I’m sure you’ve come across the term “growth hacking” a lot recently, especially if you’re a frequent user of LinkedIn.
But for all the explanations I’ve come across on the platform, there are very few that actually define what it is, why it’s important, and how it should be implemented.
But what exactly is this mysterious growth hacking? And above all…
…why, if your company wishes to achieve sustainable, exponential growth at minimum cost, does it need to apply this methodology?
To better understand the concept let me tell you a little about where it came from and how it all first started.
Table of Content
- What is Growth Hacking?
- The Growth Hacker
- Key Metrics
- Growth hacking Examples
- Growth Hacking Books
What is Growth Hacking?
In 2010 Sean Ellis became the first-ever growth hacker.
This wasn’t at all planned.
You see, Ellis couldn’t find anybody to help grow his company. Like, anywhere.
So he took it upon himself. He realized that the secret to growth (what we now commonly refer to as growth hacking) is to:
“rapidly increase a startup’s user base at a minimum cost.”
He even designed a methodology and series of relative strategies to help achieve this goal.
So that you have a rough idea of how successful this methodology is, many of the companies Ellis helped are now worth millions of dollars and trade publicly on the stock exchange.
However, he often found that as soon as he stepped away from a project…there was nobody who could replace him!
Why was this the case? Surely there was someone out there who could step-in for Ellis?
Unfortunately, there wasn’t, mainly because Ellis looked amongst traditional marketers for his replacement.
He soon realized that while they could create marketing plans, align corporate objectives, and build a successful team, they couldn’t help with the one thing he really needed.
So he published a blog post titled Find a Growth Hacker for Your Startup. Here he outlined the profile he was looking for while also hoping to grow a community of fellow growth hackers.
And so the term was born…
The Growth Hacker
Now that you’re familiar with the background of growth hacking, it’s important you understand that:
“A growth hacker is neither better nor worse than a marketing specialist. They are simply professional profiles with different skill sets and objectives.”
The aim of a growth hacker is always to increase the number of users, downloads, subscribers, clients, etc., as fast as possible, using a sustainable model.
This way startups can make their investment rounds work harder, and scale faster.
Thanks to this obsession growth hackers have with scaling digital startups, the last few years have seen a lot of tried and tested methodologies, tools, and strategies introduced to the market.
So, if we’re looking for an exact definition of growth hacking, I guess it would be:
“An analytical, inexpensive, creative, and innovative strategy to exponentially grow a company’s customer base.”
But more to the point is how exactly do they go about it? How do growth hackers expand user bases, downloads, and above all, paying clients?
To answer this question we must look at the evolution of the internet and changes to what constitutes a “product”.
For many years, when we referred to products we talked about tangible items such as cars, shoes, perfume, etc,.
Nowadays the concept of a product has changed.
While the physical items referred to above still exist, many innovative companies now produce digital products.
Amazon, Google, Facebook, Microsoft, and the Alibaba Group – 5 of the world’s most influential companies with a combined net worth in the trillions of dollars – don’t produce a single “product”.
Their value lies in digital assets and data management.
The internet has helped this new business concept flourish through the immediate, and almost unlimited market access it affords companies.
And as with all things new, it requires a different strategy, approach, and execution.
How does a growth hacker stimulate growth in a digital product?
They must first understand the needs of its user.
A growth hacker can detect these needs by analyzing their behavior patterns, and detect at which stage of the sales funnel customers tend to drop off.
If, for example, the digital product is an app, a growth hacker might ask themselves:
- How did the users find out about the app?
- Of these users, who went ahead and downloaded it?
- And how many of them registered with the company?
- Of those that registered, how many engaged with the app?
- With what frequency are they using it?
- How many people have spent money on the application?
- And of those, how many would recommend it to their friends and colleagues?
A growth hacker should be able to detect which stages customers fall off the funnel (we’ll get to the funnel a little later on).
With this information, it’s then down to them to apply a little ingenuity and product knowledge to see how they can better serve this particular customer group’s needs.
It’s important that these ideas end up forming tangible objectives.
