Product Growth for Startups
Arjita’s Question: Let’s get started. Let’s start with the basics, when in a founder’s life is product growth important?
Anshul’s Answer: So product growth is important when you’re at the launch stage, and you have done some product development, whether that’s an MVP, or some portion of an early product, then really the three stages that you would want to focus on the day you start off from is the idea stage where you’re still researching the idea, it definitely doesn’t make sense to think about product growth at that stage. That early stage, what you’re trying to do with validating whether the problem that you’re solving really exists. And the solution that you’re offering for that is actually resonating with the customer. So let’s say one on one interviews, or other sorts of surveys that you could run to get that feedback.
Arjita ‘s Question: Alright, so you said that you have to be in this launch stage to think about product growth. So how should founders in the launch stage think about product growth?
Anshul’s Answer: So, again, launch stage and when you’re ready with your product that is you’ve validated your idea early with whatever method you used. But now you can generate actual user data to see how your product is doing. So, in the launch, what you want to focus on is looking at your retention numbers.
Retention numbers are the absolute credible metric that you should be focused on. You’re essentially trying to see people who sign up for our service on a certain day, how many of them come back the next day. So if somebody is using or signing up for your service yesterday, how many of those are coming back today to use your product? That’s where it starts from, you’re starting to look at retention.
And depending on how much product you build, and how much life there is for the product, you could start to measure the first day of activity, the first day of retention, which is that go from first day to first week, first week to 14 days for and then start measuring first month, second month. So it’s a funnel that starts leaking at every stage. And what you’re trying to do is minimize that leakage at each point.
And if you’re pre product market fit, this retention is your best way to gauge whether you found the product market fit or not. So these are not numbers but a good set of guiding principles; if your six month retention is 30% for consumer apps, and 40% for SAS businesses, that’s a very good retention. And if you have that kind of retention, after six months, you’re ready for approaching investors. So that’s what I would suggest for pre product market fit companies when they’re thinking about product growth.
And then if you have found product market fit, luckily, if you have really great retention, and you have a good influx of users that are hitting your retention numbers, that’s the time, you can start taking off at acquiring new users from different channels. So this is the post product market fit stage now. And your goal is to acquire as many customers from as many channels while keeping the retention constant and improving the retention at the same. The most obvious one that you would want to use is paid acquisition and paid media.
So Facebook, Instagram, Google, Apple, Apple search, specifically, if you’re in mobile ads are definitely good. And channels, they obviously require an investment upfront to acquire users. But those are the paid evergreen channels that every startup every company uses to acquire customers.
And then there are other organic channels to acquire customers, which is things like product lead growth efforts, which is features itself in the product that are leading to new customers. An example of that is Google docs. They are a product where you have to share, bring somebody else and it’s a transaction between two people like Venmo, where the product itself is built in a way that the core loop is bringing in new customers. So those are some organic ways to design your product. And there’s numerous examples of products that do this.
Tik Tok does extremely well, by allowing everybody who’s using the product to generate content, they can download the video on their devices. And they allow that to be shared on any other social media platform. That’s a very smart technique to allow your product itself to have growth levers to acquire users. So once you have post product market fit, you want to unlock different channels and channels are everything that they are customers and customers are spending time. So Reddit is a channel, Tick Tock is a channel, Facebook groups is a very important channel.
Arjita’s Question: Actually, you talked about a few product led growth things and you talked about UGC, I know. But let’s talk a little bit more about network effects and other new features that other companies really use or other startups really used for their growth. Can you do a deep dive in this?
Anshul’s Answer: Sure. So I think product led growth features are obviously gaining a lot of traction, because that’s what gets any startup the competitive advantage if you could build that into your product. So there’s a number of types of network effects that we are seeing in different products and how they’re being leveraged. The example that I gave earlier was Venmo, where the transaction itself is going to allow you to bring more users in from the sender to the recipient.
