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]. In this way, user retention rate relates to 2.2 DIFFERENT TYPES OF GROWTH the natural use of the product or service. Entrepreneurial companies strive to grow in terms of the num- ber of users. However, Currier [2] stated that even though 2.5 RETENTION DRIVERS startups are usually aiming for acquiring new users, they must Even though many companies try to improve the growth in determine what type of growth is needed. He identified differ- terms of user retention, it is difficult to understand the com- ent types of growth in entrepreneurial firms: plexity of user retention and what factors it is impacted by. • top-line growth (new customers who started to use a prod- Gustafsson et al. [8] suggest that customer satisfaction, ef- uct). fective commitment, and calculative commitment are three central predictors of a successful user retention. In addition, • activated growth (customers who used a product understood some researchers, for example, Lewis [10] argues that loyalty the value that was offered). programs increase the number of repurchases. Other authors, such as Ellis [4] present a set of user retention drivers (see Fig. • retained growth (customers who understood the value of a 1), and puts an emphasis on building habits, improving the product and used it more than once). product/service and creating a value proposition. • monetized growth (customers who used a product more than once and paid for it). 2.6 GROWTH HACKING PARADIGM The growth of the Internet in the early 90’s has changed the Currier [2] expressed that at the early stages of growth the meaning of products and their distribution. The online market entrepreneurs should focus on retained and monetized growth expanded product distribution outside the product as potential types out of all growth choices as these types of growth are customers gained the ability to reach the product via digital the most profitable. Also, he adds that if approached properly tools: Search Engine Optimization for a better online visi- all of the growth patterns can be replicated. bility; social media networks, content marketing, etc. [12]. The quantity of other online means designed to massively dis- 2.3 USER RETENTION tribute products opened up a lot of opportunities to accelerate Many entrepreneurs see growth as the acquisition of as many businesses’ growth. This resulted in product features being customers as possible, however, attracting customers does not ‘directly responsible for growth’ [12]. New types of products idea generation; (3) prioritizing experiments; and (4) carrying out the experiments. After all four steps are completed, the results are reviewed and the next steps are decided [4, p. 43]. Growth hacking process is designed to reduce the complexity of business operations and to focus on one of the key metrics - growth. Ellis [4] called it ‘the North Star metric’ which can be described as a fundamental growth equation, which includes key elements of driving company’s progress. The North Star metric equation includes all data that is needed to measure the amount of growth that is generated in the specific period Figure 1. Retention drivers (adapted from Ellis [4]) of time. For example, Uber’s (shared transportation service) North Star metric unit is the rides booked, Airbnb’s (shared ac- commodation service) - the nights booked, Facebook’s (social media platform) - the daily active users because more users required different business models, marketing, and growth and more bookings lead to a higher growth rate. strategies rather than traditional brick and mortars. According to Ellis [4], the growth hacking process consists of At the early stage, start-ups lack resources and budget needed four steps: to accelerate growth using the traditional marketing tactics, therefore, entrepreneurs had to find methods to hack the • Analyze customers behaviors, characteristics and the factors growth. A growth hacking term was introduced by Sean Ellis that cause customers to churn. who successfully executed successful growth strategies for multiple start-ups in Silicon Valley, in 2010. Ellis [4] defined • Ideate, brainstorm and collect various ideas that could be im- growth hacking as a methodology for an efficient way to ana- plemented to accelerate growth. The ideas should vary from lyze data and apply it to derive significant, up-to-date insights design ideas to business concepts. Collaboration across into customer behavior that can be adapted to data proved different teams is the key tactics to achieve the productive strategies to improve company’s growth. Consequently, such and effective ideation process. insights lead to discovering features that create value for the customers and allow reaching the customer in new ways that • Prioritize the ideas by setting ICE (importance, complexity, are not only cheaper but also more effective. ease) score. Each of this measure is rated from 1 to 10. Consequently, a higher number of the overall score indicates In the ‘Hacking Growth’ book, Ellis [4] presented a growth a higher priority. hacking team model, that many small-scale start-ups started to follow. According to Ellis [4] growth hacking teams do not • Testing ideas that have the highest ICE score and designing focus on marketing and product/service