Saturday, September 30, 2017

Hacking Growth, when Lean Management meets Digital Software

1. Introduction

This blogpost is both about a truly great book “Hacking Growth : How Today’s Fastest-Growing Companies Drive Breakout” by  Sean Ellis and Morgan Brown – that could be qualified as the reference textbook on Growth Hacking – and a follow-up on many previous conversations in this blog  and other posts (in French) about growth hacking. There are many ways to see Growth Hacking in relation to Lean Startup. Following the lead of Nathan Furr and Jeff Deyer, I see Growth Hacking as the third step of a journey that starts with design thinking, followed by the delivery of a successful MVP (minimum viable product) and continues to growth hacking. The goal of the design thinking is to produce the UVP (Unique Value Proposition) – it is a first iterative loop that produces prototypes. The goal of the “MVP step” is to produce a “vehicle” (a product) to learn how to deliver the UVP through feedback and iteration. The growth hacking phase is about navigating towards success and growth with this MVP.
 I like Nathan Furr idea of a “minimum awesome product”, in the sense that very crude prototypes belong to the design thinking phase (to validate ideas). Growth Hacking works with a product that is “out there” with real customers/users in the real world, and it only works with a  “minimum awesome product” that delivers the value of an awesome UVP (following Ash Maurya). This says the the classical “Learn, Build, Measure” cycle is a common pattern of the three stages: design thinking, MVP building and Growth Hacking.

This post is also a follow up to the post about “software culture and learning by doing and problem solving”. Growth Hacking is a perfect example of “lean continuous improvement culture meets agile software development practice”. It is a structured and standardized practice – in the lean sense – for extracting value from a user feedback learning loop – both in a quantitative and qualitative way. As such, it is more general than typical digital products and may be applied to a large class of software products, on closed as well as open markets. I would argue that learning from users’ feedbacks and users’ usage is a must-do from any software organization, from IT departments to ISVs.

This post is organized as follows. The next part is about Growth Hacking as a control loop. I will first recall that growth hacking is about turning customer feedback into growth thanks to the (digital) product itself (it may be applied to other products that digital, but “hackings” says that it was designed for software defined products). The third part is about the true customer-centricity of Growth hacking and the importance of the “aha moment”, when the customer experiences the UVP (Unique Value Proposition). The last part talks about the dual relationship between teams and user communities. The product is used as a mediation between a product team and a group of communicating users organized into a community.  The product plays a key role for mediating between the two: it delivers new experiences and gather new feedbacks, but there is more than numbers to Growth Hacking.

A last caveat before jumping into our topic: this book is a “user manual” of Growth Hacking for practitioners. A summary does not really work and I will highlight a few key ideas and associated quotes, rather than attempting to cover the book’s material. I urge you to read the book, especially if you are in charge of a digital product or service and trying to grow its usage.

2. The Growth Hacking Control Loop

Growth hacking is about developing market and usage growth through the product itself and a control loop centered on customer feedback. I borrow the following definition from the beginning of the book : “Growth hacking allows companies to efficiently marry powerful data analysis and technical know-how with marketing savvy, to quickly devise more promising ways to fuel growth. By rapidly testing promising ideas and evaluating them according to objective metrics, growth hacking facilitates much quicker discovery of which ideas are valuable and which should be dismissed”. What sets the software world apart is that the product is the media. This is one of the key insights of Growth Hacking (and part of the reasons for the “hacking word”). Using the product as the media to communicate with users has many benefits: it is cheap – fixed cost that is good for scaling –; it is efficient (there is a “rich bag of tricks” that the book illustrates); it is efficient since it reaches 100% of users and it is precise since software analytics enables to know exactly what works and what does not. The authors summarize this as “enabling our users to grow the product for us.”

