- Gustav, a partner at YC, discusses the importance of getting paying customers before using paid growth in social network platforms or platforms with network effects.
- Historically, social products relied on advertising for monetization, but now fewer companies use advertising as a business model due to competition with Google and Facebook.
- Paid growth can only be effective if there is an ROI calculation, meaning the company knows how much money they make back from each user acquired through paid marketing.
- Implementing a monetization model that hinders growth is not ideal, and it is important to align the value users get from the product with how they pay for it.
- The use of paid growth is becoming more important, as platforms like Google and Facebook have shifted their tactics and monetize usage.
- Having event analytics tools like Mixpanel or Amplitude is crucial for understanding user behavior and optimizing product flows.
- Google Analytics is not sufficient for most companies and additional tools like Amplitude or Mixpanel are recommended.

- The speaker recommends using tools like Amplitude or Mixpanel for baseline analytics in any type of company
- For early-stage companies, it is important to focus on building personal relationships with customers rather than relying on automated tools
- User feedback can be gathered by showing product screens to random people and asking for their thoughts
- User testing platforms like usertesting.com can also be used to gather feedback on product usability
- When starting a marketplace, it is recommended to build up the supply side first and validate demand before expanding further
- Curating an initial list of high-quality suppliers and providing a good user experience can help retain customers in a marketplace.

- The speaker emphasizes the importance of retaining customers and getting feedback on their experience
- They suggest asking for qualitative feedback from customers and conducting surveys for churned users to understand why they had a bad experience
- It is recommended to ask for a phone number during sign-up to easily contact customers for feedback
- Pricing is an important aspect of product-market fit and may require experimentation and adjustment
- Referral programs can be effective for products with word-of-mouth and require a friend's recommendation
- Referrals can push customers to try a product and should be integrated into the user workflow
- The success of referral programs depends on the amount of money being offered and the regular activity of users
- Lounge Looks, a beauty and grooming platform, is advised to consider paid marketing and referrals as scalable growth channels
- Lead time, the time it takes to close a sale, is not applicable to the consumer side of travel but exclusivity, scarcity, and urgency can influence consumer behavior.

- Consumers are susceptible to tactics like exclusivity, scarcity, and urgency, but these can be considered dark patterns if they don't add value.
- Instead of using these tactics to manipulate users, it is better to provide information that creates a genuine sense of urgency or exclusivity.
- Implementing a referral program in B2B can be complicated, as it depends on the likelihood of knowing other potential buyers and legal implications.
- For unfamiliar products or names, showing the product and including social proof can help generate enthusiasm and trust.
- Balancing growth with addressing cosmetic bugs and quality of life issues is essential, as both are interconnected and necessary for success.
- Understanding what drives growth and retention is crucial in prioritizing actions to address bugs and improve the product.
- The recommendation for SEO for early-stage startups depends on the specific circumstances and goals of the startup.

- SEO is still a valuable channel for early stage startups, especially for capturing keywords related to new questions or topics.
- The success of SEO depends on the competitiveness of the keywords being targeted.
- There are two approaches to growing SEO: writing high-quality content or using automated content creation.
- Social media marketing channels constantly change, and buying ads is the most scalable option.
- To measure retention for a service that takes a long time, track dropouts and identify predictive metrics for dropouts.
- When approached by potential customers, determine their willingness to pay for the product before proceeding.
- For a luggage sharing app, building an app with a map feature and ensuring trust and safety are important. Integrating with Airbnb or reaching out to Airbnb hosts could help reach a larger audience.

- The speaker suggests that Airbnb hosts could offer luggage storage services to guests, especially in cities where people do a lot of walking and need to store their luggage while they explore.
- The speaker proposes an app where users can request someone to pick up and deliver their luggage for a fee, similar to how Uber operates.
- The speaker mentions that in Japan, 7-Eleven stores offer a service where travelers can drop off their luggage and have it sent to their hotel.
- The speaker believes that once people try this luggage storage service, they will continue to use it.
- The speaker suggests that there is an opportunity for a company to build a successful luggage storage service, as the existing companies are small and lack a recognizable brand.
- The speaker advises against offering a year-long free trial for a product, suggesting that a shorter trial period would be more effective in converting users to paying customers.
- The speaker explains that relying solely on advertising revenue is not sustainable for a company, and that subscriptions and microtransactions are becoming more accepted by consumers.
- The speaker suggests using consumer-grade growth strategies for B2B SaaS companies, such as utilizing email addresses from employees at other companies to invite them to use the product.
- The speaker recommends creating viral content and making it easily shareable within companies to drive growth.
- The speaker emphasizes the importance of building virality into the product itself, rather than relying solely on referral strategies.