exposure to the market an experiment to produce statistically valid results. ‘A poor as the traditional growth teams do but rather aims to connect test is a one less opportunity to learn, slowing the team various departments and embrace a multidisciplinary approach. down, and bad data can send the team down a very wrong Therefore, growth teams are involved in product development path’ [4, p. 131]. and optimization, data analysis and customer behavior anal- Once the ideas, data, and learnings that were collected are ysis, as well as in planning how to achieve a product/market analyzed, they should be well documented. After the first fit [4]. Such cross-functional teams are designed to dedicate round of growth hacking process, the growth team starts re- most of their time to build up a valuable product for customers turns to the first step and starts generating new ideas based on and discover the most efficient ways to continuously offer that the learnings. By doing this a continuous growth hacking loop value. Processes that enable to establish a long-term growth is created. Growth hacking process requires entrepreneurs to include rapid experimentation, structured data collection, in- stay agile as it is hard to predict which experiments will be the terpretation, and validation. most efficient. It is important to be data-driven and continu- ously modify experiments according to the new discoveries as 2.7 GROWTH HACKING MODEL well as try new tactics and strategies [4]. An ultimate growth hacking model can be described as a five-step funnel [11]: acquisition (new users); activation (cus- 2.9 GROWTH CHALLENGES IN START-UPS tomer accounts and log-ins); retention (repeat use of prod- Growth is one of the major entrepreneur’s challenges, espe- ucts/services); revenue (paying customers); referral (growth cially at the early stage of the venture. Companies either do via word of mouth). All parts of the growth funnel are interde- not have any prior knowledge of which data to gather, which pendent. While user acquisition can boost growth rate for a metrics to track or have disintegrated teams that are unable to while, it will not be sustainable if activation and retention are act on growth issues that arise [6]. Furthermore, entrepreneurs inefficient. For this reason, every phase requires a different struggle to find an efficient way to use customer data that approach to growth and skill-set [11]. they collect [4], which can lead to an inability to meet the product/market fit. 2.8 PROCESS OF GROWTH HACKING Ellis [4] described growth hacking process as a set of four As user retention is a part of overall growth, it oversees similar continuous steps: (1) data analysis and insight gathering; (2) challenges. In terms of user retention, entrepreneurs struggle to determine when they need to set up user retention strate- growth hacking, however, not everyone has applied it to their gies and what the best method for reducing customer churn startups’ growth strategy. is. Overall, the goal of any business is to create a new market for customers. Thus, the rate of new users that were lost is After conducting the interviews and analyzing transcripts, the challenging for most companies, because the more the en- key concepts and factors were identified. With the help of the trepreneur spends to acquire new users, the more expensive qualitative interviews two main factors that influence start-up the customer churn becomes [4]. Essentially, this fact makes growth were identified. A growth strategy and a retention user retention the most important factor in terms of growth. strategy were both identified as separate but equally important business growth aspects (See Fig. 3). Many new ventures fail to overcome these challenges. Such failures lead to the business stagnation and eventually to the bankruptcy. This project aims to research whether growth 4.1 GROWTH HACKING STRATEGIES IN LITERATURE hacking methods can help entrepreneurs overcome such chal- Growth hacking framework is new in the entrepreneurship lenges and turn their startups into profitable companies. field; hence, no relevant information was found in databases such as Google Scholar, ScienceDirect, and Web of Science. 3. METHODOLOGY Therefore, the selection of the authors to analyze was made To examine how start-ups can integrate growth hacking meth- based on entrepreneurial experience. The authors who had ods into their user retention strategy, a two-step process has experience working in Silicon Valley were chosen. Silicon been completed during which qualitative data was gathered on Valley was selected because it is the place where growth hack- how different start-ups used a growth hacking strategy to grow ing framework was found and because of its similarity to and retain their user-base. Stockholm’s start-up ecosystem. First, a pre-study of the growth hacking topic including an The results of how growth hacking is perceived and adapted extensive literature review was carried out. The pre-study to user retention by authors: Ellis [4], Fong and Riddersen helped to define a research question for the project as well as a [6], Ries [15], Currier [2], Patel [11], Eyal [5] are presented in theoretical framework regarding the growth hacking strategy. Figure 2. All authors stated that growth hacking is a