IN DEGREE PROJECT MEDIA TECHNOLOGY,SECOND CYCLE, 30 CREDITS

, STOCKHOLM SWEDEN 2018

Growth hacking as a methodology for user retention in the entrepreneurial venture

A case study

VILDA SIURBLYTE

KTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF ELECTRICAL ENGINEERING AND COMPUTER SCIENCE

Growth hacking som metod för användarretention

i entreprenörskapet: en fallstudie

ABSTRAKT

Även om growth hacking är ett nytt koncept, har det blivit ett buzz-word bland företagare och nystartade företag.

Olika nystartade företag som använt growth hacking och uppnått omfattande tillväxt t.ex Dropbox, Uber och

Airbnb har alla förmedlat sina framgångshistorier. Men hittills har fokus legat mer på det praktiska i stället för

den teoretiska forskningen. Med så många nystartade företag som inte lyckas växa, är det viktigt att undersöka

tillväxtmetodik, som kan hjälpa unga företagare att framgångsrikt etablera sig.

Denna uppsats studerar growth hacking konceptet, genom att försöka förstå hur denna strategi fungerar och hur

det kunde användas för att behålla en användarbas. Med hjälp av en omfattande litteraturgenomgång, intervjuer

med företagare och en fallstudie, ger denna forskning (1) insikter i teorin om growth hacking och retention

marknadsföring, (2) exempel på dess praxis, och (3) en implementering av förslag har gjorts baserat på resultaten.

Resultaten av denna studie visar att growth hacking är ett brett begrepp och har många tolkningar. Growth hacking

ramverk har tillämpats i tidiga stadier på nystartade företag, dock har growth hacking koncept inte definierats,

liksom har det inte fastställts huruvida det är en relevant metod för att förbättra användarbevarande. I denna studie

upptäcktes det att growth hacking metoder kan förbättra utvecklingen av strategier för bibehållning av användare.

Dock måste growth hacking strategier vara skräddarsydda och anpassade till det entreprenöriella företagets

affärsmodell.

Growth hacking as a methodology for user retention in theentrepreneurial venture: a case study

Vilda SiurblyteSchool of Computer Science and Communication

Royal Institute of Technologyvilda@kth.se

ABSTRACTEven though growth hacking is a new concept, it has becomea buzz-word among entrepreneurs and start-ups. Various start-ups that have achieved extensive growth, such as Dropbox,Uber, Airbnb, have been sharing their success stories. How-ever, to date, the focus of this concept was more on the prac-ticalities instead of the theoretical research. With so manystart-ups that fail to grow, it is important to research growthmethodologies, that can help young entrepreneurs to success-fully establish themselves.

This paper studies growth hacking concept, by trying to under-stand how the growth hacking strategy works and how it couldbe used to retain a user-base in a start-up. With the help of anextensive literature review, interviews with the entrepreneursand a case study analysis, this research provides (1) insightsinto the theory of growth hacking and retention marketing,(2) examples of its practices, and (3) an implementation ofsuggestions made based on the findings.

The results of this study indicate that growth hacking is a broadconcept and has numerous interpretations. Growth hackingframework has been applied at the early stages of start-ups,however, the growth hacking concept has not been definedas well as it has not been determined whether it is a relevantmethod to improve user retention. In this study, it was discov-ered that growth hacking practices can improve to set up theuser retention strategy. However, growth hacking strategiesmust be tailored and adapted to the entrepreneurial venture’sbusiness model.

Author KeywordsGrowth hacking, user retention, growth, growth strategy,start-up development, entrepreneurship.

1. INTRODUCTIONMost of the early stage ventures do not need strong marketingstrategy or an expert who would manage marketing vendors at

the early stage of business. The focus of a recently foundedcompany is rather directed to growth. However, typically, start-ups have restrained resources for growing their user-base andretaining users. In 2010 this chicken and egg problem resultedin the emergence of a new concept called growth hacking.From then on, growth hacking is increasingly becoming tobe considered as an advantageous tool for start-ups or smallcompanies to accelerate growth [4]. Growth hacking helpsbusinesses grow without the typical growing challenges suchas additional staff or increased working hours. Moreover,implementing growth hacking methodology in the customeracquisition and retention process allows start-ups to attainusers with minimum or no costs [4].

Essentially, growth hacking is a framework for start-ups andyoung organizations to define a sustainable growth strategy.One of the most popular growth hacking examples is Dropbox(a cloud-based storage service). Growth hacking methodol-ogy helped Dropbox to discover an efficient way to grow thenumber of users via referral program. This referral programoffered for active users to invite their friends to the serviceand in return, the program awarded both users with more stor-age space. The approach to growing a customer base thatdoes not rely on traditional marketing plans, but rather aim toimplement marketing into the product itself is at the core ofgrowth hacking concept [4]. Most growth hacking approachesare heavily data-driven, which allows even the smallest com-panies to experiment with new features, branding or othermarketing tactics. The nature of growth challenges may varybetween start-ups and organizations, strategies and businesscontexts. Most of the entrepreneurial companies start from ob-scurity and must establish a growth strategy as well as preparethemselves for managing user retention as soon as the firstcustomers show the interest. Growth hacking seems like an ef-fective strategy to achieve fast growth, however, to date, therehas been limited focus on growth hacking as a methodologyfor retaining users and driving sustainable growth.

