Growth and profitability are very closely related. For a business to survive for long, growth is very necessary. In some industry sectors, growth helps leverage the economies of scale thus improving profitability. Every business/startup wants to be profitable as soon as possible. In the world of startups, growth hacking is a buzzword. Growth hacking refers to growth strategies employed by a business to increase the adoption of it’s product. This is mostly done by acquiring new customers and users. But sometimes it is also done by increasing the engagement of existing users. This increased engagement results in the users spending more time with the product. The latter strategy is employed mostly in social media and fun kind of products.
Business growth brings new opportunities and with it, new challenges.
Growth of a product is very strongly related with how it is reaching the customers/users. In this sense, the Go-To-Market strategy is very important. In one of my earlier articles, I have written on GTM. Interested readers can read more about GTM using the link below.
Which Strategy is Best for Your Business
Not all growth strategies will work for all businesses. Which strategy is best suited for a business needs to be evaluated keeping various related factors in mind. The first step in this is to understand what is holding back the growth of your business. There are quite a few reasons that may hamper the growth of a business. I will list a few of the reasons at a high level here. We will then look at the traditional and new strategies employed to address them. Growth of a Product may be hampered by:
- Lack of market penetration
- Not reaching enough number of users
- Not reaching the right users
- Not solving a real and pressing problem
- Lack of user engagement
- Tough to use
- Bad quality causing rework or discomfort
- Product is boring
- High churn rate
Traditional Strategies Employed
Traditional growth strategies focused on reaching a large number of targeted audience and engaging them for a longer term. But, the growth actually depends upon how efficiently these tasks are performed and to what level the desired objectives are achieved. Did the product reach the intended user segment? If it did not, the effort and money spent on the outreach is wasted resulting in no/little growth. Was the product able to catch the attention of the user? Did the user find it useful? Does it address an unexpressed need of the user? All these questions are pertaining to the level of engagement that the product is going to create with the potential user. Traditionally, growth strategies used the following two instruments for growth:
Reaching Large Number of Users
Under this strategy, the vehicle employed for reaching the target audience is part of the marketing campaign. These campaigns are paid for by the company itself. Majority of times in the past, these campaigns were not able to focus enough to reach the actual target audience. For example, if the viewers of a certain show on a channel is below 13 years of age, showing an advertisement of Shaving Gel for men will not earn great results. Still, this instrument is the most widely used way for customer outreach. Also, with the advancement in technology, targeting of advertisements towards the intended user group is now more accurate.
Retaining Acquired Users
Every product faces deserters. These are users that engaged with the product, but, later, did not find it good enough to continue the engagement. What percentage of your customers turn into deserters (per month or per year) will define the churn rate for your offering. This second instrument is focused on engaging the customer for longer term. Generally, if you have used a product for some time, you become comfortable with it and that makes it tough for you to walk out on it. Sometimes, the time and effort invested in a product makes it tough to shift to another/alternative product. Another important aspect of long term engagement is the effort on customization and data invested in a product. Sometimes, migrating the data out of an existing product is not possible/easy and that becomes a barrier to leave.
A hypothetical example: If you are using a database with tons of your data in it and their is no straight forward way to migrate that data to any other database, you are stuck with it. These factors impact the churn rate positively by ensuring long term engagement of the customer.
New Strategies of Growth
New growth strategies are aimed at making growth initiatives more efficient and more targeted to gain new customers. But, they also aim at making the existing customers more engaged or more involved with the product.
Viral Growth: Existing Users as Affiliates
Viral Growth uses the existing user as a subtle promoter to reach new users. It is like how virus spreads from one host to the other without the current host needing to make any special effort. To achieve viral growth for an offering, the product needs to be designed for leveraging the viral growth.
A very well known example of viral growth is how Hotmail (started in July, 1996) acquired new customers. After acquiring an initial userbase, Hotmail was looking for faster acquisition of customers without a lot of investment in marketing. So, they started to put this sentence at the end of each email sent by a user: “PS: I love you. Get your free e-mail at Hotmail”. On clicking the ‘Hotmail’ link in that sentence, the user would get directed to the registration page of Hotmail. Thus every new email sent by a user became a promotion for the email service. This resulted in Hotmail acquiring additional one million users in a period of five weeks. At the end of 1997, Hotmail with 12 million users was acquired by Microsoft for 400 million US dollars. There are many other examples of viral growth including the PayPal.
It is worth noting that referrals kind of implement the quasi viral growth model. In referrals it takes special efforts for the current user to refer the product to another user. In true viral growth, the user promotes the product as part of using it.
Viral model of growth is shouldered by mostly unpaid activities through existing users to leverage the network effects.
High Engagement of Existing Users
This strategy focuses on increasing the engagement of existing users for the growth. It works in a product where a user spending more time or frequently using the offering results in increased revenue. To leverage this strategy, the product needs to be designed such that it gets into the habit of the user to use it. These habit forming products follow a set paradigm where after the user has joined, following an external stimulus (like invite from a friend to join), frequent triggers are generated by the product to increase the engagement of the user.
For example, the urge to check social media regularly. When a user posts on a social media platform, the likes and/or re-sharing of that post by other users brings a feeling of social recognition to the user. This inspires the user to post and engage with other users on the platform. The social recognition acts as an internal inspiration for the user to engage more with the platform. After a while, it becomes a habit of the user to use that product. Once the users have invested enough in the product and achieved something (e.g. a verified account, a big following, etc.) they are unlikely to leave the product.
This strategy eventually results in the user becoming a dedicated user. It earns the benefit of long term engagement for the product/service.
How the Change in Consumption Model Impacting Growth Strategies
Do you have a subscription of an OTT platform? Do you have the subscription of a music app, a notes app, the office apps? Do you have a cloud subscription giving you access to computing power at will? A huge number of products have made themselves available in the form of service in the last decade. Earlier, a user had to pay the whole cost of the product upfront to buy it. Now, it can be done with a fraction of the erstwhile cost by taking the subscription for a specific amount of time. This helps avoid having lifetime ownership of a product you want to use only for a small period. This has given flexibility to the user. Now the user may decide to discontinue the subscription if he/she is not happy with the offering. This has shifted the risk in purchasing from the buyer to the seller. Now the seller can’t simply relax after having sold the product (subscription).
While the subscription model has made it considerably easier to acquire a customer, it has also given the users the option to dump the service quickly if they find it unsuitable. This has increased the churn rate. The subscription model is also bringing productivity on consumer side by alleviating the waste caused by unused licenses bought upfront for a product. Now the consumers can pay as they utilize the service.
While the subscription model may look like new to some, it’s been around for long. It is also not limited only to the Software and Internet companies. Rolls Royce, the global power systems company, has ‘Power-by-the-Hour’ program‘ for around 60 years for its Engines.
In this article, I am talking only about the impact of subscription model on growth and therefore, other aspects of subscription are not touched.
Which model of growth fits your business would depends upon the nature of your business. Whether you want to employ the subscription model or a perpetual license model will depend on your product. In case the perpetual license for your product is costly, you may want to think about subscription to reduce the upfront cost barrier for onboarding the potential users. But, it’s not very straight forward. A product needs to be designed to make it available in the form of a service. It also brings up other challenges like managing the high churn rate. Only by providing a high quality and engaging service to your users, you can manage it.
Viral growth strategy, if properly executed, has the potential of spurring fast business growth. The high engagement strategy needs to ensure to not go overboard so as to cause an addiction to the users. Failing this, it may result in legal troubles for the product and company.