Fallacy #1: Believing That Growth is Driven by Marketing
Most people think that growth is driven by marketing. But it's usually not true. Marketing compliments growth, but product actually drives it. The time for spending money on marketing is after you reach Product Market Fit.
If you hire a marketing team before Product Market Fit you’ll create tremendous pressures on yourself to spend large sums of money acquiring new customers that will never come back. Many companies spend large sums of cash while believing that a ‘viral’ growth moment is lurking behind the next marketing strategy door. It’s not. The path to viral growth is to keep improving your product. This fallacy is particularly dangerous because you see artificially inflated growth numbers and think you're growing - when you're actually dying.
Fallacy #2:Believing You Should Focus on Customer Acquisition
If you want to grow, focus your entire team on customer retention. Your true growth engine is the quality of your product, and the quality of your product is measured by your customer retention rates. If you're spending money on marketing before you have Product Market Fit, your growth numbers will be vanity metrics, and they will dangerously deceive everyone on your team into thinking you're growing, when you may be headed towards failure.
Fallacy #3: Believing That Growth is Expensive
This false idea is is an outgrowth of fallacies #1 and #2. Trying to grow before you have Product Market Fit is incredibly expensive, and will put the entire company at risk. But because growth is actually driven by product, it means you can stop spending money on marketing until you reach Product Market Fit. For most companies, switching to a smart growth strategy saves them a tremendous amount of money, and significantly increases their odds of success.
Fallacy #4:Believing You Have Product Market Fit This is the single biggest reasons products fail. 90% of products never achieve Product Market Fit, so nearly every company falls victim to this fallacy. When a team has poured 6 months of their lives into building a product, and a few customers start showing up, everyone starts believing that they must have Product Market Fit, and that it's time to start building out the business. This miscalculation has devastating consequences for companies, and to avoid it, you must remain keenly aware of this fallacy and let your feelings be driven by the data, and not by enthusiasm.
The *only* way to know if you have Product Market Fit is to quantify and measure it. The internal conversation teams have about their product must be changed from an internal subjective conversation (we have an amazing product!) to a quantifiable and objective customer retention metric (our retention is 4%). Retention is the objective measure of how good your product actually is. And it's the metric that tells you how close you are to Product Market Fit.
Fallacy #5:Believing You Can Build a Great Product
Building a great product today requires a lot more than the genius of a single founder or small team. In addition to a great team, it also requires vast amounts of customer feedback, as well as a great feedback loop that promotes correct product decisions for rapid product iteration. The teams who build great products today are the teams who build great feedback loops between their customers and their products.
The fundamental insight shared by all great product teams today is that most of the key insights you need about your product cannot be found in your own mind. Those insights are sitting in the minds of your customers. And building a great product is the exercise of mining those insights as quickly as possible.
4 Truths About Growth
Truth #1:Growth is Driven by Product
It takes a tremendous amount of discipline to stay focused on product until reaching Product Market Fit, especially when you have real growth pressures from investors and employees. But regardless of growth pressure, anything that distracts you from focusing on reaching Product Market Fit is lowering your odds of success. 90% of startups try to scale before they have Product Market Fit - this mistake is the leading cause of startup failure.
Truth #2: Great Products Require Vast Amounts of Feedback
Very few companies collect and analyze customer feedback in a meaningful way, largely because they don’t understand its value. But also because gathering customer feedaback is hard, and analyzing it can be complex. Good customer feedback is gold, and the more high quality feedback you have, the greater your advantage. Companies like Slack and Airbnb understand this principle deeply, and are obsessive about gathering and studying their customer feedback. Converting customer feedback into correct product decisions is the most effective path to growth. And building a great product is about gathering as much feedback as possible, interpreting it correctly, and then turning it into product decisions.
Truth #3: Great Products Are Built by Great Feedback Loops
When most people see a great product they assume that a brilliant team came together and built a great product. 10-15 years ago that was generally true. But software and product development have evolved rapidly and are far more competitive today. When you see a great product today what you're actually seeing is a smart team who built a great feedback loop, and with that feedback loop they built a great product. In today's environment, smart teams with great feedback loops outcompete brilliant teams without feedback loops.
Truth #4: The Quality of Your Product Can Be Measured. You Must Measure. You must objectively quantify how good your product is. It doesn’t matter what your friends or family think about your product. And it certainly doesn't matter what you or your team think about the product, you are by far the most biased. The only way to measure the quality of your product is by measuring customer retention. If 100 people signup for your product on day 1, how many of them are still using it on day 30? That number is an objective measure of how good your product is. Get that number high enough, and you have Product Market Fit.