This project aims to delve into growth hacking concept, tounderstand how this strategy works and how it could be used toretain a user-base. The main research question is: can growthhacking method help start-ups to retain users and whetherapplication of these methods can lead to a sustainable start-upgrowth? My objective in this study is to outline the essentialset of insights into growth hacking and user retention and to

provide experience-based guidance about the actions requiredfor a start-up to grow.

2. THEORETICAL BACKGROUNDIn a start-up, the focus is narrow, the commitment of time andresources are limited, and the economic risks are modest. Toprogress, start-ups must have growth as a central goal.

2.1 START-UP GROWTHOver time, various frameworks have defined the exponentialgrowth in start-ups. Steinmetz [17] and Kroeger [9] stated thatmanagerial roles and functions must be developed gradually atdifferent growth periods; Greiner [7] describes growth modelas a set of different phases: creativity, direction, delegation,coordination, collaboration, and alliances. All these phasesare followed by a different crisis, respectively: crises of lead-ership, autonomy, control, and bureaucracy. The extent ofgrowth is dependent on the organization’s ability to adapt andevolve. Picken [13] stated that there are four stages in the lifecycle of an entrepreneurial firm: startup, transition, scaling,and exit. Successful growth relies upon accurate business con-cept definition at the early stage and ‘laying the foundation fora scalable enterprise during the period of transition is equallycritical’ [13, p.588]. Another author, Ries [15] created a leanstartup growth framework that is based on continuous innova-tion and feedback loop. Lean startup model has three parts:build (turn ideas into products or services), measure (exam-ine how customers respond to the products or services), learn(adapt and/or pivot based on the findings). Ries [15] growthmodel has most relation to growth hacking framework that El-lis [4] has established as both models position experimentationand testing at the core of the growth strategy.

2.2 DIFFERENT TYPES OF GROWTHEntrepreneurial companies strive to grow in terms of the num-ber of users. However, Currier [2] stated that even thoughstartups are usually aiming for acquiring new users, they mustdetermine what type of growth is needed. He identified differ-ent types of growth in entrepreneurial firms:

• top-line growth (new customers who started to use a prod-uct).

• activated growth (customers who used a product understoodthe value that was offered).

• retained growth (customers who understood the value of aproduct and used it more than once).

• monetized growth (customers who used a product more thanonce and paid for it).

Currier [2] expressed that at the early stages of growth theentrepreneurs should focus on retained and monetized growthtypes out of all growth choices as these types of growth arethe most profitable. Also, he adds that if approached properlyall of the growth patterns can be replicated.

2.3 USER RETENTIONMany entrepreneurs see growth as the acquisition of as manycustomers as possible, however, attracting customers does not

ensure a long-term growth [16]. A recent study showed that amere of 20% of new users kept using a mobile phone app morethan three days later after downloading it [1]. This shows thatif the value is not presented to the users’ habitual experiencesand it is not expressed clearly in the early stages of a customerjourney, the users will churn. Therefore, the acquisition ofusers might cause a temporary growth but ‘long-term growth,as well as the health of a business, depends on how well youretain users’ [16, p.7]. Moreover, Reichheld and Sasser [14]found out in their study that increasing user retention does notonly drive a sustainable growth but also increases the revenueand profitability. ‘Companies can boost profits by almost100 % by retaining just 5 % more of their customers’ [14].Additionally, Reinartz et al. [18] research have emphasized theimportance of user retention as their research showed that aninsufficient user retention strategy has a significant influenceon a long-term customer profitability.

2.4 USER RETENTION RATEWhile the importance of user retention is clear, the measuringand tracking the retention rate can be challenging. Some re-sources [1] suggest tracking Daily Active Users (DAU) andMonthly Active Users (MAU), however, these metrics mightnot provide an insightful information about the rate of reten-tion. Correct retention rate requires a clear ‘frame of reference’[3] of who your retained user is. Egan [3] claims that the re-tention metric can be defined by determining whether the userchose a particular product/service to resolve a specific problemor need that occurred. As most businesses’ core operation ishow it creates a value proposition to the customer, start-upsshould measure the retention rate by determining how oftencustomers are likely to face the problem that the business istrying to solve [3]. In this way, user retention rate relates tothe natural use of the product or service.

2.5 RETENTION DRIVERSEven though many companies try to improve the growth interms of user retention, it is difficult to understand the com-plexity of user retention and what factors it is impacted by.Gustafsson et al. [8] suggest that customer satisfaction, ef-fective commitment, and calculative commitment are threecentral predictors of a successful user retention. In addition,some researchers, for example, Lewis [10] argues that loyaltyprograms increase the number of repurchases. Other authors,such as Ellis [4] present a set of user retention drivers (see Fig.1), and puts an emphasis on building habits, improving theproduct/service and creating a value proposition.

