A First-Principles Approach to Growth

This is a guest post by Matias Honorato, who is the Growth Manager at Tally, the first automated debt manager app. In 2013 he founded his own startup, SlidePick, to later move from Chile to San Francisco in 2016 and continue his path in growth marketing at Earnest. Through this journey, he has led important initiatives in organic and paid acquisition marketing, data attribution, and product growth initiatives at fintech companies.

Growth, as a business concept, has simply exploded over the last 10 years with systems, tools and analysis that enable companies to create and execute strategies that drive sustainable and scalable impact.

Business growth is a top concern that founders say keeps them up at night, according to First Round’s 2018 State of Startups report. The mix of information and different approaches to growth represents a potential barrier for every company to create foundational frameworks that can be successfully applied to their business due to their uniqueness in their product, customers and stage.

All growth is not created equal.

“There’s no one-size-fits-all advice: Your growth strategy should fit where you are in the moment,” said Brian Rothenberg, former VP of Growth at Eventbrite, in an interview with First Round. “At each stage, you should be focused on different targets, according to your customers, your resources and the data you’ve collected.”

With that in mind, let’s rethink the way we develop growth strategies and implement a mental framework that we can use to reverse-engineer our thought process about business. The goal is to focus on the basic building blocks that make a company work and grow successfully. 

 

A first-principles approach to growth strategy

The basic idea of first-principles thinking is to simplify complicated problems down to their most basic elements, and then reconstruct them in a new way. If you want to brush up on the concept, Farnam Street explains it all in a very detailed way.

So often in our lives, we think about things in terms of comparisons. Called “reasoning by analogy,” this refers to how we create knowledge and solutions to problems based on prior popular beliefs, ideas and common practices. Think of how many times you’ve heard something like:

“We are the Uber for X.” 

or:

“What if we apply the tactics and “growth hacks” that X company used to hit our goals?”

What reasoning by analogy fails to do is to break your own foundational and unique growth problems apart, preventing you from giving a better understanding of the underlying structure that rules your business. This sort of thinking can have serious consequences for your growth strategy and the chances for your company to succeed.

 

“First principles is kind of a physics way of looking at the world, and what that really means is, you … boil things down to the most fundamental truths and say, ‘OK, what are we sure is true?’ … and then reason up from there. That takes a lot more mental energy. — Elon Musk

 

If we take a closer look at long-standing companies across different industries, we can identify several foundational elements that contributed to their hyper-growth phase. In many cases, we can see how their founders used a first principle approach to build their businesses from scratch.

Image credit: https://twitter.com/waitbutwhy/status/891190009600126976/photo/1

 

Some of these elements are:

1. Company Vision: What’s your end goal?
2. Success Criteria: What are the targets/milestones you need to hit and who is the customer you need to attract in order to achieve your vision?
3. Product Roadmap: How your product needs to evolve to get you closer to that vision? 
4. Key Hires: Who are the key players that can help you execute on this vision?

To go deeper on how we think about this and how it has a direct impact on growth strategy, let’s look closer at Tally, where I currently work as a Growth Manager, 

1. Company Vision: Tally wants to be the first to achieve complete financial automation.
2. Success Criteria: Tally needs to make a certain number of credit card borrowers less stressed and better off financially.
3. Product Roadmap: Tally must improve the onboarding funnel by a certain percentage to help more credit card borrowers.
4. Key Hires: The Growth Team can hire more people for roles that directly contribute to the product roadmap. (We’re hiring!)

 

Once you’re specific enough with your assumptions, then you can think of a plan to test and de-risk them. By focusing on the most important assumptions you need to de-risk, you can create the necessary conditions and basic components needed for success.

At Tally we want to build the future of autonomous finance. We started by helping people to pay off their credit card debt faster and now we are launching a new product to help our users build a habit for savings. 

We have achieved this by laying out the main objectives and principles that are core to the Tally experience. The leadership team have pushed the organization to think about these bigger goals as problem statements that each individual team can break down into smaller principles and convert into actionable items.

