How to Ignite Startup Growth and Build a Billion-Dollar Business| Sean Ellis | Glasp Talk #46 by Kei

How to Ignite Startup Growth and Build a Billion-Dollar Business| Sean Ellis | Glasp Talk #46

Kei

Apr 17, 2025 1:20 AM

Summary

Introduction (00:03 - 00:31): Sean Ellis, author of "Hacking Growth," discusses his experience in helping companies like Dropbox achieve significant growth, including the creation of growth strategies and frameworks like the Sean Ellis test and the ICE prioritization framework.
Defining Growth Hacking (01:31 - 02:04): Sean explains growth hacking as the process of using data, experimentation, and customer insights to uncouple rapid growth for businesses, particularly startups.
Origin of the Term (03:17 - 09:24): The term "growth hacking" was coined by Sean after realizing that his data-driven approach to marketing was different from traditional methods. He created the term during a brainstorming session with friends in Silicon Valley.
The Importance of Activation (10:28 - 16:35): Sean emphasizes that measuring activation (the initial engagement of users with a product) is crucial for retaining customers and driving revenue, using his experiences at LogMeIn and Dropbox to illustrate this.
The Sean Ellis Test (25:38 - 30:42): Sean describes his test, which asks users how they would feel if they could no longer use the product. Responses indicate the necessity of a product and can inform product-market fit.
Navigating Market Fit and Business Models (47:04 - 50:33): Sean highlights the importance of finding the right business model, stating that a product can have market fit but still not generate revenue if the business model is not aligned or there’s no effective customer acquisition strategy.
Future of Startups with AI (58:27 - 59:26): Envisioning a startup landscape where AI reduces risk in product development, Sean encourages budding entrepreneurs to leverage AI tools to prototype quickly and validate their ideas without quitting their jobs.

Transcript

Hi everyone, welcome back to another episode of Grasp Talk. Today we are very excited to have Sean Ellis with us. So Sean is a legendary figure in the startup world known as the author of best-selling book Hacking Growth which has sold over 800,000 copies and has been translated into 16 languages. So Sean played a pivotal role in the early growth of unicorns like Dropbox, Eventbrite, Lookout and LogMeIn helping them reach billion dollar valuations

through data-driven experimentation and marketing. In fact, Dropbox became the fastest SaaS company to hit 1 billion dollars in ARR thanks to the foundational growth system Sean helped create. And he also created the famous Sean Ellis test and a simple but powerful way to measure product market fit now widely used by startup founders around the world. And beyond that, Sean invented the ICE prioritization framework

was an early freemium advocate and continues to empower the next generation of growth leaders through his workshops, podcast and online simulator at gopractice.io. So today we will dive into Sean's revolutionary impact on growth strategy how to truly measure product market fit and how startups can turn early traction into explosive momentum. And thank you for joining Sean today. Thank you, Kazuki. I'm very excited to be on with you guys.

Thank you. So first of all, we are a huge fan of your book, Hacking Growth. We learned a lot. But to the audience who are not familiar with the concept yet so could you tell us what growth hack is in your voice and why it matters and what do most people still misunderstand about the concept if you have any? Sure, I think you actually gave a pretty good introduction just as we were going. But I think that really the key is you're trying to learn

what works to drive growth for a business. And you're doing that by really using data and experimentation and then even some surveying and some qualitative insights and talking to customers. But it's all about increasing the speed at which you learn how to rapidly grow a startup business. Generally, it's for startups. But increasingly, I'm seeing larger companies also adopt these practices. And you coined the word growth hacking, which is really awesome.

And so, yeah, I really love it. But what inspired you to coin the term growth hacker? And could you tell us the backstory and the book and concept? Yeah, so the first two companies that I worked on, I wasn't really exposed to other marketers at the time. They weren't Silicon Valley based companies. So I couldn't really see how other companies were doing it. So we started both companies in Eastern Europe, so in Budapest, Hungary.

And in both cases, the first one was so early that there was really no kind of books or anything else on internet marketing. So I had to kind of invent it as I was going. So that was in 1995 was when I invested in that business and started a few months later working with the business. And then the second one being LogMeIn. And so, again, in both cases, I had invested in both companies. And so I really wanted to make it work.