2.6 GROWTH HACKING PARADIGMThe growth of the Internet in the early 90’s has changed themeaning of products and their distribution. The online marketexpanded product distribution outside the product as potentialcustomers gained the ability to reach the product via digitaltools: Search Engine Optimization for a better online visi-bility; social media networks, content marketing, etc. [12].The quantity of other online means designed to massively dis-tribute products opened up a lot of opportunities to acceleratebusinesses’ growth. This resulted in product features being‘directly responsible for growth’ [12]. New types of products

Figure 1. Retention drivers (adapted from Ellis [4])

required different business models, marketing, and growthstrategies rather than traditional brick and mortars.

At the early stage, start-ups lack resources and budget neededto accelerate growth using the traditional marketing tactics,therefore, entrepreneurs had to find methods to hack thegrowth. A growth hacking term was introduced by Sean Elliswho successfully executed successful growth strategies formultiple start-ups in Silicon Valley, in 2010. Ellis [4] definedgrowth hacking as a methodology for an efficient way to ana-lyze data and apply it to derive significant, up-to-date insightsinto customer behavior that can be adapted to data provedstrategies to improve company’s growth. Consequently, suchinsights lead to discovering features that create value for thecustomers and allow reaching the customer in new ways thatare not only cheaper but also more effective.

In the ‘Hacking Growth’ book, Ellis [4] presented a growthhacking team model, that many small-scale start-ups startedto follow. According to Ellis [4] growth hacking teams do notfocus on marketing and product/service exposure to the marketas the traditional growth teams do but rather aims to connectvarious departments and embrace a multidisciplinary approach.Therefore, growth teams are involved in product developmentand optimization, data analysis and customer behavior anal-ysis, as well as in planning how to achieve a product/marketfit [4]. Such cross-functional teams are designed to dedicatemost of their time to build up a valuable product for customersand discover the most efficient ways to continuously offer thatvalue. Processes that enable to establish a long-term growthinclude rapid experimentation, structured data collection, in-terpretation, and validation.

2.7 GROWTH HACKING MODELAn ultimate growth hacking model can be described as afive-step funnel [11]: acquisition (new users); activation (cus-tomer accounts and log-ins); retention (repeat use of prod-ucts/services); revenue (paying customers); referral (growthvia word of mouth). All parts of the growth funnel are interde-pendent. While user acquisition can boost growth rate for awhile, it will not be sustainable if activation and retention areinefficient. For this reason, every phase requires a differentapproach to growth and skill-set [11].

2.8 PROCESS OF GROWTH HACKINGEllis [4] described growth hacking process as a set of fourcontinuous steps: (1) data analysis and insight gathering; (2)

idea generation; (3) prioritizing experiments; and (4) carryingout the experiments. After all four steps are completed, theresults are reviewed and the next steps are decided [4, p. 43].Growth hacking process is designed to reduce the complexityof business operations and to focus on one of the key metrics -growth. Ellis [4] called it ‘the North Star metric’ which can bedescribed as a fundamental growth equation, which includeskey elements of driving company’s progress. The North Starmetric equation includes all data that is needed to measurethe amount of growth that is generated in the specific periodof time. For example, Uber’s (shared transportation service)North Star metric unit is the rides booked, Airbnb’s (shared ac-commodation service) - the nights booked, Facebook’s (socialmedia platform) - the daily active users because more usersand more bookings lead to a higher growth rate.

According to Ellis [4], the growth hacking process consists offour steps:

• Analyze customers behaviors, characteristics and the factorsthat cause customers to churn.

• Ideate, brainstorm and collect various ideas that could be im-plemented to accelerate growth. The ideas should vary fromdesign ideas to business concepts. Collaboration acrossdifferent teams is the key tactics to achieve the productiveand effective ideation process.

• Prioritize the ideas by setting ICE (importance, complexity,ease) score. Each of this measure is rated from 1 to 10.Consequently, a higher number of the overall score indicatesa higher priority.

• Testing ideas that have the highest ICE score and designingan experiment to produce statistically valid results. ‘A poortest is a one less opportunity to learn, slowing the teamdown, and bad data can send the team down a very wrongpath’ [4, p. 131].

Once the ideas, data, and learnings that were collected areanalyzed, they should be well documented. After the firstround of growth hacking process, the growth team starts re-turns to the first step and starts generating new ideas based onthe learnings. By doing this a continuous growth hacking loopis created. Growth hacking process requires entrepreneurs tostay agile as it is hard to predict which experiments will be themost efficient. It is important to be data-driven and continu-ously modify experiments according to the new discoveries aswell as try new tactics and strategies [4].

2.9 GROWTH CHALLENGES IN START-UPSGrowth is one of the major entrepreneur’s challenges, espe-cially at the early stage of the venture. Companies either donot have any prior knowledge of which data to gather, whichmetrics to track or have disintegrated teams that are unable toact on growth issues that arise [6]. Furthermore, entrepreneursstruggle to find an efficient way to use customer data thatthey collect [4], which can lead to an inability to meet theproduct/market fit.