valuable Second, qualitative interviews with marketing and growth pro- framework for entrepreneurial companies, especially at the fessionals who have experience working in start-ups as well as early stage. According to analyzed authors, growth hacking CEO’s of different technology-based start-ups were conducted. is a systematic plan of actions, however, concepts vary from In total twelve participants were interviewed. The interviews author to author (See Fig. 2). Findings show both similarities were semi-structured as the aim of the interviews was to gather and differences in how growth hacking can be applied to user qualitative data on the interviewees’ experiences and insight retention strategies. The data-driven approach was described into the growth hacking and user retention strategies. as a central element in the growth hacking strategy by most authors. Authors also agreed that user retention is a long-term The interviews were held in person or over Skype (online growth; it takes more time and planning in comparison to meeting tool) and lasted for approximately 30 to 45 minutes acquisition growth. Additionally, most authors discussed and each. Most of the interviews were recorded and transcribed presented various tools and frameworks that should be used for to structure and better understand the qualitative data, except user retention; that is where most of the differences appeared. for the occasions when the recording was not permitted by Some authors [4,5, 15] argued that forming customers habits the interviewee. Before the interviews, the respondents were and engaging them lead to major improvements in the user familiarized with the topic of the research and key questions. retention rate, while others [2, 11,6] had different opinion and The interview questions were aimed at gaining a better un- claimed that tools such as email marketing, drip campaigns, derstanding of how the growth hacking strategies are being surveys can increase the number of retained customers. used by start-ups to retain users, and at finding the examples of growth hacking strategies being applied in practice. The results of the interviews were analyzed, mapped and ultimately 4.2 GROWTH HACKING PRACTICES IN PRACTICE compared to conclude whether user retention can be improved To verify the practices described in the literature review, in- by using growth hacking methodology. terviews with experts and practitioners were conducted. Tran- 4. RESULTS scriptions of the interviews were analyzed using MAXQDA In this chapter, the outcome of the applied methodology is - a program designed for analysis of qualitative data. Quali- tative data was grouped and coded by individual keywords, presented and analyzed. i.e. different topics, factors, and outcomes. As a result, two As growth hacking is a relatively new topic in the entrepreneur- separate topics were identified: growth and user retention. ship field, answering the research question requires insightful Such separation was made according to the experiences of the information from practitioners. Twelve experts in marketing entrepreneurs, who stated that growth and retention are inter- and growth fields were asked their opinion on whether growth connected, however, they are two different issues. This matter hacking methodology is used in their working environment, will be further discussed in 4.3 section. Both topics contained on how it is applied to manage user retention and on how various codes (keywords); their importance was weighted as growth hacking can help to improve sustainable growth and per the number of opinions expressed by the respondents. All retention. All interviewees were familiar with the concept of codes that were identified are presented in Figure 3. Figure 2. The results of literature review indicating different growth hacking methods that have been used for customer retention

4.1.1 GROWTH that if a company does not have a specific value offer, it has to The most important keywords and outcomes collected during sell the problem that it is offering the solution to. the interviews were selected and presented. The selected ac- Outcomes: ‘When the first excitement burns out, then you must tions were mentioned by most entrepreneurs as vital elements think about what value you are bringing, otherwise, customers for hacking growth. will lose the interest in your product’. Action: Learning by testing. Most of the respondents identi- ‘Customers do not care about your business, they only care fied that growth hacking is a set of data-informed, validated about the value you can give them. Furthermore, it is easier and measured experiments that are all aimed at the prod- to sell a product that the customers want rather than having uct/business growth, or product/market fit. to convince them to purchase it’. Outcomes: ‘Growth hacking is full of constant testing. En- (2) collecting feedback not only helps startups to understand trepreneurs need to get an idea out there, measure it and learn customers’ needs and preferences but also positions them what sticks in terms of growth and product development. Once ahead of the competition and to help them avoid assumptions that is achieved, the strategy is to do more of what sticks and and bias about the product/service. less of what does not’. ‘<...