David Arnoux is a growth hacking expert. He is the co-founder and Head of Growth at Growth Tribe, which coaches and trains organisations and individuals to improve their digital skills.
David has a long entrepreneurial history, launching an import/export business in China straight out of university, then building a fashion brand in France, before moving to the Netherlands and getting involved with Amsterdam startups.
David has been in and around startups for a long time, and he has tons of insight to share.
In the episode, David covers how to find a customer base, why investors look for traction, how to find product/market fit, how to utilise data, why focus is crucial, and much, much more.
It's a little longer than our other episodes, but trust us, this episode is overflowing with information for entrepreneurs.
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According to my parents, I’ve been obsessed with entrepreneurship since I was 11 or 12. I was obsessed with owning a staple factory because I thought that staples could be optimised, that they should blend in with the colour of the catalogues. So, I've kind of had that bug from a very early age.
I went to a business school in France called ESSEC and did a dual diploma with the University of Salford. Essentially, as soon as I finished school, I went straight to China. I saw opportunities there, I thought it was a really interesting country back in those days and still today, for entrepreneurs. I started an import and export company over there with two buddies, which turned into a bit of an IT company where we were selling software for factories to be able to communicate with their clients over in the Western world.
I made a bit of money from there and then started a fashion brand, because we identified amazing fashion suppliers over there, and there I started in ecommerce. I built a pretty strong ecommerce company, we were ranking number one on a bunch of stuff like black slim tie, golden cufflinks – keywords that you might think don't have a lot of value, but actually, when you're number one, it's quite a big market. Very early on I had to do a bit of everything, a little bit of code, a little bit of analytics, a bit of user experience, design, marketing, a bit of everything.
That company was quite successful, we built up the ecommerce side and we also invested in some brick-and-mortar shops in some key strategic cities in France, notably Paris and some of the other bigger cities. Then I met my wife, who told me to sell my company and come to the Netherlands. So, naturally, I did. I had strong entrepreneurial experience, especially on the business-to-consumer side, because I taught myself all of these things. I came over to the Netherlands and worked on a SaaS productivity tool, which was kind of like Slack but without the same amount of funding. You can check the pitch that we have online, it was called Twoodo. That didn't have as much traction as we'd hoped for and we kind of struggled to raise for the next round.
And then I started Growth Tribe six years ago, along with my co-founders. It's an educational company, we're in EdTech, and what we do is we make sure people in companies have the most in-demand digital skills, outside of coding. So, data, user experience, design, growth marketing, digital marketing, and leadership skills. We've trained 16,000 people across 900 companies, and we operate globally out of our European offices. Personally, at the moment, I run a bit of the top line and the growth of the company.
Yeah, 100%. What we've seen is that digital is actually not that complicated. There's a book by Alvin Toffler called Future Shock that was written in the 1970s and it's even more true today than it was back in those days. The concept of Future Shock is that change is so rapid that humans have difficulty adapting to that change, which creates anxiety and stress. We really started this company to relieve what we like to call “techno-stress” or “techno-anxiety” from people because things aren’t actually that complicated.
Terms like data analytics, user experience, design, landing page optimization, predictive analytics, supervised learning, unsupervised learning, blockchain, decentralised applications sound scary. Firms like to make things sound more difficult than they actually are. We take people by the hand to help them pass that first hurdle. so that they can understand intuitively what all of these things. And not only what you should be learning next, but also how deep you should go. So, that's kind of the first reason why we started this company. Yes, the world is changing fast, but if you have a basic understanding of what these terms and concepts mean and where you want to be as an individual, then we can probably help you understand what to learn next and how deep to go.
The second reason we started the company is because we saw consulting firms and consultants making things look too complicated to their clients. We believe and I strongly believe that the riskiest assumption of any venture nowadays, whether it's an already scaled venture that has years of experience, or it's a new startup, scaleup, or a project, is distribution. It's not product. Companies tend to focus on product, product, product. But the attention economy has never been more expensive. It's never been harder to get the attention of individuals because we're all fighting for people's attention. The cost to acquire customers has never been so high. Digital ad spend has never been so high. The number of new products released on a weekly basis has never been so high – just go to a website called Product Hunt and you'll see about 100 to 200 new products released on a daily basis. And we're all fighting for the same people's attention. So, we believe that the riskiest assumption from a business point of view is distribution.
