Advice on Organizing and Running Growth Teams from Dan Hockenmaier and Gustaf Alströmer

Today we have Dan Hakan Meyer and Gustav all strimer. So Dan was the founder, advise investor and advisor at Basis One, which is growth strategy consulting, and previous to that, he was a director of growth marketing at Thumbtack. Gustav's a partner at YC and also was a product lead for growth at Airbnb.

So Gustav, why don't you start it off?

Sure! So I was thinking about getting right into it. Dan, you advise a lot of startups on growth and you kind of get into their teams and work directly with them on growth. What is the most unpopular advice that you give the founders of the companies that you work with?

So I say, nine times out of ten, we are talking them out of doing things that they want to do. I think, you know as you know, there's this huge power law to growth. I think most the gains come from, you know, one channel, a handful of tactics, and most early teams are really good at coming up with good ideas that they want to try. Often, that has diminishing returns, and so we're often talking them out of things. I think the second class of things would be actually that the company may not be ready for a traditional growth effort.

And so I think it's really important to think about where they are in terms of product-market fit and when the kind of the right types of tactics should be used.

This is, yeah, in terms of being specific around that, like, what are the most common things that people are trying to jump onto soon?

So I think really heavyweight acquisition, particularly if it's unsustainable, prior to having the right kind of retention. And so like you don't have to have best-in-class retention numbers, but you need to be seeing some cohorts of people for which retention truly levels out, and they use the product for a very long term. If you don't see that, you're not ready. Particularly if you're doing things like paid marketing or others, which can have big burn implications, you can get to that too fast and that could be really problematic.

So let's say I run a Series B company, it's a consumer company, and I just hired you to help me figure things out. What are the questions you are going to ask me, and what data do you want from me?

So I think it's a really healthy exercise to actually start with a pretty traditional spreadsheet model. You know, what are the kind of channels of acquisition? How does traffic convert, activate, retain? What do your different cohorts of retention look like? How does all this link up? Now, how do your existing users then start referring other users? How does monetization fuel your paid growth strategy? When you build something like this, you can play around and say, "What happens if our activation rate goes up by 5%?" Usually, that's really powerful. Much more powerful than a 20% increase in next acquisition.

So I think about the kind of full stack of things and how it all links together, and it's a really good starting point for where there's leverage.

So if I am that founder and I couldn't hire you, I can afford you, like who is the person in my team that should kind of make that spreadsheet? Like, where do I start if I don't hire you?

So I'm a big fan of smart analytical generalists, actually. And it depends a little bit on, you know, whether you need more of a marketing business-type person or more of a technical person. But somebody who, one, has kind of low pride of ownership and just wants to move fast and test things and figure out what works and is deeply analytical can often get a lot of that work done. I mean, I think, you know, we can talk about the composition of a large-scale growth team, but that's a luxury that many don't have. So finding somebody who can do lots of those things before you know what's really gonna work is really valuable.

What signals during an interview would you look for?

So I think the big thing is, can they hold the equation of your business in their head? So like, do they know how a change is going to impact the overall output of what your business is optimizing for, whether that's weekly active users or transactions in a marketplace? Do they have an intuitive sense for where the kind of important things to work on are? And then the other type of stuff, like learning channels, you know, most people can get up to speed on that pretty quickly. It's much harder to teach that kind of like strategic understanding of where to focus.

Did you find that true at Everybody as well?

Yeah, I would say so. That’s probably true.

Okay, I'll be curious if you have any kind of counterpoints or areas where you needed more specialty earlier on.

So I would say that the story of Everybody was basically we had probably one of the best product market fits that I've seen, but not necessarily thanks to you, like an amazing user flow and amazing onboarding or even amazing acquisition channels. It's just like a really good experience.

So if you think about the early days of Everybody, half the price, the most unique experiences that you can imagine were actually very compelling. And you can think about the neighborhood. It's like, if you want to live in New York, your options were to live in a hotel in Midtown versus living somewhere in a real neighborhood. No, there are real people, and you can go down to the corner and grab a coffee just like normal citizens. That is a great kind of like product experience, and it sort of sells itself.

And I give you an early example. Like before we had what we call instant book, the way that you would book in Airbnb is that you would send a request to someone and that person had to then request a book. And that person had to confirm that booking before you actually got the booking.

In many cases, actually, the majority of cases in the early days, the request was not confirmed. So you want to book something, and sorry it didn't work out. And that was her. Like if you think of the idea of Airbnb, which is book any house or room in the world, as he says, booking a hotel wasn't really true. So think of that kind of product experience. There's a lot of friction in the early days that sort of mattered, but it also didn't really matter for the success of the company.

And when I joined MB, we were like, "Wow, this is really working, but what are all the things that we can optimize to be optimized?" Sort of like that onboarding flow. We optimized all the different acquisition channels: SEO, paid marketing, referrals. We've tried looking at retention, all of those different things. But fundamentally what worked for me was this is a great product experience and we just want to make it more available to the world, right?

So this is a key question and then perhaps a dichotomy between growth and product, right? Like the classic YC advice is build something people want. It's like, where do you guys fall in this debate? Like how much of it is just building a great product, and how much of it is like being great at growth?

So I think like that may be the better way to frame this is not which is more important because we can debate that, but like I think rather obviously both play a role long-term. It's more how the two are tied to one another.

And so I think, like you think, in particular, on the consumer side, but it's true for B2B as well, to get to 100 million in revenue, typically 70-80% of all new customer acquisition is coming from one channel. And so like the best products are the ones that are built to optimize for that channel.

So if it's paid marketing, you need to monetize quickly and deeply. If it's SEO, you have to have a really good way to generate and curate content, or else you just can't compete because the other products are doing that.

And so if you know, I get a lot of questions around like, "How do we kind of like add some SEO on top of this product reality?" And it's just, that's just never the answer because you need to be asking that question two years ago, you know, a year ago so you can build for it. And so I think that piece is really important.

I do think there are examples where a product is so unique that it allows them to compete on kind of like a different vector. You know, and so like, like zoom's S1 that everybody's looking at. I mean, like the metrics are incredible, and one of the reasons is they like came in the back door, basically. They have like a product that people love and becomes viral, and they're already pre-qualified before sales gets to them, and everybody, all their competitors are knocking on the front door and it's like much less efficient way.