- Gustav, a partner at YC, emphasizes the importance of acquiring paying customers before implementing paid growth in social network platforms or platforms with network effects.
- Advertising is no longer a popular monetization model for social products due to competition with Google and Facebook.
- Paid growth requires an ROI calculation to be effective.
- Implementing a monetization model that hinders growth is not ideal.
- Event analytics tools like Amplitude or Mixpanel are crucial for understanding user behavior and optimizing product flows.
- Building personal relationships with customers is important for early-stage companies.
- Gathering user feedback can be done through product screen testing or using user testing platforms.
- When starting a marketplace, it is recommended to focus on building the supply side first and validate demand.
- Retaining customers and getting feedback on their experience is crucial.
- Pricing and referral programs can impact product-market fit.
- Exclusivity, scarcity, and urgency can influence consumer behavior, but should add value and not be manipulative.
- Implementing a referral program in B2B can be complicated.
- Balancing growth with addressing bugs and quality of life issues is essential.
- The success of SEO for early-stage startups depends on specific circumstances and goals.
- Social media marketing channels constantly change, and buying ads is scalable.
- Measuring retention for a service that takes a long time can be done through tracking dropouts and identifying predictive metrics.
- Determining customer willingness to pay is important before proceeding.
- Building an app with a map feature and ensuring trust and safety are important for a luggage sharing app.
- There is an opportunity to build a successful luggage storage service.
- Offering shorter trial periods is more effective in converting users to paying customers.
- Advertising revenue alone is not sustainable, and subscriptions and microtransactions are becoming more accepted.
- Consumer-grade growth strategies can be used for B2B SaaS companies, such as utilizing email addresses to invite potential users.
- Building virality into the product itself is important.

Forum post: https://www.startupschool.org/posts/32873

Welcome to another week of Startup School.

Do you want to tell us a little bit about yourself, maybe your background?

Before that I had most of my growth and product learnings at Airbnb, where I spent almost 5 years on the growth team as a product manager.

And spent time on different companies before that working on growth as well.

So I feel like I've seen some really good stuff at Airbnb and some really hard stuff at other companies and that's where my learning comes from.

Good Stuff also delivers several lectures to the YC core participants during the batch on growth and is kind of the main person that our founders turn to to ask questions.

So you've got the right person in the room today.

We're going to take questions from the Startup School forum, we're going to take some from Twitter and YouTube comments if we have time.

But we've got some from the forum already, so let's jump right in.

So, Cologne from My Education Club asks, we're building a peer-to-peer learning platform.

Gustav, you were talking in the video about starting to get paying customers as soon as possible, and not to use paid growth until you have paying customers.

How does this work for social network platforms, or platforms with network effects?

So historically, if you look in the last 10 years, Many of the social products were actually based on advertising.

So the way that you would make money would not be to charge users, but to advertise to them.

What that led to is this idea that you should not try to monetize early.

And that's sort of how many of the early products, Twitter, Facebook, LinkedIn, and many of the others that we know, Snapchat, that's how they grew in the early days.

Sorry, so they were getting users to use the product and then monetizing them once

And nearly all of them were growing without using paid marketing.

So they're all growing through viral invites, or word of mouth, or-

Email and SEO is the way that LinkedIn grows.

So basically, 2 primary channels that LinkedIn would grow would be those 2.

And I would say, for products to have a network effect, where for every user that gets on the product, the product gets better, it really matters to get to that first million, a couple million users.

So LinkedIn in the early days was useless, unless you had some co-workers and people you connect with.

There are not as many companies who get started where the primary business model is gonna be advertising.

The reason for that is it's just hard to build a new advertising platform.

Correct, so the business model for companies, either you're charging users or advertising or some other business model.

And there are just a lot fewer companies today that get started using advertising as a business model.

The main reason is it's extremely hard to compete with Google and Facebook.

They are the best advertising platforms and it's difficult.

