“B2Both”: Why all startup founders need a growth currency
Lars Fjeldsøe-Nielsen (Denmark) joined Balderton Capital in 2015 after roles at three of Silicon Valley’s best-known tech companies: Uber, WhatsApp, and Dropbox. As head of mobile at Dropbox, where he was one of the firm’s first 25 employees, his distribution deal-making helped the file-sharing company reach its first 100 million users.
It was 2011, and as I stood up in the conference room at Dropbox’s San Francisco headquarters, I knew that the pitch I was about to deliver would quite possibly make me the least popular person in the building. As (then) head of mobile at the fast-growing file-sharing and storage startup, the strategy I was poised to outline would involve redrawing the company roadmap and the inevitable jettisoning of long-planned projects, which some in the room that day—who included the engineering leadership teams, alongside the founder and CEO Drew Houston—had sweated blood over.
My plan, inspired by Dropbox’s pioneering freemium business growth model, which way back in 2008 offered users 2 GB of free storage and 50 GB for $9.99 a month or $99.99 a year, was to strike a partnership deal with Samsung in which our technology would come embedded on the Korean manufacturer’s latest handsets. When owners unwrapped their new device and powered up, the first screen they’d see would offer them 50 GB of free storage for 2 years—enough to back up (approximately) 27,000 photos.
To validate this strategy, we had built a growth projection, based on the way we modeled new feature and product launches, which demonstrated that if Samsung shipped us on 200 million handsets, and a sizeable portion of those new owners signed up to Dropbox as a result, the upheaval caused internally would be more than justified.
The year 2012—when the groundbreaking iPhone 5 appeared—was a tipping point for mobile, particularly in the United States, where smartphone penetration grew to 55.5% of the population, from just 41% a year earlier, according to Nielsen. Meanwhile, Facebook’s monthly active users on mobile grew almost 10 times, from 58 million in Q4 2011 to 526 million just 3 years later. So it was against this transition-to-mobile backdrop that Drew green lit the Samsung partnership (and one with HTC too). The impact was both instant and game-changing. In the summer of 2012, as Forbes reported, the majority of Dropbox sign-ups were mobile users for the first time, due to a combination of our partnerships and the general trends toward mobile. Ultimately, it led us to over 100 million registered users and was the foundation for a patent we filed on it.
Personally, it represented a Eureka moment. I came to describe this strategy as devising a growth currency, where something of genuine value, be it free storage space or a code or voucher to share with friends, can be traded or offered to turbocharge viral growth. While a startup needs to have genuine growth to begin with—this is no quick fix or cure-all for a failing product—the keys to launching a successful growth currency are timing and value. As a founder, you need to surface your growth currency at a moment of high intent, such as when a customer has just removed their new handset from its box and is in the frame of mind to spend half an hour or so willingly setting up their new toy and trying out new services.
Catch them with an attractive offer at that point and the likelihood is high they will sign up. What’s more, you also have a rare and fleeting opportunity to “educate” users about your product’s features at the very moment their tolerance threshold for experimenting with a new service is at its highest. For Dropbox that meant, among other things, being able to show new users how to sync between devices and letting them know they can share files with others.
The second thing to bear in mind about growth currencies is that they should always be data inspired, rather than based on (albeit educated) guesswork or, worse, a hunch. With Dropbox, we knew exactly how much free storage space to offer, because our decision-making was based on data from existing user behavior. Giving away 50 GB wouldn’t cost us much more than, say, 30 GB, and we knew the “wow factor” perception of offering so much storage space would create consumer buzz.
At Uber, meanwhile—where I was VP mobile—we used (and they still use) a different type of growth currency—namely, a promotional code that can be shared with a friend who’s new to Uber, so that you both receive a financial credit toward future rides (the precise monetary value of this promotion has fluctuated, depending on when and where it was offered.) Although the acquisition cost of each customer is high in this case, it results in explosive sign-up rates for new riders, the vast majority of whom go on to become repeat users, and in turn refer other new users.
Uber has deployed a wide variety of spins on this particular growth currency. When I was there, we also experimented with sending notifications to existing users around certain events or locations, where once again intent was high. For Valentine’s, for example, we messaged riders with a time-limited code which unlocked a free trip or upgrade for use that night. We offered a similar and hugely successful promotion around certain airports: when people switched on their phones at JFK in New York, they could redeem a free ride into the city.