> when we only had a few customers, we tried to under- ‘Our product is un-scouted territory as we are trying to do stand why they became our customers and used that informa- something that no one did before. Without failed attempts, tion to attract other people as well’. we would not have the operational knowledge that we have today’. ‘Our main task is to meet our users on a daily basis and receive a lot of feedback, this helps us to learn what are our customers’ Action: Creating products that customers love. Companies needs and demands’. rarely create products or services that do both - satisfy cus- tomers’ needs and create value. Building strong relationships ‘In the beginning of the product release, when we cannot gen- with customers and creating user-friendly products requires erate a lot of data, then we tend to have a close contact with series of processes, as interviewees identified: users and collect feedback from them’. (1) creating the proposition of value for users. All interviewees However, it was noted that collected feedback must be care- confirmed that the proposition of value must be at the core of fully considered and filtered for the most relevant data. the product development and business strategy. It was stated ‘There is a difference between what people say and do, there- ‘Before our biggest mistake with the growth was that we were fore, receiving feedback is good but we still have to relate to not so much data-driven, that was not good because we were our business vision and mission’. not reasoning behind the metrics we tracked, so we did not know what we are doing right and what we are doing wrong’. ‘Feedback is great, but it is hard to know how much feedback you need to validate interpretations. We never trust the feed- ‘<...> we analyze how did the customer journey looks like, back 100 %, we rather use the feedback to create a hypothesis when did we talked with them, and what actions they did. and to experiment’. Then we collect quantitative and qualitative data and share insights with the product team to acknowledge what needs to (3) learning customer’s needs. Identifying customers’ needs be improved to get customers to stay longer’. helps startups to position themselves in the market and to cre- ate a demand for solving customers’ problems or eliminating Action: Timing. Frequently, growth is dependent on timing, customers’ pains. especially, if a start-up is presenting products/services that are disrupting the market. Most of the respondents mentioned that Outcomes: ‘We try to have a lot of interaction with the users in to be successful, an entrepreneur needs to have a perspective order to understand what are their needs, where our products on the future trends. fit in within their organization as an additional tool and how we integrate with their processes’. Outcomes: ‘I think we are starting to achieve a product/market fit right now, we have not had that last two years because the ‘We continuously ask our customers where and when they timing was not right, and the market was not ready for our discover the value within our service. The essence hides in product’. an emotional not logical piece of their answer because only emotional piece creates a value proposition and hooks them’. ‘We have been early to market with our product in many ways because traditionally security has been more of a reactive (4) communication with users. Having exceptional customer approach than a proactive approach <...>, but now it is more service leads to higher customer satisfaction and constant brought up to the media and other channels, so people start to feedback loop. realize that it is a new threat out there and uses our service’. Outcome: ‘With every new product release, we implement an online chat, so if something does not work users can easily talk to us. This is how we get a continuous feedback loop and we know exactly what to improve’. 4.2.2 RETENTION The most important keywords and outcomes collected during (5) understanding customers’ behavior. Interaction with users the interviews were selected and presented. The selected ac- can bring an understanding of what customers’ needs are and tions were mentioned by most entrepreneurs as vital elements how products/services complement to their lives; for retaining customers. Outcome: ‘After I talk with our customer, I try to narrow down Action: face to face communication with customers. Staying what it is that they are asking for and most importantly why. in contact with your customers, especially in the early stage, My goal is to understand what is that they need, what do they can lead to a significant growth in user retention later because want to achieve with our product and how do we improve to in this way the companies do not only show the commitment help them to achieve that’. to their customers but also express the importance of having a strong relationships with them. (6) improving customer journey. Examining how customers interact with the product/service help to understand where Outcome: ‘In the early stage of our start-up we did a lot of customers fail or succeed in purchasing or using the prod- manual interactions with people who were signing up. Face to uct/service. Such observations lead to making an informed face communication with our customers helped us shape our decision while improving