IN
DEGREE PROJECT
MEDIA TECHNOLOGY,
SECOND CYCLE, 30 CREDITS
,
STOCKHOLM SWEDEN 2018
Growth hacking as a methodology
for user retention in the
entrepreneurial venture
A case study
VILDA SIURBLYTE
KTH ROYAL INSTITUTE OF TECHNOLOGY
Growth hacking som metod för användarretention
i entreprenörskapet: en fallstudie
ABSTRAKT
Även om growth hacking är ett nytt koncept, har det blivit ett buzz-word bland företagare och nystartade företag. Olika nystartade företag som använt growth hacking och uppnått omfattande tillväxt t.ex Dropbox, Uber och Airbnb har alla förmedlat sina framgångshistorier. Men hittills har fokus legat mer på det praktiska i stället för den teoretiska forskningen. Med så många nystartade företag som inte lyckas växa, är det viktigt att undersöka tillväxtmetodik, som kan hjälpa unga företagare att framgångsrikt etablera sig.
Growth hacking as a methodology for user retention in the
entrepreneurial venture: a case study
Vilda Siurblyte
School of Computer Science and Communication
Royal Institute of Technology
vilda@kth.se
ABSTRACT
Even though growth hacking is a new concept, it has become a buzz-word among entrepreneurs and ups. Various start-ups that have achieved extensive growth, such as Dropbox, Uber, Airbnb, have been sharing their success stories. How-ever, to date, the focus of this concept was more on the prac-ticalities instead of the theoretical research. With so many start-ups that fail to grow, it is important to research growth methodologies, that can help young entrepreneurs to success-fully establish themselves.
This paper studies growth hacking concept, by trying to under-stand how the growth hacking strategy works and how it could be used to retain a user-base in a start-up. With the help of an extensive literature review, interviews with the entrepreneurs and a case study analysis, this research provides (1) insights into the theory of growth hacking and retention marketing, (2) examples of its practices, and (3) an implementation of suggestions made based on the findings.
The results of this study indicate that growth hacking is a broad concept and has numerous interpretations. Growth hacking framework has been applied at the early stages of start-ups, however, the growth hacking concept has not been defined as well as it has not been determined whether it is a relevant method to improve user retention. In this study, it was discov-ered that growth hacking practices can improve to set up the user retention strategy. However, growth hacking strategies must be tailored and adapted to the entrepreneurial venture’s business model.
Author Keywords
Growth hacking, user retention, growth, growth strategy, start-up development, entrepreneurship.
1. INTRODUCTION
Most of the early stage ventures do not need strong marketing strategy or an expert who would manage marketing vendors at
the early stage of business. The focus of a recently founded company is rather directed to growth. However, typically, start-ups have restrained resources for growing their user-base and retaining users. In 2010 this chicken and egg problem resulted in the emergence of a new concept called growth hacking. From then on, growth hacking is increasingly becoming to be considered as an advantageous tool for start-ups or small companies to accelerate growth [4]. Growth hacking helps businesses grow without the typical growing challenges such as additional staff or increased working hours. Moreover, implementing growth hacking methodology in the customer acquisition and retention process allows start-ups to attain users with minimum or no costs [4].
Essentially, growth hacking is a framework for start-ups and young organizations to define a sustainable growth strategy. One of the most popular growth hacking examples is Dropbox (a cloud-based storage service). Growth hacking methodol-ogy helped Dropbox to discover an efficient way to grow the number of users via referral program. This referral program offered for active users to invite their friends to the service and in return, the program awarded both users with more stor-age space. The approach to growing a customer base that does not rely on traditional marketing plans, but rather aim to implement marketing into the product itself is at the core of growth hacking concept [4]. Most growth hacking approaches are heavily data-driven, which allows even the smallest com-panies to experiment with new features, branding or other marketing tactics. The nature of growth challenges may vary between start-ups and organizations, strategies and business contexts. Most of the entrepreneurial companies start from ob-scurity and must establish a growth strategy as well as prepare themselves for managing user retention as soon as the first customers show the interest. Growth hacking seems like an ef-fective strategy to achieve fast growth, however, to date, there has been limited focus on growth hacking as a methodology for retaining users and driving sustainable growth.
provide experience-based guidance about the actions required for a start-up to grow.
