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Posts Tagged With ‘growth hacker’

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.

Wrong Lesson: Music is not an indication that content must be free.

Whenever someone talks about content and the idea that nobody will pay for it, they implicitly reference the fate of the music industry.  Music started us down this path by showing us what can happen when an industry does not adapt to the Internet.  Unfortunately, the lesson everyone took away was that people aren't willing to pay for content.

Music absolutely does not have to be free and people are more than willing to pay for it.  What people are willing to pay, and how they want to consume it has dramatically shifted.  The music industry's downfall was that they never adjusted their own perceptions on what music was worth.  To this day, 10 years after the release of Napster, they have yet to accommodate the new pricing structure and format the consumer demands.

P2P gave people unlimited, unrestricted access to the worlds catalog of music. It's a beautiful achievement, almost poetic, and the music industry underestimated just how important that was to people.   Back then, what if people had been given the option to pay for Napster exactly as it was?   The worlds music had just been opened up to everyone, the RIAA was actively trying to shut it down, and there was a credible threat that they may start suing file-sharers.  Before they nailed the coffin on Napster, what if they music industry had said, okay, you can do this, but it's $20/month.  I believe that almost everyone would have paid.  If you were a kid, your parents would have paid just like they pay for cable.  If you were a student the university would have paid to avoid a lawsuit.

Napster did relaunch as a paid service and nobody was interested.  People were uninterested in paying for a service that was inferior to the original Napster.  It cost $20/month for unlimited downloads, but if you ever stopped paying the subscription the music disappeared.  Not only that, it didn't work with the iPod.

If people would have paid for the original version of Napster, what about a clean, organized, virus free version? What about iTunes priced $20/month instead of $1 per track; download as much as you like.

Do you spend $20 per month on music? Does anybody you know?  In the heyday of the CD industry if you were the the type of consumer that bought one CD per month you were a gold-mine.   Columbia House was an entire business based on mailing you one CD per month and it made a fortune.  The only thing stopping the music industry from getting back

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to the equivalent of one-cd-per-month for every music fan is moving to an all-you-can-eat subscription model.  Download all you want, play it on any device, keep it forever.  They would get to keep the entire $20 because there is no physical disk to press, no shipping costs, and no store.

The artist would be paid on attention. All of the money from the subscriptions would be split up based on what percentage of overall downloads each artist commands. If you're an artist that can get everyones attention, then you'll get a lot of the pool.

The music industry is incredibly fortunate to have their consumers tell them their business model.  They want unlimited, unrestricted access to music.  Simple.  Provide it and make money.  There are multiple indicators that people are willing to pay for this including bigger hard-drives, faster Internet connections, iPods, iPhones, and the expensive risk of a lawsuit. Entire industries are cashing in on this desire and the music industry is missing out.

If this really is the answer then why doesn't the music industry just do it?
1. The three companies that own the music industry can't seem to work together, and you need everyones buy in.
2. Those three companies have abused their artists for so long that they can't work with them to rewrite every contract to accommodate this new model.
3. The music industry has yet to shift their perception of what music is worth
4. The music industry is setup to sell CDs and as a result they are more comfortable with digital models that are similar
5. If an artist on a small label can compete on the same field with an artist on a big label, then their oligopoly is over

My suggestion would be to fold all the labels and start from scratch.  What's more likely is that new artists will refuse to sign with the major labels.  When there is a critical mass of top artists that aren't controlled by a major label, the smaller labels will band together to make this happen. is in the best position to bring about this change.

What's important is that we do not take away the wrong lesson from this.  Newspapers, movies, content, and web apps do not have to be free.  People are willing to pay for content, but it has to be instant, unlimited, comprehensive, and organized. The music industry failed because they couldn't adapt to this new model, not because everyone demands free.


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