The misunderstood growth of the Internet

The management of many companies may have this perception: "If you occupy the traffic entrance, any business will be easy to do." This is like a person burning incense to Buddha in a temple, thinking that burning incense and making wishes can solve disease, poverty and unhappiness.

According to this logic, why does Baidu have a search portal but sells its food delivery to Ele.me, and is not as good as Tencent in social networking?

According to this logic, the Buddha did not need to ask questions 2,500 years ago to help five practitioners understand the essence of practice, that is, "the five aggregates are all without self and impermanent." As long as one gives enough money and makes a wish, one can buy a body that will last for a thousand years.

Companies pursue traffic entrances and permanent growth just like they pursue an indestructible body that will last for thousands of years, forgetting that the essence of business growth is innovation, and the essence of spiritual practice is enlightenment.

Let us think about it. When Peter Drucker, an important management scholar, put forward the phrase "no measurement, no growth", the Internet had not yet appeared, and there was no cloud computing and big data. However, the term "growth hacker" has become popular in China in recent years with the rapid increase in Internet practitioners.

This is something worth pondering.

I took some time today to review the views of Professor Clayton Christensen, the famous author of "The Innovator's Dilemma", in the "Where Grow Comes From" episode of Talk with Google.

The first thing he said to a bunch of talented Google programmers and product managers in the audience was, "I envy Google's achievements, which are unprecedented in human business history." The second thing he said was, "We have experienced nine recessions since World War II, and the most recent one took six years for the economy to recover to the point where we needed to hire more people to get the work done." [Of course, this was before Covid-19]

If you ponder this sentence carefully, you will understand that after every recession, there will inevitably be a group of once-glorious companies that will never recover or even completely disappear from the market. Then, those companies with sufficient cash reserves and innovation will continue to drive the economy forward by integrating existing markets and creating incremental markets. This is "impermanence."

Clayton proposed that innovation is the core driving force of growth, especially products that are needed for humans to complete various social responsibilities, production tasks and survival tasks, which can continuously produce phenomenal high-quality companies. This is the "cultivation" of the company.

I summarized the four categories of innovation from his talk:

Potential products – products that no one has invented yet – like a car that folds up automatically and fits into a backpack (just kidding)

• Continuously improving products – such as iPhone 12
• Disruptive and new growth market products – such as the first iPhone, Google’s AdWords advertising service
• Innovations that greatly improved efficiency – such as the telegraph and telephone

Historically, the more common situation is that in most industries, every 20-30 years, some once-glorious companies will fall into decline or even close down completely, and then a group of new companies will come to replace them. The new entrants often develop new products and services through investment in technology, capital, etc., such as Clubhouse, which has become popular in the venture capital and Internet circles in recent months.

Therefore, the most essential growth strategy that companies need to consider is definitely not the popular "growth hackers" and "traffic portals", because focusing too much on marketing and traffic will make us forget that the essence of growth comes from satisfying people's needs to complete tasks in a more effective and valuable way (this is constant).

1. Misunderstood corporate growth

Looking back on my experience of guiding and supporting the product operations and growth teams of hundreds of companies in designing business growth strategies over the years, I have to say that the concept of "growth" is actually misunderstood.

If a company understands growth as acquiring traffic, placing advertisements, and doing some awesome marketing activities to gain exposure, it will often fall into the fantasy of relying on continuous financing in exchange for superficial prosperity or naively believe that it can suppress its competitors by waging a public relations and advertising war.

Thinking about these cases will help us realize that relying solely on traffic is powerless:

1. Uber's business failed to survive in the Chinese market despite burning money
2. Baidu Waimai, which was supported by traffic, was merged with Ele.me
3. In the early days of WeChat, when there was no verification that it could grow spontaneously, it waited until version 2.0 saw a spontaneous growth trend before it started to promote it.
4. Bilibili has grown from a product for a niche group to a public company
5. Pinduoduo, which has been severely hacked by its competitors, continues to expand its territory

There are many positive and negative examples. It is said that all happy families are similar, but each unhappy family has its own misfortune.

If we want to find similarities, we should go back to the essence of business management: find the cause and understand why.

An example of a business growth misunderstanding:

Once, the growth department of a company came to me and said that the company had encountered a bottleneck in growth and hoped to find a solution.

The head of the department, who is known as a "growth hacker", listed some of the traffic projects they are currently working on as follows (I have hidden the real data, but everyone can take a look at the ideas):

First of all, the team dug up a large number of industry-related keywords as the data basis for acquiring traffic, which is ok.

