Since joining the technology/startup industry in 2009, I've seen a lot of companies grow and not grow. I worked at a company that got beat by Airbnb at home sharing, then as an investor at a small seed fund, then as a digital marketing agency founder, and then as a CMO. Growth is top of mind for nearly all business owners and investors, so I thought I'd try to put together a bit of a framework for how I think about it.
Here's a stab at such a framework:
Growth = product-market fit X distribution-market fit X industry-market growth + budget - competition.
Growth, in my view, is a function of all 5 of these things. A few notes on each and how to measure them:
Product/market fit:
- It's hard to grow without product/market fit, but it is possible. You need some incredible distribution channels, or a naturally expanding market, or a ton of VC or no competition.
- PM fit is never really 'achieved', you can just find more or less of it as you improve your product and expand to new markets.
- There are two metrics I have liked for knowing if you have it:
- An NPS over 70
- When asking customers how disappointed they would be if they couldn't use your product, 40% say "Very disappointed". This idea came from this post.
Distribution/market fit:
- There are many versions of this, but this means you have found a way to reliably get distribution for your product
- Many businesses are T-shaped in terms of their distribution channels, deep in one and broad in others
- Most business that grow sustainably have unlocked some big/reliable channel to get distribution. This could be: SEO, partnerships, PPC media, direct mail, outbound sales, customer referrals, etc.
- Probably the most common and widely used metric for distribution/market fit would be LTV/CAC
- A LTV/CAC ratio >3 demonstrates distribution/market fit
- CAC can be define in terms of money or time, but the idea is that you can spend resources profitably (and ideally scalably) to generate lifetime value
Industry/market growth:
- There isn't much you can do here, but you can move into adjacent , more naturally growing markets to generate growth
- If you were working on a crypto project in the last year, you probably grew even without any of the other variables figured out
- One way to see industry/market growth is to check Google Trends
Budget:
- You can grow by just spending money, and so many VC backed businesses can achieve growth simply by spending
- This is certainly hard to sustain without any of the other variables but still worth mentioning
- Also important to note that I believe the first three variables are multiplicative and the second two are linearly related to growth (ie less important relatively)
Competition:
- All else equal, more people going after the same opportunity will mean less growth
- This is also less important than the other variables in my mind but still a negative input to your growth
Another note on distribution/market fit is that I believe there are two big picture initiatives here: brand development and customer acquisition. Getting distribution without either is hard. Brand development, in my view, is all of the activities you do to better align yourself with your target audience. It's about developing an emotional resonance with them such that they choose to do business with you for reasons that may not entirely be 'rational' or for an explicit return on investment. This could be a redesign, or rethinking your copy, sending swag or having events. Customer acquisition is, in my view, about driving 'purchase' behavior through an understanding of two things: where/when/how your customers are influenced to make purchase decisions and where/when/how they most need your product or service. Understanding who is influential in your customers lives, and when are the exact moments in which they need you are key to customer acquisition. The latter is why paid search ads and SEO work well, or partnerships like affirms model for financing ecom purchases or insurance upsells to airline ticket purchases, or direct mail when you move addresses. The commonality in all of these is that they have found places where customers are likely to need their solution, and are present in that moment. So maybe, the formula looks like this: Growth = product-market fit x (brand development x customer acquisition) X industry-market growth + budget - competition.
Thought this might be helpful as a way to think about the first principles of growth. The reality is that the process of getting there is much messier and non-scientific and nuanced than something like a formula can ever encapsulate. But frameworks can help when you're thinking about what to do next to achieve a goal, so hopefully this can help!