All Startups are not equal — Find your place and grow from there
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In 2013, Brain Balfour wrote the article Traction vs Growth. He talked about the 3 stages of growth that most startups go through before scaling. The Traction; Transition and Growth stage. These 3 stages have different goals, metrics and team needs. While it’s not cast in stone that a startup must pass through these stages, we’ve seen that a lot of tech startups move through this ladder before scaling up.
Let’s look briefly at the Growth Stages.
The traction stage is when an idea is transitioned into an MVP product. Fairly new into the system and trying to achieve PMF, while the transition stage is for a startup that has achieved PMF but with a focus on knowing their growth levers and making sure their entire marketing effort will not run on a long-term loss. The growth stage is for startups with a good understanding of PMF and growth levers with their core focus on scaling the number of users.
Goal: At this stage, the focus is on Product-market fit
Key Metrics: Focus is on Retention
Volume: Turn on on faucet
Find a steady min stream
Channels: Experiment w/ 2–3 to find/focus on 1
Goal: Discovering growth levers
Key Metrics: Growth Rate — CAC = LTV, Payback < 3 months
Volume: Turn on on faucet
Optimization: Macro + micro
Team: 2 or 4
Goal: Turning up growth levers
Key Metrics: Growth Rate — CAC < LTV, Payback > 3 months
Under the stages of growth are core aspects to consider: The goal which is the focus for that stage; the Key Metrics that matter in achieving the goal; and the team needed.
How do know which stages of growth?
The number of total users does not necessarily tell you the stage of a startup. A B2B in the traction stage can have 2 major scale users while a B2C/eCommerce startup in the traction stage might have 100–1000.
The key is to understand where your product is at that point in time. For example, If you have gotten a good early user-based and seen a good retention rate, it can give you a sign that you have achieved PMF and you are ready to move to the transition stage.
3 benefits of the Stages of Growth
1. Know what to focus on:
Most mistakes founders make is they focus on Acquisition and forget about other metrics in the funnel.
A good understanding of where you are is the first stage in growth.
I have seen startups make the mistake of building an MVP product and then aiming to get 10k users in 2 months without considering Product market fit or the viability of their marketing efforts. So they set goals from their limited perspective (although with a sincere mind) and they enter a marketing maze of randomly choosing channels to get those users and after some time get frustrated and quit.
When you know you are in the traction stage, you automatically know what your goal is — Product-market fit, your key metric(s) and align your team in achieving that goal. At that point, you and your team have a good understanding of the metrics that matters and focus on them.
Speed is irrelevant when you are going to the wrong direction — Set the right goal and Key metrics
2. Build the right team at the right time
When starting in the traction stage, you might not need a full growth team (a few startups might but 90% won’t), but at the same time you hiring just one marketing intern with no high-level marketing/growth expert in the advisory or founding team might be detrimental to your business. At the traction stage, your focus can be to hire an expert-level growth marketer that can help you achieve traction and create a GTM strategy that will bring in that early traction for your business.
Yes I know you might be thinking of payment and cost of including an experienced GM but that’s where you have to consider other benefit options like equity, free access to your product if it’s valuable to the person or hiring on a contract or part-time basics to reduce hiring cost.
The opportunity cost of bringing in an experience GM early on to help you achieve PMF is way higher than starting with an intern alone with little or no experience, or you can start with an expert consultant with a junior-level GM to support. When you get to the transition stage you can then balance your team.
3. SAVE! SAVE!! SAVE!!!
“Let’s get 10000 users on the platform” — It’s an amazing goal for any startup but may not be an ideal goal at the initial stage because retention is still in the low. What most startup founders do is they spend a lot of money on user acquisition with a leaky marketing funnel and when they get to 10k users realise that less than 2 or 10% is being retained (depending on the industry) and worse is being monetized. So they spend another marketing budget to get those 10k users already on the platform to become active users.
The best place to be is to have an optimized marketing loop — from acquisition to retention and referrals and focus on top adding more fire to the flames.
Loop with marketing efforts at the top of the funnel.
Products like Slack or Canva might not need to do marketing (but they still do and have a big marketing budget, e get why😁) because their loop structure is firmly built that they get new users coming into their platform via referrals and WOM. It’s the holy grail in a startup’s life when your product starts to market itself.
Don’t get me wrong, I am not saying retention marketing strategies won’t be needed, there will always be a need for optimization. I am just saying it will be easy and cost-effective.
Read up on the Traction vs Growth article by Brain Balfour
I hope you got value. Let me know what you think in the comment section.