February 7, 2022

“There is no silver bullet for Growth — but there is a process.” A Conversation with Matt Lerner

Guy Reading

What is growth hacking? Is it a new sector? A new job role? The new marketing? Is it, as Matt Lerner jokingly says, bull****?

As someone involved integrally in the milieu that created growth hacking, Matt Lerner, Partner at 500 Startups, knows what it is: in part, all of the above. It is the means by which certain Silicon Valley firms grew so quickly. For some, it will replace marketing. And yes, there are also a lot of people who call themselves growth marketers who you should steer well clear of. But, at its simplest, it is a way of thinking about your company’s growth that starts with the simple question, “How do you engineer your product for growth?”

That question has been at the heart of Matt Lerner’s career — first in his time at Paypal, where he came to oversee their SME business and lead B2B marketing, and now in his role as a venture capitalist at 500 Startups. We sat down with him to discuss what he has learnt starting out as a VC and setting up 500 Startups’ Distro Dojo in London, what growth hacking involves, and how companies can actually implement those lessons.

Key Takeaways

  • There is no silver bullet for growth. You will have to shoot a lot of blanks first, but if you run experiments and follow the process of growth hacking, you will eventually hit on a winner.
  • You need to ask, “How do we grow our company from first principles?” Once you have a hypothesis, you can run experiments and establish what works in order to grow.
  • Growth hacking will replace marketing. Only a fraction of 1% of companies worldwide are using growth hacking — and that fraction is eating all the other companies out there.
  • You can’t compromise on integrity in hiring. Nobody lies about just one thing. If you’re hiring for a job with access to highly privileged information and resources, you can’t compromise on integrity.

What is 500 Startups, and what do you do?

The short answer is that I’m an early stage investor. 500 Startups is the world’s most prolific early-stage venture fund, which means that we invest in pre-seed and seed stage companies. We’re headquartered in Silicon Valley, with offices in 20 countries, have invested in 1700 companies worldwide over the last 5 years, and have around $330 million in assets under management.

Specifically, in the UK, there are already some great early-stage programs such as Seedcamp, Techstars, and Ignite, so I tend to focus on later-stage companies at or post-seed stage. I run a program called Distro Dojo, focused specifically on helping those companies scale their growth.

‘Distro’ refers to distribution — the superset of all the means of getting your product to the market — while dojo is a studio or school where you learn martial arts. What distinguishes a dojo from a classroom is that you learn by doing: you apply what you’ve learnt, you practice under a master, and you receive ongoing feedback. I wanted to capture that essence in our program, which is focused on working side-by-side with masters in the various disciplines of how you grow a company.

What’s your career journey?

Initially, I worked for a number of startups. Then, I worked in marketing at PayPal, eventually leading B2B marketing for PayPal UK, as well as overseeing the SME/SMB business as a General Manager. My approach has always crossed disciplines, with a focus not just on marketing, but also on sales and engineering. Eventually, someone retroactively named that growth hacking. Before that point, though, it was obvious to a bunch of us that we were doing things differently. We thought about how you grow a company from first principles, which guided how we worked.

“In the decade that I was there, Paypal grew ten times, from $800 million in revenue to $8 billion — larger than the NBA.”

What we did to help achieve that wasn’t in any marketing textbook. Once, I was invited to lecture about marketing at Stanford Business School. The syllabus contained dated ’Mad Men’ case studies from the 1980s, such as Levi’s launching Docker Jeans, that had no relevance to growing a startup. Everyone involved in growth hacking understood how unique it was, and that only a fraction of 1% of companies worldwide were pursuing it. And that fraction was eating all the other companies out there. It makes me excited that, in my lifetime, growth hacking, or whatever you call it, will replace marketing.

“Everyone involved in growth hacking understood how unique it was, and that only a fraction of 1% of companies worldwide were pursuing it. And that fraction was eating all the other companies out there.”

Would you classify what you do as growth hacking?

Is bull**** the word that you want to say? In fact, Is Growth Hacking Bull****? is the title of the lecture that I gave at Stanford. Growth hacking is a polarising subject. For sure, there are a lot of people who call themselves growth hackers who you should steer well clear of — charlatans is the polite term.”

At the same time, if you look at the last twenty years the ten or twenty companies, from PayPal to Instagram, who got really big, really quick, did so without traditional sales, marketing or advertising — the archaic, brute force method of growth. Each hack is non-reproducible, but there is certainly something distinctive about the methodology that led them to discover those hacks.

“It’s up to you whether you call it growth hacking or not, but it’s undeniably something different, and you would be remiss not to understand it so that you can figure out how to apply it to your business.”

What do you look for when you hire?

In terms of hiring, there are certainly general traits I look for in any hire beyond the specifics of the role. The first is that you want people who are, fundamentally, good with other people. Almost every job, with the exception of certain engineering roles, is a social enterprise, and you are only as good as your ability to build team relationships.

