“Marketing is for companies with sucky products” – Fred Wilson, investor at Union Square Ventures

 

While I disagree with the above quote, Fred does begin to make a valid point. A good product needs a small amount of marketing - a great product sells itself. In this second installment of Growth marketing for CEOs, we are looking at product based marketing, and specifically how, if done correctly, it can catapult your product into a hockey stick of viral growth.

Going viral - how and why

Everyone has encountered something going viral at some point in their lives. It might have been a cat video on Youtube, an app on Product Hunt or a charity image on Facebook. Viral spread is the golden goose of organic marketing. However, it is not something that is easy to achieve and often it isn’t organic at all but a well implemented distribution plan, and in the case of apps and software, something that is baked into the product itself.

Virality is more than being popular or being seen by a large number of people. It is a process of exponential growth that sees one person sharing with two, two with four, four with eight and so on until the product you are marketing is everywhere you look. This process is known as ‘viral coefficient’ - a term that I will try to explain as simply as possible below.

Calculating your viral coefficient (VC)

The below makes a couple of assumptions about the number of customers your product has but the principles work whether you have two or two million users.

  1. Let’s assume you have 100 users as it is a nice round number.
  2. Multiply this number by the number of invites your current customers send to their friends colleagues or partners. Let’s assume you find that each customer invites 15 of his friends.
  3. Identify the percentage of those invitees that converted into new customers - again, let’s assume thats 10 percent. 
  4. Time for the maths. 100 customers sent out 15 invites each. That’s 1500 opportunities, with 10 percent converting (150 new customers)
  5. The 100 customers you started with has had 150 added to it. The next step is to divide the number of new acquisitions by the number of existing customers to understand your viral coefficient. In our simplistic example it is 150/100 = 1.5.

This will continue to grow exponentially cycle by cycle, if you can maintain a VC of 1.5.

Easy right? Well sort of…

If you have worked out your viral coefficient and it’s less than 1, I have some bad news for you. You must have a VC over 1 to keep acquiring new users, or in time your leads will dry up. Let me explain using the above as a template.

  1. You start with 100 as before.
  2. Each customer this time sends out only 7 invitations.
  3. 5% become new customers
  4. This is 700 invites sent in total, 5% conversion means 35 new customers.
  5. 35/100 (new/existing) = 0.35. A viral coefficient of 0.35.

Based on the above, when your newly acquired customers invite others to join, the number of acquired users after the second cycle will decrease, not increase. The next cycle will be worse and so on and so forth. Eventually (and pretty quickly), you will find you will have no new customers, and will have to turn to other (paid) marketing endeavours to bolster your organic acquisition methods.

The above is particularly relevant for consumer facing products as they tend to have a wider spread of users than B2B, however if you run a SaaS business or anything in the app store - referral based marketing is still a key part of your outreach.

Great idea - How do I achieve it?

So while the above might sound like a great practice, how does it actually translate for your business? What steps can you take to ensure your viral coefficient is growing and thus your business is a success?

I have one tip for you. No expansive list, no twenty-step process. Just one.

Give your product away

What’s that you say? Give it away? Crazy talk right? Well, maybe not in this instance. The best way to explain how giving your product (or at least parts of your product) away is to look at companies that have done it successfully.

The example I will use here is Dropbox, the behemoth of filesharing that has built its business on giving things away.

Basic Dropbox users have a finite amount of storage space, but they can invite friends to begin using the service to build the capacity of their cloud storage. Every friend they invite will increase their own storage space (as well as their friend’s) by 500MB, motivating them to get others to sign up.

Referrals are baked into Dropbox’s UI, and for free users it is very simple to build up to 16GB of storage for minimal effort. Dropbox has even historically run competitions where you can game your way to 5+GB of storage through a treasure hunt style interface of referral and promotion.

Other companies that follow this path are Uber, with their $20 free ride for every referral and Evernote, with 1 month free for every new signup (now expired). In fact if you look at every major digital success story, you will find that most have followed this pattern throughout their history. Just take a look at this list and you will see that I’m right.

While the exact method and proportion of your product that you give away will require significant thought, planning and testing (that’s the hard part) this basic principle can serve you well, whether you are jsut starting out - or are 5 years down the line with a company that has stalled.

For further information on this topic, I highly recommend Adam Penenberg’s The Viral Loop. While it is 5 years old now, the content is still as valid as ever.

Other examples of companies that have seen significant growth through product based marketing can be found in Sean Ellis' great book 'Startup Growth Engines: Case Studies of How Today's Most Successful Startups Unlock Extraordinary Growth’

You can also reach me on Twitter, if you have any specific questions and I will do my best to answer!

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