Growth Hacking: How It Works, What It Costs and How to Build a Strategy (Part 2)
We’re dissecting how some startups growth at ridiculous rates – and how your venture can do the same.
In Part 1, we covered the basic pieces of the growth hacking puzzle.
In Part 2, we'll talk about the process and how it works – even if it looks like it’s not working at all.
If you want to skip ahead and see how you can get started and who in Missouri can help, check out Part 3.
How does growth hacking work?
Think of it as a funnel with five sections from top to bottom. Your potential users start at the top, which involves them knowing about your company. Then, you use growth hacking to move them down the funnel to choosing your product. The standard customer acquisition funnel moves through sections, like product awareness, consideration and decision. But growth hacking more closely follows what’s known as the pirate funnel.
Entrepreneur Dave McClure developed a hacking funnel with the acronym AARRR. Users nicknamed it the pirate funnel. Whether or not you choose to wear an eyepatch, this funnel has five stages:
- Acquisition: How to get people to know your name
- Activation: How to provide a positive first experience
- Retention: How to keep customers coming back
- Revenue: How to monetize customers
- Referral: How to get customers to tell other people
For each of these stages, pick a few key metrics. Over the long term, look at these numbers to determine how successful your efforts are. Test growth hacking strategies specifically targeted to the metrics you chose to measure.
For example, imagine that one of your retention metrics is email open rate. One of your growth hacking strategies could be testing email subject lines or unique email designs. Track and compare results. If witty subject lines show a slight uptick in open rates, focus on that more and again.
When it comes to growth hacking, think about what you did in seventh-grade science class. Come up with a hypothesis. Test it. Record your results. Interpret those numbers. Come up with another hypothesis. Test it. Rinse and repeat to fine-tune your efforts.
This iterative process creates a lot of room for innovation, disruption and big growth.
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What do you need to start growth hacking?
It’s easy to convince yourself that you can’t start without comprehensive research and a fully developed plan. But really, all you need is a product people want and a little creativity.
Popular guidance says to set targets as you begin growth hacking: identify specific users and set SMART (specific, measurable, attainable, relevant and time-bound) goals. But some leaders argue you just have to jump in and see what sticks.
“You just have to start,” says Anita Newton, chief innovation officer of CommunityAmerica Credit Union in Kansas City, Missouri. “In this regard, I actually disagree with a lot of the literature out there that says to set a growth target. I actually believe your only goal should be to accelerate the rate and speed of learning. Give yourself permission to try anything as long as you track everything.”
Anita goes on to suggest that you need two key teammates:
1. Someone who can build things. This includes writing code, building databases, running social campaigns, etc.
2. Someone who can make things beautiful. This includes creating ads, shooting video, writing blog posts, etc.
“Both of these people need to be curious, analytical and able to move quickly,” she says.
The takeaways? Growth hacking iterations don’t have to be flawless, and don’t let perfect stand in the way of good.
How much does growth hacking cost?
Growth hacking isn’t supposed to break the bank. But most efforts will have some expenses. So what will growth hacking cost? It depends.
Consider your customer acquisition cost, or CAC. It’s how much you spend for each new customer. So, if you spend $600 on Google Ads and you get three new customers, then your CAC is $200 for that channel.
Whether or not this CAC is a good deal depends on the lifetime value of your customer, or LTV. If a customer has a one-time spend of $4.99, that CAC of $200 is a real bummer. But if that customer spends $200 a month and your average customer stays for 36 months, then the LTV is $7,200. So that CAC doesn’t look so bad. Growth hacking isn’t just about getting new customers – it’s about retaining them, too.
You need to know exactly what you’re spending and what results these investments net. Otherwise, you can’t determine what’s successful. Analytics drive growth hacking.
What growth hacking strategies should startups consider?
There’s no one right way to growth hack. But there are many strategies that may work for you. Consider:
- Content marketing, including videos and livestreams
- Free trials
- Public relations
- SEO and backlinks
- Strategic partnerships with influencers
- Referral programs and incentives
- Exit pop-ups
- Email marketing
- Customer rewards
You can pick any strategy – but you can’t pick them all. Focus on one or two that fit for your business, its personality and your target customer. Then? Test away. Remember sample size matters. Track and measure your results. And if the data suggests that something might not be working, get creative with another approach. Trial and error are the name of the game.
How long does growth hacking take?
As an iterative process, growth hacking is kind of an infinite loop. You can keep doing it forever. But the smart approach is to do it until you figure out what works for you. Sometimes, patience is truly a virtue.
“Our innovation lab recently ran 15 experiments over eight weeks and produced less than 2% of our growth target,” Anita says. “Through painstaking analysis and careful review of data across our creative, media spend, funnel metrics and customers data, we were able to figure out one tactic that might have promise. Over another six weeks, we iterated over and over and ultimately are now on a path to developing a growth process that will eventually scale.”
All growth hacking efforts run into things that really don’t work – as well as strategies that might have potential. The key is to keep it in perspective.
“Just focus on that first customer, then the second, and go from there,” says David Hulsen, cofounder/COO of RFP360. “There are aspects you'll have to enhance to scale it, but don't get the cart before the horse. Eight years into our venture, we look at a lot of data so we can optimize each step. But that wasn't always the case. It does help to take a little time regularly to look at your process and see what isn't working (and what is). You need to pivot your approach just like you pivot everything else.”
Next in Part 3, learn about the people, tools and resources that can help your business hack its way to serious growth.
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