Building your growth strategy through a first-principles lens can help you simplify and organize your team around core foundational challenges that need to be addressed today in order to achieve your company's long-term vision. 

Let’s go deeper into two of these elements from the perspective of a Growth team and from my own personal experience: Success Criteria and Key Hires.

Note: My focus here is mostly on mobile-first companies post Product-Market Fit. If you haven’t achieved PMF, that should be your primary goal.

 

Success Criteria

Success will look different for almost every business, but there are a few fundamental components that are necessary for you to make sure you’re on the correct path to create a valuable business.

Borrowing from this amazing framework developed by Andy Carvell, the Growth team at Tally has worked hard to make sure we can break down these key elements and build our own framework that fits the specific needs of our company and business model.

The basic components of our approach is divided into three main categories:

1. Acquisition 
2. Retention/Engagement
3. Monetization

The framework above, developed by Andy and the Phiture team (for mobile growth marketers in particular), dives deep into the basic elements of each of these main concepts. It’s a great visual way to understand how we can break down a mobile growth strategy into key decisions and the tools associated with each decision. 

This framework is grounded in the business assumptions that guide the effectiveness of this thought process. Let’s see it in action and learn how we use it at Tally to think from a first-principles perspective about our growth.

 

1. Acquisition is the fuel that keeps your growth engine going.

You can find great diversity in the amount of channels and ways you can acquire customers today. But a big chunk of the acquisition work is defined by how well you can answer these questions: Who is your customer? How big is the market you’re serving? How does your product create organic viral loops?

In my work at Tally, we’ve been very successful at running, at scale, some of the main organic and paid channels by thoughtfully taking a deeper view into the needs and aspirations of our potential customers, and how they interact with each channel we use.

Things we do on a weekly basis to inform how we run our acquisition strategies and campaigns:

1. How do customers talk about and describe our product across channels? (These are insights we get from reviews, comments, surveys, etc.)
2. How do people search for Tally? (These are insights we get from organic and paid campaigns.)
3. How are customers interacting with our creatives, videos and ads? How does that translate into business value? (These are insights from conversion rates, CTR, CPAs, etc.)

 

2. Engagement/Retention push you to break down your product or service to the most basic components. 

What are the key activities my highest-value customers do with our product? How is the product shared by our customers? What’s the highest friction point in the customer experience? How can we win back the customers we’ve lost?

At Tally, the nature of our product and the value we provide to customers organically get us a high retention rate. So, the way we approach this is by making sure we are optimizing toward the experience of a new customer who’s coming to Tally for the first time.

We are continuously refining this process and making sure we can find a framework that fits the needs of our business. So far, we’ve made great progress through:

1. Bi-weekly meetings between Product and Growth
2. Weekly experiments
3. Weekly calls and surveys with customers that dropped from our onboarding process to get qualitative feedback that data doesn’t surface.

 

This is part of the core work we do in conjunction with the Product team. We are always thinking and iterating on experiments and improvements we can do to our onboarding experience to make sure we are reducing as much friction possible and reinforcing the benefits of Tally.

 

3. Monetization is the piece that will make or break your business.

What’s the value of each of my customers? How am I pricing my product? What’s the lifetime value of my core customers?

Tally’s Growth team is aligned around four core concepts that are directly correlated to our ability to scale our business:

1. Cost Per Borrower: How much we need to invest to get a borrower of our product.
2. Payback Period: How long it takes a customer to pay back the cost of acquiring them.
3. Credit Operation: At what rate are we lending to these customers? 
4. Expansion: how can we make our service more valuable to a broader set of customers?

 

I’d like to add one more concept to the Success Criteria mentioned above: Happiness.

4. Happiness forces you to think about the actual value you’re creating.

It makes you ask yourself what it means a “happy” customer with your product or service and pushes you to think about how to scale your “happiness rate.” This is a concept I explore in more details in an interview I did with Jason Brown, CEO of Tally.

