Lecture Transcript: http://tech.genius.com/Alex-schultz-lecture-6-growth-annotated

Alex Schultz gives an overview of Growth for startups, speaking from a position of authority as the VP of Growth at Facebook.

View the readings Alex refers to, his slide deck, at http://startupclass.samaltman.com/courses/lec06/

Discuss this lecture: https://startupclass.co/courses/how-to-start-a-startup/lectures/64035

This video is under Creative Commons license: http://creativecommons.org/licenses/by-nc-nd/2.5/

I've been watching the lectures in this course.

Isn't it absolutely amazing, the content?

So, Unlike Paul when he was talking in the Q and A and, and you guys asked him what he'd do if he

I went and, I went and did physics, did physics at, at Cambridge.

And I think physics is an amazing class to give you transferable skills that are really useful in other areas.

But I guess that's not that's not why you're listening to me today.

Like, so I paid for college doing online marketing.

I had a monopoly in the small niche market of paper airplanes globally, which

a startup, also see how big the market could be in the long term.

But what that taught me was how to do SEO.

do SEO was to have white text on a white background, 5 pages below the fold.

of AltaVista if you just said paper airplanes 20 or 30 times in that text.

And that was how you won at SEO in the 1990s.

Like it was a really easy, easy skill to learn.

When I went to college, being a physicist, I thought paper airplanes would make me cool.

And I was actually the most nerdy person in

the physics class, so I created a cocktail site.

Which was how I learned to, to program, and that grew to be largest cocktail site in the UK.

And that really got me into SEO properly when Google launched.

So with Google, you had to worry about page rank and

you had to worry about getting links back to your site.

Which basically at that stage meant 1 link from the Yahoo directory got you to the top listing in Google, if you had white text and a white background below the folder as well.

When Google launched AdWords, that's when I really started to learn how to do online marketing.

And that was buying paid clicks from Google and reselling them to eBay for a small margin of like 20% using their affiliate program.

And that was what really kicked me into overdrive into doing what everyone nowadays talks about as growth or growth hacking or growth marketing.

And in my mind it's just internet marketing.

Using whatever channel you can to get whatever output you want.

And that's how I paid for college and how I ended up going from being a physicist to a marketer and transitioning to the dark side of the force.

So what do you think matters most for growth?

You've had loads of lectures and people have

said it over and over, so what do you guys think matters most for growth?

And what do you need those customers to do?

Retention is the single most important thing for growth.

Now we have an awesome growth team at Facebook, and I'm super proud to work on it.

But the truth of the matter is, we have a fantastic product.

But getting to work on growth at Facebook is a massive privilege, because we're promoting something that everyone in the world really wants to use.

If we can get people on and get them ramped up, they stick on Facebook.

So many times, like I've advised multiple startups, my favorite was working with Airbnb, but I've worked with Coursera, I've worked with other ones that haven't done as well as those guys.

But the 1 thing that is true over and over and over again is if you look at this curve, percent monthly active versus number of days from acquisition.

If you end up with a retention curve that asymptotes to a line parallel to the x-axis.

You have a viable business and you have product market fit for some subset of market.

we talk about growth hacking and virality and all of this other stuff.

I'm going to try so hard not to swear, but it'll happen.

Their retention curve slopes down towards the x-axis and in the end, intercepts the x-axis.

Now when I show this chart to most people, they say that's all well and good.

You had a million people a day in terms of growth when you started the growth team at Facebook, or you were at 50 million users, you had a lot of people joining the site, so you had a ton of data to do this.

We used the same methodology for our B2B growth.

Getting people to sign up as self-service advertisers, we used this analysis to understand how much growth we were going to have in that market as well.

And in that place, when I joined Facebook, the product was 3 days old.

And within 90 days of the product launching, we were able to use this technique to be able to figure out what the 1 year value of an advertiser was.

And we predicted it for the first year to 97% of what the number turned out to be.

So I think it's very important to look at your attention curve and this is how we did it.

If you see here, this red line is number of users who have been on your product for a certain number of days.

So, a bunch of people, that should say 0, but a bunch of people will have been on the product.

All of your users will have been on it at least 1 day.

But if your product's been around a year or whatever, you will have 0 users who've been on it 366 days.

So what you then do is look for all of your users who have been on your product 1 day.

What percentage of them are monthly active?

100% for the first 30 days, obviously, because monthly active, they all signed up on 1 day.

Every single user on their 31st day after registration, what percentage of them were monthly active.

And that allows you with only something like 10, 000 customers or whatever to get a real idea of what this curve is gonna look like for your product.

And you're gonna be able to tell, does it asymptote?

And it'll get noisy out towards the right hand side, like I'm not using real data.

It'll get noisy out towards the right hand side, but you'll be able to get a handle on does this curve flatten out or does it not?

If it doesn't flatten out, don't go and do growth tactics, don't go and do virality, don't hire a growth hacker.

Because in the end, as Sam said at the beginning of this course, idea, product, team, execution.

If you don't have a great product, there's no point executing well on growing it because it won't grow.