Growth Hacking may be implemented at all scales – from a startup to a large company – and for a large range of software-defined experience, from mass-market digital goodies such as mobile apps to B2B commercial software. This is repeated many times in the book: “Nor is it just a tool for entrepreneurs; in fact, it can be implemented just as effectively at a large established company as at a small fledgling start-up”.  As told in the introduction, this makes the book valuable for most companies since “software is eating the world”: “General Electric CEO Jeffrey Immelt recently said that “every industrial company will become a software company,” and the same can be said for consumer goods companies, media companies, financial services firms, and more”. What makes the value proposition of Hacking Growth so interesting is the success track with all the Silicon Valley companies that have used this approach: Twitter, Facebook, Pinterest, Uber, LinkedIn … and many more. Even though each story is different and each “growth hack” must be tuned to the specifics of each product, there is a common method: “It wasn’t the immaculate conception of a world-changing product nor any single insight, lucky break, or stroke of genius that rocketed these companies to success. In reality, their success was driven by the methodical, rapid-fire generation and testing of new ideas for product development and marketing, and the use of data on user behavior to find the winning ideas that drove growth”.

Growth Hacking control loop is built around measure – in a classical Plan-Do-Check-Act cycle. The first message here is that Growth Hacking is grounded in data. This is very much in the lean startup spirit: decisions are based on data, and the first step of the approach is to collect the relevant data. This is especially true for large companies, as is explained in the book with a number of examples: “
Recognizing that Walmart’s greatest asset is its data, Brian Monahan, the company’s former VP of marketing, pushed forward a unification of the company’s data platforms across all divisions, one that would allow all teams, from engineering, to merchandising, to marketing, and even external agencies and suppliers, to capitalize on the data generated and collected.” A growth hacking strategy starts with a data analytics strategy.  Taking decisions based on data requires quality (for precision) and quantity (for robustness). There is clearly a “data engineering” dimension to this first step: a “data integration architecture and platform” is often needed to start the journey. The story of Facebook is a good case in point : “ in January of 2009, they took the dramatic step of stopping all growth experiments and spending one full month on just the job of improving their data tracking, collection, and pooling. Naomi Gleit, the first product manager on Facebook’s growth team, recalls that “in 2008 we were flying blind when it came to optimizing growth.” This data fuels a PDCA cycle : “ The process is a continuous cycle comprising four key steps: (1) data analysis and insight gathering; (2) idea generation; (3) experiment prioritization; and (4) running the experiments, and then circles back to the analyze step to review results and decide the next steps.” Here we see the reference to the Lean approach, or to the TQM heritage of Edward Deming.

Growth hacking is a learning process with fast cycle time. Most growth hacks do not yield positive results, so it is critical to try as many as possible. At the end, success depends on “the rapid generation and testing of ideas, and the use of rigorous metrics to evaluate—and then act on—those results”. There is a lot of emphasis on the speed (of implementation) and the rythm (of experimentation). Many examples are given to show the importance of “fast tempo”: “Implementing a method I call high-tempo testing, we began evaluating the efficacy of our experiments almost in real time. Twice a week we’d look at the results of each new experiment, see what was working and what wasn’t, and use that data to decide what changes to test next”. It really boils down to the necessity to explore a large space of optimization, without knowing in advance what will work and what will not. The authors quote Alex Schultz from Facebook : “If you’re pushing code once every two weeks and your competitor is pushing code every week, just after two months that competitor will have done 10 times as many tests as you. That competitor will have learned 10 times, an order of magnitude more about their product [than you].” To achieve this fast cycle, one must obviously leverage agile method and continuous delivery, but one must also use simple metrics, with one goal at a time. A great part of the book deals with the “North Star” metric, the simple and unique KPI that drives a set of experiment: “The North Star should be the metric that most accurately captures the core value you create for your customers. To determine what that is you must ask yourself: Which of the variables in your growth equation best represents the delivery of that must-have experience you identified for your product?”.

3. Growth Hacking is intensely customer-centric

Growth Hacking starts when the product generates a “Aha moment” for the user. The “Aha moment” happens when the user experiences the promise that was made in the UVP. The product actually solves a pain point and the user gets it. Growth Hacking cannot work if the MVP is not a “minimum awesome product” that delivers the promise of a great UVP (redundant, since U means unique). As the authors say, “
no amount of marketing and advertising—no matter how clever—can make people love a substandard product”, hence “one of the cardinal rules of growth hacking is that you must not move into the high-tempo growth experimentation push until you know your product is must-have, why it’s must-have, and to whom it is a must-have: in other words, what is its core value, to which customers, and why”. The book logically refers to the Sean Ellis ratio, and the corresponding survey that is applied to customers to find out who would be truly annoyed if the product was discontinued. Sean Ellis data mining over a very large sample of startups shows that one must reach 40% for this ratio to say that consumers “love your product” and to start scaling successfully.

