20Growth: Why Product-Market Fit is Not Enough, Revenue Does Not Create Usage, Metrics Must Be Before Strategy, Why it is Always Better to Concentrate than Diversify Marketing Channels and Secrets from Hubspot's Growth Engine with Brian Balfour @ Reforge
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The PitchTue Aug 15 2023
Entry into Growth and Lessons from Hubspot:
- Brian Balfour entered the world of growth during the early Facebook platform social gaming days.
- The Facebook platform opened up viral and paid acquisition channels for games, leading to a highly quantitative game focused on product-driven levers like virality.
- Understanding how products grow is different from how businesses grow, combining quantitative elements with psychological elements.
The Foundations:
- Growth can be boiled down to four things: finding an arbitrage opportunity, sparking a compounding system or growth loop, optimizing that system, and repeating the process.
- The right time to bring in the first growth person depends on the company's stage and needs. They can be either senior or junior.
- The growth team can either be standalone or sit within an existing function depending on what works best for the company.
The Importance of Product Channel Fit:
- Product channel fit refers to molding the product to fit distribution channels rather than trying to mold channels to fit the product.
- Founders should approach product channel fit by understanding their target market and how their product fits into that market.
- Mistakes founders make include not understanding what their realistic opportunities are and not adapting their product to fit distribution channels effectively.
Next Comes Channel Model Fit:
- Channel model fit refers to matching pricing and monetization models with specific distribution channels.
- Founders should approach channel model fit by understanding which channels work best for their pricing structure and friction level.
- Clear indicators of having or not having channel model fit include conversion rates and overall performance metrics.
Finally, Model Market Fit:
- Model market fit refers to finding a strong fit between a business model and a large enough market.
- Founders should approach model market fit by understanding both the strength of their product-market fit and the size of their target market.
- Clear indicators of having or not having model market fit include revenue metrics, customer feedback, and overall growth potential.
Why Product-Market Fit is Not Enough:
- Product-market fit is not enough to build a venture-scale business.
- It's important to consider both the strength of the fit and the size of the market when evaluating product-market fit.
- Companies with strong product-market fit but small markets or weak product-market fit but large markets are not venture viable.
Revenue Does Not Create Usage:
- Usage metrics should be prioritized over revenue metrics in order to understand how products grow.
- Revenue is a result of usage, not the other way around.
- Understanding usage patterns and behaviors is crucial for driving growth.
Mixing Customers and Users:
- Mixing customers and users can lead to confusion and misunderstandings within a company.
- Different types of users may have different needs and expectations from a product.
- It's important to differentiate between customer-level metrics and user-level metrics when measuring growth.
The Biggest Growth Decision Gone Wrong:
- Brian Balfour's biggest mistake at HubSpot was being too focused on virality and not considering the disconnect with the core target market.
- This led to resistance and delayed integration with the core business strategy.
Misconceptions About Growth:
- The biggest misconception about growth is thinking that it means one thing. There are different types of growth systems that work for different businesses.
- Metrics should support strategy, not determine it. Qualitative understanding should precede quantitative analysis in defining metrics.
AI's Impact on Growth Teams:
- AI will change surface-level tactics and systems in growth teams, automating certain analyses and processes.
- However, qualitative understanding, psychological levers, and strategic decision-making will still require human expertise.
Strongest Incumbents in Growth Tooling:
- Twitter has strong potential due to its existing talent pool, capital advantage, and access to billions of users across platforms like Periscope.
Vulnerability Among Incumbents in Growth Tooling: -Twitter could be vulnerable due to challenges in retaining users and potential changes in user behavior.
Predictions for Threads' DAUs and Twitter's DAUs:
- Brian Balfour predicts that Threads will have around 5 million DAUs, while Twitter will remain flat at around 250 million DAUs.
Advice for Head of Growth at Twitter:
- Focus on finding preeminent fit with a larger market without breaking the original preeminent fit.
- Consider the impact of recent changes driven by Elon Musk's investment and the need to make money back.
Impressive Growth Strategies in the Last 12 Months:
- Canva has done an excellent job with growth strategies.
- FAIR, the marketplace, has also achieved significant growth in the US.
- DoorDash had to work hard for its growth, competing against companies like Uber Eats.
- Shopify currently has the highest talent density team across tech, led by Luke Levesque.
Closing Remarks:
- Brian Balfour enjoyed discussing growth strategies and appreciated being invited to the show.
- He mentioned that he is a fan of Brian's writing and encouraged listeners to check out the video version of the interview on YouTube.