Sean Ellis: Hacking Growth Unicorn Successes, Easy Money vs. Hard Times and Achieving & Scaling Product-Market Fit - 391

· Founder,Start-up,Thought Leaders,VC and Angels,Podcast Episodes English


“Part of the reason why I wanted to write the book was that then, I saw that you still need to operate growth in a particular way. The fastest growing companies in the world are approaching it in a similar way, but you've got all these people stuck in the old way that's like a marketing team focused on awareness. And even when founders came to me, they would say they need someone to help build awareness. Awareness is not what you need. You need people coming in and experiencing your product and you need to do that in a positive ROI way. So essentially, to be really successful, you need to be able to have teams that are good at working together around all growth opportunities.” - Sean Ellis

“We repositioned on the key use case they were focused on, which acted as a filter to bring in only people who cared about that use case. And then, we made sure we quickly delivered that use case. Everything that I do ultimately comes down to, it has to have product-market fit. And then, I need to understand that product-market fit and then build a growth engine around delivering people to the experience that makes it a must-have.” - Sean Ellis

“Ultimately, product market fit is going to define your potential. I was a realist and I thought my next company was going to fail so I need to figure out why it's going to fail. I reverse-engineered my failure and thought I could be really good at helping people discover and try the product, but if they don't like the product, we're going to fail regardless of how well I execute the other parts. I came to the conclusion that if they don't have product-market fit, even though I didn't call it that, they don't have that scenario where when people try the product, they like it enough to keep using it, I'm going to fail. So, I was pretty deliberate about making sure that I was able to assess if they liked the product or not.” - Sean Ellis

Sean Ellis, Bestselling Author of “Hacking Growth”, and Jeremy Au talked about three main themes:

1. Growth Hacking Unicorn Successes: Despite not considering himself a "techie," he shared his transition from traditional marketing to growth hacking and helping five startups navigate to unicorn billion-dollar valuations. Sean discussed the strategic pivot of LogMeIn from a paid to a freemium model and thus innovate in pricing and distribution to capture market leadership and differentiate vs. well-funded competitors. He highlighted the lack of established language or tools for scaling companies with product-market fit during his early career and the difficulty in understanding the nuances of what makes products indispensable to users, which he later encapsulated in his book "Hacking Growth."

2. Achieving & Scaling Product-Market Fit: Sean emphasized that achieving product-market fit is a blend of art and science that necessitates deep market understanding, creativity, and rigorous validation. He stressed the critical role of targeted, domain-specific advice for startups and that generic advice lacks the impact of insights tailored to a startup's unique context. He also pointed out the importance of fair compensation for advisors, highlighting that those providing high-value, targeted advice leading to tangible outcomes deserve appropriate rewards.

3. Easy Money vs. Hard Times: Sean discussed bull & bear startup funding environments, from periods of easy money (startups become complacent and focus more on rapid growth at the expense of efficiency and long-term sustainability) to more challenging financial climates (which necessitates a disciplined approach to growth, spending, prioritizing efficiency and lean operations). He highlighted that companies that optimize resources and operations are best positioned for survival and growth regardless of funding availability.

Jeremy and Sean also talked about why large tech companies slow down at growth, the critical role of early-stage market validation, the importance of maintaining a growth-focused culture, and the strategies for sustaining momentum.

Join the Singapore Growth & AI Summit with Sean Ellis!

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(01:31) Jeremy Au:

Hey Sean, really excited to have you on the Brave podcast. I've been a reader of your book years ago. And I'm glad that this takes you into this part of town.

(01:39) Sean Ellis:

Yeah. Thanks, Jeremy. I'm freshly arrived in Singapore. So it's great to be here. Awesome.

(01:43) Jeremy Au:

So, you know, for those who don't know you yet, could you share a little bit about yourself?

(01:47) Sean Ellis:

Yeah. I mean, it's it's always like, how much do you include in a, in an introduction? I think probably the highlights would be I've I've been working in early stage startups for most of my career. I had the good fortune of being in the team that brought five startups to market that reach unicorn status. And so, and most of those were earlier in my career. So it does show me that I had a lot of luck that, that I had, I got into situations where the solutions we were building were things that people really needed. You know, today we call that product market fit. I don't think we really had a name when we were starting it. So, I had product market fit to work off of and so I didn't create the products, but then I really helped to bring them with market and grow them, and so, a lot of those learnings went into the book, Hacking Growth, and we published that in 2017.

And we have, we're at about 750, 000 copies read around the world, which is super exciting. And then just what do I do these days? I'm really focused on trying to help people essentially implement the recommendations from the book, Hacking Growth. And I do that both going deep inside a company. So I'll spend, I just finished up with a company called Bounce. That's founded in Silicon Valley, but then relocated during the pandemic to Lisbon, Portugal. And they're a luggage storage network. So an app where you can find places to store your luggage. So they've got some locations here in Singapore, but it's really dense network in Europe and in the US, over 10, 000 partners.

And so I spent six months there working full time doing nothing else. So, you know, normal startup hours, the 12, 13, 14 hours a day of just really figuring out how do we crank up growth in that company? And then I step out of a deep role like that. And then now I'm on a world tour where I'm trying to work with kind of 10 companies at a time. And I have a pretty effective program where yeah. I get together the functional leaders in the companies and they spend a whole day with me where I'm essentially taking them through the process of adopting this approach to growth that is just so much more effective than how most companies are approaching growth. So that's, my big passion is how do I keep getting better at helping make the, helping companies make the transition to really effective growth.

(04:01) Jeremy Au:

How did you first enter the world of technology from your perspective? All the way back in the day.