Arjita’s Question: Awesome. Those are some great examples on Sure. And I remember just while we were designing this masterclass, we were talking, we were talking about slack as well, that’s how they started as a gaming platform. So we’d love for you to go deeper into that at some point today. But I want to talk a little bit about what you talked about pre product market phase, fit phase, when founders are they should focus on retention. So let’s demystify that. What is retention? And if any early stage founder is listening, what should they care about when they think of retention?
Anshul’s Answer: Yeah, so retention, as I was talking about earlier, you have to start from day one. But when you starting to look at retention is an outcome. It’s not really you can’t add that directly. So how you want to start looking at that, then your pre product market fit is trying to see where before the first day, or sorry, on the first day is the leakages happening at the plan. So scribed, from the time when a new user comes to your service or your platform.
From that, how many actually sign up, that’s probably the first stage or there’s another step that they’re doing. The goal is to get people to the main utility, the main moment when they realize that this is something useful as quickly as possible. So essentially, what you’re trying to measure is from everybody who came to use your service, what percentage of that are actually getting to that value moment in your product. And your goal is to get as many as possible, as I said, you will definitely have some users that will drop off in that process of signup to maybe there’s some other steps like inputting their information, and then eventually, finally realizing the value.
So the goal is to get as many people there as possible. And the way to do that is to reduce, reduce the number of steps and reduce the cognitive load that user has to go through to get to that value, what you’re trying to get, if you’re asking for information, you should ask for as less information as you can give them fill up fill out information for them, if possible. Maybe the default values are good enough. So those are some tactics that you want to use to get people through that funnel and get them to the value.
And once you have, let’s say a respectable number of people coming towards that value moment, you want to now from there, your focus is to make sure that they get the developer all the other steps that they have to to complete the registration or once they’ve got the value, you basically want to make sure you have a way to get them in into the product much more easily and understand their preferences.
So that’s sort of some of the examples that you want to focus on in trying to get your attention. The day one retention to the eye. As I said, that is an outcome. Day one retention, you can’t impact that directly. What you’re trying to impact is how many people are actually using your service and are getting to the value moment and from there are set up to come back the next day. And in some cases, you said your product is not something that needs to be used every day in a clubhouse is a great example. I mean, some people do use it every day.
But I think it’s sort of in the middle of a product where I don’t think it’s going to have seven days out of seven days out of seven years of age. So it’s sort of fall somewhere in there maybe between traditional social media and other apps that the usage could be monthly, right Credit Karma or Airbnb, you obviously don’t expect users to come back every day and check their credit scores. So in those cases, obviously we want to measure that they are set up for success and they complete the funnel when they are coming. They completed as many steps as possible, they got the value of looking to book something. So hopefully they’re able to find their ideal vacation home and as few steps as possible. And then obviously from there.
For Airbnb, the goal is to set up success for that plus trip. So, but coming back to that attention with our goal is to have that first experience be so good and so satisfying, that they come back, probably in the next month, or depending on how much they travel, or whenever they’re looking at an explanation. In that case, you would want to look at your monthly retention month, first month retention, second month retention, and make sure that that’s really good.
Slack is a very interesting example that I will always give for a pre product market fit company. Slack started out as a gaming platform, game, actually, and communication feature. But I believe the communication software that they built as part of building that game, is what became slack eventually. So they kept going at it for some time. And then they realized that the game is not working. So I think that’s a that’s, that’s a stage where if you don’t have retention, you have to really look back. And really be honest to yourself that this is the time to pivot, or this is the time to really think of changing your value proposition to something that you currently aren’t.
Arjita’s Question: Awesome. Thanks for sharing Anshul. Yeah, fascinating examples. And like I said, especially the Slack one, how they pivoted their value proposition for product growth is so so interesting. But now let’s talk about the second aspect of product growth. You said post product market fit founders need to care about acquiring new users. Now let’s talk about what are some customer acquisition strategies that founders can try or start doing or maybe even have a roadmap for? As they’re thinking about their products?
