Building a System for Growth
April 13, 2020
Over the last 10 years, “growth” has become a thing in tech. Companies grow bigger and faster than ever before. There are new job titles—growth marketing, growth product manager, growth engineer, head of growth—and new opportunities that have changed the way companies think about how to grow their revenue or users.
But what the hell is “growth” really? Like, what does that even mean? Of course, everyone cares about growth—so what is all of this hype, and has anything really changed?
In the last decade, a few major things have happened:
- Emergence of new platforms with incredible scale (from Facebook to TikTok)
- Integration of the marketing and product tech stacks
- New approaches to user-centric marketing and product
- Proliferation of iterative, experiment-driven, nimble approaches to product development (also known as Agile)
The convergence of these changes has led many to realize that “growth” is a team sport. It is no longer the job of Marketing or Sales to solely own revenue, nor Product the core user experience. Decisions made within the product can dramatically impact the success of a marketing team and the growth of a company. And the marketing team may need to work within the product to find marketing channels that are scalable (and that work).
Ultimately, Growth is a system… a mindset. It’s not something that should be thought of in a vacuum by Marketing or by Product. How do you approach this system and what impacts might it have on your business’s growth trajectory?
Let’s dive into a framework for how to think about this. Hopefully, this lets you frame the problem in a way that helps you structure teams, priorities and decisions to set your company up for success.
The interplay between marketing, product and monetization
The levers of your company’s system of growth can be thought of across the three categories of marketing, product and monetization. In this context of building a system for growth, here is how to break down these different categories.
- Which paid digital marketing or offline marketing channels you advertise on
- Approach to organic growth (SEO, organic social/viral/video, content marketing)
- How you use your website to route users most effectively and maximize conversions
- How to get users onboarded and activated
- How users find product value and how quickly they find it
- What loops exist to drive virality, retention, and overall product engagement?
- Is monetization a freemium, free trial, sales-driven, or hybrid model?
- How much revenue are you making per user/customer? Per team?
- How quickly users monetize
- Pricing tiers, enterprise-level inquiries, feature gating
These areas of focus may overlap, and more than anything they are interrelated. How a company thinks about which digital marketing channels may work is entirely dependent on how much money they make per customer or user. How much money they make per user is entirely dependent on the pricing model and how users are onboarded and retained. The pricing model is dependent on how users find value in the product—does it have quick time-to-value or do users need help getting started?
This is all one interconnected system, and building a team or approach that thinks about it in this way is important in figuring out your company’s formula for maximizing growth.
The relationship between product and marketing
Product and Marketing are intertwined. Decisions made in each domain impact one another. When thinking about the interplay between these functions, understand that the decisions made in the product will impact the marketing channels on which you find success. Let’s demonstrate that with a few simple examples.
How can the product impact your marketing strategy?
- Does your product have lots of user generated content? Maybe you should build an SEO strategy around that.
- How quickly and easily can users find product value? If your product has quick time-to-value, this opens up more direct response marketing channels.
- How viral is your product? If there is a strong viral component to your product, perhaps a more product-focused growth strategy is in order, and your Marketing team can support the Product team in driving that viral growth through messaging, email, etc.
- Are there marketplace dynamics? Depending on your marketplace dynamics, you may need the Marketing team to be closely aligned with the Product team to ensure it is driving new users into the correct half of the marketplace.
These are just a few examples of how the product can impact your marketing strategy. By thinking of these things together, teams can think ahead to solve growth problems. If, for example, the product strategy involves encouraging users to generate content, the Marketing team could work hand-in-hand with the Product team to develop a plan to surface opportunities in SEO. The Product team could implement the technical side of how that content surfaces, gets indexed, etc., and the Marketing team could advise on that strategy by understanding what SEO opportunities exist. Maybe there are ways to take that user generated content and create even better, more authoritative pages on themes or topics.
In a world where these teams were not working together towards a common growth goal, perhaps the technical work required to get this user generated content surfaced in search results would not be prioritized.
Looking at things from a different angle, imagine if a new social platform is emerging (like TikTok) with huge scale and many of your target users. How could you work together with the Product team to integrate your product more effectively into that platform to take advantage of its inherent viral distribution? Zynga built a multi billion dollar business by building Facebook native gaming apps (remember how popular Words with Friends was?). Spotify did the same thing by integrating its app with Facebook and updating your friends with each new song you were listening to. Without Product and Marketing working together here, these opportunities may have been overlooked.
Align these functions however you can, as the product can unlock new marketing channels, and Marketing may have a perspective on those channels that would influence the product roadmap.
The relationship between monetization and marketing
When it comes to marketing, the number-one metric that people usually monitor is some version of return on investment (ROI or ROAS). It is a simple formula really—do the dollars coming in from digital marketing exceed the dollars being spent? And how does that look by channel, campaign, etc.?
Dollars “out” can be as simply as your advertising budget, or more sophisticated companies calculate a fully baked cost which includes the costs of software, services, and salaries of employees. I prefer the latter method. This gives you an ability to calculate non-paid channels like SEO—how many people are you paying to write content, syndicate that content, hire agencies fees, do design work, etc? Then compare that to the users or revenue generated by that channel to understand its ROI.
So, dollars “out” is pretty straightforward, but what about dollars “in”? How much revenue a company can make is based on:
- Average revenue per user (or customer) over some period of time (monthly, annually, lifetime, etc.)
- # of paying users (or customers)
ARPU is the key factor in this equation to consider when establishing your system of growth. When assessing how ARPU can impact your growth model, ask yourself:
- How much can you charge for your product?