The following traffic projects then began (the department gave me some examples):

1. Zhihu

1) Mass reply

Method: Grab relevant, high-volume, and low-answer quality questions, give brief answers using a pseudonym, and direct traffic to the landing page

Hitting the ceiling:

• The traffic will decay, so you have to keep doing it.
• There are very few high-quality questions, which may be related to the nature of the business.
• Zhihu's risk control model is becoming stricter, it is becoming more difficult to cheat, and more accounts are being blocked

2) High-quality answers

Method: Grasp relevant, high-volume, high-quality questions, write high-quality answers, direct traffic to the landing page, buy reposts, comments, likes and top posts

Hitting the ceiling:

• The traffic will decay, so you have to keep doing it.
• There are very few high-quality questions that are relevant, have high traffic, and have few answers. This may be related to the nature of the business.

2. Baidu Mini Program

Method: Take advantage of the bonus period of Baidu Mini Program and rely on large-scale crawling for SEO

Overall ceiling:

• The only project similar to SEO that has a slow decline in traffic after one operation is Baidu Mini Program, which is also SEO in essence. If other projects are not carried out, the traffic will decline quickly and cannot meet the company's traffic growth requirements.
• Today’s growth hacking departments are actually just trying to find ways to attract traffic from outside the site, without fundamentally thinking about core tasks related to the company’s overall growth strategy, such as product innovation and operational promotion.

In fact, the above traffic diversion work is still valuable. As long as it can be scaled and automated, it can save a lot of traffic operation manpower (while requiring a certain amount of development resource investment), and it is still needed for some startups with limited resources.

However, the core problem of this company is that it has a distorted understanding of "growth", which leads to problems in the definition of the functions and core work of the growth department. It can be further discovered that the company must have problems with its organizational structure design.

Management is obsessed with channels and gameplay, forgetting that the official gameplay of the channels is essentially the methods and routines to help the channels make money.

For example, Baidu teaches you how to do SEM, with the aim of getting you to spend more money on keyword advertising. Of course, in order to obtain SEM traffic, you need to learn this method, but it is not the case that once SEM is done well, the company can sit back and relax.

For example, in the process of Ctrip's growth into a leader in the tourism industry, it not only increased traffic, but more importantly, it put a lot of effort into products, user insights, service quality, and upstream and downstream resources, and more and more management positions were held by technical R&D personnel.

For growth, the most advanced approach is to integrate traffic growth mechanisms into existing products (learn from Pinduoduo). Secondly, at least the operational strategy needs to be data-driven (such as Luckin Coffee). Companies should make more efforts in this direction. To be able to do this, it depends largely on data-driven decision-making methods. Of course, only very senior industry people can directly understand the decision-making (but they still cannot avoid subjective cognitive biases).

In terms of management, if you want to establish a scientific process and system for managing growth, you need to adjust the internal organizational structure, scientifically design KPIs corresponding to each function, or manage it in an OKR manner.

for example:

• Define the success indicators for the company and users respectively and then break them down into various functions. This makes it easier for internal recognition and execution; random organizational structure adjustments may not necessarily solve real problems.
• Or after clarifying the OKR, everyone can discuss around the methodology, such as how to increase the volume, whether to spend money and how to spend it, or to generate natural traffic (cheap traffic) and how to do it? Whether it depends on channel content construction or social relationship conversion, this is the only way to truly land
• Pay attention to traffic, but don’t be obsessed with traffic acquisition
• It takes enough time to study user experience (which can also be quantified) and service quality (which can also be quantified).

Especially for the middle and senior management of enterprises, some aspects do need to be strengthened in order to cope with the ever-increasing "cultivation" requirements of enterprise managers due to technological progress, such as:

1. Characteristics of various decision-making methods in enterprises
2. The core role and principles of data-driven decision-making
3. A new framework for business operations empowered by data
4. The core idea of ​​data-driven development: correlation conclusions and commercial applications
5. Understanding the strategic value of enterprise data-driven development in the mobile Internet ecosystem
6. Optimization of organizational structure and management process driven by data
7. Scientifically create a management method to continuously discover business opportunities
8. How to select customer groups and business growth strategies based on data insights
9. How to improve user experience and business value through experimentation and iteration

2. Correct Growth Methodology

In recent years, a large number of traditional enterprises have begun digital transformation. A very obvious feature is that a large number of business processes and service deliveries that were previously handled manually or using traditional information systems have been transformed to be completed through the provision of APPs and mini-programs.

At the same time, problems and challenges arise. After the online team is built and various marketing and product sales functions are launched, how to ensure that the company's management can change their mindset and use work models, processes and methods that conform to the laws of the Internet to achieve the company's new round of growth goals.