And so that was a case where the product let them do something different on the distribution side that nobody else could do, like Square being able to go out for SMBs with automated underwriting products is a similar example. And so like, yes, product like blew those markets wide open, but it's still not the same as like saying you don't have to go build the distribution. Like I'm still, you still need to do the work on the growth side, I would say.

Yeah, we have this a YouTube video when I talk about growth from startups. Cool. And there's the first couple slides to talk about. So like the evolution of Facebook and their growth. I would actually argue basically that a bad product will not grow. A good product will go to some troll like general natural adoption curve. And that curve could be fast in the beginning, but eventually is slowed down a lot.

And the role of the growth team for a good product is to make sure that doesn't slow down, kind of built on top of multiple layers of new channels or new onboarding or like a better conversion. And they were all the growth team, it's just like identify all those things and all those opportunities and just do it.

So I agree with Dan, like a great product is going to have it as sense of natural adoption. It's just going to go not towards its full potential. So there’s really a lot of things that great pride can do. And I use a lot of great products on my phone, my computer, and I know that they're not sort of where their potential in terms of adoption because many basic things are not optimized.

I'll give you a very concrete example. So at MB, we have this team called authentication. They were working on sign-up and log-in. Very basic things. A lot of startup founders think that those are just two things to check out of the box. I build sign up and I build the log-in, and then I am done. It is actually incredibly difficult to make a hundred percent perfect sign-up logging experience, which meant that it mixed for several years.

And because the people who are signing up and logging into Airbnb had a very clear goal, like booking or leaving a review or adding something along those lines, and were actually very, very valuable for us to fail on that. It was complete, like, so like that was like not acceptable.

Yeah, so we just kept optimizing and optimizing and optimizing. And I'll give you a specific example. In the early days of MB, we used to automatically log you out after like I think two days.

And we were like, why do we do that? Well security reasons, that makes sense. So then we would run an experiment, we set the kind of expiration date of that cookie to seven days and then 30 days and then unlimited. And I think we lifted that experience, the log-in experience, over 1% increase in revenue for the whole company just by extending the session length and make me a little bit easier to log in.

And the security aspects that we actually solved in a different way; we made it kind of like Amazon where if you want to do something sensitive on the site, you'd have to go and log in again or author, if you were gonna book, then you have to put in your past. Yeah, but that's just like the amount of code required now to make a change was like minutes or hours, but the impact on the company was crazy.

Yeah, but I think what that tells the story is that there are these things that really makes it easier for users to connect access that really good product. But as a founder, you don't really think about it unless you actually make the spreadsheet, actually know what's happening in the product and go deep on it.

Yeah, absolutely. Do ya do you think Facebook recognized that they weren’t hitting their full potential when they started their growth team?

It's a good question. I wasn't there. I think probably they did understand that they had this amazing thing, you know, and you start to realize that if you accelerate growth in very small percentages, you get something really, really good.

I actually think like the legacy of that growth team and then like Twitter and LinkedIn and the others that followed is that she may be problematic when we think about some of the applications of growth later on because they were applied in this case of like extreme product market fit, and the things you do in that scenario are slightly different than when you're in an earlier state and trying to figure out how it works.

And so I think like out of that we got a little bit of this kind of growth hacking mentality just like throw things at the wall and see what fits and don't think about product market fit because it's assumed that that is solved for, which in many businesses it's not.

And so I think like we have been recovering from that legacy in growth for a while, and that just like in practical terms means like just don't throw gasoline on every fire.

What do you mean by that specifically?

Yeah, I think it means think about the metrics you're optimizing for, making sure they're long-term, making sure they're sustainable. I also think like one of the mistakes that companies make a lot is this idea that speed of testing or velocity of testing is the most important thing.

It is important to move fast because it is quite hard to have good hypotheses about what's going to work. Like I am constantly pro-honk trying to predict the results of experiments, and so you do need to just test a lot of things.

However, if you just get if you optimize for speed at all costs, you know, you should be instead thinking about things like how do we test really disparate things to make sure that we are really testing at the ends of the experience to understand, you know, what's going to drive.

So instead of like moving minor things around the conversion flow, test an entirely different flow or a very different experience. Not only will you learn more, you know based on kind of where the results nets out, but you actually will get results back faster because sample size is a product of your effect size.

And so like driving a higher effect, it's more important. And I think the other thing is if you look at a backlog of 80 or 100 experiments, often there's only four or six hypotheses underneath that, and you should really be like thinking about which hypotheses you're testing, rather than trying to run through all 80 tests.

And so like an example of Thumbtack when optimizing conversion, we may think they need more education as they're moving in. We may think there's a trust issue. We may think we actually don't even have the right types of users in the flow overall.

There’s different sets of experiments we'll test those things, do they like the one or two right things against each hypothesis, validate or invalidate. And so I think like just a more thoughtful, slightly slower actually approach can sometimes work really well.

I would love to dive into that. So let’s talk about A/B testing and experimentation. So this is something that I tend to say that if you ask any product manager at Airbnb, what’s the most useful tool that they ever used there, and they would say it’s the experiment framework, the ability to run A/B tests and easily measure the impacts of new changes.

When you meet with startups, how far along are they, in sort of like in terms of the ability to run experiments and what are the types of advice you give them?

I'll give you a common question again. In the early days, they were like, what tools should I use? But I'm not sure if that really applies at your stage, but I'd love to hear what you think.

Yeah, so we're typically working with companies that are a little bit later, so kind of Series B and often, so they have some of this earlier stage. I think there's like a first-order question ahead of experimentation, which is like is the site instrumented in the right way? Are you updating that instrumentation as you change features?

Is all of this kind of queryable, sequel, and serviceable to the company? All that stuff has to happen first. So, you can like really have kind of the integrity of data. But then building a thoughtful framework on top of that, an experiment framework, I think increasingly the third-party tools to do this, the full-stack tools, are pretty good actually.

And so even for quite talented teams, the answer is usually not to build it yourself right away. You know, I'd love to hear if you have a rule of thumb on this. I think generally if you can be comfortable with the fact that an entire engineer is going to be maintaining that infrastructure in perpetuity, then maybe that's okay. If that feels like too much, then you probably should be thinking more about a third-party type infrastructure.

