Growth is a critical yet challenging aspect for entrepreneurs launching a startup, and it’s also a complex metric to track for potential investors. To gain a deeper understanding of this crucial element of entrepreneurship, we turned to Carlos Upegui, the Head of Growth at Frubana, a rapidly growing B2B marketplace that connects restaurants and retailers directly with growers and manufacturers.   

A common misconception among many is that a good product alone guarantees a successful company. However, a good product is just one piece of the puzzle. If you’re serious about business growth, you need to shift your focus towards distribution. Distribution channels are the linchpin for company growth and, as Peter Thiel pointed out, “poor distribution—not product—is the number one cause of failure.”

For a startup to grow successfully, it’s essential to allocate resources, build a dedicated team, and concentrate on acquisition and retention. Growth isn’t easy, but by focusing on the following concepts when developing a growth model, you can devise a more effective strategy that could elevate your business to the next level. If you’re an investor, these tips can also guide you in asking the right questions before deciding to invest.

Carlos emphasized that the three pillars of a successful growth strategy are monetization, acquisition, and retention & engagement. He particularly highlighted user retention, stating that “retention separates category leaders, regardless of the industry.”

A successful growth model must be systematic, deterministic, and sustainable. It should be methodical and repeatable, not just a random collection of ideas. It should allow us to predict with high certainty the outputs our inputs will yield, enabling us to plan effectively and forecast potential results. Lastly, the model should have the capacity to accelerate over time, with a focus on retention rates.

Retention is a key determinant of whether our model is successful. It’s simply how many users remain active over a certain period of time after a specific action. If retention rates are poor, it’s advisable not to proceed with investment as the company will likely collapse. This metric also helps us gauge our position in our market.  

In conclusion, Carlos went on to offer up 5 important tips relating to retention, acquisition, and fundraising to drive successful growth:  

1. Prioritize and Understand Retention: Retention is the key to becoming a category leader. From the early stages of your company, pay close attention to retention and spend time defining your retention metric correctly. For example, if you run a subscription-based service, your retention could be measured by the percentage of customers who renew their subscription each month.
2. Improve Retention through Engagement, Activation, and Reactivation: To enhance retention, focus on these three areas. For instance, you could engage users with regular, relevant content, activate them through personalized onboarding experiences, and reactivate inactive users with targeted outreach or special offers.
3. Balance Breadth and Depth in Your Business: Aim to build a business that not only reaches a wide audience (breadth) but also deeply engages with that audience (depth). For example, a social media platform might have millions of users (breadth), but the depth could be measured by how many of those users are active daily and how much time they spend on the platform.
4. Optimize Acquisition and Understand Its Connection to Retention: Focus on a few effective acquisition channels, which should make up the majority of your acquisition. Also, understand the connection between acquisition and retention. For example, if you acquire customers through targeted online ads, but they don’t stick around (low retention), you may need to reassess the messaging or targeting of your ads.
5. Be Strategic About Fundraising and Valuation: Don’t rush to raise series A funding until you have demonstrated good retention. Also, be cautious of unnecessarily high valuations. For instance, if you’re offered a high valuation but haven’t yet proven your business model or shown consistent growth, you could be setting yourself up for challenges in future funding rounds.

This page was written by Jeffrey Camp.