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Validation III: Keep + Grow = Scale
Keep and Grow: Can Your Innovation Get Big Enough?
The Get phase of validation is where you learn how to reliably turn prospective users of your innovation into actual users. When you’ve got that down in the form of roadmaps, you can start running a Build–Measure–Learn loop around the things they do as users that keep them using the innovation and generate growth by spreading the innovation to other users. Keeping and growing are the key lessons of the second loop (see Figure 10.1).
Keep
You’ve already engaged some people using your product or service. Now is the time to find out what’s keeping them there and how you can make that even better. There are a number of strategies for doing this that you can put through your BML loop:
1. Call on your users. You’ve already interacted with them significantly as part of discovery. Call these early users regularly (alternatively, be in close contact with them via email), and you can even go so far as to form an advisory group of these early users to keep your finger on the pulse of your “customers.” These calls should come from the founding team, the people with the original vision who are able to hear directly how it needs to evolve.
Figure 10.1 The Keep–Grow Loop
2. Measure your users’ engagement and satisfaction. You can go to town developing metrics for key parts of your solution and then finding out which parts really make users happy and which don’t. You especially want to understand why someone is abandoning your innovation. What part of your solution is failing them, causing users to abandon it?
3. Experiment actively with how to get your users and/or organizations to “stick.” Are there additional activities or offerings that would increase the rate at which people stick with the innovation? Can you create rewards or perks for longevity? Can you send them additional information that further engages them and keeps them onboard?
4. Put your engagement “experts” on those you are losing. Try to put your best foot forward so that you can see how much of disengagement is self-motivated versus something wrong with your product or service.
In the private sector, these “keep” efforts can be focused predominantly on customers. In the social sector, you will need to focus on keeping a number of different types of targets engaged. Each of the steps to keep users should be thought about separately for direct targets, indirect targets, and funders. But the good news is that rigorous thinking and measurement on these issues will earn you the respect of your funders and colleagues and make it easier to fund-raise and sustain the political and social capital that underpins your innovation.
Grow
At the end of the day, you’re innovating to solve a problem, and a natural question at any stage of this process is whether you will make a big enough dent in the problem to be worth it. How big do you need to be to make a difference? To stay adequately funded by philanthropic and/or government sources? Was your initial goal to make a dent in the problem, or to solve it once and for all? Such questions can help you define success for the overall validation phase.
You now understand how you get and keep customers and how you engage your users or drive attrition. You can now build on that data and turn to the best thing you can get from those you seek to serve—growth.
The Sources of Growth
In the social sector, there are two main sources of growth. The first is to deliver more value to the people you’re targeting. You can do this by having your innovation encompass more and more of your issue area and your targets’ interests by deepening your service to them and by broadening your impact and your adoption with them. In the private sector, these strategies have names like “unbundling,” “cross-selling,” and “upselling,” and are all about increasing the dollars/customer ratio. In the social sector, that ratio can be understood as impact/target.
Table 10.1 How Big Is Big Enough? Meaningful Goals for Lean Startups in the Social Sector
The second source of growth is simply to reach more targets, be they individuals, institutions, or funders. This second form of growth is focused purely on increasing the raw numbers going through your funnel (see Figure 10.2).
Give Them More!
One of the main ways to grow your impact is to modify your innovation in ways that deepen your engagement with your targets. Let’s use the example of New York City’s Toilet Bowl Retrofit program to understand the three key ways you can deepen engagement. Once the New York City water agency had established that we could get toilet bowls switched out, we expanded the activities we were asking plumbers to do. Soon they were not only replacing toilets but also showerheads and faucets. We were able to exploit the fact that we were already in the household to drive more water-conserving “product” into that environment and achieve greater impact. In the private sector, this is called cross-selling. Thinking about ways to get more impact out of the same population is the social sector’s equivalent.
Figure 10.2 The Two Dimensions of the “Grow” Funnel
A second way to deepen engagement is to increase the amount of a specific product or service you deliver to each target. In the toilet program, we eventually mandated that any building owner participating in the program retrofit at least 70 percent of the toilets in a building, ensuring that we weren’t frittering dollars on one-off installations and instead maximizing our impact and reach in every location.