(04:06) Sean Ellis:

Yeah, it's kind of interesting. I'm like not a techie.I don't get excited about technology. And I think that's kind of helped me to some degree. I can empathize with the masses out there that are looking for practical solutions. So I got into it because I I moved to Eastern Europe right out of college. So this was early to mid nineties and I just, yeah, didn't know what I was going to do.

Just moved there, but wanted to move to an interesting part of the world and got initially into. into ad sales and for business journals, but a friend of mine was starting an internet company and in 1995 and I heard what he was doing. It sounded really interesting. It was in the gaming space, but you know, 1995, no one was paying attention to the internet really.

And so I. I just said, man, I'm going to I want to invest in these guys. So I knew he was out raising money and trying to raise money. And so I got 20, 000 together straight from the commissions I'd earned from ad sales and put it into the company and and then ended up joining the company about six months later, but that investment they ended up bringing in venture capital the next week.

So even in one week, I went up 50 percent on my first ever investment in my life. And so that, that kind of got me excited about going in and actually helping to help the company be successful. And so after they got done building the games, I went to New York city to initially try to sell advertising in games. And then when I was talking to the world's biggest advertising agencies, they were telling me they had no interest in reaching, you know, 350, 400, 500 people. And that's kind of the audience that we had in the game. So, I put my head together with the CEO and said, somebody's got to focus on this. I'm willing to do it. And and I haven't looked back since. So basically I was responsible for growing the games and, fast forward that story that we, that became a top 10 website in the world in terms of total usage time. So for an ad supported property, that's a really important metric.

And so, yeah, that was, that's how I got into tech. And it was not because I was necessarily particularly that interested in tech, but I saw the potential in what the internet could do in terms of transforming our lives and, wanted to jump on board.

(06:20) Jeremy Au: You know, in those early days that, you mentioned, you said there was in terms like product market fit, obviously there's so much vocabulary that doesn't exist back then. And so they exist today. I'm just kind of curious, could you share about some like difficult business decisions of conundrums that you had because you didn't even have the language for it, but could you share some examples of those early days? Yeah.

(06:41) Sean Ellis:

I mean, so one, I'll talk about the second company, which was LogMeIn. So LogMeIn. We started in the early 2000s and we were still in kind of the waterfall development mode where we identified what we thought was a good opportunity and I, you know, we had another product that we were kind of keeping the business side busy while we built what we thought would be the longterm business, which is around this remote access, easy to use remote access, but it took, you know, nine months to maybe a year to get something that was market ready in our mind. So today you would launch an MVP probably a lot faster. And during those during those 12 months, we saw a competitive that not only had solved the problem that we were out to solve, but they grew really fast. They were spending 20 million a month capturing market company called Go to My PC or a product called Go to My PC. They'd actually been acquired for 200 million by uh, Citrix. And, and so we're finally ready with our product and we see like someone already took the opportunity.

And so, I think a big important decision that we made at that time was we can't catch up to them playing the game just like them. We can't have the exact same playbook and think that we can catch up to them. So we put our heads together and I looked at, okay, they're successful because they're super easy to use, but they're really expensive. The only other product that really is used by a lot of people is actually hard to use, but it's free. And so, like, open source stuff, like VNC. And so, I said, what if we can, what if we can come up with a version of our product that is both easy, but also free. And so, at the time you really didn't see a lot of freemium businesses out there. I think maybe there was a couple of them, like Zone Alarms might have been one.

And so, it was pretty, a pretty big decision to say let's give away a free version of our product, but then I got the bad news when I presented that as a suggestion that our cost per user on that product was 8 per user per year. And to put that in perspective, by the time I left, we had more than 100 million devices connected into our network. So that would be like an 800 million a year infrastructure cost. Just not realistic. Our engineers then went back, tried to figure out how they can get that cost down and actually innovated a way where they could get it down to just pennies per user per year. And so that allowed us to give it away for free. And a lot of challenges and execution challenges along the way, but I think that was a really important decision. Ultimately, we built that business so effectively that we took over the leadership of the category by using the free version to really disrupt and then ended up acquiring that competitor who was so much bigger than when we started. And LogMeIn eventually sold for 4. 3 billion in in 2020.

So I think that decision, I mean, It's hard to know the path not taken. Maybe there was another path where we could have been more successful. But I think the key lesson there was just you can't enter a market when you have another leader in there and approach it the exact same way as them. I don't think we would have had a chance. We had to think what's going to be our differentiator to solve this problem so that we can solve the problem. We can actually succeed in this market.

(09:53) Jeremy Au:

I think what's interesting is that I remember studying that case at Harvard. You know, for the MBA, you know, we talked about logging me in and other examples like that. I think there was this interesting trend where these companies were building out that first set of infrastructure, I would say, I think it's the second wave by then. But I think it's interesting to see that generational shift. So for the benefits of people who are listening in for LogMeIn, you know, what would the kind of technology shifts are happening at a time?

(10:18) Sean Ellis:

Yeah, I mean, I think maybe I would only say like because again, I'm not a technologist So I would say that I think of it more as business model shifts. So like software as a service, right? LogMeIn was, was a software as a service model and so before that you primarily have you buy something once and you have it forever. And so moving to a subscription model plus the freemium was a pretty powerful model. But yeah, from the rest of the technology side, to me, the technology shifts were across the the biggest technology shift was the internet itself. Yeah. So. If I go back to the previous company that I worked at one of the, one of the big decisions that we made was, again, the same thing.

We were a company founded out of Eastern Europe and we were a gaming company, but we're competing against Microsoft, was big in games. Yahoo had emerged and was becoming big in games. And then you had a bunch of other Silicon Valley, Kleiner Perkins back, big, successful companies in Silicon Valley. And we're this lightly funded Eastern European company. And so, we had to be super creative in, in how we could compete against them. And so, one of the first things that we did was we invested in an analytic system. And home building an analytic system that ultimately, I think gave us insights into the effectiveness of our spend that, that rival what people can do today. But this was 20 plus years ago. Yeah, more than 20. So I said to do the math, unfortunately, but so I think and then one of the biggest things for me personally, when I thought about growing the business was I'm competing against these way better funded companies.

