How to Balance Scale with Innovation and Exploration in Growth Marketing

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Growing a business requires a robust, sustainable growth engine that enables strategic thinkers to plan with some degree of certainty. To build this marketing stack, however, requires time, investment and an understanding as to what the business objective really is.

I have always thought that building a marketing stack is similar to building an investment portfolio over time and managing it for growth over the long term.

This post will explain the similarities between investing in products and services as a business as well as growing a marketing stack from zero.

Why is running marketing strategies like running business strategies?

Businesses are geared to maximise profit and have many opportunities in which to invest.

In the infamous words of Warren Buffett:

“Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No. 1”.

A sensible approach to investing as a business is about mitigating risk as much as possible. There is (obviously) high risk in investing only in high risk ventures, but there is also risk in not investing in anything other than your current working portfolio (because this asset might tank and then you’re screwed).

This argument is easily transferred to building and developing marketing stacks and strategies for business. If you don’t invest in new channels/tactics/strategies other than those that currently provide a good ROI then performance will diminish as new channels emerge, customers move to new platforms, and more competition enters this channel or copies these strategies – all of which will erode your competitiveness – aka profitability.

Therefore, it’s important that a business is always ‘investing’ in new channels – aka traction testing. This will ensure your business doesn’t leave money on the table and get left behind.

BCG Matrix

There is a famous framework called the BCG Matrix (short for Boston Consulting Group Matrix). It helps businesses analyse their current investments into products/businesses/service lines.

It does this by breaking down these ‘investments’ into the following main categories outlined above…

Cash Cows

These are lines where a company has a large market share in a low growth market sector, yet one that generates a lot of money (as the name suggests). You might call this the bread and butter of a business, one where the business is mature, knows how the market operates and is maximised as much as possible.

Many people think these should be ‘milked’ but I don’t agree with this terminology. I prefer to think of this as ‘nurturing’ because ‘milking’ implies little to no investment. These areas should have adequate investment with both monetary and human resources to deliver and optimise over time. If you underinvest in these areas you are putting your main cash generator at risk of being ‘out-competed’ and made to be less profitable.

It should be noted that although these are seen as boring and ‘staid’ they are responsible for generating the cash required to compete. Without cash, you cannot be competitive in the more exciting growth areas of Stars and Problem Children (described below).

These are lines that hold a small market share in a mature, slow growth industry. They generally break even and from an accounting perspective are seen as worthless.

Dogs (or Pets)

These are lines that hold a small market share in a mature, slow growth industry. They generally break even and from an accounting perspective are seen as worthless.

Because they tend to reduce a company return on assets ratio, (a key metric investors use to see how well a company is being run) they are generally sold off.

Problem Children

This is typically where most businesses start off. Small market share in a high growth market.

The objective is to turn a Problem Child into a Star and eventually a Cash Cow, but that can be hard as competition is high in these high growth markets.

If these Problem Children do not become Stars they could end up as a Dogs.

Stars

These are the business lines we’re all trying to find, as these turn into Cash Cows. They are lines with a high market share in a high growth industry.

They take a sizeable investment to maintain/acquire market share as they will have to fight competition all the way.

As the industry growth rate declines (assuming they have managed to remain a leader in the industry) these lines will graduate into Cash Cows and become core revenue drivers for the business in the future.

So, to conclude…

A good business strategy should include Cash Cows as the main defensible revenue source, but investment needs to be made into Problem Children in order to find the Stars of tomorrow.

Unless a business is making these essential investments it will not generate future revenue streams and won’t remain competitive. In short, business performance will erode and the company will go out of business.

How does the BCM Matrix transfer to marketing and growth?

We can take this general framework provided by the BCG Matrix and transfer this into marketing and business growth.

So, what we want to do is make sure we’re investing heavily in the channels and activities which generate the majority of revenue (Cash Cows), whilst ensuring we’re also investing into new channels and growth strategies (Problem Children).

