Ways to Grow

Ways to Grow

I’ve been thinking quite a bit recently about the different types of growth a company can have. It’s often that I read about a young company that is firing on all cylinders (or so it seems). They’ve found a place in the market, which is typically a result of some innovative/creative process (i.e. – Uber or Airbnb).

While these are great stories, the truth is that most companies are not startups, and while they are expected to increase revenue, 10x isn’t realistic. It’s more like 10%.

I think it’s important to take a step back and look at the ways a company can grow, and the levels of risk associated with each opportunity.   Risk is an important piece of the puzzle; an established company needs to preserve revenue, while also looking for opportunities to expand the pie.

In these examples below, there’s two variables that we’ll use to gauge risk/opportunity:

  • The Market
  • The Product

Also, this post is very heavily inspired by the Ansoff Matrix. I thought it might be useful to adapt this for growing web-based businesses. Here’s a synopsis of what I’ll be covering:

Growth Matrix

1. Conversion Optimization

Conversion optimization is the low-hanging fruit if you’re looking to grow your company. As an online business, as soon as someone shows up on your website, you have the most control over what they interact with, and what actions they take. It’s like when a friend shows up to your party. You set the tone for the experience they have.

An Example:

To understand the potential effects of conversion optimization, let’s look at an example:

  1. Woofair is an e-commerce company that gets 500,000 unique visitors/yr.
  2. The current conversion rate is 5%, and the average order is $50.
  3. 5% of 500,000 visitors is 25,000 people that made a purchase.
  4. 25,000 x $50 = $1.25 million in revenue.

Here’s where conversion optimization gets pretty sweet. If you can increase the conversion rate by 2%, that’s an additional 10,000 customers per year, which ends up being $500,000 in revenue. You now have $1.75 milion in revenue.

Make no mistake, it takes quite a bit of work to make more people convert, but it’s a gift that keeps on giving. What makes conversion optimization extremely powerful is that you aren’t paying for more traffic, but instead, monetizing more existing visitors.

Lastly, while conversion optimization is a great way to grow your business, you shouldn’t expect this to drive exponential growth. It’s unrealistic to expect that you can achieve a 25% conversion rate, and while I don’t doubt that this can happen for certain organizations, it’s an outlier, not a norm.

Risk/Opportunity Breakdown:

  1. The market is known
  2. The product is known

2. New Marketing Channels

If you try increasing the conversion rate of a website that gets 100 visitors/mo, you’re going to struggle. That’s like inviting 5 friends to your party, and being surprised when 3 actually show up. You need to invite more people!

When a company is looking to reach more humans, it looks something like the following:

  1. Advertising
  2. Guest posting
  3. Blogging
  4. PR
  5. Affiliate marketing
  6. City launches

You get the point. This is a list of different marketing channels a company could leverage. The most successful companies find a way of “automating” this process. These marketing channels scale. Instead of manually writing posts, they get other people to write the posts for them (i.e. – Buzzfeed).

A few other examples include:

  1. Yelp – user generated locations/reviews (great for SEO)
  2. Dropbox – referral program
  3. Uber – new city launches + bad PR + an effective referral program

When testing new marketing channels, there’s a fair amount of ambiguity around whether the channel will work or flop. After an ideal channel has been found, the risk-level decreases as the marketing team begins work on optimizing ad copy, targeting, and other small details.

It’s common to spend thousands of dollars (or many hours of your time), only to find that a particular channel doesn’t work. It’s like running around town, yelling “I’m having a party, you should come.” If you yell this in a nursing home, you probably won’t get much interest, but if you yell this in front of friends, they might be interested.

Risk/Opportunity Breakdown:

  1. The market is new (will my existing product appeal to a new market?)
  2. The product is known

Because the market is unknown, I consider this more risky than conversion optimization.

3. New product(s) for current customers

Another growth lever for established companies can be accomplished by creating a new product for an existing customer base. A great example of this is what New Relic is trying to do with their insights product. They already have thousands of developers using the application monitoring service, so why not try to sell a new product (analytics) to current customers (developers)?

The big question that needs to be answered in this situation is whether the existing customer base actually wants the product or not. While this is not an easy question to answer, it’s much easier to learn this in the software world, than it would be for a physical business where there’s quite a bit of overhead (i.e. – local restaurant opens ice cream shop.)

Risk/Opportunity Breakdown:

  1. The market is known
  2. The product is unknown (will existing customers buy my new product?)

Personally, I’d rather release a new product to an existing market, than try to drum up interest from a new market segment.

4. New product(s) for new customers

Finally, there’s the home run option; this happens when a company pursues a new market, with a new product. This is the most risky ways to grow, but there’s potential for a huge reward. To illustrate, Hubspot recently launched a new sales platform. They’ve dabbled in sales in the past (with Signals, now Sidekick), but as a company known to sell to marketers, sales people is the new market. They also have a new CRM to sell. That’s a double whammy of ambiguity.

Risk/Opportunity Breakdown:

  1. The market is new
  2. The product is unknown (will new customers buy my new product?)

Wrapping things up

Different companies have different growth trajectories. A public company has different expectations compared to a small bootstrapped software company. It’s important to keep this in mind, and also to recognize the places where ambiguity exists.

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