Today I’m joined by Matt Lerner, who is the founder and CEO of Startup Core Strengths. Matt has a long history of growth marketing, most prominently at Paypal and 500 Startups. Matt created and lead PayPal’s first website marketing team driving over 85% of PayPal’s small business acquisition and generating $67M over three years. Matt then became a partner at 500 Startups where he invested in 35 seed-stage companies and also set up and ran the “Distro Dojo” growth marketing program for their portfolio companies. In this episode we discuss the 5 core strengths a company needs to have and focus on to successfully grow their business based on Matts broad experience at 500 Startups.
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Last 5 questions:
What’s your best piece of marketing advice?
I guess we kind of talked about it and I think it’s obviously it’s build those five core strengths, startup growth, and I’ve gotten kind of a blog post on my site. It’s free. That outlines them all for people. But if I had to say, well, no, you not only have 30 seconds, I can’t go read your website. I’d say make sure you pick a place to focus. You’ve got all these ideas, understand that there are hypotheses, flagged the riskiest assumptions, and then figure out what is the quickest, simplest way to test and validate those assumptions so that you can learn fast.
Can you recommend a book to our listeners?
I’ve heard you ask that in previous podcasts and I’ve been thinking about it. And I guess if you’re really at the bleeding edge of something, you’re probably not going to learn much from books because most of what’s in books as at least five years old. So I think it’s a great way to learn about kind of an adjacent skill you’re going to need that’s not your bread and butter. And so for me, when I became a VC, I knew I needed to learn negotiation and I got this book by Chris Voss called never split the difference.
I have all the negotiating books and nuts and entire section in Waterstones. I picked this one because this guy used to be the head hostage negotiator for the FBI. And I thought even if I don’t learn anything about negotiation, this guy must have some amazing stories to tell. But when I learned, when I started listening to the book was that I actually, I have two young kids and I have about 40 negotiations a day. I just didn’t realize that. And it made me not just a better negotiator but a better listener and a better problem solvers. So that was a really good book.
What software tool couldn’t you live without?
Yeah, I think I said before, the best process for your company is the process you’ll actually use and follow. The only things you really need to make a process go in terms of tools are a backlog and some kind of dashboard. And the simple to use and free ubiquitous versions of those are going to be Google, Google sheets or maybe Google data studio now for your dashboard. And then Trello for a backlog or some post it notes. So those are usually where I start. Companies if they’re not ready for something like us on that.
What’s your favourite example of a marketing campaign?
One of the companies I worked with in our program is called Thriva. And it’s a do it yourself at home blood tests. So you actually like a diabetic would to check their glucose, you poke a little hole, you take some blood, you mail it off to the lab, and then you get all your results back, your cholesterol and vitamin D levels and liver function, all that. And for health obsessed people like me, that’s a great product. But of course people were, there’s a lot of anxiety and getting someone to want to draw their own blood and, and mail it off. So these guys did a campaign where they found the man with the UKs smallest penis and he was in the press and the campaign was, there’s nothing wrong with a little prick.
And you can imagine the press pickup in the VR viral spread that that campaign had. Cause it’s a little uncomfortable but it’s kind of hilarious. And you know, there are performance marketer, Josh, they’re head of marketing. He said that when they did that, it was great to get the virality but they found all their paid channels suddenly got better for the kind of one month period after that. So they CPA’s when Daimler conversion rates went up, obviously a lot more pixels in the retargeting pool. So the reason I like it isn’t just because it’s hilarious, but it’s because it, it really made it.
Which other podcasts do you listen to?
After saying I’m health obsessed. I’ll tell you that there’s a guy named Peter Attia and he’s an American doctor and he has a podcast called the drive about health and longevity that I love.
Transcription:
Matt Byrom:
Hello and welcome to this episode of the Marketing Strategies Podcast. Today I’m joined by Matt Lerner who is the founder and CEO of Startup Core Strengths. Matt has a long history of growth marketing most prominently, at PayPal and 500 Startups. Matt created and led PayPal’s first website marketing team, driving over 85% of PayPal small business acquisition and generating $67 million over three years. Matt then became a partner at 500 Startups where he invested in 35 seed-stage companies and also set up and run the Distro Dojo growth marketing program for that portfolio companies in London and Berlin.
Matt Byrom:
So Matt has a wealth of knowledge from driving growth at a large company with PayPal and many smaller companies at 500 Startups. We’ve got a particularly interesting episode for you today where Matt and I are going to discuss how companies find their growth engines and what they do to find that one key strategy that helps propel them into the stratosphere. So let’s dive right in. How are you doing today Matt?
Matt Lerner:
I’m great, Matt. Matt, Matt. This is going to be weird. No, I’m excellent, how are you?
Matt Byrom:
Yeah, great. Thanks and I really appreciate you taking the time to come on today. You have a very interesting background and I know there’s a lot of value that the listeners can get from today’s conversation. So before we start, it’d be great to give the listeners a bit of background about your history, where you’ve been and what you’ve done.
Matt Lerner:
Yeah, absolutely. So I spent most of my career doing marketing for startups in Silicon Valley. The first two were complete disasters, which is a great learning experience. The third one we managed to sell to a company called Macromedia, which some of your more seasoned listeners may remember. And after that, I went over and joined what was at the time still kind of a startup in 2004 called PayPal. And that just took off like a rocket, so when I joined they made about 800 million that first year, and when I left 11 years later, they made over 10 billion a year. Not a bad start. So obviously I learned a lot on that journey, left to become an investor with the Seed Fund 500 Startups. And I set up this sort of growth marketing accelerator in Europe, in London and Berlin because I guess my observation was he had a lot of really talented teams and some very good products, but good solid startup stage growth marketing experience was quite thin on the ground.
