Navigating the Growth Adventure - Vol. 2
This article is volume two of my three-part discussion about Startup Growth.
See my previous write-up here.
In the world of startups, addressing growth stalls requires more than conventional responses. 25V advocates for a systematic approach to analyzing growth stalls by posing targeted questions, gathering data, and conducting a thorough assessment. Rather than focusing solely on surface-level metrics like revenue and active users, we believe the key is to delve into the intricacies of retention metrics to uncover underlying issues.
In 2015, during my tenure as the VP at LessThan6Percent, we embarked on a transformative journey by repositioning our brand as UpNest. This pivotal period marked substantial growth for the company, yet we encountered challenges at the matchmaking level within our marketplace. Recognizing the significance of addressing these challenges, we conducted a comprehensive analysis that ultimately paved the way for our success, leading to UpNest's acquisition by NewsCorp/Realtor.com in 2022.
I think there were only five of these made. Two of them are with me.
My oldest was three in this photo. (2013)
One of the key insights we gained during this crucial period was the realization that one side of our marketplace was opting for services outside our platform, either after interviewing our listing agents or even before having a chance to engage with the agents we carefully curated for them. This insight prompted us to delve deeper into the dynamics of the matchmaking process.
Through meticulous exploration, we discovered that the probability of a home seller choosing one of our agents increased if a proposal was delivered to them within six hours. What was even more interesting as we unraveled the optimal number of proposals necessary to make a decision. It became evident that more than four proposals were deemed excessive, and, in most cases, the top three proposals were just enough to facilitate decision-making.
For the buyers of our marketplace, engaging them elegantly and intelligently helped our conversion 3x.
To arrive at these insights, we engaged in meaningful conversations with both sides of our marketplace – the home sellers (buyers) and our listing agents (sellers). This dual perspective allowed us to understand each stakeholder's nuanced preferences and pain points.
Importantly, we identified that our previous brand name, LessThan6Percent, had inadvertently created an environment where home sellers were overly fixated on the discount aspect of the agent's business.
Recognizing that the decision to work with an agent involved more nuanced considerations than just discounts, we refocused our messaging and addressed latency issues in our proposal delivery process. We acknowledged that factors such as the services offered, reputation, experience, and customer satisfaction held greater significance for home sellers when entrusting the sale of their most valuable asset.
We successfully realigned our brand and platform by taking a strategic and empathetic approach to solving these challenges. This deep dive into understanding the needs of both buyers and sellers allowed UpNest to achieve remarkable growth, culminating in its acquisition. The lessons learned during this transformative journey underscore the importance of adaptability, customer-centricity, and continuous improvement in the dynamic landscape of the real estate marketplace.
Despite our initial success, we were confronted with another significant hurdle – a concerning increase in churn on the sell side. The perplexing question arises: why, after a successful onboarding process, are agents not actively submitting? To overcome this challenge, it's imperative that we thoroughly investigate the underlying causes and implement strategic measures to address the factors leading to agent disengagement post-onboarding. We were going through another growth stall.
Understanding the Growth Stall
A ”growth stall” occurs when a product's churn rate surpasses its ability to attract new users and reactivate existing ones. This is evident in cohort retention curves where churn impacts a percentage of the user base over time. The challenge is that growth channels for acquiring new customers often exhibit linear patterns while churn steadily increases. This misalignment contributes to the stall in growth.
Probing into Retention
The initial step involves investigating retention. Critical questions include:
What are the product's Day-1 / Day-7 / Day-30 metrics, especially in consumer-oriented scenarios, and how do they compare within the product category and competitors?
Does user activity align with expectations, and does the DAU/MAU ratio reflect the intended frequency?
Different product types warrant unique metric considerations, such as demand-side churn for marketplace companies or benchmarks for enterprise SaaS products.
Benchmarking against successful products with similar metrics becomes crucial in assessing the underlying health of retention.
At UpNest, we discovered that agent engagement hinges on their successful interview selection and securing listings. However, we encountered a challenge – a scarcity of home sellers (buyers) contrasted with an abundant supply of listing agents (sellers). In response, we pioneered an innovative approach to cultivate power users, those consistently securing interviews. We proactively enhanced their profiles via automation, invested time gathering information crucial to our marketplace's liquidity, and expedited matches by furnishing comprehensive details. This encompassed a blend of user-generated and intake call data from home sellers. Surprisingly, this strategy enabled us to identify power users in each market, boosting conversion rates and elevating satisfaction levels among our home sellers.