And I'm trying to compete, again, playing the game their way, and their way was to spend a lot of money on advertising, and I'm not going to win that game, so I thought, okay, one, like, we can do somewhat better by being really efficient, but then I thought, okay, How do people discover our games? They click on an ad, and this is how most people think about it today. They click on an ad, they come to our website, they fill out a form that signs them up for our games, and then they're given an opportunity to play a game, and then, wow, you give them a good experience. I thought, you know, all these websites are networked together. Why do they have to come to our website to play the game? Why don't we, why don't we push a light version of our games out to all of these other websites, and they, the acquisition loop starts with them actually playing a game on someone else's website, and then converting. So, we ended up adding one more twist to it, which was

We had a little button that said, add this game to your website. And then but it was, YouTube model a few years before YouTube did it. So we even, it was the same size. It was JavaScript that you could just copy a little JavaScript on your website. And so that game spread to 40, 000 websites. And they had one more twist to it, which I was inspired by seeing something that Amazon was doing with its Amazon store affiliate program, where I said, okay, and then if someone actually comes to our site, Through the game that they play on your site, we'll pay you 50 cents for each person that comes and plays a game on our site.

And so, that then gave them a big incentive. But that, that took our act, cost for an activated user down to 50 cents. And this was a time when people were spending crazy money on TV all kinds of Super Bowl ads. And it was starting to get, it was starting to get very irrational how much they would spend to acquire users. And we were only paying 50 cents. Our blended average for a customer acquisition cost was the lowest of any publicly traded company for a free registered user. And Yahoo was considered really good at the time. They were about $30. Ours was like $4.50 because we blended in all these ones that came through this game and also then through, through ads. So, so that to me, that was really like leveraging, understanding the network and leveraging the network and engagement to, to rethink how advertising even works. Yeah.

(14:12) Jeremy Au:

And what's interesting is that you went out to help several other companies grow and scale the company. Can you share just briefly what they were?

(14:18) Sean Ellis:

Yeah. Well, let me even tell you like why it kind of changed the model. So, I, afterwards I started doing much shorter engagements. And so what I realized when I looked at, both Uproar, and that which was the game company and logged me in was that the decisions we made and the contributions that I personally made to the companies were the most important ones all happened in the early go to market. And so, once you kind of figure out the formula for acquiring customers, then you're really executing that formula going forward. And so I thought, okay, this is the stage that really matters. And in 10 years across these two companies, I've only done it twice. And so how can I actually get a lot of practice in that stage? And at that point I realized no one had a lot of practice, they basically, they have four year vesting periods on their options. So if they're really good at it, they want to stay for four years to actually get compensated for what they did. And so I actually did short terms, short term roles where I was fully vested after six months. And so that way I could do lots of cycles in, in the upfront with a bunch of businesses.

So six months after I left LogMeIn, I went to Dropbox and they were less than 10 employees just coming out of private beta. And then I spent six months helping Dropbox come to market. And a lot of the things that I needed to do did require help from the engineers in terms of the experiments that I wanted to run. And so the rest of the team couldn't move as fast as I wanted to move. So I realized I could actually do two companies at the same time. So, at the same time, I was doing Dropbox, I was also doing Eventbrite. And so, those were two really good ones to layer on top of each other. And then, after that, I did another two companies which were a company called Lookout that is in the mobile security space.

(16:06) Sean Ellis:

And another company called Socialcast. And so, So, three of those reached that billion dollar mark of valuation. Obviously, Dropbox reached, you know, ten times that, then the fourth one was a company called Socialcast, and Socialcast It was kind of like a a Slack before Slack. So you had Yammer and Socialcast and then Slack came on, but even Socialcast sold for over a hundred million dollars to VMware. And so, and, but most important to me was that I was really trying to come up with a repeatable formula for taking new businesses to market. And so we're figuring out what matters, what order does it matter and how can I effectively transition companies from that kind of pre product market fit stage where you're really patient and diligent to now we have product market fit, we got to really move quickly to get it to where we're figuring out how to scale.

(16:59) Jeremy Au:

And what's interesting is that, you're making a set of decisions about these individual companies. How did you even pick those companies or how they just opportunities come into?

(17:08) Sean Ellis:

That's where I touched on before. I think I think I actually did get pretty lucky Yeah, because ultimately product market fit is gonna define your potential to some right? Yeah, but even with product market fit before I realized Before I ever heard the name product market fit after I left the second company, LogMeIn I'm a realist and I basically said, okay, my next company is going to fail. It's just, you know, you don't do three unicorns in a row. So I need to figure out why it's going to fail. So I kind of reverse engineered my failure and I was like, okay, I could be really good at helping people discover the product. It could be really good at getting them to try the product, but if they don't like the product, we're going to fail, regardless of how well I execute those other parts. And so I came to the conclusion that if they don't have product market fit, even though I didn't call it that, they don't have that scenario where when people try the product, they like it enough to keep using it, I'm going to fail. And so I was pretty deliberate about making sure that I was able to assess if they liked the product or not.

And so I came up with a survey that has become really popular now. But at the time I was the only one using it because I hadn't. I published it publicly and it was just, I would take the initial batch of users and just ask them, how would you feel if you could no longer use this product? And I give them the choice. Very disappointed, somewhat disappointed, not disappointed, or I've already stopped using it. And so then I, you know, at first I didn't have a benchmark. It was just like, I want to see enough people saying they'd be very disappointed and then I want to understand those people, want to understand why it's a must have and that's going to be important information as I try to grow the business. But with those first two companies that I ran that on being Dropbox and Eventbrite was like 80 percent of the people said they'd be very disappointed if they could no longer use Eventbrite. Dropbox was like 50%, but 50 percent of people saying they'd be very disappointed, but if they used the key use cases on the product. So if they only used one, then it was 50%, but if they actually used all of them, so they're sharing files, they're creating collaboration folders, they're keeping their data synchronized between their devices, they're backing up to the cloud. If they perceived each of those, then Dropbox also went to like 80%.