It's not like competing with TV or newspapers anymore.

You're competing with 2 really great companies.

So most companies probably shouldn't be going after that business model, which means they're going after a different business model, most likely charging your users in some way.

And if you're going to charge your users,

I guess Twitch would be a good example of something that's like a relatively new business model that evolved after the ad-driven kind of placement.

They enable creators to actually charge money to, like streamers to actually charge money to people who are consuming it, and they earn a percentage of the transactions.

So to go back to the question, how does this work, and how to not use paid growth?

So I would say there's only 2 ways you can really use paid growth as a way to grow a company.

That means you know how much money you make back from every user you acquire with paid marketing, or you don't.

If you do know how much money you're making back, you can scale paid growth as long as you're making enough money back to pay back the money you spent on the marketing.

If you don't know how much money you're making back, you can't really grow on paid growth.

of- You could, but you just spend all your money.

But it's a very time boxed and limited experiment because it's just not a sustainable growth.

And no one's going to want to fund you unless they see an extremely clear path that you're going to make money.

And people often have this misconception that, oh, I just grow with paid growth, and then in the future I'll come up with how I'm going to make money.

I don't believe that's going to work, and I think that's this sort of failure mode for startups these days.

Next up, Michelle from Critique Match asks, is it good to focus on growth as much as possible before implementing a monetization model that might hurt growth?

So a monetization model that hurts growth doesn't seem like a very good monetization model to begin with.

Obviously, you are going to want to align the way that people get value from your product and the way that people pay for your product.

If you're paying for, say, unlocking features, then that's not the best model.

It'd be better if you pay for something that actually is very aligned with repeat usage or retention of your product.

What are some examples of companies that we've seen recently that have implemented paid monetization in still a company that needs to grow that's not at scale yet?

So I think the truth here is, let's take The Athletic as an example.

And the app has a subscription feature where you really can't use the app and read this news from 150 journalists in the US unless you pay them every month.

And the truth for mobile apps and for many other companies that are trying to grow is that paid growth is every year becoming a more and more important part of the growth mix, the composition of how you're going to grow.

Back in the days, people would look down on paid growth and say that's a negative way of growing, or that's not a good way of growing.

And they would usually say that because it's sort of like, there's a- You think that the

product's not good enough if you pay people

to- Yeah, but the truth is that if you look on the 2 platforms through which most of our attention is at, Google and Facebook, they have shifted their tactics dramatically in the last 5 years.

And it's very hard to get free growth on Facebook.

If you look on search on Google, the first 4 or 5 listings are gonna be paid ads.

So what those platforms are doing is they're trying to monetize your usage.

Which means as a founder of a new company, you should lean into that and try to figure out how can I grow sustainably?

The problem with doing that is it's sort of like you end up paying a tax for every new user that you get to these 2 platforms.

But the reality is that some of the platforms that we know about, a big portion of the growth are coming from these 2 platforms.

Instagram, Facebook, Google are a core component of the growth.

If you look at something like Airbnb, search marketing through Google was always very critical to our growth strategy and is extremely core to many other travel companies.

But what you can tell from Google is that Google is not innovating as much anymore as it used to, which means in order to grow the revenue, they have to increase the paid links.

And that's what they're doing every year.

So to grow Organically on Google is getting more difficult as well.

So back to the question, the monetization model that you implement can't really hurt your growth.

And it should be there early so you can optimize it.

And then you use that monetization to grow.

Otherwise, it's going to be difficult to say, like it's going to be difficult to grow organically from the beginning.

Like, you can do that to a certain level.

But I would argue that there are certainly a set of ways to do paid growth sustainably.

And I'll kind of synthesize a couple of things that Gustav said here.

So by putting in a paid model early, you're beginning to get knowledge about what your conversion funnel costs.

And so if you know how much money you're going to make per user on your site, that gives you the ability to experiment more effectively with paid marketing.

Because you know how much money you're going to earn on the other side.

If you don't have that, then as Gustav said, you're just running these experiments that don't really have viable outcomes.

You can't actually benefit once you learn how much it costs.

I don't know how much they charge per month.

Let's say they charge $15 a month for their subscription for local sports.

If you live in Toronto and follow the Toronto Maple Leafs, you might be targeted with an ad on Facebook saying, download the Athletic app and get local news from independent journalists on their app for $15 a month.

