Learn how to grow your startup with Sean Ellis, the “Father” of Growth Hacking

If you’re looking for experts that can advise you on when and how to scale your startup, Sean Ellis should be one of your first calls. Sean coined the term “growth hacker” in 2010, after helping companies like Dropbox, Eventbrite, LogMeIn, and Lookout achieve breakout success and billion-dollar plus valuations.

Today, he’s the Chief Evangelist at GrowthHackers, a company he founded in 2016 to “help teams work together to drive breakout growth results for ‘must have’ products and services.” During the summer of 2012, Sean spoke at Alchemist and distilled some of his most valuable insights around product-market fit and developing strategies for growth. His advice provides a significant and preliminary roadmap for early-stage founders, as they look to take the next steps with their startups. Sean shared insights across several different, critical areas.

Product-market fit is important…but what exactly does it mean?

For every startup, finding “product-market fit” is a critical early inflection point. Sean notes that Marc Andreessen, founder of a16z, and one of the first people to coin the term, emphasized that founders should be obsessive in pursuing this state. Andreessen sees it as so make-or-break that every business can be categorized in a binary manner, as either “pre” or “post” product-market fit.

Despite its importance, Sean observes that a metric-based, universal definition of product-market fit has proven elusive. Through his operating experience, Sean has developed a potential solution to this “mystery.” Put simply, companies need 40% of their users, within a large segment of their market, to be in a place where they’d be “very unhappy” without the product. That seems like a clean, elegant solution. But, what is a large segment of your market?

Sean has a few answers. First, you should look for some type of 40% cluster within your user base. Next, try to figure out whether that group is meaningful, or merely an edge case. For example, if 80% of men are really unhappy without your product, that’s meaningful. However, if 80% of men between the ages of 37-40 in Oakland are really unhappy without your product, that’s an edge case.

While definitions are a helpful starting point, there is limited utility in theory. Sean’s unique value comes from his experiences in helping companies achieve breakaway success. To reach product-market fit, he has a few key suggestions.

Have a concrete plan for growth.

  • Pain Point First: Find that there’s real frustration around the problem you’re solving, before you even write a single line of code.

  • Early Feedback: Release an MVP to get feedback on your product as early as possible.

  • Find Your “Must-Have” User: When you find this user, or group of users, who really need your product, learn as much as you can about them. Explore some of the following questions:

    • Why do they need your product?

    • How are they using it?

    • What’s the primary benefit they’re getting from using your product the way that they do?

Sean realizes that it’s tempting to find people who don’t like your product, so that you can try to improve and iterate. It makes sense, but he emphasizes that it won’t lead you to create consistent value. Instead, he advises that you discover everything you possibly can about your “must-have” users, and find out what makes their experience “must-have.” From there, you can start to identify must-have groups and execute on their needs, as they continue to engage with your product. Sean stresses that your product roadmap should be tailored to replicate the experience that’s been resonating so strongly with these must-have users.

Funnel optimization is critical, and it always pays off.

There are a few key skills that can help founders on their journey to product-market fit. According to Sean, funnel optimization might be the most important. He emphasizes that it’s necessary to analyze every point of the conversion funnel. This process can be frustrating, because users are typically unresponsive and unwilling to give meaningful feedback.

However, even if you’re frustrated, Sean says you can't give up or give in. Even a 1% response rate, with months of funnel analysis, can provide significant value. Sean explains that in one case, a company he worked with tripled their conversion rate with minor tweaks to messaging on their platform. Through survey results, they were able to see that users were unsure whether they were actually downloading a free version of their product. A minor tweak that more clearly distinguished between free and paid versions led to the 3X increase in conversion.

Know when to grow.

For most companies, there’s a lot of uncertainty around when and how to scale. Sean suggests that it’s optimal to spend and scale aggressively when you’ve reached the key 40% very unhappy stage, and when you have a positive ROI.

