Getting Your Product to Scale

Great products are not dreamt up out of nowhere and forcefully imposed onto a critical mass of users who automatically, genuinely love them; they are birthed through necessity and “0 to 1” innovation. World changing products are the ones that solve pressing problems for a large number of customers and add value to society at large. The history of failed entrepreneurial ventures is littered with cool inventions that have no functional utility for end users; said another way, failure to achieve sustainability and scale is imminent when you have created a solution in search of a problem. Identifying a problem worth solving is a difficult task. Many of the best companies are conceived because the founder experiences a problem and decides to create a solution that is better than anything currently available. Each stage of the product life cycle brings new challenges and requires different courses of action. Regardless of the phase on the product timeline, the overarching theme uniting great, sustainable products is that they all solve a big problem and deliver value to their customers.

The crux of starting a company is discovering a common problem that plagues people. Defining the problem is something that must be done early on so that you know what you are doing, why you are doing it, and what you expect the result to be. As time rolls on, the problem can change as your company changes, it is very malleable but should always set the trajectory of your business, like a North Star. Outlining the problem also entails knowing the frequency and the magnitude of it; infrequent and low intensity problems are not worth solving. It is equally as important to know your customer. You will not truly understand the problem you are working to solve until you understand the person you are solving it for.

Once you have decided on a problem worth solving and embark on your startup journey, the most important thing you can do is get a working version of the product in the hands of your target audience. An MVP (Minimum Viable Product) is the most basic version of your product that still meets the needs of your customer. User feedback is the primary component that should drive the changes and iterations of your product. When Evan Spiegel was building Snapchat at Stanford in 2011, there was another startup on campus called Clinkle. Clinkle was founded on the idea of sending money back and forth from your phone just like you would send text messages and emails. This was before Venmo or CashApp and at the time felt like monumental innovation. Clinkle’s founder was of the opinion that users would only use the product en masse if it were able to replace the entire wallet from day one, so they held off on launching the peer-to-peer payment app and worked on a solution to transfer payments between individuals and businesses. Still pre-launch, the team went on to raise their first round of funding from Pay Pal’s Peter Thiel. With Thiel as an investor, the founding team set out to lure in other investors. Raising money from some of Silicon Valley’s most prolific individuals, VC funds, and institutions, Clinkle had raised $30 million before even telling the general public what they were working on. The team insisted on keeping the product and technology a secret; at one point they had signed up 100,000 users to their waitlist. Their existential mistake was that rather than launching an MVP, getting user feedback, and iterating the product accordingly, the team wanted to only launch the complete product with all of the features they thought users would want. Ultimately, Clinkle went on to die an ugly death. On the other hand, Snapchat launched their MVP, called Picaboo, and religiously sought user feedback to improve the product. Early in the product life cycle it is incredibly important to get the product in the hands of your customers so that you can work to find product-market fit.

Growing Your Product

Once product-market fit is achieved, you transition to scaling the product and acquiring new users; your efforts move from building a product to building a company. The work associated with each new phase of a startup can be broadly defined by what Reed Hofmann says, “What got you here, will not get you there.” The sequence of events in the product lifecycle is especially important because focusing on growth before finding product-market fit is a waste of the two most valuable resources all startups have, time and money. When the time comes to scale, the ideal result is spontaneous combustion galvanized by press coverage, word of mouth advertising, and other growth mechanisms. If you are small you should be doing things that do not scale. Once you have outgrown this stage and growth requires scalability, there are only a few channels that enable you to build a large company.

One of the more popular growth outlets in today’s world is paid growth. You absolutely should not do this if you do not have revenue. And if you are generating revenue there are still a couple of variables to consider: Customer Acquisition Cost (CAC) is the price the company pays to acquire each new user, Lifetime Value (LTV) is the total revenue a company generates from a single user during their lifespan as a user. If the LTV is greater than CAC, then paid growth is a viable strategy to utilize for customer acquisition because the value that customer brings is greater than the cost of acquiring the customer. Referrals are obviously one of the best ways to quickly grow your business and add new users. It is effectively engineered growth by word of mouth, so you should make it easier for your product to be referred by your users. If the value of your product grows at scale, then incentivizing your customers to refer new customers can be an excellent strategy. Not to bore you with examples from Airbnb, (I think Brian Chesky will go down as one of the greatest CEO’s of the modern era), but the value of Airbnb clearly increases exponentially with scale, so to get more users on the platform, both hosts and guests, the growth team offered financial incentives where the referrer would receive $20 in travel credits and the person being referred would receive $40 in travel credit. Then you should work to get as many people through the referral funnel as possible.

Another growth tactic is growth engineering or product growth. This channel is when you have a team of product managers and engineers dedicated to working on growth using technology and iterating the product to ignite growth. Growth engineering is most valuable when you have users arriving at your product but are unable to immediately recognize the value your product adds, so the team makes changes to help you grow faster. One of the primary things growth teams are charged with is Conversion Rate Optimization (increasing the percentage of users who perform a desired action). Every product is a funnel with many steps between your user’s first interaction with your product and the user accomplishing the desired action. The more steps in between these two points, the lower the conversion rate. When he conceived the iPhone, Steve Jobs implemented the three click rule, making sure that users were never more than three clicks away from playing a song. Good places to start for optimizing your conversion rates are onboarding (getting the user to the value of the product as quickly and smoothly as possible), purchasing (when the user is ready to buy the product), and authentication (when a user signs up and later comes back to the product to sign in).

A popular form of growth/marketing is brand marketing, the approach of promoting your product in a way that highlights your overall brand. Once your product is fully developed and has reached scale, brand marketing can be seen as useful at the last mile. Early stage companies should be wary of engaging in brand marketing because it is impossible to quantify its impact on overall growth.

If you are one of the fortunate few to reach scale, it is imperative that you test everything you do and act based on data, not gut instinct. Many companies will make decisions by guessing or using their gut, they will either be lucky or wrong. For the ones who are lucky, betting on luck is not sustainable over the long term. Results are useless if you do not know why they occur. Airbnb’s Brian Chesky, in talking about something unrelated, (but it applies seamlessly to making decisions based solely on a single observation), said, “If we are in a meeting and I grab a green marker to write, it would be dumb to assume that I only like green markers and that all other colors should be thrown out, when in fact, it was chosen at random.” At scale, every decision you make should come as a function of A/B testing to understand what the true outcome of the decision might be. Experimentation and relentless A/B testing are at the core of every successful company; this creates counterfactuals that allow the company to understand the impact of the feature as well as what would have happened had they not launched the feature.

Startups call for different skills at each stage throughout the life of the company, but the one thing that remains constant is that every startup survives on growth. And growth is achieved by listening to your customers and building something that they want.