The Playbook to Running Growth Experiments at Scale with Growth Ex Machina Founder Guillaume Cabane (Video + Transcript)

Founder Guillaume Cabane provides information on when and how to run a growth team and provides multiple examples of growth models. Use these tools to determine how to run growth experiments at your organization.

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Guillaume Cabane | Founder @ Growth Ex Machina

FULL TRANSCRIPT BELOW

I’m Guillaume Cabane and today I’m going to talk about The Playbook To Running Growth Experiments At Scale. The first thing that I want to put out immediately for growth people and for founders is that I want to trash out all the KPIs and we’re going to focus just on revenue. That seems obvious because, see most companies don’t do that. But before I go into the dough here, who am I, what have I done, very quickly, I worked at a few of those recognizable companies, most notably lately in the Bay Area Segment and Drift where I’ve driven significant growth. And If you wonder what significant means, I’ve been at those companies while we grew in about 18 months from 50 to 200 and 300 people in 18 months.

My focus is SaaS and my job is to create a defensible go-to market moat, right? My focus is only revenue. When we talk of hypergrowth and I go back to Drift and Segment to give you an idea of how fast and how much growth there is, we did 3X revenue at Segment in 18 months and we made 5X revenue at Drift in 18 months. And you wonder like, “That sounds good, but how good is it?” Right? Well, if you look at the KeyBanc Capital 2018 distribution of growth, so you get all companies here that are surveyed for their growth over one year, right? What you see is that Segment is up here and Drift is off the charts in terms of year over year growth. And these days I do advisory. We don’t care about that. That’s fine. So the first question that you should ask yourself is how do you compete? Okay. And the thing is most of you have founders here.

Can we have a show of hands here? Who’s a founder? Cool. Most of you have founders. Okay. Within those founders who is a product technical founder? Okay. And who is a more like marketing or business founder? Okay. The more technical and product people kind of make sense. The issue is most I’d say technical product driven founders, is that they don’t see the value. They don’t value marketing as much as they value the product, which means they under invest in marketing. They don’t see marketing as a way to compete. And I’m going to show you what the difference and how that works. But first I want to focus on how I compete, right? And I compete by doing insane innovation on the marketing side, investing as much on marketing through engineering as you can invest on your product.

Okay? And through creating an insanely good user experience at the very first step at the top of the funnel. Okay. But if we go into details, what that means is that when I build growth teams, I always get the commitment from the founders to get engineers on the team, right? Because that is how you’re going to be able to create a differentiable marketing. How you can compete differently. Okay, that team’s going to be independent and I’m going to talk in a few minutes of growth team structures. Okay. I split out traditional marketing, so events, branding, that’s great. That’s just not measurable on the revenue scale. So I split it out completely, which trash KPIs for marketing, we keep only revenue. And then we have a high pace experiment framework. And I’m going to cover those elements. Okay. But first, why growth team? We talk of competing, we talk of being better than others, and then we say, “Well we’ve got to have a growth team.”

But why? What’s the benefit of having a growth team? What do they do differently than product? What do they do differently than marketing for example? Well, if you want to compare growth and product for example, is that if you think of product, product has to succeed every time. Okay? If you’re a founder and you have a product leader, a head of product or a PM and that person fails two launches or three launches successfully, that person is out. That person is fired, right? Because that person failed at doing that job, which is launching product successfully. That’s not growth. The difference is that growth is like a VC model. Okay? We’re not trying to be smarter, we’re just trying to say we don’t know what’s going to work so we need to experiment, we need to throw a lot of things at the wall.