Once we find traction in a new channel/strategy we should then double down and turn it into a scaling marketing channel (Star).

As channel performance erodes over time, those channels should be retired from the marketing strategy or growth playbook (Dogs).

Many people refer to something called Paratos Law, where 20% of the work done generates 80% of the return. This BCM equivalent framework just takes this one step further.

At Rebelhack we typically allocate 70% of available resource into the Cash Cow equivalents. With this allocation of budgets we’re focussed on iterative performance gains and reducing the risk wherever possible.

The remaining 30% of the budget is then allocated to the Problem Children and Dogs. How this is split up will depend on what is going on performance wise, but we try and push about 10% into channel testing (ie testing into the Problem Children) and then the remainder into the high growth Stars.

It should be noted that with some young businesses there is no known Cash Cow, therefore, that remaining budget is held back until we find a Star – in which case we pile into it and scale the hell out of it.

This testing philosophy will require a business to embrace failure, as you will inevitably invest in channels that are Dogs! But, unless you test into Dogs, you will not find your future Stars, and you’ll end up with zero Cash Cows! Then you’ll go BUST!

Startups that fail to find the Cash Cow – fail.

“But, this is too simple!” I hear you shout. You’re right, there is another complexity when it comes to full stack business growth; the 3rd dimension!

The 3rd dimension of growth marketing

Say what? A 3rd dimension? – Yes, my friends…

Businesses need to think in 3 dimensions, as business growth also has the added dimension of the ‘sales/product funnel’.

When growing technology businesses there is an infamous framework called AARRR (or Pirate, as we like to call it). Dave McClure was the first (that I know of) to come up with this. Here is a well known video if him discussing it.

In short, Pirate Metrics focuses on separating a funnel into the following areas:

• Acquisition
• Activation
• Referral
• Revenue
• Retention

The challenge now is to link this linear view of full stack marketing with the linear approach of resource allocation.

A business, therefore, needs to be acutely aware of this and design an approach that takes all these dimensions into consideration.

A business should not try and optimise in 3 dimensions, 2 is hard enough! So, when thinking about growth in the ‘3rd dimension’ (aka AARRR) a business should only focus on the bottleneck. A bottleneck is described as the area of a business (using the AARRR framework) that is impeding growth.

It should also be noted that you can get saturation in a working funnel phase. For example, if you have a 15% conversion rate to user acquisition, pushing this to 16% will take a huge effort and a ton of traffic. In some cases you get the law of diminishing returns and it’s worth focussing on a lower performing part of the funnel.

Focus on the GOI (aka Growth On Investment) to optimise a product #fullstack

The diagram below shows how a business needs to think about its resource and budget allocation.

How does business maturity affect this?

The 4th dimension! Wait, NOW you’re telling me there is a 4th dimension? #wtf?!?!?!?! Yes, it’s not over yet!

Typically, a large business should allocate about 70% of its resources to scaling and optimising its well known growth and marketing strategies. 30% should then be allocated to growth testing and experimentation.

But this resource allocation is on a sliding scale and depends on the stage of the business. If a business is more mature, this 70:30 rule is appropriate, but if you’re a young business you don’t know what growth strategies work for you yet.

With this in mind, there should be 100% allocation to testing. The job of traction testing (the rapid testing to find traction is a range of growth marketing strategies) should be to qualify a range of growth marketing activities (aka Problem Children and Stars) and push them through a quality gate into BAU (aka the marketing playbook Stars).

Moving from pure traction testing into full strategy management and optimisation is not an easy task. There are a range of operational and process challenges that businesses will need to overcome.

How do marketing activities graduate through maturity?

When you move a company from ad hoc testing into scaling, you need to focus on the following opposing characteristics of innovation and scalability, provided by Scott Brinker from his recent book Hacking Marketing (incidentally, one of the most insightful books I have read on agile marketing).

