What Matters Most For Startup Growth?, Growth at All Costs Vs Bootstrapping - Tactician #0062

"What matters most for startup growth? Man, it's not about how many people know your name. It's about how many people can't live without your product. 'I never knew I needed this until I had it.' You want to be the toilet paper of your industry – essential."

21/02/2024

What Matters Most For Startup Growth?

Sahil S, VC at Stedu Fund, highlights the importance of retention in startup growth, emphasizing that a strong focus on customer retention over mere acquisition is crucial for sustainable business success in “What Matters Most For Startup Growth? From VP of Growth at Facebook”

• On the Importance of Retention:

  • "What do you think matters most for growth? Great products, customers, or word of mouth? It’s actually the culmination of all three: Retention."

  • “Pay Attention to Your Retention Curve. […] If you plot the percentage of monthly active users versus the number of days from acquisition, you should end up with a retention curve that is asymptotic to a line. […] That’s when you have a viable business."

• The Importance of Product-Market Fit Before Scaling:

  • "If it doesn’t flatten out, don’t go and do growth tactics, don’t go and do virality, don’t hire a growth hacker."

  • "Focus on getting product market fit. Because in the end, idea, product, team, execution."

  • "Most startups fail to achieve product-market fit and try various growth tactics and virality."

• Retention Rates Vary by Vertical:

  • "Different verticals need different terminal retention rates for them to have successful businesses. If you’re in e-commerce and you’re retaining on a monthly active basis like 20, or 30% of your users, you’re probably gonna do pretty well. If you’re in social media, and your first batch of people signing up for your product are not like 80% retained, you’re not gonna have a massive social media site. And so, it really depends on the vertical you’re in, and what the retention rates are."

• Strategies for Achieving Virality:

  • "Sean Parker approaches virality in terms of three things: payload (how many people can you hit with any given viral blast), conversion rate, and frequency. These three factors give you a fundamental idea of how viral a product is... Hotmail (now called Outlook) is “the canonical example of brilliant viral marketing,” according to Schultz... So they added a little link at the bottom of every email that said, “Sent from Hotmail. Get your free email here.” Because Hotmail users were usually emailing just one person at a time, the payload was low. However, the frequency was high because users were emailing the same people over and over. [...] And the conversion rate was also really high because people didn’t like being tied to their ISP email."

Growth at All Costs Vs Bootstrapping

Ben Yoskovitz, Founding Partner at Highline Beta, explores the complexities of startup financing, comparing the merits and drawbacks of pursuing aggressive growth through venture capital against the more conservative approach of bootstrapping in “Growth At All Costs vs. Bootstrapping vs. ??”

• Growth at All Costs vs. Prudent Spending:

  • "In 2021, I was involved with several startups that were given clear instructions (by others) to, 'Spend! Spend! Spend!' By early 2022 the message had flipped completely, 'Cut! Cut! Cut!'"

  • "These stories are common. And they happen every boom-bust cycle."

• The Venture Capital Hamster Wheel:

  • "The latest 'trend' is founders claiming they can get to profitability after one round of financing... VCs don’t want to hear you’ll take their money, scrimp and save, and grind to profitability."

  • "Once you get on the hamster wheel of venture capital it is very difficult to jump off. The pressure to grow and spend and raise (at higher valuations!) is significant."

• Bootstrapping as a Viable Alternative:

  • "Bootstrapping is a completely viable way to build certain types of businesses... Mailchimp was bootstrapped. They hit $600M ARR in 2018 and in 2021 were acquired by Intuit for ~$12B in stock & cash."

  • "Zoho is another incredible example... They’ve raised $0."

• Combining Bootstrapping and Venture Capital:

  • "Some very successful startups bootstrapped initially and then raised venture capital... Shopify started in 2006, but didn’t raise capital for 4 years."

  • "Github started in 2008, but didn’t raise capital until 2012 when they received $100M from Andreesen Horowitz and SV Angel."

• The Risks of Raising Capital Too Early:

  • "Raising too early may lead to a bridge round (or two)... The risk of raising very early is that you don’t get far enough to justify the next round at a higher valuation."

  • "If you’re going to take money early, make sure it’s from people you genuinely trust or people who are incredibly passive (or both)."

• Venture Studios:

  • "Venture studios are meant to roll-up their sleeves and help build startups, de-risking further and providing a powerful launchpad."

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