A third way to deepen engagement is to unbundle elements of the original innovation into separate solutions. We didn’t do that very much in the toilet program, but a good example of this might be a health and wellness program that originally offered a one-stop shop where targets exercised and received counseling and diet tips. An unbundling of the program might involve sending customers to a gym and then having separate meetings with a nutritionist and a counselor. Unbundling can help deepen your impact with targets by deepening the offering itself. It can also increase revenue and/or fundraising by providing more touch points for funders’ support.
Find More of Them …
Cross-selling, upselling, and unbundling are all standard practices to drive growth and deepen relationships with your targets by expanding your solution. The second major approach to growth involves simply increasing the raw numbers of people your innovation is reaching.
Here’s the bottom line to the lean startup approach to expanding the number of targets you serve: it’s all about the rates and not about the totals. Far too often, we get excited about the total number of people we’re serving or some other absolute metric of total impact. For an innovation to have truly massive impact, the important thing is to focus on understanding what drives the rates of growth rather than the total impact.
Rates have always been the important variable for growth, but lean startups are able to focus on them more directly because our ability to understand and to measure these rates has grown exponentially over the last decade. Three archetypal rate examples:
1. Churn. Say you’ve found a source of 20,000 new signups or members per month. If your churn is 5 percent, you are also losing 5 percent of your members per month. When your membership reaches 400,000 people after about two years, your growth will stop because you’ll be losing as many members as you gain each month.
You can achieve huge growth simply by focusing on serving your targets so well that they never leave. If your targets never leave (or, more realistically, leave more slowly than the rate at which new targets engage), you will grow. The relevant rate to this kind of growth is simply the ratio of new targets to lost targets, and it works like compound interest. The lower your attrition (or churn), the higher your rate of growth. This approach can work as a way to think about funders as well, particularly if you raise money from individual donors. The Build-Measure-Learn loop’s goal is to maximize the compounding rate by understanding what drives down attrition while maintaining your ability to get new targets.
2. Virality. Another major form of growth can come from the way your targets themselves spread your innovation, product, or service. Growth driven by targets falls under the catch-all category of “viral growth.” This is the business Upwell is in with every Minimum Viable Campaign, and their viral component comes from having content that users themselves share with others to experience rapid dissemination of that content and an explosion in the number of conversations about the ocean.
Upwell uses the power of social media’s inherent sharing mechanisms to grow its impact, but a product or service can “go viral” simply by being so excellent that users share it with one another in large numbers. Viral growth has the advantage of costing nothing but the expense of designing in a viral feature. True virality is measured by the virality coefficient, which is simply the number of new users generated by an average existing user.
3. Paid acquisition. When the value of new users significantly exceeds the cost of getting them, then you can drive growth simply by paying for it. The Toilet Bowl Retrofit program was an example of this. Because reduced water flow reduced demands on expensive infrastructure like sewage treatment plants, the program saved New York City money with every toilet bowl installed. The city therefore was willing to pay to grow the user base for the program.
The relevant rate to optimize in the Build–Measure–Learn loop is the differential between the cost of acquiring a new user and the benefits or net savings of having served that user. In the social sector, a vital issue is also that the costs and benefits often do not accrue to the same organization, but creative programs can use creative finance to connect the dots and drive a compelling innovation.
Staying Lean …
Validation is an exciting process because you are testing the possibilities for truly massive growth. At the same time, you can be overwhelmed by the number of possible changes to your innovation and the permutations on how you reach your targets. At the end of the day, though, there are only two ways to truly grow your innovation:
1. Get more people to use it.
2. Get people to use it more.
Focus your experiments and your work to tweak your innovation and your marketing on these two mechanisms to keep the validation phase focused and on target. Any additional modifications or improvements you are considering at this stage can be pushed back until after you’ve gotten through validation. Your goal now is simply to test growth hypotheses until you’re sure you’ve figured it out.
