Alex Schultz (Part 1): An Introduction to Growth Hacking

Original author: Alex Schultz
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Stanford course CS183B: How to start a startup . Started in 2012 under the leadership of Peter Thiel. In the fall of 2014, a new series of lectures by leading entrepreneurs and experts of Y Combinator took place:

First part of the course

Alex Schultz ( Alex Schultz ): I watched the lectures in this course, the content of the preceding statements is simply amazing! And now you have to tolerate me. Let's see how things go with us.

In contrast to Paul, who, speaking at a Q&A session, said that if I were in college now, I would be engaged in physics, I gave myself free rein in this regard in due time. I was just studying physics at Cambridge. It seems to me that physics is an amazing subject, it gives you skills that can really be useful in other areas of life, but today we’ll not talk about that.

I paid for the training by earning money on Internet marketing. In the 1990s, I started with SEO optimization. I created a website about paper airplanes and took a monopoly position in this small market [Alex is clearly ironic over Peter Thiel, who spoke about monopolies in previous lectures ].

But when you create a startup, you should also bear in mind the possibilities of the market you have chosen for further growth (the long-term prospects of the market I have chosen were disappointing). But I really learned how to work with SEO. In those days, we used the Alta Vista system, and all SEO optimization consisted of placing white text on a website page on a white background. Having indicated the word “airplane” in such text 20 or 30 times, you could occupy the top positions in the search results of Alta Vista. So they did SEO optimization in the 90s. It was very easy to learn.

When I went to college to the physics department, I thought that thanks to the topic with paper planes, I would look cool. In fact, I turned out to be the most boring nerd in the group, so I made another site dedicated to cocktails - in the process of its creation, I learned how to program, and the site subsequently became the most visited resource about cocktails in the UK. I really became interested in SEO when Google appeared on the market. With the advent of Google, businesses had to worry about a place in the search results, and that their sites were linked from other resources. True, at that time it was possible to get into the top results of Google, having only one link to the site from the Yahoo directory and all the same white text on a white background on the resource itself.

When Google launched AdWords, I was just starting out in marketing. I bought paid clicks from Google and resold them on eBay with a small margin of about 20% using their affiliate program. This process literally dragged me into the topic of startups, to work with what is now called growth hacking , growth marketing.

It seemed to me that this is the same Internet marketing, you just need to use all possible channels and, thus, achieve any desired result - that’s exactly what I paid for college, and that’s how I turned from a physicist into a marketer –– turned to the dark side Forces.

So what do you consider most important for growth? You listened to a bunch of lectures, they told you about it thousands of times, so what do you think is most important for the growth of the company?

Audience: Cool product.

Schultz : And what gives such a product?

Audience: Customers.

Schultz: What do you need from these clients?

Audience: To have more of them all over the world.

Schulz:That's it, you need customer retention. This is the most important element of growth. Now Facebook has a great team dedicated to the growth of the company, and I am very proud to work in it, but the bottom line is, we have a fantastic product. The opportunity to work on the growth of Facebook is a huge privilege, because we are promoting something that people around the world really want to use, and this is absolutely amazing. If we manage to attract a client and work with him, he remains on Facebook.

I have acted as a startup mentor many times. Most of all I liked working with AirBnb, but I worked with Coursera and other companies that did not achieve outstanding success. But the essence in each of these cases is as follows:if you build the curve “Percentage of active users per month versus the number of days since the user was attracted”, and it turns out that your retention curve is an asymptote tending to a straight line parallel to the X axis, then you have a viable business and product, and your product corresponds to the selected market niche. But for most companies that “took off” in the wake of growth hacking, virality and the like, the retention curve ended up asymptotically tending to the X axis and eventually intersecting with that axis.

Now, when I talk about this, they answer me: “Well, of course, when you first joined Facebook, the number of its visitors was already a million people a day” or “You had 50 million users at that time, this is a huge number of people, so that you already had large amounts of information to ensure continued growth. ”

But we used the same methodology [retention curve estimation] for the B2B segment, attracting users to subscribe to advertising messages in order to understand how we can ensure growth in this market as well. And in that sense, when I joined Facebook, our product was only three days old. Over the 90 days of launch, we were able to apply this technique and understand what the value of one advertiser for the year will be - our forecasts for the first year were justified with an accuracy of 97%. Therefore, keeping track of your user retention curve is very important.

As you can see, this red line corresponds to the number of customers who already use your product for a certain number of days. So, you have a lot of users who have been working with the product for at least one day, but if your product is a year old, then you do not have a single client who has been with you for 366 days, right?

