- The speaker, Gustav, discusses three main topics: product market fit and retention, growth channels and tactics, and decision making.
- Gustav emphasizes the importance of achieving product market fit and good retention before focusing on growth.
- He highlights the need for startups to do things that don't scale in the early stages, using the example of Airbnb's founders meeting with hosts to improve their product.
- Gustav suggests using unbiased data to measure product market fit, focusing on a metric that represents the value of the company.
- He mentions that the frequency of measuring this metric varies for each company.
- Gustav uses the example of Airbnb, where the metric representing value is bookings and stays.

- The video discusses the importance of measuring retention in different types of businesses
- It explains how repeat usage is a better indicator of product market fit than other metrics such as net promoter score or surveys
- The video also mentions the significance of growth channels and tactics in scaling a business
- It emphasizes the need for conversion rate optimization and improving every step of the product experience funnel
- The video concludes by highlighting the importance of focusing on growth channels once product market fit has been achieved.

- Conversion rate optimization focuses on improving various aspects of a website or product to increase conversion rates.
- Important areas to work on include internationalization, authentication flow, onboarding, and purchase conversion.
- Growth channels to consider include Google (through paid marketing or SEO), referrals and virality, social product strategies, targeted sales to a specific customer list, and online marketing (only if there is revenue).
- Referrals can be enhanced by optimizing the referral product funnel and the referral invite email.
- Paid growth requires revenue and understanding customer acquisition cost (CAC) and predicted revenue to ensure profitability.
- It is important to focus on one or two channels that are most relevant to the product and invest time and effort in mastering them.

- Startups should not wait 8 months to determine the value of their product, but instead look for early indicators of success.
- The main channels for online marketing are Google, Facebook, and Instagram.
- Search engine optimization (SEO) has become more competitive, and small companies need to be as good as big companies to succeed.
- SEO involves optimizing the text on your website so that Google can understand what it's about.
- The two main levers for SEO are on-page optimization (e.g. page title, keyword research) and off-page optimization (building inbound links).
- A/B testing is a powerful decision-making tool for startups, but most startups don't need to focus on it initially.
- A/B testing involves running parallel experiments to measure the impact of changes on metrics.
- Airbnb used A/B testing to make decisions about a new sharing sheet and a sign-up wall in their app.
- Startups should focus on doing things that don't scale and building a culture of experimentation.

Gustav discusses product market fit and retention, growth channels and tactics, and decision making. He emphasizes the importance of achieving product market fit and good retention before focusing on growth. Gustav suggests using unbiased data to measure product market fit, focusing on a metric that represents the value of the company. He also highlights the significance of growth channels and tactics in scaling a business. The video concludes by emphasizing the importance of focusing on growth channels once product market fit has been achieved. Startups should focus on doing things that don't scale and building a culture of experimentation.

YC Partner and growth expert Gustaf Alströmer talks about how to measure product market fit, how to decide on a growth channel, metrics that lie about PMF and other mechanics of growth for startups.

Transcript and lecture slides here: https://www.ycombinator.com/library/6k-growth-for-startups

This lecture is part of YC's Startup School, a free online program and global community of founders. Register and join the community at https://www.startupschool.org/

Timestamps
00:00 Introduction
1:36 Do things that don't scale
3:55 Case study: Airbnb
8:33 Product-market fit
16:30 Growth channels and tactics
18:29 Conversion rate optimization
21:37 Growth channels to explore
25:46 Referrals & virality
28:16 Paid growth
30:20 Search Engine Optimizaion (SEO)
33:12 A/B Testing
37:45 Conclusion

I'm going to give a talk on growth for startups.

This is going to be for some of you guys not super relevant right now because you might not have launched.

And thinking too much about growth when you haven't launched isn't that relevant.

But for those of you that have launched, this is hopefully going to be good talk.

So I'm going to cover 3 different things today.

First I'm going to talk about product market fit and retention.

The reason that that relates to growth so much is because working on growth before you have product market fit and good retention is not a good idea.

The second thing I'm going to talk about is growth channels and tactics.

These things definitely apply after you have launched and often after you have a good product market fit.

You've found something that people really want and then you want to scale it up to the larger world.

And lastly I want to talk about how you make decisions.