user experience and design of the platform and avoid errors’. product/service. ‘We had a community event over the summer. Our customers Outcome: ‘Knowing how customers use your offering, being felt very special and we had a chance to have a real chat and it a platform, product or service, usually gives significant a live feedback session’. insights. In our company, we track and analyze the user journey in order to see when and in which landing pages they ‘Be where your audience is, digitally and offline. Meetups? leave the platform, if they understand how to use it, if it was Cafe? You have to be where your users are’. easy to navigate’. Action: Setting up and analyzing key metrics. Having an effi- Action: data-driven approach. Carrying out data analysis re- cient data system can be challenging; respondents identified garding marketing, customer behavior, and other key perfor- that setting up data systems is a complex process, however, mance indicators must be at the core of any start-up. it is a must in every business. It is important to understand that even after the data analysis is carried out, the results need Outcomes: ‘If you do not measure the data you are just assum- to be evaluated in order to understand implications. By un- ing and guessing. Data is important to make decisions, take derstanding these implications companies gain an ability to actions and develop business’. solve occurring problems and make critical decisions regard- ing product development and interactions with customers. Outcomes: ‘Every product or service are being used in a Outcomes: ‘Retention highly depends on the first user experi- different frequency, that is why it is important to define the ence because if customers did not have a good first experience right retention metrics. The companies must think through they are probably not coming back’. what usage factors are important for them, how people relate ‘By establishing a great first-time user experience start-ups to their product, and how they use it’. can improve the user retention significantly. If customers have ‘Once you find the metrics that are relevant for you to track it a crystal-clear understanding of the product/service and see is easier to understand customers’ behavior as well as why the benefit you are offering they are more likely to stick around and how customers are using the service’. from the very beginning’. ‘Our retention rate was not good because there was no reason- Action: Nurturing the fan base. Respondents from the late ing behind the metrics we tracked, therefore, we were missing stage start-ups stated that user retention is related to building out on a lot of valuable information’. a loyal community. Attaining customers who are already used service/product requires fewer resources and efforts as they Action: Automization and customization. Being a customer- are already familiar with the service. driven company has both opportunities and challenges. Meet- ing every customer’s request can require a lot of resources and Outcomes: ‘We do many campaigns towards our fans because efforts, however, customizing communication depending on they are a living reflection of our service that can make an segmented customer features can provide a unique value to influence on others’. the customers in an efficient and cost-effective manner. For ‘Taking care and nurturing the fan base you have is always example, using email automization for weekly newsletters or useful. They are usually first ones to try our new updates, we offers. give them new information and offers first. In this way, we Outcomes: ‘Talking about retention, one of the key things is make them feel involved and increasing the likelihood that automation. Be it emailing or customer service or notifications. they will return and bring new users’. In this way, we can remind our customers the value we are ‘People who already purchased once are normally cheap tar- offering to them’. get groups to gain. It is normally more expensive to reach ‘That’s something we could definitely do better. I think we will completely new users who do not know your brand yet’. be working a lot on customization. Once you grow bigger it becomes harder to be personal with users, so automized 4.3 RELATION BETWEEN GROWTH HACKING AND USER communication can be a good tool to keep the offering unique and customized for each user’. RETENTION As mentioned, after conducting qualitative research and an- Action: Customer behavior analysis. Interviewed en- alyzing interviews’ transcriptions, growth hacking and user trepreneurs expressed a high importance of analyzing user retention were identified as separate strategies. actions, especially if the product is online based. Learning what kind of experiences the customers have, how they navi- Respondents stated that the growth strategy is complex and gate and what are the steps of their customer journey helps the depends on many independent factors such as trends, timing, growth teams to optimize the product/service, to develop the a speed of development, brand promise, product etc. (see Fig. products and to understand the customers better. 