Keith Rabois, the Former COO of Square and a member of the investment team at Khosla Ventures, recently shared some of his wisdom with a group of us in San Francisco. He wanted to clarify the important difference between Growth and Growth Hacking and when to focus on each part.  He also provided us with a few examples to bring it home.

TL;DR

  1. Deliver Value to Customers 
  2. Grow Your Customer Base
  3. Start Growth Hacking

Growth Hacking Vs. Growth

The term Growth Hacking has become both common and controversial since Sean Ellis coined the term in 2010. While many people are critical of the term growth hacker, many have become enamored with the concept. Regardless of your opinion on the subject, the important point to note is that Growth Hacking is NOT a golden hammer.

The growth hacking movement is continuing to grow; as was demonstrated by the sold out crowd at the recent Growth Hacker Conference. With increasing popularity there is a danger that people will start hacking growth before understanding where it fits into the life cycle of an organization. Growth hacking is not the first step; it is a much later step in the process of growing your company.

Deliver Value to Customers

Almost everyone working in a tech startup today has heard about, if not practiced, the lean startup mentality. If you started lean you should have made your first few sales with no product, no pictures and no idea if it was going to work. This is a very important step in testing out your company’s value prop without wasting time, energy and money.

We are strong believers and committed practitioners of the lean startup philosophy. However, we also understand that there is a moment where running lean hits the roads of reality and you have to deliver on your promises to your early customers. Some call this shipping or delivering a minimum viable product.

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Once your product is in the hands of your customers you have to ensure that it is providing real value before you can worry about growth. If you think about it, you couldn’t successfully start new locations for a chain of restaurants if no one was eating at the first one, and the same is true if no one is getting value from your product.  This is sometimes called product-market fit but whatever you call it, you need to ensure customers are getting real value from your product before you can grow.

Grow Your Customer Base

Once you know that you are delivering value to your customers, and only once you are delivering value, is it time to start thinking about growing your customer base. This is not growth hacking, this is laying the groundwork for your growth efforts.

To start to grow your company you need to focus on building the basics of your growth channels. This could include customized landing pages, paid ad traffic, and other more traditional web marketing techniques. While the specific techniques aren’t really important, the fact is that you won’t be looking at finding crazy clever ways to grow your customer base.

In the growth stage you are going to be focused on generating a customer base large enough that if you did implement a growth hack it would make a material difference to your business’s goals.  Also, without a large enough audience each growth hacking experiment is going to take much longer to get results.

Note: This doesn’t mean that you are going to ignore obvious ways to grow you business. It just means that you are going to ensure that you have the fundamentals rights before you start growth hacking.

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Start Growth Hacking

It can be challenging to determine when exactly to start growth hacking. It is ultimately dependent on your company but you should know that you have a strong foundation, consistent growth rates and a customer base getting value from your product. Now you can finally start to think about growth hacking!

Growth hacking it is not an empirical science in which we can look strictly at the data and come up with a great growth hack. Instead, it is better to think of growth hacking as an observational science. We observe the way people use our products, make a hypothesis about how we can use that to grow our company and then test if our hypothesis is correct.

You are far more likely to fail then succeed when growth hacking. It is important to remember that it is okay to fail. In time you will be able to find the major wins that growth hacking can deliver.

The following are two very short examples of growth hacks that worked for inspiration.

Example 1: PayPal Growth Hack X-Click

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At one point PayPal was not a default payment option on Ebay. In fact, PayPal was actually quite hard to use as a seller. However, the team at PayPal noticed that this wasn’t stopping select eBay sellers from trying to make it work all on their own.

eBay sellers were doing everything from writing text in their listings asking people to “please pay me with PayPal” to copying the PayPal logo using custom HTML to add it to their listings. The initial reaction of PayPal executives was to stop this practice because PayPal sellers weren’t their target market. However, with some smart thinking the team realized that this might just be a big market for them to explore.

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The team at PayPal did a test and made it possible to automatically add a PayPal button to each eBay listing. By watching what their existing customers were doing they were able to quickly hack their growth. PayPal quickly became included in the vast majority of eBay listings but this wouldn’t have been possible if people hadn’t observed the trend and hacked it first.

Example 2: YouTube Embeddable Player

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YouTube realized early on in their existence that they were not going to be the only location for users to watch their videos. They implemented a growth hack that made it easy to add YouTube videos to your website. This embeddable video player made it possible for people to become exposed to YouTube and YouTube videos from websites that they were already going to.

This simple concept allowed for even more rapid adoption of YouTube but the value of an embedded player would have been zero if there were no videos to share. Thus, this growth hack could only work because YouTube already had a customer base getting value from their product by adding and watching videos.

Summary

With both of these examples unless you had an existing customer base you would not have been able to employ the hacks. With no video content on YouTube, the value of a embeddable player would have been zero. Without an existing brand like PayPal, sellers and customers would not have been willing to use the service regardless of how easy it was to install.

Lesson 1

First grow based on real value.

Lesson 2

Growth hacking is an observational science.

Lesson 3

Feature design is the new marketing.