Next, you evaluate the users who worked with your product for one day. How many percent of them are among the active users per month? Of course, in the first 30 days this value will be 100%, because all those who lasted a day with you appeared in one month. But then comes the 31st day. Count all users on the 31st day after registration: what percentage of them are among the active users per month? Repeat the procedure on the 32nd, 33rd, 34th day. This will allow you, with only 10,000 customers, to really understand what the user retention curve will be for your product. And you can tell if this curve is like an asymptote.

The curve will become less and less smooth closer to the right edge (on the slide I show an approximate version and do not use real data), but you can nevertheless understand whether the curve is approaching a straight line or not. If not, do not use growth hacking tactics, do not try to increase virality, do not hire specialists for this.

Focus on matching the product to the market, because ultimately, as Sam [ here and here ] said, opening this course: the four components of a startup are an idea, a product, a team, and implementation. If you have a weak product, it makes no sense to work for growth, because your company will not grow. Problem number onethat I came across - and this is true both for new Facebook products and for startups - is that the product does not match the market, and its creators do not understand this.

The next question that they ask me again and again: what percentage of user retention can be considered a success?

Of course! After all, this figure may amount to 5% (although I think that Facebook’s indicators are higher). But in this situation, your business cannot be called successful. This question annoys me, because, as it seems to me, you yourself can give an answer to it.

I like one story, it can be said that this is one of those stories that I will tell here "off topic" ( linkthe text is in my presentation), although its end will fit in very well with our conversation. Here [on the slide above] I posted a photograph that was published in Life magazine in 1950 - this is the result of one of the tests of the Trinity atomic bomb. So, there was such a man named Jeffrey Taylor. It was a British physicist who, according to the results of his work, received the Nobel Prize.

Just by studying this photograph, he was able to determine what the power of the American bomb was. The Russians also published similar images based on metric considerations. Metric considerations [dimensional analysis] is one of the best skills that I have mastered when studying physics in the UK.

Dimension analysis is that you evaluate the metrics that appear in a particular problem: you need to find out the amount of energy. Guided by the equality 1 N = 1 kg · m / s ^ 2, you need to calculate the number of kilograms, meters, seconds, and you are trying to determine how to get these values ​​based on the data that you have. The mass can be expressed by evaluating the scope of the sphere — guided by these considerations, Taylor was able to calculate the power of the American atomic bomb and the ratio of the power of their bomb and Russian bomb. In fact, he revealed one of the greatest secrets of the time.

It was a difficult task. But finding out what the percentage of Facebook customer retention will be is much simpler. How many people use the Internet? 2.3-2.4 billion? Ok, keep in mind that Facebook is banned in China, how much will it work then?

Audience: 2 billion

Schultz: So, 2 billion people use the Internet. According to Facebook, the number of active users of the service is 1.3 billion. You can divide these values, but it will not give you the right answer.

Of course not! But you’ll get an estimate of what Facebook retention rates might look like. If we can convince every Internet user to become our client, you will realize that the retention rate has increased. The same can be said about WhatsApp. They announced that the number of active users of their service for the month is 600 million people.

How many people own smartphones? You can calculate it - no one hides the numbers. They can tell you how high the retention rate of WhatsApp users is. Amazon has a pop-up advertising message that captures almost every Web user in the United States. You know how many people access the Internet in the USA, and you know how many of them are Amazon users, the company freely distributes these numbers.

Within the various vertical structures, to create successful businesses, different extreme values ​​of customer retention are needed. If you work in e-commerce, calculate retention based on the number of active users per month, and your customer retention rate is 20-30%, which means that you are doing very well. But if you work in social media, and less than 80% of the first group of sign ups are left, your social network will not become massively popular. Everything is very dependent on a specific industry. In this regard, you need tools that can answer the question with whom you can compare yourself, so that you can calculate the performance of a competitor and understand whether you are approaching a level that can be called successful in your vertical.

Retention is the most important thing for a company to grow. It is formed if you have a great idea, a great product that implements this idea and meets the needs of the market. Therefore, when we evaluate the level of user retention for a particular product, we look to see whether those who installed this product remain with the company in the long run, carrying out normalization based on cohort analysis . This is a good methodology for evaluating your product: in this way, you are constantly looking for the answer to the question whether the first 100, 1000, 10 000 people will remain with you in the long run.

So how do you get started? Suppose your product is ideally suited to market needs. You have created an ecommerce website, 60% of users return to you monthly and make purchases, which is certainly amazing. What do you do next, after at some point you decide that you need to scale? At this moment, as I understand it, the teams responsible for ensuring growth come to the rescue.

