Why proving a startup’s value hypothesis before testing its growth hypothesis is critical.
It was very daunting to work on, but we didn't start with a project that big. We started with one city, with three organizers, and when that worked, we then went to six cities and then to 12 cities and then eventually to the 40 cities. And so, how do you take an idea that could be great, but tested in a really small way and give yourself permission to fail and tweak it before you say, "Okay, let's expand it to the next ring and go to a bigger group of people."
This quote from Sarah Leary, Co-Founder of Nextdoor is totally on point for a key lesson of greatness. Hack value before hacking growth. Let's find out why.
Time and again, the great startup founders hack value before hacking growth and the reverse is also true. Spending money to grow before you are ready usually leads to disaster.
So what am I even talking about here? It's helpful to realize that a startup is not a company. It has to hack its way to becoming a company someday and the first hack is insight hacking. The second hack is value hacking and the third hack is growth hacking.
Sarah's story at Nextdoor illustrates value hacking perfectly. So what exactly is value hacking?
You succeed at value hacking by checking three important boxes:
One, figure out what can I uniquely do that people are desperate for?
Two, identify a focused group of customers that desperately need your solution
And Three, iterate and improve your value proposition relentlessly until you start to see signs of exponential organic growth.
A key lesson in getting this right is that when you value hack, you should resist the urge to sell. You're trying to learn. By learning the truth of where you can create massive and unique value to the customer, you can scale later by syndicating the truth.
Growth becomes easier because people are spreading the word of the truth of your awesomeness, which is the most powerful way to scale rapidly. If your value proposition is not true enough and your customer is not desperate enough, you will not grow exponentially or organically.
You will have to spend money to overcome the objections to the gaps in your value proposition. This is how a ton of startups go off the rails after raising a series A, they spend money on fake growth to overcome their failure to deliver a true value proposition.
By the time they realize this, it's often too late, they're burning their churn or too high and the runway is too short to recover. With Nextdoor, Sarah shows the right way of thinking.
She was empathetic to the needs of real people in real neighborhoods, starting one neighborhood at a time in the early days. Her engineers literally said, "We're not writing one line of code until we've proved we have something valuable for real people that they want right now."
Her team realized they had hacked value successfully when a desperate user one day asked why they'd taken the directory down during lunch hour. Because value hacking is more about truth-seeking than selling, it's hard to know how long it will take, so when you value hack, be patient for time and hawkish for burn as you hack your way through getting your value proposition nailed in to the point that you are very confident that you have product market fit.
Many seed investors will give you bad advice when it comes to this. They will try to create a time constraint runway for you to achieve the metrics to raise a series A and within this constrained timeframe, you might hire and spend and sell too quickly.
It's far better to start with a core team and add to it only as your confidence in your value proposition increases. When Sarah and Nirav created fan base, value hacking hardly happened at all.
The idea seemed so good on the surface that it seemed dangerous to emerge from stealth too soon. So, value hacking occurred largely in a bubble, which basically means it was skipped.
Ironically, everyone knew what Nextdoor was up to, but mindless competition wasn't an issue because people were skeptical of the idea. Sarah showed example after example of how so-called experts told her they were building the network the wrong way.
They were not following the traditional playbooks for building networks rapidly. The network was built neighborhood by neighborhood, which limited viral transmission.
Many of their approaches were frowned upon by the Insider class of San Francisco startup types, but the people who mattered, the users provided a different path to the light. Never skip value hacking.
I've been in board meetings of startups that didn't have product market fit in spite of a high burn and some board members suggest we need a growth hacker. This advice was wrong.
The startup needed a value proposition.
So when do you start to think about growth? The answer is after you believe you have proven your value hypothesis. You start by creating some low-cost growth hacks to test your growth hypothesis, but you are still not ready to go all in on pushing the accelerator.
You want to test a few different sales techniques or growth hacks depending on your market and product category, you want to build confidence that you're ready to grow before you escalate your commitments to grow.
For Sarah and the Nextdoor team, a great example of growth test was the decision to partner with the government and police. She knew by then that they needed a fly wheel to help spread the word organically, but she waited until she had high confidence that she'd proven the value hypothesis.
She knew that partnering with the police and government be hard to backtrack from. When you are working with organizations like these, you don't get many chances at the plate. When you swing, you can't just nick the ball, you have to crush the ball.
So as you move towards greatness in your startup, I hope you will always remember to heed the lesson to hack value before hacking growth. If you get it right, it'll be your superpower.