The Growth Hacking Framework
I regard Growth Hacking as understanding business fundamentals and then being able to make informed decisions using data, centered around orders-of-magnitude growth. Growth Hackers love data, are creative, and curious. Some are developers, some are designers, some are business oriented. Let’s dive into a way of looking at the world as a giant opportunity for growth.
I call the framework I use to guide my thoughts CCARR: Collect, Clean, Analyze, Run, Repeat. That is, as a starting point, Collect data that is helpful, Clean up the data, Analyze the data to pull out insights, Run new experiments based on what you have learned, and Repeat the whole process as long as it makes sense.
Collect data that is helpful. This could be internal data you control, even using something as universal as Google Analytics. Data collection could also come from external sources, perhaps by web scraping other sites to save effort. I use Outwit Hub and SEOTools for Excel for basic off-the-shelf web scrapers, and Tamper Monkey’s Chrome extension for making and finding user scripts to save time. I’m also experimenting with building a chatbot (because everyone else is) using Pandorabots as a way to collect data.
Clean up the data. The data you want, especially if it is from external sources, may not be in a format that you can easily use. I use Google Refine if there is a significant amount of work to do. Otherwise, I might just live with it and open up Excel.
Analyze the data to pull out insights. This is business plus creativity. For this I use an expert level of Excel, which is just easier for me than using a database. This step is guided by knowing what business fundamental we want to impact. It all comes back to fundamentals like Life Time Value, Customer Acquisition Cost, and cycle time (see next section). However, you may want to focus on one specific element of those.
Run new experiments based on what you have learned. Here you might use ads on Facebook or Google, experiment with referrals, go to social platforms like Reddit, Product Hunt, or Twitter, or try something more guerilla. Just make sure you track what you are doing and your predictions for what will happen.
Repeat the process as long as it makes sense. There are many tools that do these things. These above just happen to be the ones I’m using now.
Adding more customers if you lose money on each one doesn’t make sense, at least in the long-run. Eventually, all of your work has to come back to the fundamentals. That means if you’re trying to growth hack a business, you work on increasing Life Time Value (LTV), decreasing Customer Acquisition Cost (CAC), and speeding up cycle time. Let’s take those one by one. Simple to remember, but figuring out how to do it is the hard part.
I use a simple LTV formula: LTV = Price ($) * Margin (%) * Repeat Purchases (#). Those are the three triggers you have to increase monetary value to the business.
As a growth hacker, the factors you can usually impact the most are Repeat Purchases and, to a lesser degree, Price.
CAC is another area of focus for growth hackers. If you can figure out how to decrease your CAC, then you have more budget available to acquire more customers. The difficult thing about CAC is that different channels for customer acquisition constantly change in their efficacy. What worked yesterday may not work today, or may be too expensive to be worthwhile. That’s why many of the historical growth hacks you hear about are good for ideas, but may not be repeatable. This also means that another difficult thing is realizing that what’s working for you right now may stop working. To keep yourself honest, remember that there is no single CAC – every business has multiple channels to reach customers, each of them with their own associated cost and LTV. To make it easier to focus on growth, think of what will happen to each channel when you try to increase your numbers by 10 times. Some of the channels will not scale at all, some will scale, and some will only scale at a much higher cost.
Rule of thumb: keep a healthy distance between your LTV and CAC, perhaps 3X or 4X, unless you are trying to take market share and have the reserves to play that game for a while.
Cycle time is the delay between when you acquire customers and when you see the impact in the form of initial purchases. If this cycle is too long, even if you can decrease CAC and increase LTV, you’ll be out of business before you can benefit.
The best tip is also the hardest: build a great product that your customers love. If you can do that, then growth hacking becomes a lot easier. Growth usually does not just happen all by itself or in a sustainable way. Keep the above CCARR framework in mind when you growth hack.
Paul Orlando is Professor of Entrepreneurship at the University of Southern California (USC) and is also Director of USC’s Incubator program. He is teaching the first class in Growth Hacking at USC in Fall 2016. Maybe you met him back when he lived in Hong Kong and was running AcceleratorHK, the city’s first startup accelerator. You can read about Paul’s experiences at startupsunplugged.com/book