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What are the key drivers of growth? – Growth always needs to be spurred by something
Here’s what they mean…
This is akin to the previous question we went through. With this question (“What are the key drivers of growth?”)he investors are being a little more specific and are giving you a little more direction.
Growth matters a lot and it’s one of the key things that VCs look for in a startup. If you are growing like crazy, do you think they even care what it is you do? No one went into VC with a goal to invest in dog walking companies, but look how much Wag raised! If you don’t read much, it’s $300m. Go figure.
The question (“What are the key drivers of growth?”) depicts that the investor is trying to understand whether or not you understand the model that you apparently made, as well as what you should be focusing on. To get an A in this exam, you need to show an understanding of what matters and how you will focus on these to get big with the least effort and wasted cash.
The only costs related to growth are your marketing expenses and your COGS to support them. You should focus on acquiring and retaining customers. You can go further by detailing your go to market strategy in these drivers, such as leveraging channel sales and what you think the CPA/CPLs will be.
The cheapest customer is the one you keep. It’s 7x cheaper to keep a customer than it is to acquire another according to McKinsey. So churn is a driver of growth as is expansion revenue. Think of it like this, if you are bringing buckets from outside to fill up your revenue bath, will you fill up that bath faster if there are no holes in the bucket? Yes. If it’s also raining so your bucket is ‘expanding’ you’ll be putting in more cash into the bath.
Finally, being in the right place at the right time matters. A rising tide lifts all boats. Investors are looking for the bet to place in an attractive market, so you can close out by detailing the growth of the market you are in and how that is wave driving you forward.
What you need to say
“Adding and retaining customers with strong unit economics are what matter. If we can profitably acquire customers with a low payback period then we will print money. We aren’t there quite yet, but this is the plan!
We are highly focused on distribution via channel sales. Our COO has a lot of experience here, having done it for both Xero and MailChimp, so we’re going to double down on what we are good at. The more partners we can add and the marketing relationships we can develop the better. We will, of course, have to scale up the support team here. We have some good hires in mind already.
Finally, the highest growth segment in our targeted market is in face micro-companies. They’re cheap to acquire and help us to scale our server utilisation better. We will look to capture 15% of the market and then start to expand our focus to the SME portion, which has a longer sales cycle but better retention prospects and higher ARPA.”
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