Matt Lerner:
It’s a team sport. You need the whole company, not just one person you hire. So we run this accelerator, worked with 35 different companies, everything you can imagine from very expensive monthly, B2B SaaS, right down to impulse buy, eCommerce apps and everything in between. And this sort of helped them figure out what was going to … find their winning growth strategies. And we started by doing each one bespoke, and just sort of working it through from first principles. But as we got going, certainly pattern started to emerge and we started to see the same mistakes over and over again in the same processes, and best practices would help people get to the right answers faster.
Matt Byrom:
That’s really cool. And I guess because of this experience, the ability to work with so many different companies, you’ve had the opportunity to test so many different tactics and strategies with different companies in different industries and really see what works. So I guess you’ve seen what the common threads are.
Matt Lerner:
Yeah, that’s exactly it. And that’s why I decided to set up, Startup Core Strengths myself because what we did worked beautifully with those 35 companies, they had an average year on year growth rate of 250% after leaving our program and a 96% likely to recommend from the founders, but it didn’t scale. And this feels like something that’s so useful and powerful that I wanted to try to make it available broadly to startups across Europe. So yeah, that’s why I started the current business.
Matt Byrom:
So you’re actually working with companies at the moment then to look at different growth strategies and help them actually find that way through, your experience and training and what you’ve learned over that time.
Matt Lerner:
Yeah. The way the new business works, is it sort of a hybrid training and consulting model. If you’ve ever worked with consultants, a lot of times they end up saying the same thing again and again and you can do that at really high day rates. It’s a nice way to build a services business. But I wanted to do something that was more at a startup friendly price point. So I’ve taken a lot of the key lessons and I’ve created online learning content that people can access. And then what we’ll do is we’ll just get on a call every week or two and help you apply those lessons to your business.
Matt Byrom:
And people can find out a bit more information about that on your website?
Matt Lerner:
Yeah, Startupcorestrengths.com. I guess we’re getting into the main lesson I learned, running the program with these 35 different startups, but we called it the Dojo because like karate or Jujitsu, you learn by doing mostly rather than sort of classroom learning. And what we learned is just like in sports, everybody wants to get to the kicking and punching and the fun bits, but there’s this core and in sports, if you don’t have a strong core of abdominals and back and hips and you try to do Jujitsu or kite surfing or snowboarding or whatever, you’re probably going to get hurt.
Matt Lerner:
And the same thing’s true in marketing. Everybody just wants to jump to like, “What was the tactic that worked for Airbnb?” I mean, certainly your podcast, you’ve had so many amazing guests on, and you can look at what worked for Typeform or for Cedars or Skyscanner and say, “Well let’s go do that.” But that works for a certain company in a certain time with a certain audience and a certain set of goals and affordances and constraints. And so we sort of said, “Before you can start kicking and punching and doing like the fun tactical stuff, your startup needs to figure out what’s at your core.” Usually what we found across all these different businesses of different kinds, there were these five things that they had to have right.
Matt Lerner:
And for most businesses, they usually have one or two of these things sorted out, but not all five. So obviously metrics, any companies got to live and die by them. If you have a good team, they’re going to hit the targets you set. And so many times you’d see people who either weren’t tracking things right or chose the wrong metric, created some perverse incentives and then marched steadily in the wrong direction. So number one is just getting the right behavioral metrics. The first mistake companies make is they tried to have a marketing team solve for financial metrics. First of all it’s an output, and second of all, it’s a couple of steps removed from actually creating value for customers.
Matt Lerner:
So we’ll focus them on behavioral metrics, and they’re usually not the ones that you get out of the box with Google Analytics because you want to find metrics that are a good proxy for whether you’re bringing a customer along the journey from awareness to consideration to trying it, to actually experiencing value. And then you need to find a behavioral metric that sort of sits at the apex of where you know the customer’s getting value and also you’re generating value for your business. So this is very abstract, but if you have a marketplace business that’s probably going to be the transaction, where the buyer, and the seller come together, and the marketplace takes a cut.
Matt Lerner:
For a SaaS business, it might be some sort of behavior that indicates not just that they’re paying for your product, but that they’re using it at a regular cadence and getting value, and we’ll keep paying from it.
Matt Byrom:
Yeah, they’ve actually set something out, they’ve started to actually use the system, they started to use the software before they actually maybe upgrade, for example.
Matt Lerner:
Yeah, exactly. Are they getting the value out of it? Whether they’re paying or not, at this point, that’s a good predictor that they would pay. It’s a reliable predictor of a financial metric, but it’s a behavioral metric that you’re optimizing for. The next one, I almost don’t like to talk about this one, but it’s customer understanding. And the reason I don’t like to talk about it is because everyone thinks they understand their customers already. And there’s lots of ways to listen to your customers and a lot of them will give you bad information. But if you think about back through the best interviews that you’ve done on your podcast, usually these great growth hacks are seated in some really particular specific insight, like with Airbnb, figuring out that the quality of the photographs in the Airbnb listings made a huge difference.
Matt Lerner:
That’s a very tactical thing, but it’s a very powerful thing that you only get by really spending time with your customers and seeing the world through their eyes. When I worked at PayPal, a lot of our business in the beginning, probably more than a third of it was coming through referrals from web hosting companies, because entrepreneurs wouldn’t wake up in the morning and think, “I need payments.” They would think, “I need a domain and then I need hosting and then I need eCommerce functionality.” Then the step after that is to set up payments. And so going and finding the hosting companies and getting built into their funnels was the right place for PayPal. So when I say customer understanding, I mean really at a very tactical and mundane level, what’s the journey? What problem does the customer think they have? Where are they looking for solutions and where can you turn up and how can you talk about their problems rather than your amazing, amazing product?