He also notes that, for freemium products, the free version is an excellent customer development channel for premium offerings. This testing ground lets them observe actual user behavior and see where there’s real value. He implores the audience to think about products in their lives that hooked them on their free versions, before getting paid subscriptions. For Sean, Skype was one of these products that quickly came to mind.

The network effects complication.

Toward the end of his talk, Sean makes a key distinction: there’s a big difference between traditional growth companies, and companies that rely on network effects. He asserts that, with network effects, it’s not possible to simulate the value of the company at critical mass, because it continually gets more valuable over time.

These companies don’t have the luxury of finding product-market fit, followed by optimization and growth – they must do all these things at once, which makes the process much more challenging.  

Key takeaways in 50 words or less.

Find people who really need your product and engage deeply with them. Optimize your sales process to increase conversion at every point of the funnel. Recognize that purely viral growth is not sustainable. There has to be a “must-have” experience underlying growth, or you won’t be able to retain users.


About the Alchemist Accelerator

Alchemist is a venture-backed initiative focused on accelerating the development of seed-stage ventures that monetize from enterprises (not consumers). The accelerator’s primary screening criteria is on teams, with primacy placed on having distinctive technical co-founders. We give companies around $36K, and run them through a structured 6-month program heavily focused on sales, customer development, and fundraising. Our backers include many of the top corporate and VC funds in the Valley—including Khosla Ventures, DFJ, Cisco, and Salesforce, among others. CB Insights has rated Alchemist the top program based on median funding rates of its grads (YC was #2), and Alchemist is perennially in the top of various Accelerator rankings. The accelerator seeds around 75 enterprise-monetizing ventures / year. Learn more about applying today.

Emotional Triggers and Investing

Directors like James Cameron, James L. Brooks, and Steven Spielberg are masters when it comes to understanding human emotion. In just a few short scenes, they can leave a whole audience in tears. They aren’t doing anything magical. They’re just appealing to the same human emotions we all have. As an Alchemist Accelerator Partner, I teach founders how to apply the same principles to fundraising. Get an investor emotionally excited and investment comes naturally. Try to beat them to death with numbers and figures, and you’ll just spin your wheels. Investors see thousands of pitches a year and fund a handful. If you want to win, you have to get them excited and snap them out of their default behavior of “no.”

Luckily for founders, investors are human too. So naturally, they have common emotional triggers that spark excitement, and ultimately, investment. In working with hundreds of founders, as well as raising $5.4million in seed funding for my own startup, I’ve identified eight emotional triggers nearly all investors respond to. By focusing on conveying these points to prospective investors, founders stand much better chances of raising capital and ultimately building great businesses.

The eight emotional triggers are:

  • Big Market

  • Rapid Growth

  • Why Now?

  • Unfair Advantages

  • Founder Strength

  • Founder Bond

  • FOMO

  • Confidence

Big Market

Investors live and die by their returns. The only way to get big returns is to invest in companies that have potential for big exits. For most investors, big market is a fairly binary measure: “Is the TAM (total addressable market) large enough to get me outsized returns on my investment?” they’ll be thinking. If the TAM is over $2B, you’ll get a check and if it’s less than $2B, they’ll likely have to pass—even if they really like you. So make sure you help your investors know exactly how big your market is by helping them do the math. If an investor is asking questions about how many customers are in your space or how big you think the market is, don't make them guess at the answers. Give them all the data they need to help them understand the TAM. This is especially important if there's a general perception your market may be too small.

Rapid Growth

The only thing that separates a startup from a small business is rapid growth. It’s literally the definition of a startup. The easiest way to demonstrate a rapidly growing company is to, of course, be growing rapidly, which typically means you’re adding users, customers, or revenue quickly. However, if you’re pre-revenue or pre-launch, growth projections can also help to convince an investor that your business is about to take off. If you've done the work in Excel to know you're adopting the best business model, now is the time to use it to convince someone else.