And then the other thing that's kind of interesting for me is I never studied marketing in school. So I had done maybe two years before these companies in sales roles. So I had more of a cold call sales background, which is very funnel oriented. I have to make 100 phone calls to get 10 meetings, personal meetings to get three sales. And you just get used to working the numbers. But then, yeah, once I got into these companies,

I really wanted to make sure that I wasn't wasting money. So we built really sophisticated data tracking systems was one of our first things that we did just so that I could make sure I wasn't wasting the money. And then I realized that through lots of testing, so not just the advertisements, but also the pages people landed on, how we could drive retention, all of those things could be improved through testing.

And so before most companies were doing any of those things, that's just how I approached it. So maybe I approached it that way just because I didn't know the right way to do it or the way that the books taught. And so maybe that was an advantage because the books were all written for the internet. So I could say in this new world where we have the ability to track and test much better, how should it be done?

And eventually I actually got promoted to vice president of marketing at the first company. And then I thought, okay, I better go take a marketing course now if I have this in my title. So I went to New York University and I did really well in the course. But when I went back and tried to actually apply the learnings in the business of this first company was a game company, I actually became much worse at my job.

I started to approach it like a traditional marketer would approach it. And so then I had to try to forget everything I learned in that class and kind of get back to my approach. So this is kind of what guided me for 10 years across these two companies was just my instincts of how do I keep driving improvement through experimentation and data. And then, so both those companies did IPOs listed on NASDAQ. And then I moved to Silicon Valley.

So I was in Europe for them and then also on the East coast of the United States. So New York and Boston. So it wasn't until 2008 that I had my first experience in Silicon Valley or 2007. And then I started to see, most of the other companies weren't approaching it the same way as me. Because we had two successful companies, a lot of investors were reaching out to me and asking me to help their companies. And I would meet with the CEO

and they would say, hey, yeah, we need someone to help us build awareness of our product. And I never tried to build awareness for the products I worked on. I just tried to get more customers to use the products. Awareness wasn't part of my goal. And so I started to realize that most people were not approaching growth in a very optimal way. But there were some Silicon Valley companies that were. And so I saw Facebook, for example,

they had a very sophisticated approach to growth that was very similar to what I was doing. And so Dropbox was, within six months of moving to Silicon Valley was when I joined Dropbox. And as you mentioned, Dropbox was the fastest SaaS business to reach $1 billion in recurring revenue. And it was all using these techniques. So by the time, so that was like 2007 or 2008 was when I joined Dropbox. It was like less than 10 people.

It was very early. And then I, so, but like other people knew Dropbox was doing well. So I got to meet with successful, other successful kind of marketing and growth people in Silicon Valley. And I just said, the small group is doing these really effective ways that take advantage of the possibilities, but most people aren't. And so I could just tell everyone that like, this is actually the right way to do marketing

on the internet. But then there's like a big argument. No, this is the right, this is what the books say. And so instead I said, I would just give it a different name. This needs a different name. And so I went for some drinks with a couple of friends and we just started to throw around, what should this thing be called? And that's when we came up with growth hacking and I wrote a blog post. And then, yeah, within a pretty short time we had,

there was like thousands and thousands of jobs in Silicon Valley of companies trying to hire growth hackers. And yeah, it was a bit of a surprise, but that's the origin story for growth hacking. I, yeah, I really love it. And yeah, that's, and then also that it's really easy to memorize them, remember the word and term. And that's so powerful. And yeah, and also in the book, and you mentioned that, you know, activation matters.

I mean, you mentioned like, you know, some companies focus on like acquisition phase. Some people. people care about retention because retention matters the most, but you mentioned activation is the number one thing we should focus on, not retention. Could you tell us why? Yeah. So, yeah, even before moving to Silicon Valley, I had my big realization of the importance of activation when I was at LogMeIn. And so for LogMeIn, initially, I was vice president of marketing again.

And so initially, I was focused on, okay, how do I test lots of advertisements and lots of places to put those advertisements? And I even tested lots of landing pages. And so I was able to get a lot of people signing up for the product. But ultimately, I'm a very, so I didn't study marketing in school, but I did study economics. And so I had a lot of economics in my background. And so it's obvious that if I spend $1, I need to get back at least $1 or I'm going

to run out of money. And so I was looking for that positive return on investment. And what I was finding was it was very hard for me at LogMeIn in those early days to spend money on marketing and get a return on investment. So I had some places to do it, but I could only spend about $10,000 per month. And we actually had raised because it was the same team that had already had success in the first company.