Matt Byrom:
And how did you find the best companies actually built that customer understanding? Is it by going out, seeing, speaking to customers, user interviews and things like that, or what were the tactics that the best people use to actually build that customer understanding and then act on it?
Matt Lerner:
Good question. It’s hard for me first of all to overstate the importance of actually doing this. I’ve been a marketer my entire career and now, I’ve set out to build a company that sells training to marketers. And the first thing I did was go and interview a bunch of marketers, even though I spent my whole life being a marketer. At the very first interview I was writing down notes and being surprised and learning and learning and learning, even though I was building a product for myself. So no matter how much of an expert you think you are in your customers, this step is just never to be skipped. I use actually a variation of jobs to be done interviews. So there’s a lot of great scripts and podcasts and examples of jobs to be done product interviews, and I recommend using the same method, but for marketing and really just starting with very open-ended questions about understanding what are the problems someone has, ideally someone who’s recently made a purchase, a switch decision in the category you’re going after.
Matt Lerner:
It doesn’t matter if it was to your product or not, but just understanding what was the problem, how did it manifest itself to them in their minds? So for my own business, for example, most founders, they don’t wake up in the morning and think, “Oh, my business needs Startup Core Strengths.” Because that’s not a thing. But they know they’re not growing fast enough, and what they think they might need to do is hire more marketers or hire an agency or run some Facebook ads. So understand how the problem sort of manifests itself in their minds. Obviously that’s going to give you ideas for landing page copy, content marketing, search engine strategies, Facebook ad creative. And then you sort of walk through the journey with them about what were their fears, questions? Do they have anxieties? Who do they consult in the process and what alternative solutions did they consider? Which is super important in Jobs To Be Done Theory.
Matt Lerner:
A lot of times would just not competing with the people you think are your competitors. A simple example is that, M&M Mars is a candy company, and their candy sales dropped 20% since the introduction of the smartphone in 2007. And that’s because they used to sell about 40% of their candy in the checkout aisles at supermarkets and now suddenly people are absorbed in their phones instead of looking at the carbohydrates on either side of them as they’re waiting to check out. So that’s a left field example to show you that if you think about the alternative solutions to the problem you’re solving for customers, it’s often not what you naturally think of as a competitor. So a long-winded roundabout answer to your question, I would always recommend starting with interviewing customers and using a Jobs To Be Done approach.
Matt Byrom:
And actually how would you suggest people go about this? On the face of it sounds straightforward and something that would be sensible today, but actually getting people to spend that time with you, it seems like a fair time investment from somebody who’s not even a customer yet. How have you seen people get those customers … those people, sorry to actually invest the time to give you their experiences, their understanding, their beliefs, their feelings about something that they are not even bought into yet?
Matt Lerner:
You don’t need to do too many of them, just five to 10. And with every company we worked with, it’s just good old fashion hustle. English people are loath to say no to any requests, because they’re so polite. So really it’s just, send an email. Does anyone know anyone? If you’ve got a product, you can just email recent signups, “Hi, I’m the founder of such and such company. Thanks for signing up for our product, could you jump on the phone with me? I’d love to understand your experience.” If not, then just reach out to friends or I posted … I’m in a coworking space, I posted a … It’s like sort of the entire coworking space has a slack group and I just posted a request to the general channel, and asked if there’s any marketers who recently signed up for any training courses and would they be willing to sit down with me in exchange for a cup of coffee? People are usually willing to say yes.
Matt Byrom:
Yeah, it’s really interesting. Actually we’re going through this exact process at the moment. We’ve got software product, we created a system for ourselves, a project management system to manage all our clients like eight years ago. And it’s been like the backbone of our company, it’s been fantastic for us. We’ve managed over 1,500 projects through it. And about nine months ago we thought, “Well we could develop this a bit further into a software products and release it to the market.” So we’re in closed beta at the moment for this product. And that’s exactly the process we’re going through at the moment. Everybody who signs up, we’re speaking to, we’re asking questions, we’re trying to understand what are their problems and not just actually will this product solve them, but how can we help them in future with this product by developing it further to support a greater number of people?
Matt Lerner:
Perfect, yeah. When did they first become aware of the problem, and what did they try to do about it? Get a sense for where they’re looking, so you can go intercept them there.
Matt Byrom:
I think exactly what you said, when people sign up that’s the opportunity to ask them lots of questions really, so we’ve been taken advantage of that.
Matt Lerner:
Excellent. Perfect. So should we jump onto the next strength?
Matt Byrom:
Yeah, let’s do it. So we’ve got metrics, you mentioned behavioral metrics and then we’ve got customer understanding, number two. So what’s your third thing that people need to do?
Matt Lerner:
The third one is focus. And as an entrepreneur, you probably know that’s actually the first to the last and the everything in between kind of sine qua non of effective marketing or product development or anything. Most founders, most great entrepreneurs know that in the end 90% of their growth is going to come from 10% of this stuff they try. And the key is to find that 10% as quickly as possible and then really focus on it. So first of all, it’s once you’ve mapped out your metrics and you understand your customers, you’ll find there’s some sort of rate limiting step in your growth equation. And you can think about this for each of the guests you’ve had on the podcast in the past. It’s been pretty obvious. You’ve got to be honest with yourself that we have lots of great ideas, but the ones that are not focused on that rate limiting step, we shouldn’t spend a lot of time on them.
Matt Lerner:
And then you can use your KPI Dashboard and those behavioral metrics you’ve come up with, your north star metric to inform and align the entire team. So everyone knows, here’s the number we’re trying to move, and I can tell you how my job of doing this thing every day focuses on moving that number. And it might be qualified leads in the door or it might be website conversion rates or it might be an organic traffic number, but it really comes down … The where to focus is different in each business. The need for focus is consistent.