And once objectives are established, to think of ways in how they can be executed, measured, and analyzed to see if they are effective in reducing the number of users abandoning that particular stage of the funnel.
To completely satisfy customer needs, growth hackers will often test out, analyze, and then optimize several different ideas.
Optimization is important in uncovering the most efficient and suitable method for dealing with a problem.
Not only do growth hackers look to resolve issues at specific stages of the funnel, but they are also responsible for increasing the number of users entering it, or customer acquisition.
You have to keep in mind that as a growth hacker, when detecting a problematic stage in the funnel it’s likely you implement the first idea that comes to mind in the hope it immediately plugs the gap in your funnel.
Though honestly, growth hacking is more about perseverance.
You’ll find that a lot of ideas tank extremely hard. So don’t be disheartened!
It’s completely normal, and only through the creative trial and testing of different ideas will you truly scale your digital product.
Qualities that every growth hacker possess
Growth hackers have to be extremely analytical, capable of understanding if their A/B testing is producing positive or negative results.
They have to identify which growth strategies are working and discard those that aren’t.
And, with the use of data, they can decide when to persevere with an idea and when it’s time to head back to the drawing board.
Growth hackers definitely need a dose of creativity. Constantly coming up with new, innovative ways to tackle unforeseen problems isn’t easy.
Natural curiosity also complements creativity very nicely. Understanding why some of the leftfield strategies work is as important as the ability to imagine them in the first place.
We touched upon this earlier, but the ability to quickly ax ideas that aren’t working will save startups a lot of money (and headaches) in the long run.
It’s a profession that requires someone to make correct, strategic decisions almost immediately.
What’s more, each of those decisions could heavily impact the growth rate so they’ll need to be planned, implemented, and analyzed as quickly as possible.
H2 The Growth Funnel
The funnel is a visual representation of the different stages that a user passes through after downloading an app or visiting a web page, until eventually converting to a customer.
Whenever a user advances to the next stage in the funnel their engagement level with the product increases. They also move one step closer to a purchase decision.
Keep in mind that when a user downloads your app or visits your webpage, their engagement level is still relatively low.
But if they then decide to leave their email address or register to the platform, their interest increases.
If a user becomes engaged in your product it likely means that it’s stood it out in some way, enough to pique their interest at least.
The growth funnel is divided into 5 stages:
It measures a product’s success, while also identifying the number of users passing from one stage to the next. It allows growth hackers to identify where the product is “failing” users.
Their objective is to then ensure the highest number of users possible are guided to the last stage of the funnel.
Keep in mind that these are the users warranting time and investment as they’re the ones supporting you financially.
So one of the most important concepts to monitor at each stage of the funnel is the conversion rate.
The higher it is throughout the funnel – the more successful your business will be.
But how exactly does a growth hacker identify at which stage each user is at in the funnel?
This requires a better understanding of what it means to be at each stage and the necessary requirements for passing from one to the next.
It’s critical that these requirements are clearly defined. If not, you risk misinterpreting data and arriving at incorrect conclusions about the effectiveness of your funnel.
At certain stages of the funnel, it’s easy to define these requirements. Registration, for example, requires users to register for your product/service – it’s pretty black and white.
However, Retention could be a little harder to define. Depending on whether the product used on a daily, weekly, or monthly basis will affect the conditions of a user being passed to the next stage of the funnel.
An application like WhatsApp is used almost every day by its users.
However, a delivery application such as Uber Eats is more likely to be used weekly or monthly.
Therefore the requirements or variables of a user being placed in the Retention phase vary differently between the two different applications.
Now that you know the purpose behind the growth funnel let’s take a look at each stage in greater detail.
This is the first contact point between a user and a digital product, such as a visit to the web page or an app download.
At this stage it’s important that you understand one key thing:
Web traffic from users who ARE NOT part of your target audience is of little to no value.
The same applies to users who download your app, never use it, and eventually deinstall it.
It’s important to focus on quality over quantity when it comes to capturing leads, on users with a genuine need for your product.
They are the ones who will advance through the funnel, register with your platform, and hopefully, become brand advocates.