2. THEORETICAL BACKGROUND
In a start-up, the focus is narrow, the commitment of time and resources are limited, and the economic risks are modest. To progress, start-ups must have growth as a central goal. 2.1 START-UP GROWTH
Over time, various frameworks have defined the exponential growth in start-ups. Steinmetz [17] and Kroeger [9] stated that managerial roles and functions must be developed gradually at different growth periods; Greiner [7] describes growth model as a set of different phases: creativity, direction, delegation, coordination, collaboration, and alliances. All these phases are followed by a different crisis, respectively: crises of lead-ership, autonomy, control, and bureaucracy. The extent of growth is dependent on the organization’s ability to adapt and evolve. Picken [13] stated that there are four stages in the life cycle of an entrepreneurial firm: startup, transition, scaling, and exit. Successful growth relies upon accurate business con-cept definition at the early stage and ‘laying the foundation for a scalable enterprise during the period of transition is equally critical’ [13, p.588]. Another author, Ries [15] created a lean startup growth framework that is based on continuous innova-tion and feedback loop. Lean startup model has three parts: build (turn ideas into products or services), measure (exam-ine how customers respond to the products or services), learn (adapt and/or pivot based on the findings). Ries [15] growth model has most relation to growth hacking framework that El-lis [4] has estabEl-lished as both models position experimentation and testing at the core of the growth strategy.
2.2 DIFFERENT TYPES OF GROWTH
Entrepreneurial companies strive to grow in terms of the num-ber of users. However, Currier [2] stated that even though startups are usually aiming for acquiring new users, they must determine what type of growth is needed. He identified differ-ent types of growth in differ-entrepreneurial firms:
• top-line growth (new customers who started to use a prod-uct).
• activated growth (customers who used a product understood the value that was offered).
• retained growth (customers who understood the value of a product and used it more than once).
• monetized growth (customers who used a product more than once and paid for it).
Currier [2] expressed that at the early stages of growth the entrepreneurs should focus on retained and monetized growth types out of all growth choices as these types of growth are the most profitable. Also, he adds that if approached properly all of the growth patterns can be replicated.
2.3 USER RETENTION
Many entrepreneurs see growth as the acquisition of as many customers as possible, however, attracting customers does not
ensure a long-term growth [16]. A recent study showed that a mere of 20% of new users kept using a mobile phone app more than three days later after downloading it [1]. This shows that if the value is not presented to the users’ habitual experiences and it is not expressed clearly in the early stages of a customer journey, the users will churn. Therefore, the acquisition of users might cause a temporary growth but ‘long-term growth, as well as the health of a business, depends on how well you retain users’ [16, p.7]. Moreover, Reichheld and Sasser [14] found out in their study that increasing user retention does not only drive a sustainable growth but also increases the revenue and profitability. ‘Companies can boost profits by almost 100 % by retaining just 5 % more of their customers’ [14]. Additionally, Reinartz et al. [18] research have emphasized the importance of user retention as their research showed that an insufficient user retention strategy has a significant influence on a long-term customer profitability.
2.4 USER RETENTION RATE
While the importance of user retention is clear, the measuring and tracking the retention rate can be challenging. Some re-sources [1] suggest tracking Daily Active Users (DAU) and Monthly Active Users (MAU), however, these metrics might not provide an insightful information about the rate of reten-tion. Correct retention rate requires a clear ‘frame of reference’ [3] of who your retained user is. Egan [3] claims that the re-tention metric can be defined by determining whether the user chose a particular product/service to resolve a specific problem or need that occurred. As most businesses’ core operation is how it creates a value proposition to the customer, start-ups should measure the retention rate by determining how often customers are likely to face the problem that the business is trying to solve [3]. In this way, user retention rate relates to the natural use of the product or service.
2.5 RETENTION DRIVERS
Even though many companies try to improve the growth in terms of user retention, it is difficult to understand the com-plexity of user retention and what factors it is impacted by. Gustafsson et al. [8] suggest that customer satisfaction, ef-fective commitment, and calculative commitment are three central predictors of a successful user retention. In addition, some researchers, for example, Lewis [10] argues that loyalty programs increase the number of repurchases. Other authors, such as Ellis [4] present a set of user retention drivers (see Fig. 1), and puts an emphasis on building habits, improving the product/service and creating a value proposition.
2.6 GROWTH HACKING PARADIGM
Figure 1. Retention drivers (adapted from Ellis [4])
required different business models, marketing, and growth strategies rather than traditional brick and mortars.