Getting to a product that may deliver a “Aha moment” is the goal of the MVP cycle. This is another topic, but the book gives a few pieces of sound advice anyway. The most salient one is to stick to the “minimum” of MVP and adding features instead of focusing on simplicity: “all product developers must be keenly aware of the danger of feature creep; that is, adding more and more features that do not truly create core value and that often make products cumbersome and confusing to use.”

The ultimate goal is to make one’s product a customer habit, up to an addictive one. This is a clear consequence of the growth model that is made famous by the Pirate Metrics, once the acquisition flows, retention becomes the heart of the battle. In our world of digital abundance, retention is only won when the product becomes a habit: “
The core mission for growth teams in retaining users who are in this midterm phase is to make using a product a habit; working to create such a sense of satisfaction from the product or service that over time”. The book is full of suggestions and insights to help the reader design a product that could become a habit. For instance, it leverages the “Hook Model” proposed by Nir Eyal.  The hook model has four parts, organized into a cycle: trigger, action, reward, investment. Many of the growth hacks follow this cycle to build up a habit. The book offers a step-by-step set of examples to build triggers (based on customer journeys), to develop all kinds of rewards and to foster customers’ investment into the experience (for instance through personalization and self-customization, leading to the feeling of ownership – a key component of emotional design). As the authors notice: “ some of the most habit-forming rewards are the intangible ones. There are many kinds of rewards to experiment with in this category. There are social rewards, such as Facebook’s “Like” feature, which has been a strong driver in making the posting of photos and comments habitual.”

The autors advocate about leveraging the growing wealth of knowledge that is produced by psychology and behavioral economics. Obviously, the work of Daniel Kahneman is quoted – cf. his great book “Thinking, Fast and Slow”,  but we could also think of Dan Ariely or Richard Thaler. There are many other interesting references to other frameworks to influence customer behavior, such as Robert Cialdini’s six principles. Among those principles, the principle of reciprocity may be used to drive revenue by asking customers to make small commitments, that create a solid bond that may be leveraged later on. The principle of social proof is based on research that shows that we tend to have more trust in things that are popular or endorsed by people that we trust. Another book that is quoted here is “The Art of Choosing” by Sheena Lyengar, I strongly recommend her video here. It is interesting to understand that choice has a cost, and that some of these choices should be avoided : “Debora Viana Thompson, Rebecca Hamilton, and Roland Rust, found that companies routinely hurt long-term retention by packing too many features into a product, explaining “that choosing the number of features that maximizes initial choice results in the inclusion of too many features, potentially decreasing customer lifetime value.

4. Growth Hacking : Teams meet Communities

Growth Hacking is a team sport. The importance of teams is a common thread throughout the book. These are teams in the sense of cross-functional, agile and empowered: “the creation of a cross-functional team, or a set of teams that break down the traditional silos of marketing and product development and combine talents”. Following the lean software principles, the cross-functional team is not a group of “siloed experts”, but T-shaped profiles that bring their own skills and talents but understand each other: “You need marketers who can appreciate what it takes to actually write software and you need data scientists who can really appreciate consumer insights and understand business problems”. I borrow yet another quote on the importance of cross-functionality, since this is a key idea to leverage effectively technology into innovation, in a larger context than growth hacking: “growth hacking is a team effort, that the greatest successes come from combining programming know-how with expertise in data analytics and strong marketing experience, and very few individuals are proficient in all of these skills”.          

Growth Hacking leverages communities of communicating users.  Growth Hacking is a story with three protagonists: the team, the product and a user community – the product as the mediation between the team and the community. The importance of user community is also superbly expressed by Guy Kawasaki … and Steve Jobs. The community is the preferred tool to get deep insights from users because analytics is not enough: “
Preexisting communities to target for insight into how to achieve the aha moment can also, of course, be identified digitally”. The combination of the “aha moment” that we saw in the previous section and the community of “evangelist” is what is needed to start the growth engine: “Once you have discovered a market of avid users and your aha moment—i.e., once product/market fit has been achieved—then you can begin to build systematically on that foundation to create a high-powered, high-tempo growth machine”. The community of active, engaged, communicating users is needed to get qualitative feedback in addition to the quantitative feedback that one gets with software analytics. This deeper insight is needed to truly understand customer behavior: “it’s crucial that you never assume why users are behaving as they are; rather, you’ve always got to study hard data about their behavior and then query them on the basis of observations you’ve made in order to focus your experimentation efforts most efficiently on changes that will have the greatest potential impact”.  This fine understanding of customer behavior is necessary to eradicate friction, which is a key goal of experience design, that is remove “any annoying hindrances that prevent someone from accomplishing the action they’re trying to complete”.