If you know what’s going to work, then do it. Don’t experiment, don’t try. Do, okay? The principle of growth is that you don’t know what’s going to work and you want to find stuff that your competitors haven’t looked at, okay? So you’ve got to come with that new paradigm and that paradigm is that just like a VC, you’re going to have nine out of 10 experiments fail, okay? And so the only way that you can win is by testing a lot, by lowering the cost of testing and by being really good at measuring what’s happening. And if you look at the typical I’d say hype cycle, this is the typical curve of hype cycle. As a founder, your company is going to do like that. You are going to launch a product or a company and you’re going to have some early success, okay? And you can think everything’s going great, and then you’re going to reach the maxima of that first, let’s say a strategy or channel or target market, and then the conversion rates are going to plummet.

The CAC is going to go up, and then you’re going to be in this valley of fear here in the middle, right? And that’s going to repeat over and over and over again. All right? And so if you think of when do I need a growth team? This is when you need a growth team, okay? When you’re going up, you have no product market fit, okay? And you’re starting to find that product market fit. Once you have the product market fit and you’ve reached the maxima of the easy to close customers, then you can hire a growth team, okay?

Let’s go into innovation. We talked of doing insane innovation, but who wins when we don’t innovate? I’m going to tell you who wins. Who wins is the big brand advertising networks. That’s Google and that’s Facebook. They drive around 70% of all the Ad Spend. So what that means is that you are transferring your hard, let’s say acquired VC money, directly into their pockets, right? That is not innovation. That is not what your VC wants. Okay? You’re not building anything sustainable if you’re just competing on Facebook, on CAC. That is not a good strategy. That is not what your VC wants. And when you look at I’d say the challenge that we have here is that the CAC has grown, year after year both on B2B and B2C, right? We’re now at 70% higher CAC then we were five years ago. And that trend is not on a slowing down path.

It’s not going to stop, right? Which means that if you think of the ACV in the market, how much you sell is more at stable. Your CAC is going up. What that means is you’re going to hit the kind of sound barrier where you’re going to crash, right? Because you’re just not making profit from those leads anymore, okay? Cool. So the smart CEO’s, what are they doing? The smart CEOs, they are transferring their budgets to technology. So if we look at this slide here, what we have is that all the CMOs are transferring their budget from Martech, from agencies to technology. Even labor is going down. What I wanted to explain is that the budgets I have a graph on Gartner here. I’m going to explain the graph. Okay. So bear with me. So what you see is that there’s all these categories of spend, okay?

And the spend a budget is going down in all verticals for the top 100 CMOs, but Martech. Martech is the only one going up. What that means that the smart CMOs have understood that to compete, advertising is not a good solution, hiring more people is not a good solution. Being smaller through MarTech is a solution, okay? And what that comes with is actually engineering. All right? You can do stuff by hiring engineers in your team, in your marketing demanding and growth, however you want to call it, right? By having engineers to build products like stuff, you can do stuff that you can’t I’d say just with marketers. One thing that you’ve got to think is we got to calm down or egos, right? That’s what really what you need. When you think about it, you’re trying to compete with… Most of you have competitors. Who has a direct competitor here on the product?

Okay? So for those of you who have a direct competitor, even those who have an indirect competitor, think about it. If your marketing team has Marketo and then does ads on Facebook, how are you going to win versus your competitors? You think you’re just going to have better branding, you’re going to have better ads, you’re just going to have better marketers? That is a weak proposal. It’s very weak, okay? There’s only two things. One, you can rely on product. So that means that your marketing isn’t doing a lot and so either rely on your product exclusively. But that means your marketing team isn’t driving a lot of value, okay? If you want them to drive value, it means they should be able to sell a product that is no better than your competitor. That is a good marketing team. That’s how you should evaluate them, okay?

And the thing is that no growth strategies, growth tactics diminish over time. Which means whatever we talk about today has a shelf life of if not a couple months, at least a year. All right? Because your first Saastr strategy, your first Saastr channel, eventually if that works, everyone goes to that channel, that strategy. And the benefit, the conversion rate up with what you had to actually goes down. To give you one example, you look at that Ad banner at the bottom right here. That Ad banner is the very first Ad banner that ever existed, okay? That is 1994 for HotWired. That banner Ad had a conversion rate of 74%, that’s 74%. I’ve been doing marketing for the past 15 years. I’ve never seen something click for 74% ever, right? And so yeah, that was a first-mover strategy that worked well. And the same thing is true for video. Right now that we’re having emails.

