growth Archives ~ Launch Tomorrow

When I was close to finishing a degree in economics, I was still a bit unclear about what actually causes economic growth after 4 years of study. Economists have a complicated and sophisticated set of models to understand how economies work, on both a theoretical and empirical level.

When it came to the topic of growth, if I remember correctly, the key factor underlying economic growth was productivity. And the primary driver of productivity were external technology shocks. Which can't be modelled. They're just assumed to happen. So basically, the economics department at PENN pulled an intellectual bait-and-switch on me. And I ended up going into software anyway.

Ultimately improvements in technology drove productivity and economic growth of countries. This was true of both developed and emerging economies, with the latter often benefiting from imported technologies, rather than creating their own.

Is entrepreneurship a job growth engine?

This blog doesn't cover politics. That said, I thought it might be worth drawing your attention to a half-truth that often comes up among politicians (and that's often repeated as conventional wisdom):

Entrepreneurship is an engine of growth.

Unfortunately, it's not really true if you look at the data. It is true the primary engine of growth are…high growth startups. These tend to be high technology startups or highly innovative ones. These are most likely to be hitting growth rankings like the INC 5000. In the US, these consistently make up a whopping 3% of all new businesses, according to Scott Shane in The Illusions of Entrepreneurship:

"In fact, only about 7 percent of new companies in the United States are started in industries that the government defines as high technology, and only about 3% of business founders consider their new businesses to be technologically sophisticated."

Industry breakdowns of high growth companies also reflect this insight. For example, on the INC 5000 for 2019, there are:

The 3% of technologically sophisticated startups made up around 30% of the INC 5000 in 2019. Thus as the startups grew, they are likely to be hiring rapidly. And creating jobs.

Conversely, 97% of new businesses fall into the category of a new hairdresser's, convenience store, or a new pizza joint around the corner. Necessary everywhere. But not particularly likely to grow rapidly. And hire rapidly. And that's totally fine. Most of these are sole proprietorships; the founder created his or her own job.

To be clear, growth is not an end to itself. Not every business should be designed to be high growth business. If this is the ambition of the founding team, then great. But just because it's a convenient soundbite for a handful of tech VCs and politicians, it doesn't mean it's the right choice for entrepreneurs. There are many potential measures of success and self-accountability. Growth, including job growth, is only one of them.

Keep your ears peeled during the upcoming elections, as this convenient half-truth is repeated by politicians all over the spectrum. It is, however, more in the category of "what voters want to hear", rather than actually being true.

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One of the really “hard things” about the startup game is getting on a growth trajectory that grows exponentially. VCs debate how fast you should be growing on a weekly basis. But one thing about growth is clear. Instead of having the occasional bump in sales or growth, high growth startups are systematic in how they pursue their results. In particular, the heavy focus in this deep dive is on channel testing.

Strategyzer’s Business Model Canvas: channel testing

The following is based on a discussion with Nemo Cerovac (@ncerovac), the cofounding team member responsible for the explosive growth of FishingBooker, a site that has been dubbed the AirBnB of fishing charters.

Meeting customers where they already are–at first

In our first year, we spent a lot of time on the captains’ side. Finding things that worked for us. We realized that initially we could do 10% growth weekly by sending emails to captains.

We tried to target a couple of Captains in the same Harbor, call them up, talk with them. Initially, reactions were mixed. “Why would I sign up on the platform that is getting a commission from this? Why would I register there? You didn’t exist? I don’t know who you are.”

What started happening eventually was they heard from potential customers and previous customers. We were heavily targeting consumers with ads.

Once we got one or two captains from the Harbor, and we were killing it with Google ads, they start saying, “Oh, I got like two clients from this FishingBooker this month.” Moreover, the same Captains who were skeptical initially came back. They’re like, “Hey, you know you contacted me like three, four months ago. Let’s talk again.” It was a roller coaster.

Going and meeting everyone in person helped a lot. When we went to Florida, we were going from Harbor to Harbor. Just meeting people there. Just talking with them, showing them the platform, and just meeting every notable potential user.

In the end, I think it was the user drive that got us the captains. At first, it’s also no harm. You’re showing captains the approach: “Hey, this looks professional. You don’t need to do anything. If we get you some bookings, then we earn something from it.”

Growing the user base

There were a lot of chicken and egg problems. To be honest, Vukan’s mindset helped a lot. Vukan, the CEO, was super focussed. We were really pushing hardcore. We were figuring out each channel. For users, we figured out that the best channel for consumers at the start was paid advertising: Google ads. Finding them where they are, not where you want them to be.

Basically, most people search for “fishing charters in Maldives” when they’re preparing for the trip. Or they just reserved a hotel, and now they want to plan their activities. That’s the moment of strongest intent. The easiest moment to convert.

Once we figured that out, we then just focused on adding money. To convert as many as possible. We were trying to stick to this ratio where 30% of the revenue goes to paid advertising. We were pushing hard.

The Golden Numbers

Every Monday, we would have this white board in front of us. We listed our golden numbers. Golden numbers are the metrics that are the most important for your product–to make it or break it, at that stage. [Ed note: check out this KPI checklist to choose golden metrics for your team].