If you look at a company like HubSpot, for example, they didn't have a better product or CRM in the early days, they just had better distribution. And so, we believe that growth and data-informed decision making needs to be embedded in the DNA of your organisation. That's where building training capability comes into play, because what we see in 95% of organisations and individuals nowadays is that growth, customer centricity, digital savviness, basic digital capabilities, but also data capabilities, they're just not there at the moment. We really believe that just by spending a little bit of time on deliberate learning of those key concepts, you've got a ripple effect to the rest of the organisation where your decision making becomes maybe 1% or 2% better on a daily basis. Similar to compound interest rates, that actually compounds over time.
Starting from scratch, it all starts from the product. Basically, every single product on the planet is here to solve a pain. Coca-Cola solves thirst. Netflix solves boredom. You start with a pain that you want to solve. Generally, the bigger the pain that you're solving, or the bigger the market for which you're solving that pain, or the stronger the pain for that market is, the more the customer is going to want to solve that pain. So, it always starts with the product, what's the pain that you're solving, and what solution are you bringing to solve that pain? Is it 1x better than what's currently on the market, 5x, or 10x better? The bigger the number of x's, the easier it will probably be to sell your product.
Now what we talk about first of all is the customer adoption curve. In the customer adoption curve, you have the innovators, the early adopters, the early majority, the late majority, and the laggers. The innovators are people who test everything, so they'll probably buy your product just to test it. It's those people that have all of the new products, the new backpack, the new phone, etc. They just test even though they don't have the pain, they like to test new stuff. What you're looking for early on are your early adopters, that first 1000 true fans. The early adopters have the pain, they know they have the pain – that's important, you don't need to educate them – they've already tried to solve it, but they're not happy with the existing solution. They're probably willing to pay in money or time to solve that pain. The higher the pain, the bigger that market, the easier your life will be. That's usually step one, and that's where great entrepreneurs come into play, they have a great solution.
Now there are two approaches to solution building. One is you're a visionary and you come up with a solution that nobody else has thought of. Good luck with that, because there are very few visionaries out there. And then you've got the other type that are more like fast followers or copiers. The solution already exists, it's already been validated on the market for you, somebody is already sort of doing it, but they haven't scaled it yet. And you're going to be that scaler that does that solution a little bit better than the rest. I would actually argue towards going a little bit more for that solution, not copying, but being inspired by what already exists out there, bundling it correctly, and then trying to distribute it as fast as possible.
There's a beautiful mental model called the BJ Fogg model or B=MAT. There are only two reasons why people are not buying your product. It's either a lack of motivation, or it's a lack of usability. Either they can't access your product, they don't know about it, they haven't heard about it, it's hard to test it or buy it, it's expensive. Everything can be summarised by that model. How big is the pain? If the pain is really big, then the motivation is really high. We worked with a company that would give sick people access to drugs that were still in trials. So, the motivation was really high, but they had to read through 45 pages of legal forms to get access to the product, so the usability was really bad. It doesn't matter, they still did it, because the motivation was really, really high. But on the other hand, somebody that's trying to launch a new social network nowadays, the motivation is probably pretty low, so your usability has to be amazing.
It's really a balancing act of that motivation and that usability or accessibility. Typically, you want to be in a person's top three pains, the thing that they think about on a daily basis, and that's your early adopters. So, if you're targeting salespeople, maybe it's a CRM tool, or maybe it's not because their CRM tools are great.
You're usually quite good at finding early adopters and getting them to pay for it, but you want to cross the chasm to reach the early majority, for who it’s typically not a top tier pain anymore. And that's where you start to educate the market. For example, TransferWise is a great example of this. They spent so much time and money and effort on PR campaigns and content marketing around educating the markets that international transfer costs were too high. They actually created an even bigger market for themselves and created a pain that people didn't know they had. There's another famous example of this in Listerine. They engineered this sickness called halitosis which didn't exist before. Halitosis just means bad breath in Latin. They educated the market on this pseudo-medical term and created a market for themselves.