So all the videos and stuff like that, it works really well. Eventually that’s going to diminish and also SOrevert to the mean. So we talked to why you want to create a growth team, innovation. When do you want to build it? Easy, after product market fit. Okay. Once we have enough engineers that we can I’d say afford to have engineering dedicated to building demand generation. Okay. And when the initial growth stalls. For the other founders in the room here that are wondering how should I structure the growth team? Who should they report to? I got a couple of examples for you. So the first model is the cross- functional model. Okay. And so that model has I’d say a growth team that is kind of peppered around your organization, all right? And as you can imagine, it doesn’t work that well to create innovation.

It works really well to I’d say minimize the rifts and conflicts because there’s basically no growth team, right? But because the product and the engineering are incentivized to minimize risk, you don’t have a team who is incentivized to take risk, so there’s little innovation. The second model is the independent model. The one from Facebook, okay. That one has a dedicated growth team with Growth Pod that is completely separate. That creates really good innovation, fantastic innovation. It has the opposite problem, lots of cultural faction and rifts and conflicts. Why? Because you’ve got people in product engineering and design and marketing owning basically your entire business. And I have a team that is going to say, “Hey, we’re going to work on that one thing, right? And we’re going to own it and we’re going to hack with it. And then once we’ve finished playing, whomever owned it before can get it back.”

Obviously, I did that. I took the signup from the marketing and engineering team and said, “Hey, we’re going to kill the conversions. We’re going to be much better.” When you do that, you are humiliating whoever owned that part of the product by taking it, by saying that they did a poor job. And then there’s only two outcomes, either you succeed so you humiliate them a second time, right? By showing that you are right and they actually did a poor job or you fail and they’re going to point the finger and say, “You see these folks in growth, they thought that they were really smart. They’re not.” Right? Sothat doesn’t go well. That can work if you have a really clear charter throughout the organization that the growth team is here to experiment, fail and help find stuff that is unique.

Okay. If you don’t empower the team through that very strong charter, you are setting them up for culture of failure. This model, the embedded model, is a very common one and unfortunately we don’t have the animation here. But basically what happens with this model, which I don’t recommend, is that it’s a power war where the growth org is going to move from product to engineering to marketing depending on which exec has the most power with the founders at a given time. And you can see those teams, they’re just moving back and forth, which means their KPIs, their incentives, their strategy is basically aligned with who, which org they belong to and not the entire organization. Which means an aspect I really like, the one I’ve been implementing is this one. So this one was created by my friend Sean calls it Atlassian. It has this kind of mixed model. We have the engineers and the designers reporting into their guilds, right?

And a few core functions are going to growth. This optimizes for both and the real good reason why I like it, think I need engineers in my team. Am I an engineer? No. Can I help an engineer grow in their career? Can I help engineer debug code? No, I can’t. Which means that person needs help from the broader engineering team, from the broader product team and same for designers. Which means they need to be embedded in some way in those teams. Okay. So this model works really well. So we talked of when, we talked of how, let’s talk of how do I fail? Because my ability to fail defines me better than my ability to succeed.

And to be honest, it’s actually easy to reproduce failures if you don’t look at how other people have failed. It’s really hard to reproduce successes because they’re really unique. So when you think of in your role and when I consult these days and I help CEOs, my first question is like, “What does the boss want?” Okay. So boss is CEO and so the boss wants good KPIs, okay. And a good roadmap and basically not breaking their culture and being reliable. To be honest, I’ve failed at all of those four, sometimes multiple of those. Okay. When you think of growth teams, most growth teams fail at being able to communicate what they’re doing, why they’re doing, and what impact they have on the bottom line. So let’s start with KPIs. Okay. And KPIs, when you think of KPIs, it means like, well growth teams is here to build demand generation.

