Growth Equation

January 30th, 2018

By now, growth is one of the most trending word in the tech environment. Because both cohabit in the startup eco-system, no matter if we're more inspired by hyper-growth fueled by venture capital or by slow growth sustained by profitable development. However, what's widely shared is that almost every tech company tries to find tactics to build a growth engine that suits its ambition.

Last year, we went into a 30% profitable growth, which meets our expectations. Here are some of the stuff we've been working on, throughout the year with the whole team.

G = L +E - C

A lot of marketers focus on acquisition to sustain high growth velocity, but the machine to build to grow a business could actually rely on several axis - including acquisition but not only - to perform sustainable, reliable and profitable growth on the long term. Acquisition metrics are often used as a PR show, but can not be enough to explain a growth success. For instance, if you're loosing 90% of new customers, keeping growing as time goes by would be very hard.

In other words, growth cannot be summed up to acquisition metrics. As we've tried for a couple of years to implement strategies that drive results, we've managed to identify several required key elements to build our growth engine. These factors could be explained by the G = L + E + C model, whose equation basically means that Growth = Land + Expand - Churn.

Land

Land directly refers to new customers acquisition. It is the first part of a growth equation, because somehow no acquisition means no growth. We count here every single new customers who land to our company by subscribing to a first product account, thanks to several acquisition strategies such as Inbound Lead Generation, Outbound Sales or Partnerships.

Expand

Once a customer lands to our company, we're always trying to deliver more value with customer marketing and account management strategies, which sometimes ends to expand revenue. This expansion could be organic (same product, same plan, more usage), up-sell (same product, upper plan, paid option or new account), or cross-sell (another product from our range).

Churn

Churn refers to the customers who are leaving. In fact, this will certainly happen in a more or less far future. We all experience every year some customers who cancel their subscriptions for different kind of reasons. And that's part of life. So this is why building a growth machine should also consider to seriously monitor and act to downsize churn as much as possible.

Fueling growth

What's very exciting with growth - and business development in general - is that the path never ends. There are always some opportunities to fuel your growth machine with multiple axis of development. Here are some of the most common exemples in the tech environment.

Multiple Products

Building complementary products would help you fuel your growth, with new landings for each new product + lots of expandings (cross-selling). You could either build these products inside or acquire tech startups to complete your range faster. Google, Apple, Amazon, Salesforce or Atlassian for instance have wide ranges of complementary products, that they built and acquired.

And at our very own and humble level, we also started to build a range of product to leverage our growth with acquisition and cross-selling. Not all software companies fuel their growth with multiple products, but it's an interesting axis to consider.

Acquisition Channels

If landing is not the only factor to focus on about building growth, it's still one of the most - if not the most - important about growth. And it could be very efficient to leverage an acquisition machine with multiple channels to fuel growth. Like Aaron Ross - former VP sales helping Salesforce grow frome $5M to $100M - said in his blog, Inbound and Outbound are complementary direct acquisition channels that really work together.

In addition to direct sales through Inbound and Outbound strategies, direct sales trough Referral programs and indirect sales through Partners represent the usual effective acquisition channels.

Multi-axis Pricing

For instance creating some subscription plans for a SaaS product - such as well-known, widely-used and efficient Start, Professional & Enterprise plans - or paid options represent interesting strategies to grow revenues. And beyond subscription plans or paid options, multi-axis pricing represent huge and powerful opportunities to grow your business.

David Skok, a great US-based tech investor, shared a detailed article about multi-axis pricing where he explains how to increase SaaS revenue based on product features, number of users, depth of usage among others. He also suggests that a SaaS business multi-axis pricing should rely on 2 or 3 axes. No more. Because it's better to have a pricing model that customers can easily understand, and to resist to bring complexity that would go against your growth objectives.

New Markets

Another efficient way to sustain growth, especially when you have a strong acquisition machine, is to target new market to widen your TAM (Total Adressable Market). That way, it's possible to continue to land new customers into your growth machine, when your growth rate starts to shrink because you've reached a kind of market saturation.

Among classical strategies about market extension, there are geographical expansion (targeting new countries, new languages), company sizes (targeting SMBs then Large Companies, or vice versa), and vertical segmentation (targeting segments with similar criteria of original segment).

Lifetime value > single sale

This is just a matter of common sense, but sustaining growth over years is about to deliver value to customers. Growth could not be limited to acquisition metrics. Business expansion and churn reduction are also part of the game. This not interesting to spend a lot of energy trying to fill a drilled barrel while your ambition is to keep growing on the long-term.

Constantly trying to deliver high value to both existing and new customers with problem-solving products they love would lead to a complementary customer acquisition and business expansion and churn reduction approach.

Hopefully this article gave you interesting insights. In the end, nothing is very new as a lot of people already wrote about some ideas I just talked about. And if the G = L + E - C equation is quite simple to understand, it should not hide that the most important things remains the execution of growing strategies. Which is, in fact, much harder than theories.

Curious to know what you think about this G = L + E - C approach to build a growth engine, and if you have different approaches to structure growth in your tech companies.

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