Prior to that?

Yeah, I used to recommend building your own tool because that was sort of like my primary experience there. Maybe I think we started with an external tool, but then we built our own thing and I described off and how incredibly simple the first tool was. It was basically a feature flagging tool that would like, you can show things to some users and other things were not visible to some users, and then you would basically just sort of like run that 50/50 feature flagging tool, and then you'd run queries on your database, and that’s what we got started with.

Like the first year or two, I remember all A/B tests was basically in Excel like output, which some, some, some of my calculation on the Cisco significance. Then I mean 2014-2015, we built like really an elaborate tool that would do all things automatically and it's just like magic. But that wasn’t how we got started.

And we gave early, I started feature flagging tool, and those exist as tools you can use, and as long as you, like you said, can query the data, you would notice or like look pretty comfortable about sort of like how certain new feature wouldn’t perform.

The one thing I would say is the thing you want to decide early on is who sort of like what is the thing that you're controlling the experiment on. And I would recommend that it's going to be user accounts. Doing it on visitors or something like that is gonna be typically much harder. But if you're on user accounts, it's relatively hard to fail.

Even you'd like them, the market level experiments or search experiments, those are difficult. Those are like difficult enough the data scientists at MB would make mistakes or knew early on and kind of have to throw things away. But if you just do a simple user account experiments, it's pretty straightforward.

How else did you break apart metrics? Like you have all this tooling, but then how do you start thinking about like, okay, these are the things that matter, these are the things we’re gonna start tracking?

So in the first week of YC, we had the growth bootcamp, and the first talk and give it growth bootcamp based on retention, so basically walk through the kind of the connection between a product value and retention and how a great product often has, is completely reflected in that retention graph, and I asked everyone, are you measuring any of these things?

What is the metric that measures the product value? If you're measuring that over time, and then if you do those things, you kind of have your retention graph.

So in many products, B2B and consumer, this applies and there's something that companies should be doing, and you don't need an enormous sample size to get useful data from that. So that's typically what I start. The second thing is, where are users coming from? Some basic Google Analytics or basic just like source tracking is a good place to start.

After that, I like to have a survey asking people sort of like how they heard about the product because some things can be hidden in the source tracking. Sometimes you have this survey on checkout or over email or at sign up, like places for example if you come in through Google brand or coming, you kind of have to determine is that someone who knows about your product before, not know before? If they know about a product, how do they hear about it?

Well, that Google isn't going to tell you that, or the app store isn't going to tell you that. You're gonna have to find out from the users, and it's sometimes useful to just break it down a little bit deeper into like how do people hear what the product in the first time? Is that their friends? Is it through workplace or whatever?

That I think those things are important, and then after that, it's the end-to-end funnel. This is sort of like, what are the steps from the first time I heard about your product to I get to that product value? There are lots of things you can measure there.

Yeah, I think that's a great overview. One thing I would add is if you are working on retention or trying to optimize a retention metric, very often the way to do that is actually quite early in the product experience, the types of ways that you set a user out for good retention. And it could be the first session, the first week with a product.

And so the next set of metrics you need after retention is one of the early proxies for retention. So you can experiment on that. And so this is like a slightly harder question that we work with companies on, but I think, you know, there’s one level, which is just what are all the things that correlate to retention or satisfaction? And then you've got to go start experimenting to understand causality.

But that set of metrics and having really good metrics for what does healthy activation look like? What is when do we know a user is on the right path? That stuff is a really kind of important add to the model once you've got the basics built.

What was an example of Thumbtack?

So in this case and in general for marketplaces, you know, the kind of North Star or the top metric is not something like week of active users because you need something that combines both sides in the marketplace.

So in our case, it was transactions or requests placed, probably quite similar. For it really, we, you know, real-world product, the thing we were optimizing for is hires happening in the real world. So the professional getting hired by a consumer, we didn't actually have full data transparency into what was happening off the platform, and so we had to look for upstream proxies for when that was going to happen.

And the main thing was when a consumer got a certain number of quotes from a pro, we had they then believe that we did the job for them; we gave them options they could go choose. Their hire rate was much higher there, their NPS would actually, like you could watch it spike at a certain number of quotes.

And so the metric we were going on was the number of customer requests that had that many quotes, and actually our liquidity metric in each market. When we looked at general condors in New York, we measured the health of that market by what percentage of consumer requests were getting a sufficient number of quotes, and that’s what set us up on a kind of a healthy trajectory in that market.

So I want to go back to an earlier question we were talking about experimentation. Well, one of the experiences I've had is I've kind of like start talking to later stage companies, maybe Series B, C, or C, and I'm like, do your own experiments? And they're like, yes, we do.

So how many have you run in the last twelve months? It's like twelve. And that would be on a large engineering team. So I often find that people have the people understand the idea of an A/B test. They understand sort of like what it could be used for, but they haven't fully immersed into doing it, and they haven't fully kind of got the entire company rallied around it as a way to validate sort of decisions.

I'm curious to see like what have you seen if that was the case? You came at a company, and I said, "I've run twelve experiments in the last year. I have 50 engineers." Like, what would you tell me and how to change that?

So I think the big thing here is like growth increasingly I think is less of a team or atomic unit and it's just like the way of running a business using data and experimenting. And I think that is quite hard to just talk somebody into.

Yeah, you know it's like a philosophy for how you run a business and so I think the most successful way to do that is kind of like bottoms up and organically, which is why I think you sometimes see these like small SWAT team, like growth teams that start to optimize and get quick wins on one part of the product and like just showing it through numbers is often the very best way to get to that answer.

And so like one of my favorite examples here is the team, the early team that SurveyMonkey did a great job with this. Like there’s like one page in a product, which is the end of the flow when you take a survey. You have like millions of people hitting this page that could ultimately some at some point become survey creators as well.

And they had done no testing on that page. And so the growth team basically just said, "We're just gonna make it our job to optimize this specific page," and started running tests there. And the results became so evident that the kind of influence of the growth team expanded over time.

And so I think this kind of like I’m just not sure something you can talk somebody into. I think you gotta like a bit.

How do you deal with the founder who's like, "Well I both made a great product, it were now I have lots of users and I raise lots of venture capital, but I'm not running experiments"?