3). User retention strategy was described as a set of tools such as establishing personal communication with customers, Outcomes: ‘We make sure to do an analysis of why people ensuring unforgettable first-time user experience, setting up leave without purchasing and how did their customer journey data systems and others (see Fig. 3). look. This type of analysis helps us to learn what we need to improve to get a customer to stay longer and repeat the Even though two different strategies were identified, Figure 3 purchase’. shows the connection between the growth and user retention in start-ups. While the growth strategy in the entrepreneurial ‘<...> we are continuously analyzing different stages of our companies focuses on product development, brand promise, product trial: when and what kind of information we need value creation for customers and learning by testing, user reten- to send, how long should the trial last for, what should be tion strategy establishes customer-centric approach. However, done during the trial, and how do we convey the importance there are several touchpoints between the strategies, which to continuously use our service. All these aspects help us to means that they are closely interconnected and interdepen- improve the product and consequently user retention’. dent. For example, most of the respondents said that to retain Action: First-time user experience. To retain users, it is cru- customers, companies need to continuously remind about the cial to make a great first impression, otherwise, customers value they are offering to the customer, which correlates with might not give you the second chance. For this reason, the the growth strategy of having a clear brand promise and de- developers should aim to create a user-friendly and clear ser- livering it to the customers. Another tool for retention is a vice/product, as well as to enhace product functionality and personal communication that intervenes with growth strate- user engagement. gies and helps to learn customer needs and behaviors; face to face contact with customers ensures feedback loop that is needed for growth; discounts/offers and customization con- tributes to creating added value for the customer; segmenting Figure 3. The relation between the growth and user retention in entrepreneurial ventures (source: author) customers helps to select different markets and to retarget dif- user-base, they established great first user experience, offered ferent user groups; creating great first time user experience cheaper prices per room than competitors and integrated social requires high-speed development and troubleshooting; setting media channels into Airbnb which did not only help to grow up and analysing key metrics demand tailored growth strategy, via word of mouth but also improved trustworthiness. rapid testing and data-driven approach. Currently, Airbnb’s growth strategy is building the entire hos- As the results show it is clear that growth and retention strate- pitality brand by agitating their brand promise which offers gies are closely related. Both strategies are complex and con- the room to stay as well as improves the overall traveling sist of numerous independent actions that are recommended experience by enabling to meet locals and get to know the by experts. However, the relation between them shows that by culture. performing particular features of growth strategy, user reten- Dropbox tion can be improved. Especially, when performed features or 2. - cloud-based file storage business. Growth hacks: actions are directly connected as shown in Figure 3. creating and testing MVP at the early stage; collecting po- tential customer data before the product was presented in the 4.4 COMPARATIVE DATA FROM OTHER CASES market; referral program; timing. To compare literature review results and the results that were Before the product was fully completed, the founder of Drop- drawn from the interviews with practitioners, two business box created a video prototype explaining how the product cases were analyzed. Both companies used growth hacking would work, which earned a great flow of early adopters. Later, strategies to scale-up their startups from zero to a million users’ when the product was developed, Dropbox needed to amplify companies. early adopters’ word of mouth in order to attract even more 1. Airbnb - online marketspace and hospitality business. users, but they did not have any budget for realizing it. Shortly, Growth hacks: collecting customer data from already estab- Dropbox introduced a referral program that offered users an lished companies such as Craigslist; early product/market fit; extra cloud storage space in exchange for referring a friend timing; unforgettable first user experience; lower price than to the service, who would also receive the same value of the competitors; integration with most popular social media plat- storage space added to their account. This resulted in an expo- forms. nential growth of Dropbox from a start-up to a million users company. This was achieved by figuring out what their users Airbnb was founded by acknowledging a clear need for hospi- would value the most and by enhancing that experience. tality service in the market. Founders of Airbnb tested Min- imum Viable Product (MVP) at the early stage and iterated 5. DISCUSSION it continuously. While there are many opinions that Airbnb The theoretical part of this study shows that growth hacking grew because customers needed the service, it