As user retention is a part of overall growth, it oversees similarchallenges. In terms of user retention, entrepreneurs struggle

to determine when they need to set up user retention strate-gies and what the best method for reducing customer churnis. Overall, the goal of any business is to create a new marketfor customers. Thus, the rate of new users that were lost ischallenging for most companies, because the more the en-trepreneur spends to acquire new users, the more expensivethe customer churn becomes [4]. Essentially, this fact makesuser retention the most important factor in terms of growth.

Many new ventures fail to overcome these challenges. Suchfailures lead to the business stagnation and eventually to thebankruptcy. This project aims to research whether growthhacking methods can help entrepreneurs overcome such chal-lenges and turn their startups into profitable companies.

3. METHODOLOGYTo examine how start-ups can integrate growth hacking meth-ods into their user retention strategy, a two-step process hasbeen completed during which qualitative data was gathered onhow different start-ups used a growth hacking strategy to growand retain their user-base.

First, a pre-study of the growth hacking topic including anextensive literature review was carried out. The pre-studyhelped to define a research question for the project as well as atheoretical framework regarding the growth hacking strategy.

Second, qualitative interviews with marketing and growth pro-fessionals who have experience working in start-ups as well asCEO’s of different technology-based start-ups were conducted.In total twelve participants were interviewed. The interviewswere semi-structured as the aim of the interviews was to gatherqualitative data on the interviewees’ experiences and insightinto the growth hacking and user retention strategies.

The interviews were held in person or over Skype (onlinemeeting tool) and lasted for approximately 30 to 45 minuteseach. Most of the interviews were recorded and transcribedto structure and better understand the qualitative data, exceptfor the occasions when the recording was not permitted bythe interviewee. Before the interviews, the respondents werefamiliarized with the topic of the research and key questions.The interview questions were aimed at gaining a better un-derstanding of how the growth hacking strategies are beingused by start-ups to retain users, and at finding the examplesof growth hacking strategies being applied in practice. Theresults of the interviews were analyzed, mapped and ultimatelycompared to conclude whether user retention can be improvedby using growth hacking methodology.

4. RESULTSIn this chapter, the outcome of the applied methodology ispresented and analyzed.

As growth hacking is a relatively new topic in the entrepreneur-ship field, answering the research question requires insightfulinformation from practitioners. Twelve experts in marketingand growth fields were asked their opinion on whether growthhacking methodology is used in their working environment,on how it is applied to manage user retention and on howgrowth hacking can help to improve sustainable growth andretention. All interviewees were familiar with the concept of

growth hacking, however, not everyone has applied it to theirstartups’ growth strategy.

After conducting the interviews and analyzing transcripts, thekey concepts and factors were identified. With the help of thequalitative interviews two main factors that influence start-upgrowth were identified. A growth strategy and a retentionstrategy were both identified as separate but equally importantbusiness growth aspects (See Fig. 3).

4.1 GROWTH HACKING STRATEGIES IN LITERATUREGrowth hacking framework is new in the entrepreneurshipfield; hence, no relevant information was found in databasessuch as Google Scholar, ScienceDirect, and Web of Science.Therefore, the selection of the authors to analyze was madebased on entrepreneurial experience. The authors who hadexperience working in Silicon Valley were chosen. SiliconValley was selected because it is the place where growth hack-ing framework was found and because of its similarity toStockholm’s start-up ecosystem.

The results of how growth hacking is perceived and adaptedto user retention by authors: Ellis [4], Fong and Riddersen[6], Ries [15], Currier [2], Patel [11], Eyal [5] are presented inFigure 2. All authors stated that growth hacking is a valuableframework for entrepreneurial companies, especially at theearly stage. According to analyzed authors, growth hackingis a systematic plan of actions, however, concepts vary fromauthor to author (See Fig. 2). Findings show both similaritiesand differences in how growth hacking can be applied to userretention strategies. The data-driven approach was describedas a central element in the growth hacking strategy by mostauthors. Authors also agreed that user retention is a long-termgrowth; it takes more time and planning in comparison toacquisition growth. Additionally, most authors discussed andpresented various tools and frameworks that should be used foruser retention; that is where most of the differences appeared.Some authors [4, 5, 15] argued that forming customers habitsand engaging them lead to major improvements in the userretention rate, while others [2, 11, 6] had different opinion andclaimed that tools such as email marketing, drip campaigns,surveys can increase the number of retained customers.

4.2 GROWTH HACKING PRACTICES IN PRACTICETo verify the practices described in the literature review, in-terviews with experts and practitioners were conducted. Tran-scriptions of the interviews were analyzed using MAXQDA- a program designed for analysis of qualitative data. Quali-tative data was grouped and coded by individual keywords,i.e. different topics, factors, and outcomes. As a result, twoseparate topics were identified: growth and user retention.Such separation was made according to the experiences of theentrepreneurs, who stated that growth and retention are inter-connected, however, they are two different issues. This matterwill be further discussed in 4.3 section. Both topics containedvarious codes (keywords); their importance was weighted asper the number of opinions expressed by the respondents. Allcodes that were identified are presented in Figure 3.