Anshul’s Answer: Yeah, so I think the way to think about customer acquisition strategies is first breaking it up and seeing, what’s your appetite for paid acquisition, how much budget you have for paid media, as I was talking about earlier. From there, once you’ve decided what is your budget, your strategy needs to be? What are all the ways that you can get customers for your product that you have identified from all the places that their customers exist? So the way to think about this is that you want to focus on the number of users that you’re getting and the quality of users you’re getting.
There are ways to get users and you know, sort of spray and paint. And those will get you a lot of users, for example, maybe spending on a network that’s really not the demographic of your demographic, or product. And what you’re going from there is a lot of users, and the cost of acquisition for them is going to be really cheap. But what you would see is that they will not stick around in the product. So what you’re looking for is you’re trying to balance the quantity of users that you want to get.
And by maintaining the quality of those users, so depending on what your target customers are, what your target audiences and what their demographics are, you want to target specific platforms from both the paid side and an organic side. So let’s say if your product is more suited towards college going students and people in their 20s, they are definitely a better target on Instagram.
You would probably want to spend half paid acquisition on Instagram, and then have strategies like having been generating content for reals on Instagram as real as is doing really well, because Instagram wants to take over tik tok. And on Instagram, there’s a number of obvious ways to get users, which is through your own accounts, or through influencers that are on the platform.
And affiliate programs obviously work really well. So if you are targeting that demographic, that’s the platform to go after. If you are targeting, let’s say, teenagers or even kids that are even younger, the better platform would be Snapchat, and trying to do things there. If you’re looking for an older demographic, Facebook is a better platform and Facebook groups is a very good platform. Facebook group happens to be actually the most, most effective channel that many people who are not able to utilize and leverage properly.
So that’s sort of the way to think about where you want to be. And then again, for the younger demographics, Reddit is, again, a very effective platform Tiktok skews younger, but now I happen to have a lot of demographics, since he was younger, but it still has a lot of demographics.
So because a lot of people have countries abroad with lockdowns in their homes. So it does have different kinds of demographics on their platform. And what you do is essentially get to a point where your number of users that you’re getting bought from organic and paid are enough to sustain your growth.
And what I mean by that is that your children need to be less than your acquisition rate, the number of users you are losing in a month should be less than the number of users you’re requiring if you have to grow. It’s a very simple way to think of it as a bucket of water needs to be coming in the water in those buckets or a band, it’s leaking out. So that’s sort of your goal is to acquire enough customers that are staying that are coming to your app, and then staying in the video measuring that all this leads to retention. So that’s sort of at a high level, start strategizing. And then the second layer or another dimension of strategy is a geo location where, which is the other perfect geographies and countries are a group of countries that are created for your product.
That makes sense. So having that plan, plus the platform plan, I think is good enough for a start to start getting and measuring what is the quality of users. And how you measure quality is retention, as I said, repeating myself there, but what you want to get out of retention eventually is the lifetime value of the customer. If people are staying on your platform for a really long time, their lifetime is really large they are their value is really large for you. So that’s what you’re trying to do.
And then other growth features that I spoke about earlier were the product lead growth feature, so focus on them as much as possible. That’s the organic traffic that you’re getting.
We used to have another category of traffic, in addition to paid organic called social users. And these were users that were brought through specifically through reference and direct interaction. Have people. So you could actually measure the LTV of an organic user, measure the LTV of a paid user, and you could measure the LTV of a social user. And you would realize that social users definitely have a really high end up, then as organic and then is paid. Sometimes paid is better depending on the lifecycle of a product, but they’re generally how things would
Arjita’s Question: So you mentioned LTV, a couple of times let’s try to break down some of these KPIs or metrics in, you know, a customer acquisition efforts and everything. Let’s talk about what are the KPIs or what are the metrics one should focus on to measure the customer acquisition efforts. So first of all, what is LTV? And why should we measure it? What is CAC? Why should we measure it? And what are some other terms that you live, eat and breathe every day in your product? life? And why should we care about it as an early stage entrepreneur?