So even though it was a hard time to raise money, we were able to raise about $10 million for the business. And so our story was we were going to spend it on marketing. And so the CEO put a lot of pressure on me. He said, we have to spend a lot more than $10,000. And I was saying, but I don't want to waste the money. And so we were kind of trapped. And that's where I started to really look at the data again and study what was happening

to all these people who were signing up for the product. And what I found was that most of them never once used the product. So the product was kind of hard to use. It was software you put on your computer, and then you can remotely control your computer from any other computer. But it's a lot of steps to set it up and install it, make sure it's working on your computer. You have to know how to go to a different computer and what do you have to do on that

other computer. So most people, they never did that remote control session. And so if they never did, they weren't going to pay us any money. And if they didn't pay us any money, I didn't get my return on investment to spend on the marketing. And so I discovered that 95% of the people who signed up never used the product. And so this was a big problem. But as a marketer, I couldn't really do a lot about it.

And so that's where it was really the product team that would do that activation and onboarding. But the product team was so focused on building the next great feature. They have this roadmap of all the things they want to build that the product team wasn't thinking about how do we have a great first experience with the product. And so fortunately, I was able to share the data with the other teams and with our CEO,

partner, and the CEO. My goal was maybe get one person from product to work with me on the activation. That was like my biggest hope. And the CEO did something much better. He said, I want the entire company to work on activation. This is so broken, we won't be able to grow unless we fix this. And so for three months, everyone studied why is it so hard to use our product, came up with ideas of different ways to use it, studied other products, like who were the

fast growing companies, what were they doing with their products, talked to a lot of customers, ran surveys, and then we just started to run lots and lots of tests. And so in three months, we improved our usage rate. Remember, it was only 5%. In three months, we've improved it to 50%. And so now a place where I was spending money before, and maybe I spend $1 and I only get half of that back. Now I spend $1 and I get $5 back.

So before I would have cut it and not spent it. Now I want to put as much money as I could there. So after just these three months of focusing on activation, I could now spend $1 million per month on advertising with a very fast payback period. So within three months, all that money would come back to us. And then even more important was now all these people were having a great experience with the product.

And we actually had a free version of the product, which was another pretty innovative thing that we did, was one of the first freemium product-led growth initiatives. So about 80% of the new people who signed up for the product actually came from word of mouth from other happy customers. And we didn't give them incentive or anything else. They just said, oh, you have to try this product. It's amazing. And so you can imagine now we can spend $1 million and that's only 20% of the people

we're getting. The other 80% are coming for free. That's when the business took off. So I learned the power of activation from that and LogMeIn ended up selling for $4.3 billion. I think it was not until 2021 maybe was when they sold, but it was a very successful company. But in those early days, it didn't look like we were going to be successful. So that made me a big believer in activation. The next company or soon after I left LogMeIn was when I worked on Dropbox.

And so much of my early work at Dropbox was getting activation strong. And then afterwards, we focused on referral, which Dropbox became kind of famous for referral. But I have actually one kind of interesting story that involves Japan with Dropbox. And that is right after I left Dropbox. I only went in in the beginning mostly to focus on activation and build that early growth engine. So I negotiated my exit from the company before I started.

So I said, I will only work with you for six months, but I'll work really hard during those six months. And so after the six months finished, I took my first trip to Japan and I was speaking at a kind of startup and investor group event. And they said, oh, you should introduce the companies that you've worked for. And so I first said, the first company that was the biggest game company in the world, nobody really heard of it by that point because they were not growing so fast anymore.

And then I said, log me in, which I knew was already about to go public or had already gone public on the NASDAQ. Again, nobody had heard of it. And then I said, and I just worked with this little company, Dropbox. And the whole room said, wow, we love Dropbox. And that was my big amazing moment where I never once tried to market Dropbox in Japan, but already everyone knows about it because we have such a powerful growth engine.

So yeah, that was very cool. You could track the traffic from Japan at that time, right? So you didn't see it? Yeah. Or I just didn't pay attention to it. It was more like all of the growth in Japan probably came through the referral program and just people, word of mouth, people recommending it. And so we didn't spend any specifically marketing efforts to try to grow in Japan, but we spent all these efforts to build this organic engine.