(19:26) Sean Ellis:

And so, I was like, all right, now I'm starting to see a pattern here. And then, the next company that I went to work on, I ran the survey and they were actually only at 7%. but what was cool was that, I spent the time to really study. Okay, so 7 percent of users say they'd be very disappointed. That's something positive. That's a good thing. Most people in that case would say, what's wrong with the other 93%? I need to learn everything I can about them and maybe I can shift them over. But I was like, we did something right for 7%. So we studied those 7 percent and then based on what we learned, we were able to move the number to 40 percent in two weeks. Right. So we basically repositioned on the key use case they were focused on. Right. Which acted as a filter to bring in only people who, who cared about that use case. Right. And then we made sure we quickly delivered that use case. Right. Now, the next group of people that we surveyed who came through that process, it was at 40%. Six months later, it was at 60 percent of all users said they'd be very disappointed without the product. And then within five years, that was my fifth unicorn. And so that was Lookout and so I think it really, like everything that I do ultimately comes down to, it has to have product market fit. And then I need to understand that product market fit and then ultimately I'm building a growth engine around delivering people to the experience that makes it a must have.

(20:53) Jeremy Au:

Right. And what's interesting is that, you know, a lot of founders, I mean, you know, back then didn't have language for the market fit, but even today, even there's so much resources on product market fit, really struggle with defining product market fit. Now, I got the benefit of a Harvard MBA education. So they actually taught what you have built, I guess, which is the, you know, how many people will be disappointed and so forth. So thank you for being one of those slides that we had in that class as well as other classes that you know, spoke at. But I'm just saying like, but I think people are saying like, okay, there's some magical point where there's product market failure, but how do we get there? And I think that's the hard part.

(21:26) Sean Ellis:

And even the kind of definition of it has been. I mean, when I first read the term, it was on a Mark Andreessen blog post that I think it was right around the time he was starting Andreessen Horowitz. So he took all his old blog posts offline. But as we know, nothing ever really goes offline. So through the Wayback Machine, I was able to, I found some really good stuff in there. And one of them was like all about product market fit. Right. Basically saying, before you have product market fit, it's the only thing that matters. And then afterwards, you focus on growth. But the but he defined product market fit as, you'll know it when you have it. The products just start flying off the shelf.

(22:02) Jeremy Au:

All right, anit's not unfairir.

(22:05) Sean Ellis:

Yeah. Well, it's true. The way he described it is product market fit. But it's like the best scenario of product market fit. Often it still requires a lot of effort So to me, I think the kind of more refined definition over time has been to study retention cohorts. All right, and I first heard about retention cohorts from the writings of Josh Kopelman at First Round Capital and he was talking about, this was I think 2007, even he was writing about the importance of retention cohorts, and that essentially is saying the same thing that someone tries the product, you know, you get a hundred people trying the product, how many of them are still using the product after a long period of time? So your long term retention essentially says those people got enough value that they want to keep using your product. So that is in essence what product market fit is. The problem is, I just said there, it's long term retention. So if you're a product like Airbnb, what does long term retention look like? I'm not going to know that for 10 years. And even a lot of products might take you six months to know if you have it or even if it's two months. If you're not sure and you try to grow without it. You're going to probably put yourself out of business, and if you have it, and you're being too conservative, you're probably going to miss your window of opportunity. So it becomes really important to try to get an indicator up front, and that's where the survey becomes really helpful. If you can at least get that survey where you have a pretty good idea that you have it, that can drive that execution. And I also said already that the benefit from the survey is that you start to understand why you have product market fit.

Who would be very disappointed? How are they using the product? What did they use before? Now you start to really understand your target market, what's the use case that you're trying to get them to experience and then you're executing on that. But again, even just because the survey says they'd be very disappointed without it, if the data eventually said most of them disappear, I would say that would have been, the survey gave you a false positive of product market fit. The data is going to be more important there, but the reality is that most people are either waiting for the data or they're totally guessing. And it's better to, it's better to actually get a pretty good idea and then validate that with data over time.

(24:14) Jeremy Au:

Right. So, you know, I think there's two personas, right? So I think one persona, obviously the founders who are very much interested in increasing product market fit or increasing growth. Obviously I think the second persona, which would be more for like technology executives looking to keep growth up or figure out how to compete. So let's talk about the first group, you know, for founders who are kind of like on a limited time resources, budget kind of perspective, let's just say they have an idea, they have a concept, they have a pitch deck, they think they have maybe like 10 customers in a head. What would be your advice to this group of founders?

(24:46) Sean Ellis:

So I think that the really kind of difficult insight or conclusion that I came to after many years of trying to also create my own products. Yeah. Where I came up with the idea and ultimately try to execute on it, is that creating something people want is really hard. Yeah. And so, I think to some degree it's a little bit random, which. It's scary because everyone wants to feel like they have the special power to predict what people want and to go out and know exactly what to create. And so part of it is it's going to require a lot of iterations and you, what you build will probably be off, but some of the most successful companies that have ever been built were built on very different visions. So YouTube was a dating site initially Instagram was a kind of a location check in type site but they were observant enough to be able to see how people were using the products that really like the products and then use that as a beachhead to create product market fit so I think that's that would be the key lesson is that You know, you need to have a vision initially. Ideally, you have a good idea of the problem you're solving, and then you're building a solution to that problem. The more you understand that problem, the more likely the solution is going to be correct to it. But you're probably going to have to go through some tweaks and changes until you finally have product market fit.