So like how do you change sort like I understand you can't talk me into it, but like I'm interested in the idea of making progress but I'm not interested in having my ego sort of like hurt by having data tell me whether this is actually better or worse.

I mean I think, yeah, it's great, but I think it becomes the culture around the way that you think about experiments. You know, I think one of the most powerful things of experimentation is or elements of it is that you, when it's done, you send it out to the whole company and talk about why I won or lost.

You can even get into a culture of like, you know, like unveiling the results of experiment, having people guess which one kind of went well or not well, and I think that becomes something that people really like, and it's like you realize that it is teaching you a lot about your users and the business that would be hard to get otherwise.

And so I think this like building this kind of culture around is really important.

What’s in your experience is a great way to get ideas for A/B tests to run?

They're so, like say, okay, I have my A/B mic from an frame, we'll figure it out, like I know I run experiments now, lots of ideas and things to test. How do you think your expands go by that?

So ideally, they come from everywhere. We actually like basically kind of like open this out pretty broad funnel. So certainly everybody on the growth team, but even others outside of that or basically all adding stuff in a brainstorm or a Google Doc or whatever it was.

You do have to have somebody synthesizing that that is not in a crowdsourced function, but I think like many of our best ideas came from engineers and other parts of the company who just had some insight into a part of the product or a user experience that nobody else had.

And so I think like basically, you know, broadening the scope and then having some kind of, you know, synthesis.

Yeah, and then who decides what to work on first? Is he had 15 ideas of things to fix in the onboarding flow? Who decides what's working first and what's a good framework you experience?

So I think there's a kind of a central point, which is a product manager thinking about that point and an engineering lead thinking about that part of the product. I do come back to this like hypothesis-driven approach.

So what do you believe you were testing, and what is the best way to test that thing? I think it's a really good way to force that conversation. I think it's hard. I do think it's hard to be very collaborative at that end stage when you're deciding what to choose people of different roles.

That makes sense to you?

Yeah, so as an employee, so Gustav, you're talking about advising founders of these later stage companies, but then you mentioned these bottom-up approaches. What are other good examples of employees at companies being like, "Hey, I want to take a growth-driven approach here," and then like getting buy-in across the whole company?

Like as we mostly talk about advice in the context of founders, but like let's give some advice for employees who like really want to get a growth program going.

Yeah, absolutely. So I think there are certain classes of things that are easier to get off the ground and test. And so actually one of the reasons that paid marketing is so common early in companies is that it’s just a very quick way to get off the ground, and you can validate that.

And so I think finding those types of things where you can really prove something with a small budget or small team is super important. And very often, you know, testing a new channel in that way can be a way to really prove something you don’t have to go get permission to do that in many cases.

And so I think there's like many examples in the acquisition area where people just go and find this thing that may work.

Cool. You do great if you have other...

No, I’m trying to think of good examples here. But I would say, would you set around publicizing what is the goal? I'm publicizing any effort towards that goal towards the company. Is it great what you're doing?

I really like when you have a weekly email of all the metrics in your company that goes out to everybody. Now that will anchor people to say, "Oh, it’s bookings, that’s the thing we’re going for, is bookings." Okay, so then the next natural question would be what are the drivers and bookings?

And well, let's do your funnel, and then if you are any of those teams, they’re the driver of the funnel of the metric bookings, now you need to improve that metric. And if you run an A/B test, you can actually prove that you improved that metric.

So what we did there, Baby, was effectively we would have a top-line metric which was bookings, and then we would say to a bunch of different teams: growth team, marketplace teams, and others, that you guys are in charge of driving incrementality to that metric.

And as an engineer or anyone on any of these teams, you just come up with the best idea that you can impact that bookings metric in some way, and then you start running experiments. It could be like I really love this idea of allowing everyone to come up with ideas on what to fix because the more kind of ingrained you are with a certain part of the funnel, let's say you are working on sign up, for example, or say say you're working on even something deeper, referral sign up.

So I never be there would be tens of thousands of people that would sign up from referral links every day. They have high intent to become users and maybe eventually spend that money. But if that signup flow is not perfect, well, there's a lot of things you can do there, and there’s some engineer who knows that flow really well who's gonna know that.

Well this is like five examples of things that are not working. If I fix them, then that’s the kind of thing you want to share to the company so the people start understanding the commute.

I love these small things. If I’m a general engineer, I would say try to think about orienting yourself around what's high intent. This is different for different companies. But in the case of A/B, the early wins are often in the high intent flows, so like with people actually thinking about booking or actually about to book.

So search conversion is important, one sign of conversion is important, one sort of like online marketing traffic was an important moment for us versus for example homepage.

That is super confusing, and there’s many companies that have this experience where like people coming to your homepage is a combination of people that really want to do the thing that you offer, people just looking around, people accidentally, and not on your page, it’s just like a random.

It’s just a hard place to start, yeah, versus like if you were optimizing the landing page for Google conversion, well that’s gonna be a lot of people that want to do exactly what you offer, right?

Yeah, that's a great point. You’re probably trading off intent and scale, because you don't want to go so deep that you’re dealing with 10% of the population, yeah, but the high funnel doesn’t work.

That was the mistake that we made. Who actually made the mistake of going all focusing on the onboarding for the homepage because they’re like, "Well, that has the biggest scale by a longshot,” but it turned out that only like 10% of the people coming to the homepage actually have a booking in mind, right?

And everybody had something else in mind when they come to it, and being homepage for the first time. That’s crazy!

So guys, when it comes to advising companies, what are the main differences in growth between a B2B company and a consumer when you're advising them?

So I think consumer has been kind of leading the charge on what to do for the last like ten years, and I think many of these tactics and strategies are now being adopted by B2B.

And one thing that I if you see YC companies coming in and doing YC in the early stage program now, the most common advice is build a framework to figure out how to do more sales faster. And like that’s a funnel. And we kind of give them advice or so like start at the end and say if I need to sell ten customers every week, work your way backward from how many people need to pick up the phone or how many people to have to show a demo to, how many people don’t have to email or some other way to reach to get to that demo.

And just like fill the funnel, and so like stop that way. And then now you know what sort of like the early days, their early part of that funnel look like.