Matt Byrom:
And I guess that comes after perhaps experimentation. Are you saying that you would experiment in lots of different channels, lots of different tactics, lots of different ideas and then double down and focus on the ones that are really moving the behavioral metrics, they’re moving the needle, the north star metric for you?
Matt Lerner:
Well, I’d do it the other way around. I’d look at the growth equation, find your rate limiting step, which is usually pretty obvious if you sort of compare to benchmarks. And then I would say, “Okay, if we need to move this metric, we need to move our registration to activation rate, our signup to activation rate on our software from 11% to 30%.” Then that’s where I would start to experiment and say, “Okay, here’s what we know about our customers, here’s the target, let’s brainstorm all the ideas we can think of that’ll move that needle. Let’s prioritize them by effort and impact.” So when you do that, you prioritize these ideas by effort and impact or effort, chances of success and impact, Then you get these ideas that are like big impact, easy to do and those are great obviously go do them. But then you get these other ideas that seem like they’re really good but they take six months and they cost a 100,000, 500,000 or whatever. They’re like these big massive investments.
Matt Lerner:
So for those ideas, what you want to do is find what’s the riskiest assumption in the idea and what’s the quickest, easiest way we can test that assumption? For example, there’s a search term you find and it’s got high volume and it’s not super competitive and you think you can rank for it. But ranking for a search term will take six months, right? So what you do instead is you buy the search term, send traffic to a landing page, see if they sign up, see if they’re decent quality customers to just validate the assumption before you do the hard work. You’ve come up to [inaudible 00:19:47], you come up with your focus point, brainstorm all the ideas you can, sort them by effort and impact.
Matt Lerner:
And then for the expensive hard high effort ones, come up with what we’d call a minimum viable test to just validate the riskiest assumption there and decide if it’s worth investing further to go that direction. Before you find your major growth levers, what you need to do is learn really fast and try lots of things quickly. We all know about the famous Airbnb growth hacks of Craigslist, getting people to post their listings on Craigslist and using professional photographers. Well, Airbnb was around for two years before they discovered those growth hacks. And they weren’t just playing Xbox and sitting around and waiting to do the Craigslist trick, they were trying lots and lots of experiments. And so the faster you can cycle through different experiments, the sooner you’re going to find your silver bullets. And so it’s all about how can you have a really fast testing cadence.
Matt Byrom:
I guess that comes back to the customer understanding as well. They were testing and experimenting, but as the customer understanding grew at the same time, they also found that having quality photographs was really important to their customers at the same time, and that was where they could spend a bit more time and focus as well.
Matt Lerner:
Exactly. It’s an iterative process of your try stuff, you learn something else about your customers, you feed that back in, you try something else.
Matt Byrom:
So metrics, customer understanding, focus, what’s number four?
Matt Lerner:
We’ve actually already covered number four, because that’s process or as the Brits would say process. Once you’ve got your focus, you need to maintain the focus, experiment and learn quickly. And you know it amazes me, because you talked to a startup, any startup and they have a great process around product development. Their engineer wouldn’t just sort of wake up in the morning and think, “Oh, I feel like coding a user experience today, I’m going to work on front-end stuff.”
Matt Lerner:
The entire product backlog is carefully documented and prioritized and they run sprints. And marketing needs to be the same way. You need to have your prioritized list of experiments, your success metrics and then you want to run these things in weekly sprints, experiment driven sprints, and then recap, at the end of the week look at the results and the learning and how we’re doing against our north star metric and so you’re running these cycles quickly and that helps you learn fast and maintain your focus.
Matt Byrom:
Would you then recommend documenting a process [inaudible 00:22:16] exactly have a documented process for product development? Would you document the process for experimentation, marketing, and strategy decision and the marketing team?
Matt Lerner:
Yeah, it’s important to document it, but it’s also important to have a process that doesn’t require documentation. The iPhone doesn’t come with a user manual because they made it so bloody simple that a five year old can use it without reading instructions. I believe that the best process is the process that a team will actually follow. So if a backlog is literally a bunch of posted notes on a door, that’s fine, as long as you have a backlog. And if your KPI Dashboard is just literally a Google Doc and not Data Studio or Geckoboard or anything fancy, that’s fine too.
Matt Lerner:
But the key is that you’re going to have a prioritized backlog, you’re going to be tracking your metrics, that everyone understands what the metrics are, that you’re running experiments on some cadence. And to properly run an experiment, you document it, everyone places their bets of their hypothesis, you run the experiment and then you look at the results, and you discuss them and think about what to do next. It’s really that simple.
Matt Byrom:
And would you say it’s okay to focus on not just one behavioral metric at once, but actually you could focus on a few that actually drive growth for you in different ways? Or would you actually say it’s best to just focus on one area at one time?
Matt Lerner:
I guess there’s sort of two questions in there. One is, should a company have more than one focus area? Should they be working on more than one part of a funnel? And then the other question in there is, for any given part of the funnel, should they be focusing on a single metric or multiple metrics?
Matt Byrom:
I guess so. Yep.
Matt Lerner:
Okay. So in terms of focusing on multiple parts of the funnel, it just depends on the maturity of your company. And if you have enough people, and you’re running well enough that you can walk and chew gum at the same time, that’s a fine thing to do. I’m working with a series B company now, and they’re doing a pretty good job at focusing on two metrics at the same time. One is average revenue per user and one is I’m an activation rate and that seems to be working okay. But for an early stage startup, I think a single metric, or a single point in the funnel is a good place to focus. In terms of the metrics within any given focus area, what we recommend is having a single north star metric and then a bunch of what we call nuance metrics, which are numbers that inform it and are going to move around it, but you’re not trying to maximize them.