That's my understanding of product market fit in a nutshell, like I don't feel like I have any expertise over anyone else and getting there. And that's why I'm not a founder anymore because I'm I'm at that age where if I was a founder, I might have, you know, three more tries and I just don't want to spin my wheels for the next 15 years looking for it, where what I'm really good at is helping someone who has product market fit right to reach that massive market and to create kind of world changing solutions, and world changing solutions are not based on just creating it, you got to get it to the market. You got to get a lot of people experiencing it.

(26:39) Jeremy Au:

And I think there's an interesting piece where, you know, exactly that, which is that, founders on the cusp of their, but a lot of them are often looking for help, right? So, you know, she said the founder reached out to me yesterday and she was like, Hey, you know, I'm looking for somebody to help me in product market fit. And I was like, in my head, I was like, well, how does one coach product market fit? Because how close to be close enough to it? You pretty much an employee, a teammate, but then if you're a coach from outside, I'm just, so I'm just kind of curious. Is that doable? Is that doable? I don't know.

(27:13) Sean Ellis:

I mean, I don't think so. Yeah. I mean, I think that there are coaches out there but I don't know,. I don't think that there's a single coach who helps with product market fit that has a winning track record. Right. Because if they did, they would be, yeah they should be creating their own startups because Yeah, because he's like, they have a skillset to this touch create, create. Yeah, exactly.

And so, so the reality is that if you wanted to build a consulting practice or a, an advisory practice. It's probably a bad idea to do it in an area where you're going to fail most of the time. And so, so I do think it really comes down to that's why founders make a lot of money when they figure it out. That's founder risk. That's founder upside. You can't outsource that. You as a founder, you need to navigate that and if you can figure it out, great. If you really think someone can help you get there, they should probably be a co founder. They should be someone with a lot of skin in the game. Right. somebody if they can make the big difference in getting there, then, and you're not paying them that much, or you're not giving them a big chunk of the company, they're way undercompensated if they can actually make the difference.

(28:12) Jeremy Au:

Right. Because it's such a, you know, it's not a linear thing, right?

(28:15) Sean Ellis:

It's binary. Most of them are going to fall off a cliff, and a few of them are going to make the leap, and anyone who's really good at making that leap should be a founder.

(28:24) Jeremy Au:

And so I think this is very interesting because you know, you said that's how you've defined the station after that, right? Identifying companies that have some level of product market fit and then helping them with that growth, that reframe that path. So when founders come to you and talk about this, what kind of situation are they normally in from your perspective?

(28:42) Sean Ellis:

Well, man, my very first question is you know, I'm trying to assess product market fit, right? No product market fit. Yeah. Come back to me when you can get data that looks like this. Yeah. If they have product market fit then part of the question becomes market size. And You know, you can have product market fit in a little tiny niche. And generally, if I'm working directly with a founder, I want some equity. And that equity's gonna be a function of, you know, if you're gonna run outta market fast. And I also I said I'm not good at finding product market fit. Also don't think I'm good at guessing how big markets can be. Yeah, maybe I am, but I just, I don't give myself very much credit there. So that's where I use the signal of a good venture capitalist.

Yeah. If I can see that a, a top tier VC firm that I respect has put any kind of money in them. They're making a bet that it's a big market. Right. They don't bet on small markets. So if I can see that combination of product market fit validation and a VC firm who is betting that it's a big market, that tells me there's a good chance I want to work with them. Right. Then I go through the rest of my checklist, which is pretty long.

Like one of the, one of the things on that checklist is Do I feel like I have chemistry with the founders? Right. There's still the failure rate's really high at that stage still. And so. I better enjoy the journey if it's if there's a good chance that they're not going to be successful going through that, like we succeed together or we fail together, but driving that, that growth hockey stick is hard and it's not guaranteed and it's only going to work if the team can work really well together.

So I want a team that I feel like I can work well with. And then probably the last thing that I go into it with is, I want to have a couple of ideas of how I think I'll be able to grow that business. At least on the acquisition side, how I think I'll be able to, because the likelihood is that neither of them will work. But if I go in with zero, and then I come up with two while I'm there, and those don't work, then it starts to get challenging. But if I go in with two, and I can come up with two more, then there's a good chance that one of the four Will work as a primary way of acquiring customers and getting them to use the product. And so, That's, I'm not, I don't want to go in and wait for inspiration. I want to make sure I have a little inspiration before I go in.

(30:55) Jeremy Au:

Right, makes a lot of sense. And you know, what's interesting is that, you decided to codify a lot of this into the book, which I read when I was building my second startup, which I found useful. But what's interesting is, what was that process for you to be like, I want to write this down versus, Talking to them individually or whatever it is.

(31:11) Sean Ellis:

It's kind of the same thing with the go to market stuff, so, you know, to me it was no one has documented this, no one has figured out really effect, no one's done enough cycles to figure out really effectively what you do in those first three to six months after you have product market fit, and so, that was a big focus for me, and then part of the reason why I wanted to write the book was that then I saw, okay, after that, you still need to operate growth in a particular way. The fastest growing companies in the world, they're all approaching it in a really similar way, but the most of the world is not approaching it that way. And so you've got all these people stuck in the old way that's kind of like a marketing team that's focused on awareness. And even when founders came to me, they would say, we need someone to help us build awareness. Awareness is not what you need. You need people coming in and experiencing your product and you need to do that in a positive ROI way. So essentially to be really successful, you need to be able to have teams that are good at working together around all of the opportunities for growth.

