If you have to ask the bank for a loan every year to stay in business, you are not running a successful company. The same is true if the bank is a VC investor.
In recent years, the term ‘growth hacking’ has become popular in the high-tech world. But is it the best approach? Let’s compare growth hacking to what I will call ‘marketing’ in terms of what builds the most profitable companies over time.
“Growth” can refer to an increase in anything. Revenue. Customers. Employees. Profits. The number of workers who love Spandau Ballet. Ryan Holiday, the former director of marketing for American Apparel who is now an author and media columnist for the New York Observer, specifically put it this way in his 2013 book Growth Hacker Marketing:
“While their marketing brethren chase vague notions like ‘branding’ and ‘mind share’, growth hackers relentlessly pursue users and growth… whereas marketing was once brand-based, with growth hacking it becomes metric- and ROI-driven.”
Immediately, I have a problem. As I wrote last year in the context of the forthcoming post-GDPR world, not everything that is important in marketing can be measured and not everything that can be measured is important. Moreover, many digital metrics are incomplete or completely inaccurate. Not every activity in marketing can or should aim to receive an immediate, trackable response.
But for this column, I will address another point: The word ‘profit’ does not appear in Holiday’s definition. “Growth,” in other words, is a focus on top-line results at the expense of everything else. And we will see where that leads.
In Disrupted: My Misadventure in the Start-Up Bubble, Dan Lyons, a former technology editor at Newsweek who moved into the startup world, describes how the tech world have changed over the past few decades:
“The biggest difference between today’s tech start-ups and those of the pre-Internet era is that the old guard companies, like Microsoft and Lotus Development, generated massive profits almost from the beginning, while today many tech companies lose enormous amounts of money for years on end, even after they go public…
“Suddenly, there was a new business model: Grow fast, lost money, go public. That model persists today… The company is buying one-dollar bills and selling them for seventy-five cents, but it doesn’t matter because mom-and-pop investors are looking only at the revenue growth rate. They have been told that if a company can just grow big enough, fast enough, eventually profits will arrive. Only sometimes they don’t.”