Avoid Premature Optimization: Growth Advice for Early Stage Founders

8 March 2023

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Early-stage founders often ask what I could do for them, and how they might go about spinning up a growth team.

And the answer is, don’t do it. You’re too early. Growth is still the founder’s job. 

But, this is a platitude they’ll have already heard; it sounds broadly right, but the devil’s in the details. 

As such, here are some details: An early stage company, whether focused on consumers, small businesses or enterprises, largely goes through three phases. Let’s talk through them using a Growth lens.

The world of a company, through a Growth lens 

Here’s your business viewed as a funnel. To rely on a simpler version of AAARR metrics, these are:

  1. Awareness - getting customers to somehow find out that your product exists, whether from a friend, influencer, search result, cold email, article, or advertisement. Awareness gets customers to come visit your website or app or give you a call
  2. Activation - getting customers to actually try the product. In some cases this means purchasing, in others, simply registering, or hopping on a call with sales. The rate of people going from aware to active is your activation success metric.
  3. Revenue & Retention - getting customers to pay, pay more, and keep paying. By far the easiest way to do this is have a great product.

An 👀, below, represents 10% of a founder’s attention.

Phase 1: Figuring out the Product

  1. Awareness: 👀👀👀
  • At this stage, customer acquisition is often hacky and unscalable, finding customers through the YC list-serve, your personal network, through cold outreach, or whatever hack you find. This is fine.
  1. Activation: 👀
  • Customers should be able to register and access the product, but anything fancier is not yet a good use of time. Some companies will skip building the signup system entirely and register people manually - for now.
  1. Revenue & Retention:  👀👀👀👀👀👀
  • This is where you should spend your time. Work on the product, listen to feedback, iterate. 

Your goal, out of phase 1, is to build a product worthy of a small but active (and ideally paying) userbase. A reasonable target may be $50K ARR and 70% month over month retention. On the basis of this userbase, you raise your next whatever-the-round-is these days.

Phase 2: Figuring out the Market

  1. Awareness: 👀👀👀👀👀
  • Now that you have a product, it’s time to figure out how to get customers in a more repeatable way. At this point, there is a science to iterating on customer acquisition channels, whether through content, partnerships, paid marketing, influencers, etc. This is inarticulately known as growth hacking, and at this stage, at least one co-founder should be focused on it. It has to be a founder, because you may end up needing to change the product in significant ways to better suit the audiences you are finding, and an external hire won’t have that breadth across product and market understanding. 
  1. Activation:  👀
  • It’s still too early to focus on optimizing your conversion funnel, but it’s now receiving enough traffic that it should be functional and no longer embarrassing.
  1. Revenue & Retention:  👀👀
  • Keep working on your product. New customer segments will want new features, and the minute you stop working on your product is roughly when companies start declining.

Your goal, at this stage, is to find your first repeatable customer acquisition channel, and scale it to some reasonable number (say $1M in annual revenue, though the numbers vary across industries and locations).

Note: a number of hard-tech or enterprise-focused companies may often swap the first two phases, first figuring out “can we actually sell this effectively” before starting to build. This is a less fun, but no less credible, way of building certain kinds of companies.

Phase 3: Scaling (Series B or so)

  1. Awareness: 👀👀👀👀 
  • At this stage, you should have at least one solid go-to-market channel, which you will be optimizing and growing. You’ll also want to start to go looking for what your next scalable channel is. This is a reasonable spot to hire external Growth people, whether it be specialists that will help optimize and scale your existing channels, or generalists like a Head of Growth that can run the new channel search process.
  • Keep in mind that while it’s still possible to say things like “if we just added feature X, we could go after market Y” at this stage, the company is bigger now. It’s an 18-wheeler truck, not a pick-up; a significant product direction changes are that much harder to execute.
  1. Activation: 👀👀
  • At a sufficiently high incoming revenue count (say, $10-20M/year), it begins to make sense to start optimizing the checkout process. This can yield 10-20% quarter over quarter conversion improvements - how many people’s salaries that would justify and still be worthwhile? This is a common stage to begin to form a Growth Engineering team, to systematize this sort of improvement.
  1. Revenue & Retention: 👀👀👀👀
  • This is the stage where it starts to make sense to go beyond “have a good product” in optimizing revenue (experiment with different pricing models and plans) and retention (what if we charged annually vs monthly, what if we had a family plan, etc). Having an awesome and ever-improving product remains your highest-value bet, however, so keep the product team focused on their core mission.

Your goal here is a little more flexible - profitability, another funding round, perhaps an IPO. Hopefully you’ve hit escape velocity and can make that choice.

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Zooming all the way back - if you’re in Phase 1 or Phase 2, Growth is the Founder’s job or the company doesn’t work. Personally, I’ve spent the last 7 years or so running Phase 3 growth teams. If you’re not in Phase 3, the best advice I can give you is to focus on nailing the stage you’re in and avoid premature optimization.

Tags: #growth-eng #experimentation