I once heard the saying “If you’re not growing, your dying.” This is a little sensationalist, but it does remind us of how important growth is to the health of our companies.
You don’t have to look hard to see that at the center of every successful web company’s goals is growth!
The problem with growth as a goal is, that while the goal is universal, the path to getting there is not. What worked for me probably won’t work for you, and definitely won’t work for others. To put it simply, there is not secret recipe to grow your web company. If there were, there would be a lot more googles.
However, if you arm yourself with the right tools, create a strong plan and execute like your life depends on it, your chances of building a rocket ship company will drastically increase!
Know Your Enemy
It is your job to drive your company forward, make changes and produce the growth you desire.
Before jumping in with both feet, be careful, growth is an ambiguous term and can easily lead you down the wrong path. Without a good understanding of what you are trying to grow, you may think you are helping when you’re actually running a zombie company.
Your metrics are your enemy. Metrics show the results of your effort and prove if you’re growing or not. It’s your job to cause them to grow. In order to do this, you must first understand which metrics mater, what they mean and which you will be focusing on growing.
Below are few of the most common metrics web companies focus on.
MAU – Monthly Active Users
Monthly active users is the number of users who use your system at least once a month.
This metric is very different than the common vanity metric of registered users. Investors and startup veterans use monthly active users because unlike registered users, it shows how many people actually use your product, if there are retention issues, or if something else is wrong with your user base.
Acquisition cost is the amount of money it costs you to acquire a new customer.
Acquisition cost is typically only measured for paid channels such as display ads. This metric is most important if you are using a paid acquisition strategy. Dividing your paid marketing budget by acquisition cost will tell you how many new users you expect to gain.
Reducing your acquisition cost will increase your monthly active users rate of growth while keeping your marketing budget constant.
Monthly Churn Rate
Monthly churn rate is the rate at which customers abandon, or stop using, your service each month.
It’s a fact of business that you wont keep every customer forever. At some point customers are going to leave. It’s important to know at what rate customers leave so you can take this into account in your growth model.
By reducing your monthly churn rate, you will increase your monthly active user growth rate even if you do nothing else. Further, by reducing your monthly churn rate you will increase you customer lifetime value.
MRR – Monthly Recurring Revenue
Monthly recurring revenue is the average amount of revenue you earn each month per user.
By increasing your monthly recurring revenue you increase your customer lifetime value, and in turn, increase your companies profitability.
LTV – Customer Lifetime Value
Customer lifetime value is the total amount of revenue you will earn from an average customer before they stop using your service.
In order to increase your customer lifetime value you need to either decrease your churn rate or increase your monthly recurring revenue. Once you increase your customer lifetime value you can afford to increase your customer acquisition cost while remaining profitable.
Tips & Tricks: You can really quickly calculate lifetime value by dividing monthly recurring revenue by monthly churn rate.
Draw Up the Battle Plan
It’s easy to say, “We need to GROW!” It’s hard to say, “We need to increase the lifetime value of our customer base by 17% in the first quarter and we will get there by focusing on customer retention.”
The specifics of the example plan above or your company’s plan aren’t important right now. The important thing is that you have a growth plan that includes a destination, a timeline and a way to get there. These three things combined will give you the direction and focus you need.
Pick One Number
This can be a hotly contested idea in companies that don’t follow it today. But, for those companies that have made the switch and run on one number the gains are obvious.
One number metrics is a concept that suggests you should be focused on increasing only one metric at a time. This gives your team immediate focus and provides a level of clarity that helps with every decision.
The metric that you select to focus on isn’t a constant; it is simply the clear focus of the moment. You will change what you are focusing on as you progress. Further, this doesn’t mean you don’t pay attention to other numbers along the way, and possibly reverse a decision if you see it destroy another metric. It is just a way for everyone to know what the top priority is at the moment and stay focused on improving it.
It’s important to note that in large organizations each individual team will have their own one number to focus on, where as in smaller organizations you are likely to have one number company wide.
Set Short and Long Term Goals
Laying down a timeline for your goals can be scary because it draws a line in the sand to show if you are doing well or poorly. However, on the flip side, laying down a timeline gives you obvious check ins to evaluate if your current efforts are worth continuing with.
I’ve found that by setting a growth timeline and recording your progress publicly, everyone in the company knows if the team is ahead or behind of schedule and to act accordingly.
Another benefit of this approach is that no matter how big or small you are, shareholders love to know how your company is doing. If you set proper growth goals, with deadlines that everyone can easily understand how well the company is doing. Further, if you hit your growth goals continually it can build investor confidence, which can help in your next round of fundraising.
Compound Growth is King
Paul Graham wrote about this is one of his now famous essays but it is always worth repeating. Seemingly small weekly growth adds up to drastic numbers by the end of the year.
For example, 10% growth per week will result in 142 times growth in 12 months. Working this out to completion, if you had 1,000 users today, 10% weekly growth for 52 weeks would result in a user base of 142,000 users.
The power of compound growth reinforces the need to set growth timelines. For example, if you were to produce 20% growth every 2 weeks instead of 10% growth every week, by the end of the year you would see an increase of 114 times instead of 142 times, a 20% smaller growth rate.
Execute With no Remorse
As I mentioned at the start of this article, growth is the goal of almost every single company. This includes your competitors, your allies and yourself. With so many people looking to grow out there, it’s bound to get rough, and execution is the winning play.
You can’t just talk, think and dream about growth. You have to make it happen, even if the work sucks.
As Steve Blank says, “Get outside the building.” The reward is worth it!
Hit Your Numbers
This might sound redundant or like potentially obvious advice. However, if you make hitting your growth goals a core part of your company culture you will be that much more likely to hit your numbers.
It’s easy to shrug of missing a internal growth goal because you set those numbers, and what does it matter anyways.
The reality is that missing your numbers needs to be an all hands on deck issue. It requires a gut check to understand why you missed your numbers. It might only take a few days to get back on course or it might require some out of the box thinking.
The point is that when you treat your goals like they matter, everyone else will too!
Do Things in Un-scalable Ways
Another great point by Paul Graham and Taylor Mingos from Shoeboxed is to Do Things that Don’t Scale.
Web companies are all about being scalable but not everything needs to be scalable. In fact, depending on the stage of your company, making a scalable solution may take more time than you can afford while hitting your growth goals. Further, building a scalable solution too early may remove your from the first hand learning that can only come from talking to your customers.
Some of the un-scalable things you may think about doing include:
- Directly sell customers even though you want to be a self-serve offering,
- Build custom features for a customer even though you want to be a one size fits all platform
- Or run a sweepstakes promotion with no automation even though it will take tens of hours to handle the submissions.
There is no magic recipe for growing your web company. It takes a combination of knowing what you need to know, setting goals and executing to build a rocket ship.
If you haven’t started your venture yet, I encourage you to get going now.
If you are already underway, I encourage you to take a moment and check if your growth strategy up to the task of creating you the successful company you deserve.