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a16za16z Podcast | The Basics of Growth 1 -- User Acquisition
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CHAPTERS
- 0:00 – 1:47
Growth Is Not a Hack: Businesses Don't Grow Themselves
Sonal opens by asking about myths regarding growth. Andrew Chen says growth is not a string of tips and tricks but involves acquisition, engagement and retention, each needing systematic work. Jeff Jordan calls it a scientific discipline.
- •Common myth that growth happens magically or through growth hacks
- •Growth breaks down into acquisition, engagement and retention
- •Done right, growth is a scientific discipline requiring micro-level understanding
- •Growth is more than marketing under a different name
- 1:47 – 4:21
Growth Gravity and Layering the Cake
Jeff Jordan explains that growth decays over time as the law of large numbers kicks in, which he calls gravity. Entrepreneurs must add new layers, as eBay did with fixed price, international expansion and payments. Andrew Chen adds that apparent exponential curves are built from many pieces of underlying work.
- •Growth decays even in the best businesses
- •eBay layered fixed price, international and payment integration
- •Businesses don't grow themselves; the entrepreneur has to drive growth
- •When growth stops, strategic options are constrained
- •Exponential-looking curves combine new markets, products and reduced friction
- 4:21 – 6:12
Why Aggregate Metrics Hide the Levers
Sonal asks about key metrics. Andrew Chen explains that aggregate numbers like MAUs and GMV don't show what is driving growth, so you must look at new customer additions. As you scale, paid acquisition gets more expensive because the best-converting core demographic is exhausted first.
- •MAUs and GMV are aggregate numbers lacking levers
- •Look deeper at how many new customers are added
- •Paid channels get more expensive as you move beyond the core demographic
- •Growth itself erodes growth through the law of large numbers
- •Check how much acquisition is organic versus paid
- 6:12 – 7:28
CAC, Blended CAC and the Danger of Blended Numbers
Jeff Jordan defines CAC and blended CAC, using a $100 paid CAC and half free users to give a blended CAC of $50. He views blended CAC as dangerous because the best businesses haven't relied on paid acquisition and paid economics degrade with scale.
- •CAC is the cost to acquire a user; blended CAC includes free users
- •Paid CAC of $100 with half free users gives blended CAC of $50
- •Amazon's key marketing is free shipping
- •LTV to CAC ratios degrade as paid acquisition scales
- •Look for viral or other non-paid sources
- 7:28 – 9:57
Defining LTV and the LTV to CAC Ratio
Jeff Jordan defines LTV as the incremental profit contribution of a user over their projected life, after direct costs, and compares it to CAC. If CAC exceeds LTV you're sunk. Over time CAC rises and LTV falls, so the ratio needs a big margin for error.
- •LTV is profit contribution after direct costs, not revenue
- •CAC higher than LTV means the business is sunk
- •CAC tends to go up and LTV tends to go down with scale
- •The ratio needs a large margin to absorb competition and degradation
- •New business layers can have their own ratios
- 9:57 – 11:17
Blended CAC Revisited and the OpenTable Growth Hack
Andrew Chen says blended CAC is only a snapshot and drifts toward the dominant paid channel as you scale. Jeff Jordan describes how OpenTable acquired consumers for free because restaurants marketed it on their own websites.
- •Blended CAC approaches paid CAC as spend scales
- •Entrepreneurs should look for a unique organic way to reach people
- •OpenTable paid nothing to acquire consumers
- •Restaurants' website placements drove free users
- 11:17 – 13:47
Network Effects and Virality in the Physical World
The discussion links OpenTable's free acquisition to network effects and the problem of seeding a network. Andrew Chen and Jeff Jordan give examples of virality from visible cues, such as Uber logos, Lyft's pink mustache and Lime scooters, plus bottoms-up sharing in products like Slack.
- •OpenTable's free acquisition kicked off a network effect
- •Came for the tool, stayed for the network
- •Larger networks create more surface area for discovery
- •Lyft's mustache and Lime's green scooters are physical cues
- •Slack spreads bottoms-up through workplace sharing
- 13:47 – 15:33
When Paid Marketing Works and When It Becomes a Trap
Asked whether paid marketing is bad, Jeff Jordan notes great businesses like online travel agencies use it, but as a primary engine its economics degrade and it exposes you to competition. Andrew Chen says paid works as one channel among many, such as Facebook using it to jump-start new markets.
- •Online travel agencies spend heavily on paid acquisition
- •Paid economics degrade and are easy for competitors to copy
- •The mattress example shows how competition erodes economics
- •Paid can jump-start a network effect
- •Don't depend on paid without a plan for channels degrading
- 15:33 – 18:00
How Much Paid Is Too Much: Discipline, Sectors and Platform Risk
Andrew Chen suggests measuring CAC and LTV with discipline and keeping paid a small enough share that the business survives if it is capped. Jeff Jordan cites e-commerce, meal kits and restaurant delivery as paid-reliant sectors and describes investment mistakes tied to Facebook mobile ads arbitrage. Sonal frames this as platform risk.
- •Treat paid as one channel in a portfolio
- •Measure CAC and LTV and avoid spending ahead of results
- •Keep paid small enough that a cap won't sink the business
- •E-commerce, meal kits and delivery rely heavily on paid and struggle for profit
- •Facebook mobile ad costs rose multiples once the market reached equilibrium
- 18:00 – 20:12
Riding Trends: Shareable Products and Creative Acquisition
Andrew Chen describes temporal acquisition opportunities, such as highly visual products like esports that generate video, and games with built-in streaming and community features. He also cites Instagrammable physical spaces and physical products that prompt digital engagement. His takeaway is to be creative and fit your product into current trends, then accelerate with paid and PR.
- •Visual products naturally generate video for platforms
- •Competitors will copy these opportunities, so they are temporal
- •Games now need built-in recording, publishing and community features
- •Physical experiences are made Instagrammable
- •Fit your product into current trends and accelerate with paid and PR
- 20:12 – 20:31
Wrapping Up Acquisition and Teeing Up Engagement
Andrew Chen notes that the conversation has focused on growth and acquisition, which matters most to startups early on when they have few active users. He points to how active users are over time as the next topic, which Sonal names as engagement.
- •This part focused on acquisition
- •Acquisition is the main early-stage concern
- •User activity changes over time
- •Engagement is the topic of the next episode
