When Do You Actually Need a Growth Team?

Credit and Thanks: 
Based on insights from 20VC by Harry Stebbings.

Brief Summary

Phil Carter discusses the intricacies of growth strategies for consumer subscription businesses. They delve into the challenges of scaling these businesses, emphasizing the importance of understanding user behavior and the dynamics of various acquisition channels. Carter shares insights from his extensive experience in product and growth leadership, particularly focusing on the balance between organic and paid growth strategies.

Deep Dive

In the dynamic landscape of consumer subscription businesses, the definition of growth has evolved significantly-especially as they experience significant challenges with high churn rates, as more than 50% of subscribers tend to discontinue their subscriptions within the first year. Growth is no longer merely about increasing user numbers; it encompasses a holistic understanding of how to accelerate the delivery of a product to users while ensuring they grasp its value. Phil Carter emphasizes that the product itself has become the most valuable asset driving growth, particularly for consumer-focused companies that often lack traditional sales teams. This shift necessitates a growth team that is not just a separate entity but integrated into product and marketing strategies, ensuring that every aspect of the user experience contributes to growth.

Determining the right time to hire a growth team is crucial. Many startups make the mistake of bringing in growth leaders too early, often before achieving product-market fit. Carter argues that the ideal moment to hire a growth leader is when a company has demonstrated strong product-market fit, allowing for a clearer understanding of the target audience and the necessary skills for the growth team. This timing ensures that the growth strategy is informed by actual user data and insights rather than assumptions.

Common pitfalls arise when startups hire their first growth roles. A frequent mistake is focusing too heavily on specialized skill sets rather than seeking generalists who possess intellectual curiosity and a willingness to experiment. Carter reflects on his own early experiences, where he prioritized hiring individuals with specific backgrounds, only to realize that adaptability and a broad skill set are far more valuable in the fast-paced world of growth. To identify the right candidates, he suggests asking insightful questions that reveal a candidate's passion for growth and their ability to think critically about challenges.

Carter shares a compelling example from his time at Quizlet, where a failed A/B test unexpectedly led to significant insights. Initially, the team believed that increasing content creation in the UK would drive growth. However, after analyzing the data, they discovered that the real issue lay in technical SEO metrics, not content creation. This realization shifted their focus to optimizing their SEO strategy, ultimately leading to greater growth in that market. Such experiences highlight the importance of learning from failures and adapting strategies accordingly.

Setting guiding user metrics for growth can be fraught with challenges. One of the biggest mistakes is focusing too much on output metrics, such as annual recurring revenue (ARR), without understanding the input metrics that drive those outputs. Carter emphasizes the need for growth leaders to connect the dots between individual initiatives and the metrics they influence, ensuring that the team is focused on the most impactful areas for growth.

Scaling AI consumer subscription products presents unique challenges, particularly in a saturated market. As competition increases, customer acquisition costs (CAC) tend to rise, making it harder for companies to maintain healthy unit economics. Carter notes that many consumer subscription apps have become overly reliant on paid acquisition channels, leading to increased costs and subscription fatigue among users. This saturation necessitates a strategic approach to exploring secondary channels for growth, rather than solely relying on one dominant channel.

Defining a core value promise is essential for consumer subscription businesses. Carter explains that a strong core value promise should be unique and enduring, providing users with something they cannot easily find elsewhere. This promise is crucial for maintaining subscriber retention and justifying pricing strategies. In contrast, businesses that fail to differentiate themselves often struggle to retain users, as their offerings become indistinguishable from competitors.

The role of notifications as a retention mechanism is another critical aspect of growth strategy. While notifications can drive short-term engagement, Carter warns against overusing them, likening it to a sugar high that ultimately leads to user fatigue. He advocates for a balanced approach, where notifications enhance the user experience without overwhelming users, ensuring that each notification serves a purpose and adds value.

The dilemma of paywalls—whether to adopt a hard or freemium model—poses significant challenges for subscription businesses. Carter discusses how the choice between these models depends on various factors, including the product's uniqueness and the target audience's willingness to pay. For instance, Quizlet employs a more friendly paywall to encourage organic growth through free users, while other companies may benefit from a more aggressive paywall strategy if their product is highly differentiated.

Finally, evaluating the effectiveness of discounting strategies is vital for driving conversions. Carter highlights the importance of strategic discounting, where discounts are targeted and not used as a blunt instrument. He suggests that activity-based discounts, such as offering a discount shortly after a user installs an app, can effectively convert users who might otherwise hesitate to subscribe. This nuanced approach to discounting can lead to improved subscriber conversion rates without eroding brand value.

Key Takeaways

• Consumer subscription apps face high churn rates, with over 50% of subscribers dropping off within the first year.

• Understanding product-market fit is crucial before hiring growth teams.

• Tailoring growth strategies to specific market dynamics is essential for success.

• Longer onboarding processes can enhance user engagement in certain sectors.

Actionable Insights

• Conduct regular assessments of your pricing strategy to ensure it aligns with market expectations and user willingness to pay.

• Implement a robust onboarding process that personalizes user experiences, potentially increasing retention rates.

• Focus on organic growth channels initially, testing paid acquisition strategies only after establishing a solid user base.

• Monitor user behavior closely to identify bottlenecks in the conversion funnel and adjust strategies accordingly.

Why it’s Important

Understanding the nuances of user behavior and the importance of tailored growth strategies can significantly impact a company's ability to scale sustainably. As the market becomes increasingly saturated, these insights provide a roadmap for maintaining a competitive edge.

What it Means for Thought Leaders

For thought leaders in the tech and startup ecosystem, the discussion underscores the necessity of adapting traditional growth models to the realities of consumer behavior. It highlights the importance of fostering a culture of experimentation and learning within organizations, encouraging leaders to rethink their approaches to growth and user engagement.

Mind Map

Key Quote

"Often times the biggest wins come right on the heels of a failed AB test where you learn something new about the customer."

Future Trends & Predictions

As consumer subscription models continue to evolve, there is likely to be a shift towards more personalized user experiences driven by data analytics and AI. Companies that can effectively leverage these technologies to enhance user engagement and retention will likely outperform their competitors. Additionally, as the market matures, we may see a consolidation of subscription services, with successful companies acquiring smaller players to expand their offerings and user bases.

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Jiten-One Cerebral

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