Figure 2. The results of literature review indicating different growth hacking methods that have been used for customer retention

4.1.1 GROWTHThe most important keywords and outcomes collected duringthe interviews were selected and presented. The selected ac-tions were mentioned by most entrepreneurs as vital elementsfor hacking growth.

Action: Learning by testing. Most of the respondents identi-fied that growth hacking is a set of data-informed, validatedand measured experiments that are all aimed at the prod-uct/business growth, or product/market fit.

Outcomes: ‘Growth hacking is full of constant testing. En-trepreneurs need to get an idea out there, measure it and learnwhat sticks in terms of growth and product development. Oncethat is achieved, the strategy is to do more of what sticks andless of what does not’.

‘Our product is un-scouted territory as we are trying to dosomething that no one did before. Without failed attempts,we would not have the operational knowledge that we havetoday’.

Action: Creating products that customers love. Companiesrarely create products or services that do both - satisfy cus-tomers’ needs and create value. Building strong relationshipswith customers and creating user-friendly products requiresseries of processes, as interviewees identified:

(1) creating the proposition of value for users. All intervieweesconfirmed that the proposition of value must be at the core ofthe product development and business strategy. It was stated

that if a company does not have a specific value offer, it has tosell the problem that it is offering the solution to.

Outcomes: ‘When the first excitement burns out, then you mustthink about what value you are bringing, otherwise, customerswill lose the interest in your product’.

‘Customers do not care about your business, they only careabout the value you can give them. Furthermore, it is easierto sell a product that the customers want rather than havingto convince them to purchase it’.

(2) collecting feedback not only helps startups to understandcustomers’ needs and preferences but also positions themahead of the competition and to help them avoid assumptionsand bias about the product/service.

‘<...> when we only had a few customers, we tried to under-stand why they became our customers and used that informa-tion to attract other people as well’.

‘Our main task is to meet our users on a daily basis and receivea lot of feedback, this helps us to learn what are our customers’needs and demands’.

‘In the beginning of the product release, when we cannot gen-erate a lot of data, then we tend to have a close contact withusers and collect feedback from them’.

However, it was noted that collected feedback must be care-fully considered and filtered for the most relevant data.

‘There is a difference between what people say and do, there-fore, receiving feedback is good but we still have to relate toour business vision and mission’.

‘Feedback is great, but it is hard to know how much feedbackyou need to validate interpretations. We never trust the feed-back 100 %, we rather use the feedback to create a hypothesisand to experiment’.

(3) learning customer’s needs. Identifying customers’ needshelps startups to position themselves in the market and to cre-ate a demand for solving customers’ problems or eliminatingcustomers’ pains.

Outcomes: ‘We try to have a lot of interaction with the users inorder to understand what are their needs, where our productsfit in within their organization as an additional tool and howwe integrate with their processes’.

‘We continuously ask our customers where and when theydiscover the value within our service. The essence hides inan emotional not logical piece of their answer because onlyemotional piece creates a value proposition and hooks them’.

(4) communication with users. Having exceptional customerservice leads to higher customer satisfaction and constantfeedback loop.

Outcome: ‘With every new product release, we implement anonline chat, so if something does not work users can easilytalk to us. This is how we get a continuous feedback loop andwe know exactly what to improve’.

(5) understanding customers’ behavior. Interaction with userscan bring an understanding of what customers’ needs are andhow products/services complement to their lives;

Outcome: ‘After I talk with our customer, I try to narrow downwhat it is that they are asking for and most importantly why.My goal is to understand what is that they need, what do theywant to achieve with our product and how do we improve tohelp them to achieve that’.

(6) improving customer journey. Examining how customersinteract with the product/service help to understand wherecustomers fail or succeed in purchasing or using the prod-uct/service. Such observations lead to making an informeddecision while improving user experience and design of theproduct/service.

Outcome: ‘Knowing how customers use your offering, beingit a platform, product or service, usually gives significantinsights. In our company, we track and analyze the userjourney in order to see when and in which landing pages theyleave the platform, if they understand how to use it, if it waseasy to navigate’.

Action: data-driven approach. Carrying out data analysis re-garding marketing, customer behavior, and other key perfor-mance indicators must be at the core of any start-up.

Outcomes: ‘If you do not measure the data you are just assum-ing and guessing. Data is important to make decisions, takeactions and develop business’.

‘Before our biggest mistake with the growth was that we werenot so much data-driven, that was not good because we werenot reasoning behind the metrics we tracked, so we did notknow what we are doing right and what we are doing wrong’.

‘<...> we analyze how did the customer journey looks like,when did we talked with them, and what actions they did.Then we collect quantitative and qualitative data and shareinsights with the product team to acknowledge what needs tobe improved to get customers to stay longer’.

Action: Timing. Frequently, growth is dependent on timing,especially, if a start-up is presenting products/services that aredisrupting the market. Most of the respondents mentioned thatto be successful, an entrepreneur needs to have a perspectiveon the future trends.

Outcomes: ‘I think we are starting to achieve a product/marketfit right now, we have not had that last two years because thetiming was not right, and the market was not ready for ourproduct’.