A US-wide promotion in June 2016, meanwhile, saw Uber team up with Sprint to offer passengers 50% off their journey to watch Copa América Centenario matches—a great way, in this instance, to gain traction within America’s soccer-loving Latino population. Partnerships such as these are a way to further accelerate growth, through leveraging a heavyweight partner (Samsung, for example, spent an estimated $14 billion on marketing and advertising globally in 2013) and are often a critical element in a growth currency’s effectiveness.
In 2014, I helped Uber forge just such a partnership with Carlos Slim’s América Móvil, the telecoms giant. Over a full day’s meeting with Carlos, his sons, and other top executives at his offices in Mexico City, we struck a deal in which millions of América Móvil customers would be offered a discount on their first Uber ride. The business case made perfect sense for the carrier, who was able to offer something extra of value to its users, while it was a way for us to fuel growth in Latin America (having already proven the model in the United States by teaming up with AT&T).
In fact, so successful is this strategy that I’ve long urged every startup I work with—as an advisor or, today, an investor—to identify a growth currency as soon as they have significant customer traction. At Pocket, whom I advised in 2015, this led the team to build a premium product with additional functionality—something a certain tranche of users would pay for—before striking a partnership deal with Mozilla, where Pocket would be integrated into Mozilla’s browser. (The deal was agreed quickly, as Mozilla were launching a new version of their browser, which they wanted Pocket to be part of.) Once again, it was a win–win arrangement: Pocket had access to Mozilla’s hundreds of millions of users globally, who would in turn get a free subscription to Pocket’s premium service. Ultimately, of course, the synergy was so compelling that Mozilla acquired Pocket.
Indeed, whether it’s Evernote embedding their services into NTT DoCoMo, Japan’s leading mobile operator, WhatsApp’s estimated 100-plus operator deals globally (in which I played the role of fixer), Spotify’s multiple partnerships, which include an ongoing deal with Vodafone (which currently offers Vodafone customers a free 24-month subscription to Spotify Premium when they buy a pay-monthly entertainment plan), or Netflix’s deals with, among others, Comcast, Liberty Global, and leading Indian carriers, wherever you look, the majority of the major internet and mobile brands have growth currencies in place to power growth. Three of the largest public technology companies in the United States—Microsoft (partnerships with Dell and Workday), Apple (premium print products), and Amazon (Prime and Pantry)—use similar tactics, albeit in a range of different guises.
If the first question growth founders should ask themselves is “What’s my growth currency?”, the next is “Where on the spectrum between prioritizing user numbers and revenues do I want to be?”
Of the former category, Facebook, WhatsApp, and Snapchat are prime examples of an approach best summed up as “If you build global scale, then revenues will follow.” The second approach is to grow a significant paying customer base, either through subscribers (Netflix) or a highly monetized model (Uber) or through a freemium model (LinkedIn, Spotify, or Dropbox). On the whole—although this is no immutable law—the user-driven end of the spectrum tends to be populated with B2C companies and the “dollar” end with B2B.
Now, in my experience, there is a midway point on the spectrum; a sweet spot where companies are able to appeal both to individuals and enterprises simultaneously. A case in point is Spotify, which recently hit the 60 million paying subscribers milestone and has now launched Soundtrack Your Brand, an enterprise-facing spin-off and a recent Balderton investment. Another example is Google, whose Gmail service and apps such as Drive, Calendar, Sheets, and Docs, are perfectly positioned to appeal to consumers as well as paying business subscribers.
I call this sweet spot on the user numbers–dollar spectrum B2Both. Businesses who can capture both these markets (i.e., consumer and enterprise) simultaneously invariably experience surging growth. So the third and final question founders should ask themselves is this: “Is there a way for my product or service to operate as a B2Both company?” Move into that space where you’re woven seamlessly into people’s personal and work lives, and the chances are you’ve found growth’s answer to the Holy Grail. Indeed, so convinced am I of this sweet spot that I predict even that titan of B2C corporations, Facebook, will over time pivot to B2Both, perhaps by acquiring Slack as a catapult. Only then can it truly claim to have succeeded in its mission to “make the world more open and connected.”
One company that has already made this shift is Dropbox, however, which saw its popularity among consumers at home gradually carried across into the workplace, so that today it can reasonably be described as a B2Both company. I won’t claim that this is something I predicted when I made the case for partnering up with Samsung all those years ago. But two things have become abundantly clear to me since. First, the fast lane to growth begins with a growth currency. And second, without one, the road ahead narrows by the day.