Growth Hacking [how to get more customers with less spend]

I admit it, I was wrong.  When I first imagined building Airtasker, I thought that from the start, marketing would be the most significant factor in building a successful marketplace for services.

After a few months of pushing our developers to build lots of stuff to support online marketing campaigns, Jono (Airtasker COO and co-founder) and I started looking at the data and realized that whilst we had a pretty good net promoter score, we were spending some of our money on acquiring customers who weren’t going to be die-hard advocates of our service.

Many startups like us are in the really fun position of creating a product that doesn’t already exist.  At Volkswagen, a customer is looking for a compact car and they sell that person a proven product like the VW Golf.  The analogy for many startups in tech is that the customer is looking to find a way to get transport from A to B and the company is still finding out if the product they need to deliver to that customer is a car, a bike, or a train ticket.

If that’s the case, then there’s not too much point for these startups to spend lots of money adverting on a billboard to bring three customers to your door, sell them all a car and have two of the customers being less than satisfied because they were looking for a bike or a train ticket.  These customers aren’t going to help you sell more cars!

So how does the term “growth hacking” apply?  Growth hacking basically means focusing resources on web development to build viral customer acquisition rather than spending all of your money on media and marketing communications.  In the transport example, it means focusing your resources to ensure that the right customer gets the car, the bike and the train ticket before buying the billboard to advertise for all and sundry to visit your showroom.

I’m not suggesting that you stop marketing and just focus on product (especially in our case at Airtasker, as building critical mass in the community is actually part of the product), but here’s an example of how spending time and resources on product rather than on marketing can drive overall customer acquisition cost efficiency:

Scenario 1 (marketing focus)

You spend $200 on marketing and acquire 100 customers straight away – that’s $2 per customer upfront.  Of the 100 who sign up to your site, 20 love you, 60 are satisfied and another 20 are a little less than satisfied.  The way that these people will virally spread the word about your product can be represented in terms of viral coefficient (the ratio of how fast the word will spread either positively or negatively).  The 20 who love you might virally spread the word about your product (with a viral coefficient of 1.3x), while the satisfied 60 might mention you every now and then (coefficient of 1.1x) and the dissatisfied 20 could potentially detract from overall sign ups with negative word of mouth (coefficient of  -1.1x).  In this simple analogy, after 6 weeks you will end up with 119 customers, which effectively cost you about $1.69 based on your original $200 marketing spend.

Scenario 2 (growth hacking approach)

You spend a little less on marketing and heavily focus your web development team on improving the product and customer experience, rather than implementing marketing campaigns.  We’re not magicians here, so with a lower marketing spend you’ll get a few less users on day 1 however the improvements that you’ve baked in to your new product will result in a slightly more positively skewed mix of ecstatic/satisfied/unsatisfied customers, resulting in greater virality.  So although you only acquired 50 users on day 1, you could end up with say 140 customers at the end of the 6 weeks.  This would mean that the overall customer acquisition cost would be only $0.72.

So whilst adopting a “growth hacking” approach to your marketing may result in slightly less customers today, by analyzing a cohort and then following them through the chain, the graph below shows that a disciplined product focus is often going to be a better investment in the long run.

To quote some real world examples of measures that we took at Airtasker to growth hack our way towards increased customer acquisition and quality:

Improving user tools (like messaging) – whilst our pages for discussing and interacting with tasks wasn’t broken, we studied how and why people were using this section of our site and re-built this feature from the ground up to make it easier for people to talk, see each other’s profiles and assign their tasks to Airtasker Runners.

AirtaskerPRO badges – we knew that trust and safety was a key barrier to people interacting in their local community so we built a system to verify Runners with automated video interviews and ID checks (using RecruitLoop technology), which is already resulting in a more satisfying experience for both the Task Poster and the person running the task.

Website Performance – with so many web apps and products available today, users have become highly impatient, meaning that every millisecond they spend waiting for the page to load results in wasted interactions.  We worked on optimizing our code for faster delivery, affecting every facet of interaction, virality and ultimately purchase.

So how can a growth hacking philosophy apply to your ecommerce website or app?  Basically, it means getting back to the absolute basics of how you can impress your customer so thoroughly that you can push them to want to do word-of-mouth marketing for you and then creating the features that will make it really easy for them to actually spread the word.  It also means having the discipline and patience to work on activities that won’t necessarily result in a huge spike or uptake in your product today so that you can build towards a more sustainable long term growth curve.  Finally, it means that although your web developers need to know how to make commercial decisions, marketers (for once!) need to take a step back sometimes and listen to their tech guys.

What do you think – should startups spend their resources on marketing or product development?  Would love to hear your thoughts in the comments below.