And I ran a lot of surveys, but I didn't run surveys asking. In the early days, I studied where people were and I learned right when I started with Dropbox that almost all the early users were in the technology hubs of America. So in San Francisco and in Boston, and then within six months, the biggest concentration of customers were in Nebraska, which is not like a high technology hub, it's kind of more

farms and things. And so it showed like how powerful the word of mouth engine was that it spread from these early adopters to around the whole country. But after that point, I stopped focusing on kind of the international, I didn't even think that we were spreading internationally. So I was really looking, where in the United States are we? And so that's why it was such a great surprise to see how much it had been adopted in Japan.

By the way, I still vividly remember that, you know, when I was in the grad school in Japan in 2014 or 15-ish, and I first knew Dropbox, and I started using Dropbox, and I was defaulting to as many as friends, and then I think I got like a tenth of a hundred gigabyte of free storage at the time. Nice. Yeah, the referral program was a very powerful program for growing, and that was so much of my focus in those last final days when I was with Dropbox, was really trying to – yeah,

I always thought about doing a similar type referral program at LogMeIn, but we had such high word of mouth, you know, I told you 80% of the people were coming through word of mouth, I was more worried about breaking what was working, like if I suddenly offer them money to do it, maybe they say, I'm not going to do it if you don't give me money. But we were so early with Dropbox that it just seemed like it was a risk worth taking,

and so yeah, I'm glad we did because we saw a very big acceleration on growth once we offered the incentive with the referrals. Interesting. You mentioned that before joining Dropbox, so many investors and the funders reached out to you, so why don't you work with us? So why did you choose Dropbox at the time? Yeah, it was funny. Yeah. Yeah, so what was really interesting, so one, I worked with one company between LogMeIn

and Dropbox, a company called Zabni, and they were both Y Combinator companies. So this was very early Y Combinator days, and I really liked the team at Zabni, and it was an email, it was kind of a plug-in for email, sort of like Superhuman today, if you're familiar with Superhuman. And so the CEO at Dropbox, when I joined, was actually like best friends with the CEO at Dropbox, Drew. So one, he was saying Drew is an amazing guy, and then I looked at the business, and I had

actually had a similar, I saw that opportunity when I was at LogMeIn to build something like Dropbox. When I proposed it, the team got excited to build something like Dropbox, but then I just gave it to the product team, and then where they ultimately came back with was a backup product because they said, there's no market for this thing, for synchronizing your files across devices, but most people, there is a market for backup.

So we're going to do backup instead, but the backup was a very crowded market. But I still had, so when I saw Dropbox, I said, oh, I know there's a market for that because I already, it was some of the functionality in LogMeIn, we had a synchronization feature within our remote control tool. And so when I asked people through surveys what their favorite feature was, that was always what they said. So I already knew that was a really important feature, and so Dropbox building a whole business

around that feature, I felt very confident in it. But strangely, I also met with another company that was doing something very similar at the time, and I had a lot of respect for the founder of that company. He had actually worked at my first company as well, so we even had a working relationship, a little bit, like a little bit of overlap. And so they were almost the same businesses, but somehow I just, yeah, like the Dropbox

just felt right. But whenever I work with any company, chemistry is usually my most important factor in deciding who to work with because startups, success in startups is really hard, and so if it's going to fail, I want to make sure I at least enjoy the team that I'm working with. And so that, yeah, I just felt really good chemistry with the Dropbox CEO and founder, and I knew he was a great engineer because the first CEO that I worked with was such

a great engineer and told me that Drew was as well. So that kind of just gave me the confidence to go and work with Dropbox. Wow. Amazing. And so, and also you invented, you know, the famous test, shown as this, did you, did at the time you joined Dropbox, did they already did the shown as this? Yeah. So I actually, yeah, I invented it in that company right before Dropbox, and it was, the reason I invented it was because they had, they had a, well, I should tell you what

the, what the, what the Sean Ellis test is, and then I'll tell you where it came from. So the test is basically you ask your active users on your product, how would you feel if you could no longer use this product? And you give them a choice. I would be very disappointed. I would be somewhat disappointed. So a little bit disappointed, or I wouldn't really care, you know, not, you know, so not disappointed or maybe even I've already stopped using it.