Matt Lerner:
So for example, you might be trying to increase good quality traffic to your site. So the total number of unique prospects per week is your main metric. And then you’re going to keep an eye on the conversion rate because you want to make sure it’s not garbage traffic, and you’re going to keep an eye on your cost per registration because you want to make sure you’re not overpaying for traffic. So you just have a few other numbers that you just want to keep them within a range, but you’re not trying to maximize them, but they will help you understand variation in your north star. We usually recommend revisiting that north star metric probably once every three months to just say, “Okay, here’s the progress we’ve made on this. Is this still our limiting constraint? Should we keep at it? Or is it time to change our focus?”
Matt Byrom:
And so, a limiting constraint as you say, that means that people might move onto the next thing. If you feel like you’ve got a substantial move forward and actually there’s something else that’s now more critical, you move on to that, would that be correct?
Matt Lerner:
Yeah, that’s exactly right. And generally, I mean, this is widely known in the growth hacking community, but you want to do your process of elimination from the bottom of the funnel up. So if you have terrible retention, you shouldn’t be paying to acquire customers. And if you have terrible conversion, you shouldn’t be paying for traffic, so it sort of work your way up that way. But once you’ve nailed conversion or activation, then you can work on, pouring more into the top of the funnel.
Matt Byrom:
Yeah. Fix the leaky bucket before you put them all in the top basically.
Matt Lerner:
Yeah, that’s a much more concise way to put it. The fifth and final core strength is the team. And I think most founders and investors would say, “Wait Matt, I think team should be first.” And I agree, it’s super, super important to have the right team, but the problem is until you understand your customers and understand your rate limiting step and what you have to do to close the gap, you don’t exactly know what kind of skills and experience to hire for. So it’s sort of building the ship while you’re sailing thing, but in any case, whenever you get to it, you can’t ignore the team and sort of the type of people you want to hire.
Matt Lerner:
And especially in a startup, I think people tend to value overweight experience and underweight sort of growth mindset, curiosity, and the fact that you’re all going to be on a learning journey really fast, and you need someone who’s eager to learn. And then of course, in addition to hiring them, you need to be able to manage them well so that their time is well spent, and they’re engaged and productive.
Matt Byrom:
Yeah. I actually did an interview with Tim Soulo from Ahrefs recently, and he effectively was the one man marketing team at Ahrefs for a while. What he said to me is that he actually, rolled up his sleeves, did the job actually thoroughly understood what was required before he hired the person that would then do that as well or better than him because they had more time to focus on that niche area really. Is that what you’re suggesting here is that the team comes last because you would actually build the team around what you learn and understand along the way?
Matt Lerner:
Definitely, the further you get into the learning process, the better idea you’ll have of the sort of people you’ll need to hire. Although, I also think if your startup is growing quickly, you’re going to eventually find yourself in the position where you have to hire people who are experts in doing something that you’ve never done before. And part of it is just an emotional barrier, high performing, high functioning people who went to great unis and are really successful, have a hard time accepting that risk, but it’s super important to do that. And the other piece is, it sort of forces you to pull out of the details. You can’t micromanage someone, if you’ve never done their job before. Hopefully you have the humility to not do that. So it starts there, but it really needs to pretty quickly scale beyond your experience as a doer.
Matt Byrom:
That’s really cool. I really like the five core strengths. It helps, I know focus is one of them, but it helps actually focus your planning around the things that are particularly important for growth for your business. Obviously, we talked about, say Airbnb who, they were working say two years to try and find these different growth levers within that business. What would you suggest to people who are currently in that stage? And you can’t necessarily see the light at the end of the tunnel when you’re testing and iterating perhaps, what’s your experience of working with all the different companies that you have done, and their experience of actually making that happen over the period before they really start to see a significant growth move?
Matt Lerner:
There’s a reason that 70% of startups in Europe fail. It’s a really emotionally difficult journey, where you have your hypothesis, you have your product, and the world needs it, and for the life of you can figure out how they get them to come pay for it. Because it’s sort of how long is a piece of string, right? You don’t really know where the light is at the end of the tunnel, and you need to have, first of all just this sort of indelible faith that one way or another, the world will be served by a product like this, whether it’s you who does it or someone else and you have to believe long term, it’s going to get there, even if you don’t have a lot of confidence in sort of what you’re going to do over the next few weeks. But trust the process.
Matt Lerner:
And then the other piece is just to be learning as quickly as you can. And every time you try and experiment, and it fails, it’s hard emotionally, but don’t take it personally. Just be glad that you’ve now crossed that off the list, and you’re that much closer to figuring out where it is you need to go. But the teams that are successful are the ones who have the emotional fortitude to stick with a process like that. A lot of investors talk about they want to back purpose driven startups and startups with a real sense of mission. And I think it’s sort of a causation correlation thing. Part of the reason that those purpose driven startups are successful is because having that sense of purpose keeps people focused and trying hard in the face of really long hours and low success rates and very little money, and a lot of just sort of emotional discouragement from customers who aren’t paying for your stuff.
Matt Byrom:
What’s your feelings about the relationship between product and marketing? Because something that’s become very clear throughout the podcast is that, marketing and growth strategies are extremely important, however, when you have an exceptional product that spurs word of mouth and that people talk about, it can become so much more powerful as well. Is that something that you’d agree with?
