Experimentation: Why Startups in the Growth Stage Need to Keep Testing

Learning is a key part of successful growth. Learning doesn’t always mean quantitative experimentation; it also involves talking to customers, validating product-market fit, conducting market research, attending meetings, and more. In this article, we will dive into experimentation as the main tool for fast, scalable, and quantitative learning that startups and fast-growing companies can use to stay relevant and improve user experience.

Experimentation isn't just a buzzword; it's the lifeline for startups in the growth stage. When you're scaling your startup, the ability to test, learn, and iterate quickly can make all the difference, especially when you're short on budget and trying to acquire your users in a competitive environment. Pete Koopman, Group Partner at Y Combinator, recommends that growth stage startups should not spend money to acquire users for free or consumer apps, even if the CPM is not high. This spending will increase numbers temporarily, but they will go back down. The exception is if you are experimenting with paid acquisition. In that case, limit the budget and be clear about what you’re trying to learn.

In this article, we’re going to share our thoughts on why it’s important to test, without delving into the technical and statistical details of experimentation.

Why Experimentation Matters

Discovering What Works

In the growth stage, you’re trying to find the best strategies for your product, marketing, and customer engagement. Experimentation helps you discover what works (and what doesn't) without betting everything on a single idea. It’s about running small tests, gathering data, and then scaling the successes. Like a toddler testing the limitations of their environment to learn and grow, startups must experiment to find their way.

Minimizing Risk

When you experiment, you’re essentially testing your hypotheses on a smaller scale. This approach minimizes risk because you’re not making huge investments without evidence that your idea will work. Fail small, learn fast, and then succeed big.

Accelerating Learning

Every experiment, whether it succeeds or fails, teaches you something valuable. This constant learning loop accelerates your team's knowledge and helps you make better decisions moving forward.

Staying Agile

Startups need to be agile. The market can shift, customer preferences can change, and new competitors can emerge. Experimentation keeps you nimble and ready to pivot when needed.

Growth Experimentation

Growth experimentation is a systematic approach to testing new ideas and strategies to grow a business. It involves developing hypotheses about what will drive growth, designing and running experiments to test those hypotheses, and analyzing the results to make informed decisions. This careful, data-driven approach helps you make effective decisions rather than fully committing based on an educated guess. One mistake that a startup might make in its growth phase is to increase the marketing budget expecting to achieve a higher growth rate. While a higher budget can make growth easier, it does not always mean sustainable growth. That’s why growth experts recommend growth experimentation over starting big and increasing the risk of failure. As Mike Vernal, ex-VP of Meta, says, “Optimizing the most important page for 10 years is almost certainly better than building 10 years' worth of pages.”

What is the Growth Experimentation Process?

Experimentation doesn’t start with experimentation. Designing effective growth experiments requires careful planning and a focus on key elements that ensure success. Here are a few tips for designing effective growth experiments:

1. Start with a Clear Hypothesis

Your growth experiment should be based on a specific, clear, testable hypothesis relevant to your business goals. Each hypothesis should focus on impacting a key part of the growth process (e.g., acquisition or retention). Hypotheses can be gathered from customers (qualitative feedback), funnel analysis (quantitative feedback), or other methods to identify and validate customer pain points or growth opportunities..

2. Prioritization

If everything is a priority, nothing is a priority. Choose which growth experiments to conduct based on factors like reach, effort, feasibility, and potential impact. Prioritization frameworks like RICE can help you make structured decisions on experiments that align with your goals.

3. Create the Experimentation Plan

Transition from idea to action by creating a detailed experiment plan outlining what you want to test and how you want to do it. Start with a hypothesis, then define the metrics for measuring success. Choose your experimental group, ensuring it’s representative of your target audience and large enough for statistically significant results. Create a control group to compare the results with a baseline. Define success criteria and duration for a clearer view of which tests to run.

4. Run the Experiment

Execute the experiments for your target audience, making changes to your website, marketing campaign, pricing models, or other areas. Track results to understand the impact on customer behavior. Use tools (e.g., Optimizely) suited to your platform and monitor the experiment to ensure there are no issues.

5. Analyze the Experiment’s Results

After completion, analyze and interpret the results to determine if your hypothesis was supported. Use statistical analysis or other tools to draw meaningful conclusions. This step will reveal which variations and changes had the most significant impact on your success metrics, providing insights for future product decisions.

By following these steps and focusing on key elements, you can design effective growth experiments that drive growth and success for your business. This article doesn’t delve into the statistical details or potential issues during the experiment.

Growth Mindset

Here are some guiding principles or growth mentality when you think about your Growth Experimentation:

Encourage a Testing Mindset

Create an environment where testing and experimentation are encouraged. Celebrate the learnings from failed experiments just as much as successes. This mindset promotes creativity and reduces the fear of failure.

Use Data to Drive Decisions

Make data the backbone of your decision-making process. Use analytics to inform your experiments and measure their outcomes. This approach ensures that your decisions are based on evidence rather than intuition.

Start Small

Begin with small, low-cost experiments. This approach allows you to test many ideas without significant risk. Once you find something that works, you can scale it up confidently.

Learn and Iterate

Treat every experiment as a learning opportunity. Analyze what worked, what didn’t, and why. Use these insights to refine your approach and run more informed experiments in the future.

Conclusion

Experimentation is the secret weapon for startups in the growth stage. It helps you discover what works, minimize risks, accelerate growth, and stay agile. By fostering a culture of experimentation, you can navigate the challenges of scaling and set your startup on a path to long-term success. Ultimately, the compound effect of many small and significant right decisions will make a difference. Not all decisions need to be data-driven, but experimentation is a powerful tool to learn and grow, especially in a constantly changing environment with many unknowns between you and your goals.