At the early stage, start-ups lack resources and budget needed to accelerate growth using the traditional marketing tactics, therefore, entrepreneurs had to find methods to hack the growth. A growth hacking term was introduced by Sean Ellis who successfully executed successful growth strategies for multiple start-ups in Silicon Valley, in 2010. Ellis [4] defined growth hacking as a methodology for an efficient way to ana-lyze data and apply it to derive significant, up-to-date insights into customer behavior that can be adapted to data proved strategies to improve company’s growth. Consequently, such insights lead to discovering features that create value for the customers and allow reaching the customer in new ways that are not only cheaper but also more effective.
In the ‘Hacking Growth’ book, Ellis [4] presented a growth hacking team model, that many small-scale start-ups started to follow. According to Ellis [4] growth hacking teams do not focus on marketing and product/service exposure to the market as the traditional growth teams do but rather aims to connect various departments and embrace a multidisciplinary approach. Therefore, growth teams are involved in product development and optimization, data analysis and customer behavior anal-ysis, as well as in planning how to achieve a product/market fit [4]. Such cross-functional teams are designed to dedicate most of their time to build up a valuable product for customers and discover the most efficient ways to continuously offer that value. Processes that enable to establish a long-term growth include rapid experimentation, structured data collection, in-terpretation, and validation.
2.7 GROWTH HACKING MODEL
An ultimate growth hacking model can be described as a five-step funnel [11]: acquisition (new users); activation (cus-tomer accounts and log-ins); retention (repeat use of prod-ucts/services); revenue (paying customers); referral (growth via word of mouth). All parts of the growth funnel are interde-pendent. While user acquisition can boost growth rate for a while, it will not be sustainable if activation and retention are inefficient. For this reason, every phase requires a different approach to growth and skill-set [11].
2.8 PROCESS OF GROWTH HACKING
Ellis [4] described growth hacking process as a set of four continuous steps: (1) data analysis and insight gathering; (2)
idea generation; (3) prioritizing experiments; and (4) carrying out the experiments. After all four steps are completed, the results are reviewed and the next steps are decided [4, p. 43]. Growth hacking process is designed to reduce the complexity of business operations and to focus on one of the key metrics -growth. Ellis [4] called it ‘the North Star metric’ which can be described as a fundamental growth equation, which includes key elements of driving company’s progress. The North Star metric equation includes all data that is needed to measure the amount of growth that is generated in the specific period of time. For example, Uber’s (shared transportation service) North Star metric unit is the rides booked, Airbnb’s (shared ac-commodation service) - the nights booked, Facebook’s (social media platform) - the daily active users because more users and more bookings lead to a higher growth rate.
According to Ellis [4], the growth hacking process consists of four steps:
• Analyze customers behaviors, characteristics and the factors that cause customers to churn.
• Ideate, brainstorm and collect various ideas that could be im-plemented to accelerate growth. The ideas should vary from design ideas to business concepts. Collaboration across different teams is the key tactics to achieve the productive and effective ideation process.
• Prioritize the ideas by setting ICE (importance, complexity, ease) score. Each of this measure is rated from 1 to 10. Consequently, a higher number of the overall score indicates a higher priority.
• Testing ideas that have the highest ICE score and designing an experiment to produce statistically valid results. ‘A poor test is a one less opportunity to learn, slowing the team down, and bad data can send the team down a very wrong path’ [4, p. 131].
Once the ideas, data, and learnings that were collected are analyzed, they should be well documented. After the first round of growth hacking process, the growth team starts re-turns to the first step and starts generating new ideas based on the learnings. By doing this a continuous growth hacking loop is created. Growth hacking process requires entrepreneurs to stay agile as it is hard to predict which experiments will be the most efficient. It is important to be data-driven and continu-ously modify experiments according to the new discoveries as well as try new tactics and strategies [4].