Matt Lerner:
Yeah, absolutely. I mean if you can turn up and have a product like Uber or Google or the iPhone that’s just so magically delicious that it sells itself, that’s great. But if you happen to work for one of the 99.998% of startups who don’t have that, you’ve got to work a bit harder than that. I’m sorry, I don’t mean to imply that people at Uber and Apple don’t work hard, but they have a real tailwind with amazing products. But even where there is good word of mouth for like a product like TransferWise, they really still have to invest very heavily in marketing as an adjuvant to that word of mouth.
Matt Lerner:
And in any case, the product and marketing teams need to work very closely together, and that’s in both directions. Any decent growth team is going to have a product person on it because a lot of the best sort of “growth hacks” end up being product changes to introduce viral loops and referral mechanisms to the product experience. And any good product team should be working closely with the marketing team to make sure that they are building the stuff the marketing team can sell and that the marketing team is going to leverage these product innovations to bring in more customers. Obviously, you need to work super closely together.
Matt Byrom:
And I guess that’s all part of the process that you’ve just outlined here as well is actually testing and trying, building virality and things that actually promote word of mouth and help people actually mention or refer onto their friends and colleagues and things like that as well?
Matt Lerner:
Yeah, exactly. And this idea of a minimum viable test, you can do that with product functionality too. And we worked with a company who was in the startup accelerator who was thinking about, maybe we should integrate PayPal, maybe that will help boost our conversion. But integrating PayPal takes a lot of time and engineering time. So instead they just did a simple experiment where they put the PayPal button on the mobile version of the eCommerce site to see if anyone clicked it. And if they clicked it, they would just send them right into the credit card flow and no PayPal link, and then they can see how many of those people abandon purchase if they couldn’t use PayPal. So they had a good quick barometer of incrementality and whether it would boost their sales before they actually integrated PayPal and updated their app version with the other payment option. So a lot of times you can do the product learning if you work quickly with the marketing team.
Matt Byrom:
Absolutely. That’s really interesting as well. And it’s like thinking of creative solutions so that you can test things quick, gather data and then iterate and improve from there.
Matt Lerner:
That’s exactly it. I mean, startups, they don’t have a lot of time, because they don’t have a lot of money and they measure their burn rate in days. And every day you spend working on a project to try to learn something that’s not going work, it’s a day you’ll never get back. So the faster you can learn those things, the better. Big companies have the luxury of being able to afford to try lots of stuff that doesn’t work. I mean, Google, they’ve launched so many amazing products, but think about how many other random products like Google Trend that was just sort of hanging out there. There’s sort of people use and sort of people don’t, but they never turned into Chrome or Android.
Matt Byrom:
Or big things they launch and ultimately close down, Google Plus for example.
Matt Lerner:
Yeah. And they have so much money they can make those mistakes all the time and learn from them. But startups don’t have that luxury.
Matt Byrom:
So working with all these startups, 500 Startups, people who, or companies who have been earmarked for growth potential hyper-growth ability, is there any tactics that you’ve commonly seen, as a common thread between these companies that have most commonly worked? Like if you were to look at those companies and you say, “Okay, this channel, this particular area has been the highest percentage growth factor for our cohort here.” What would that be? Is a particular trend that you’ve seen in that area, and do you have any understandings that you might be able to share in that sort of area?
Matt Lerner:
Yeah, absolutely. It’s something I’ve been thinking about even in my time at PayPal, because PayPal gets, like most businesses of that type, gets the vast majority of their revenue from maybe 10% of their customers. And so as a marketer at PayPal, I was thinking, “How do we identify the potential big customers early? What are the hallmarks of a business that’s going to be successful and grow? Because we want to obviously invest, make sure they have great customer service and a good experience and the right products.” And then same thing as a VC, I’m looking at, “How can I predict based on this early data which businesses will be successful?” So going in what I knew from looking at data on 10 million merchants at PayPal, first of all, the business model is super important and it’s as simple as ultimately you need cash.
Matt Lerner:
So if you think about from a financial perspective, you’ve got your COGS lines, your variable expense, cost of good sold is going to be materials, labor and cost per acquisition. So any business that doesn’t have those things is a great winner. Obviously a SaaS business is a good example of one with no cost of goods sold. If it’s a subscription business then that’s good because all your customers come back month after month. You pay the CPA up front once and then you have an annuity sort of revenue stream. So overall SaaS businesses, social networks, things where you’ve got good customer retention and very low cost of good sold, makes stronger businesses. And then number two is just, the most successful businesses find huge markets that are just sort of … People are just sort of falling all over themselves for a better solution.
Matt Lerner:
So if you look at TransferWise for example, it’s a great product, but you have so many migrants all over Europe and they’re currently underserved by banks and by Western Union. And so just turning up and doing a halfway decent job, buys you so much. So those are sort of the things I figured out as an investor going in. And then I looked back over my portfolio of 35 companies over three years, and six of them stood out as really successful investments. So these are companies where I invested at seed stage and now they’re doing over three quarters of a million per month in revenue. They’re kind of series B stage companies. And of all those, the most successful companies, almost all the founders … All the founders except for one had backgrounds in marketing. And if I look at the 30 less successful companies, only two of the founders, were marketers.
Matt Lerner:
And this is such a powerful, obvious in hindsight kind of thing, but your startup needs to have someone from very early on who’s very committed, founder level to the business who has experience and knows how they get customers. To summarize a business model that’s got high margins ,that’s run by someone who’s got some marketing experience is definitely where you want to be.
Matt Byrom:
So effectively SaaS products with a strong marketer at the helm should be a more successful business than bricks and mortar with a more product or technical founder for example.