So your objective as a growth hacker at this stage is to maximize the number of visits or downloads from your target audience.
Focusing on the wrong audience will only cost time, patience, and more importantly, money.
During this phase, it’s key that users who visited your web page or downloaded your app understand exactly what you do.
If they are genuinely potential clients with a thorough understanding of your product, the chance they fill in their details and become registered users is much higher.
When a company has access to this level of data they can contact users personally.
As soon as a user registers they begin what’s known as the onboarding process.
This is a step-by-step process on how to use the product, often delivered through a series of emails.
After the onboarding phase is completed, users should have a clear idea of what the product is, the purpose it serves, and how to use it.
Your objective as a growth hacker during this phase is to maximize the number of registered users who understand the product.
This phase is where growth hackers detect whether or not a product is adding value to its users.
Keep in mind that users entered into this stage of the funnel already have a thorough understanding of what your product is, and the main purpose it serves.
This means that if users continue to use it’s because it’s adding real value.
On the contrary, if it ceases being used then you can conclude it probably wasn’t that helpful to a user.
One important data point to keep top of mind during the retention phase:
The majority of startups fail because their products offer ZERO value to their target audience.
This is why you never manipulate data or results during the retention phase.
If your product is adding little to no value to your user base you need to detect this ASAP. As a growth hacker, you can then uncover why that is and if at all possible, fix it.
Remember as a growth hacker your primary goal is that users convert into paying clients, something that will only happen if they see real value in your product.
This is the phase where users part with their money and become paying clients. The data gathered here will indicate how much your product stands to make as you scale up.
Your objective as a growth hacker during this phase is clear: to maximize the amount of money generated by your product by increasing the conversion rate of users, to paying customers.
This is a growth hacker’s bread and butter and really separates the wheat from the chaff – getting users to recommend your product to their family, friends, and colleagues.
This can occur organically when satisfied customers talk about your product naturally within their networks or, alternatively, they can be incentivized to do so by the company.
Renowned growth hacking author Luis Diaz frames the Referral stage as follows:
“Following the traditional growth hacking funnel, only clients are able to refer a product to potential clients. However, some of the best case studies I’ve come across over the years, including some big names such as Dropbox demonstrate that this simply isn’t the case…”
The reason for this is simple – a lot of the time we find that users recommend the product more often than clients, as they’re attracted by incentives (free storage space in Dropbox’s case).
Diaz explains that referrals are simply another channel for attracting more web visits and downloads and that both users and clients are capable of recommending a product to their network.
It’s important as a growth hacker you put an insatiable amount of focus on refining the metrics from each stage.
If you detect that the conversion rate between two particular stages in the funnel is significantly lower than at any other, you have to immediately uncover the reason why, and test out your hypothesis.
Is it because users don’t understand what the product does? Are they not finding any value in it? Is the UX extremely slow, etc,.)
Whatever it might be it’s up to you to reduce the number of people sliding out the funnel and focus on conversion rate optimization (CRO), especially between RETENTION and MONETIZATION.
So let’s go through some of the things you should keep in mind when analyzing your growth hacking funnel:
If the conversion rate between ACQUISITION and ACTIVATION is low it could mean two things.
The first is that they’re bouncing off your web page too quickly or immediately uninstalling your application because they found it to be of little value.
The second possibility is that they simply haven’t understood the product’s value proposition or couldn’t locate the information they were looking for.
If the conversion rate between ACTIVATION and RETENTION is low, it could mean that the product didn’t add value (or if it did, the user didn’t see how) or the onboarding process was ineffective.
Remember that users at this stage have understood your product enough to trial it. If they decided not to continue it’s up to you to find out why? Which of the two causes best applies to your funnel?
A good way to root out the problem is to actually go ahead and directly ask users. You’ll find that more often than not they’re willing to tell you what they didn’t like (or understand) about the product giving you some insight into how to tighten your funnel.
If the conversion rate between RETENTION and MONETIZATION is low, it could mean that it was simply too expensive for its perceived value.
Alternatively, if your product offers a free version it could be that it sufficiently covers a user’s needs and they don’t really require any of the additional paid features you offer.