So it's not just how you acquire the users, but how you get them using the product, how you get them coming back and using it more often. How you get them to bring their friends in and all of those require a lot of experimentation and so to me that was like I want to be able to write a book that shows you how to do that.

And I want to admit one thing though is that we have 750, 000 people that have read the book, approximately and most of them fail when they try to do it based on the book. And it sucks, but that's the reality is that it's probably a lot harder than I kind of gave credit to. Cause it, again the stage I was working at was before anybody builds any kind of habits around growth. So we could set those businesses up right from the beginning. And even if you look at all the ones that have been really successful using this approach, so Facebook, LinkedIn lot of Chinese companies you know, they all have these approaches built in from the very early days. So that's the challenging piece is that it's really hard to retroactively change the way you approach growth in a business.

(33:18) Jeremy Au:

Right. So you mentioned that most people fail and that kind of makes sense, right? I mean, you know, you buy a recipe book, now everyone's going to be able to make that cheese lemon cake, I guess. But from your perspective, why is it that you think that people generally fail? Are there certain patterns that you see?

(33:34) Sean Ellis:

I mean, I've seen it even in my own career, like LogMeIn, the most powerful time at LogMeIn was in those early days when we worked together on some of the hard problems together, like let's make this free marketing's working with engineering even a lot of the early onboarding, we had to work cross functionally, but over time the business grew, the departments grew and each department has their own set of goals, they contribute something, and it becomes harder and harder to work together cross functionally. And so, think by the time I left LogMeIn, probably 80 percent of my creative energy was not put into how do I acquire and convert, what are the right experiments to improve experience for the customers. It's like, how do I convince this person in the organization to allow me to run an experiment here that I think is gonna be really critical for growth.

And so burning all this energy just trying to convince people to run experiments. So I think that's what happens is that it's just these teams are not used to working together and they fail. So even I found that problem. So like when I went to Dropbox. In my contract, I told Drew, the founder of Dropbox, I said we have to take advantage of this team being only eight people to really build in the right processes and get teams working together the right way from the beginning and and interestingly, and so that we were really deliberate about that. I interviewed their worldwide head of marketing, maybe five years later at a conference, thousand employees. She said, you know, what's unique about Dropbox is that the entire company takes ownership of growth. And so, like the fact that we could be so intentional about creating that growth and experimentation culture, data culture, right in the beginning, and that it's carried through to thousands of employees. And for what it's worth, Dropbox was the fastest SaaS company to reach 1 billion in revenue, faster than any SaaS company before it. And I think that was a big part of the reason is that most of the experiment ideas for growth were actually coming from the engineering team and they're enthusiastic about implementing those experiments when it's their idea.

And so, they saw pretty on early on the power of experimentation. So yeah, that's the next phase for me is I don't want to try to figure out how do I get a you know, giant enterprise to start doing this because that feels like an impossible task at this moment. But how do I get that team that's 20 people, 30 people, maybe 50 people to make the transformation. And so that's my last interim VP growth role was with Bounce where we had 40, 45 people. And it was very cool to watch there and be a part of having that experimentation and having it be cross functional where the functions are coming together and deciding those experiments and really kind of building that into the DNA of the business. So I know I can do it when I work hands on for six months with a team, that's, you know, 50 people. And then the question is, you know, can I do it 100 people? Can I do it more? And it obviously took the right people there who were receptive and open to it as well.

(36:32) Jeremy Au:

Amazing. And what's interesting is that, no company wants to become slow, you know, contradictory, not growth oriented but it seems to be one of the big questions in people's minds because so many of the last wave of technology companies seem to have weakening product market fit. That's what we're saying. It follows a weakening growth as a result. So from your perspective, why does it happen?

(36:56) Sean Ellis:

I think part of it is, mean, there's a lot of reasons, but I think the weakening growth is just a natural phenomenon. The law of big numbers, but even when I went to Dropbox, I took that into account at Dropbox and said, when I left LogMeIn, I said to Drew, we were spending millions of dollars every month on external marketing. And eventually when you have a hundred million plus devices on your network, it's hard to find a channel that actually can give you meaningful growth, even to just maintain the trajectory, let alone to accelerate it. And so what I said to Drew is, and we have so many tools and passionate customers in this business that if we can focus on how we can leverage our existing users to bring in more users, we can grow that for a long time because the bigger we get, the bigger the growth engine gets. And so I think that's another reason why we were able to hit a billion dollars. A billion dollars in revenue fast, but the other thing to keep in mind is that it was actually cheap to do it, that we did not raise any money between our series a and around a funding that valued us at 4 billion. And so, that meant that we were spending very efficiently because when you operate when you start to run experiments around, across all of those levers, you're not just thinking about how do I only spend on marketing, you're thinking about what are all the ways that I can accelerate my ability to deliver value to more customers.

And so, actually, when I look at all the companies that I've worked on that became really successful, all of them started in tough fundraising environments like the one we have now. All of them required very efficient execution. So I think a lot of the things we write about in Hacking Growth are probably more relevant today than they were when money's really easy because people get kind of sloppy when money's easy.

(38:41) Jeremy Au:

And I think there's an interesting thing about money being easy versus money being not easy, right? It seems like there's a boom cycle, there's a bust cycle, never seems to be a nice equilibrium, I guess it seems to be. But let's talk about those two things. So let's talk about when time, when money is easy, what do you normally see? And later on, we'll talk about when money is not easy, which is where we're in right now. But when money is easy, what do you see are the common patterns?