‘We have been early to market with our product in many waysbecause traditionally security has been more of a reactiveapproach than a proactive approach <...>, but now it is morebrought up to the media and other channels, so people start torealize that it is a new threat out there and uses our service’.

4.2.2 RETENTIONThe most important keywords and outcomes collected duringthe interviews were selected and presented. The selected ac-tions were mentioned by most entrepreneurs as vital elementsfor retaining customers.

Action: face to face communication with customers. Stayingin contact with your customers, especially in the early stage,can lead to a significant growth in user retention later becausein this way the companies do not only show the commitmentto their customers but also express the importance of having astrong relationships with them.

Outcome: ‘In the early stage of our start-up we did a lot ofmanual interactions with people who were signing up. Face toface communication with our customers helped us shape ourplatform and avoid errors’.

‘We had a community event over the summer. Our customersfelt very special and we had a chance to have a real chat anda live feedback session’.

‘Be where your audience is, digitally and offline. Meetups?Cafe? You have to be where your users are’.

Action: Setting up and analyzing key metrics. Having an effi-cient data system can be challenging; respondents identifiedthat setting up data systems is a complex process, however,it is a must in every business. It is important to understandthat even after the data analysis is carried out, the results needto be evaluated in order to understand implications. By un-derstanding these implications companies gain an ability tosolve occurring problems and make critical decisions regard-ing product development and interactions with customers.

Outcomes: ‘Every product or service are being used in adifferent frequency, that is why it is important to define theright retention metrics. The companies must think throughwhat usage factors are important for them, how people relateto their product, and how they use it’.

‘Once you find the metrics that are relevant for you to track itis easier to understand customers’ behavior as well as whyand how customers are using the service’.

‘Our retention rate was not good because there was no reason-ing behind the metrics we tracked, therefore, we were missingout on a lot of valuable information’.

Action: Automization and customization. Being a customer-driven company has both opportunities and challenges. Meet-ing every customer’s request can require a lot of resources andefforts, however, customizing communication depending onsegmented customer features can provide a unique value tothe customers in an efficient and cost-effective manner. Forexample, using email automization for weekly newsletters oroffers.

Outcomes: ‘Talking about retention, one of the key things isautomation. Be it emailing or customer service or notifications.In this way, we can remind our customers the value we areoffering to them’.

‘That’s something we could definitely do better. I think we willbe working a lot on customization. Once you grow biggerit becomes harder to be personal with users, so automizedcommunication can be a good tool to keep the offering uniqueand customized for each user’.

Action: Customer behavior analysis. Interviewed en-trepreneurs expressed a high importance of analyzing useractions, especially if the product is online based. Learningwhat kind of experiences the customers have, how they navi-gate and what are the steps of their customer journey helps thegrowth teams to optimize the product/service, to develop theproducts and to understand the customers better.

Outcomes: ‘We make sure to do an analysis of why peopleleave without purchasing and how did their customer journeylook. This type of analysis helps us to learn what we needto improve to get a customer to stay longer and repeat thepurchase’.

‘<...> we are continuously analyzing different stages of ourproduct trial: when and what kind of information we needto send, how long should the trial last for, what should bedone during the trial, and how do we convey the importanceto continuously use our service. All these aspects help us toimprove the product and consequently user retention’.

Action: First-time user experience. To retain users, it is cru-cial to make a great first impression, otherwise, customersmight not give you the second chance. For this reason, thedevelopers should aim to create a user-friendly and clear ser-vice/product, as well as to enhace product functionality anduser engagement.

Outcomes: ‘Retention highly depends on the first user experi-ence because if customers did not have a good first experiencethey are probably not coming back’.

‘By establishing a great first-time user experience start-upscan improve the user retention significantly. If customers havea crystal-clear understanding of the product/service and seethe benefit you are offering they are more likely to stick aroundfrom the very beginning’.

Action: Nurturing the fan base. Respondents from the latestage start-ups stated that user retention is related to buildinga loyal community. Attaining customers who are already usedservice/product requires fewer resources and efforts as theyare already familiar with the service.

Outcomes: ‘We do many campaigns towards our fans becausethey are a living reflection of our service that can make aninfluence on others’.

‘Taking care and nurturing the fan base you have is alwaysuseful. They are usually first ones to try our new updates, wegive them new information and offers first. In this way, wemake them feel involved and increasing the likelihood thatthey will return and bring new users’.

‘People who already purchased once are normally cheap tar-get groups to gain. It is normally more expensive to reachcompletely new users who do not know your brand yet’.

4.3 RELATION BETWEEN GROWTH HACKING AND USERRETENTIONAs mentioned, after conducting qualitative research and an-alyzing interviews’ transcriptions, growth hacking and userretention were identified as separate strategies.

Respondents stated that the growth strategy is complex anddepends on many independent factors such as trends, timing,a speed of development, brand promise, product etc. (see Fig.3). User retention strategy was described as a set of toolssuch as establishing personal communication with customers,ensuring unforgettable first-time user experience, setting updata systems and others (see Fig. 3).