When you have several people on your team, you want to start redoing things and you're not really sure exactly if you're making the right decisions or not.

And this also things that apply when you're a little bit bigger.

So my background, I learned most of these things I'm gonna talk about at Airbnb.

I worked on the growth team for almost 5 years from where we're 2 people until we're over 100 people on that team.

Most of the lessons I'll talk to today are things I learned there.

Most of you are gonna be somewhere on this line.

Most startups don't have product market fit.

Founders tell themselves that they do and they try to convince themselves that this is working, but the truth is for most companies it's not working.

So that means you're gonna be somewhere on this line.

People also have this idea that if I launch my product, it will work.

Somehow it's going to work if I just tell the world that I built my product and it's not now there.

The world is a really busy place and there isn't really lots of people waiting for you to launch your product.

They're not standing there and they're not going to try it the moment you launch it.

That is unfortunately not the truth And for many people who have never thought of these questions before of how do I reach the world, this actually comes as a surprise.

People have been used to working in big companies where this is not a problem.

People have been used to going to school or other areas where this is just not a problem.

In this case, when you launch a startup, it's all down to you, and it is going to be a problem in the very, very early days.

There's a great article that I recommend for you guys to read on this.

This is called Doing Things That Don't Scale by Paul Graham.

It is about the early days of the Airbnb story.

And the thing that's really important about this is as a founder, you need to keep 2 different skill sets in mind as your company grows.

In the beginning of your company, you're going to do a lot of things that don't feel right.

They don't feel natural to you because it's not the kind of thing that you learned in your previous jobs or in school.

It's just like the most kind of physical or real things that you have to do that you aren't going to be relevant later on.

But later on, as your company grows bigger, you're going to be doing a lot of things that are things that are related directly to software, and are things that scale as a company.

So these are 2 things, 2 skill sets that you have to keep in mind at the same time.

NYC, we have this thing where we tell companies that you just launched, you gotta do things that don't scale.

And we got lots of these MBAs that went to school and said, well, this idea does not scale.

Standing outside of this store or standing in this elevator to sell people something, that certainly doesn't scale.

But that is where everyone needs to start.

And if you went to school and you learned they should only work on things that really scale, you're gonna have to unlearn that skill because when you start your company, the most important thing is going to do things that don't scale.

So if you get comfortable with that idea, this is the early days of Airbnb.

The article I mentioned earlier doing things that don't scale tells the story of the first year or 2 of Airbnb.

When the founders came to YC, they had spent almost a year trying to get Airbnb off the ground.

This was the first version of the Airbnb website, airbedandbreakfast.com.

In fact, the website itself didn't really speak to what the company does.

It was started as a website to offer air mattresses to people that visited design conferences.

And they had to navigate the way to find the place where Airbnb is today.

When Airbnb joined YC, the first question they got from Paul Graham was, who are your users?

And at the time, the site looked something like this.

You click on a listing and you had 3 different pieces of information.

You have 1 photo, in this case, of the building from the outside.

And then you have 1 map of where that place was.

Now, at the time, the only comparison to what a site like this would look like would be Craigslist.

So Craigslist wasn't a lot better than this, so at least it met that criteria, but it wasn't something that would make Airbnb take off.

They didn't really have in the product what would make Airbnb take off.

The things that we're missing is, is this a good listing?

How does this listing actually look like?

Lots of things that we're missing in that early product.

The way they'll learn that is they went and talked to their host.

On their first week in YC, Paul Graham told the founders of Airbnb, you guys go and meet your host.

We don't have that many, but most of them are in New York.

So they flew to New York, undercover, not undercover, they claimed to be hired photographers for Airbnb, Airbnb Breakfast.

So when they met with all the hosts, they said, we're gonna come by your home and take photos.

Didn't say that they were the founders, because that made the company sound much smaller.

They came and met with a host, and While 1 of the founders were taking the photos of the listings to make this look a lot better, the other founder sat down with the host and asked them questions about what are the challenges you're having with the product?

Like what are the things that are not working?

And by doing that, they got for the first time to meet the people that were the customers, which they really haven't done before, and they got to see how they use the products.

That's doing things that don't scale, and that is nothing that scales.

You can't go and fly to meet every single 1 of your customers.

