@andrewchen

Subscribe · Featured · Recent · The Cold Start Problem 📘

Growing renewable audiences (a talk at O’Reilly Alphatech Ventures)

Here’s the transcript:

Intro
Hi everyone. My name is Andrew Chen and I’m a blogger and entrepreneur, focused on consumer internet products here in San Francisco.
This afternoon, I gave a quick talk at O’Reilly Alphatech Ventures called “Growing Renewable Audiences” which I thought I would share.

The primary focus of this talk is about the fact that every internet startup needs to grow their audience to be successful. And for venture scale returns, you need 10s of millions of users, not 10s of thousands. So ultimately, this divides the growth efforts that you can use into two types: renewable and not renewable. I’ll get to defining what this means in the next few moments.

Techcrunch and press traffic
Let’s start with this Alexa graph. There’s really nothing special about it – they’re just another startup trying to grow their traffic. I will say, however, that this startup is one of the many that presented last year at Techcrunch 40, which leads to the question, how many of the companies that launched this week at Techcrunch 50 will look like this in a year?

My point is not to pick on Techcrunch, which I love and read on a daily basis. Techcrunch is great for getting introduced to potential partners and investors, but for a consumer internet product that’s trying to drive users to a site, it doesn’t do much. The reason is that press and blog traffic are ultimately nonrepeatable, nonsustainable audiences that doesn’t stick. You get the spike in traffic, and it melts away as quickly as it show up.

In fact, I’ll describe press and blog traffic as “fool’s gold” because of the associated emotions that it brings. It’s easy to overestimate the impact of this kind of traffic because it just feels good to have your name and company featured. It strokes your ego. You might get a bunch of inbound emails from other press and partners, and all of these things can contribute to a feeling that you’re on your way to getting tons of traffic. Problem is, you inevitably become yesterday’s old news.

So again, this is the kind of one-time traffic that I definitely discount and stop focusing on. Instead, let’s talk about what it means to build sustainable, renewable audiences.

Renewable audiences versus not
What’s the definition of renewable? I’m interested in the last part of this definition, which is to define it as “inexhaustable or replaceble by new growth.”

For a startup, this can only mean one thing: the hard-earned audiences you generate via buzz, beta testers, and other sources must beget more audiences. This means that you should focus on building repeatable, sticky traffic that will stay for the long term rather than getting the quick hits. This is the only way for startups to get big and create venture-scale returns.

So let’s talk about a bunch of methods that are renewable versus not renewable. I’ll start with the non-renewable stuff first. As I said, pr and blogs. Same thing for talking at conferences. PR, blogs, and conferences are great to attract investors, partners, potential employees, but terrible for trying to scale to 10s of millions of users.

Same for community building events like meetups, contacting influencer communities, and so on. This can help you build out intuition for your product, but it won’t help you grow your userbase to 10s of millions.

And finally, here in San Francisco we have the “cult of feature worship.” Every product must have better features than the next, and it’s easy to respond to issues of traction with thinking. But I’ll argue that features might increase your engagement, but have a tough time driving more users.

Compare this to the renewable strategies, like viral marketing, SEO, widgets, and ads, which can scale into 10s of millions of users but are primarily centered around tough, non-user centric work. These are things that if you get right, you can optimize your way into a big, sustainable audience.

So I’ll stop here and ask you: What strategies is YOUR company using? Are they more from the left hand column? Or the right hand column?

Taking a systematic view to growing audiences
Finally, let’s talk about the approach for how you execute these growth efforts and build up sustainable audiences. First, you need a mental model for how users enter your site, and the process in which they bring in other users. This is your growth funnel, which you should then measure in extreme detail, and then use A/B testing tools to optimize. If you approach this process scientifically, then you’ll end up generating a vast array of hypotheses which you then identify, measure, and optimize.

I’ll give an example of this in advertising, and why ads can be a renewable resource.

An example: Growing audiences using ad arbitrage
Let’s say that you have a product that has a great LTV backend, like a free-to-play MMO that uses virtual goods for monetization. Then ultimately the entire focus of your business should be around figuring out how to buy ads profitably. get them to your site, upsell the experience so that a % of users buy. This then enables you to focus on buying more advertising, which lets you reach more users. If successful, you’ll be able to grow your audience up to its maximum size, until you run out of ads you can arbitrage effectively.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.