To foster a scientific approach to growth, we’ve recently seen many companies break away from a strictly functional organizational design (with product, engineering, marketing, etc.) to create a cross-functional growth team. Facebook is, by all accounts, the pioneer of the growth team. Its first growth team was formed a decade ago with 3 people whose impact was immediately evident. Facebook launched the growth team when it had ~50 million monthly active users (with roughly flat month-on-month growth). The growth team and its surrounding program became a key driver of Facebook’s rapid expansion to 2 billion monthly active users today, as well as the evolution of the core Facebook product. Following Facebook’s lead, most successful consumer startups have created growth teams. Interestingly, these teams have converged around many of the same best practices.
When to Invest in Growth
A great way to waste money, resources, and jeopardize the future of your company is to invest in a growth program before you’ve proven you can retain customers. In other words, it’s best not to hire a full-fledged growth team (defined in “Building Your Growth Team” section) to put major ad dollars into growth until you’ve ensured you don’t have a “leaky bucket” problem. If you you determine with the process outlined in this section that you haven’t yet nailed retention, you can apply a growth approach to retention. For example, Stitch Fix hired a retention focused PM to run experiments to improve retention before they invested in new customer acquisition
GOOD RETENTION VS. BAD RETENTION
The biggest question to ask at this point is: Is your retention good?
To determine if your retention is good, run through these 3 steps:
1. Stable long-term retention: Long-term retention should be stable and parallel to the x-axis (the y-axis represents the retention metric). It is common to see a dip after the first period (e.g., month 2 for high-velocity1 products or year 2 for low-velocity2 products), but the most important thing is to make sure that the long-term retention is stable and parallel to the x-axis (see this in the Cohort Analysis graph below).
2. Long-term retention in line with “average or median” benchmarks in your specific vertical: It is important to benchmark your retention against companies in your specific vertical. For example, stable long-term retention of 10% is poor if you are a social network.
3. Newer cohorts should perform better: “Cohort” refers to the group of new customers that started using your service that particular month. Determine whether newer cohorts are performing progressively better than older cohorts. If the retention of newer cohorts are better than older cohorts, it implies that you are improving your product and value proposition.
Building Your Growth Team
In the early days at a company, pretty much everyone is responsible for growth as they are solidifying product market fit, and some companies treat this as a shared responsibility even past product market fit. The reason a company forms a dedicated growth team is to pour gasoline into product market fit by launching structured experiments to drive a desired behavior/action.If you have proven sustainable retention, you can focus on building a dedicated team to improve retention even further while acquiring and activating and retaining incremental new users.
Here’s the most common makeup of an initial, Year 1 Growth Team:
Year 1 Growth Team = 1 Growth-focused PM + 2-3 Growth Engineers + 1-2 Growth Data Scientists
WHEN TO HIRE YOUR INITIAL GROWTH TEAM:
- Most companies made their first hire when they had about 15 engineers on the team working on product.
- If you have strong retention, then the Growth PM (your first growth hire) is likely to be the 3rd or 4th PM on the team. The most common mistake CEOs make is waiting too long before they hire a growth-focused PM.
The trend is moving toward investing in building a growth team earlier on, with many starting to invest as soon as they have strong product market fit and retention. Additionally, there is considerable evidence supporting the argument that a formal growth team created at the right time accelerates the growth trajectory of a product.
A good growth team can also play the role of “defense” really well. Launch of new features and enhancements can often go sideways and impact usage. The growth team has the ability to understand the root cause within minutes (not days) and course correct the problem and thereby limit the negative impact. Facebook’s growth team is considered one of the best at defense and this has consistently helped them differentiate from competition since the early days.
Your first hires are critical as the initial team members will establish your company’s experiment framework and growth culture. 100% of growth experts refer to the first few hires as “magnets” for hiring and scaling the team. It’s no accident that many accomplished data scientists work at Stitch Fix as they are motivated to work and learn from the leadership of Eric Colson (former VP of data science and engineering from Netflix and one of the early hires Stitch Fix made).
While success cannot be attributed to the growth team alone, having a growth team in place early on helps accelerate the overall growth trajectory of the company.
