Growth Hacking As a Methodology for User Retention in the Entrepreneurial Venture

DEGREE PROJECT IN MEDIA TECHNOLOGY, SECOND CYCLE, 30 CREDITS STOCKHOLM, SWEDEN 2018 Growth hacking as a methodology for user retention in the entrepreneurial venture A case study VILDA SIURBLYTE KTH ROYAL INSTITUTE OF TECHNOLOGY SCHOOL OF ELECTRICAL ENGINEERING AND COMPUTER SCIENCE Growth hacking som metod för användarretention i entreprenörskapet: en fallstudie ABSTRAKT Även om growth hacking är ett nytt koncept, har det blivit ett buzz-word bland företagare och nystartade företag. Olika nystartade företag som använt growth hacking och uppnått omfattande tillväxt t.ex Dropbox, Uber och Airbnb har alla förmedlat sina framgångshistorier. Men hittills har fokus legat mer på det praktiska i stället för den teoretiska forskningen. Med så många nystartade företag som inte lyckas växa, är det viktigt att undersöka tillväxtmetodik, som kan hjälpa unga företagare att framgångsrikt etablera sig. Denna uppsats studerar growth hacking konceptet, genom att försöka förstå hur denna strategi fungerar och hur det kunde användas för att behålla en användarbas. Med hjälp av en omfattande litteraturgenomgång, intervjuer med företagare och en fallstudie, ger denna forskning (1) insikter i teorin om growth hacking och retention marknadsföring, (2) exempel på dess praxis, och (3) en implementering av förslag har gjorts baserat på resultaten. Resultaten av denna studie visar att growth hacking är ett brett begrepp och har många tolkningar. Growth hacking ramverk har tillämpats i tidiga stadier på nystartade företag, dock har growth hacking koncept inte definierats, liksom har det inte fastställts huruvida det är en relevant metod för att förbättra användarbevarande. I denna studie upptäcktes det att growth hacking metoder kan förbättra utvecklingen av strategier för bibehållning av användare. Dock måste growth hacking strategier vara skräddarsydda och anpassade till det entreprenöriella företagets affärsmodell. Growth hacking as a methodology for user retention in the entrepreneurial venture: a case study Vilda Siurblyte School of Computer Science and Communication Royal Institute of Technology [email protected] ABSTRACT the early stage of business. The focus of a recently founded Even though growth hacking is a new concept, it has become company is rather directed to growth. However, typically, start- a buzz-word among entrepreneurs and start-ups. Various start- ups have restrained resources for growing their user-base and ups that have achieved extensive growth, such as Dropbox, retaining users. In 2010 this chicken and egg problem resulted Uber, Airbnb, have been sharing their success stories. How- in the emergence of a new concept called growth hacking. ever, to date, the focus of this concept was more on the prac- From then on, growth hacking is increasingly becoming to ticalities instead of the theoretical research. With so many be considered as an advantageous tool for start-ups or small start-ups that fail to grow, it is important to research growth companies to accelerate growth [4]. Growth hacking helps methodologies, that can help young entrepreneurs to success- businesses grow without the typical growing challenges such fully establish themselves. as additional staff or increased working hours. Moreover, implementing growth hacking methodology in the customer This paper studies growth hacking concept, by trying to under- acquisition and retention process allows start-ups to attain stand how the growth hacking strategy works and how it could users with minimum or no costs [4]. be used to retain a user-base in a start-up. With the help of an extensive literature review, interviews with the entrepreneurs Essentially, growth hacking is a framework for start-ups and and a case study analysis, this research provides (1) insights young organizations to define a sustainable growth strategy. into the theory of growth hacking and retention marketing, One of the most popular growth hacking examples is Dropbox (2) examples of its practices, and (3) an implementation of (a cloud-based storage service). Growth hacking methodol- suggestions made based on the findings. ogy helped Dropbox to discover an efficient way to grow the number of users via referral program. This referral program The results of this study indicate that growth hacking is a broad offered for active users to invite their friends to the service concept and has numerous interpretations. Growth hacking and in return, the program awarded both users with more stor- framework has been applied at the early stages of start-ups, age space. The approach to growing a customer base that however, the growth hacking concept has not been defined does not rely on traditional marketing plans, but rather aim to as well as it has not been determined whether it is a relevant implement marketing into the product itself is at the core of method to improve user retention. In this study, it was discov- growth hacking concept [4]. Most growth hacking approaches ered that growth hacking practices can improve to set up the are heavily