So, there are two types of businesses. There are ones that can become self-sufficient, they don't need initial large amounts of investment. For that type of company, you probably don't even need investors, you don't need an injection of capital. For example, service-led organisations like a consulting firm, an agency, legal firm, a restaurant, a dentist, etc.
There are four things that investors look at: team, traction, thesis and timing. All ideas are great, it's question of timing. Then you have the thesis, is there a fierce value proposition, big market, big vision? Then you've got your traction, strong customer validation, data-driven decision making, solid marketing strategies, etc. And then you have the team, complementary skill sets, founder market fits, strong values, etc.
The most important of those four is traction, because traction is proof. If you have a strong track record – Stewart Butterfield from Slack, Gagan Biyani from Udemy – then you can raise with nothing, you don't need the traction. The venture capitalist will take your money. 99% of us don't have that. So, first, you prove that your solution is the best solution for the pain being solved. For example, paying customers, returning customers, number of clicks, number of people signed up to your beta. Nowadays, investors usually look at retention, returning customers, returning revenue, and they look at your customer acquisition cost and the customer lifetime value. What's your cost to acquire customers and how much do you can you extract from customers in a year, for example?
The other type of business is more of a tech type. Tech businesses usually require a lot of upfront investments in development, developers, product investment, etc. The great part about tech companies is they have a higher multiplier of value. You put a 7, 8 or 10x on your revenue numbers. Service-led companies in Europe at the moment, it's more like a 3-4x on your revenue and certain targets on your EBITDA. But the faster you can get traction, the higher your valuation, the less equity you need to give away because it’s a stronger valuation. Because what investors will do is put a discount on your forecast. The more you can prove that your forecast is based on facts, the less of a discount they will put. But I would argue that most companies for the first year don't even need investment. We work with a lot of companies that get their initial traction from their own funds. The pain that they're solving is so high that people are willing to pay just to be first in line to start using the product. We call that a dry wallet test. Prove your solution by getting people to pay for your product or service even though you haven't built it yet. Then you really prove that they have a pain that they want to solve, but most of the time that doesn't work.
One of the reasons a lot of great companies come out of consulting firms or agencies is because agencies are solving the pains of their customers every day, and at some point, they're like, oh, we've solved this pain for our customers, we've already proven that people will want to pay for it as a service. Let's productise it and sell it to a larger number of companies. So, I would say to budding entrepreneurs who don't have that track record to set up as a consulting firm or an agency, and once you've proven that case a few times, then you get an idea if you could productize it, then get investment or pay with the money you got from delivering that service to build this up.
It depends on your personality traits. For me, 100%. Find someone with a complementary skillset, typically you want one person with a bit of tech or product and another with sales. There is also something called founder market fit. Some founders are a perfect for certain markets, but others are not if they don’t know anything about the market. Sometimes, it can be an advantage to not know anything because you don’t have all these preconceived ideas like others do. I’ve always been on the product and marketing side, so I’ve partnered with people who are more extroverted and on the sales side.
People always say that you need a team. It’s true, but my analogy is to date before you get married. Don’t sign anything for the first year and rush into something.
It matters a lot. Ecosystems are extremely important. Ecosystems give you clients, funding, talent, and peers. Amsterdam is good for capital, but it’s not the best place in the world. Europe tends to be very risk-averse, so you need to have real traction to gain investment, but globally Amsterdam is very good. It’s much easier to raise money in the USA, especially for seed funding. There is so much capital at the moment that there is a lot of pressure on growth and distribution. All these startups have so much capital to spend that they push their customer acquisition cost up.
There are some high-profile examples of remote companies succeeding, like 37signals and WordPress, so I don’t see why not. Many consulting firms work in that way too because they are with clients a lot. I think remote working lends itself particularly well to tech firms. It depends on the culture that you’re trying to build.
My point of view is that remote works really well for senior individuals, but not as well for junior people. If you live in a tiny apartment that you have to spend all day in, and you’re getting no social engagement, no mentorship or coaching, it’s not great. It depends. The pendulum has swung from one side to completely the other side, and I think it will swing back a little. We’ve learned that we don’t all need to be in the office, and I think the hybrid approach will be the choice for most people.
