Product & Growth: The 50% Rule of Growing a Startup

This post is excerpted from Traction book, a Startup Guide to Getting Customers by Gabriel Weinberg and Justin Mares. Exclusively download a copy of the first three chapters here.

If you’re starting a company, chances are you can build a product. Almost every failed startup has a product. What failed startups don’t have are enough customers.

Marc Andreessen, founder of Netscape and VC firm Andreessen-Horowitz, sums up this common problem:

“The number one reason that we pass on entrepreneurs we’d otherwise like to back is their focusing on product to the exclusion of every- thing else. Many entrepreneurs who build great products simply don’t have a good distribution strategy. Even worse is when they insist that they don’t need one, or call [their] no distribution strategy a ‘viral marketing strategy.’”

A common story goes like this: founders build something people want by following a sound product development strategy. They spend their time building new features based on what early users say they want. Then, when they think they are ready, they launch, take stabs at getting more users, only to become frustrated when customers don’t flock to them.

You Can't Sell Something People Don't Know About

Having a product your early customers love but no clear way to get more traction is frustrating. To address this frustration, spend your time building product and testing traction channels – in parallel.

Building something people want is required for traction, but isn’t enough. There are many situations where you could build something people want, but still not end up with a viable business. Some examples: you build something users want but can’t figure out a useful business model – users won’t pay, won’t click on adverts, etc. (no market). You build something people want, but there are just not enough users to reach profitability (small market). You build some- thing users want, but reaching them is cost prohibitive (hard to reach market). Finally, you build something users want, but a lot of other companies build it too, and so it is too hard to get customers (competitive market).

In other words, traction and product development are of equal importance and should each get about half of your attention. This is what we call the 50% rule: spend 50% of your time on product and 50% on traction. This split is hard to do because the pull to spend all of your attention on product is strong, and splitting your time will certainly slow down product development. However, it won’t slow the time to get your product successfully to market. That’s because pursuing product development and traction in parallel has several key benefits.

The Product Fallacy

First, it helps you build a better product because you can incorporate knowledge from your traction efforts. If you’re following a good product development process, you’re already getting good feedback from early users. Traction development gets you additional data, like what messaging is resonating with potential users, what niche you might focus on first, what types of customers will be easiest to acquire, and major distribution roadblocks you might run into.

You will get some of this information through good product development practices, but not nearly enough. All of this new information should change the first version of the product for the better. This is exactly what happened with Dropbox. While developing their product, they tested search engine marketing and found it wouldn’t work for their business. They were acquiring customers for $230 when their product only cost $99. That’s when they focused on the viral marketing channel, and built a referral program right into their product. This program has since been their biggest growth driver.

In contrast, waiting until you ship a product to embark on traction development usually results in one or more additional product development cycles as you adjust to real market feedback. That’s why doing traction and product development in parallel may slow down product development in the short run, but not in the long run.

Test Everything

The second benefit to parallel product and traction development is that you get to experiment and test different traction channels before you launch anything. This means when your product is ready, you can grow rapidly. A head start on understanding the traction channel that will work for your business is invaluable. Phil Fernandez, founder and CEO of Marketo, a marketing automation company that IPO’ed in 2013, talks about this benefit:

“At Marketo, not only did we have SEO [Search Engine Optimization] in place even before product development, we also had a blog. We talked about the problems we aimed to solve… Instead of beta testing a product, we beta tested an idea and integrated the feedback we received from our readers early on in our product development process.

By using this content strategy, we at Marketo began drumming up in- terest in our solutions with so much advance notice we had a pipeline of more than 14,000 interested buyers when the product came to market.”

Marketo wouldn’t have had 14,000 interested buyers if they just focused on product development. It’s the difference between significant customer growth on day one – real traction – and just a product you know some people want.