Growth is Simple

By simple, I don’t mean easy. While the elements that generate growth are simple, effectively driving growth for most companies has proven very difficult. I’ll outline below how growth actually works and what prevents most companies from coming close to reaching their full growth potential. I’ll also provide recommendations for what your company can start doing today to greatly accelerate growth.

Why growth is simple

Simple refers to how growth actually works. It boils down to just a few factors.

1. First you need to know your North Star Metric. This requires understanding the value that your customers receive from your product and measuring the expansion of this value across your growing customer base. This concept is confusing for many people, so you can learn more about North Star Metric here. If you’re still struggling to identify your NSM, my team can help (see end of linked article).
2. Test to find ways to grow your North Star Metric. If your product has strong product market fit, there will be some natural organic word-of-mouth growth. But the right testing program will accelerate word-of-mouth growth and add many new sources of valuable customers. The right program requires testing across all of the potential levers of growth.
3. Execute proven tactics until they stop working. When you find something that works for growing your business, it’s important to document how it works and to invest resources to continue

Four reasons why businesses fail reach their growth potential

The overwhelming majority of companies fall well short of their growth potential, which is a function of product/market fit. Without product/market fit, your growth potential is very low. But assuming you do have product/market fit, then growth potential is defined by the market for the product that you have created. The less aggressive you are about capturing this market, the more likely that competitors will emerge to fill the void.

There are four main reasons why companies fall short of their growth potential.

1. Lack of a clear North Star Metric. Without a single success metric for your company to focus on, functional teams will be in conflict about what’s important for driving growth. One group may focus on improving registrations while another focuses on average usage time. Still, others may not even have a success metric. Sustainable growth requires a shared metric that reflects expanding value across a growing user base. Every other important metric is a submetric of this North Star Metric.
2. Not testing enough. Testing is required to figure out how to grow your North Star Metric. The more tests you run, the more you’ll learn about what works and what doesn’t work for expanding your North Star Metric. Someone on the team should be accountable for the number of tests being launched each month. Otherwise it’s too easy to skip testing altogether. One of the biggest benefits of a growth team with a growth master is that they are ultimately responsible for finding ways to increase the testing throughput.
3. Not doing meaningful tests. Often at least one silo within an organization will understand the importance of testing. But an effective testing program should consider all levers of growth across the customer journey. If only the marketing team is running tests, you will fall well short of your growth potential. Growth levers are interdependent. For example, with poor new user activation, marketing will not be able to generate sufficient ROI to fund otherwise promising campaigns. The same goes for ineffective monetization or retention. Expanding your North Star Metric requires focused testing on the highest leverage opportunities. Again, a growth team can be helpful here in looking at the full customer journey and identifying the biggest opportunities for improvement. Setting a specific goal around a high leverage opportunity will be very helpful running high impact tests.
4. Lack of key executive support. I have never seen an effective growth program that doesn’t have strong CEO support. Marketers often understand the importance of testing, but they lack the organizational clout to convince engineering and product teams to run more tests. As a result, they eventually give up on high leverage opportunities and gravitate to their safe zones of media, ad and landing page testing. When LogMeIn’s former CEO, Mike Simon, stepped in to drive cross-functional testing, we experienced a significant growth hockey stick. I believe this was the most important event in the company’s path to today’s $6B valuation. Most CEOs are too hesitant to rock the boat and only give testing lip service. This article gives some tips to CEOs to take a more active role in driving growth. Building a habit of cross-functional testing will require strong executive support.

Commit to Growth Today

Ultimately companies that fall short of their growth potential either don’t understand how growth really works or aren’t willing to do what it takes to actually drive growth. If you’ve read this far, you can no longer claim that you don’t understand how growth works.

The fastest growing companies are able to build a rhythm and habit of testing to improve their North Star Metric. They don’t pull resources off of testing for a big product release because they understand rebuilding this habit is difficult. They also don’t make excuses about lack of resources. Many of the same companies that can’t afford to have a dedicated growth team such as an engineer, analyst, designer and growth master, continue to pour millions of dollars into marketing every month. Shifting only a small portion of those dollars into a cross functional growth testing program will make every marketing dollar more effective. At LogMeIn we were able to improve the effectiveness of our marketing dollars by 10X in only a few months when we shifted to a cross-functional growth effort.

If you’re serious about growth (and you should be), you need to commit to identifying an effective North Star Metric today and kicking off a high tempo testing program to improve your North Star Metric. Figure out how to run more high impact tests this week. The only legitimate excuse for not starting a high velocity testing program today is a lack of product/market fit. And if that’s the case, stop all marketing spending too.*

*An exception about testing and marketing pre product/market fit would be for network effect businesses. Those businesses often require a critical mass of users to validate product/market fit. Getting to that critical mass of users will require marketing and growth testing before validating product/market fit.