2.9 GROWTH CHALLENGES IN START-UPS
Growth is one of the major entrepreneur’s challenges, espe-cially at the early stage of the venture. Companies either do not have any prior knowledge of which data to gather, which metrics to track or have disintegrated teams that are unable to act on growth issues that arise [6]. Furthermore, entrepreneurs struggle to find an efficient way to use customer data that they collect [4], which can lead to an inability to meet the product/market fit.
to determine when they need to set up user retention strate-gies and what the best method for reducing customer churn is. Overall, the goal of any business is to create a new market for customers. Thus, the rate of new users that were lost is challenging for most companies, because the more the en-trepreneur spends to acquire new users, the more expensive the customer churn becomes [4]. Essentially, this fact makes user retention the most important factor in terms of growth. Many new ventures fail to overcome these challenges. Such failures lead to the business stagnation and eventually to the bankruptcy. This project aims to research whether growth hacking methods can help entrepreneurs overcome such chal-lenges and turn their startups into profitable companies. 3. METHODOLOGY
To examine how start-ups can integrate growth hacking meth-ods into their user retention strategy, a two-step process has been completed during which qualitative data was gathered on how different start-ups used a growth hacking strategy to grow and retain their user-base.
First, a pre-study of the growth hacking topic including an extensive literature review was carried out. The pre-study helped to define a research question for the project as well as a theoretical framework regarding the growth hacking strategy. Second, qualitative interviews with marketing and growth pro-fessionals who have experience working in start-ups as well as CEO’s of different technology-based start-ups were conducted. In total twelve participants were interviewed. The interviews were semi-structured as the aim of the interviews was to gather qualitative data on the interviewees’ experiences and insight into the growth hacking and user retention strategies. The interviews were held in person or over Skype (online meeting tool) and lasted for approximately 30 to 45 minutes each. Most of the interviews were recorded and transcribed to structure and better understand the qualitative data, except for the occasions when the recording was not permitted by the interviewee. Before the interviews, the respondents were familiarized with the topic of the research and key questions. The interview questions were aimed at gaining a better un-derstanding of how the growth hacking strategies are being used by start-ups to retain users, and at finding the examples of growth hacking strategies being applied in practice. The results of the interviews were analyzed, mapped and ultimately compared to conclude whether user retention can be improved by using growth hacking methodology.
4. RESULTS
In this chapter, the outcome of the applied methodology is presented and analyzed.
As growth hacking is a relatively new topic in the entrepreneur-ship field, answering the research question requires insightful information from practitioners. Twelve experts in marketing and growth fields were asked their opinion on whether growth hacking methodology is used in their working environment, on how it is applied to manage user retention and on how growth hacking can help to improve sustainable growth and retention. All interviewees were familiar with the concept of
growth hacking, however, not everyone has applied it to their startups’ growth strategy.
After conducting the interviews and analyzing transcripts, the key concepts and factors were identified. With the help of the qualitative interviews two main factors that influence start-up growth were identified. A growth strategy and a retention strategy were both identified as separate but equally important business growth aspects (See Fig. 3).
4.1 GROWTH HACKING STRATEGIES IN LITERATURE Growth hacking framework is new in the entrepreneurship field; hence, no relevant information was found in databases such as Google Scholar, ScienceDirect, and Web of Science. Therefore, the selection of the authors to analyze was made based on entrepreneurial experience. The authors who had experience working in Silicon Valley were chosen. Silicon Valley was selected because it is the place where growth hack-ing framework was found and because of its similarity to Stockholm’s start-up ecosystem.
The results of how growth hacking is perceived and adapted to user retention by authors: Ellis [4], Fong and Riddersen [6], Ries [15], Currier [2], Patel [11], Eyal [5] are presented in Figure 2. All authors stated that growth hacking is a valuable framework for entrepreneurial companies, especially at the early stage. According to analyzed authors, growth hacking is a systematic plan of actions, however, concepts vary from author to author (See Fig. 2). Findings show both similarities and differences in how growth hacking can be applied to user retention strategies. The data-driven approach was described as a central element in the growth hacking strategy by most authors. Authors also agreed that user retention is a long-term growth; it takes more time and planning in comparison to acquisition growth. Additionally, most authors discussed and presented various tools and frameworks that should be used for user retention; that is where most of the differences appeared. Some authors [4, 5, 15] argued that forming customers habits and engaging them lead to major improvements in the user retention rate, while others [2, 11, 6] had different opinion and claimed that tools such as email marketing, drip campaigns, surveys can increase the number of retained customers.
Figure 2. The results of literature review indicating different growth hacking methods that have been used for customer retention
4.1.1 GROWTH
The most important keywords and outcomes collected during the interviews were selected and presented. The selected ac-tions were mentioned by most entrepreneurs as vital elements for hacking growth.
Action: Learning by testing. Most of the respondents identi-fied that growth hacking is a set of data-informed, validated and measured experiments that are all aimed at the prod-uct/business growth, or product/market fit.