data-driven, which allows even the smallest com- user retention strategy. However, growth hacking strategies panies to experiment with new features, branding or other must be tailored and adapted to the entrepreneurial venture’s marketing tactics. The nature of growth challenges may vary business model. between start-ups and organizations, strategies and business contexts. Most of the entrepreneurial companies start from ob- Author Keywords scurity and must establish a growth strategy as well as prepare Growth hacking, user retention, growth, growth strategy, themselves for managing user retention as soon as the first start-up development, entrepreneurship. customers show the interest. Growth hacking seems like an ef- fective strategy to achieve fast growth, however, to date, there 1. INTRODUCTION has been limited focus on growth hacking as a methodology Most of the early stage ventures do not need strong marketing for retaining users and driving sustainable growth. strategy or an expert who would manage marketing vendors at This project aims to delve into growth hacking concept, to understand how this strategy works and how it could be used to retain a user-base. The main research question is: can growth hacking method help start-ups to retain users and whether application of these methods can lead to a sustainable start-up growth? My objective in this study is to outline the essential set of insights into growth hacking and user retention and to provide experience-based guidance about the actions required ensure a long-term growth [16]. A recent study showed that a for a start-up to grow. mere of 20% of new users kept using a mobile phone app more than three days later after downloading it [1]. This shows that 2. THEORETICAL BACKGROUND if the value is not presented to the users’ habitual experiences In a start-up, the focus is narrow, the commitment of time and and it is not expressed clearly in the early stages of a customer resources are limited, and the economic risks are modest. To journey, the users will churn. Therefore, the acquisition of progress, start-ups must have growth as a central goal. users might cause a temporary growth but ‘long-term growth, as well as the health of a business, depends on how well you 2.1 START-UP GROWTH retain users’ [16, p.7]. Moreover, Reichheld and Sasser [14] Over time, various frameworks have defined the exponential found out in their study that increasing user retention does not growth in start-ups. Steinmetz [17] and Kroeger [9] stated that only drive a sustainable growth but also increases the revenue managerial roles and functions must be developed gradually at and profitability. ‘Companies can boost profits by almost different growth periods; Greiner [7] describes growth model 100 % by retaining just 5 % more of their customers’ [14]. as a set of different phases: creativity, direction, delegation, Additionally, Reinartz et al. [18] research have emphasized the coordination, collaboration, and alliances. All these phases importance of user retention as their research showed that an are followed by a different crisis, respectively: crises of lead- insufficient user retention strategy has a significant influence ership, autonomy, control, and bureaucracy. The extent of on a long-term customer profitability. growth is dependent on the organization’s ability to adapt and evolve. Picken [13] stated that there are four stages in the life 2.4 USER RETENTION RATE cycle of an entrepreneurial firm: startup, transition, scaling, While the importance of user retention is clear, the measuring and exit. Successful growth relies upon accurate business con- and tracking the retention rate can be challenging. Some re- cept definition at the early stage and ‘laying the foundation for sources [1] suggest tracking Daily Active Users (DAU) and a scalable enterprise during the period of transition is equally Monthly Active Users (MAU), however, these metrics might critical’ [13, p.588]. Another author, Ries [15] created a lean not provide an insightful information about the rate of reten- startup growth framework that is based on continuous innova- tion. Correct retention rate requires a clear ‘frame of reference’ tion and feedback loop. Lean startup model has three parts: [3] of who your retained user is. Egan [3] claims that the re- build (turn ideas into products or services), measure (exam- tention metric can be defined by determining whether the user ine how customers respond to the products or services), learn chose a particular product/service to resolve a specific problem (adapt and/or pivot based on the findings). Ries [15] growth or need that occurred. As most businesses’ core operation is model has most relation to growth hacking framework that El- how it creates a value proposition to the customer, start-ups lis [4] has established as both models position experimentation should measure the retention rate by determining how often and testing at the core of the growth strategy. customers are likely to face the problem that the business is trying to solve [3].

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