{"id":903,"date":"2014-12-23T06:00:17","date_gmt":"2014-12-23T14:00:17","guid":{"rendered":"http:\/\/blog.thinkapps.com\/?p=903"},"modified":"2016-03-31T17:08:35","modified_gmt":"2016-04-01T00:08:35","slug":"how-start-startup-growth","status":"publish","type":"post","link":"https:\/\/thinkapps.com\/blog\/post-launch\/how-start-startup-growth\/","title":{"rendered":"How to Start a Startup: Lessons from Facebook’s VP of Growth"},"content":{"rendered":"

Before he was the VP of Growth at Facebook<\/a><\/span>, Alex Schultz<\/a><\/span> was one of the few people in the world who transitioned from a career in physics to marketing.<\/em><\/p>\n

Like many origin stories, his interest in marketing was driven by a lack of money. Specifically, Schultz got into online marketing because he needed to pay for college. By the 1990s, he became fascinated by the world of SEO<\/a> back when \u201cit was a really, really easy skill to learn.\u201d<\/p>\n

He learned to program because he was tired of being the nerdiest person in physics class and\u00a0taught himself the skill\u00a0through the creation of a cocktail site. His skills turned his project\u00a0into the largest cocktail site in the UK.<\/p>\n

Then he fell into growth hacking<\/a> before it even had a real name. In his mind it was just Internet marketing: \u201cusing whatever channel you can to get whatever output you want.\u201d Schultz not only paid for college, but he also transitioned to the \u201cdark side\u201d (a.k.a. marketing for good).<\/p>\n

He discussed the untamed beast that is growth during his lecture<\/a> at Stanford University as part of\u00a0Y Combinator<\/a>\u00a0president\u00a0Sam Altman\u2019s<\/a><\/span><\/span>\u00a0series on How to Start a Startup<\/a><\/span><\/span>.<\/p>\n

(For more startup advice, check out\u00a0How to Start a Startup: The Book<\/a><\/em>. It’s\u00a0the ultimate reference guide to creating a successful tech startup.)<\/strong><\/p>\n

Pay Attention to Your Retention Curve<\/h2>\n

What do you think matters most for growth? Great products, customers, or word of mouth? It\u2019s actually the culmination of all three: retention.<\/p>\n

It’s a given that startups want to grow, so Schultz contends the most important graph that any founder can look at is a retention curve (see below).<\/p>\n

\"Retention<\/a><\/p>\n

If you plot the percentage of monthly active users versus the number of days from acquisition, you should\u00a0end up with a retention curve that is asymptotic to a line parallel to the X-axis. That\u2019s when you have a viable business.<\/p>\n

Schultz explains\u00a0that your next step is to see how many\u00a0of your users have been using your product for one day. Ask yourself: What percentage of them are active monthly?<\/p>\n

“100% for the first 30 days obviously, because monthly active, they also end up on one day,” he says. “But then you look at 31. Every single user on their 31st day after registration, what percentage of them are monthly active? Thirty-second day, thirty-third day, thirty-fourth day.”<\/p>\n

Even if you only have 10,000 customers, you\u2019re still going to get an idea of what this curve is going to look like for your product. You\u2019re going to be able to tell if it\u2019s asymptotic.<\/p>\n

\u201cIf it doesn\u2019t flatten out, don\u2019t go into growth tactics. Don\u2019t do virality. Don\u2019t hire a growth hacker. Focus on getting product market fit<\/a>,\u201d Schultz advises. “If you don\u2019t have a great product, there\u2019s no point in executing more on growing it because it won\u2019t grow.”<\/p>\n

\u201c[The] number one problem I\u2019ve seen for startups is they don\u2019t actually have product market fit when they think they do,\u201d he adds.<\/p>\n

What Does Good Retention Look Like?<\/h2>\n

Schultz says he gets pissed off when people ask him the above question because it\u2019s so easy to figure out using dimensional reasoning.<\/p>\n

He shared the story of\u00a0Geoffrey Taylor<\/a>, a British physicist who won the Nobel Prize. Just by looking at pictures of the atomic bomb, he figured out the power of the U.S. bomb. (Read this article<\/a> if you want to learn exactly how Taylor did it.)<\/p>\n

Dimensional reasoning involves looking at the dimensions that are involved in a problem to come to a solution. Taylor used dimensional reasoning to figure out what the power of the U.S. atomic bomb was, as well as the ratio of power between the Russian and American\u00a0bombs. And he ended up revealing one of the top secrets that existed in the world at that time.<\/p>\n

Figuring out the ratio of power between the Russian and U.S. atomic bombs is hard. Figuring out Facebook\u2019s retention rate is not so hard.<\/p>\n

There are approximately 2 billion people on the Internet (excluding China where Facebook is banned), and Facebook has around 1.3 billion active users. Divide the second number by the first\u00a0to find out Facebook\u2019s retention rate. It won\u2019t give you the most accurate answer, but it\u2019ll be close enough.<\/p>\n

Your Retention Rate Depends on Your Vertical<\/h2>\n

Different verticals need different terminal retention rates for them to have successful businesses, according to Schultz.<\/p>\n

\u201cIf you\u2019re in ecommerce and your monthly active basis retention is close to 20% to 30% of your users, you\u2019re going to do very well. If you\u2019re on social media, and the first batch of people signing up to your product are not 80% retained, you\u2019re not going to have a massive social media site,\u201d Schultz explains.<\/p>\n

Ask yourself: Who out there is comparable? And am I anywhere close to what real success looks like in this vertical?<\/p>\n

But, at the end of the day, no matter what vertical you’re in, “[r]etention comes from having a great idea, a great product to back up that idea, and great product market fit,” Schultz says.<\/p>\n

