Every week, Anshul and I bring masterclasses on topics that impact early-stage founders on Clubhouse under the New Founders Club. A few weeks ago, we talked about product growth and how early0stage founders should be thinking about user retention and acquisitions. The full blog was published on New Founder School Blog page.
So let’s get started:
Arjita’s Question: When in a founder’s life is product growth important?
Anshul’s Answer: So product growth is important when you’re at the launch stage, and you have done some product development, whether that’s an MVP or some portion of an early product.
Arjita ‘s Question: How should founders in the launch stage think about product growth?
Anshul’s Answer: The launch stage is when you’re ready with your product and you’ve validated your idea. But now you can generate actual user data to see how your product is doing. So, in the launch stage, what you want to focus on is looking at your retention numbers.
Retention numbers are the absolute credible metric that you should be focused on. You’re essentially trying to see who signs up for your service on a certain day, how many of them come back the next day. So if somebody is used or signed up for your service yesterday, how many of those are coming back today to use your product? That’s where it starts from, you’re starting to look at retention.
And depending on how much product you build, and how much life there is for the product, you could start to measure the first day of activity, the first day of retention, and then go from the first day to the first week, the first week to 14 days and then start measuring the first month, the second month. So it’s a funnel that starts leaking at every stage. And what you’re trying to do is minimize that leakage at each point.
And if you’re pre-product-market fit, retention is your best way to gauge whether you found the product-market fit or not.
So these are not just numbers but a good set of guiding principles; if your six-month retention is 30% for consumer apps, and 40% for SAS businesses, that’s very good retention.
And if you have that kind of retention, after six months, you’re ready for approaching investors. So that’s what I would suggest for pre-product market fit companies when they’re thinking about product growth.
If you have found a product-market fit, and you have a good influx of users that are hitting your retention numbers, that’s the time, you can start to look at acquiring new users from different channels. The most obvious one that you would want to use is paid acquisition and paid media.
So Facebook, Instagram, Google, Apple, Apple search, specifically, if you’re in mobile ads are definitely good. And social media channels obviously require an investment upfront to acquire users. But those are the paid evergreen channels that every startup every company uses to acquire customers.
Then there are other organic channels to acquire customers, we call them: product lead growth efforts.
These are features itself in the product that are leading to new customers. An example of that is Google docs. They are a product where you have to share, bring somebody else to collaborate.
Then there is a transaction between two people like Venmo, where the product itself is built in a way that the core loop is bringing in new customers. So those are some organic ways to design your product. And there are numerous examples of products that do this.
Tik Tok does this extremely well, by allowing everybody who’s using the product to generate content, they can download the video on their devices. And they allow that to be shared on any other social media platform. That’s a very smart technique to allow your product itself to have growth levers to acquire users.
So once you have product-market fit, you want to unlock different channels where customers are spending time. So Reddit is a channel, Tick Tock is a channel, Facebook groups is a very important channel.
Arjita’s Question: Actually, you talked about a few product-led growth ideas. Now let’s talk a little bit more about network effects and other new features that other companies really use or other startups really used for their growth. Can you do a deep dive into this?
Anshul’s Answer: So I think product-led growth features are obviously gaining a lot of traction because that gets any startup the competitive advantage if you could build that into your product. So there’s a number of types of network effects that we are seeing in different products and how they’re being leveraged.
The example that I gave earlier was Venmo, where the transaction itself is going to allow you to bring more users in from the sender to the recipient.
Arjita’s Question: That is a great example! And I remember just while we were designing this masterclass, we were talking about how Slack started as a gaming platform. So we’d love for you to go deeper into that at some point today. But I want to talk a little bit about the pre-product-market phase when founders should focus on retention. So let’s demystify that. What is retention? And if any early-stage founder is listening, what should they care about when they think of retention?
Anshul’s Answer: Yeah, so measuring retention should start from day one. So from the time when a new user comes to your service or your platform, how many actually sign up, that’s probably the first stage or is there another step that they’re doing.
The goal is to get people to the main utility, the main moment when they realize that this is something useful as quickly as possible. So essentially, what you’re trying to measure is from everybody who came to use your service, what percentage of that are actually getting to that value moment in your product.
And your goal is to get as many as possible, as I said, you will definitely have some users that will drop off in that process of signup. So maybe there are some other steps like inputting their information, and then eventually, finally realizing the value.
Remember, the goal is to get as many people there as possible. And the way to do that is to reduce the number of steps and reduce the cognitive load that the user has to go through to get to that value. What you’re trying to get, if you’re asking for information, you should ask for as little information as you can. Maybe the default values are good enough. So those are some ways that you want to use to get people through that funnel and get them to the value you offer.
And once you have, let’s say a respectable number of people coming towards that value moment, you want to now from there, your focus is to make sure that they do all the other steps to complete the registration or once they’ve got the value, you basically want to make sure you have a way to get them in into the product much more easily and understand their preferences.
So that’s sort of some of the steps that you want to focus on in trying to get your retention better. Day one retention, you can’t impact that directly. What you’re trying to impact is how many people are actually using your service and are getting to the value moment and from there are set up to come back the next day.