So does marketing and it ends up with something where you have sales versus marketing is that it doesn’t end well. Okay. So if you think of sales, sales are incentivized to do a good job because they have a clawback clause. A clawback clause for those who don’t know it’s basically that if you oversell to a customer and that customer churns within a given amount of time, three months, six months, the commission is lost. Who in marketing has a clawback clause? No one, which means we can push hardly bad leads on the funnel and have no consequence, right? And that’s why we have a riff and conflict with sales. We’re not incentivized to long-term quality. We’re not incentivized to LTV, right? We as marketers, as demand people as growth people, we should be financially incentivized to long-term customer success. Okay.

The same is true for forecasting. When you look at how growth teams work, this is one example. This is a growth team tool to have all of your projects and your ideas and lists which ones you’re going to work on and why. There’s a couple of issues here. The first one is that it’s a laundry list of ideas. The second one is there’s no revenue, right? And so when the boss says, “Hey G, what are you working on?” And say, “I’m going to work on that project because it has a 6.7.” What does that mean? It means nothing. What are you committing on? Nothing really. And look at the other tools, the same thing. I ask a lot of my friends which tool they use. It’s the same problem over and over again, there’s no revenue, there’s no commitment. You’re not committed to revenue.

You’re not aligned with the sales team, okay? I tried implementing that ICE, Impact Confidence and Ease that I score three times, I failed three times both with my team and with my CEOs. And the last thing is visibility and forecasting. Okay. Because you don’t know what’s going to work, okay? You can’t give that visibility, you can’t give the forecast. And so you have the problem of not being able to forecast what you’re going to do and what impact it’s going to have. The new model I want to implement is trashing all KPIs, trashing the systems that are laundry lists of ideas and moving to revenue. And if you want to move to revenue, this is how you do it. Okay. This is fromfounder Christoph, so they are a VC firm in Germany and he has proposed this model.

Where your entire funnel is just revenue and revenue flows from stage to stage, just as in sales, it’s true in marketing. It means the maximum value you will get from your prospect is at the beginning. Each stage after that you just destroy revenue by losing people, by not being at the most efficient that you could be. And so the revenue flows from one stage either to the next stage or to close last. And so you start having that mindset that you could use the revenue as a metric for marketing, even the very early stages. And so you convert all of those KPIs such as New Visitors and Returning Visitor into revenue metrics. You divide how much revenue has gone through that stage by the number of people you get a revenue per unit object. And now you say, “Well this is how much I have at each stage.” And you can start having those metrics.

Okay. I’m going to show you now how I have my actual dashboard. This is my dashboard for one of my companies. Okay. And that dashboard has the future value. Okay. That’s added to stock, weighted by the quality. So what you have here is that the top at say left most number here, which obviously is blurred out, it tells me how much I’m adding to my pipeline, okay? And you got to think of this like your shop. Okay. Just like a shop, we have revenue that comes in, revenue that is in stock and revenue that goes out. Either close won or close lost. And each of those bubbles shows one of the stages. How much I’m adding, how much I have, how much I have closed, how much I have lost. And that is a marketing dashboard. And so you can run your growth team just like that.

If you want to think of your sales team best metric, which is sales velocity, which is the Number of leads time the Average contract value times Conversion rate divided by Time to conversion. The sales velocity is how you measure your sales team efficiency to add revenue over time. You can do the same for growth, which is how much revenue or potential revenue your growth team is adding over a period of time, right? Then you can do that at all stages of the funnel. Let’s look at how we do it. You take the metrics, as I said, you convert visitors into revenue, right? And so you track all your conversion points. You now have, let’s say visitors. It’s like each visitor is worth $10 and then you have a new metric which is qualified visitors, and you’re going to have qualified and so on and so on. Then you have all of your projects, all of your ideas like this.