- What pricing model will you employ (freemium, free trial, free forever with ads, sales driven, etc.)?
- How quickly will users pay for this product? Is it something that will require contract negotiation or is this a credit card transaction?
The way you monetize users greatly impacts the way marketing will (or won’t) work. Why? Going back to dollars in vs. dollars out, your monetization strategy impacts how much you can pay to acquire users. If you earn lots of revenue per customer, you can afford to pay more, and that opens up new channels for growth.
The two biggest monetization factors that determine which marketing channels will work for you include:
- Time-to-revenue (hours, days, months)
- ARPU (is it $1 or $10,000?)
Free trial, free forever and freemium models typically mean your product has lower ARPU: lots of users but low monetization on a per user basis. If you have a sales-driven, large contract monetization strategy, you likely have much higher ARPU and can afford more expensive marketing channels.
Time-to-revenue plays a role in marketing strategy because the faster the loop, the more likely it is that paid channels will work. If scaling a paid channel with long time-to-revenue, your company may run out of money even if you are ROI positive. That revenue might not hit the bank for months.
Here are some examples of how your monetization model can play into your marketing strategy:
- Do you have low ARPU? You can’t afford high acquisition costs. This likely means SEO and virality need to be core components of your growth strategy (you cannot pay much for these people).
- Do you have high ARPU? You will likely have more of an Enterprise sales motion, and you may employ more content marketing, events, and other offline strategies. Digital paid acquisition will also likely be a great strategy.
- Is ARPU somewhere in between? This is the danger zone. You likely cannot afford a sales model. Will paid acquisition work with lower revenue per user? Maybe. Things get dicey here…
Brian Balfour summarizes this dilemma well in this post where he outlines the relationship between customer acquisition costs, lifetime value, and your potential growth channels. Avoid the Danger Zone!
Credit: Brian Balfour
Your goal is to give your product a sober review and assess how you will best monetize users. Understand that your decisions around monetization will impact the growth channels at your fingertips, and you must be ready to build a product and user experience that gives your marketing team a chance to acquire users cost effectively.
The relationship between product and monetization
I have seen monetization owned by Marketing in some organizations, Product in others. Usually, the product team has more ownership over how a user monetizes because of the way that can impact the core UX—especially important as you think about feature gating.
Your product can be a major lever of growth if it has built-in virality. If you want to maximize the viral growth of your product (if that’s an option), your monetization strategy SHOULD NOT impede this. Imagine if you disincentivized users from inviting others because they are “penalized” for inviting others to the product by being charged more. That is bad. Don’t get me wrong, it is totally fine to monetize based on additional users joining a team, but be smart about how you go about this. Balance ubiquity with revenue.
Tying this back to the relationship with Marketing, what if your product has low ARPU? Ensuring that your product and monetization strategies are aligned to enable viral growth is ESSENTIAL to success. Otherwise, you may be setting your marketing team up for failure.
Here are some considerations when thinking about how your monetization strategy and core product experience play into one another to build a model for growth:
- How easily can someone find value in your product by themselves? And how quickly can they find that value? The easier this is, the more likely you can avoid a sales-driven approach. But, if your product requires integrations, success engineering, or other blockers to finding core value quickly and easily, your monetization strategy should follow this and you should build a high revenue, sales-driven approach.
- How quickly do you monetize a user in the product? This is an element of two factors really: how you gate features or access and how quickly users reach those gates. This could be self imposed (seven-day free trial) or feature based (this feature requires a premium account). Remember that speed to monetize impacts whether or not a channel like PPC on Facebook works, but of course this is a balance. If you try to monetize someone before they find product value, you will not monetize that user.
- How do users ultimately use your product? Is this a solo product or are other people required to derive value from the product? Look to Slack as an example – you cannot use that product alone. If virality is core to your product’s usage, then ensure your monetization strategy empowers users to find this value as a group. Charging after a certain number of users might not make sense vs. charging for extra features. You will not only hurt virality and product led growth but also whether or not users find core product value.
Monetization and product strategy go hand-in-hand. Decisions made here will impact not only the core UX but also whether or not you open the door to new marketing channels. Figuring out the balance between this triangular relationship is how you find the right formula for growth.
Takeaways and recommendations
Everything is interrelated, and growth is a system of many factors that go beyond traditional team structures. Knowing this, you must build the right infrastructure and approach to solve these problems cross functionally.
When at an earlier stage, a company should have someone or a squad of leaders working together to figure out the right formula here. For SaaS products, it is not uncommon to have a head of growth run both Marketing and Product because of these interplays. Finding your top acquisition channel(s) as you really nail your product-market-fit is an evolution, and if you can give someone ownership over this system then that gives them the authority to make the decisions to maximize your growth.
As a company scales, this becomes more of a mindset than a team. If you find a unicorn leader that can run both a product and marketing organization, then maybe you can create a “chief growth officer” role. More often, though, companies need to separate these functions as teams scale. In that case, ensure the following things are true:
- Your product team (or a subset of it) has a “growth” mindset: data driven, thinking about how to drive growth via the product itself, and taking an iterative approach to product development.
- Form cross-functional squads across Marketing and Product that focus on your biggest growth loops (monetization, onboarding, virality, etc.).
- Align leadership around these principles and this mindset, and let it trickle down throughout the organization.
Build this into your team’s DNA however you can, and ensure your company is breaking down team silos and building an engine for growth.
If you’re building a B2B SaaS company and you’d like to talk strategy or fundraising, we want to hear from you. Please reach out to [email protected].