds organisations from embracing growth marketing wholly is the siloed department structure. This is followed closely by a lack of technical skills to manipulate data and develop tooling. Something the startup teams have to be good at out of necessity.
Why Should I Care?
After reading all of that I bet you’re wondering – “why should I care?”.
Here’s why – growth marketing initiatives deliver better ROI in the long run. Sure, the first 20 experiments will fail. It’ll feel like a waste of time and money. This is when you’ll feel like sticking to the known and trusty old ways.
But, you only need one or two of these experiments to pay off before doubling down on them to reap considerably higher ROI.