But when you start doing that, you will learn things that you can't learn sitting in front of a computer.

So they learned that this payouts thing didn't work or there was a big UI bug on this page or it didn't work on an Internet Explorer well.

All these things that you can't learn sitting in front of a computer.

They went back to San Francisco, back to Y Combinator and they sent an email the morning after and said, here are all the photos we took of your house, they're now up on airbnbreakfast.com and by the way we fixed half of the bugs that you emailed us about, or we fixed the bug that you told us about yesterday.

That made the hosts love them, and those hosts became the reason the Airbnb eventually took off.

Like, doing things that don't scale, fixing the product, making the product work for the early host, which became the backbones of the early days of Airbnb.

So the lesson here is that founders are the ones who make startups take off.

The founders, you guys, are the ones who make the startups take off.

You're going to have to do unconventional things.

You're going to have to do things that don't feel right.

Certainly going to do things that you didn't learn in business school.

And you're just going to do the things that are needed.

And this is basically what the YC batch is about.

When someone joins YC, we're gonna be like, you're gonna launch, because that's the most important thing you can do right now.

But once you've launched, it's like, how do I get users?

For many other companies, that means sales.

For Other companies, that means doing things that don't scale.

Typically people start with their friends, and then friends of friends, and then hopefully you get 1 step further, the people that are now not your friends of friends, and they're gonna give you a true opinion by a company.

Those are the people you're gonna have to reach early on.

It doesn't really start with like, I launch my website and I put up Google ads or I launch my website and somehow it's being discovered.

That's how they end up much later, but that's not how they get started.

There's only 1 way to grow when you're really small and that is doing things that don't scale.

I'm going to talk about product market fit.

This is a terminology that probably most of you have heard of.

This is a thing that's been hard to measure or hard for people to say, do I have product market fit or not?

A lot of people like to tell themselves that they do have product market fit.

It's this thing that we throw around as a way to say, my product is great, so now I have product market fit.

I would argue that there's some ways that you can measure product market fit, and there are many ways that you can't.

So let's talk about the 1 thing that I think is the best way to do that.

I think that the best way to figure out if product market fit is to use data, unbiased data, to understand if you basically have made something that people want.

The 2 ways that I do that, or I start that, the first way is I try to figure out what is the metric, the data point, that represents the value of your company.

The second thing I do is try to figure out how often should I really be doing that?

The metric here is like, are people showing up to the video talks at startup school?

But most companies can be defined this way.

So Airbnb, what is the metric that represents the value?

When I travel at Airbnb, I've experienced the value.

Well, travel is actually mostly an annual thing.

So When we were measuring retention at Airbnb, we were looking at annual.

What's the expected use case of Instagram?

It's basically just coming back to Instagram.

Most people are not expected to post photos every day.

It's just going to be coming back to Instagram and viewing photos.

They want some people to post photos sometimes, but most of the time just coming back is good enough.

So for Gusto, the most valuable thing that they do for their customers is they run payroll.

And they pay out money to employees that are the employees of Gusto's customers.

And by measuring these 2 things, how many people am I running payroll and are they continually running payroll with me?

That's probably the best way to figure out if people enjoy using Gusto, if they're gonna switch to some other payroll provider.

You might wanna think it's rides here, that rides is the best metric here.

Like the people that are taking the rides are the ones that matter.

Because it's the individuals that we want to measure here.

And we not necessarily want to measure the action that they take.

So now we have these 2 metrics, we have a bunch of examples of those companies.

1 piece on the graph is going to be the metric, and the other 1 is going to be the time window.

So every single time window, we can put some percentage of those people on the graph.

On week 0 in the case of Lyft you had 100% drivers.

I basically mean that if I had 10 riders this week that rode with Lyft.

Now, how many of the riders that I had last week are now traveling with Lyft this week?

That is your week 1 number, and the week 2 number, and the week 3 number.

Because we're trying to measure repeat usage.

Repeat usage is the best, most unbiased way to figure out if someone is liking your product.

They might tell you things, but what they do is gonna be the most important thing.

So most companies can be defined this way.

Even if you have a B2B company that do annual contracts, measuring say, what do people do with my product, could be a really good way on like this regular basis.

