Introducing the Lean Marketing Funnel

I see startups all the time that have trouble getting people to use their products. (In fact, it’s the biggest problem I see.)

They usually cite some specific challenge like “we can’t get people to sign up until we have stuff on our site, but we can’t get stuff on our site until people sign up” (thechicken-egg problem) or “we need to build buzz ahead of a product launch we plan to do in a few weeks” (the how do we get buzz? problem).

If you think that’s your problem: trust me, that’s not your problem.

The real problem is the way most startups think about getting new users.

Most startups only ever look at three metrics: traffic, users and revenue.

And then they can’t figure out why they’re not getting any users, or why the users they get don’t come back. “We’re getting traffic,” they often say, “but no one’s signing up.”

Whenever I see a startup that can’t figure out how to get more users, I’m reminded me of a South Park episode called “Gnomes.”

In this episode, the citizens of South Park discover that tiny gnomes are sneaking into their homes and stealing their underpants during the night. When they finally confront the gnomes about what they’re doing, the underpants gnomes say they’re trying to build a business.

Claiming to be business experts, they explain their business plan as follows:

Phase 1: Collect Underpants
Phase 2: ?
Phase 3: Profit 

This is a pretty infamous parody of badly thought-out business models, but I think it actually says a lot about how most startups think about user flow. The only difference is that startups think about it like this:

Phase 1: Get Traffic
Phase 2: ?
Phase 3: Get Users
Phase 4: ?
Phase 5: Profit

The point is that most startups don’t put much thought at all into how their site visitors become users, or how their users become active users.

The metrics most startups focus on – e.g. traffic, users and revenue – aren’t very helpful. The magic is what happens in between.

The User Flow

The first thing any startup with a user-growth problem should do is map out their user flow – that’s your best guess at the different steps users of your product take on their way to generating revenue for you.

For a typical product, here’s what that might look like:

  1. People initially hear about your product.
  2. They visit your website.
  3. They sign up for an account to try it out.
  4. They log in again a handful of times over the next few weeks.
  5. They refer a few friends.
  6. Finally they pay you.

This is a pretty high-level example what the user flow for a premium product might look like – where basic services are free but you charge for advanced features and functionality. No need to get too concerned yet with how exactly each step happens.

Not that the above user flow doesn’t hold for every kind of product. If you’re a social network, for example, you probably wouldn’t be monetizing users directly – you’d show ads instead.

But it’s a common enough user flow that it applies to a lot of the products out there on the web.

User States

One important thing to take away is that each step in your user flow has a corresponding user state. When people first come to your site, they’re only visitors. Once they’ve signed up and use your product, they become users. If they continue to use your product, they’re active users, and so on.

At any given time, you’ll have many different users at many different user states. When you consider the group of all your users, only a small fraction of those users will be active at any given time.

As a growth hacker, your job at a startup is to figure out how to move users from one state to the next and to do it as seamlessly as possible.

For example, how do you get someone who has signed up for your product to become an active user?

The Lean Marketing Funnel

I want to introduce a framework that makes questions like this much easier to answer.

Because particular user flows and user states vary so broadly across different kinds of products, at makes sense to break up the user flow into five discrete stages that are nearly universal to every product:

Acquisition – People come to your homepage or other landing pages from various channels, from press to blogs to search engine traffic to word of mouth.

Activation – People have a happy first experience while on your site, usually culminating in some action like the creation of an account or giving you their email address for more information.

Retention – People become active users of your product, coming back to use it multiple times and staying engaged each time.

Referral – People share your product with their friends, who then have to be activated, retained, etc.

Revenue – You monetize people using your product, either through advertising, subscriptions, lead generation or business development.

(For those of you familiar with Dave McClure’s talks, you should recognize these as Dave’s Pirate Metrics – so-called because their abbreviation is AARRR)

Note that referral is considered separately from acquisition. While technically referral is just a form of acquisition, it’s worth separating for two reasons.