is also appar- concept has not been extensively analyzed. Various authors ex- ent that the timing was advantageous as sharing economy was plained how growth hacking could be used to retain users (see blooming. Furthermore, Airbnb hacked their user-base by inte- Fig. 2). However, the qualitative research and comparative grating the platform with one of the biggest listing companies - business cases show that growth hacking concept is broad and Craigslist; and boarded customers from the listing platform to has various interpretations. The main reason for this is that the the Airbnb. On top of that, once Airbnb started growing their growth is achieved by a combination of consequent hacks and experiments, however, in most cases, it remains unclear what 5.1 LIMITATIONS exactly became an ultimate hack. The literature review shows Since growth hacking concept remains new in the entrepreneur- that growth hacking methodology can help start-ups to create a ship field, there is an extensive limitation on the literature framework for the growth strategy but it is clear that there will available. As a result, some features of growth hacking might be as many different strategies as there will be start-ups who not have been identified yet. are experimenting with it. That is why it is difficult to describe what exactly growth hacking is because each company adapts The relation that has been drawn between the growth and it to their own business model and needs. user retention serves as a guide that helps to navigate the connections, however, it was outlined from the data collected The qualitative research helped to identify the important ac- during the interviews only. This can be complemented by tions in growth process as presented in the results section. adding growth hacking and user retention concepts from the The ease of growth process depends on whether a start-up previous research. has product/market fit because the core element of the growth process is to create demand and need in the market. If the The interviews with practitioners and entrepreneurs were con- product/market fit is not reached yet then the growth depends ducted in a limited geographical area (Sweden), hence this on how well a start-up is able to sell the problem that their study is limited by cultural differences in entrepreneurial be- business is solving. Literature review and case studies con- havior and perception of growth hacking. As growth hacking firm that growth can be hacked by testing an early MVP and concept was first introduced in the United States, the percep- hooking customers into the product/service early. The results tion of it might have been less hindered, if the experts inter- also show that initial growth strategy creates the foundation viewed would have had entrepreneurial experience in the U.S for the user retention growth. As user retention is a natural or other continents. Furthermore, since interpretations of their use of the product/service it is easier to retain the customer by answers, attitudes, and experiences are central in this study, developing products/services that create value, than only using this study assumed that the interviewees based their answers various tools such as email marketing to sell a product that cus- on their own experiences and not someone else’s expectations. tomers do not desire. Consequently, that is why user retention is mostly driven by user-centric approach: personal commu- 5.2 FUTURE RESEARCH nication, offers, customization. Furthermore, the qualitative Growth hacking continues to be a new topic in the en- research showed that relation between growth and user reten- trepreneurship field. This research showed that growth hack- tion strategies is so tight that the differentiation disappears. ing concept does not have a clear framework, thus further By setting the growth strategy and fulfilling main actions for research is needed. Also, the connection between the growth creating product’s that customers love which were shown in and user retention could be improved by researching how spe- the results section, in the long term it positively affects the rate cific growth actions at the early stage influence the rate of of user retention. retention in the long-term. Moreover, this research was narrow Even though growth and user retention are closely related, the in terms of qualitative data. Future research could analyse results from respondents did not indicate actions of explicit higher number of entrepreneurs with different backgrounds, growth hacking methodology as it is described in the litera- nationality and culture in order to draw more accurate conclu- ture. Interviewed entrepreneurs, as well as comparative cases, sions. showed that growth process must be tailored to each individual During the interviews with entrepreneurs, it was noted that business. It is not beneficial for entrepreneurial companies to the language they use for describing processes of the start-up follow any methodology dogmatically. Entrepreneurs should growth is nurturing. The entrepreneurs used words such as take parts of the methodology that seems to be valuable to customers’ love, nurturing the fan base, caring about cus- them, act on them and revisit, whether it works or not. Frame- tomers, etc. Future research could analyze the semantics