While running a startup, there has always been a difficult question about how to measure its evolution. Let’s say you have been doing well with your product setting goals and achieving them. Maybe you have even developed your own growth hacks and successfully applied them.
But what’s next? Do you need to keep moving the same way or is there something else you might switch to? To address these issues correctly you need to understand where you are now.
Let’s take standard model of startup growth and find out why it makes sense.
Here we have three stages: Traction, Transition, and Growth. But these words hardly give you any intuition about your startup’s state. Think about them in motion starting with the first steps in the market when you are to create a long-lasting impression.
Your primary focus might be an increase of retention rate. While exploring new ways to the customers, you are getting to know other startup cases and trying to implement one or another technique, step-by-step realizing what is suitable for your case and what isn’t. Being measured in resources, you are learning how to choose channels of customer acquisition and further focus on them.
It’s time to learn how to be flexible about your strategy & tactics and how to find your own way of leveraging acquired knowledge. This is what Traction is in short. As you have noticed, the next phase is Transition but we can’t just switch to it without understanding how it happens in reality.
It’s common case that these stages are being described in the articles as something inevitable, however not to be stuck on the first phase (or further) you need to wisely evolve your tactics. For this, you need understanding which tools are matching your current phase.
As we have already seen, Traction phase is about working hard on retention rate and choosing what you feel suitable among the ocean of other cases. It’s legally applied either to customer acquisition or developing tactics leveraging different growth hacks. Moving further within Traction phase often makes entrepreneurs confused as they perceive switching to the next stage as a question of time. However, time makes almost no substantial difference. What can help here is setting right goal.
The primary goal of Traction phase is Product Market Fit.
What is it and why should you care? Loosely speaking, it’s the measure of how the product solves the problem which exists in the market. Don’t worry, for each branch, for each niche – whatever place in the market your product is supposed to take – there’ll be always a question: “How do I improve this?”
The better your solution is – the better your product fits in the market. And if you think now that the first premise is a great product, then you’re almost right. But if you think that you can handle it at once, you’re totally wrong. Without your customers, you can hardly do anything.
Minimum Viable Product.
That’s why here we need to talk about Minimum Viable Product and why you would ever need to think about it. Let’s say you’ve decided to follow common advice verifying whether you’ve reached PMF by counting users truly concerned with your product. Since there’s a widespread idea that it’s legal to consider achievement of PMF after reaching 40% of users that suppose your product valuable for them.
But how can you handle that with fewer costs and with a maximum engagement of customers?
People from everywhere across the world have constantly faced this question. Finally, a common experience was coined into the nearly perfect answer: Minimum Viable Product. These words carry the concept of creating a base product with the key features, without which it can’t exist, then give it out to the customers and gather feedback. You might be guessing, how it can help? Well, this concept can appear somewhat confusing as no one enjoys delivering an incomplete product.
We all want to do everything perfect. But there’s no way. Why? Just because in the beginning usually you are living on quite tight budget and you have to be wise in the way you’re leveraging it. Of course, you can spend it all to make the product which meets almost all your own requirements.
How can you be sure that in the same time it meets your customer’s requirements? Also imagine now that you put everything that you had into the product to make it perfect in the way you see it but then it turned out that it was far from customers’ expectation.
Seems like a huge failure, right? But you just wanted to do it great, so what could you do? Indeed, you could build presentational (or trial) product with the most vital features, so your customers would be able to figure out what your product was about and let you know whether they needed it.
From this feedback in the hands, you could depart and either improved what you had or worked on something totally different. Maybe the latter can appear somewhat difficult, however, it’s much better when you spent only half or even less of what you’d had than if you spent everything and finally realized that you needed to make it totally different. Now, let’s look at the goals of MVP closer.
Of course, it’s something you can get to intuitively but still is worth noting: MVP is for an acquisition of data. About data, I mean the reaction of potential customers. And you have to make it right. Building version of a product with a limited set of features doesn’t imply building a bad product. Nor means it to throw into your customers something they need to get to intuitively instead you have to keep in mind strong attentively built up a structure.
Consider building MVP for different cases. Let’s say we have stock photos’ bank and file-sharing service. There should be obviously different approaches.
For the first one, we have Unsplash which started as Tumblr blog without any code line and public Dropbox folder to which first photos were uploaded. For the latter, we have already mentioned above Dropbox.
In the first example, it’s clear that you don’t need to spend that much to create principle functionality for testing, whereas with software product it can be the same. It always comes up as a quite confusing case for software startups as from the beginning set of key features needed to be build in MVP (without which your product won’t be what it’s supposed to) is a matter of a long time and substantial expenses.
You need a prototype which functions as a mini version of your software yet as if it was an independent product. Sounds complicated, right? Look how Dropbox solved that. They created demo video to explain how to deal with their product.
In this case, the video was MVP and it worked out. People started to sign up because they already knew how the product worked. It seemed easy and it was already explained.
Many companies are doing the same mistake giving out the product which is too complicated to understand intuitively how it works. In this case, it’s a must to create a smart demo that explains every step. Only then gathering feedback makes sense.
If you see that your MVP is getting traction, you can build up on its base the whole product and focus on reaching PMF which is to be measured by means of retention rate. You are setting goals to test speed and your expectations and running validation.
However to approach metrics you firstly need to gain an initial stream of users without which there’s no sense in running metrics. At this point, you are likely to explore so many channels of users’ acquisition as you can. You can try to change completely some features to figure out whether your potential audience values them as an irreplaceable part of the product. Until your product isn’t presented as something you all have expected from it, you can change actually a lot and use metrics to get the idea of how customers see it with all the features.
Since you’ve realized that you need to be focused on retention rate, most of your energy should flow in this direction. For this, you need real data acquired from users. Where can you get it? Sure, surveys! But without actions, words don’t matter. You have to gather a number of actions per unit of time (like a number of new users posting something per week). From there you can build up the retention curve to map user’s activity to a timeline.
Let’s say survey results showed more than 40% and the retention curve confirmed that by the flattening line depicting steady customers’ stream.It means you’ve reached PMF. From now your team is going to grow and you are setting focus on the primary channel, which has yielded a majority of your customers. You are becoming aware of metrics application and developing your personal tactics. Your startup is undergoing now Transition Phase.
What to be focused on?
Optimization is the word for this period as it’s a key approach which you need to apply to every unit of your startup to transit to the Growth phase. Here you will need to increase both your conversion and retention rates to switch to the next phase. For this, you may likely get focused on making small but meaningful changes: wise hiring, attention to marketing that should imply a strong focus on funnel metrics.
Alright, but what is “funnel metrics”? In short, it’s about a process of finding prospects, figuring out how to attract them, competitively responding to their needs and finally acquiring them as dedicated customers. Each of the stages implies different tools which work in the most effective way on exactly this stage.
Starting with the leads generation, you’ll move your focus to improve conversion and further on to repeating business and, finally, increasing it.
Since you’ve harnessed funnel metrics to the extent that your own growth machine is working properly, you might feel as a startup and a company at the same time. It’s time to switch to the next phase.
The Growth phase is totally about scaling. Now you might think, well, what have I been doing so far if it hasn’t been about growth? Sure, in general, all the talks are about growth, however as you might have noticed each phase has its own tactical goals. Here, when your team has already grown to be more than few dozens of employees, you can be legally focused on profit.
You already know what customers think about your product and its features. So, no need for big changes, as they can be damaging. Instead, you need to evolve a subtle plan of implementing small but meaningful optimizations by enlarging the range of the channels of customer acquisition, shortening payback period and further expanding your team.