Why growth hacking is failing most of us

In its early years, Twitter was leaving 70,000 signups a day on the table, although it didn’t know it at the time. Three of the company’s employees eventually uncovered the issue, leading to hundreds of millions of dollars of valuation.

This is one of the anecdotes that kicked off the concept of “growth hacking” — the idea that a talented person focused religiously on growth, with the right analytical skills to tightly track that growth, can scale a company very quickly.

Andy Johns, now Head of Growth at hot financial services company Wealthfront, but formerly one of the three-person team at Twitter who uncovered the company’s overlooked opportunity), defined the role for me:

“[Growth Hackers] are the next generation of Chief Marketing Officers — a fundamentally different skill set.” He pointed to Best Buy CMO Greg Revelle as an example, hired after successfully leading digital powerhouses AutoNation and Expedia.

“These new marketers are statisticians and experimenters and technical product people before they are brand people.” Johns himself was inspired early in his career by Alex Schultz, head of growth for Facebook. Schultz is a scientist by trade, with a Master’s degree in experimental physics from Cambridge University.

Applying the scientific, experiment-based approach to marketing, Johns claims, accelerates the trajectory of an already high-growth company.

Since Sean Ellis coined the term “Growth Hacker” five years ago, the tech community has embraced its ethos. Fueled by tales the success of “growth”-driven companies like Dropbox, Zynga, and AirBnB, the startup ecosystem’s expectations of startup marketing changed in a space of 12 months.

Dropbox’s “Lessons Learned” presentation from 2010, viewed over half a million times, describes marketing in a startup before growth hacking. Their first “Web 2.0 Marketing plan” was:
* Big Launch at TechCrunch
* Buy Some Adwords
* Hire a PR firm, um, a VP Marketing…or something.

The presentation goes on to attribute Dropbox’s success to focusing on customer experience and “virality” via referrals communicated on social media. Coupled with Ellis’ post, Growth Hacking had arrived.

Within a year of Sean Ellis’ post, VC firms Andreessen Horowitz and Kleiner Perkins added “growth” marketers in-house to help their portfolio companies become the next Uber.

And 500 Startups has launched a fund specifically to help promising young companies with growth using its in-house growth hacking (or “distro”) team and is likely the first accelerator to open a growth focused outpost, called Distro Dojo, in London, run by growth expert and PayPal mafia member Matt Lerner.

Now every company is expected to have a resident growth hacker. Investors now refuse to fund young companies dependent on advertising spend to meet their projections. This leaves startups caught in a bind, even as the platforms continue to grow.

I’ve talked to many young startups who listen to the top tier VCs on Twitter. And they’re convinced that growth hacking is all it takes to be successful. Meanwhile, they’re lost in a maze of underperforming advertising channels. They can’t get investment to fully optimize paid search, because the expectation is that product and social should be enough.

The truth is that the game has already changed. Growth hacking is now for unicorns, not for the average startup. The growth hacking experts I’ve talked to agree; but investors don’t seem to understand this yet.

“[Investors expect] that you can build a crazy amount of traffic with no budget using just Facebook, Twitter, Pinterest, and LinkedIn,” said Anuj Shah, Cofounder and Chief Operating Officer of San Francisco-based Traba, a job matching website.

That’s just not possible anymore — especially since Facebook’s February 2014 News Feed update knocked out a cornerstone of free marketing.

According to Shah, without any advance warning, Traba’s visibility on Facebook went from thousands of impressions per post to fewer than 50 after the change, decimating Traba’s acquisition strategy. “We had to pay for boosted posts to reach any kind of meaningful audience. And we couldn’t afford that.” Facebook’s effectiveness as an acquisition channel went off a cliff for startups that hadn’t achieved product market fit or the ability to grow without spending money on marketing.

Cynthia Schames, CEO and founder of AbbeyPost, recently sold to Sourceeasy, as another example. “When I founded AbbeyPost, Facebook was a free channel,” Schames said. “When you posted to your feed, people would see it.” But Facebook’s newsfeed changes rendered AbbeyPost’s growth hacks unusable, leaving them suddenly unable to communicate with their 12,000+ carefully amassed customers and prospects without paying Facebook a toll to promote their posts — a cost they hadn’t budgeted for and one that ultimately they could not afford.

And Facebook’s about-face isn’t the only reason growth hacking has failed smaller companies that haven’t yet found product-market fit or grown a huge user base. Experts I’ve spoken with agree that growth hacking:
A) Is most effective as fuel on a fire already burning — the approach starts from what is working and builds on that. Fixes can also solve big problems, as in the case of Twitter — underperforming signup flows are a clear target for a fast growing startup.
B) Is about making seemingly small, carefully tested changes on a huge or rapidly growing base.
C) Requires time and strict disciplined thinking to be effective.

In other words, growth hacking can’t turn a poor product into a unicorn. It can’t find product-market fit. And, even for large companies, making quantum leaps in the business is not guaranteed, although sometimes good people get really lucky.

Investors seem unaware of the dilemma startups face right now. Traba’s CEO, Terrence Cummings, explains: “On a per unit basis, we knew what we needed to do. Early in 2014, our traffic was growing 35 percent month over month and our engagement numbers were strong — 9 percent of the people coming to our site were converting. But we also knew the numbers didn’t make sense to spend on paid ads, since we had no revenue coming in.”

“During fundraising, investors pushed us to spend money [to lower their own risk] even though we knew it wasn’t the right thing at the time and we didn’t have the money. We had cash flow positive acquisition costs, but it wasn’t scaling. We weren’t at product-market fit, but we couldn’t get to product-market fit without raising money.”

Many startups are founded by young developers with no background in marketing; or by industry experts who haven’t tackled digital or ecommerce marketing in their careers. Some see the impressive resumes of VCs as a reason to give up a little extra equity. Once inside the VC firm or accelerator, it’s usually a surprise to learn that there is no “secret” back door to growth. As Slack demonstrated with its laser focus on core features, getting to product-market fit is just hard, disciplined, consistent effort to talk to customers, uncover problems, and fix them. In other words, it’s all still just good marketing.

Until startups learn to focus on product-market fit before growth hacking, Chief Marketing Officer may continue be the worst job in a technology startup. I know, I was one. And I can report that companies typically hire Chief Marketing Officers and growth hackers way too early, thinking “We have a great product, now someone needs to sell it.” When the new marketing hire cannot overcome poor product fit, the company is in jeopardy, and the marketer is usually the scapegoat. Tech companies rarely fail due to poor marketing. They fail because no one wanted the product, or because of poor executive leadership.

You may think you can delegate “marketing” once your product is built. Nothing could be further from the truth. With rare exceptions, hiring a full-time marketer is something a startup does after it had found some success. In the meantime, you can work with specialists, contractors, and advisors to help you save time and money while you find product-market fit.

So, what can startups do to find product-market fit if it’s not growth hacking?

I’ll get to that in part two of this series, where we’ll look at some good frameworks and ideas for tackling early-stage growth from Andy Johns, Mat Johnson, and more experts. Stay tuned.

Update: See part 2 here.

Melinda Byerley is founder of TimeShareCMO, a data-driven digital marketing consultancy. She previously founded Vendorsi.com, and prior to that was CMO at Poll Everywhere and held various marketing roles at PlantSense, Linden Lab, eBay, PayPal, and Checkpoint Software.