First, you need to have active users before you can get any of them to refer their friends, so it’s not an acquisition channel available to most startups initially.

Second, referral is kind of a world of its own when it comes to growth hacking. There are a lot of really interesting case studies and best practices when it comes to referral that are so different from any other from of acquisition that it’s worth thinking about separately.

I like to think about the above as a lean marketing funnel. It looks something like:

It’s a funnel because people come in through the top and flow down, but you lose some at each step along the way.

Let’s See it in Action: Quora

So before we move on, I want to make sure we really understand how the lean marketing funnel works. It’s still a little bit abstract, so let’s take a look at a real life example: Quora.

Acquisition: Let’s say you’ve never heard of Quora, and one day you see a tweet from your friend Dave:

You almost can’t help but click on the link when you see a tweet like that. So you do and now you’re on the Quora site.

Activation: You read the answer on Quora and decide you want to see more content like this in the future, so you create an account.

Quora makes it very easy for you to do this by providing multiple calls-to-action on each landing page that a new site visitor might come to.

You keep browsing the site for a few minutes and then leave and forget about it.

Retention: A few days later you get a weekly digest email in your inbox with content and links going back to the site. The content is personalized to you. You click one that you like and end up back on the site.

Now that you’re back, Quora encourages you to stick around by showing you related questions that you might like.

Referral: Each time you read or answer a question, Quora encourages you to share that answer on Twitter or Facebook. They asked you to link your social media accounts when you signed up for the site, so this step is seamless and very easy for you to do.

Revenue: Quora doesn’t currently make money. (We know this because it’s an answer on Quora.) They do this for a number of reasons, which I may or may not agree with.

But there are also plenty of ways in which they could monetize, from sponsorships, to business development, to selling data, to premium accounts.

Benefits of the Lean Marketing Funnel

Cool, so we understand the lean marketing funnel. But what’s the point?

There are three huge benefits of the lean marketing funnel:

First, once you’ve got an analytics system in place to help you measure conversions at each stage of the funnel (I’ll discuss this in a future post), you can easily identify bottlenecks in your user flow. This lets you know where it makes the most sense to focus your resources.

For example, a lot of startups will see a bottleneck in the activation part of the funnel, meaning that the people who come to their site rarely create an account.

On the other hand, some startups see that a lot of people who come to their site create accounts, but a very low percentage become active users. This is a retention problem.

In either case, you don’t solve the problem by driving more traffic to the site. This would be a big waste of time and energy. Don’t make the mistake of focusing on acquisition if your activation or retention rate is low.

In a recent presentation, Patrick Ambron of BrandYourself talked about how they got 60,000 users in 60 hours thanks to a story that went viral on Mashable. He noted that at the time, their activation rate was 30% – meaning that 30% of people who came to their homepage signed up for an account.

When they first launched the site a few months earlier, their activation rate was only 8%. Mind you, 8% is a pretty good conversion rate, but Patrick worked hard to increase it to 30% before focusing on sending much traffic to it. So when the Mashable article went viral, BrandYourself got 60,000 new users.

If Patrick had settled for an 8% activation rate, they would only have gotten 16,000 new users.

A second reason to use the lean marketing funnel is that it gives us a way of identifying and categorizing other growth hacks that can be tested to overcome a particular bottleneck.

If you know you’ve got a retention problem, it becomes easier to identify growth hacks that have been used successfully to solve other startups’ retention problems. These include Twitter’s email notifications, Eventbrite’s “We Miss You” emails, Zynga’s time-based game elements, or Quora’s related questions and endless scroll features, and many others.

I’m currently working on collecting growth hacks at every stage of the funnel, and that’s something I hope to make available to you guys all soon.

Finally, the lean marketing funnel sets the stage for a lean approach to marketing. In my next few posts, I’m going to propose a way to combine the lean marketing funnel with the lean feedback loop to create a scalable and repeatable way for startups to get new users.

You excited? Me too.

Source: GrowHack