One thing that in my eyes is underrated when thinking about business models and entrepreneurs starting B2C companies is the user growth strategy. In today’s overcrowded world wide web, your user growth strategy needs to be as refined as the value you are providing to users.
When you think about how some of the biggest consumer Internet startups have succeeded in a really big way, there are really only 4 ways that this has happened. Most companies of course use a mix of several of these strategies, but it is often one that has been by far the most active driver of user growth.
1) Extreme value add and brand play
If you build a product that is just so great that it fundamentally changes the way people do a certain thing, if it’s a disruption or a 10x better experience, it is possible to grow your startup through pure word-of-mouth marketing. People will talk about you to their friends, blog about you and send emails around the world promoting you. You simply build a brand by delivering a great product and excellent customer experience. Some examples of companies that have scaled in this way would be Uber and AirBnB.
2) Built-in Virality
If you can create a product that promotes itself by being used, you often have a winner. The classic example here is hotmail, where Tim Draper famously came up with the idea of including a signature in every outgoing email saying “Get your free webmail at hotmail.com”. Another great example was the viral growth of formspring.me. You create a profile where you allow people to anonymously ask you intimate questions. In order to get people to that profile, users start posting their formspring profile to all sorts of social media sites, thus creating free viral growth. Facebook and Twitter also fall into this category, as people started promoting the service to their friends in order to make their experience more complete (facebook) or gain more influence (twitter).
We used this principle when we built pollpigeon.com – you create a poll on twitter and in order to promote it you post it in your twitter feed. People who vote in the poll often feel emotional about what they’ve answered and thus again share that answer with their twitter followers. The feed-sharing option is default and conveniently links back to pollpigeon.com.
3) High CLV and aggressive ad buys
If you have a business model that generates huge CLV (=Customer Lifetime Value), then it actually makes sense to start buying a lot of ads in order to attract all these users. Groupon comes to mind here. According to their 2011 Q4 Report, they make 188$ per year per existing customer in gross sales. Depending on the margin they have on these spendings (they had about 40% in Q4) they make about 75$ per customer per year. This means you can spend quite a lot of money on acquiring new users. Especially if you factor in the free viral growth – ie every acquired customer will also invite new customers through word of mouth – making him more valuable to the company than what he just spends himself. Groupon and their competitors thus really went rogue with online marketing. In the first 9 months of 2011, Groupon alone had spent more than 600 mio USD on online marketing. Netflix also has quite a decent CLV and besides having wording of mouth spends a lot of money on acquiring new users, 238$ MM in 2009.
4) SEO Play
When you create a service that motivates users to create unique and valuable content on your website, this can often translate into a very powerful marketing and user acquisition strategy. Think Stackoverflow: Everytime you ask or answer a question, you are creating great SEO content for Stackoverflow. Especially in programming, where a lot of engineers are constantly googling answers for their problems. Yelp is also a great example of this.
So when working on your next business idea, think about which of these 4 types of sustainable user growth path your company will be on. If you have one or several of 2, 3, 4 you’re already well set. Of course you still need to have a great product, but having one of those work in your favor will give you a big boost. Way 1) is always possible, but might just longer time.