Number 1 problem I've seen inside Facebook for new products, number 1 problem I've seen for a startup site I've advised has been, they don't actually have product market fit when they think they do.

So the next obvious question that people ask over and

over and over again is, okay, what does good retention look like?

Sure, I can have 5% retention, but I'm guessing that Facebook had better than that, so that's not going to be a successful business.

And I get really pissed off when people ask me that question, because I think you can figure it out.

And I love this story, and this is like my 1 gratuitous story that I love that I'm throwing in here, so the rest of it may not be as, as gratuitous.

But this is a picture that was published in Life magazine in

Jeffrey Taylor was a British physicist who ended up actually winning the Nobel Prize.

And he was able to figure out from looking at this picture what the power of the atomic bomb was, the US atomic bomb, and Russians were publishing similar pictures, just using dimensional reasoning.

And dimensional reasoning is, I think, 1 of the best skills that I learned during my time studying physics back in the UK.

And what dimensional reasoning is, is you look at the dimensions that are involved in a problem.

So you want to figure out energy, newtons, meters.

Newtons are kilograms, meters, seconds to minus 2, so you've got kilograms, meters squared, seconds to minus 2.

And then you try and figure out how you can get each of those numbers from what data you have.

So the mass is the volume of this sphere.

So that's a meter cubed you throw in there.

And he was able to use that to just figure out what the power of this atomic bomb was, what the ratios of the power were between the Russian and US atomic bomb.

And essentially reveal 1 of the top secrets that existed in the world at that time.

Figuring out what Facebook's retention rate is, is not a hard problem.

How many people are there on the Internet?

Give or take, someone throw something out.

2.4 billion, 2.3 billion, something like that, right?

last earnings call said something around 1.3 billion in terms of number of active users.

You can divide those numbers by each other.

And yeah, that won't give you the right answer.

Of course it's not gonna give you the right answer.

But it's gonna give you close enough to a ballpark figure of what the retention rate looks like for Facebook.

If we've signed everyone on the Internet up, and then you will know it's higher than that.

Similarly, if you look at WhatsApp, they've announced 600 million active users.

You can figure out that number, that number's out and knocking around, it can give you an idea of how many users there are.

Amazon has had a pop at signing up almost everyone in the United States.

You know how many people are online in the US, and you've got a good idea of how many customers Amazon are from the numbers they throw out.

Different verticals need different terminal retention rates for them to have successful businesses.

If you're in e-commerce and you're retaining on a monthly active basis, like 20, 30% of your users, you're probably going to do pretty well.

If you're in social media and your first batch of people signing up to your product are not like 80% retained, you're not going to have a massive social media site.

And so it really depends on the vertical you're in, what the retention rates are.

What you need to do is have the tools to think about who out there is comparable and how you can look at it and say, am I anywhere close to what real success looks like in this vertical.

So retention is the single most important thing for growth.

And retention comes from having a great idea And a great product to back up that idea and great product market fit.

The way we look at whether a product has great retention or not is whether or not the users who install it actually stay on it long term when you normalize on a cohort basis.

And I think that's a really good methodology for looking at your product and saying, okay, the first 100, the first 1, 000, the first 10, 000 people I get on this, will they be retained in the long run?

So now how do you attack operating for growth?

Let's say you have awesome product market fit.

You have built an e-commerce site and you have 60% of people coming back every single month and making a purchase from you, which would be absolutely fantastic.

How do you then take that and say, now it's time to scale.

Now it's time to execute was the last thing in your thought, right?

And that's where I think growth teams come in.

Like my contrarian viewpoint or whatever is, if you're a startup, you shouldn't have a fucking, you shouldn't have a growth team.

The whole company should be the growth team.

You need someone to set a north star for you.

Gratuitous shot of the, you know, NASA page.

You need someone to set a north star for you about where the company wants to go.

the person leading the company, in my opinion, from what I've seen.

Back when Facebook started, lots of people were putting out their registered user numbers.

You'd see registered user numbers for MySpace, you'd see registered user numbers for Kintect, you'd see registered user numbers.

Mark put out monthly active users as the number both internally he held everyone to, to, and said we need everyone on Facebook, but that means everyone active on Facebook, not everyone signed up to Facebook.

So monthly active people was the number internally, and it was also the number he published externally.

It was the number he made the whole world hold Facebook to as the number that we cared about.

If you look at what Jan has done with WhatsApp, I think it's another great example.

If you're a messaging application, sends is probably the single most important number.

If people use you once a day, maybe that's great, but they send 1 message, you're not really their primary messaging mechanism.

So, Yan published the Sends number, right?

Inside Airbnb, they talk about nights booked.

And they also publish that in all of the, like, infographics that you see inside TechCrunch.

They always benchmark themselves against how many nights book they have compared to the largest hotel chains in the world.

They have, each of these companies, a different North Star.

The North Star doesn't have to be monthly active users for every different vertical.

For eBay when I was there, it was gross merchandise volume.

How much stuff did people actually buy through eBay?

Everyone externally tends to judge eBay based on revenue.

Actually, Benedict Evans has done this amazing breakdown of Amazon's business, which is really interesting to look at

their marketplace business versus their direct business.