Because they know what the conversion rate is for that click that comes from Facebook, and they know how much each click is roughly worth, they can actually scale up paid marketing and do it pretty effectively.

This is an example, but this is how many companies today are growing.

This ties in pretty well to the next question.

Surin from Ivanka asks, what tools or software have contributed to most of the success as a product growth leader?

Like, what are the CRMs that you use, lead gen, lead automation?

So every company and every category of companies can have a different set of tools.

So if you're a consumer company or a SaaS company or a hardware company, you're going to use different tools to measure the product.

I would say, at the very basics, you want to know what's going on.

And knowing what's going on for most companies means having some kind of event analytics.

So Mixpanel or Amplitude or Segment or some combination of those, or heap, those are all good tools that you can use for the very basic stuff in the sense how many people are coming in, what are they doing when they come in, how are they flowing through my product, if there are core flows in your product like an example of the athletic, what is the onboarding and signup flow, what's the payment conversion flow, what is the returning user metrics like?

And at the minimum, those are the things that you need.

Google Analytics is typically not enough for most companies.

It will be good for Google-specific stuff.

But I would recommend something like Amplitude or Mixpanel.

You can use Segment to integrate those 2.

It's pretty hard to find a company that shouldn't have, whether you're building SaaS, whether you're building enterprise, whether you're building even software that you're individually onboarding the first few users, you do want to have that baseline analytics that you can always reference.

And then depending on this, and this goes from day 1.

Then depending on the stage of the company, you use different tools.

So You're not going to do automated sales tools until you're at the stage where you can automate sales.

In the beginning, most of the times you're going to be doing things that don't scale, and I recommend you to read that Paul Graham article on how to do that.

You're not going to solve your sales problem in front of your computer, necessarily, if that makes sense.

You're trying to find a customer, identify your customers, but over time, as you're still building things out, you can start to sort of like build, use tools to build these repeatable things that you do.

But most people that are asking for these tools in the very beginning are probably not thinking about it right.

They should probably just go out of the office and meet their first 50 or 100 customers and get to know them more than trying to interact with them through a tool.

I was talking to a founder, a YC founder the other day, and they were asking about how to automate their email system.

I was like, how many emails are you sending out?

And they were like, oh, well, it's actually other YC founders.

And I said, whoa, that is totally not the right direction to go.

At the beginning, when you're selling, just send the email from your own account.

The ones that you respond to are probably from your friends or family or other coworkers, and they look like real email, like just text.

So it turns out that those actually have a much higher conversion rate, especially in the early days as you're forming these one-on-one connections.

Yeah, and another good example is customer service.

So anyone who's trying to build out a send desk or some kind of forum from the beginning aren't attempting to learn enough from their users.

So as a founder of a company, I would want to receive all the emails from all my customers, direct them to my email inbox, and I want to reply with my name so that they feel surprised that they're hearing from the founder of the company.

And there's a great story from Airbnb here.

Joe and Brian actually, their cell phone numbers are what they shared for the first couple hundred hosts.

He learned so much in a relationship with these hosts over those years.

So as a founder getting started, you don't really want

a lot of systems, besides tracking how your activity on the product is happening to interact with your customers.

So that leads into the next question quite well.

Kan from Haystack asks, customers often have a pain, but they don't know how to solve it.

How do you take feedback and iterate on product?

So a common question, well, a common way to do user research is to ask extremely open-ended questions and not interrupt them too much and not make a lot of assumptions.

So 1 thing we used to do at Airbnb when we were launching a new product is we would take that product, either on a laptop or on a phone, and we just walked down downstairs in our office And we would show that, the screens, to random people that sat down there and be like, just tell me what you think this is.

Wait, your colleagues or just to random people?

Our product was meant to be for the mainstream, so everybody should be able to understand it.

you have hosts coming into the, you know.

And then we just ask them to slide through the screenshots of the things that we're trying to build.

And you should be like, what do you think this is?

And like, if they didn't get it, like if you asked 10 people and most didn't get it, it wasn't self.

I mean, you're not going to be there looking over the shoulder with any of your customers.

They're just gonna be there on their own alone.

So if most people out of a group of 10 random people aren't getting it, it's not good enough.

It's not sort of like obvious enough how the product works.

And the other thing that we did, there's 2 other things.