Addressing Poor Retention: Beyond Features
In cases of poor retention, 25V is against relying solely on feature additions. I have said this over and over in the previous piece. I can’t say this enough. Instead, emphasize the importance of reassessing initial user activation strategies and focusing on the needs of the silent majority of users who churn. This includes evaluating the effectiveness of the product's activation strategy and recognizing the potential influence of network effects.
Sustained growth with strong retention indicates a solid foundation. We advocate shifting focus towards identifying repeatable growth strategies, exploring diverse marketing channels, learning from successful competitors, and attaining consistency in user acquisition methods. It is crucial to exercise caution against relying on fleeting growth spurts, highlighting the significance of systematic experimentation for ensuring sustained, long-term growth. During our due diligence phase at 25V, we may discount or outright remove spikes in growth resulting from conferences or acquisitions, recognizing that such instances often lack the sustainability required for lasting success.
Growth Loops: A Transformative Dynamic
The concept of growth loops introduces a transformative dynamic to product scalability. These loops attract users and prompt them to take actions that, in turn, attract more users. Examples are viral loops and User-Generated Content (UGC) SEO-driven loops. Discovering and implementing these growth loops demands a product-led approach, blending insights from marketing, product development, and growth hacking.
An exemplary illustration of this strategy is the initiative undertaken by Redfin with Agent Tours. Recognizing the value of insights from their agents who had previously toured homes, Redfin created exclusive content that set them apart. I attribute this pioneering approach to my brother, Christopher Diez, who served as one of the early Redfin Field Agents around 2007. While the concept took root during his tenure, the full-fledged release of this feature occurred around 2016. Subsequently, numerous other companies embraced similar approaches, introducing variations to the concept. At Movoto, we referred to this as unique user-generated content at least when I was there in 2019, emphasizing creating distinctive and valuable content derived directly from our users' experiences. Redfin went public in 2017 with a successful initial public offering(IPO).
In 2009, Movoto strategically bolstered its SEO efforts with a highly effective growth strategy, introducing captivating Top Ten Lists. These lists, spanning diverse categories such as parks, restaurants, clubs, and various points of interest across all fifty states, emerged as catalysts for enhancing Movoto's online visibility. The meticulous groundwork for Movoto's SEO triumph was laid by my former colleague, Travis, and a dedicated team of writers based in Indiana. Their intricate construction of the SEO framework formed the bedrock that later evolved into the cornerstone of Movoto's digital presence.
Recognizing the imperative for ongoing enhancement, Movoto’s commitment to SEO excellence continued post the Recruit Holdings acquisition. In 2013, we strategically enlisted the expertise of Toshi, an SEO virtuoso from Japan, to refine and optimize the existing framework further. The collaborative efforts of Travis, the writing team, and Toshi played a pivotal role in steering Movoto's substantial traffic growth over the past decade. Their collective dedication and strategic approach significantly contributed to Movoto's enduring success in navigating the dynamic landscape of online visibility. Movoto was acquired by OjO Labs in 2020.
The journey from stagnation to sustained growth necessitates a nuanced understanding of retention metrics, a willingness to confront undesirable truths, and a strategic shift towards repeatable growth strategies. Implementing growth loops becomes pivotal in ensuring consistent user signups and engagement, propelling a product's growth in a self-repeating cycle.
To be continued….
P.S. Stay with me on this journey.
Maximilian Diez is a general partner at Twenty Five Ventures, investing in early-stage consumer products startups with a keen focus on marketplace and platforms. He serves on the Board as a Trustee and contributes to the Endowment Committee at the University of San Francisco. He managed his first million-dollar portfolio at the remarkably young age of 19.
He shares insights on user growth, product development, and vertical integration through his writings and contributions to the entrepreneurial community. He has been invited to speak in front of thousands of industry leaders, captivating audiences from New York to Las Vegas and even as far as Athens, Greece.
He is a devoted husband to Nina and a superhero dad to their two kids. They reside in the San Francisco Bay Area.
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