In our early days, our golden numbers were:

number of captains that register on the platform
number of captains that finished their profile or uploaded at least one of their boats there
number of people that booked this week or this month
the number of bookings started but not completed

Every Monday we would look at our numbers from the previous week. We would compare them to our targets from the previous week. Our goal was 10% growth per week. Especially in the start, we had a heavy focus on testing. As fast as possible. Find what’s working, and what’s not working.

Let’s say we wanted to have 10 Captains registered that week, and we hit seven. We then discussed why this happened, and tried to analyze why. Was it something that we can influence? or something that we can’t? So, sometimes it would be like, “Oh, I was sad. I was sick. Or I wasn’t focused.”

If it was a problem in our control, and a channel was getting lower and lower results week on week for 4 weeks. We then decided we should try something else, since there was a clear pattern over time.

These numbers and discussions forced us to think about immediate results. You want to act upon things that give immediate results first. You don’t have time to think about, “Oh, what would happen if we did this or that?” Should we go do a road show? a conference or not?

A failed channel experiment

After going to conferences, we realized it’s a waste of time. For us. At that time. We didn’t get anything. If you’re building the right thing, you don’t need the conference to continue building things.

I’m still maybe a bit harsh on conferences. People who attend conferences usually want to chill in a half-work environment. Some people go to build up their ego.

This photo was taken during an education event in Brazil called Bett Educar. — Photographer: Marília Castelli | Source: Unsplash

The upside of conferences, though, is if there are potential clients or users attending. If somebody can benefit from what you’re doing is there–and it’s not just two people– then it might be worth it. Like ship captains, in our case. Or people that are interested in fishing. Then you can try to invest your time in it.

But even then, be careful. Let’s say you convert 10 Captains at a conference. That’s the same amount that we get from sending cold emails to Captains and calling them on the phone in one week. During that one week, you can sit in the office and work on this for 20% of your time. Then you are free to do other stuff with the rest of your time. During a conference, you’re running around. You are trying to meet people. And you need to prepare beforehand to know who’s attending. If you have time, you introduce yourself earlier. Basically, you need to measure and compare the benefits of using each channel.

Conferences do have a place. They help us to connect. They help us meet new and interesting people. So, I definitely recommend people attend conferences, as long as they have this perspective.

The 10x Game

Something I call the 10x game came from this idea of focusing on immediate results only. Often when you start, you start thinking about a lot of things. A lot of concerns. It’s easy to get distracted.

You even start thinking of problems that are not immediate problems. Or immediate tasks that you need to complete now. For example, you are trying to think of how to optimize the process for 1000 users, but you only have five. It’s just not the best use of your time at this moment.

Sure, you need to think about that in the future. But at the moment, park that idea. Put it aside. Because it sucks time from what matters now.

You can do it, if you focus on what must happen now

Here’s how the 10x Game works

1. Pull out a box of multicolored post its with your team

2. Calculate what order of magitude you want to start with. This sounds complicated but actually it’s really simple. Take the number of clients you currently have. And then figure out the next power of 10 from that number:

10^1=10
10^2=100
10^3=1000
10^4=10000

Let’s say you have 33 customers. Then 100 would be your next power of 10. If you have 0, just use 10 as a baseline.

3. Assuming that is your next milestone, what marketing channels do you think will help get you to that number? So if you don’t have any customers yet, how do you want to get your first 10 customers. Take your stack of post-its, choose a color and brainstorm at least 10 different ways you can reach your target customers.

4. Then, repeat for the next power of 10 using a different color, and repeat again.

5. Finally, loop back to your first set of ideas. Priortize them. You can do this using dot-voting or any other mechanism that works for you & your team.

This results in a lot of ideas, clearly prioritized in terms of what you need to do first. It give you the space to think big, but also helps you drill down into what needs to happen right now.

Same channel today, different results

When you have 10 Captains and you want to grow 10 more Captains next week, then maybe a conference is not the best way to go. Or a hundred Captains in the next two months. The conference was more useful for branding purposes. Just not relevant to the golden numbers at the time.

Now, FishingBooker goes to a lot of conferences as a brand. You want to position and build a strong brand. You want to be in people’s minds. Once you have a budget for that, it becomes an opportunity. I saw the team a couple of months ago. They were speaking at a Google conference about their experiences.

FishingBooker is roughly a hundred people today. It’s still one of the top Google ads spenders in Eastern Europe.

Conferences were just one of the channels we tried. And as you can see, different channels are appropriate at different levels of a startup’s growth trajectory.

Stepping back

This is Luke again…

This same insight can be applied to pretty much any channel you might consider. Everything from cold outreach, PR stunts, or any other marketing tactic which you might dream up. The numbers give them context. They are a filter to help you focus on what matters right now.

On a small scale of the first 10 customers, it’s possible for the co-founders to do the majority of this work, possibly with some help. As the startup being growing, there will be different requirements to hit 100 customers. And 1,000. And so on.

Key Takeaways

Use Golden Numbers to drive team conversations about inputs, tasks, and alternatives needed to achieve results
Focus on factors under your control and take action on trends over time
Channels that might be inappropriate initially can be very appropriate later when the company is larger

If you enjoyed this post, and would like to try out the 10x Game with Luke’s help, there will be an upcoming online & free 10x Game workshop you can join. Get notified when this happens!