(39:03) Sean Ellis:

I think that's when you have the ability to be sloppy. It's just, you see it in kind of all companies, like the whole survival of the fittest when I'm going to not quite answer the question, but I'll go back to it. Like when you have a recession, the businesses that survive that are the most efficient businesses. Or the ones that realize they have to be efficient to be able to survive. And so it really forces people to run in a more lean way. And so the opposite is also true. When money is easy, you do get signal from your investors. You do get signal from the market in general that growth is the most important thing. In tech, it always is, but I think there's this perception that growth requires high burn. Growth requires throwing a lot of money at it. And that's, that has never been my experience. LogMeIn was cashflow positive all the way through our IPO. I already told you, Uproar, we had the lowest customer acquisition cost of any publicly traded company. All of this is about driving super, super efficient growth. And that, you should do it even when the money's easy. Why would you waste just because you can waste? And so, again, the benefit for Dropbox was that eventually, like even if the money were easy, they were growing very fast. Why would they take on that dilution of having to raise multiple rounds along the way if they could wait for the next round when it was a 4 billion valued business? And so that to me was very telling on like why you don't want to take that dilution. And I saw it from my options perspective, every other company, when I got to the point where I was exiting. The percentage that I had was way lower than what it had been when it was granted to me. Dropbox was exactly the same. I exited at that four billion dollar round. And I think they raised like four hundred million dollars in that round. And my percentage of the company was about the same as it had been when it was granted to me.

And so, it's huge for founders, it's huge for employees, it's huge for early investors. And so, I think it's, It's crazy to operate any other way than this, but it, but the truth is that most companies do operate in kind of a more traditional, like the old school way that they teach in the marketing books from the 1950s and that that's just not, I think a reality in, in, in today's world that you should be operating that way. Not only are you driving way less impact, But you are probably going to eventually lose someone in your space is going to be way more effective at growth Eventually and you're gonna have to compete against them.

(41:28) Jeremy Au:

And could you share about a time where people are having to handle growth, but when money isn't easy?

(41:34) Sean Ellis:

Yeah, I mean, that's like again each one of the companies that I've been with money really wasn't easy, but For me, I'm always focused on what is my return on investment? I have to have a positive return on investment, but also what is my payback window? Does it take me two years to get that return on investment? Or is there a way I can get that return on investment in a month or two months or three months? And so, I think the, like an early story from Log Me In will demonstrate this is that Money was, it was tough when we launched it, but we had already taken a company public. We'd already listed on NASDAQ and sold that company. And so we had some credibility when we raised our Series A in around 2003. But it was a really hard time to raise even for us. We had probably 30, 40 VCs who all told us no. And, but we were able to raise that money eventually. And so, but our story was we were going to raise it to spend on marketing.

And so then the CEO tells me, okay, we just raised 10 million. Our story was to spend it on marketing. You need to figure out how to spend a hundred thousand dollars a month. And there's a lot of marketers that say, sure, no problem. And they just go and spend it and not worry about what the return on investment. But for me, it's just unnatural to do that. I need to know if I spend it. I need to make sure I'm getting a positive return on investment, and I couldn't get a positive return on investment at scale. The most I could scale was to about 10, 000 a month, and then when I tried to go to 11, 000 or 15, 000, those additional dollars were being wasted.

And so, I couldn't, this is again where growth hacking starts to make sense that I was the VP of marketing and so I had my sphere of influence so I could test as many ads as I wanted, I could test as much media as I wanted, keywords in Google, I could test my landing pages, but that was really it. And so for me, I was like, why is it so hard to spend this? And then I finally said, okay, I want to look at the data and see what are these people doing? And I realized that 95 percent of the people who were coming in through these channels never used the product. So, if they never used the product, they're not going to keep using the product. By nature, they never did. They're not going to pay us anything. They're not going to tell their friends about it. And so, basically, that's why we were stuck at 10, 000. And so, when I shared the data with the CEO, he actually said to me, Stop trying to find new marketing channels, kind of counterintuitive. But he said, I want you to work on this problem of improving the sign up to usage rate. But he knew I had no engineers on the team, no designers on the team. So he said, and I want you to work with the product team on this. And I want you to work with the engineers on this. And in order for them to work with you, it's not like we're going to carve out one or two people. They're going to completely stop working on product. They're not going to do anything on the product roadmap. So, very unpopular decision with the engineers and product people. But but that's what we did. So, we basically, okay, marketing, engineering, design, and and product all focused on improving the sign up to usage rate.

And we did lots of research, lots of testing. And in three months, we improved it by a thousand percent. Awesome. So, exact same channels. Now someone comes in and they had a 10 X chance of actually using it, of actually paying us money. And so for every dollar we spend, we get 10 times as much money that we're generating if the proportions kind of hold all the way through to the purchase and they're pretty close to holding.

And so now, no new creativity on the marketing side. I just went back and tried the exact same things I'd previously tried. Now they scale to a million dollars a month. And that money came back to us in three months. So three month payback window, million dollars a month. Every month, I'm spending a million dollars.

And within three months that money's coming back. And those people after that are generating a positive profit to the business. Right. And start to cover head count. And so all of that then is how we were able to operate cash flow positive all the way through our NASDAQ filing even though we were running in probably one of the hardest fundraising environments ever.

We, because we were so focused on that efficiency from the beginning and using the reality of ROI constraints, but even at uproar, the game company before when everyone was going crazy, spending on television ads and super bowl ads, and you know, we had money in the bank and I couldn't spend it that way. That was just, that's not my style, but I had to make sure that every dollar I was spending, I could account for the impact of that dollar and then you get a lot more creative about how we drive even more and more impact. And that's, and ultimately, yeah, the upper became a top 10 website in the world. And we eventually did hire the brand marketers who spent on those ads, but it wasn't my idea. I was pretty anti doing that. And so, but yeah, and then after the crash, they were the first to go because then we had to get, we had to get very disciplined again.

(46:32) Jeremy Au:

So, second last question here. You've done and published a book back in 2017. And so obviously things have changed a lot since then over the past seven plus years. You know, I'm kind of curious if you were to write, a second book, a sequel, maybe it's in cooking your mind already, but why the questions or topics that you think would be worth adding or they feel are worth considering.