of works open a conversation and environment for interpretations. how entrepreneurs describe their ventures. Another interest- That conversation should allow entrepreneurs to help under- ing research could be conducted by applying growth hacking stand how to build products/services and business model for methods in traditional marketing. For example, how traditional specific growth model that they chose to go for. bricks and mortar businesses could adapt growth hacking prac- Some parts of described growth and user retention actions tices to retain customers. are included in growth hacking methodology; however, they In addition, in this research, it was found that growth hack- cannot explicitly indicate that start-ups used growth hacking ing and overall start-up growth, is a data-driven approach. because those actions are what most start-ups do. Working at Therefore, future research could be conducted to examine how the start-up, as most of the entrepreneurs stated is a learning General Data Protection Regulation (GDPR) will influence experience and without taking a specific approach or failing user data collection and how it will change data analysis that in some parts it might have been impossible to find the right is available today. strategy, or the right growth hacks because without specific learning they would not have the knowledge that they have achieved. 6. CONCLUSIONS The research question of this study was: ‘Can growth hacking method help start-ups to retain users and whether application of these methods can lead to a sustainable start-up growth?’. Growth hacking is a relatively broad and uncertain term to de- 4. Sean Ellis and Morgan Brown. 2017. Hacking Growth: scribe growth processes in the entrepreneurial ventures, there- How today’s fastest-growing companies drive breakout fore, in order to answer the research question growth hacking success. Virgin Books. term needs to be determined. As it was discovered by con- 5. Nir Eyal and Ryan Hoover. 2014. Hooked: How to build ducting the literature review and qualitative research, the most habit-forming products. Portfolio Penguin. important factors influencing the growth are: 6. Raymond Fong and Chad Riddersen. 2016. Growth • Creating the products/services that people desire and need. Hacking: Silicon Valley’s best kept secret. Lioncrest • Learning achieved by testing a vast amount of ideas, in- Publishing. sights, hypotheses. 7. Larry E. Greiner. 1972. Evolution and revolution as organizations grow. Harvard Business Review 50(4) • Implementing a data-driven approach across various busi- (1972), 37–46. ness operations. 8. Anders Gustafsson, Michael D. Johnson, and Inger Roos. • Timing, in terms of continuously innovating the product or 2005. The Effects of Customer Satisfaction, Relationship service, predicting the future trends to stay up in the market. Commitment Dimensions, and Triggers on Customer As these factors relate to retention matters, achieving them at Retention. Journal of Marketing 69(4) (2005), 210–218. the early stage of a start-up can not only help to lay a strong 9. Caroll V. Kroeger. 1974. Managerial development in the base for the retention growth but also significantly improve small firm. California Management Review 17(1) (1974), retention rate. Further, growth hacking methodology includes 41–47. the application of growth factors listed above, hence growth hacking strategies lead to sustainable growth. However, it was 10. Michael Lewis. 2004. The influence of loyalty programs determined that the growth must be tailored to the business and short-term promotions on customer retention. model and product concept, therefore, the growth strategy Journal of Marketing Research 41 (2004), 281–291. must be adapted to each venture’s unique business proposition. 11. Neil Patel. 2018. Growth Hacking Made Simple: A Even after conducting the research, growth hacking concept Step-by-Step Guide. Weblog. (2018). Retrieved May 3, continues to be unclear. It seems to be a well-known method- 2018 from ology that accelerates growth in start-ups, however, the frame- https://neilpatel.com/what-is-growth-hacking. work that growth hacking concept explains might just be the 12. Neil Patel and Bronson Tailor. 2018. The definitive guide way start-ups grow in general. For this reason, the growth to growth hacking. Weblog. (2018). Retrieved March 23, must be perceived as an approach, philosophy rather than a 2018 from https://www.quicksprout.com/ method that is set in stone. the-definitive-guide-to-growth-hacking-chapter-1. ACKNOWLEDGMENTS 13. Joseph C. Picken. 2017. From startup to scalable I would like to thank my supervisor Christopher Rosenqvist enterprise: Laying the foundation. Business Horizons 60 for the guidance during this project and to all interviewees (2017), 587–595. who spared their time to discuss the topic. Thanks to my 14. Frederick F. Reichheld and Jr. W. Earl Sasser. 1900. Zero family for the never-ending belief in me; to my amazing peers Defections: Quality Comes to Services. Harward for indulging discussions during two years of studies, for the Business Review (September-October 1900). motivation and all the quality time spent together; and to Javier R. for always supporting and encouraging me. 15. Eric Ries. 2011. 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