All startups that get a product in the market with paying customers do a variety of things to boost their sales. After initial product-market fit and a repeatable customer acquisition model is discovered, the first growth strategy usually involves turning the crank faster and faster. In other words, doing more of the things that proved successful for customer acquisition and associated revenue growth. Of course, attempts at optimizing the activities continue forever. But this first phase of growth involves a single combination of vectors. The purpose of this article is to explore the most common new engines for growth and a framework for helping you decide which is best for you.
In this context, a “vector” is either a product, customer type, geography, or use case. The combination of these vectors make up a big part of your go-to-market strategy. Let’s use my favorite, imaginary case study, DoggieDrone, to make this more clear.
A drone that can fly while tethered to a dog and a mobile app that enables control of the drone for its stated purpose
The elderly population that wish to continue aging at home and that recognize the benefits of dog ownership, but aren’t easily able to walk their dog
The United States. More specifically, the states in which it is legal for low-flight drones to be operated autonomously
The drone walks the dog on behalf of the owner
Exploring New Engines of Growth
Many pivots in the early days involve changing the customer target or use case after invalidating some initial assumptions about them. But a pivot usually doesn’t result in an additional customer target or use case. Instead, a better one is selected in order to achieve product-market fit and get the first engine of growth going.
This article relates to companies that have reached the point of either wanting or needing to add a new growth engine for their company. They might want to pursue this strategy because they generally have a good operational handle on things and see an opportunity to accelerate their growth. Or they might need to pursue this strategy because their original growth engine is either reaching its potential or encountering a phenomenon that causes it to not be as strategic or exciting as before.
Regardless of the motivation, achieving growth with this strategy involves adding something new to the original growth formula (adding to one or more of the vectors). This means adding a new product, a new customer type, a new geography or a new use case. So much risk is introduced by doing this that usually only one new attribute is added at a time, not multiple. Let’s explore each possibility and its associated considerations.
This growth strategy involves creating and selling a new product to the same customer. When implementing this strategy, seek synergies with existing products for best cross-sell potential. It’s ideal if the same customer acquisition and support methods also work well for the new product. Adding a second product also enables a land-and-expand sales strategy (use one product to acquire a new customer and then later expand revenue by cross-selling the other products).
DoggieDrone Example: The company could design and introduce the RoboScoop, a robotic pooper scooper that follows the dog while it’s being walked by the drone. It takes care of business after the business is done, and returns it home in a compartment that’s lined with a small plastic bag for easy disposal. An enhanced version of the RoboScoop could also be placed in the backyard from time to time to go on patrol and retrieve any poop piles, much like a Roomba cleans the carpet.
New Customer Type
This growth strategy involves selling the same product to a new type of customer. The new customer could be different in size, demographics, industry, or several other attributes. And because the customer is different, new messaging and positioning will be needed that is unique to the new customer. Awareness campaigns, pricing, and competition might also change.
DoggieDrone Example: The company could start targeting upper middle class households in which both parents work. They have the money to spend on something like DoggieDrone. Additionally, both their weekday morning and evening routines for themselves and their kids make dog walking a major inconvenience.
This growth strategy involves expanding your customer acquisition model geographically, which could mean new cities or regions in your home country, or new countries. Expanding into new countries carries significant implications and risks, which should not be taken lightly. Rather than cover them all here, if this is something you’re considering, read my article titled The Complexities of International Expansion.
DoggieDrone Example: An obvious geographic expansion opportunity is the US states that pass new legislation that makes this type of drone flight legal. But rather than wait for that to happen organically, the company could expand into various international markets where drone legislation is already in their favor.
New Use Case
This growth strategy involves new application uses for the same product. Implementing this means one or more of the other attributes will probably need to change. That means messaging, pricing, customer acquisition, and other business plan elements need to change.
DoggieDrone Example: The drone could be enhanced to follow a family’s son or daughter as they walk or ride their bike to the elementary school in the neighborhood, providing a live video feed and an alert if the child stops or veers off the logical path.
Deciding Which Growth Strategy is Best
The reason I like this framework is that it helps ground strategy discussions with the executive team. It gives a methodical approach and allows evaluating not just the opportunities that open as a result of adding to a vector, but also the risks and implications to the company. It’s easy to get excited about an expanded market size but ignore what needs to be newly created or changed in order to properly pursue the strategy.
When I think back to my personal experiences with launching new growth engines, they mostly locked in the target customer and involved introducing new products for that same customer. The new products either expanded the existing use case or introduced new ones that had synergies with the original product(s). And I must say that customer intimacy is a powerful attribute for any company to leverage. Don’t underestimate how hard it is to really get to know a new type of customer.
One company I worked for that grew to $55M in revenue had something like five products, all sold to the same broad function within large enterprises. The products had technical integrations between them that offered a fabulous land-and-expand strategy. A typical first deal size was about $150,000 but with reasonable potential to grow to $1M or more over the next few years. The company was acquired by a Fortune 500 for $200M.
What About New Routes-to-Market?
A route-to-market is essentially a channel or method used to acquire new customers. Common examples include self-service (ie – ecommerce), direct sales, distribution partners, and licensing partners. Some of these are considered direct routes, which involve you selling directly to your customers, while others are indirect routes because the involve some intermediary between you and your customers.
Adding a new route-to-market to your customer acquisition strategy could absolutely serve as a growth engine. The reason I didn’t include it in the original list of vectors is because adding a new route-to-market doesn’t usually increase the total available market (TAM). It could, however, increase the serviceable market (SAM) and doing so means it can serve as a growth engine.
For more information on these market sizing methods, read my article titled “Sizing Your Market“
The main thing to be careful of when adding a new route-to-market is accidental competition between the customer acquisition methods. In other words, if you have both a direct sales team and reseller partners selling into the same market, they will compete with each other. It’s referred to as “channel conflict” and it’s a royal pain to deal with. To minimize or eliminate the risk of channel conflict, segment your markets in such a way that unique routes-to-market are deployed for the various segments. Below are some examples:
- Direct sales in the US. Distributors in foreign countries.
- Direct sales for Product A. Resellers for Product B.
- Direct sales for enterprises (needs to be defined). Resellers for small-medium businesses (needs to be defined).
- Direct sales for Industry A. Licensing partners for Industry B.
You might notice that the segmentations are along the lines of the original list of vectors (product, customer type, geography). This should also give you the hint that launching a growth engine via adding a new vector also gives you the opportunity to decide if an existing route-to-market should be used or if a new one is better suited to achieve the desired growth results. Just remember that adding a new route-to-market will introduce new complexities and associated risks.
Startups that demonstrate consistent and aggressive growth earn the best valuations and are best able to maintain a leadership position. But accomplishing this is so much harder than most first-time founders think. This article provides just one piece of the growth strategy puzzle. Additional emphasis on achieving scalability (read my related article titled “The Difference Between Growth versus Scalability“) is required in order for the organization to sustain periods of aggressive growth that last longer than a blip. Additionally, the challenges and areas of focus change quite dramatically at various milestones along the way to $100M (read my related article titled “Major Milestones Along the Path to $100M“).
I hope you found this article helpful to building a great company.
“Building a great company never gets easy. It remains hard but just in different ways over time.” (Gordon Daugherty)