Focus on value, not on metrics

 

I have just moved to a startup that I think is pretty cool. In this startup I was put into the Growth team. Growth is almost like a sacred thing for a startup, especially so for their investors. However, I realized at the beginning that I didn’t know that much about it.

Is focusing on a metric and trying to grow it at any cost a legitimate way to achieve growth? My previous company seems to think so and I didn’t think things went that well for them. It was an e-commerce site, and the North Star metric there was GMV (Gross Merchandise Volume). Sean Ellis said a North Star metric is the single metric that best captures the core value that your product delivers to customers. It makes sense, right? The core value of an e-commerce site should be its capacity to generate matches between buyers and sellers in the form of transactions. The problem is they kept trying to increase the metric in artificial ways that doesn’t actually increase the product’s capacity to do so. Fake it until you make it? What if you never did?

If you have a product or service, you would want your customers to use it more often, right? Not just use, pay for it. You want more users to pay more, in increased frequencies. In essence, you want more people to make more decisions that your product or service is giving them value for money. This is a key thing in my opinion. We sometimes get lost in the numbers and statistics we forget that these are all real people — unique individuals that somehow made the collective decision that it is a good idea to pay for your product.

How do people arrive at that decision? For some products it seems there are clear, trackable tell-tale signs — called the a-ha moment. For facebook it is 10 friends in 7 days, for Slack it is 2000 messages sent between team members, for Dropbox is one file in one Dropbox folder in one device, the list goes on. These are lagging indicators of people who have found value for your product and helping people get to these as quickly as possible helps. However, this doesn’t mean that after the a-ha moment they will always make a decision to use your product. They will make that decision every day, and at times they may decide to use your competitors’ offerings instead.

So what is there to do? How can we get to sustainable growth and do it in a way that makes sense? I suggest we shift our focus from the lagging indicator, growth, and onto the root cause — Value. The whole reason that startups look so much to growth is because it provides validation of the better value they try to provide through technological or other means of innovation. If you build value, growth will come. Enter value hacking.

What is Value Hacking, anyway?

Growth hacking needs product-market fit. Product-market fit means that the market has already given you some validation of the value you’re providing — some small but loyal user base that means that your product is actually solving a real problem. After that, you can do experiments and iterate on solving pain points for your existing user and introduce new users to the solution you have, adding more pain points for you to solve.. Congrats! You’re now a growth hacker!

If you continue on that path, eventually you might arrive at a place where you’re not growing as much as you have been. You’ve tried every idea, every UX permutation, every clever promotion, but you struggle to move the results of your experiments to significance. Way to go! You’ve now hit what’s known as a local maximum.

 

Source: Wikipedia

A local maximum/minimum is where you eventually end up if you start somewhere along a function’s graph, choosing to go up or down, and continue doing that until you find that you’re not going up or down anymore. Since growth hacking is essentially an optimization problem, you’re bound to hit this point sooner or later.

How can you break out of this then? How does it all relate to value? Remember that a local maximum is specific to the function that we picked — so just pick a different function! In other words, look at our assumption on how we provide value and the audience that we’re impacting and try to come up with other ideas on how we provide value to a different set of audience. Everyone is different in their needs so the the more people you’re trying to impact the more difficult it is. Look at your current audience, pick a subset that you think have similar idea on how they perceive value and optimize for them. This is what value hacking means — optimizing for each and every kind of value functions available in your market.

Examples of Real-world Value Hacking

McDonald’s was a strictly fast food place serving typical fast food items such as Big Macs, French fries, and soda. However, looking at the growth of specialty coffee shops, it realizes that it had the resources to also challenge the Starbucks of the world and they released McCafe to great success. They realized here that the value they can provide does not have to be tied with their current food offerings. By combining existing resource (brand, strategic location) with new offerings (espresso drinks, pastries) they could tap into a faster growing market with a different value function.

When Valve Inc started in 1996 it could not have envisioned what it would become. It started as a video games developer delivering an immersive single-player game in the FPS genre. However as the genre evolved and the player base places more value in multiplayer and online communities, it changed with them and built Steam as the premier online platform for PC gamers. In its journey, Valve kept a close eye on what their user base really values and does not get stuck on the game developer business (Half-Life 3 is never going to happen, guys).

The foremost hypergrowth company in the world, WeChat, started as a messaging platform but this eventually blossoms into payments and social media because they know that those are the ways they can leverage their network of users while simultaneously providing them with more value.

What these companies have found to their advantage is that although they built their current user base with their initial product, there are other “adjacent” use cases that may open possibilities to a larger markets with better response to optimization efforts.

How to Start Doing Value Hacking

So where to begin? Here are some ideas:

  1. Look at your data and identify different clusters of customers that exhibit similar usage patterns. Try to understand what, exactly, is their use case and how they derive value from your product. In your past experiments, have you done any that cater specifically for these users? Subsequently you have to measure your impact metrics as it pertains to them, and not the whole userbase. Small, focused experiment that confirm or deny your hypotheses about the value functions these segments have are key to success.
  2. Look at an existing use-case’s value proposition. Is there any technological or cultural change happening that significantly affects it? Traditional taxi companies in many countries have found that it is more profitable to augment the ride-sharing companies rather than to go against them. Go back to the drawing board and tweak your offering to fit the current situation.

Remember that pretty cool startup that I mentioned I’d joined? We have grown into a unicorn valued more than $3 billion in under 10 years starting from ride-sharing, to food, to online ticket sales, and many more. We have experienced our growth under these principles, even though we may not have realized this at the time. The market is still young, and there are definitely more markets, and more growth potential left to explore.