(46:54) Sean Ellis:

So probably the biggest thing I would emphasize, like when I go in and work with a new company, like I mentioned, the bounce when I went in there, it's in my contract. I will not work with a company unless I do a upfront alignment session with a full team. I need to have everyone on the team spend a full day with me understanding how growth works and the role that they play in growth and committing to testing and, you know, we all come out of that on the same page and then I feel like I can be successful. If I didn't do that, I'm not doing that just to be stubborn. I'm being realistic that They're excited when I first get there, but within a month, I'm just another guy trying to tell them to do things they don't want to do. And so I have to use them being excited to, to drive that alignment up front. So that would probably be one recommendation. If you're going to do this, make sure that you don't do it in your existing company. Leave your existing company, go to a new one. If you've got a good track record and insist on an upfront alignment process, otherwise you will likely fail. What you can potentially do, and this is what I'm doing on this world tour, is that you can do it somewhat retroactively, the same thing that I do when I go into a company, but you can do it by bringing in an outsider and actually having someone take your team through that journey.

So doing the same thing that I'm doing with a single company, now I can do it with 10 companies in the same day and essentially coach each company to have those conversations among themselves. And and it's really effective. And so, and because I can do 10 companies at the same time, I can do it for a lot less money than, you know, I've done it with big companies like Microsoft or eBay different business units at eBay, but of course, one company is a lot more expensive. I think it is almost as good for me to work with, for each of the companies when I work with 10 companies. And so that's what brought me to Singapore. That's what brought me around the world was to really do that and get that feedback loop and what works and what doesn't work. And so I did it yesterday in Jakarta and I have, you know, feedback from 25 people from the session yesterday and I end up making lots of iterations based on that, I'll get the six month feedback loop from them on what works and what's not working and where they're struggling.

So that's my. That's my big mission is just like, figure out how can I help companies make that transformation at scale? But again, not super confident that I can do it in a in like kind of an enterprise level company. And even 500 employees gets pretty hard. But when you get down into the sub 100, sub 50 that's a stage where I feel really confident I can help make those changes.

(49:28) Jeremy Au:

Awesome. And lastly, could you share about a time that you personally have been brave?

(49:31) Sean Ellis:

Yeah, I almost kind of, kind of fits in with this, the, what I just went through kind of the first time I ever did this kind of alignment session up front was with Eventbrite. I don't remember exactly how big the team was, maybe 15 or 20 people, and even when I had been a VP at LogMeIn before that, we were hundreds of people, but I'd never I had to hold the room for like two straight days, so I didn't know that I could get it down to like just a day. So I had basically gotten them to agree that for two straight days, we're going to put our heads together on growth. And I didn't have the program that fleshed out. And then I'm like, I remember I was walking to that meeting.

And you know, I was really starting my six month engagement with them. And I'm thinking, what the heck am I doing? This is stupid. I don't know what I'm doing here. This and I literally was so close to just calling them and saying, I woke up this morning. I'm so sick. Please can we reschedule for tomorrow? And you know, maybe I'll be braver tomorrow. But was like just do it. Just push through. And it turned out that, Again, that, I mentioned Eventbrite and Dropbox I did simultaneously, and those two companies for six months simultaneously, the stock I got in those companies and based on what we were able to achieve in those companies, the most lucrative, the most fun, most rewarding six months of my life started the day that I had to push through that very much a discomfort zone and then now I've kind of been doing that ever since and you know, forms of that. And so, yeah that to me is I think all of my biggest growth happens when I step out of my comfort zone and but that's an example of probably the most uncomfortable and the most rewarding being just on making the leap and doing something.

(51:18) Jeremy Au:

Awesome. Thank you so much for sharing your story. I love to summarize the three big takeaways of this conversation. Yeah. First of all, thanks so much for sharing about your early career. I like how you keep saying that you're not a techie, even though. You sound very much like a techie now. And so it was interesting to hear about that early landscape where people didn't have the language or the tools and how you went to navigate some of those experiences to, I think, build out your frameworks. But also, I think it was an interesting time because you said there were other people who were also creating concepts like product market fit. So it was just interesting to hear that time capsule about what it was like to figure out how to scale companies that had product market fit.

Secondly, thank you so much for sharing about your perspective on what it takes to advise companies. I thought it was interesting to hear about how you feel that coaching founders on getting product market fit is a very difficult task compared to coaching founders on how to scale the company once they have product market fit. And I thought that was a very nice dynamic because, you know, we're being realistic about not all advice is free and not all advice is good. I think being directional and targeted in what domains are coachable and their results can happen.

(52:26) Sean Ellis:

Where can I make a valuable contribution and be appropriately compensated for it?

(52:30) Jeremy Au:

Exactly. And then lastly, thank you so much for sharing about the good times and the bad times or when money is easy, when the money is not so easy. And I thought it was fascinating here because I think we're talking about different stages of companies, right? You said that the companies were founded when times were hard, in terms of raising money and so forth. But also I think we talked about what happens when cash is easy, that companies can get lazy or inefficient. And I think it was fascinating to hear about how even during this tough time, now, it's a question of which are the most efficient companies to survive. And I think as a result, being thoughtful and being able to, like what you did, tell your CEO that we're not going to spend 100, 000 per month and Only spend 10, 000 per month is something what good marketers, but also all executives should be thoughtful about how the Expense for the business.

(53:15) Sean Ellis:

What's the right decision for the company? Even if it means saying I can't do what you're asking me to do?

(53:20) Jeremy Au:

Exactly. On that note Thank you so much for sharing your experience.

(53:23) Sean Ellis:

Thank you. Jeremy. It's been fun talking with you and Excited to finally be here in Singapore.