Why do some startups grow faster than the rest?
“A startup is a company designed to grow fast… The only essential thing is growth. Everything else we associate with startups follows from growth.” – Paul Graham
Paul Graham differentiates between startups and new businesses on one particular parameter, the potential for scale and hyper-growth. A startup’s potential to achieve hyper-growth and rapid scale is largely dependent on the types of growth strategies it implements.
Scaling a startup is a lot like starting a car. There are two ways of starting a car and making it run. You can drive another car and ‘bump’ into the first car to make the first car move. The car does move with that ‘bump’, but that movement isn’t sustainable. To make a car run sustainably, you need to fit it with an engine.
Startups grow in similar ways. Most growth strategies fall into one of two buckets: Bumps or Engines.
‘Bump’ strategies – PR, advertising, events – give a startup some traction and exposure. However, these strategies require commensurate investment of time, effort or money. Advertising works as long as you pump in money. PR and events aren’t repeatable or scalable; you need to invest time and effort every time you run them.
In contrast, startups that build growth ‘engines’ scale rapidly and achieve exponential growth. These startups do not rely exclusively on external marketing channels; they build an engine for growth within the product. They are designed to grow as a consequence of product usage.
Startups with growth ‘engines’ experience growth that scales with adoption. As more users use the product, the product’s growth rate increases. More pictures created and shared from Instagram expose Instagram to even more users. As users create and send out surveys from SurveyMonkey, survey recipients get exposed to the product and come on board to create their own surveys. KickStarter’s project creators spread the word about KickStarter every time they promote their project. All these products are designed to get greater exposure through usage. That is a common design pattern that we see repeated across scalable startups. As more users use the product, the product gets exposed to new users, leading to greater growth.
Startups that are designed for scale do not see growth as something divorced from the product. They implement growth within the product, much like an engine sits within a car and powers the car forward. They leverage users to expose their product to more users. Many startups erroneously believe that getting users to send out invites equals creation of such a growth engine. On the contrary, startups designed for scalable growth rarely rely on invites. They rely on users to share elements of the product with their network. YouTube users share videos, KickStarter users share projects and AirBnB users share listings.
These startups also, invariably, piggyback on an external network to achieve rapid growth. Instagram used Facebook to achieve rapid traction initially. AirBnB allowed users to cross-post listings to Craigslist, which accelerated its initial growth. Paypal piggybacked on eBay’s growth initially and YouTube first got traction when MySpace users started using it to display videos on MySpace. In all these examples, users on the external network get exposed to the product and transition to becoming active users of the product.
A scalable startup can never achieve hyper-growth purely on the strength of strong marketing budgets and external ‘bump’ strategies. It needs a growth ‘engine’ that powers growth from within. It needs to design growth that accelerates with usage. Finally, it needs to create the hooks and motivations that will enable and incentivize users to expose the product to others every time they use the product.
If you’re creating a marketing plan for your startup, think of what you’ve got and slot those down into bumps and engines. Bumps are important to get initial traction, which then acts as fuel for the engine. But if bumps are the only thing you’ve got, you probably aren’t building a startup that can scale.
Most startups lament the fact that they haven’t got the money to spend on marketing. Ironically, some of the fastest growing startups of all time, e.g. AirBnB, Instagram, didn’t have the money to spend on marketing. Marketing dollars make one complacent about growth. In fact, the lack of marketing dollars forces one to figure out how to build engines for growth that will not require commensurate investment. More often than not, well-funded startups fail because of an over-reliance on those very funds. Access to cash numbs the need to create organic growth.
Startups are like cars. Marketing creates Bumps, Real Growth needs an Engine. Tweet
Bumps may get you initial traction but scalable growth needs an engine. Tweet
As countless marketplaces emerge, user stickiness will be key to scaling network effects