Growth hacking wizard Nemo Chu's 4 phases of profit maximization

Master of profit maximization: 500 Startups Distribution Hacker in Residence Nemo Chu

Master of profit maximization: 500 Startups Distribution Hacker in Residence Nemo Chu

If you've got a startup, you've got something you believe in and want to share with the world. But simply sharing with your friends or family and then waiting for growth to happen naturally just isn't going to make you the big bucks. You're going to need a growth strategy, and that's where Nemo can help. 

Nemo Chu is Distribution Hacker in Residence at 500 Startups and cut his teeth on growth at both Bloomfire and Kissmetrics, not to mention his own e-commerce side hustle. At our recent BIG Camp event in Taipei (where 500 Startups Venture Partner Robert Neivert also taught us about pitching), Nemo shared his marketing experiences and explained how a barrage of different approaches can help us feel out the playing field. 

Nemo's 4 Phases

As Nemo explains it, many startups look at what successful companies are doing and think: “They’re doing something right. Let’s try it!” But it doesn’t always work like that. Perhaps you're borrowing ideas from competitors with more resources or more experience than your team has. Thus, you need to take a more strategic approach to choosing what to try. But how do you decide which tactics will likely yield the best results for your company? Nemo suggests this 4-step approach:

PHASE 1: DISCOVERY

It all starts with ideas. You're going to need lots of them, so here's Nemo's trick to extracting ideas from your team. You'll need a pile of sticky notes (lots of them!), plus some pens and a timer. Remember to include your whole team, since people with different expertise will be able to contribute from different perspectives.

Hot tip: Do NOT hire a dancing bear

Hot tip: Do NOT hire a dancing bear

Ask your team, “How can we get our idea to the largest appropriate audience?” Set the timer for 5 minutes, and set a goal of having each person write down at least 20 growth ideas (or more, if you're ambitious), with one idea per sticky note. Don't worry about what anyone else is writing, and don't tell yourself any idea is good or bad. Even bad ideas can spark good ones, so you'll want to write down everything that comes to mind. The goal is to get as many ideas as possible.

Done? If you're a team of 5 people, you've just come up with 100 new ideas within just 5 minutes! Excellent! 

But wait -- what are you going to do with 100 ideas? You can't use them all, so it's time to review. As a team, take a look at each idea and spend a few moments (but not too long!) sharing thoughts and feedback. For each idea, answer the following and write down a score from 1 to 4 in each corner of the paper (we'll get to the fourth corner in a moment).

  1. How cheap is the idea? Remember to think in terms of both money and time, and consider your team's experience. If won't cost much money, or would be quick and easy for your team, give it a 4. For example, “making a post on Reddit” is an easy 4 for someone who is already active on the site, but might be a 3 for a brand new user with no Reddit karma.

  2. How well does the idea scale? Can you do this over and over again, or is this a one-shot opportunity? Give it another quick score out of 4, and write the number in another corner.

  3. What is your gut feeling about the idea? Does the team think it will work, or does the idea seem like a dud? Score it again in a third corner.

Finally, add up the scores on each note, and put the total (out of 12) in the fourth corner. Arrange the ideas according to score, and you have the beginnings of a marketing plan! You'll be able to prioritize ideas based on the highest scores, and because the whole team was involved, everyone has a better grasp on why you've chosen certain strategies and dropped others.

Nemo recommends you repeat this process for 3 or more rounds each time you do this exercise. Your team will not only get better each time you do a round, but you'll be able to move on to the traction phase confident that you're currently all set for ideas.

PHASE 2: TRACTION

taiwan-startup-stadium-500-startups-nemo-chu-growth-hacking.jpg

Now you've started implementing some of your marketing ideas, and are starting to see some growth. That's great, but as Nemo points out, you need to focus your resources where you're getting the best results before you can truly maximize those results. In the traction phase, you need to take a closer look at what's working and identify WHY it's working so that you can replicate it. Here's what you do:

FIRST: Make a list of assumptions. Why do you think your first marketing strategy worked? It’s possible that your ad design was outstanding, you had some really catchy marketing copy, or maybe you hit the right target audience at the right time. 

THEN: Plan the quickest way to test each assumption you just wrote down and run A/B testing where possible. Make some different versions of your ads - change the text size or color, change up the marketing language - and do your best to evaluate the results. Nemo reminds us that accurately measuring effectiveness is no easy task, but keep yourself in the testing mindset: “Next time, let’s do the same thing, but just a little differently.” Once you’ve planned how to test these things quickly, try them out!

Moving on, you don't want to get too bogged down in vanity metrics like CTRs (click-through rates) and other data that "optimization" gurus like to focus on. “These can be a massive distraction,” says Nemo. Instead of optimization, what you're really after is maximization.

PHASE 3: MAXIMIZATION

Regarding CTRs and even revenue, Nemo explains: “None of those metrics mean anything if they don’t make you money." By approaching each growth strategy with the goal of maximization of PROFIT, you focus not only on keeping your business alive, but also ensuring growth. Recognize patterns and be observant. In the beginning, your focus was probably just on making potential users aware of your product, but now you need to maximize your ability to turn them into paying customers. Again, the focus shouldn't just be on revenue here. How much is it costing you to acquire each customer? What can you do to lower that cost and thus raise profit?

Unfortunately, maximization can be more difficult to track than the surface metrics mentioned above. There are a lot of metrics to go through, and there might be something less obvious that's preventing you from maximizing. But stay in the testing mindset, Nemo reminds everyone, and take the process one step at a time.

taiwan-startup-stadium-nemo-chu-500-startups-big-camp-distribution.jpg

PHASE 4: KING OF THE HILL

The concept of the children's game King of the Hill is simple: Everyone in the game battles to stay on top (literally). If you apply this strategy to growth, you can imagine each player as a different marketing channel. "Every time you invest in a particular strategy, what’s your return?" Nemo asks. When you’ve done your best to measure the values, the most profitable channel is your king of the hill. 

And then? You keep that king up on the hill if he’s making you the most money, of course - he validates your efforts! And when the king starts to weaken and stops bringing in maximal profits, it's time to crown a new king and throw your resources behind it. Don't rush to crown a new king with every downswing, but don't be afraid to toss a dying king that's no longer effective. Sometimes this may be outside your control, such as when Facebook changed how fan page reach worked, so use your best judgment about whether your king is still reeling in profits.

PRACTICE MAKES PERFECT.

Growth marketing all comes down to the business equivalent of muscle memory. The more you make use of the above phases, the more you practice getting your ideas on paper and putting your resources only into what's going to bring you profits.

"You know what’s better than being busy, and doing a lot of things to grow your business?" Nemo asks. "Doing the RIGHT thing to grow your business, a lot of the time.”

Recognize what’s important, understand what makes your business grow, and focus on it. Don’t give up!