To Succeed, Growth Hacking Has To Focus More On Product Development Than Marketing

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Editor’s note: Justin Caldbeck is a partner at Lightspeed Venture Partners and invests primarily in the Internet and mobile sectors with a focus on social media, e-commerce and enterprise software. Follow him on Twitter @caldbeckj.

I can’t think of a buzzier phrase in the tech industry these days than “growth hacking,” and in some ways I also can’t think of a more dangerous trend to glom onto. Sure, growth is good. But only if it’s real growth.

If it’s a marketing campaign that goes viral and wins you a bunch of one-time “users,” it can actually do more harm than good. If it’s a product that is growing through spammy unsolicited social “sharing,” the growth numbers will massively misrepresent the health of the business. The really great growth hackers out there — people like Andy Johns, who helped Facebook, Twitter, LinkedIn and Quora all reach record user numbers — understand that it’s not just about getting as many users as possible, but about helping to get the product experience right and ultimately amassing as large a user base as possible. Those are two very different things.

Take what happened with Formspring as an example. In 2010, the Q&A site experienced the fastest growth of any site ever (as its top brass were quick to point out on Twitter when TechCrunch awarded that honor to Pinterest last year). But within a year that growth had trailed off and eventually the site traffic/usage began to decline. Why? Because of its integration with social media sites, Formspring was able to generate rapid growth, but once visitors had taken a look at the site once or twice, they realized that there was very little value in the underlying product and, as a result, the vast majority of “users” that touched the site didn’t ever come back or engage in a meaningful way.

I am starting to fear that Zynga is destined to be another such example: They did well early on by leveraging very aggressive viral marketing techniques and combining them with what was, at the time, cutting edge in-game monetization. However, it appears to me that the company has lacked something that I always look for as an investor: Product Soul. By that I mean a founder’s vision for the products he or she wants the company to create, a strong belief in the product’s ability to change the lives of its users for the better, and an unrelenting focus on making those products great and easy to use.

rocket2For Zynga, this has never been the case. The focus on growth and lack of true product innovation (the company has largely been one that has created knock-offs of other games) has resulted in a company that appears to lack real direction and whose relevance has largely faded over the past year.

Social video app Viddy is an even better examples. It was jockeying with Socialcam and others to be “the Instagram of video” in early 2012 and its growth appeared to be exceptional. From May 2011 to March 2012, the company registered 10 million users, and by May 2012 it had 30 million. By December 2012, it had 40 million registered, but only 675,000 monthly users.

In a six-month span the company’s growth plummeted 95 percent, not just because Facebook cracked down on spammy apps that required users to install them in order to view content, but because the underlying product didn’t resonate with consumers from an ongoing usage standpoint. As a result, tens of millions of users had “tried” Viddy and were left with an underwhelming experience. As any good entrepreneur will tell you, it’s much harder to acquire a user a second time after a bad product experience than it is to acquire them the first time.

There’s no inherent problem with growth hacking, of course. Growth is great and ultimately can be a big driver of enterprise value. The problem is that right now, far too many entrepreneurs are focused more on that than they are on what I believe to be the most important thing of all and, ultimately a more successful driver of sustained growth: When a user touches a product, do they love it? Do they come back and use it again? And, overall, do they have a good experience with it?

I recently had an entrepreneur that I really respect talk to me about the fact that he was considering hiring a growth hacker. They have a strong team, a great company mission and are the early leaders in a large addressable market with a product that is attempting to solve a major pain point for a set of users. But they have a growth problem. Why? First, their early growth has been driven by marketing spend as opposed to organic growth. And second, the vast majority of users who have tried the product aren’t engaging with it on an ongoing basis (even though the product is designed for repeat usage).

Those are two key issues for me, and ones I don’t think a growth hacker can fix. When evaluating the “quality of growth” early on in a company, I look for companies that are growing largely through organic channels (in other words, 85 to 90 percent or more of growth is being driven by free channels). That sort of growth tends to mean that users are choosing to tell others about how great a product is. I also look at a company’s engagement metrics over time to see if users are trying a product or service out once and leaving, or if they’re choosing to engage with the product over and over again.

Given what I heard from this entrepreneur, I strongly suggested that he improve both word-of-mouth endorsements and user engagement before trying to accelerate growth. Once the product is growing organically, and users are voluntarily engaging with it on an ongoing basis, then, sure, by all means hire a growth hacker to help ramp things up.

rocket3The problem right now is that many companies seem to be operating under the total misconception that growth fixes all. That leads them to bring on self-proclaimed “growth hackers” who rapidly acquire more customers through spammy viral techniques, but when those customers don’t engage, or — worse — have bad experiences and tell their friends about it, that growth curve crashes. By that point your growth hacker is on to his or her next gig, and you’re left with what you had to begin with: a product that either hasn’t found its audience yet or hasn’t yet given people a reason to engage with it.

So if you’re thinking about hiring a growth hacker, find someone who’s a great product person and who really knows user experience and understands user value, not just someone who knows all the tricks to ratcheting up your growth curve.

Illustration: Bryce Durbin