So even if I would pay for Gusto on an annual basis, which they don't do, measuring the activity I use in Gusto on a regular basis, let's say bi-weekly or monthly, is the way to figure out if people are actually using the product.

So most of the ideas, even your B2B or consumers, could be plotted on this line.

Well if you're ever gonna raise money, this is a graph that investors are gonna ask for.

Like are people actually repetitively using your product?

Those are the things they're really curious about because they know there are other metrics that you might have that don't matter.

Basically, every single week after I started using this product, fewer and fewer and fewer people continue to come back and use the product.

So this graph can be plotted and basically show that this wasn't a good product.

Every week, it eventually flattens out, and the people that stop using the product stop using the product.

And eventually here, week 8, 9, 10, we have a flat line of people that continue to use the product every single week.

That means that they are retained, you have product market fit for those users for this product.

So I'm not gonna ask you these questions, but here are 2 examples of 2 companies that I would argue have product market fit.

The first 1 here has 30% after 2 months and 21% after 20 months.

So you kept a 50 users 21 months later or 20 months later.

DoorDash, DoorDash have A monthly retention of 20% 2 years later, a year and a half later.

Here's another company, more like a B2B company.

So 80% retention after 1 month, and then 30% after 60 months.

This is really good, this is a really good product, very sticky, People like this product and they don't stop using it.

So retention is the best way to measure product market fit.

Let's talk about specific things you might want to, that some people think is a better way.

So here's some worse ways to measure product market fits.

Well, you can just Google the best products and best companies in the world, they all have bad net promoter score.

Like the iPhone, Apple, all of them have bad net promoter scores.

It doesn't necessarily correlate with good products.

Correlates with perceptions of companies.

Problem with surveys is they are going to be biased.

So if you ask your users, you're gonna have some level of bias.

There are good ways to use surveys to improve your products, but it's not gonna be the best way to figure out this metric.

There is 1 cool question you can ask a user, which is how would you feel if you can no longer use this product?

We can give you an idea, but I wouldn't do it instead of of attention.

I was to always try to find a way to measure retention.

All right, so what are some bad metrics for product market fit?

These are not the kind of things you want to throw around.

It's like evidence for your product is working.

Does not say anything about repeat usage or if they liked you or not.

Does not say anything about whether your product is gonna be valuable.

Conversion rate, we have this conversion rate of visitors to something else.

Well, that doesn't really say much because you don't know what people you're converting.

So this does not say much about product market fit either.

And finally, something that should be a paid product, you're giving away for free, is not a good sign of product market fit.

You want to figure out if people are willing to pay for it, because price, if someone says I love this, if it's free, but if it costs money, I'm not gonna use it.

Like then it's not gonna work out for you.

So you wanna make sure that the people that are doing something like this on this graph, if it's expected you pay for the product, they should be paying for the product.

Let's talk about growth channels and tactics.

This section really applies if you have product market fit.

If most of the people that come to your product go down the drain right away and they never come back, this section doesn't matter.

Why would you work on trying to get more people to a product that no 1 is using your product anyway?

If most people are just churning and like they try it once and then they don't come back, like don't work at this stuff.

Wait with this stuff until you have some people that care about your product and you can try to use some of these channels to reach those people specifically.

There's really 2 ways that you can grow at scale.

So when I looked at that team, that's just a photo of the Airbnb team, they worked on 2 things.

They either worked on what I call product growth or conversion rate optimization.

What this means is you have typically engineers, designers, data scientists, product managers, working on improving specific parts of your product to get more people through that funnel.

So good example, I'm gonna give you some example in a second, but that's basically what I defined as the first section.

Most of those people in that photo were in this category.

They were engineers, designers, product managers, and data scientists.

The second group is what I call growth channels.

Growth channels is basically Platforms in the world that people tend to discover products on.

Let me give you some specific examples Google huge Platform for new products to be discovered Anything that you want to use that is a rare behavior in life Google that's what you do Insurance, so I forgot the insurance Google when I find a doctor Google.

Everything you do rarely is going to be Google, which means lots of products are being discovered on Google.

And growth channels like Google is an extremely important 1 for many companies.

Another 1 might be Facebook and Instagram.

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Gustaf Alströmer - Growth for Startups