The Lean Marketing Framework

The most common questions I hear from startups are…

  • “How can I get more users?”
  • “What can I do I keep current users engaged?”
  • “How do I get existing users to refer new users?”

Today, I’m going to introduce you to a framework that will you help answer these questions.

It’s called, The Lean Marketing Framework (or Funnel) and you can start using it today to grow your business.

The framework is broken up into five separate stages that we use to track the lifecycle of a user. Dave McClure famously coined these five stages, “Startup Metrics for Pirates,” or “AARRR” for short. It’s a clever little acronym to help you remember what each stage is and what order a user flows through them.

The 5 Stages of The Lean Marketing Funnel

It goes like this: Acquisition, Activation, Retention, Referral, and Revenue.

It’s best think of these like a funnel with acquisition at the top and revenue at the bottom.

Acquisition is getting someone to come to your site, from any number of marketing channels including: SEO, paid advertising, word-of-mouth, social media, etc. That “someone” has just become a visitor.

The next step is turning the visitor into a user or activating them. Think of this as starting a relationship with the visitor. Your goal here is to get some level of commitment from the user. You want them to take a specific action like signing up for a free trial, requesting a demo, or submitting an email address for your newsletter. This opens up the lines of communication and allows you to start building rapport.

Ok, so the user signed up for a free trial. They’ve been activated. Now you have to get them to come back and use your product multiple times. Retention is where a user transitions to an active user. They’re actively using and engaging with your product on numerous occassions.

Now that you have active users, you want them to refer your product to other potential users. There are a few different ways to generate referrals. Incentivizing your users to share your product can be a very powerful way to accelerate growth. The type of incentive you offer depends on the type of product you have. Monetary incentive like commission is the obvious play here for each referred sale. But what if you can’t afford to pay users a commission? Or what if you don’t charge for your product? Offer a non-monetary incentive like Dropbox did! Much of their explosive growth happened by offering users an additional 250MB of storage for each person they referred.

Last, and certainly not least, is revenue. In this step, your goal is getting the user to take some action that generates revenue for your startup. Upgrading from a free trial to a paid subscription, purchasing a course, and clicks on advertisements all fall into this category. The three major business models here are ecommerce, SaaS, and paid advertising.

Identify Leaks in Your Funnel

Your job is to efficiently and effectively move people down through the funnel from one step to the next. Why a funnel? Because people are flowing in from the top and down through the bottom.

Along the way you’re going to lose people at each step. One of the major advantages of The Lean Marketing Funnel is being able to identify where people falling off. We call this a leak. Next, you need to figure out why people are falling off at a certain point and plug the leak.

Y Combinator and The One Metric that Matters

It’s been a little while since I’ve written about growth hacking and I wanted to write about my experience with growth hacking since going through Y Combinator with One Month.

Y Combinator is known as an accelerator for a very good reason: it accelerates the growth of your startup tremendously.

So what are the things that Y Combinator does to make its startups grow so fast?

They force you to focus on one metric — growth — and look at it week over week.

According to Paul Graham, growth is the only essential thing you need to be a startup. Everything else follows from growth. This is why they don’t really accept companies at the idea stage. Y Combinator isn’t a place for building, it’s a place for growing. This is why every time you meet with Paul Graham, he’ll ask…

“How much did you grow last week?”

When you eliminate all the other factors, things get much simpler. You’re expected to grow at least 7% every week while you’re at Y Combinator. Ideally we’re talking about revenue here, but if you’re pre-revenue then user growth or some sort of engagement metric is fine (ideally as far down the lean marketing funnel as you can get).

This sounds easy enough at first. Just have everyone on your team post to Facebook and you’ve hit your numbers. Time for beers.

The problem is that week after week the bar gets raised and you’ve got to hit consistently higher numbers. On top of that, a few weeks in you’ll start to exhaust easy acquisition channels like friends of friends. That will force you to start thinking long-term and focus on consistent acquisition channels and levers (like increasing your on-site conversion rate).

The stress of growing

The stress of having to grow week over week is mitigated by the fact that the end is in sight: Demo day is 12 weeks out and you want to have a growth chart that looks like this:

This is an illusion, because once you’ve gotten the money, you now have to report to investors and there’s an additional level of responsibility. But that’s for another day.

The advantage of focusing on only the growth metric is that it doesn’t lie. You’re either growing or you’re not.

Most startups spin their wheels on things like redesigning their app, building new production features, and other things that don’t really matter. Often t’s because they’re afraid of actually having their dream shattered when they try to grow, so they’re trying to build up the best product possible for launch. Paul Graham says…

“Launch when you have a modicum of value for some people.”

As soon as you start focusing on growth numbers, company decisions start falling into place. Should we take on an intern? Release that new product feature? Get a new logo? Only if it’s going to help you hit that 7% growth for the week.

On our wall at YC we had a big sign on our wall that said, “Will this help us grow 7%?

It served as a constant reminder and we were always pointing to it when someone had a new feature idea or suggestion.

Admittedly this is short-term thinking, and there’s debate about whether this kind of mentality is healthy for a startup in the long-run, but I think long-term thinking is the luxury of a healthy startup. You can worry about that stuff once you’re certain that growth is under control. There’s no point in thinking about the logo of a startup whose user numbers are going down.

Do you need YC to grow?

So do you have to be at YC to do this? Obviously not. You can hold yourself accountable, but there’s something about the environment they’ve created that makes it all easier. You’re getting constant reminders from the partners to focus on stuff that really matters. You are competing with and trying to grow faster than all the other incredibly ambitious startups in your batch. You’re in the middle of nowhere with very few distractions.

So if you’re at a startup, pick a growth metric and focus on that first and foremost. Put it up on a whiteboard for everyone to see, and hold your entire company accountable to it.