Why Now?

The why now question is really a two-part question of movement. Why has this business never been possible until now? What has changed now to make this business possible for the first time? After all, fresh ideas are nearly impossible so chances are others have come before you and failed. You need to explain what has changed that will make your vision succeed. Market movement creates opportunity. You see it. They see it, but only you know how your business can best seize the opportunity to create billions more for the benefit of both of your organizations.

Unfair Advantages

Investors recognize there are lots of smart people in the world, so becoming a successful company in a crowded marketplace requires more than just efficient execution. Describe precisely how you're creating a new earnings engine as well as any unfair advantages you may have. For example, if you have extreme domain knowledge around analyzing very large datasets or have worked in the industry you're targeting with your new product (e.g., healthcare), you should highlight that in your pitch.

Founder Strength

Building any successful company is hard. Building a multi-billion dollar company is nearly impossibly hard. When investors invest in your business, they can’t just believe in your idea. They have to believe in YOU. The best way to convince them is to show them a history of exceptional achievements. For example, if you have a new security technology, are you already an inventor holding patents or do you have a CISSP? Name drop. Make connections to your market. Mention achievements and show off logos. Be sure to share all of your founding team strengths.

Founder Bond

Co-founder conflicts are among the top reasons startups fail. It’s not talked about every day on TechCrunch, but investors see it all the time in their portfolios. So when a potential investor asks, “How did you and your co-founder meet?” he or she actually doesn’t really care about your cute story of growing up together and your mutual admiration of Pokemon. What the investor really wants to know is if you and your co-founder are committed to each other enough to stick it out through the ups and the inevitable downs of startup life. Founders who have bonded because they've known each other awhile often have an edge because (presumably) their relationship has already weathered some turbulence.

Fear of Missing Out (FOMO)

In the public markets, investors pay big money for the privilege of investing in stocks at a future date, at a current known price. It’s called option trading and it’s a multi-billion dollar market in the U.S. alone. In the private market, investors get “free options” all day by telling founders simple things like “We’re still discussing things internally” or “We’re still working through diligence items.” As a founder, it’s your job to move these maybes to real answers. The best way to do this is by appealing to what we all fear, which is missing out on something that might be amazing.

Confidence  

Investors are looking for founders with confidence. After all, if you aren’t confident in your own business, why should the investor be confident in your ability to make it successful? One of my fundraising mentors, Michael Carter, used to remind me, “It’s your job to be confident.” That haunted me during my own fundraising process, but it also provided a healthy reminder that confidence isn’t an emotion. It’s something you can project through tone, body language, and deliberate actions—even if deep down inside you feel anything but confident.

Emotion stays with us, making the discovery of the right human connection a significant factor in an evolving investment strategy. Talk. Uncover. Discover. Emotional triggers have the power to accelerate your funding success.


About Michia Rohrssen

Michia Rohrssen

Michia Rohrssen is the CEO of Prodigy, the fastest growing auto startup. He is also a founder/blogger at B2BFounder.com, providing actionable insights from a founder in the trenches. Before Prodigy, he served as Head of Growth at VentureBeat and CEO of Smarter Solutions. Learn more at https://getprodigy.com.

About the Alchemist Accelerator

Alchemist is a venture-backed initiative focused on accelerating the development of seed-stage ventures that monetize from enterprises (not consumers). The accelerator’s primary screening criteria is on teams, with primacy placed on having distinctive technical co-founders. We give companies around $36K, and run them through a structured 6-month program heavily focused on sales, customer development, and fundraising. Our backers include many of the top corporate and VC funds in the Valley—including Khosla Ventures, DFJ, Cisco, and Salesforce, among others. CB Insights has rated Alchemist the top program based on median funding rates of its grads (YC was #2), and Alchemist is perennially in the top of various Accelerator rankings. The accelerator seeds around 75 enterprise-monetizing ventures / year. Learn more about applying today.