The company I work for here has a relatively clear definition: a consumer-oriented retail service company that needs to use a complete closed-loop online operating business system of its own to complete customer acquisition, user operations, marketing outreach, and sales services, and has a relatively rich product portfolio and business formats, rather than simply providing a single function.

According to the viewpoints I have put forward many times on different occasions, the first principle of growth can be referred to in the following figure:

• A: Top of Funnel: refers to the people at the top of the sales funnel that can be reached and the attention and traffic that can be obtained.
• B: Conversion path (or consumer conversion journey): refers to the consumer journey from front-end traffic to actual conversion.
• C: Customer loyalty: the vitality of a business over time.
• D: Scalability: Horizontal scalability - scale expansion; vertical scalability - expansion in segmented areas.
• E: Product core value and product experience.
• t: time

As Clayton mentioned in “Where Does Growth Come From”, innovation is the essence of growth. When it comes to the actual work of an enterprise, as I pointed out in the above figure, the key issues should be E and t because they are exponentials.

For example, Apple and Google are typical companies whose market power can be completely determined by product strength.

In the Chinese market, NetEase's Youdao and NetEase Dictionary Pen are a good example.

Judging from NetEase Youdao's Q4 2020 financial report, this is an absolute inspiration for all companies. It is an online dictionary product (website, mini-program, APP) that has been steadily building quality and reputation for many years. Through core translation technology, vocabulary and content advantages (such as a large number of Chinese translation entries of long-tail English words are included in search engines), it focuses on the task of users translating words and looking up interpretations more quickly and conveniently, and gradually satisfies all task scenarios such as instant translation on computers, mobile phones, and when browsing materials.

Youdao's Q4 financial report data is very good, with net income of RMB 1.106 billion, a year-on-year increase of 169.7%. The revenue structure is: learning services of 732 million, a year-on-year increase of 198.8%; learning product revenue of 237 million; online marketing service revenue of 138 million, a year-on-year increase of 39.9%.

If we take out the sales revenue of online education services alone.

NetEase's marketing expenses in Q3 were 1.148 billion and sales revenue was 955 million. Its marketing expenses in Q4 were 805 million and sales revenue was 1.119 billion. To achieve more sales with less marketing expenses, how to do better in renewal rate depends on the quality of products and content, and whether the customer operation strategy effectively meets the needs of customers, rather than simply playing tricks on channels.

To further judge the growth curve of NetEase Youdao, it is entirely possible that it can continue to rise by naturally providing book reading, online paid courses, etc. centered around English learning, through operational strategies and combining dictionary pens (a larger audience). This is the basic logic behind my optimism about NetEase Youdao, that is, to always focus on providing more effective and valuable task completion products and tools to gain room for growth.

Traffic acquisition and advertising are only a means to scale up after the product has been verified in the early market, not the goal.

If a company regards marketing as an end, it is likely to deviate from its core work, which is to continuously launch disruptive growth products to the market through creativity and scientific management methods.

3. 2 Basic Methods

1) For user acquisition (acquisition)

The main focus is on methods of acquiring traffic, and more importantly, on the correct understanding of traffic and its carriers, and combining one's own business to design various channel gameplay and strategic channels that suit one's own needs, especially in social environments such as WeChat. Traffic dividends are mainly concentrated on such mobile social platforms, which need to be explored and developed.

2) User Engagement & Retention

We can rely on data-driven methodology to find breakthroughs through reasonable goal setting, quantitative decomposition, correlation analysis and prediction, and data-driven processes for behavioral experiments, whether it is to explore the needs of existing users or optimize product services, and scientifically optimize activity and retention.

These two basic methods of attracting new customers have been used by too many public accounts, marketing accounts and books. Even some books that are obviously mainly about marketing have been given the name of data-driven, but in essence they still do not talk about product innovation and data-driven.

Therefore, I will continue to output some ideas on how to build correct cognition and scientific management based on data-driven.

In particular, it should be pointed out that:

At present, domestic product operations (online operations teams) generally need a more effective data-driven workflow to solve the shortcomings of planning operational activities and marketing strategies simply through the interpretation of data visualization results and personal experience (including conventional routines in the industry).

Secondly, the concept of data insight is also misunderstood by many people and is still at the stage of data visualization and data query. Operational personnel are limited by the cognitive upper limit of data visualization and are unable to quickly compare and discover the index ranking of factors related to the target indicators among hundreds or even thousands of indicators, and are unable to position data insight as the core work focus for achieving the target indicators.

Author: Gu Qing

Source: DTalks (dtalks)