But I have a different point of view: if you work in a startup, do not create a team to ensure growth. They are not needed in startups. Such a team should be the whole company. CEO must be the leader of this team. You need someone who will give you a guide, tell you where to go, and, based on my experience, this person can only be the one who heads the company.

Mark [Zuckerberg] is an amazing example
In those days, when Facebook was taking its first steps, many people counted the number of registered users per month. So did MySpace, for example, so did many others.

Mark put forward another goal: the number of active users per month , and everyone in the company called for work to increase this indicator. He said: “We need everyone to be on Facebook, but this means that all our users must actively use Facebook, and not just register there.”

The MAU indicator (monthly active users, the number of active users per month) became what was evaluated internally and demonstrated externally - as a result, everyone became interested in the value of this indicator for Facebook, and first of all, ourselves. See what Yan [Kum] did on WhatsApp - this is another great example. It always publishes the number of messages sent through the application.

If you are creating a messenger application, the number of messages sent is likely to be your most important indicator. If people use your application once a day, this may be great, but that means that for them this is not the main mechanism for sending messages - that's why Ian [Kum, WhatsApp] started publishing these numbers.

AirBnb refers to this indicator as the total number of days for which apartments and rooms are booked through their service for a certain period - based on these data they create infographics that are published in TechCrunch. They always compare their numbers with those for the largest hotel chains around the world. Each of these companies has its own landmark. Not in every vertical, this guideline may be the number of active users per month.For eBay, such a guideline was total sales: how many products people actually buy through eBay. Although external analysts judge eBay solely by their revenue.

Benedict Evans conducted an excellent analysis of Amazon's activities - it is very interesting to look at their marketplace and compare its performance with their traditional business. eBay - and there is a marketplace, right? And although eBay is judged by their revenue, the total sales through their site exceed the value of their revenue by 10 times. When I worked at eBay, they paid particular attention to this indicator. Every company thinking about growth needs its own benchmark. And, working on scaling, it is very important for you, as a leader, to establish this guideline.

The reason this is so important is that as soon as more than one person starts working in your company, you stop controlling everyone else. I assure you, now, heading a department of 100 people, I can’t control them. I can only affect them.

I can get someone alone to do something, but the other 99 will do what they want. And in such a situation, it is not obvious to everyone what the most important goals of the company are. It would be very simple for eBay employees to say: “Do you know what? Let's focus on revenue ”or“ Let's focus on the number of people who purchase something on our website ”or“ Let's think about increasing the number of potential sellers ”.

But Pierre [Omidyar], Meg [Whitman] and John [Donahaw], being different leaders by nature, always said: “No, we care about the total volume of sales that are carried out through our website, the percentage that makes up transactions concluded through our website , from all transactions in the ecommerce segment - this is what is really important for our company. ”

This means that in any situation it was clear to all employees that this was not about revenue, but about total sales, or not about how to get more people to register on the site, but how to make them active users in the long term.

A great example of such a policy from my experience on eBay

In 2004, we changed the payment method for attracting new users by partners. Affiliate programs for attracting users now look a little old-fashioned, but the idea of ​​attracting has remained - you pay those who are driving traffic to your site, but now it is more about gaining access to large market players who do it themselves.

We paid for confirmed registered users, so all of our partners were interested in attracting those who subsequently registered on the eBay website. We changed our payment model and began to pay for activated confirmed registered users. The user needed to confirm his account, and then bid for the purchase of goods, or buy goods, or put up something for sale, so that we pay for attracting our partner.

In the day since the introduction of these changes, we lost about 20% of the confirmed registered users who were attracted by our partners. But ACRU (Activated Confirmed Registered Users, activated confirmed registered users) decreased by only 5%. The relationship between CRUs (Confirmed Registered Users, ACRUs) has grown dramatically, and the growth of ACRUs has accelerated significantly .

The reason for this is as follows: if you want to increase the value of the CRU indicator, and you know that someone needs, for example, a trampoline, you give this person a link to the eBay registration page so that the user first signs up, then confirms his identity and then I already bought a trampoline.

But if you want to increase the value of ACRU, you give a potential client a link to the eBay page with the search results for trampolines available in the marketplace - the user likes something, he is interested, registered and buys the goods. If you develop only the CRU indicator, users will not experience the slightest interest: when they get to the eBay page, there will be no “magic”.

Therefore, the next thing to think about: how to create this “magic” that will make users “attach” to your service.

[ The second part of the translation of Alex's lecture ]

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