Matt Lerner:
Yeah, I find product founders are also really good and there are product driven businesses, who can sort of mainly grow off that product muscle. In fact, the one or two exceptional businesses that I backed that weren’t run by marketers were run by startup product people, like there a company called Popsa. It’s an app that has photo books. And Liam, the guy who runs it, he’s been a startup product guy his whole life and he follows that process of just lean and experimenting and listening to customers and letting the market tell them where to take the business, and they’ve just had phenomenal success in the photo book space.
Matt Byrom:
I guess the customers are then driving the interest and referrals, word of mouth, so it’s a very product focused business instead of being a marketing focused business for example.
Matt Lerner:
Yeah, exactly. That’s it.
Matt Byrom:
Cool. And have you seen any particular channels really been the outliers in terms of the success stories, people who’ve focused on social media or SEO or in the ad space perhaps, what would you say as the strongest channels for people to actually find these biggest growth levers in the end?
Matt Lerner:
You have great coverage of channels if you listen to all your podcasts in a row, because each of these companies talks about their winning channels. But the truth is point one channels come and go, is LinkedIn hot or not? The answer to that question has changed a lot over the years and suddenly there’s influence and marketing and suddenly search is super competitive at the bottom of the funnel and doesn’t make sense. So channels come and go, is point one then point two is it really ultimately depends where your customers are. So if you’ve interviewed them, and you understand their sort of Job To Be Done and alternative solutions set and where they’re looking for information. So for some SaaS businesses that are maybe solving a problem that doesn’t have an existing well-defined category of player, people are going to be googling the problem that they have.
Matt Lerner:
“How do I make my computer go faster?” Or, “Is there a software to connect X to Y to Z?” For those guys, content marketing and long tail search is going to be the right channel. For social, it depends if it’s B2C. It depends on the age and demographic of the person you’re going after, which social network you’re going to use. If you have a business where the purchase occasion, and the need is relatively infrequent, then retargeting is great because you want to make sure that they don’t just see you once, but they see you enough times so that when they actually do need the thing, they remember you. It’s all about finding the right … Sorry to sound like a broken record, but finding the right channel for your business which starts with understanding your customers and how they conceive of solving the problem you’re going to have them solve.
Matt Byrom:
Absolutely, yeah. And do you think there’s a risk in terms of focusing on … Or maybe if you find your growth lever, you find your actual way to generate growth. Perhaps it’s through Instagram, maybe perhaps like you said, it’s through LinkedIn or Myspace, perhaps you think. You’ve really grown in the past through Myspace and now it’s not so hot anymore, do you think there’s a risk there … Although there’s obviously a risk, it’s loaded question really, but there’s a risk there of finding a lever in an industry or an area, a product that you don’t actually own, you’re not able to actually fully control, for example, the Facebook algorithm, or the Google algorithm for example, would you then just carry on looking for further growth leaders? Like you say, “This is successful for us right now, but it’s actually a high risk place to put all our eggs.” For example.
Matt Lerner:
You’re exactly right Matt. I mean at a minimum, best case scenario, suppose Facebook, Insta is the gift that keeps on giving for you and no matter how much money you plow into it, your CPAs don’t go up, and their algorithm keeps being nice to you. You’re still paying Facebook for every customer. Even that’s just not a great business. So you want to try to even diversify away from paid channels and always look for organic channels. And then of course there’s just a huge risk in dependence on a single channel for any business. You’re going to max out your reach and your audience on Facebook, you’re always subject to algorithm changes or even just a space getting more competitive, or a particular customer set and prices getting bid up.
Matt Lerner:
What I say to companies is once you’ve got your sort of one go to channel, maybe spend 50 to 70% of your resources on optimizing that, and then what’s left, 30 to 50% on testing new channels and experimenting and trying to find other good reliable sources of low cost, high quality customers. And that just becomes, again going back to your experimentation process, but your experiment is, we know who the customer is, we know what the message is, let’s try these different channels. When PayPal was a mature business it was something like 20 to 30% channel partners, 50% organic, 10% was going to be paid on their B2B acquisition side. So they had this really nice diverse mix of acquisition travels, and the unit economics were working okay through all of them.
Matt Byrom:
Because I guess actually could sort of settle on this, we found our growth lever, we found our way to grow, but actually it could be your third best or fourth best, but you’ve just not got to the other three yet for example. So actually testing and finding and still experimenting is really super important, even if you’re having a good success with one particular channel or one particular area.
Matt Lerner:
Exactly. You always want to keep experimenting. And if your investors have half a brain, they’re not going to let you sit on one acquisition channel as your bread and butter either, that’s going make them nervous because if they understand one thing, it’s the importance of diversification. And if you think about all the great startups success stories, there’s some kind of viral loop in there. I mean you’re, when you talk to the CMO of Cedars, he talks about how their fundraising companies bring in their investors and then the investors come onto the platform and discover more companies who are fundraising. So if you’re using only a paid channel, the first thing you need to be doing is understanding where are the viral loops potentially in our experience, how can a customer bringing more customers make the experience better for themselves?
Matt Byrom:
Absolutely. Well that sounds like a great place to sort of wrap this up as well. So on every podcast episode that I do, I asked five questions. I’d like to do the same here. So five quick fire questions. Number one is what’s your best piece of marketing advice?
Matt Lerner:
I mean, I guess we talked about it and I think it’s obviously it’s build those five core strengths of startup growth, and I’ve got a blog post on my site. It’s free. That outlines them all for people. But if I had to say, “Well no, I only have 30 seconds, I can’t go read your website.” I’d say, make sure you pick a place to focus. You’ve got all these ideas, understand that they’re hypotheses, flag the riskiest assumptions, and then figure out what is the quickest, simplest way to test and validate those assumptions so that you can learn fast.
Matt Byrom:
And can you recommend a book to our listeners?