So there are many of the tactics they're using consumer that are now being applied to B2B, but it came a little later. The benefit of B2B is you typically have much higher LTV so you can spend; you can be a lot more creative on online marketing.

You can, you often like that the first question I ask companies to sort of like can you make a list of all the potential customers in the world? Hopefully, if that list is sort of like in the hundreds of thousands or smaller, make that list.

Find a way to make that list and then like take those people and put it through all the different go channels that exist, whether it's online marketing, whether it’s sales, automated sales, just like go after that list. If your product is so mainstream that it’s in the millions and millions, then you’re gonna act like a consumer company.

Because you're gonna go after the same kind of strategy. So the consumer company will go after but, but what if you went after a big client in the wrong way?

People talk about fundraising in this context, like maybe you shouldn't try your pitch on Sequoia the first time, for example, right?

So how do you think about that?

There's a distinct difference to me between SMB and enterprise, and they often have very different sort of like closing cycles.

If you mean if you want like worse SMB company, often what you do is you have this top of the funnel on this on your sales funnel, and then you have a relatively automated way to sign them up.

So that maybe is a one video demo, and then you have a customer, and this is typical for SaaS companies. I think is that you have some way of scaling up the ability to sign these customers.

In the enterprise world, which I have much less experience, the closing event's going to be through real traditional sales in some way.

Now, you can build up the excitement through content marketing; that can even be targeted content marketing, and I'm trying to figure out who's the decision-maker and talking about those people.

That lots of things you can do in many cases. Social proof is a super critical thing here because it's relatively easy to understand how companies make decisions of a new product, and you kind of have to just like deeply understand that and then mimic your growth strategy towards how that is happen.

And I think in the SaaS SMB kind of group, there's just a lot more distributed how people make those decisions.

And I was one of the first users of Slack inside. I haven’t be; I certainly wasn’t the buyer who was coming, but I was me and a few other people be like, "Hey, we should try this new thing, it seems awesome.” You know, like a year later, everyone's in Slack.

So that was like it if you're in that category, you can go grow much more bottom-up, versus if you if you're in the enterprise category, you have to identify that list of those people first and be like these are people I'm going after, right?

Yeah, I was just curious about like potentially putting your highest value potential customer in some kind of weird experiment and like churning them out by like, "Oh sh*t, oops maybe we should have changed the color to purple."

Yeah, I mean, I do think so. One of the things that I’ve learned working with more and more companies is that more types of decisions are type two decisions than you think, the type of decision you can actually roll back and get another shot at.

It's maybe we don't work with companies that are dealing with large enterprises, typically more SMB, and so you maybe have a little bit more leverage there.

But even things like pricing, features, packaging, those types of things that feel very final, you often get leverage to keep testing. And so in general, I think testing some of those things is okay, particularly early on while you're finding the right mix of things.

And so I wouldn’t worry too much about like burning that audience. Of course, you know, the reputation, the community, those types of things are important, but as long as you go into experimentations with good intent and think about the end-user, I think you're okay.

Okay, I'm curious, David be a bit into that you have long experience with pricing experiments or pricing, some experience.

Yeah, so the best advice to a Series A funded company or a seed-funded company, we're like, "I have a price for my product," is somehow correlated to LTV, I want to figure out that's the right price. Not like, what would you start?

Yeah, I think we're like backing up one step and saying are we growing? You know, virally, and is basically therefore it's all about removing friction and price is a good way to remove friction, or lowering price.

Or are we going to need to fund this through paid marketing and other things, in which case you actually need a significantly higher margin? So like what's the starting point?

Yeah, I think is a really important piece. And then the second one is price and anything related to monetization is really tough because it's basically a system of incentives, and it will change people's behavior.

And so you have to observe these things over very long periods of time to make sure you're getting the right answer. And so I like a big fan of running A/B tests for a sufficient amount of time and then flipping it to, you know, maybe 5% remaining in the original test for a very long term to observe the thing that thought happened continues to happen and validating that, but I think if you start from the place of where do we want our margins to be and how's that feeling or growth strategy?

And then thinking about the long-term metrics now you use pricing to influence that you lay in this way.

I run a subscription product, then you bump the price from $10 to $15. I should hold a whole lot group for a long period of time on the $10 bucket. I think often that gives you a much richer kind of insight into how it changed people's behavior.

Got it, I got it. I see. Cool. So when it comes to paid, how do you guys feel about paid marketing, especially in the context of the dynamic shifting over the past five years? Say, what do you think about paid marketing?

I would say that the big untold story of growth is that we've shifted from free channels to paid channels. Paid channels are paid marketing, referrals to some extent, but paid marketing is the one that is the most obvious one.

I think the reason that happened is because the platform shifted from offering free traffic to offering paid traffic, and there are benefits with paid traffic because it's highly targeted. Like, it’s much easier to target the campaigns you're running toward specific users, whereas in the free channels targeting is not that easy.

So I think that's really the general trend, and which means to me that it's not easier; it’s equally competitive. If you are a subscription service or an e-commerce service that acquiring people through paid, that's very competitive because there's lots of other companies doing the same thing coming after the same customers.

So you have to learn how to be data-driven creative and just really treating all marketing as something that you constantly had to innovate on versus something that is just sort of like set and forget.

Here is my online marketing team, and then they just try to hit their targets. It's something they’ve constantly invest in.

And if you I'm not sure if this is good advice for seed-funded companies because look at the evolution of the online marketing. It may even be it went from like one or two engineers to when I left, I think we were 15 or 20 engineers on all my marketing, and they were building everything from attribution systems to automated bidding to all these different things.

And I think that general trend for online marketing is going towards more data-driven, more automation, and just less you elevating the humans to sort of like making more high-level decisions.

Absolutely, totally agree. I mean, just add on this, I think it's becoming more common, and there’s an important place for paid marketing its vast to get off the ground. It's relatively easy to test.

If it becomes your primary Channel, it's a very hard thing to sustain because it’s expensive, but also because it degrades pretty quickly, actually. So like, you know, if you look at the D2C companies or Blue Apron, I think, you know, they grew really quickly on the back of paid marketing, and then they realized later cohorts got more expensive, they retained less well, and so this kind of like has this compounding negative effect, and it can be a scary place to be.