When striving for growth, in the same way than one should focus on a single metric, it is better to focus on a single – or very few - distribution channel. A large part of the book demonstrates this with illustrative examples. Focusing on a distribution channel helps to narrow the diversity of customer experience and makes the iterative optimization of Growth hacking better targeted and more efficient: “Marketers commonly make the mistake of believing that diversifying efforts across a wide variety of channels is best for growth. As a result, they spread resources too thin and don’t focus enough on optimizing one or a couple of the channels likely to be most effective”.  Growth Hacking is often associated with virality. Indeed, virality is a key growth engine and, as Seth Godin explained, virality must be designed as part of the product experience: “when you do focus on instrumenting virality, it’s important that you follow the same basic principle as for building your product—you’ve got to make the experience of sharing the product with others must-have—or at least as user friendly and delightful as possible”.  However, virality is only one aspect that may be tuned by the iterative Growth Hacking optimization cycle. Acquisition and Retention come first in the customer journey and should come first in the growth hacking process.
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As explained in the introduction, a summary would not do justice to this book, which is full of great illustrative examples and relevant data points and metrics.  This is definitely useful for growing mobile applications: “
For example, for mobile notifications, opt-in rates range from 80 percent at the high end, for services like ride sharing, to 39 percent at the low end for news and media offerings, according to Kahuna, a mobile messaging company”.  Growth hacking is based on building growth models that are validated, tuned or invalidated with experience cycles. The book is filled with key ratios that are more than useful to start this modeling with default values that make sense. Here is another example that is truly valuable for anyone who tries to understand her or his application retention numbers: “According to data published by mobile intelligence company Quettra, most mobile apps, for example, retain just 10 percent of their audience after one month, while the best mobile apps retain more than 60 percent of their users one month after installation”. Focusing on measure is obviously the way to go, but making sense of measures requires modelling and this book is a great help to achieve this.

5. Conclusion

Growth Hacking is the third loop of the following representation of Lean Startup, which was developed and used at AXA’s digital agency.  As explained in the introduction, the goal of the first loop is to produce the proper UVP. No one should ever start developing a product or a service without a first-class UVP – As Ash Maurya said : “life is too short to build products that people will not use”. This is hard work, but many good guides are available, such as Ash Maurya’s Running Lean. Once the UVP is crafted, there are three huge and separate challenges:

  1. To build a MVP that delivers the promise of the UVP. This is actually incredibly difficult for large organizations: there is always a short cut that seems faster (and the pressure to deliver is huge) and there are too many stakeholders that will contribute to dilute the UVP. My personal experience, from the innovation lab to the hands of the customer, over the last 10 years, is that the UVP is lost 90% of the time. As was sated earlier, Growth Hacking starts when the “aha moment” is delivered, but this is not a zero-one situation and Growth Hacking may be used to debug or improve this “aha moment”.
  2. To craft and deliver the story of the UVP to the customer. I have been amazed during the same past 10 years at the number of times a great UVP was built into a product, a service or an app, and customers were simply not aware of it. Each time you would demonstrate the experience to a customer, you would see the “aha moment” and the smile, but 1-to-1 personal demo is not a scalable method. This book precisely addresses this problem. My experience over the years has been that the crafting of this story should be codesigned with the development team. Understanding the link between the pain points, the promise and the user stories is a key factor to build a consistent and delightful experience.
  3. To help the customer, once the UVP is “in the box” and once the customer has understood what it is, so that this experience may actually be found ! This is obviously a question of user experience design and usability, but it is a tough one. Here also, Growth Hacking is more than relevant: continuous iteration is the only way to solve this problem.

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