Anshul’s Response: Yeah, all right. So life LTV stands for lifetime value. And why that’s important is that you’re essentially in the service of increasing the LTV as much as possible. Because what makes a business successful is that your lifetime value is more than your cost of acquisition. And if it’s not only just better, when you get from the million impressions you’re getting, which is a really bad sort of set externally. So those are some of the KPIs that I would focus on LTV CAC role as and CPM.
Arjita’s Question: Awesome. How can new founders start calculating their CAC and LTV as well?
Anshul’s Response: Yes, so as I was mentioning, I think at early stages, I wouldn’t get too complicated with mathematics there, I would just try to understand the average lifetime of a player from your retention. So if you reverse the retention, or just look at how like, even take guesses on what is an average lifetime of a player, or a customer, that should be good enough to get the longest day. And then whatever is your average revenue per user per month, is what you multiply that number by so that’s a good way to get LTV numbers for early stages in a very simple calculation.
Audience Founder Questions:
Audience Founder Question: So the first question actually is we have acquired 400 plus customers and 51 countries with zero Dollar marketing spend. So how do we determine we have a product market? And the second question is we charge an annual subscription. So how do we really know if we have product retention? Or measure the retention within years? Yeah.
Anshul’s Response: Great questions. So I think what you want to establish in a marketplace kind of businesses, that the customers that the supply side is enough or meeting the demand on the other side. We will obviously have to take my general advice on market marketplaces, because I am not aware of the travel industry as much as you would. But essentially, what you’re trying to prove is that both sides of this marketplace are happy, and their transactions are happening in a timely manner. And in a manner that is reasonable for your business. I think that shows product market fit.
The question about how do you measure retention, if it’s an annual subscription obviously you have to go through a one year and then see that the renewal rate is high enough. And you want to make sure after a year, it’s at least 25%. So that is an indicator of your product market fit. Given the caveat, this is a travel space.
Audience Founder Question: When your founders and you originally create products, to do specific targeting for yourself, be in any country location? How do you do that when you want to expand in the future? Does your application work with the same focus amount? Audience? Let’s assume these two types of markets are the same uses of the internet probably let’s do India and Brazil. Right. So how closely does that work and what it does for them when you want to replicate the same model into the same groups or at least a subset of products.
Anshul’s Response: As long as variables are similar, it’s easy. But as soon as you let’s say, Brazil, I think you would find that you would want to do localization. Quickly.
You wouldn’t assume that the same language or would be able to penetrate the market as effectively. The other one is the business model, if it is something through an app, or let’s say open payment gateways, a lot of business models will just apply one to one, but you obviously have to figure out your marketing and distribution in the New Deal. But as far as the business is concerned, I think the same business should work. But if there is a complication in, let’s say, business, it needs to be conducted and how the payments have to be carried and what the legality is. That’s obviously complicated. And not a very direct answer, very generic answer
Audience founder question: We have both product lead growth and growth lead product as two variable options to grow your business, right? Which do you pick up? When? And how? How do you see the success metric of both? Can you just elaborate on that a little bit?
Anshul’s Response: So growth lead product, I think that’s the stage where you’re actually spending on paid acquisition and trying to acquire users and hoping your product has good retention, and they’re staying. So when you’re starting out.
If you don’t have the core design, your product doesn’t support product lead growth, if your product is such that it can get other people and by the very virtue of being somebody using your platform, like examples, like I gave was Venmo, and Google Docs, and WhatsApp in the product itself can have a core loop that can lead to growth, I think it should start from there.
But if the product cannot have a loop like that, like Airbnb, it cannot be market based, it cannot have a loop like that and it has very different kinds of effects.
But if that’s the way your product is, you have to start off with a growth lead product, which is you have to get distribution from either your organic channels, your social channels, or your paid acquisition by having a budget. So that’s what it starts from. But then what ends up happening is that you will get early adopters when you’re spending money, and you’re trying to go through organic journals on Instagram and community. But those get saturated. At some point, there’s not enough people that you can acquire the cost or the effort that will be put in, that’s where product lead growth comes back again, where you will now want to start investing in pro features in the product that can get you acquisition. So that’s how I look at those.