Outcomes: ‘Growth hacking is full of constant testing. En-trepreneurs need to get an idea out there, measure it and learn what sticks in terms of growth and product development. Once that is achieved, the strategy is to do more of what sticks and less of what does not’.
‘Our product is un-scouted territory as we are trying to do something that no one did before. Without failed attempts, we would not have the operational knowledge that we have today’.
Action: Creating products that customers love. Companies rarely create products or services that do both - satisfy cus-tomers’ needs and create value. Building strong relationships with customers and creating user-friendly products requires series of processes, as interviewees identified:
(1) creating the proposition of value for users. All interviewees confirmed that the proposition of value must be at the core of the product development and business strategy. It was stated
that if a company does not have a specific value offer, it has to sell the problem that it is offering the solution to.
Outcomes: ‘When the first excitement burns out, then you must think about what value you are bringing, otherwise, customers will lose the interest in your product’.
‘Customers do not care about your business, they only care about the value you can give them. Furthermore, it is easier to sell a product that the customers want rather than having to convince them to purchase it’.
(2) collecting feedback not only helps startups to understand customers’ needs and preferences but also positions them ahead of the competition and to help them avoid assumptions and bias about the product/service.
‘<...> when we only had a few customers, we tried to under-stand why they became our customers and used that informa-tion to attract other people as well’.
‘Our main task is to meet our users on a daily basis and receive a lot of feedback, this helps us to learn what are our customers’ needs and demands’.
‘In the beginning of the product release, when we cannot gen-erate a lot of data, then we tend to have a close contact with users and collect feedback from them’.
‘There is a difference between what people say and do, there-fore, receiving feedback is good but we still have to relate to our business vision and mission’.
‘Feedback is great, but it is hard to know how much feedback you need to validate interpretations. We never trust the feed-back 100 %, we rather use the feedfeed-back to create a hypothesis and to experiment’.
(3) learning customer’s needs. Identifying customers’ needs helps startups to position themselves in the market and to cre-ate a demand for solving customers’ problems or eliminating customers’ pains.
Outcomes: ‘We try to have a lot of interaction with the users in order to understand what are their needs, where our products fit in within their organization as an additional tool and how we integrate with their processes’.
‘We continuously ask our customers where and when they discover the value within our service. The essence hides in an emotional not logical piece of their answer because only emotional piece creates a value proposition and hooks them’. (4) communication with users. Having exceptional customer service leads to higher customer satisfaction and constant feedback loop.
Outcome: ‘With every new product release, we implement an online chat, so if something does not work users can easily talk to us. This is how we get a continuous feedback loop and we know exactly what to improve’.
(5) understanding customers’ behavior. Interaction with users can bring an understanding of what customers’ needs are and how products/services complement to their lives;
Outcome: ‘After I talk with our customer, I try to narrow down what it is that they are asking for and most importantly why. My goal is to understand what is that they need, what do they want to achieve with our product and how do we improve to help them to achieve that’.
(6) improving customer journey. Examining how customers interact with the product/service help to understand where customers fail or succeed in purchasing or using the prod-uct/service. Such observations lead to making an informed decision while improving user experience and design of the product/service.
Outcome: ‘Knowing how customers use your offering, being it a platform, product or service, usually gives significant insights. In our company, we track and analyze the user journey in order to see when and in which landing pages they leave the platform, if they understand how to use it, if it was easy to navigate’.
Action: data-driven approach. Carrying out data analysis re-garding marketing, customer behavior, and other key perfor-mance indicators must be at the core of any start-up.
Outcomes: ‘If you do not measure the data you are just assum-ing and guessassum-ing. Data is important to make decisions, take actions and develop business’.
‘Before our biggest mistake with the growth was that we were not so much data-driven, that was not good because we were not reasoning behind the metrics we tracked, so we did not know what we are doing right and what we are doing wrong’. ‘<...> we analyze how did the customer journey looks like, when did we talked with them, and what actions they did. Then we collect quantitative and qualitative data and share insights with the product team to acknowledge what needs to be improved to get customers to stay longer’.
Action: Timing. Frequently, growth is dependent on timing, especially, if a start-up is presenting products/services that are disrupting the market. Most of the respondents mentioned that to be successful, an entrepreneur needs to have a perspective on the future trends.
Outcomes: ‘I think we are starting to achieve a product/market fit right now, we have not had that last two years because the timing was not right, and the market was not ready for our product’.