It’s also perfectly possible to be a mixture of both of course!
To effectively analyze, and measure the metrics from your growth hacking funnel it’s important you understand some of its key terminologies:
CPV – Cost Per Visit (Campaign Cost/Number of Visits)
UAC – User Acquisition Cost (Campaign cost/Number of Users)
CAC – Customer Acquisition Cost (Campaign cost/ Number of Customers)
Churn rate: Number of clients lost/ Number of clients gained over a set period
LTV – Lifetime Value: Average Value of Sales x Number of Transactions x Retention Time Period
CLV – Customer Lifetime Value: This metric represents the total net profit a company makes from any given customer.
To calculate: LTV x Profit Margin
Growth hacking Examples
Now that you have a thorough understanding of growth hacking, let’s take a look at some of the biggest success cases to apply this methodology.
These are companies that in just a matter of years posted some really impressive growth figures.
Hotmail Growth Hacking
When it was founded back in 1996, email wasn’t nearly as popular as it is today.
Because of this, the initial challenge facing Hotmail was to get everybody signed-up and registered on their platform.
So what they did was add a small snippet of text to the end of each of their users’ sent emails:
“PS: I love you. Get your free email at Hotmail.”
This simple tactic converted users into recruiters for their product.
The key to the success of this clever, low-cost action was that it was free. Adding this snippet of text required zero outlay on the part of Hotmail.
According to the founder, this simple ploy was one of the biggest contributing factors to them gaining over 1,000,000 users in less than 6 months, all without investing a small fortune in marketing.
Dropbox Growth Hacking
Dropbox is a cloud data storage service that during the early years grew at a steady, but constant rate.
While they built up to around 100,000 users, the team at Dropbox was far from happy and felt their service had the ability to serve millions of people worldwide.
It occurred to them that the best way to approach this was to convert free service users into prescribers of their tool.
Keep in mind that users of the free service were always looking for storage space. Dropbox realized this and decided to create a referral program.
They offered additional storage space in their Dropbox accounts for every single user they could bring on-board the platform.
Thanks to this tactic, in just under a year they grew from 100,000 users to over 4,000,000 without investing a single dollar into marketing.
Airbnb Growth Hacking
When Brian, Joe, and Nathan founded Airbnb in 2008, they immediately realized potential clients used Craigslist to advertise their homes.
For those that might not have heard of it, Craigslist is a website of private, classified advertisements.
The founders knew that Craigslist was where people looked for alternatives to standard hotel listings (in other words, their target audience).
So they developed a bot that allowed customers to repost their listings from Airbnb to Craigslist at the click of a button.
This gave Airbnb complete access to the Craigslist userbase who’s users, once seeing the silkier, smoother Airbnb UX quickly became advocates of the platform.
Of course, as soon as the traffic started flooding in from Craigslist word got around about Airbnb, transforming it into the world’s largest online lodging marketplace.
Facebook Growth Hacking
In 2010 Facebook bought a company called Octazen.
The technology they possessed allowed Facebook to integrate a new feature into its platform:
The import of contacts’ email addresses once they signed on.
It might sound a little complicated, but basically, it allowed Facebook to send out an invitation to all the contacts of a registered user’s email address.
This tactic multiplied Facebook’s user database to out-scale any other social media platform in history.
While it may appear that these companies came upon a single idea, determined a hypothesis, and validated it through testing, that isn’t the case.
They will have tested hundreds of different ideas (and continue to do so) before finding one that sticks.
Remember, that as a growth hacker that’s your primary role – to test, test, and test some more to constantly innovate and uncover new ways to help your startup exponentially increase its customer base.
Growth Hacking Books
Hopefully, this guide has piqued your interest in one of the most fascinating disciplines of modern-day digital marketing.
If you’d like to further your knowledge and understanding of growth hacking, we recommend the following 3 books:
- Hacking Growth: How Today’s Fastest-Growing Companies Drive Breakout Success – Sean Ellis and Morgan Brown
- The Lean Startup: – Eric Ries
- Hooked: How to Build Habit-Forming Products – Nir Eyal