 

Key Hires

As Matt Bivons, VP of Growth at Greensky, stated in a previous article I wrote: 

“A Growth team’s core thesis is to; 1) Reduce friction 2) Accelerate the value perceived by your customers.” (Read more on Bivons here.)

Personally, I’d add a third element to this thesis: Efficiently scale the usage and adoption of your product.   

With this set of first principles, we can start identifying which are the necessary skills of individuals that are part of a successful growth organization and how to structure the team based on the specific needs of your company. 

I’ll use a few examples of how the roles we’ve hired for at Tally fit these core concepts and the influence they have in shaping our growth strategy.

 

How a Product Growth Manager can help reduce friction.

This role is responsible for working with the Product team to identify the key points that can lead to incremental optimizations and improvements to the customer experience.

The main goal is to identify where the biggest drop-offs occur and the reasons behind the drop-offs. Then, they work closely with the Product and Design teams to create a plan of action and testing to get incremental wins.

In order to successfully do this, a Product Growth Manager must rely heavily on the reliability of the data and tracking platforms to measure and correctly communicate the results and progress to the wider teams and the company.

 

How a Product Marketing Manager can accelerate the value perceived by your customers.

This role is responsible for championing our customers. They have a direct line of communication with our customers and regularly engage them to understand — and communicate across the rest of the business — the impact our product has in their lives.

The Product Marketing Manager helps the Growth team understand the actual value perceived by our customers and how we can better communicate these values across our channels and products.

This role works as a bridge between other teams, and one of their main responsibilities is to keep an ongoing feedback loop from the end customer into the product backlog and informing this back to the long-term vision of the company.

The ultimate goal is to be able to transfer the needs, emotions and experiences from our customers into actionable insights we can use to create a better experience for new customers, from the first touchpoint in an ad or on our website to the moment they become a customer.

 

How a User Acquisition Manager can efficiently scale the usage and adoption of your product.

This role is responsible for coordinating the top-of-funnel initiatives with the Creative and Design teams. They are constantly bubbling up what they see on a daily and weekly basis from a channel performance numbers to inform the creative process we have internally in order to scale and optimize our acquisition channels toward the goals we have.

As we test different audiences, creatives or channels, we see different types of customers going through our onboarding process with fluctuations on the performance for these channels. The responsibility of a UA Manager is to communicate this to the Product team and have an active role into what we are testing and how these tests are impacting acquisition performance in order to optimize the top of funnel metrics and make sure we are able to scale at a rate that will help us achieve our goals.

With the role of UA Manager becoming less about campaign optimizations, due to the automation of the acquisition channels, creativity has become one of the most important assets for this role — plus a great understanding of how our core customers interact with our brand at all levels.

These are just a few of the roles that work with me in the Growth team. But it’s a good proxy into how we operate as a team, what we look for in new candidates and how we think about scaling the team based on these high-level concepts.

Growth teams can have different shapes and responsibilities, depending on your type of business, company stage and culture. By taking a step back to understand the underlying components of how a Growth team works, you can break apart the basic things you need in order to build your team.

 

Final thoughts ...

“As to methods, there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.” — Harrington Emerson

This is a great summary of what we have discussed over this article. The quote encloses the core idea behind why it’s necessary to think about your growth strategy from a first-principles approach. 

Companies are constantly trying new methods or ideas to achieve success and grow as fast as they can. But at the end of the race, the ones who win are that are thoughtful and conscious about the core principles that rule their growth levers and strategy, but also ruthless and rigorous to prioritize and efficient and fast to execute.

Make sure you take the time to ask yourself these questions and that you are able to breakdown the components that make your growth engine works. 

From Farnam Street: “There’s a great difference between being a chef and being a cook. If the cook lost the recipe, he’d be screwed. The chef, on the other hand, understands the flavor profiles and combinations at such a fundamental level that he doesn’t even use a recipe. He has real knowledge as opposed to know-how.”