Even though two different strategies were identified, Figure 3shows the connection between the growth and user retentionin start-ups. While the growth strategy in the entrepreneurialcompanies focuses on product development, brand promise,value creation for customers and learning by testing, user reten-tion strategy establishes customer-centric approach. However,there are several touchpoints between the strategies, whichmeans that they are closely interconnected and interdepen-dent. For example, most of the respondents said that to retaincustomers, companies need to continuously remind about thevalue they are offering to the customer, which correlates withthe growth strategy of having a clear brand promise and de-livering it to the customers. Another tool for retention is apersonal communication that intervenes with growth strate-gies and helps to learn customer needs and behaviors; faceto face contact with customers ensures feedback loop that isneeded for growth; discounts/offers and customization con-tributes to creating added value for the customer; segmenting

Figure 3. The relation between the growth and user retention in entrepreneurial ventures (source: author)

customers helps to select different markets and to retarget dif-ferent user groups; creating great first time user experiencerequires high-speed development and troubleshooting; settingup and analysing key metrics demand tailored growth strategy,rapid testing and data-driven approach.

As the results show it is clear that growth and retention strate-gies are closely related. Both strategies are complex and con-sist of numerous independent actions that are recommendedby experts. However, the relation between them shows that byperforming particular features of growth strategy, user reten-tion can be improved. Especially, when performed features oractions are directly connected as shown in Figure 3.

4.4 COMPARATIVE DATA FROM OTHER CASESTo compare literature review results and the results that weredrawn from the interviews with practitioners, two businesscases were analyzed. Both companies used growth hackingstrategies to scale-up their startups from zero to a million users’companies.

1. Airbnb - online marketspace and hospitality business.Growth hacks: collecting customer data from already estab-lished companies such as Craigslist; early product/market fit;timing; unforgettable first user experience; lower price thancompetitors; integration with most popular social media plat-forms.

Airbnb was founded by acknowledging a clear need for hospi-tality service in the market. Founders of Airbnb tested Min-imum Viable Product (MVP) at the early stage and iteratedit continuously. While there are many opinions that Airbnbgrew because customers needed the service, it is also appar-ent that the timing was advantageous as sharing economy wasblooming. Furthermore, Airbnb hacked their user-base by inte-grating the platform with one of the biggest listing companies -Craigslist; and boarded customers from the listing platform tothe Airbnb. On top of that, once Airbnb started growing their

user-base, they established great first user experience, offeredcheaper prices per room than competitors and integrated socialmedia channels into Airbnb which did not only help to growvia word of mouth but also improved trustworthiness.

Currently, Airbnb’s growth strategy is building the entire hos-pitality brand by agitating their brand promise which offersthe room to stay as well as improves the overall travelingexperience by enabling to meet locals and get to know theculture.

2. Dropbox - cloud-based file storage business. Growth hacks:creating and testing MVP at the early stage; collecting po-tential customer data before the product was presented in themarket; referral program; timing.

Before the product was fully completed, the founder of Drop-box created a video prototype explaining how the productwould work, which earned a great flow of early adopters. Later,when the product was developed, Dropbox needed to amplifyearly adopters’ word of mouth in order to attract even moreusers, but they did not have any budget for realizing it. Shortly,Dropbox introduced a referral program that offered users anextra cloud storage space in exchange for referring a friendto the service, who would also receive the same value of thestorage space added to their account. This resulted in an expo-nential growth of Dropbox from a start-up to a million userscompany. This was achieved by figuring out what their userswould value the most and by enhancing that experience.

5. DISCUSSIONThe theoretical part of this study shows that growth hackingconcept has not been extensively analyzed. Various authors ex-plained how growth hacking could be used to retain users (seeFig. 2). However, the qualitative research and comparativebusiness cases show that growth hacking concept is broad andhas various interpretations. The main reason for this is that thegrowth is achieved by a combination of consequent hacks and

experiments, however, in most cases, it remains unclear whatexactly became an ultimate hack. The literature review showsthat growth hacking methodology can help start-ups to create aframework for the growth strategy but it is clear that there willbe as many different strategies as there will be start-ups whoare experimenting with it. That is why it is difficult to describewhat exactly growth hacking is because each company adaptsit to their own business model and needs.

The qualitative research helped to identify the important ac-tions in growth process as presented in the results section.The ease of growth process depends on whether a start-uphas product/market fit because the core element of the growthprocess is to create demand and need in the market. If theproduct/market fit is not reached yet then the growth dependson how well a start-up is able to sell the problem that theirbusiness is solving. Literature review and case studies con-firm that growth can be hacked by testing an early MVP andhooking customers into the product/service early. The resultsalso show that initial growth strategy creates the foundationfor the user retention growth. As user retention is a naturaluse of the product/service it is easier to retain the customer bydeveloping products/services that create value, than only usingvarious tools such as email marketing to sell a product that cus-tomers do not desire. Consequently, that is why user retentionis mostly driven by user-centric approach: personal commu-nication, offers, customization. Furthermore, the qualitativeresearch showed that relation between growth and user reten-tion strategies is so tight that the differentiation disappears.By setting the growth strategy and fulfilling main actions forcreating product’s that customers love which were shown inthe results section, in the long term it positively affects the rateof user retention.