Anything is possible, it depends on your personality traits. If you’re going to be completely remote, then you need to look at the operating systems for companies that do it well. Look into Dropbox, 37signals, Automattic. When you’re starting out, I think it can be helpful to be together, all sweating in the same room. At least the co-founders.
About 75% of my time now is with corporates and 25% with startups and scaleups. It’s the same stuff we saw ten years ago. Find a pain worth solving, create the right solution, don’t always reinvent the wheel, and focus, focus, focus. Our scarcest resource is time, our competitive advantage is focus. Focus on a big pain worth solving with a big market, do it well, and do it better than anybody else. You can think of it like a shovel. A super sharp focused end, you plough it down as deep as possible, then you pull it up.
Startups and early-stage founders tend to lack focus and feature creep happens where they want to build a bunch of features. What is the number one thing that you’re solving and the number one feature that your customers come back and want to use? The most important thing for startups is a good product/market fit – the right product for the right market. Some people say product/market fit is like love – when it’s good, you know, because people are kicking your door down to try and get your product.
The more data-driven way is called the Sean Ellis test. You send a questionnaire to people that are using your product asking them how disappointed they would be if they couldn’t buy your product. You want at least 40% of people to say they would be very disappointed. Even if only 5% of your customers say they would be very disappointed, you need to look at them and see what they have in common. Are they from similar industries, geographical location, do they have similar personality traits? There’s a great article by the CEO of Superhuman that breaks down how they achieved product/market fit step by step. You basically want to drive that percentage of people answering very disappointed as high as possible.
The greatest law in the universe is the Pareto Principle or 80/20 Rule. 20% of things that we’re doing will give us 80% of our results. What few people know is this rule is fractal. So, there’s an 80/20 inside the 20%, meaning 4% of your efforts will give you 54% of your results. And then there’s a 1% that will give you 50% of your results. What are you doing on a weekly basis that focuses on that 1%? Focus on whatever features, marketing channels, or efforts that will give you that 50% of results. You should probably spend 2 hours a week just planning, and seeing which activities aren’t pushing you towards that 50%.
In a lot of our sessions on growth, we talk about the OMTM, the One Metric That Matters. Typically, a company has a north star metric, the most important metric for the business. For some it’s recurring revenue, others it’s returning customers, others it’s just income. But each week you should implement an OMTM, where only one metric matters to you every week. Your customer journey is leaking somewhere, so focus on one metric at a time. Is it driving more people into our experiments, is it getting more money from the customers we have, is it validating these assumptions around product/solution fit? Until you’ve fixed it, you shouldn’t be focusing on the rest.
You need to understand basic startup metrics, like customer acquisition cost (loaded and non-loaded, customer lifetime value, time to recover customer acquisition cost, recurring revenue. So many people don’t have a basic grasp of finance, yet they’re so important when you’re building a business. Things like revenue, EBITDA, and COGS should inform every decision that you make. You can probably run a whole company just by being able to track those.
At Growth Tribe, we teach people basic data analytics for businesses that are more up and running. Nowadays we can use basic algorithms to do supervised and unsupervised machine learning. Unsupervised is where you throw a bunch of data at an algorithm, and it comes back with findings that you didn’t know existed. That’s when you don’t know what you’re looking for. Supervised machine learning is for when you know what you’re looking for. Say you’re trying to optimise your conversion rate. You give the algorithm the data and it can tell you how you’re performing on that specific KPI. Then you can play around with predictive analytics, which can predict how you’re going to perform in the future.
Whether you are tracking basic metrics or going deeper into analytics, both are related to data-informed decision making, which I believe is the number one variable that is correlated with business success.
Organisations should go to www.growthtribe.io and click ‘For Companies’. We’ll ask you what your company strategy is at the moment, then we’ll find a way to fix that with capability building. We’re like a consulting firm except we train your people. Your people get better and embed those capabilities in your company.
If you’re an individual thinking of reskilling or upskilling yourself, or if you’re a startup founder, then go to our public courses. That’s our 12-week growth course where we go through all the things we talked about here and more. Or, we have a data analytics course for people in more of a data career.
Our goal is to impact 1,000,000 people by 2026. We’re at 16,000 now, and if we grow 80% per year, then we’ll reach that. Remember that you don’t need to be perfect; you just need to be 1-2% percent better than the competition.
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