In this episode of the GrowthTLDR, we discuss a common problem experienced by scaleup companies - growth ceilings.
We discuss how growth ceilings happen and five notes to consider if you're fearful of hitting one.
As Paul Graham says, most startups fail because they don't make something people want.
Another common reason startups fail is because they can't figure out their product-channel fit. The phrase product-channel fit was coined by Brian Balfour, who you can hear from on episode 31 of the GrowthTLDR.
Startups can only become scaleups by finding at least one channel to acquire customers in a scalable way.
All companies need to move from unscalable channels to scalable channels, for example:
a. Uber, Lyft, and Snapchat are all billion-dollar companies. All of them grew through local tactics, giving out free coupons for rides, and in Snapchat's case, even handing out flyers. After that initial growth, they graduated to growth via mass user virality and large scale paid advertising campaigns.
b. Etsy and Pinterest grew through local meetups with arts and crafts enthusiasts and interior designers before scaling through Google.
c. Buffer initially grew through guest posting before growing its media properties and acquiring customers via Google.
d. Robinhood and Superhuman managed to grow through FOMO (fear of missing out) by only allowing people to signup via a waiting list or a referral from a friend before graduating to virality (user and word of mouth)
Once you've discovered a scalable channel to grow from, your next set of challenges revolve around hitting those pesky growth ceilings.
Here are some notes I've taken on growth ceilings that will hopefully be useful to you:
1. A healthy dose of paranoia is good!
We discussed what it takes to be a successful scaleup leader in a previous episode.
A great leader will give his team the right level of autonomy during planning:
The leader will define the success metric for their team and provide some guardrails they need to work within - budget, headcount, resources.
The team will take both the success metric and guardrails and return a plan, including their forecasted growth against that success metric and playbooks to achieve that growth.
The leader and team then get aligned around goals, resources, and playbook.
Depending on your team size, this process should happen every three, six to twelve months.
At some point during these planning cycles, you'll notice your team coming back with dwindling goals and playbooks. That's a warning sign that your team is running out of ideas.
It's time to diversify your growth channels.
2. Diversify channels from a position of strength
A lot of companies grow to become very successful with a single channel. For example, in episode 113, we talked to Calendly founder Tope Awotona as they hit $50m in ARR and are now beyond $60m in ARR.
Calendly has seen exceptional growth during the pandemic. Much of that growth appears direct traffic because it's through its virality (users using the product expose it to other users). You can see this through how to direct traffic has grown exponentially compared to other channels:
It's always easier to diversify your channels from a position of strength. Don't wait until you've started to reach diminishing returns for growth before looking for new growth opportunities.
A great example of this is Canva, who were growing exponentially through virality (word of mouth) and then layered on SEO via their template strategy.
3. Have a goal for time you spend on new growth channels
To build on point two, have a goal where your team spends X% of their time experimenting with new growth channels for the company.
You can use your primary channel's growth rates to help you figure out the ratio of time spent across growing that primary channel and looking for a new opportunity for growth.
For example, if you feel there is ample room to increase your growth rates, you may allocate 100% of your resources to achieve those rates. If you see either stagnate or dwindling growth rates, you may start to give a lot more time/resources to seeking new growth opportunities.
4. You can * kind of* build TAM models for marketing channels
We talked about this on episode 130 of our podcast; you can somewhat build a distribution TAM for some channels.
If you're interested in doing that, check out the above podcast episode and blog post.\
5. Some growth channels you can't avoid
There are some examples where it's impossible to avoid hitting growth ceilings:
You're a single product company, and you run out of an available audience to grow
You're product only maps to a small number of channels (product-channel fit), and you've saturated those channels.
At this point, at some scaleups, the job changes from growth to maintaining the audience you have and finding better ways to monetize them.
Listen to the full podcast to get all the details!