To Hack Growth, Startups First Have to Hack Culture
In addition to engineering products and services, startups need to engineer social influence in their market
In just a few short years, e-commerce startup Fab went from a $1 billion valuation to a $15 million sale.
Across industries, success is more unpredictable than ever. When it comes to cultural products, things that worked in the past often do not work in the present (the sheer number of Avengers sequels notwithstanding). But despite the inherent unpredictability of consumer tastes and the complex way they interact, VCs still put a heavy bet on pattern recognition. These patterns — be it a proprietary product, low-cost customer acquisition tactics, or the ability to reach scale fast — are hardly reliable predictors of success.
For example, Harry’s proprietary product, manufactured in its German factory, was a great initial way to differentiate from Gillette’s low-quality but expensive razors. But superior product quality has since become table stakes in the shaving market, with a number of startups all offering the same key features. Five years and 375 million VC dollars later, Harry’s has only 5% market share in the traditional retail sales market, and is a distant third in the online manual shave market. Not until Walmart (ironically, the retailer that Harry’s DTC model set out to disrupt) provided its massive distribution muscle did Harry’s business start to shift. To stay competitive in this mass market, Harry’s now needs to worry about shelf space and brand marketing — just like Gillette.
Dollar Shave Club, with 21% of the online market share, was not profitable when Unilever bought it in 2016. Its VC-beloved debut online video was viewed more than 25 million times since 2012. Social media quickly made a lot of people know of Dollar Shave Club but also undid its staying power. The main lesson is that wide awareness doesn’t mean conversion and that seeing the fast user growth doesn’t mean profitability. To hack growth, startups have to hack culture first.
In addition to the usual signals, VCs should determine whether a company has roots in a subculture or trend. A subculture is made up of people who are more informed and passionate about a topic than…