Now you have all of the revenue, okay. The total per column, and you’re going to have all of the ideas. And you can say at each stage of the funnel, I know exactly how much potential revenue I have. So here we have in the gray area, impact approved. You have the total value of all ideas at that stage. I know also how much time I’m going to take to work those ideas. Okay? And so I can say, “Well, if it’s going to take us five days to drive 100k, I know my value per day. And that’s how we prioritize all the ideas. It’s revenue per day. Now, one interesting thing is that of course we track week by week, okay? And so we know the performance of the team on a revenue basis, right? And you can start having stuff such as when the boss asks, “What project are we doing next?”

Well I know exactly. Why? Because those rank as the highest grossing per day of work. What impact are we going to have? I can commit on $270,000 out of 5.5 days of work, okay? And that is highly predictive because it’s based on past historical data. Okay. So now just to nail the points, the questions we can answer is like, “What are you working on? How do you prioritize? How do you forecast?” If we want to think about it, it means that I’m just like a sales team. I have a number of people and those people bring revenue from the top to the bottom, some of which will be closed won some which will be closed lost. It is marketing, but the organization is the same and that’s super important. Okay. Because all CEOs that I have met understand basically two things really well.

Revenue and sales team organization. Okay. The rest is like marketing wise, it’s muddy. And so instead of trying to change the mindsets, I’m changing how I structure my team at how we report. By having marketers commit on future revenue, by having marketers actually structure the team as sales teams you have amazing results. And one thing I want to say is I actually I did that at Drift. We had engineers who had bonuses based on revenue per day achievements. Okay. It’s very important on the Marketing Demand Gen side, okay? Just like sales people. Why do I do that and how does it work? Well, it’s very easy. As I said, I have the VC model. I don’t know what’s going to work. My only impact is moving experiments faster through my pipeline, okay? Moving faster means that I want to be able to have my engineers actually code faster and ship expands faster.

I don’t care if the code isn’t great. So I’m trying to incentivize them to go faster and money is a great way. They don’t really care about the money. They care about winning, right? And so I have engineers winning with money to move things faster. And so that’s what we have in the end. What we have a process aligned on I’d say on the sales structure, we have predictable output and we have a commitment on impact and that’s it.

Thank you. I think we have a couple minutes for questions.

QUESTION 1: So the question is what was the tool?

So the tool is built on Airtable. There’s actually a template of that Airtable that was shared by my friend Darius Contractor. The link I believe is bit.ly/airtable-evelyn. If you search on Google Airtable EVELYN, you’re going to find it. It means Experiment Velocity Engine. Yes.

QUESTION 2: For the revenue projections for each step. How are you determining that? For example, the …, reduce the friction it was assigned maybe 5 figures.

Yeah. How do I forecast the value?

Yeah.

So unfortunately we had the wrong slide back here, but basically I use a tool called MadKudu. So they’re all like an AI machine learning company based in Mountain View and they do advanced regressions based on past data to predict the value, F, let’s say leads at each stage of the funnel. And so I leverage their insights into my model. Okay. And so it’s pretty reliable.

Other questions? Yes, we have questions back there.

QUESTION 3: What are some examples for typical SaaS company that maybe engineers might create in order to help with growth?

That’s a good question. If you look on the internet, you’ll find a couple of videos of me on tactics and strategies. Mostly what I try to do is to try and build products for acquisition that are tangent to your core product. Okay. That would push people to register low friction drive value. You see my goal is to deliver as much value as possible to people with as little friction as possible. So a couple of examples, if people need to sign up to get the value, the question is, “Well, can you pre-create all the accounts, screenshot the value and send it into an outbound email to prove the value to the future customer?” I’ve done that once. It works really, really well. I worked at a company called Mention doing news aggregation. And so we thought, well news aggregation is really good for people who are just launching a product. Okay. But they don’t have the time to sign up and set up the tool when the launching of the product on Product Hunt on day one, right?