‘We have been early to market with our product in many ways because traditionally security has been more of a reactive approach than a proactive approach <...>, but now it is more brought up to the media and other channels, so people start to realize that it is a new threat out there and uses our service’.
4.2.2 RETENTION
The most important keywords and outcomes collected during the interviews were selected and presented. The selected ac-tions were mentioned by most entrepreneurs as vital elements for retaining customers.
Action: face to face communication with customers. Staying in contact with your customers, especially in the early stage, can lead to a significant growth in user retention later because in this way the companies do not only show the commitment to their customers but also express the importance of having a strong relationships with them.
Outcome: ‘In the early stage of our start-up we did a lot of manual interactions with people who were signing up. Face to face communication with our customers helped us shape our platform and avoid errors’.
‘We had a community event over the summer. Our customers felt very special and we had a chance to have a real chat and a live feedback session’.
‘Be where your audience is, digitally and offline. Meetups? Cafe? You have to be where your users are’.
Outcomes: ‘Every product or service are being used in a different frequency, that is why it is important to define the right retention metrics. The companies must think through what usage factors are important for them, how people relate to their product, and how they use it’.
‘Once you find the metrics that are relevant for you to track it is easier to understand customers’ behavior as well as why and how customers are using the service’.
‘Our retention rate was not good because there was no reason-ing behind the metrics we tracked, therefore, we were missreason-ing out on a lot of valuable information’.
Action: Automization and customization. Being a customer-driven company has both opportunities and challenges. Meet-ing every customer’s request can require a lot of resources and efforts, however, customizing communication depending on segmented customer features can provide a unique value to the customers in an efficient and cost-effective manner. For example, using email automization for weekly newsletters or offers.
Outcomes: ‘Talking about retention, one of the key things is automation. Be it emailing or customer service or notifications. In this way, we can remind our customers the value we are offering to them’.
‘That’s something we could definitely do better. I think we will be working a lot on customization. Once you grow bigger it becomes harder to be personal with users, so automized communication can be a good tool to keep the offering unique and customized for each user’.
Action: Customer behavior analysis. Interviewed en-trepreneurs expressed a high importance of analyzing user actions, especially if the product is online based. Learning what kind of experiences the customers have, how they navi-gate and what are the steps of their customer journey helps the growth teams to optimize the product/service, to develop the products and to understand the customers better.
Outcomes: ‘We make sure to do an analysis of why people leave without purchasing and how did their customer journey look. This type of analysis helps us to learn what we need to improve to get a customer to stay longer and repeat the purchase’.
‘<...> we are continuously analyzing different stages of our product trial: when and what kind of information we need to send, how long should the trial last for, what should be done during the trial, and how do we convey the importance to continuously use our service. All these aspects help us to improve the product and consequently user retention’. Action: First-time user experience. To retain users, it is cru-cial to make a great first impression, otherwise, customers might not give you the second chance. For this reason, the developers should aim to create a ufriendly and clear ser-vice/product, as well as to enhace product functionality and user engagement.
Outcomes: ‘Retention highly depends on the first user experi-ence because if customers did not have a good first experiexperi-ence they are probably not coming back’.
‘By establishing a great first-time user experience start-ups can improve the user retention significantly. If customers have a crystal-clear understanding of the product/service and see the benefit you are offering they are more likely to stick around from the very beginning’.
Action: Nurturing the fan base. Respondents from the late stage start-ups stated that user retention is related to building a loyal community. Attaining customers who are already used service/product requires fewer resources and efforts as they are already familiar with the service.
Outcomes: ‘We do many campaigns towards our fans because they are a living reflection of our service that can make an influence on others’.
‘Taking care and nurturing the fan base you have is always useful. They are usually first ones to try our new updates, we give them new information and offers first. In this way, we make them feel involved and increasing the likelihood that they will return and bring new users’.
‘People who already purchased once are normally cheap tar-get groups to gain. It is normally more expensive to reach completely new users who do not know your brand yet’. 4.3 RELATION BETWEEN GROWTH HACKING AND USER RETENTION
As mentioned, after conducting qualitative research and an-alyzing interviews’ transcriptions, growth hacking and user retention were identified as separate strategies.
Respondents stated that the growth strategy is complex and depends on many independent factors such as trends, timing, a speed of development, brand promise, product etc. (see Fig. 3). User retention strategy was described as a set of tools such as establishing personal communication with customers, ensuring unforgettable first-time user experience, setting up data systems and others (see Fig. 3).