Sometimes we use something called usertesting.com.

I don't know, actually, not sure if I recommend them anymore.

But at the time, they were good enough for the problem we were solving.

We would ask users to do something very simple in the Airbnb app.

And then on usertesting.com, some random person would get paid to do that task and then record themself as they're doing it and then speak up and say what they're doing.

Eye opening, watch 10 of these videos and people are pulling their hairs.

The designers and the product people and engineers are pulling their hair because they can't believe why people can't get what they're doing.

But the truth is that most people don't understand most products.

And if you come in with the assumptions in these meetings, it's not gonna work.

So you have to just let it out there and then learn from that.

So to play on this, 1 of the things that I've found is, we always talk about data.

We talk about this, get your analytics set up and track all this data.

But oftentimes, a founder's confronted with, well, what do I do?

So I think what you mentioned is actually 1 way to cut through that.

So if the data shows that you're having this problem or if you're having this conversion, 1 of the ways that you can get a solid answer is to spin up 1 of these user testing, like 10 minutes, 30 minutes, and ask the person, like just ask 5 people to go through the pain point.

My hunch is that most of, you don't have to ask 1,000 people to get that answer,

they used to research it, and they used to say 10 people was good enough to get guidance on is this good or bad.

Just tell them either goal or just ask them to speak up when they're actually going through the flow.

And I think, from my experience, that makes you wanna standardize things, that make you wanna use extremely clear language, like people try to be smart about language in their app and clever about how to market their product, those things tend to go extremely wrong.

And what you really want to do is just use user interface language, like what happens here?

That's my experience of how you make something people actually understand how to use.

The next 1 is a question that a bunch of you asked.

How do you grow a multi-sided marketplace and retain users on that marketplace?

So I think there's many things in this question.

I'm going to talk about exactly how I would kickstart a new marketplace today.

And then why people, I think, ask this question might not be exactly what I'm going to talk about.

So first, if I were to start a new marketplace today, I would try to build up the supply first.

And I would build up the supply sort of artificially to the level a small number of supply artificially to a level where It would reflect what the idea of I have the product So let's take an uber or lyft for an example If I would launch Uber and Lyft today in a new city, I would find 10 drivers, could be friends, I would make sure that they are driving, with Lyft and Uber, for the next 4 or 5 days, and then I would go out

They're committing to drive for all that time.

I basically have now artificially created this 10-day or something of 10 drivers who's going to be on the streets.

And then I would go and get the demand afterwards.

So we actually have an example from 1 of the companies.

It's an online marketplace that lets founders test out their experiments with target audiences to validate their assumptions, which is almost exactly like what we were talking about.

So the person was asking, how do we get this marketplace going?

Yeah, so if I would rebuild that idea, I would get 10 really good people that are my friends.

Maybe they're willing to sit through x number of these sort of sessions.

I mean, you must have a lot of friends who are founders as well, right?

Get them to volunteer a little bit of time.

But don't go out and get strangers for the supply yet.

Validate that there's demand before you go and figure out how to get the supply.

And then have them sit through it and see what the feedback from the demand is.

So you've got your friends all volunteering their time on this marketplace.

And let's talk about what I mean by the level of quality.

So in the early days of Airbnb, we actually allowed supply, listings to sign up without a user photo, without a photo of the house.

But it took us a while to figure out that was a really dumb idea What you really want of course is like quality and list unless you have quality You can't be an uber driver unless you have a nice car or you're a safe driver And

I think this is 1 of the things that you can do now before you have scale.

So you can actually curate this initial list.

And your 10 friends, don't make them build the profile.

And Once you've validated the supply, so in this case of Uber or in this case of the user testing.com, if you got into people on the demand side to do it again, like if I use Uber and had a good experience, chances are I'll do it again in the next 10 days.

And if I had a good experience, and it's up to you to define what good experience is in how you're creating the supply, If I do it again, that's a really good sign.

That people are voluntarily coming back and either doing this experimentation side or the Uber a second time.

So like on this experimentation question, so you're building a marketplace, you've got your 10 or 15 friends like that you're kind of coercing into being those early people.

Now you're going out onto the supply side.

So you've got the first people that are coming in the door saying, hey, could you test out this feature?

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YC SUS: Gustaf Alströmer and Eric Migicovsky discuss growth tactics