Audience founder’s Question: I want to ask how long the feedback loop should continue. Because we have tested, we are a gaming company. And we are at the stage of launching. And we have just started, like initiating the conversations with a few of the users and probably like the first 10 users as of now.
Anshul’s Response: So the feedback loop for understanding whether your MVP is delivering the value or not or how long that should be. I would say after you launch, you should definitely be live. Okay, so generally, I take it as around two months ish for like a proper iteration and going with the MVP as making your final product. Right, at least two months, I mean, as long as possible, but two months, definitely.
Audience founder’s Question: So should this be like a closed beta, because we don’t want to expose it to the entire world. But, we also want to keep a few users, to use our product and eventually keep the loop running. So that is what I want to understand as well. So should we launch it out? Because it’s gonna break it.
Anshul’s Response: So closed beta is not a bad idea to get feedback. That’s a totally viable thing to do. But I would question that with your team, what is the reason to keep it in beta. If it breaks, that’s a good thing that it’s working, that’s what product market fit looks like that when you can’t scale with the user demand. So I think that would be a good signal for you guys and means things are working.
Audience founder question: My question is, you know, I know the demand for my product that is there. But what do you think about the growing FinTech space in India, which has been working for the past few years. But the growth rate is expected to be a two to 25% in Indian market? What do you think about the legal tech space?
Anshul’s Response: I mean, I think you answered all the questions yourself. I think all these spaces are going to grow. I think that’s generally what happens in Indian ecosystem, as much as the leap frogging of certain technologies and certain industries, and especially FinTech is one industry. The number of reasons is definitely leapfrogging innovation in us. So I think your 22 to 25% growth number is probably low and I think the opportunity to capture that market is huge. It all comes down to the most boring thing that I’m going to say is execution, like how do you capture the market? Which segments of users do you capture first, which segment you sort of go after second. And that’s in terms of the appetite, in terms of number of people that want to get get into
Audience Founder Question: So, I want to know what are the essential parameters for a product growth for either the quality and also what is the definition of quality as far as the product is concerned? What do we mean by quality because it has different meanings in different situations and different industries.
Anshul’s Response: If you want to really break up the different parts, firstly focus on whether that can be used by the intended customer. That is obviously paramount. In addition to that it needs to be reliable that it works every time in a reliable fashion and that it doesn’t break in the middle. Or it doesn’t take ages to load.
So that’s sort of the second component of product completeness.
And then the other component would be a function that it actually does the job, it’s usable at work. It’s reliable, but does it do the job? Does it solve the problem that it promises to solve? If you have to have those three things in your product, it’s usable, people understand what to do, where to pay, where to go. That’s important, that it should be reliable that it works in a fashion that’s expected. Lastly, it’s functional, it delivers on the value that it promises and means the goal that you’re promising to your customers.
Full Masterclass can be heard here.
About Anshul Dhawan:
Anshul is currently the VP of Growth and Product at Supernatural. Supernatural was chosen as one of Time Magazine’s inventions of the Year and won Fast Company’s 2020 “Innovation by Design” award. It’s the world’s first fitness service in VR (virtual reality).
He was previously product leader at Glu Mobile, Acquired by Electronic Arts and Zynga.
Anshul is a product, data, technology expert, and big cricket fan who loves to play FIFA on his Xbox. He has been in the gaming industry for 10+ years while working on games like Words with Friends, Covet Fashion, Farmville, and Poker. He believes that the next generation will solve most of the problems with exponential technologies like Artificial Intelligence & Augmented Reality.
At New Founder School he is supporting founders with product launch, user retention and building effective technology teams.
Want to ask specific questions from Anshul about your startup? Sign up here for a FREE 14 day trial of New Founder School . Anshul answers all the questions during office hours!