And so I think if you're thinking about paid marketing more as an accelerant rather than the growth strategy, it's a much healthier place to be. And so like, you know, a couple examples of a place I think it's used are very effectively to seed a new market you might be launching, for example or at Thumbtack or other marketplaces.

Very often used to help balance the marketplace because it can be much more surgical than organic or SEO or something like that. And so, you know, we knew maybe we needed more general contractors in New York, but not, you know, plumbers in Phoenix.

And so we were willing to pay a lot for one area, not the other, and it was helping play this function, but the core of the growth was still organic and SEO which is more sustainable over time.

What do I do if I have that? So, let's say I'm 70% and I’m on the second coming from Instagram ads. Yeah, like is that a problem for the growth team or the all-American team? Is it a product problem?

Like, where should I start even having that situation?

So I think it is primarily a product problem if you haven't. If you have tried other things that they haven't worked, you obviously need, you typically need to do core product work to enable yourself to go into these other types of channels.

I think the other thing is, is these are all like...we were just talking earlier, business model competitions where like the best companies that monetize we're gonna win and paid marketing.

And so if your product is better at monetizing, it allows you to then go do more of that. And so I think it's like it's very hard to get in this place where you were just spending more and more into some of these core channels and watching that degrade and so thinking about, yeah, what are the enablers of that?

So how do you think about that when you don't necessarily have all the data? So you're talking about like, say you're entering New York City, right? And you're like, "Alright we're gonna do a lot of paid to enter New York City."

But you don't necessarily know how long you can maintain that and at what rate the ratio will shift and you start getting organic growth, you know what I'm saying?

So how do you even think about that in the early days of a new market?

I think it's really hard. I mean, you certainly will be spending into negative ROI to start in any of these cases. You hopefully have built a model over time as you launch markets where you can understand what that curve looks like and figure out where you are on that maturation curve.

But I think understanding the shape of that curve is the most important thing. You just have to test your way into it for the first few.

Yeah? Okay, so Dan, one of the kind of experiences that I've seen now becoming a pattern is I worked with this YC company. They get funded, they get Series A funding, and then maybe even B funding.

And then somewhere in that line, they get a board member, and that board member said, "Oh, you need a VP of Marketing," and either head of product marketing. And you already have maybe a growth person or a marketing person, and now you have this like multiple roles that are all going after the same thing.

And that time too can create friction, so experience I am curious is to learn well you have experience here and so like what can advice do you give founders?

Yeah, absolutely. I mean think so first of all, I think most companies can go longer without a VP of Marketing than they think they can as a general rule of thumb.

I think you know one of the problems we have in the market is how many really good experienced team builders who also know growth marketing fit this VP Marketing profile are there.

There's like, there’s not that many of them, and so like hiring the perfect person, but that's very tough. But if you kind of like disaggregate the things that that person can be asked to do, it's, you know, growth marketing which often should be closer to product actually or more like a real growth effort.

Messaging or like product marketing, that those kinds of things that can often be product marketing and it may live in product or design or something like that.

And then sometimes PR is also put into this, which can also be a distinct thing. And so I think like are you just solving, do you want all these things and you're just like trying to find a person can do all those, a way to solve your individual challenges with individual people that may be part of existing teams?

I think one of the symptoms of bad organizational friction is when you have multiple teams working on the same metric without drawing accountability.

It's like very classically a retention metric will get split between in-product gross stuff and a marketing team owning email and push notifications, and it's really hard if you get a disjointed consumer experience 'cause two teams are thinking about the same problem.

And it's much better if you can combine that into one, and adding somebody like a VP Marketing into the mix can make that an even harder problem because both these leaders think that they own that.

Did you make all these decisions? Like how would you organize that? You have email, push notification, like the classical sort CRM marketing, and that often comes out of a box from some other company.

Yeah, and then you have the retention product team. Like if you sort of like make these decisions, like what would you decide?

So I think it depends a little bit on the company's DNA. So if they are at a place where they really understand an analytical, experimentation-based approaches, then maybe it's easier to just build it as part of the product team.

If you need to prove that this works and evangelize it, you might want to stand alone team where you go get a growth person. So I think that's probably like the right starting point.

I also think different areas of the funnel lend them self to different type of approaches. So acquisition is a little bit easier to aggregate, disaggregate because they’re unique channels where, you know, some are more marketing-heavy like paid acquisition which becomes very engineering-heavy over time.

Some start very engineering and product heavy from the start, conversion and retention, those types of things.

And so I think like thinking about the type of problem you're trying to solve, but specifically for this retention question, I think it is typically healthier for that all to be within product pretty early on.

And do you think that every single person that you mentioned now should have a way to measure that ability to sort of drive incremental growth for the company?

Like whether you’re in brand marketing or PR or online marketing or product, do all of them sort of share this incrementality metric, or are they kind of going after slightly different things, slightly different things?

So I think the growth stuff that the growth marketing stuff certainly should be all kind of contributing to this north star metric in a very clean kind of tree. I think where you have a challenge when you have these like very hard to measure outside inputs like PR and brand and those types of things.

I think, you know, brand is this like topic that we get all spun up on, but really like the output of brand like trust and reputation and things you care about that is obviously very important but what you can do with brand marketing is like actually a small piece of that.

It’s like the awareness piece, it’s like maybe make wrapping in like a hook that people can remember it by, that's not brand, that's that's way, it will way to accentuate brand.

And so actually like if you have a great product that people love, brand is just accumulated customer goodwill. So maybe actually the best way to grow your brand is just to get more people to your product and that's a growth team, you know, and and so like I think very often we'll talk to a team that they have like, you know, they're kind of paid marketing stuff going over here that’s very performance-focused and they for just some reason have this like other budget over here that doesn't have any metrics tied to it and they're willing to just spend on quote unquote brand.

And very often that budgets wasted.

I’m much more kind of amenable to as much as much about kind of measurable core growth activities that ladder up to a metric.

It's an important for start-up, like even in the later stages to measure brand awareness and brand consideration, like the traditional brand marketing metrics. Like is that useful?

The sentiment is very important. How many people would your NPS, how many people would be disappointed if you went away? Those kinds of things are really good signal around fit, but raw awareness and benchmarking its competitors and those types of things, I have rarely seen that become actionable in a product, maybe with the exception of knowing when you've kind of tapped out a core market, but that's a late, late stage problem.