Operating for Growth<\/h2>\n

Schultz says that startups shouldn\u2019t have growth teams because the entire company should be focused on growth. The head of growth should be the CEO, acting as the north star<\/a> for where the company wants to go.<\/p>\n

For example, Mark Zuckerberg<\/a> is Facebook\u2019s north star because he\u2019s always been focused on growth. In the early years of Facebook, many companies focused on their registered users. But Zuckerberg focused on monthly active users instead.<\/p>\n

Schultz recounts that, when Zuckerberg talked about growth, he meant \u201ceveryone active on Facebook, not everyone signed up on Facebook\u201d and that was the internal goal. \u201cIt was the number he made the whole world hold Facebook to, as a number that we cared about.\u201d<\/p>\n

Airbnb<\/a> followed a similar model when it came to measuring growth. They’ve always benchmarked themselves against the number of nights booked compared to the largest hotel chains in the world.<\/p>\n

The takeaway is that the metric for growth varies from company to company. What matters is that the CEO is focused on that metric, acting as the company\u2019s north star.<\/p>\n

\u201cLet\u2019s say you have awesome product market fit. You\u2019ve built an ecommerce site, and you have 60% of people coming back every single month, and making a purchase from you, which would be absolutely fantastic. How do you then take that and say, \u2018Now it\u2019s time to scale.\u2019 That\u2019s where growth teams come in,\u201d Schultz explains.<\/p>\n

Importance of the Magic Moment<\/h2>\n

When you hear the term \u201cmagic moment,\u201d you might think of a touching moment between a couple or this song<\/a>. But there is another magic moment: when users\u00a0first see value in your business.<\/p>\n

The magic moment for Facebook? Schultz says it’s when people can see their friends. It\u2019s that simple. The magic moment takes place when you first see that first picture of one of your friends on Facebook and you realize,\u00a0“Oh my God, this is what this site is about!”<\/p>\n

For Zuckerberg, that magic moment depended on getting people to 10 friends in 14 days. The most important thing in a social media site is connecting to your friends. Without that, you have a completely empty newsfeed and you\u2019re not going to come back because you\u2019ll never get any friends telling you about things you’re missing on the site.<\/p>\n

Facebook, Twitter<\/a>, WhatsApp<\/a>, LinkedIn<\/a> \u2013 they all pay attention to showing you the people you want to follow, connect to, send messages to, as quickly as possible, because that\u2019s what matters. In a different vertical,\u00a0eBay<\/a>‘s\u00a0magic moment is when you list an item on their platform and get paid.<\/p>\n

You need to think about what the magic moment is for your product and get users\u00a0connected to it as fast as possible. Then you can move up where that blue line (on the retention curve graph) becomes asymptotic. If you can connect people with what draws them to your site, then you can go from 60% retention to 70% retention easily, explains Schultz.<\/p>\n

Schultz says that you get to that magic moment by \u201cfocusing on the marginal user \u2013 the one person who doesn\u2019t get a notification in a given day, month, or year.\u201d Building an awesome product is all about the power user. But when it comes to driving growth, you don\u2019t need to worry about people who are already using your product.<\/p>\n

Tactics for Virality<\/h2>\n

Sean Parker<\/a> approaches virality in terms of three things: payload (how many people can you hit with any given viral blast), conversion rate<\/a>, and frequency. These three factors give you a fundamental idea of how viral a product is.<\/p>\n

Hotmail<\/a> (now called Outlook) is “the canonical example of brilliant viral marketing,” according to Schultz.<\/p>\n

When Hotmail first entered the email scene, people couldn\u2019t get free email clients because they had to be tied to their ISP<\/a>. Hotmail and a few other companies launched, and their users\u00a0were able to access their mail from wherever they were.<\/p>\n

Most of these email companies tried to get clients by spending tons of money on TV, billboard, and newspaper campaigns, but Hotmail couldn\u2019t do that because they didn\u2019t have a lot of funding. So they added a little link at the bottom of every email that said, “Sent from Hotmail. Get your free email here.”<\/p>\n

Because Hotmail\u00a0users\u00a0were usually emailing just one person at a time, the payload was low. But the frequency was high because users\u00a0were emailing the same people over and over. So those people were going to be hit one to three times per day, increasing impressions. And the conversion rate was also really high because people didn\u2019t like being tied to their ISP email.<\/p>\n

In the end, Hotmail became extremely viral because of its high frequency and high conversion rates.<\/p>\n

Next Steps<\/h2>\n

If you\u2019re interested in viral marketing and advertising, Schultz recommends reading Viral Loop<\/a>\u00a0by Adam Penenberg and Ogilvy on Advertising<\/a>\u00a0by David Ogilvy.\u00a0You can also read a full\u00a0transcript of Schultz’s lecture\u00a0here<\/a>.<\/p>\n

Also, if you enjoyed this post, be sure to check out\u00a0How to Start a Startup: The Book<\/a><\/em>. It’s\u00a0the ultimate reference guide to creating a successful tech startup.<\/p>\n

\"How<\/a><\/p>\n

Featured image of Alex Schultz was taken from the video of this lecture<\/a>\u00a0at Stanford University.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Alex Schultz shares everything you need to know about growing and retaining users for your startup.<\/p>\n","protected":false},"author":27,"featured_media":957,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[85,143,144,46,108,90,16],"acf":[],"yoast_head":"\nHow to Start a Startup: Lesson's from Facebook's VP of Growth<\/title>\n<meta name=\"description\" content=\"Alex Schultz shares everything you need to know about growing and retaining users for your startup.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/thinkapps.com\/blog\/post-launch\/how-start-startup-growth\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to Start a Startup: Lesson's from 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