Some apps aren’t used daily and their usage could be monthly like Credit Karma or Airbnb. Here we obviously don’t expect users to come back every day and check their credit scores or book vacations. So in those cases, we want to measure that they are set up for success and they complete the funnel when they are coming. They completed as many steps as possible, they got the value of looking to book something. So hopefully they’re able to find their ideal vacation home in as few steps as possible.
For Airbnb, the goal is to set up success for that plus trip. But coming back to that retention as our goal, the first experience has to be so good and satisfying, that they come back, probably the next month, or depending on how much they travel. In that case, you would want to look at your monthly retention month.
Slack is a very interesting example that I will always give for a pre-product market fit company. Slack started out as a gaming platform, game. But I believe the communication software that they built as part of building that game, is what became Slack eventually. So they kept going at it for some time. And then they realized that the game is not working.
That’s the stage where if you don’t have retention, you have to really look back. And be honest to yourself that this is the time to pivot, or this is the time to really think of changing your value proposition.
Arjita’s Question: Awesome. Thanks for sharing Anshul. Yeah, fascinating examples. And like I said, especially the Slack one, how they pivoted their value proposition for product growth is so interesting. But now let’s talk about the second aspect of product growth. You said post-product-market fit founders need to care about acquiring new users. Now let’s talk about what are some customer acquisition strategies that founders can try or start doing or maybe even have a roadmap for? As they’re thinking about their products?
Anshul’s Answer: Yeah, so I think the way to think about customer acquisition strategies is first breaking it up and seeing, what’s your appetite for paid acquisition, how much budget you have for paid media, as I was talking about earlier. From there, once you’ve decided what is your budget, your strategy needs to be? What are all the ways that you can get customers for your product that you have identified from all the places that their customers exist? So the way to think about this is that you want to focus on the number of users that you’re getting and the quality of users you’re getting.
There are ways to get users and you know, sort of spray and paint. And those will get you a lot of users, for example, maybe spending on a network that’s really your demographic, or product. And what you’re getting from there is a lot of users, and the cost of acquisition is really cheap. But what you would see is that they will not stick around in the product. So you’re trying to balance the quantity and quality of users that you want to get.
And by maintaining the quality of those users, so depending on what your target customers are, what your target audiences and what their demographics are, you want to target specific platforms from both the paid side and an organic side. So let’s say if your product is more suited towards college-going students and people in their 20s, they are definitely a better target on Instagram.
You would probably want to spend half-paid acquisition on Instagram, and then have strategies like generating content for reals on Instagram as they are doing really well, because Instagram wants to take over tik tok. And on Instagram, there’s a number of obvious ways to get users, which is through your own accounts, or through influencers that are on the platform.
And affiliate programs obviously work really well. So if you are targeting that demographic, that’s the platform to go after. If you are targeting, let’s say, teenagers or even kids that are even younger, the better platform would be Snapchat, and trying to do things there. If you’re looking for an older demographic, Facebook is a better platform and Facebook groups is a very good platform. The Facebook group happens to be actually the most effective channel that many people are not able to utilize and leverage properly.
So that’s sort of the way to think about where you want to be. And then again, for the younger demographics, Reddit is, again, a very effective platform Tiktok skews towards younger, but now happens to have a lot of demographics.
You essentially need to get to a point where your number of users that you’re getting bought from organic and paid are enough to sustain your growth.
And what I mean by that is the number of users you are losing in a month should be less than the number of users you’re acquiring if you have to grow. So that’s sort of your goal to acquire enough customers that are joining your app, and then staying longer which leads to retention. And then the second layer or another dimension of strategy is geolocation, which other geographies and countries can you target.
I think this is good enough to start getting and measuring what is the quality of users. And how you measure quality is retention, as I said, repeating myself there, but what you want to get out of retention eventually is the lifetime value of the customer.
If people are staying on your platform for a really long time, their lifetime is really large they are their value is really large for you. So that’s what you’re hoping to get.
And then other growth features that I spoke about earlier were the product lead growth feature, so focus on them as much as possible. That’s the organic traffic that you’re getting.
We used to have another category of traffic, in addition to paid or organic called social users. And these were users that were brought specifically through reference and direct interaction. So you could actually measure the LTV of an organic user, measure the LTV of a paid user, and you could measure the LTV of a social user.
Arjita’s Question: So you mentioned LTV, a couple of times let’s try to break down some of these KPIs or metrics.
Anshul’s Response: So life LTV stands for lifetime value. And why that’s important is that you’re essentially in the service of increasing the LTV as much as possible. Because what makes a business successful is that your lifetime value is more than your cost of acquisition.
Full Masterclass can be heard here.
Anshul is currently the VP of Growth and Product at Supernatural. Supernatural was chosen as one of Time Magazine’s inventions of the Year and won Fast Company’s 2020 “Innovation by Design” award. It’s the world’s first fitness service in VR (virtual reality).
He was previously a product leader at Glu Mobile, Acquired by Electronic Arts and Zynga.
Anshul is a product, data, technology expert, and big cricket fan who loves to play FIFA on his Xbox. He has been in the gaming industry for 10+ years while working on games like Words with Friends, Covet Fashion, Farmville, and Poker. He believes that the next generation will solve most of the problems with exponential technologies like Artificial Intelligence & Augmented Reality.
At New Founder School he is supporting founders with product launch, user retention and building effective technology teams.
Want to ask specific questions from Anshul about your startup? Apply here to join our startup school. Anshul answers all the questions during office hours!