Hmm. So related to this, Tony asks about Airbnb. So could you talk about Airbnb in the context of wow, they have such a great brand, but on the other hand, they have a great product.

So Tony asks, how can every bean be a startup like Airbnb grow so quickly? Was the need of customers? Was that marketing strategies? Was that the idea of just travel in general in the dream of vacations? Like what do you think?

I think that would make everybody unique on the guest side. So in me, this is two products of the host part on the guest part. On the guest side, it was the viral nature of this unique experience. So if you go to New York and you stayed in an apartment that was in a local neighborhood and you just had a very unique experience that you never had before, it is fundamentally something you talk about when you come home.

And we kind of studied this; we studied when do people talk about travel well before you go about to go to travel you ask your friends where to go when you're traveling you post lots of photos and stuff online.

It's actually the point of the prime things we do when we travel is to share information to our friends about it, and then when you come back and tell your friends how great it was. So this is natural things that people talk about, and similarly to how Uber and Lyft is sort of viral in their nature because it's a new experience, and it's something that we often do together with friends.

So I think that was the primary driver of this new really great product. In terms of tactically what we did, like I've seen graphs on the incrementality on online marketing in the early days of MMB and it was very important like had we not done online marketing early on, we would certainly not be a spark today.

So that was critical. That was sort of pretty proven stuff. It was Google people googling for things that relate to Airbnb or Delhi to staying in homes or apartments, and we just bought those keywords and that helped us drive growth.

Like Dan said, that was a very good way to be strategic about where we wanted to grow. So like maybe it wasn't super useful to buy these keywords in San Francisco, but if you were in Europe or in Asia or in Russia or somewhere, it certainly was very important to kickstart those markets.

And then, after that it was the word of mouth that sold like drove most of it but if you like the composition of growth where B word of mouth is by far the biggest driver.

So I think it was like way over 50% on the guest side and way over like 70% on the host side of people that heard about me for the first time through a friend. After that it was online marketing referrals in SEO. Those are the three sort of theme-sang channels that we had and remains very important all those three channels.

And at the scale it got to the point where like, yeah, every single small tenth of a percent improvement matters a lot. So that's sort of like when you get to that scale, it's not like you spin up in your channel and now you have lots of new growth in that channel; it doesn’t really work that way.

There's this like pretty expected ways that people will discover a product like every movie and we just made sure we optimize them like crazy.

Yeah, well, are there any examples of a already big company doing something and it's like a step function improvement in retention or conversion?

Yeah, and that's actually the example I give on the Facebook graph on my YouTube video from startup school. There were more product changes than there were anything else.

But when Facebook figured out to translate in national lysa site, it was very important for the growth obviously when they grew out of made it available out of a set of Eastern Universities. That was a really big one.

But then mobile was a huge one. So I don't know if we've seen a platform shift like that in the last five or seven years. But when we saw mobile happening, if you were a desktop app then you were only speaking to a very small audience compared to what was going to happen.

So rearranging Facebook for mobile if you look at both Instagram and WhatsApp are mobile products. So that was a really big step function for them. And the last thing was making Facebook available in sort of like very data constrained and hardware constrained markets.

So making like Messenger live and so like even acquiring WhatsApp and making Facebook available in places where like the native Facebook app that we used to hear wasn't actually a great user experience.

No, it’s too heavy, yeah, and I think those are all product images but there are step functions for a company like that.

So, another international question. Michael Savage asks it would be great to discuss growth into new regions; for example, Africa and UAE. What would their approach be? How does it differ from region to region, culture to culture?

We, when we grew Airbnb, we actually divided international growth into two different buckets. One will be calls for like product limitations and one that we called sort of like cultural impacts and there's not the right words, but effectively trying to say everyone said, "Oh people in Germany are so different, people in France are different, people in Japan are so different," and that is in the hypothesis often coming from people who live in those countries saying that we are different, so therefore we need a different experience.

And it's a very common thing; that's hard to prove. Which is why everyone a lot of people share that opinion.

Now we need to prove those things to be able to actually build a team around making the product different. Like cultures in my experience, we basically started that process by asking around, and we didn't find a lot of massive cultural differences.

Like the stack was basically mobile phones, iOS and Android, desktop, Chrome, Facebook, Google. This is true for most markets in most countries. Like the exceptions are China, South Korea, Russia, maybe a handful of other countries; those are the exceptions.

But everyone else, kind of like the stack that described is sort of how people use your product. So within that, it was very hard for us to prove material changes and how people culturally use products.

Now the other thing that on the product side when, for example, if you don't have this stack then that's the difference for sure. If you have slow internet or slow phones or any of those examples, or like that will materially impact sort of how you use your product.

The thing about the top of the funnel in some of these countries is, for example, Google is not available in the sense that like it's not a search engine in Russia or in Korea.

So you have to do something else there. In the Middle East and many of the more emerging markets, the ads are actually quite a good arbitrage for some of these companies because there are not a lot of premium services to charge for things.

And a lot of the brands have actually not gone onto these platforms yet, which means there's a good arbitrage moment for startups: ads anywhere, ads on Facebook or ads on Instagram or ads on Google, okay?

Because the price is so low and there aren’t a lot of well-developed companies that are actually sort of likely able to take advantage of it. And there's just as much usage on these platforms in these countries that are here, if not more.

Next question, Justin Larosa asks, what are some of the most common drivers of viral growth?

So I would say my early part of my experience and my career were still working on messaging and growing services like Boxer through viral growth. It changed a lot.

So the viral growth depended on certain platforms, typically platforms that have some sort of list of contacts and a list of friends that you grew through. Obviously, Facebook's did a different example of that; all these platforms have changed in different ways, and we're less susceptible to that today.

There are pockets of interest. I think there's like the follow growth inside corporations. That is a really interesting one, and I see a lot of companies well utilizing that in different ways.

Whether that is through your, let's say there's a wise company going through, teachers nailed it really well. There’s another one who's growing through sort of like the Google Apps and sort of like using the social proof via coworkers using products. That's a really strong one.

And I think you see these more new niche variations of viral growth, then you see the generals or like enviable growth. It's just much more difficult these days to do it, and the channels aren't generally available in the same way.