Product/Market Fit: The End of Validation
The validation phase has been about testing the key ingredients to growth: how you get users, and how you keep them and get more of them. The learning for the first should have resulted in a replicable roadmap for driving new users to your product or service. The learning for the second should have resulted in a clear understanding of the rates relevant to growing your innovation and the biggest influences over those rates.
You’ve been running experiments that reshaped your product or service (to drive getting, keeping, and growing users), you’ve tested your marketing materials and infrastructure, and you’ve tried a few different approaches to expanding your reach. You’ve honed a dashboard to monitor the critical tests, and each of those tests should have led to an incremental pivot, taking you closer to an optimized product or service and a higher growth rate.
So when is validation over? Remember what Steve Blank told me back in 2008? “You want to build something that barely works, but if you took it away from people, they’d beg to pay you for it.” You’ve experimented your way to this point in the validation phase, pivoting as you went to make a product and a marketing infrastructure that meets this criterion.
Marc Andreesen, one of the inventors of the first Web browser, coined the term “product/market fit” for when an innovation has undeniably crossed the chasm and is starting to be pulled into the mainstream market. In the private sector, there is a “you’ll know it when you see it” view of this moment—it’s when the floodgates open and you can’t seem to meet demand fast enough and the revenue from demand promises to be enough to generate real growth.
The main difference for product/market fit in the social sector is that most social sector innovations don’t generate a profit. The signal of success may never mean that you’re turning a profit, bringing in more money than you’re spending. So product/market fit for social innovation has instead to meet two, and perhaps even three, standards of success.
First, the innovation must work at getting, keeping, and growing users and impact. There needs to be a replicable and scalable model for delivering the innovation. Second, there needs to be a sustainable funding model. Social innovations do not preclude a revenue stream derived from sales, but more often they are dependent on grants or contracts from government and/or charitable sources including foundations and individuals.
Product/market fit is more complex to determine for social innovations precisely because such innovation takes place in a context that is not just financial, but also involves significant social and political capital arrayed both for and against action. Innovations in health care insurance, for example, may save lives but also operate in the context of a broader debate over the appropriate role and scale of government.
The case of Upwell suggests a third, potentially critical dimension of product/market fit. Despite proven success at driving new conversations and traffic, Upwell’s model failed to get product/market fit with its funders, who, at the end of the day, had hoped to see conversations about their specific concerns (marine protected areas) driven up. Upwell generated a tremendous amount of validated learning, but that lesson—that collaborative messaging by the oceans community could expand the public’s engagement with oceans issues—flew in the face of a fiercely competitive ecosystem of oceans advocacy organizations. That community was simply not ready to build the conversation together—for example, by tweeting each other’s success stories or pointing to each other’s Web resources during peak traffic opportunities.
So social sector product/market fit must also take into account this social and political context. At a first order, consider the risks posed by opportunity costs (as discussed in chapter 3). Even if an innovative solution has reached product/market fit from a number of objective criteria, does it do so at a rate sufficient to justify providing it with external funding compared to other potential innovations? Any successful innovation has to meet the threshold not just of good growth, but of growth big enough to make the kind of difference the innovator and/or her investors think is important.
Before you proceed to institutionalize your innovation, it’s worth undertaking an evaluation of the negative political and social capital arrayed against it. In the private sector, innovations have to have a model of sustainable competitive advantage—that is, the ways in which they will thrive in the face of anticipated competition. Similarly, social innovations need to account for the political and social headwinds their innovation may face. Put another way, your beneficiaries may love your solution, but your funders, regulators, or other members of the public may hate it. Evaluate your product/market fit then in terms not just of your beneficiaries and funders, but also of the broader environment in which you’ll be operating.
Validation is over when you’ve considered all of these concerns with the lean startup methodology. If you know the specific mechanisms that get, keep, and grow your impact; how to predictably drive those mechanisms; and whether the impact is significant enough to justify the time, money, and energy you have to put in to get it, then you’re ready to move forward.
Now it’s time to launch and to build an organization to bring your innovation to scale.