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Posts Tagged With ‘growth’


What is Growth Hacking? {The Buzzword Free Version}

Growth hacking definition: Using math to make product and marketing decisions in tandem. The metric of success is profitable user acquisition.

If you are a professional, these are some alternative terms to use instead of Growth Hacking: User Acq, Growth Optimization, or just Growth.

The hacker term is a buzzword that can be safely ignored. It comes from the belief that people who are good at user acq somehow know a trick.  They don’t. They just use data instead of gut feel to make decisions. They also work on marketing and product optimization at the same time instead of viewing those as separate disciplines.

“ Half of my advertising works, I just don’t know which half”

This quote pardons marketers for spending lots of money on things that can’t be measured.  Growth Optimization is the opposite of this quote.

The growth approach is to only spend on channels where a profitable cost per acquisition can be calculated.

This is the equation:

Cost per click / Conversion rate  = Cost Per Acquisition < Lifetime value.

When a growth optimizer is thinking about marketing, everything they do is in pursuit of balancing this equation.

The popularity of the growth hacker term comes from the belief that not only do they know how to acquire users, they know how to do it for free.

This This means that they have built a product in such a way that it achieves a viral coefficient.

This is the equation:

Invites sent per user * Conversion rate into a new user = Viral Coefficient.

When thinking about product decisions, a growth optimizer is primarily concerned with ways to increase the two variables in this equation.

Wrapping it up

A growth optimizer uses data to fill in the two equations listed above. They make product and marketing changes at the same time to optimize the variables in the two equations.   Take a look at an example from the first equation.

$1 Cost per Click  / 1% conversion rate  =  $100 Cost Per Acquisition < $50 Lifetime value

This equation doesn’t balance.  We are spending $100 and the user is only making us $50.  A growth optimizer would look at ways to change the two variables, cost per click and conversion rate.   He could lower the cost per click in Adwords while increasing the conversion rate with product optimization. Either one is a lever in reducing the cost per acquisition.

.70 cost per click / 1.5% conversion rate  = $46 Cost Per Acquisition < $50 Lifetime value.

That’s pretty much it.  This may seem obvious in retrospect, but it’s a complete 180 from how most startups operate.


The Internet Destroys Profits

The Internet is a force that levels communication, distribution, information, and access. Controlling these four things has been the foundation of business.  In the past if you could control one of these things better than your competitors, you had an advantage. The Internet removes this advantage, and thus, levels money out of practically every industry it touches.

It is my opinion that both the individual and humanity as a whole benefits from the Internet. I also think that particular businesses have capitalized on the unique opportunities the Internet presents.  From a macroeconomic standpoint I worry that the net result of the Internet has not been positive for business.  As the Internet increases efficiency, the efficiency creates unmanageable data overload. While it drives down costs, it also drives down profits.  It increases communication but it demands instantaneous, around the clock responses.  It allows for quick and cheap distribution, but the distribution channel can no longer be controlled. Digital files can be infinitely replicated at zero cost, but it drives down the value of the contents to near zero.  It provides businesses with vital information, but that information is also available to competitors and consumers.  It gives us access to the world, but it prevents anyone from restricting access to anything.

It's clear that this has happened with music, movies, television, print, cable, auto, telecom and real estate.  I'm sure there are dozens of industries that have not had their profits ground out by the Internet.  I

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would theorize that this is only because the Internet has yet to set it's sites on that industry.  Where the Internet touches, profits shrink.  You can think that your industry will be exempt, and you might be right. Chances are it will be swept under; it's only a matter of time.

This may seem like an odd thing to say coming from someone who is a proponent of the Internet.  The Internet has reshaped the business landscape and redefined the profits that can be expected.  It doesn't seem like the business world has fully adjusted their expectations.  I keep hearing the question asked, “How can X industry return to its former level of profits?”  In response the industry inevitably tries to generate more revenue with the same business model and it doesn't work.  It's possible that once the Internet touches an industry, pre-Internet revenue levels will never return.  The only solution is to change the size of company so it is in line with the profit potential.  For example, you don't need a massive building with hundreds of employees to sell music.   It is very likely that this is the dawn of the small business age.

Of course, there is the chance that for every industry with destroyed profits, there is an entirely new business model that the Internet has enabled.  At the moment, the Internet may be a net negative for business because those new possibilities have yet to be realized.  What's more likely is that some industries will discover a new model, but most will have to reorganize around adjusted expectations.

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