These are not insignificant differences, and so a business will have to make real changes to how it operates in order to make the transition. This can be a huge challenge for any business, especially early stage fast growth businesses because their team will be made up of those that can test but not scale. 

At Rebelhack we have both testers and scalers in our team so we are able to manage the transition smoothly – but it’s not easy!

So, how do you mature your marketing mix?

Scott Brinker again delivers a great way to think about this called the Five-Stage Maturity Model.

Ad Hoc

This is the phase of loose testing, where no formal processes or strategies have been defined. This is ultimately when a business is nascent in its marketing machine build process. It does not know what does/does not work. In this stage you want to cast your net far and wide, and you should be looking for some traction.

We define this at Rebelhack as a conversion rate of some kind. If you get a conversion rate, you have something to optimise. Obviously, you want to scale into those tests with more traction (i.e. a better conversion rate).

It’s worthwhile stating that in this stage you have no formal structure within your marketing strategies, but a business should have a formal process for testing. If you are simply testing, without form or direction a business will fail to find anything relevant and/or significant.

Businesses should formalise this process of traction testing.

This is the phase ‘brand new’ startups are in, so a process such as traction testing will be required.

Repeatable

In this stage, a business should have run some growth marketing tests and should begin to get an idea as to where there is traction and therefore what the basic structure within your marketing strategy looks like. For example, are you likely to grow via organic traffic, or social media. Or are you looking at a viral referral mechanic in the product.

Once you have this basic structure and range of unoptimised marketing strategies, you should begin to think about formalising your processes around them. In this phase it is to make sure that these processes are committed to and repeatable, if not optimised right now.

It would be in this phase a business can begin to think is recruitment requirements based on what it has learned as being important.

Defined

A business that has been repeating its working marketing strategies should be testing into these channels to scale them out, and will have found working tactics that need further work and resources. 

In this phase a company should be looking at documenting these working tactics and strategies, the processes required to make them repeatable and ensure performance is measured, consistent and communicated across the organisation.

Measured

In this phase it’s about quantifying the process and not just the performance. Examples here might be resource allocation, both in terms of money and time. Serious planning needs occur in this phase to ensure continuity of performance, making sure there are no operational bottlenecks to put a block on performance.

A business in this phase will also likely require Strategic Marketing Operations in order to ensure there are the supporting resources; human, financial and technology to deliver.

Optimised

This is the Cash Cow status, where a channel is fully optimised and consistently performs for the business. In this phase a business should be seeing world class performance, and fully understand the correlation between core growth levers.

Here we’re aiming for incremental gains, where a 0.1% gain is a big thing. Here, it’s about tight process optimisation, the use of leading-edge technology and highly sophisticated analysis to fully understand micro trends (e.g. time of day, day of week, attribution, creative fatigue etc).

It is at this level that businesses tend to need a high performance Data Strategy to compete.

Summary

Testing is an ‘always on’ activity within a business. The scale of resource allocation into testing will depend on the maturity of the business, with a young startup having 100% allocated to testing and a mature business a 70:30 split into rolling out its known playbook vs testing.

Young businesses are looking for their first known playbook, whereas a more mature business will be needing to discover the Stars of tomorrow.

Customers, markets and technologies change, and this means growth marketing strategies do to. What works for a business today, therefore, will not necessarily work next month. This is another core reason why more mature businesses need to invest in testing, so their current working strategies are not cannibalised leaving the business swinging in the wind!

Testing in a full stack approach should focus on the ‘bottleneck’ first, so that resources are not wasted and spread too thin. Focus on the easiest thing that will deliver the largest growth. We call this GOI (Growth on Investment).

If you’re a new startup, or a more mature business requiring a robust testing process get in touch with us, as it’s what we do at Rebelhack all day every day. We take businesses from exploration to exploitation, and help them develop their growth playbook’s over time whilst working to ensure we’re always testing to find tomorrow’s Stars!