So how can we help with that? Well, we pulled the API feed from Product Hunt, we created the news aggregation accounts for each of those launches everyday and then we outbounded an email with a screenshot and a link with a token to claim your account. Okay. Which means as a future customer, you have in an email the proof of the value, very little friction. It’s click here and claim your accounts and the data is already there. That obviously requires engineering, but it really helps I’d say the customer on the right path. That’s one example. I’ve done stuff at Drift for example. Drift is a LiveChat bot and so the principle of LiveChat bots is to get yourselves to move faster, people to engage with you faster. And so we did a tool as an acquisition that was meant to measure the response time of your sales team.

So there was a website which is now down, but there was a website called getmyresponsetime.com where VP of sales and sales leaders could go, sign up with the domain or the email and we would have contractors go and automatically request a demo with a generated email and it would measure the time between the demo requests and the demo followup in hours. And we then measure that against the industry standards to tell them how long they took and how much conversion they’re losing. And then the VP of sales is like, “Damn we’re losing opportunities. We’re not converting as high as we should.” And the obvious followup is like, “Maybe you need a LiveChat.” But it’s tangents, right? So a lot of those things require some level of engineering and it’s much more than just building a landing page, right? It usually requires some level of backend engineering and stuff like that, but it creates value. I’m trying to use engineers to push value up the funnel. That I think is the core strategy is push value up the funnel. Cool.

QUESTION 4: I was wondering if you could quickly elaborate on how you compensate the engineer’s for hitting the certain growth targets.

How I compensate?

Yeah. Is it like a commission or a flat rate? Just what’s worked for you?

Yeah, so basically the target is to have them produce at least a thousand dollars per day worth of experiments. The $1000 dollar mark is there because it’s more or less what they costs in San Francisco? No, 220 days of work, 150-180 case cost plus bonus and whatnot, they more or less the same. And so can they add $1,000 per day worth of value to a pipeline? Okay. And if they do that, they get bonuses. Now, if you think what’s going to happen? Okay, so basically they want to win. There’s this laundry list of ideas that are rated on a scale by experiment value per day, projections of how valuable is that idea?

Obviously they all want the one at the top. Okay, so how do they compete for the best experiment idea? Well someone’s going to say, “Well, I can do this project in five days.” And the other one can say, “I can do it in three days.” And I’m going to say, “Commit.” Right? And so now they’re committing to going faster and it’s forcing them to make some shortcuts and to work extra hard, which is exactly what I want because I don’t care about the code quality at that stage of the process. I care about having the answer really fast, right? Because remember we’re trashing 9 out of 10 ideas. So we can take care of code quality later, okay? So that’s how how we do it.

QUESTION 5: Smaller stage companies. Sorry, I couldn’t quite see the slide there, but it sounded like you were saying dedicated people for this kind of experimental team. Smaller stage companies, they can’t really dedicate a four person team across these different gilts and then a followup to that, how do you think about reporting and who’s driving that? Who’s who’s typically in that seat?

Yeah. That’s a good question. So at a small stage it might not make sense. You might not need a growth team as a separate function. You probably don’t actually, right? Because the question is have you hit product market fit and have you exhausted the obvious channels? If you haven’t exhausted the obvious channels through obvious marketing strategies, you don’t need to experiment. You should just execute on those first channels, okay. The need for growth team comes when you have exhausted the obvious things and you’re getting trouble continuing on the same growth I’d say path, in terms of month over month growth and your CAC is going up, now you need to experiment. That’s the first thing.

The second thing is for me, if you really want growth as an experimentation engine to figure out stuff that is not obvious, you need two things. One need a very clear charter throughout the organization that this team is taking risks and they’re going to fail often. And two, that team needs to report to the CEO, okay? Because stuff’s going to break and stuff’s going to fail and they need our cover, right? Otherwise, that team’s not going to survive longer.

Cool. Thank you very much.

Published on March 31, 2020

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