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Perspectives June 23, 2015

Building a Growth Model for Your Company

Insights From Andy Johns

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Building a Growth Model for Your Company

Last week, Greylock Partners hosted our fifth Growth Community event with speaker Andy Johns. Andy was on the early growth team at Facebook, Quora, Twitter and is now on the growth team at Wealthfront.

“Growth” — as a skillset and as a dedicated company function — is an emerging practice. As many companies experiment with different structures and tactics. We focused our attention to: building sustainable growth models and Andy’s experiences with the differences between experimentation in small and large organizations. In this post I recap some of his core ideas on growth models and share our discussion with the broader community.

Your company’s growth model is the cornerstone of building a growth organization within your company. The principles of this model are:

  • It should be simple and easy to explain your growth model to your company employees, your board of directors, and to people outside of your company.
  • “Growth” is more than the acquisition channels, growth hacks, and growth tactics you use.
  • Growth in the broadest sense is about understanding your company’s specific levers of growth and building an organization around this model.

Here are the foundational growth model. This was a model learned from Chamath Palihapitiya, the former VP of Growth for Facebook:

A) Top of the funnel — What are the various mechanisms where you can drive traffic and conversions to your product (SEO, Paid Acquisition, SEM, Social, etc)

B) Magic Moment — What is that one compelling experience that creates an initial emotional response that your customers or users first experience when using your product

For example for at Facebook the growth team found that if you have 7 friends within 10 days, you were most likely to become a daily active user. Every company’s magic moment is different and here are a few tips to understand your products magic moment.

C) Core Product Value — Is the problem your product is solving painful, important for your customers, and is there a sizable market behind this problem?

For example for Wealthfront (Andy’s current company) the core product value is that it gives everyone access to low-cost, tax-efficient, diversified investment portfolios — the sort of long-term investment portfolio that only the ultra-wealthy used to have access to. Wealthfront offers a product that enables sophisticated investment management — delivered automatically, through technology. While still early, it’s proving to be an important and valuable service for many of their customers.

Worth noting — some firms create new, meaningful experiences, rather than solving an existing, painful problem. One could count Facebook, Twitter, Snapchat, Instagram, and others in this group.

Most growth professionals come into a new company and start working on A) the top of the funnel right away. The problem with this is if you don’t really understand B) and C) then you are fundamentally adding people into a leaky bucket. You can’t growth hack your way out of a crappy product. In simple terms, you can’t sustainably grow something that sucks.

Instead the goal should be to understand your growth model and the levers of your growth before jumping into tactics.

Now let’s apply this simple growth model to a real world company — Amazon. Amazon is a bit more complicated than 3 factors but we can break down their growth into an easy to understand model.

The growth model for Amazon

A) Vertical Expansion — More types of products Amazon has, the more potential growth for Amazon. Amazon started off with Books and have since moved into electronics, clothing, music, home and garden, etc.

B) Product inventory per vertical — The more inventory of items they have per vertical, the more potential growth for Amazon. For example if they have 1,000 books within the book vertical, their growth potential would increase if they increased that to 1,000,000 books within the book vertical.

C) Traffic per product page — This is how much traffic Amazon gets on average on each of the individual product pages within their store. Growing the individual book pages views from 1 to 2 views per page per day would doubled their potential for growth in that category.

D) Conversion to purchase — This is the conversion rate of a user viewing a product page and going on to purchase that item. Two examples of innovations that make it easier to purchase items are Amazon Prime and Amazon One Click.

E) Average purchase value — What is the average value in $ of a consumer’s cart at checkout. Amazon could (and does) seek to increase this value by making it easier to buy bundles of items and similar items.

F) Repeat purchase behavior — How often does a customer come back and purchase again? Amazon makes it easier to increase purchase frequency with their Wish Lists and Amazon Subscribe and Save.

If you can understand the levers of growth within your company, and are able to explain this model in its simplest form, then you begin to organize your company around each lever.

By example, consider how Amazon would initiate their growth efforts:

  • Have a team (either in growth or within the company) research promising new verticals to add into Amazon.
  • Have a team which works to acquire more inventory per vertical (merchandising)
  • Have a team optimize the traffic going to each product page (SEO, SEM, paid acquisition, search, tagging and discovery, etc)

To conclude — instead of jumping straight into growth tactics, it’s good to take a step back and understand your company’s full growth model. It may show you things you might not have otherwise considered — or at least help bring the whole company behind Growth efforts.

If anyone decides to publish their growth model, we would love to take a look. Please tweet to me @mccannatron or leave a response below.

PS — A big thank you to Andy Johns, Noah Jessop, Jonathan Cheng, Ron Schneidermann, Adelyn Zhou (alumna), and all of the members of theGreylock Growth Community for sharing their insights and helping to contribute to our growth community.