So the thing that still seems to be working pretty well is referrals, like incentive-based viral growth. You just have to make sure you can measure the incrementality of that because you are giving away money when you’re putting users.

But I often see that YC companies sort of like taking some of their referrals advice from Airbnb and then coming back and say actually that was really meaningful for us, and we're going faster.

So I have seen that continue to work versus the general viral channels have been in many cases saturated and not in a good way for startups to go anywhere.

Yeah, viral growth is much harder; I totally agree. It's, I get much more kind of like closed networks rather than open networks. The other thing is referrals are potentially more like paid marketing than they are like viral on some way.

And so thinking about it in that way and payback and the other things is really important.

And so when we talk about the growth of referrals, we're talking about another form of growth of paid marketing. It's just different, you know, and in person who's getting paid. But yeah, I think that it's until we see a big platform shift realities is harder and harder.

What do you think about that in the context of a bootstrap company? How should they think about growth in that way?

Well, one advantage of referrals is you have control over the levers such that you can make it ry+ or you can you can make it work for you.

So I think where companies get over their skis is when they're not thoughtful about payback on these these things. I just think thinking about it as it's free growth is not kind of the right, the right way to approach it.

Okay, yeah, AWS is so cheap, whatever. Cool. So after you left Thumbtack, you now start your own growth agency, Basis One. Sort of like, what is the—if I am a CEO to be founded out there looking to get help with these things—or like should I go in and hire a growth agency?

So like why should I do that or just build my own team? Just a little bit about that.

Okay, so the first answer is, you should not hire consultants in many cases. I think, you know, for almost all things related to growth, paid marketing, not only do you want to build that muscle yourself, but it's like the front line. You're dealing with your customers, and the feedback is so rich that if that person is not sitting next to somebody else on your team, you're missing all of that learning.

And so, you know, maybe an agency or a consultant can help you get off the ground, give you best practices. This is particularly true if you're in like a well-known space like e-commerce where there are frameworks you can apply.

But typically, your aspiration should be to have a smart in-house team as quickly as possible. You know, the way that we work with companies is somewhat tangential to this, which is focusing on really acute high leverage problems that we can, we have leverage on because we've seen them before.

So why are customers churning? How do we use monetization to drive growth? And we're not trying to replace the team, but rather unblock them such that they can execute really quickly and deliver them some insights that would take longer to get otherwise.

But in most cases, particularly when it's more operational, I would say build yourself.

When are you done? Like, like if you work for the company, you're like, yeah, I'm working down here. Like how do you know when you're like, “OK, I've completed my mission here”?

I think it's when the mental model is internalized, right? When they're like the conversation becomes really seamless. Like that's the right place where they're clearly off and running with it.

Yeah, and there are some insights about how the product grows, who the customer is, what they need that is being internalized and acted upon. That we feel really good that they're gonna take it from there.

How long is typical in an engagement for you guys?

We typically start around three months. Sometimes it goes longer than that, but sometimes that's all you need to actually get up the curve and understand some of these things. And like this is a never-ending problem. The exact monetization growth you will always be optimizing but at least for that kickstart or one of the spark or where the area is to start, kind of what are the deep wells to start mining, that piece can be relatively quick.

Oh, why did you start Basis One instead of just like joining another company and working growth in another company?

I tried to join another company actually and I was working with founders and CEOs, and like the journey at Thumbtack from like 30 to 500 was so fun and I was gonna go do that again. But I just started to see a consistency of the type of questions I was getting and there weren't really people on the other side that were able to effectively answer them.

I think, you know, as an independent advisor, it was kind of hard to provide the help that they needed, but when we started pairing it to analytics and user research and the ability to like really wrestle a problem to the ground, that's when we became really powerful.

So, I mean the short answer is we kind of like grew into it organically. It’s just really fun to get to work with a lot of these founders, so we’ve stuck with it.

Cool. So last question, which was actually submitted by Gustav. As two people who both advised and work in growth, how do you think about growth in the context of improving humanity given that a lot of these products have filter bubbles, like can create a dict—iv responses.

And on the other hand, you're trying to make the world a better place, so how do you balance that?

Yeah, so, I'm optimistic here. I think there are maybe two reasons for that, one of which I think is more valid. But I think, one, is companies like Facebook and others maybe got some flak because they were optimizing for these short-term metrics like click-through rate and time on site and those types of things that over time have become more sophisticated and measure longer-term metrics, you can optimize, yeah, more you know, in keeping with both the interests of the company and the consumer.

And so that's that's one angle of it. I think like the one that I give more credence to is that like this stuff, these cats out of the bag, right? We're like we're not going back to a world where we don't have these addictive products competing for our attention, but we can weaponize these same tools we have learned for good things.

And so like other products are going to come in, you know you see this happening with meditation apps and exercise apps and eat healthy eating apps. They're using all the same growth tactics to turn you into a better person, and I’d like to see more of that.

And so I think like the way is not to try to like put the cat back in the bag, which is to fight back with the channels you know, the tactics we've already built.

Yeah, I asked this question. I thought about it a lot in the last year. I think as a growth team, you should have principles. You should be like try to figure out these are the principles that I want to follow.

Some of that means not gonna have any dark patterns in our app. And then the most important thing is to ask the question why. Like if something is really working, why is it working?

Like why is it that this is now sort of like changing the behavior of my users? And the more you understand that, I think the safer sort of like in the more safer place you are in terms of sort of like making good decisions for the company.

And then I would say much of is that we're talking about is actually tied to engagement-driven products. So product like you mentioned that fighting for our attention, that's sort of like where much of this has happened.

And I think there is a fundamental problems or like with the driving the attention and then sort of like having advertising as a monetization engine. If you change that and you say actually I am the customer, I'm paying for the product, then you get different outputs because now you’re optimizing for me as a customer, you're not optimizing for someone else.

I think there's like there are nuances here, and I think these are probably the most challenging questions to answer for companies that fighting for our attention, especially if you're a free product fighting for attention versus for many other products like I think it's actually massively beneficial to them to do a lot more of this.

Mmm-hmm. That's great. Alright, thanks for coming in.

Thank you so much.

Thanks, Sam. Thank you.