Even though growth and user retention are closely related, theresults from respondents did not indicate actions of explicitgrowth hacking methodology as it is described in the litera-ture. Interviewed entrepreneurs, as well as comparative cases,showed that growth process must be tailored to each individualbusiness. It is not beneficial for entrepreneurial companies tofollow any methodology dogmatically. Entrepreneurs shouldtake parts of the methodology that seems to be valuable tothem, act on them and revisit, whether it works or not. Frame-works open a conversation and environment for interpretations.That conversation should allow entrepreneurs to help under-stand how to build products/services and business model forspecific growth model that they chose to go for.

Some parts of described growth and user retention actionsare included in growth hacking methodology; however, theycannot explicitly indicate that start-ups used growth hackingbecause those actions are what most start-ups do. Working atthe start-up, as most of the entrepreneurs stated is a learningexperience and without taking a specific approach or failingin some parts it might have been impossible to find the rightstrategy, or the right growth hacks because without specificlearning they would not have the knowledge that they haveachieved.

5.1 LIMITATIONSSince growth hacking concept remains new in the entrepreneur-ship field, there is an extensive limitation on the literatureavailable. As a result, some features of growth hacking mightnot have been identified yet.

The relation that has been drawn between the growth anduser retention serves as a guide that helps to navigate theconnections, however, it was outlined from the data collectedduring the interviews only. This can be complemented byadding growth hacking and user retention concepts from theprevious research.

The interviews with practitioners and entrepreneurs were con-ducted in a limited geographical area (Sweden), hence thisstudy is limited by cultural differences in entrepreneurial be-havior and perception of growth hacking. As growth hackingconcept was first introduced in the United States, the percep-tion of it might have been less hindered, if the experts inter-viewed would have had entrepreneurial experience in the U.Sor other continents. Furthermore, since interpretations of theiranswers, attitudes, and experiences are central in this study,this study assumed that the interviewees based their answerson their own experiences and not someone else’s expectations.

5.2 FUTURE RESEARCHGrowth hacking continues to be a new topic in the en-trepreneurship field. This research showed that growth hack-ing concept does not have a clear framework, thus furtherresearch is needed. Also, the connection between the growthand user retention could be improved by researching how spe-cific growth actions at the early stage influence the rate ofretention in the long-term. Moreover, this research was narrowin terms of qualitative data. Future research could analysehigher number of entrepreneurs with different backgrounds,nationality and culture in order to draw more accurate conclu-sions.

During the interviews with entrepreneurs, it was noted thatthe language they use for describing processes of the start-upgrowth is nurturing. The entrepreneurs used words such ascustomers’ love, nurturing the fan base, caring about cus-tomers, etc. Future research could analyze the semantics ofhow entrepreneurs describe their ventures. Another interest-ing research could be conducted by applying growth hackingmethods in traditional marketing. For example, how traditionalbricks and mortar businesses could adapt growth hacking prac-tices to retain customers.

In addition, in this research, it was found that growth hack-ing and overall start-up growth, is a data-driven approach.Therefore, future research could be conducted to examine howGeneral Data Protection Regulation (GDPR) will influenceuser data collection and how it will change data analysis thatis available today.

6. CONCLUSIONSThe research question of this study was: ‘Can growth hackingmethod help start-ups to retain users and whether applicationof these methods can lead to a sustainable start-up growth?’.

Growth hacking is a relatively broad and uncertain term to de-scribe growth processes in the entrepreneurial ventures, there-fore, in order to answer the research question growth hackingterm needs to be determined. As it was discovered by con-ducting the literature review and qualitative research, the mostimportant factors influencing the growth are:

• Creating the products/services that people desire and need.

• Learning achieved by testing a vast amount of ideas, in-sights, hypotheses.

• Implementing a data-driven approach across various busi-ness operations.

• Timing, in terms of continuously innovating the product orservice, predicting the future trends to stay up in the market.

As these factors relate to retention matters, achieving them atthe early stage of a start-up can not only help to lay a strongbase for the retention growth but also significantly improveretention rate. Further, growth hacking methodology includesthe application of growth factors listed above, hence growthhacking strategies lead to sustainable growth. However, it wasdetermined that the growth must be tailored to the businessmodel and product concept, therefore, the growth strategymust be adapted to each venture’s unique business proposition.

Even after conducting the research, growth hacking conceptcontinues to be unclear. It seems to be a well-known method-ology that accelerates growth in start-ups, however, the frame-work that growth hacking concept explains might just be theway start-ups grow in general. For this reason, the growthmust be perceived as an approach, philosophy rather than amethod that is set in stone.

ACKNOWLEDGMENTSI would like to thank my supervisor Christopher Rosenqvistfor the guidance during this project and to all intervieweeswho spared their time to discuss the topic. Thanks to myfamily for the never-ending belief in me; to my amazing peersfor indulging discussions during two years of studies, for themotivation and all the quality time spent together; and to JavierR. for always supporting and encouraging me.

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