The Growth Trilemma
The Growth Dream
Every startup wants to grow fast and get high quality customers without spending money.
That's the dream!
But is it even possible?
This article aims to help Founders think about Growth with their budget constraints and business goals. It should also help Growth marketers communicate well with business leaders and Founders to set the right expectations.
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Today we crossed 200.
We have now worked with 200 Founders and businesses to help them understand, build and execute growth marketing.
And one thing consistent across all 200 growth challenges is The Growth Trilemma!
What is The Growth Trilemma?
It states that a business can optimize for a maximum of 2 out of 3 factors in Growth Marketing:
- Speed: The speed of acquiring users | Measured by growth in New user transactions per day/month
- Quality: The quality of users | Measured by Retention% or Repeat transactions per day/month
- Money: Marketing spends to acquire users | Measured in CAC or Total Spends
Before we deep dive into the why and how, it is important to revise The Marketing Funnel.
The Marketing Funnel
There are multiple variations with 3,4 and 5 sections but we will stick to a basic version for this article.
This is how the marketing funnel looks:
Notice how we use “audience” before the purchase and “user” only after the purchase. For the purpose of this article we are referring to only transacting/paying users as “users/customers”
The concept of a marketing funnel is very simple (not to be confused with easy):
Get as many people into the top of the funnel and guide them through the consideration stage with minimum drop-offs (users exiting the funnel) and convert them to purchase the product.
In a perfect world, we would want every customer entering the funnel to purchase, but #reality!
The Trilemma: Speed–Quality–Money
Let’s get back to our Trilemma: Speed–Quality–Money and see how the funnel is impacted when we try to break the Growth Trilemma.
To understand it better let’s look at the Growth Goals and their corresponding tradeoffs:
Goal: High Speed of Growth
The most common goal of early stage founders, “I want to acquire a lot of users as fast as possible”.
Non-negotiable: Money
To grow fast you need a corresponding budget. This is where your performance channels dominate the strategy. Referral programs can also work if designed and executed well. But be ready to expect very high CAC and low conversion rates.
Tradeoff: User Quality
There is little to no control on the user quality when you step on the accelerator from the start.
Be ready to face high churn, poor reviews and declining traffic from the day you pause/reduce your marketing spends
The Funnel:
To grow fast you need as many people to enter the top of the funnel as fast as possible. In this process of volume and speed, accuracy is very difficult to achieve.
We are bringing in anyone and everyone into the funnel, so naturally we will have users who are not interested in our product. Leading to drop-offs in the first stage itself.
Even if they are interested they need more time to evaluate the product and the brand.
Hence, more drop-offs in the second stage.
Even if we push users through the conversion stage with discounts and offers, we are left with customers who we don’t understand.
Did they purchase due to the discount or because they really liked our product?
Pro Tip:
This strategy rarely works but when it does it has a cascading effect on other areas as well:
- Word of Mouth (WoM)
- Jump in app store ranking (for apps)
- High organic search
- Media coverage
If you are already thinking of exceptions to this, we got you covered in the last section. Read on.
Goal: High Quality Users
Quality users are a rare breed but a Founders dream. Not only do they purchase the products repeatedly, they share reviews and recommend the brand if they have a good experience consistently. A win-win all around.
Non-negotiable: Money
Now finding these rare gems is not easy. While some startups stumble upon their ICPs (Ideal Customer Profiles) early in the growth journey, more often than not it takes years to figure out the ICP. This exploration takes money and time. The exact number will vary based on market size and industry.
Tradeoff: Speed
Good things come to those who wait. Same is true for good customers.
Finding the high quality users requires you to first go through the poor quality ones, evaluate their behavior and define the good desired behavior. And doing all this, while you are building and refining your product/service, requires dedicated time and effort.
The Funnel:
To get quality customers you need to experiment a lot.
Two popular approaches here:
- Spray and Pray: Similar to high speed of growth but without the discounts. Spread awareness and get as many people into the top of the funnel but then let them discover/purchase the product without any incentives. Post conversion, study the users behavior and product experience to define the high quality segment.
Awareness
High traffic | High drop-offs
I
Consideration
Low/Medium Drop-offs
I
Conversion
High Quality Customers | Drive WoM (based on experience)
- Segmentation: Create different segments based on hypothesis and market research. Target them specifically and see behavior of each segment in the funnel. Keep slicing each segment into many smaller segments to get the highest performing segment.
Ideal funnel should look like this:
Pro Tip:
Each approach requires solid capital to experiment and time to get to an ideal customer.
If you have high confidence in your research and market understanding pick #2 but if it’s a new market, approach #1 has a higher probability of success in my experience.
Goal: Grow with Minimum Money
This is more common among bootstrapped Founders and traditional businesses that are going online.
I believe this is the most fun and challenging situation for a Growth Marketer, once you grow a brand this way you will fall in love with the creative marketer inside you.
Non-negotiable: None
There should be a reverse non-negotiable: There is no reason which could lead to acquisition of poor quality customers here. This is pure marketing talent at play with minimum resources and peak creativity driving growth.
Tradeoff: Speed
No brainer on this point.
This is the slowest path to growth but also one with lowest financial risk.
The Funnel
Pro Tip:
This approach sounds good but requires peak creativity and a lot of grunt work. Channels that work best here are community marketing, content marketing, and SEO.
But there is another tradeoff in this scenario which is outside the Growth Trilemma.
Market Share
Many startups that take up this path get outplayed by their competitors who raise funds and capture market share early.
Thereby making it tougher, not impossible, to grow after a certain threshold. Because now you are not only convincing users to buy your product/service but you have to convince them why you are better than your competitor (who owns a larger market share).
So in case you are thinking of going slow and steady, this is one race you might not win easily.
Exceptions to the Growth Trilemma:
Now we answer the question we asked in the beginning – can anyone have it all?
In the rare case, Yes.
But can you control it, probably not.
The exceptions to this Trilemma are companies or rather specific campaigns which go viral.
Now the virality can be attributed to a smart marketing hook, riding a social trend (the recent Zomato-Blinkit hoardings come to mind) or plain luck.
The non-negotiable here is the utility of the product/service. In essence, companies which provide a desirable solution and hit virality are able to grow rapidly (high speed) through WoM (less money) and reach the ideal customer (high quality).
Now there is no harm in attempting to create viral content, if time and resources allow you to do it, please do it.
But “let’s build a viral campaign” is not a growth strategy, at least not a long term sustainable one.
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My mantra to early stage startups would be to experiment with every channel but be prepared to tackle the Growth Trilemma.
Shoutout to Harshit Srivastava (Google), Rohit Kumar (sugar.fit) and Dr. Nazia Nagi for helping me structure this concept and make it comprehensive.
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