Figure 3. The relation between the growth and user retention in entrepreneurial ventures (source: author)
customers helps to select different markets and to retarget dif-ferent user groups; creating great first time user experience requires high-speed development and troubleshooting; setting up and analysing key metrics demand tailored growth strategy, rapid testing and data-driven approach.
As the results show it is clear that growth and retention strate-gies are closely related. Both stratestrate-gies are complex and con-sist of numerous independent actions that are recommended by experts. However, the relation between them shows that by performing particular features of growth strategy, user reten-tion can be improved. Especially, when performed features or actions are directly connected as shown in Figure 3.
4.4 COMPARATIVE DATA FROM OTHER CASES
To compare literature review results and the results that were drawn from the interviews with practitioners, two business cases were analyzed. Both companies used growth hacking strategies to scale-up their startups from zero to a million users’ companies.
1. Airbnb - online marketspace and hospitality business. Growth hacks: collecting customer data from already estab-lished companies such as Craigslist; early product/market fit; timing; unforgettable first user experience; lower price than competitors; integration with most popular social media plat-forms.
Airbnb was founded by acknowledging a clear need for hospi-tality service in the market. Founders of Airbnb tested Min-imum Viable Product (MVP) at the early stage and iterated it continuously. While there are many opinions that Airbnb grew because customers needed the service, it is also appar-ent that the timing was advantageous as sharing economy was blooming. Furthermore, Airbnb hacked their user-base by integrating the platform with one of the biggest listing companies -Craigslist; and boarded customers from the listing platform to the Airbnb. On top of that, once Airbnb started growing their
user-base, they established great first user experience, offered cheaper prices per room than competitors and integrated social media channels into Airbnb which did not only help to grow via word of mouth but also improved trustworthiness. Currently, Airbnb’s growth strategy is building the entire hos-pitality brand by agitating their brand promise which offers the room to stay as well as improves the overall traveling experience by enabling to meet locals and get to know the culture.
2. Dropbox - cloud-based file storage business. Growth hacks: creating and testing MVP at the early stage; collecting po-tential customer data before the product was presented in the market; referral program; timing.
Before the product was fully completed, the founder of Drop-box created a video prototype explaining how the product would work, which earned a great flow of early adopters. Later, when the product was developed, Dropbox needed to amplify early adopters’ word of mouth in order to attract even more users, but they did not have any budget for realizing it. Shortly, Dropbox introduced a referral program that offered users an extra cloud storage space in exchange for referring a friend to the service, who would also receive the same value of the storage space added to their account. This resulted in an expo-nential growth of Dropbox from a start-up to a million users company. This was achieved by figuring out what their users would value the most and by enhancing that experience. 5. DISCUSSION
experiments, however, in most cases, it remains unclear what exactly became an ultimate hack. The literature review shows that growth hacking methodology can help start-ups to create a framework for the growth strategy but it is clear that there will be as many different strategies as there will be start-ups who are experimenting with it. That is why it is difficult to describe what exactly growth hacking is because each company adapts it to their own business model and needs.
The qualitative research helped to identify the important ac-tions in growth process as presented in the results section. The ease of growth process depends on whether a start-up has product/market fit because the core element of the growth process is to create demand and need in the market. If the product/market fit is not reached yet then the growth depends on how well a start-up is able to sell the problem that their business is solving. Literature review and case studies con-firm that growth can be hacked by testing an early MVP and hooking customers into the product/service early. The results also show that initial growth strategy creates the foundation for the user retention growth. As user retention is a natural use of the product/service it is easier to retain the customer by developing products/services that create value, than only using various tools such as email marketing to sell a product that cus-tomers do not desire. Consequently, that is why user retention is mostly driven by user-centric approach: personal commu-nication, offers, customization. Furthermore, the qualitative research showed that relation between growth and user reten-tion strategies is so tight that the differentiareten-tion disappears. By setting the growth strategy and fulfilling main actions for creating product’s that customers love which were shown in the results section, in the long term it positively affects the rate of user retention.