Matt Lerner:
I’ve heard you ask that in previous podcasts and I’ve been thinking about it. And I guess if you’re really at the bleeding edge of something, you’re probably not going to learn much from books because most of what’s in books as at least five years old. So I think it’s a great way to learn about an adjacent skill you’re going to need that’s not your bread and butter. And so for me, when I became a VC, I knew I needed to learn negotiation and I got this book by Chris Voss called Never Split The Difference. And of all the negotiating books and that’s an entire section in Waterstones.
Matt Lerner:
I picked this one because this guy used to be the head hostage negotiator for the FBI. And I thought even if I don’t learn anything about negotiation, this guy must have some amazing stories to tell. But what I learned, when I started listening to the book was that … Actually, I have two young kids and I have about 40 negotiations a day. I just didn’t realize it. And it made me not just a better negotiator but a better listener and a better problem solvers. So that was a really good book.
Matt Byrom:
Fantastic. Well, I’ll make sure to link that in the show notes as well because certainly something that I’d like to take a look at. So, if anybody would like to go to the show notes at Mattbyrom.com, that book will be linked there. And number three, what software tool could you not live without?
Matt Lerner:
Yeah, I think I said before, the best process for your company is the process you’ll actually use and follow. The only things you really need to make a process go in terms of tools are a backlog and some kind of dashboard, and the simple to use and free ubiquitous versions of those are going to be Google Sheets or maybe Google Data Studio now for your dashboard. And then Trello for a backlog or some post it notes. So those are usually where I start companies if they’re not ready for something like [inaudible 00:47:48].
Matt Byrom:
Or our new project management system called Project.co.
Matt Lerner:
I’m sorry, yes.
Matt Byrom:
It’s not like [crosstalk 00:47:56]. Yeah.
Matt Lerner:
I’d love to take a look at that. Let’s follow up afterwards. I’d love to check it out.
Matt Byrom:
Yeah, absolutely. We’ll do that. We’ll do that. And so number four, what’s your favorite example of a marketing campaign?
Matt Lerner:
One of the companies I worked with in our program is called Thriva. And it’s a do it yourself at home blood test. Like a diabetic were to check their glucose, you poke a little hole, you take some blood, you mail it off to the lab, and then you get all your results back, your cholesterol and vitamin D levels and liver function, all that. And for health obsessed people like me, that’s a great product. But of course people were … There’s a lot of anxiety and getting someone to want to draw their own blood and mail it off. So these guys did a campaign where they found the man with the UK’s smallest penis and he was in the press and the campaign was, There’s Nothing Wrong With a Little Prick.
Matt Lerner:
And you can imagine the press pickup and the viral spread that that campaign had, because it’s a little uncomfortable but it’s kind of hilarious. And their performance marketer, Josh, their head of marketing. He said that when they did that, it was great to get the virality but they found all their paid channels suddenly got better for the kind of one month period after that. So their CPAs went down, their conversion rates went up, obviously a lot more pixels in the retargeting pool. So the reason I like it isn’t just because it’s hilarious, but it’s because it really made the biggest impact.
Matt Byrom:
And just to dive into that a little bit. Do you think that was done because people have seen the campaign about and then if actually when next time they’ve seen them in the paid ads for example, they’ve got that brand awareness and clicked?
Matt Lerner:
Yeah, I was thinking about that myself because they’re going to be doing prospecting ads as well as retargeting. And I think for retargeting, if you’ve already seen something once and then you see it through the press or through another channel, it adds legitimacy, it helps to build trust and lower anxiety. So for retargeting, I think it’s kind of straightforward. For prospecting though, it’s a good question. Why would their prospecting CPAS go down? I guess because prospecting sort of becomes retargeting at that point because a lot of the people who are seeing your ads have just seen you in the news or something. I’m not sure.
Matt Byrom:
I’m trusting them to tell you the truth. It’s a cool results that they’ve gotten. It’s an interesting case study and it’s hilarious like you said.
Matt Lerner:
It is, but like most of the great sort of growth hacks you hear about, it’s also hard to repeat.
Matt Byrom:
It’s hard to repeat, yeah. Yeah, exactly.
Matt Lerner:
Find guy with the second smallest.
Matt Byrom:
[inaudible 00:50:29]. There’s an end there somewhere, isn’t there? And finally, number five, which are the podcasts you listen to?
Matt Lerner:
After saying I’m health obsessed, I’ll tell you that there’s a guy named Peter Atia and he’s an American doctor and he has a podcast called The Drive about health and longevity that I love. But what your listeners probably want is growth stuff. I don’t know if you’ve ever heard Kieran Flanagan’s podcast, Masters of Scale.
Matt Byrom:
Yes.
Matt Lerner:
But he’s another one in that rare space with you. I think he just gets really good quality guests and has really high quality discussion. So I’m always learning stuff from the … Sorry, not Masters of Scale, Growth TLDR. Kieran’s Growth TLDR podcast.
Matt Byrom:
Yeah.
Matt Lerner:
Masters of Scale is Reid Hoffman-
Matt Byrom:
Reid Hoffman yeah.
Matt Lerner:
Great guy, but definitely not Kieran Flanagan.
Matt Byrom:
Cool. Well, I’ll link all those in there just in case anybody wants to click on some of those, they’re all good podcasts. Matt, it’s been an absolute pleasure talking to you today. It’s really, really nice for you to share your five core strengths and I’d really recommend that everybody goes and checks out Matt’s business Startup Core Strengths, Google to find him and yeah, if anybody has any questions, please shoot me on LinkedIn or any other channel that you see me on. I’d love to chat further. And yeah Matt, thanks again for being part of this today.
Matt Lerner:
Absolutely, my pleasure. It was a great discussion. Thank you.