Secondly, I look for an intense, driving curiosity. People who have that aren’t always so much fun to hang out with, because they’re always asking, ‘why?’, but it’s an important professional skill. Curious people also tend to be highly driven and motivated — either because they can’t sit still, or because they’re excited and passionate about what they do.

I would also generally agree with Marc Andreessen’s assessment that hiring comes down to three attributes. One is intense motivation. The second is being really smart — there’s not really any way of getting around that. And the third is integrity. I particularly agree about this. Nobody lies about just one thing.

“If you’re running a startup or have a meaningful job in which you have access to highly privileged information and resources — and therefore power — you can’t compromise on integrity.”

Of course, the final aspect of hiring is that it has to be the right person for the job — and the right job for the person. When I lay out the skills we need for a role, I’m cognisant that we won’t always find somebody who exactly fits that profile. Rather than try to find somebody who does perfectly fit that skillset, I often change the role to match their abilities —in fact, frequently, I have candidates before I have jobs.

What’s your best learning experience?

It was the first 12 months of becoming a VC. I became very good at running marketing and growth departments in a big corporation during my time at PayPal, but my learning process as a VC over the last year started from zero, which has made it an even more significant learning experience. It’s too early to tell if I’m a good VC or not, but I’ve built up a network of relationships in London, invested in a number of companies, and started and run the growth academy, which is delivering value. The Distro Dojo is certainly going well — all the companies who have gone through the process have rated us above 9/10.

What’s on your learning playlist?

Much of my playlist is related to learning to be a VC. CB insights is a great blog, as is Ben Thompson’s Statechery. In terms of growth hacking, whenever Brian Balfour, Andrew Chen or particularly Sean Ellis publish something, I’ll read it. I listen to podcasts while I’m commuting, and while most of them relate to my personal interests, I also enjoy Tim Ferriss’s podcasts. I would also mention Marc Andreesen’s article on hiring again.

In terms of books, I recommend The One Thing You Need to Know, by Marcus Buckingham. It has a cheesy title, but it’s excellent. Buckingham’s main argument is that if you study a problem enough, you’ll get to one core insight that unlocks the rest of the problem. He then gives a set of examples — the one thing you need to know about managing people, or the one thing about leading, or great individual performance. In featuring those key insights, he frames the problem in a really clear, accessible way.

What are the key aspects of growth hacking?

If you look at the companies which have grown very quickly over the last couple of decades, you can see that each came up with a famous hack. Sean Ellis, Dropbox’s growth person, solved the problem, ‘It’s too large to attach to an email.’ PayPal had a similar strategy. If you sent someone money, they would have to create an account to receive it. PayPal also hacked its way onto eBay by writing a bot which bid on auctions, and then messaged the seller to ask if they accepted PayPal.

Those hacks don’t work any longer. You can attach large files to emails now, and eBay will never let another payment company hack their way onto their platform. But while the specifics of each hack eventually become outdated, the process of experimentation, trial and error and a different kind of thinking based on systems and feedback loops does not.

The question you must start with is not ‘what advertisement can we run?’, but ‘how can we engineer our product for growth?’ Once you have a hypothesis from that question, you need to run a set of experiments to find out what works — the right message, the right customers, the right value proposition. The famous hacks mentioned above were the results of the fifth, or twentieth or hundredth iteration of experimentation.

These processes are also about understanding what growth looks like to you: how you will measure it, and what system dynamics and feedback loops are involved. They are also where you identify where you can apply the 80/20 rule in order to leverage a large improvement from a small input.

“The question you must start with is not ‘what advertisement can we run?’, but ‘how can we engineer our product for growth?’”

Our program, the Distro Dojo, ensures that companies integrate this thinking by working on weekly sprint cycles which execute growth experiments. Even if these experiments don’t work at first, you have to maintain faith and trust in the process. If you listen to your customers, formulate strong hypotheses, and execute well, you will hit on a winner. It’s exciting when a company gets lucky, and manages to double conversion in two weeks, but it may take another company two months. If you stick with the process we teach, you will inevitably unlock that hit. I’ve seen it time and again, and it’s always really rewarding when it happens.

“If you listen to your customers, formulate strong hypotheses and execute well, you will hit on a winner.”

Is there a common issue or trap that entrepreneurs tend to come to you with?

Companies tend to come to us while they are in the process of switching from hustling to scalable growth. These companies usually haven’t thought about growth at scale, so they often have a misconception that there will be a silver bullet. There is no silver bullet — but there is a process.

The process will help you find the silver bullets, but you’ll have to shoot a lot of blanks first. They often realise, in that moment, that we can’t tell them exactly how they will grow. They have to try lots of different tactics and ideas, test and iterate them — and eventually, they’ll hit on a winner.

“There is no silver bullet — but there is a process. The process will help you find the silver bullet, but you’ll have to shoot a lot of blanks first.”

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