Even though growth and user retention are closely related, the results from respondents did not indicate actions of explicit growth hacking methodology as it is described in the litera-ture. Interviewed entrepreneurs, as well as comparative cases, showed that growth process must be tailored to each individual business. It is not beneficial for entrepreneurial companies to follow any methodology dogmatically. Entrepreneurs should take parts of the methodology that seems to be valuable to them, act on them and revisit, whether it works or not. Frame-works open a conversation and environment for interpretations. That conversation should allow entrepreneurs to help under-stand how to build products/services and business model for specific growth model that they chose to go for.
Some parts of described growth and user retention actions are included in growth hacking methodology; however, they cannot explicitly indicate that start-ups used growth hacking because those actions are what most start-ups do. Working at the start-up, as most of the entrepreneurs stated is a learning experience and without taking a specific approach or failing in some parts it might have been impossible to find the right strategy, or the right growth hacks because without specific learning they would not have the knowledge that they have achieved.
5.1 LIMITATIONS
Since growth hacking concept remains new in the entrepreneur-ship field, there is an extensive limitation on the literature available. As a result, some features of growth hacking might not have been identified yet.
The relation that has been drawn between the growth and user retention serves as a guide that helps to navigate the connections, however, it was outlined from the data collected during the interviews only. This can be complemented by adding growth hacking and user retention concepts from the previous research.
The interviews with practitioners and entrepreneurs were con-ducted in a limited geographical area (Sweden), hence this study is limited by cultural differences in entrepreneurial be-havior and perception of growth hacking. As growth hacking concept was first introduced in the United States, the percep-tion of it might have been less hindered, if the experts inter-viewed would have had entrepreneurial experience in the U.S or other continents. Furthermore, since interpretations of their answers, attitudes, and experiences are central in this study, this study assumed that the interviewees based their answers on their own experiences and not someone else’s expectations.
5.2 FUTURE RESEARCH
Growth hacking continues to be a new topic in the en-trepreneurship field. This research showed that growth hack-ing concept does not have a clear framework, thus further research is needed. Also, the connection between the growth and user retention could be improved by researching how spe-cific growth actions at the early stage influence the rate of retention in the long-term. Moreover, this research was narrow in terms of qualitative data. Future research could analyse higher number of entrepreneurs with different backgrounds, nationality and culture in order to draw more accurate conclu-sions.
During the interviews with entrepreneurs, it was noted that the language they use for describing processes of the start-up growth is nurturing. The entrepreneurs used words such as customers’ love, nurturing the fan base, caring about cus-tomers, etc. Future research could analyze the semantics of how entrepreneurs describe their ventures. Another interest-ing research could be conducted by applyinterest-ing growth hackinterest-ing methods in traditional marketing. For example, how traditional bricks and mortar businesses could adapt growth hacking prac-tices to retain customers.
In addition, in this research, it was found that growth hack-ing and overall start-up growth, is a data-driven approach. Therefore, future research could be conducted to examine how General Data Protection Regulation (GDPR) will influence user data collection and how it will change data analysis that is available today.
6. CONCLUSIONS
Growth hacking is a relatively broad and uncertain term to de-scribe growth processes in the entrepreneurial ventures, there-fore, in order to answer the research question growth hacking term needs to be determined. As it was discovered by con-ducting the literature review and qualitative research, the most important factors influencing the growth are:
• Creating the products/services that people desire and need. • Learning achieved by testing a vast amount of ideas,
in-sights, hypotheses.
• Implementing a data-driven approach across various busi-ness operations.
• Timing, in terms of continuously innovating the product or service, predicting the future trends to stay up in the market. As these factors relate to retention matters, achieving them at the early stage of a start-up can not only help to lay a strong base for the retention growth but also significantly improve retention rate. Further, growth hacking methodology includes the application of growth factors listed above, hence growth hacking strategies lead to sustainable growth. However, it was determined that the growth must be tailored to the business model and product concept, therefore, the growth strategy must be adapted to each venture’s unique business proposition. Even after conducting the research, growth hacking concept continues to be unclear. It seems to be a well-known method-ology that accelerates growth in start-ups, however, the frame-work that growth hacking concept explains might just be the way start-ups grow in general. For this reason, the growth must be perceived as an approach, philosophy rather than a method that is set in stone.
ACKNOWLEDGMENTS
I would like to thank my supervisor Christopher Rosenqvist for the guidance during this project and to all interviewees who spared their time to discuss the topic. Thanks to my family for the never-ending belief in me; to my amazing peers for indulging discussions during two years of studies, for the motivation and all the quality time spent together; and to Javier R. for always supporting and encouraging me.
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