So eBay's being judged by its revenue when it actually has 10 times or whatever more gross merchandised volume going through

And that was the number that eBay looked at when I was inside there and optimized for.

So every different company, when it thinks about growth, needs a different north star.

But when you are operating for growth, it is critical that you have that north star and you define it as a leader.

The reason this matters is, the second you have more than 1 person working on anything, you cannot control what everyone else is doing.

I promise you, having now hit 100 people I'm managing, I, I, like, have no control.

Yes, I can say to 1 person, do this 1 thing, but then the other 99 are gonna do whatever the hell they want.

thing is, it's not clear to everybody what the most important thing is for a company.

It would be very easy inside eBay for people to say, you know what, we should focus on revenue.

Or you know what, we should focus on the number of people buying from us.

Or you know what, we should focus on how many people list items on eBay.

And Pierre and Meg and John, those guys as various leaders always said no, it's the amount of gross merchandise volume that goes through our site.

It's the percentage of e-commerce that goes to our site.

That is what really matters for this company.

Which means when people are having a conversation, you're not in a room, or when they're sitting in front of their computer screen and thinking about how they build this particular product or this particular feature, in their head it's going to be clear to them that it's not about revenue, it's about gross merchandise volume, or it's not about getting more registrations.

Registrations don't matter unless they become long-term active users.

A great example of this was when I was at eBay in 2004,

we changed the way we paid our affiliates for new users.

And affiliate programs are a bit out of fashion these days, but the idea of an affiliate program is essentially you pay anyone on the Internet a referral for sending traffic to your site.

But it's mostly about getting access to like big marketers who do it on their own like separately.

And there's some really good stories from this.

We were paying for confirmed registered users.

So all of our affiliates were aligned about getting confirmed registered users to the eBay site.

We changed our payment model to pay for activated confirmed registered users.

So you had to confirm your account and then bid on an item, or buy an item, or list an item to become someone that we paid for.

Overnight when we made that change, we lost something like 20% of confirmed registered users that were being driven by the affiliates.

And then the growth of ACIUs massively accelerated.

The cause of this was if you want to drive CIUs, if someone searches for a trampoline, you land them on the registration page, because they think they have to register and confirm before they get that trampoline.

If you want to drive ACRUs, you land them on the search results page within eBay for trampolines, so they can see the thing they want to buy, get excited about it, and register when they want to buy it.

And if you drive just CRUs, people don't have an amazing magic moment on eBay when they visit the site.

And that's the next most important thing to think about, is how do you drive towards the magic moment that gets people hooked on your service?

So in the lecture notes for this course, I've stuck in a bunch of links to people I think are brilliant at all of this stuff.

That retention curve I showed earlier, there's a link to this guy Danny Ferante who's incredible talking about retention curves.

The magic moment, there are 2 videos linked.

1 is Chamoth talking about growth, who was the guy who set up the growth team at Facebook, and 1 is my friend Naomi and I talking at F8 4 years ago about how we were thinking about growth back then.

And in both of those, both of those videos, we talk about the magic moment.

So what do you guys think the magic moment is for when you're signing up to Facebook?

You hit that big green button, what is the moment when users are like, aha.

Mark even talked about it at the startup school a few years back.

I talk to so many companies and they try and get incredibly complicated about what they're doing.

But it is as simple as just when you see that first picture of 1 of your friends on Facebook, you go, oh my god, this is what the site is about.

And Zuck's talked at Y Combinator about getting people to 10 friends in 14 days.

The number 1 most important thing in a social media site is connecting to your friends.

Because without that, you have a completely empty news feed and clearly you're not going

You'll never get any notifications, you'll never have any friends telling you about things they're missing on the site.

So for Facebook, the magic moment is that moment when you see your friend's face and everything we do

And if you look at the LinkedIn registration flow, or you look at the Twitter registration flow, or you look at what, what's that does when you sign up.

The number 1 thing all these services look to do is to show you the people you want to follow, connect to, send messages to as quickly as possible.

Because in this vertical, that's what matters.

When you think about Airbnb or you think about eBay, it's finding on eBay that unique item, that Pez dispenser or broken laser pointer.

That you really, really cared about and wanted to get hold of.

Like when you see that collectible thing that you were missing, that is the real magic moment on eBay.

When you look on Airbnb and you find that first, you find that, that first listing that's like a cool house that you can stay in.

And when you go through the door, that's a magic moment.

And similarly on the other side, when you're listing your house, the first time you get paid is an amazing moment.

When you're listing an item on eBay, the first time you get paid is

You should ask Brian what he thinks, because they've done these amazing storyboards, which I think has been shared, of like the journey through a user's moment, a life on, on Airbnb, and how excited he is.

And he's talking in like 3 lectures time.

The guy's awesome at talking about the magic moment and getting his users to feel love and joy and all this stuff.

So think about what the magic moment is for your product and get people connected to it as fast as possible, because then you can move up where that blue line has asymptoted.

Then you can go from 50% retention to 60% retention to 70%

See all Y Combinator: The Vault transcripts on Youtube

Lecture 6 - Growth (Alex Schultz)