And so I ran that question. The goal in running that question is to see how many people say they would be very disappointed without the product. And because that's essentially saying that it's a must have for them. If they say, I'd be very disappointed that they said that, yeah, this isn't a nice to have. This is a must have. And so but I, after I ran it across a lot of companies and then I'll tell you the origin

story, but after I ran it across a lot of companies and had a lot of friends run it, I started to see that the survey was a pretty good indicator of product market fit. And so I used that as something to help me pick opportunities, but I didn't use it to pick the Dropbox opportunity. At that point, it was more of a tool to help me identify the most passionate customers and kind of improve the growth engine in the business.

But I wasn't using it to validate the product market fit. So where it came from, though, the company before Dropbox, this email add-on company, they had a, their main customers were senior managers, so leaders inside companies. And the normal way you would ask a question like this was a satisfaction question, like how satisfied are you with this product? I'm very satisfied, I'm somewhat satisfied or whatever.

And I thought, I'm not going to get a strong signal from managers asking a question that way, because good managers are never satisfied. They're going to always give me kind of a weak answer that says I'm somewhat satisfied. And so if I want to get a strong signal from these people, I have to ask it the other way. How would you feel if you couldn't use the product anymore, gave me like a more useful answer from them, because if managers, if they don't get what they want, they get disappointed.

And so satisfaction wasn't a good proxy, but like, yeah, I would be very disappointed without this. So I thought that when I first came up with the question, I thought it would only be useful for that company. But then I started to run it at Dropbox and at other companies. And I started to see that pattern that it was actually a good way, if I'm going to go try to grow a product, I already had decided, like I had already kind of figured out this

idea of product market fit, even though I didn't learn the phrase probably until maybe 2000, maybe 2007. But before I learned the phrase, I think I learned the phrase from Steve Blank has a book called Four Steps to the Epiphany. But before that, I did a reflection when I mentioned that those first two companies I worked on were they both listed on NASDAQ, both successful companies. And so when I was figuring out what am I going to do next, I just had an honest conversation

with myself where I said, OK, be honest. Did you just get lucky here? And are you good at this or did you just get lucky? And then, you know, it's a part of that I realized, well, the most important thing I did was, you know, that that early work on activation and kind of figuring out the growth engine of the business. And so, yeah, I'm not just I didn't just get lucky, but there is more important work that

I did. So in year five, my contribution was not nearly as valuable as it was in year one. But I did it where I got lucky and what I had recognized. was I got lucky because people wanted the products that I was that I was helping to grow. And if nobody wanted the products, I could be the best marketer in the world. And I'm gonna fail if nobody wants it. And so that's when I said to myself, Okay, I need to make sure that I work

on products that people actually want. And, and so once they try them that they want to keep using them. And and so that's like the concept of product market fit. I just hadn't heard the word product market fit at that point. And so but then then I when I came up with the the test, it was really with that idea is that like, when someone says they'd be very disappointed without the product, like that tells me okay, this is who the products for. And that's and that was my

original way of using it was like, Okay, let me figure out who my target customer is by asking that question. And then let me figure out why they love the product. So I can change the messaging to be about those things. And then I also can change the the onboarding and the activation to make sure whatever the promise of that messaging is, that we we quickly deliver on that promise before they give up and say, this thing doesn't doesn't do what they promise. So it

became kind of the framework that the answers to that question became the framework one on how I did a lot of that early work. I see. And I'm curious, I was curious, you know, how is it different from NPS? Because you know, asking any basis asking like a satisfaction, and your test is asking how would you like it feel and very disappointed on that. So yeah, so I love NPS as a question. I think NPS is a very valuable question. But it's a valuable

question later, in the early days, asking people how they'd feel without the product, lets you know, did I create something valuable at all? And then NPS is, for anyone who's not familiar with NPS, it's essentially saying, what is the likelihood that you would recommend this product? And, and then you give them a scale of one to 10. If they say, 10, nine or 10 are treated as like they're they're your your recommenders, then you've got some passives. And then anyone I think below seven

or eight, maybe it's below eight, or below seven, seven is is a detractor. And so that doesn't really tell you if the product's great, because maybe they wouldn't recommend it because they really don't like the people who work at that company. They're mean, but I really I'd be disappointed without the product. But like, I don't like that the customer support team, for example, they never get back to me. And so NPS might be low, but the must have score would be

would be pretty high in that case. So NPS is really more of a reflection of all parts of the business. So of course, if you don't really need the product, you're unlikely to recommend it to others. So that's like one of the parts of the NPS. But it's also Yeah, if customer support is bad, that has a huge effect on NPS. And so, so there's, it's kind of like, how, how well is that? How good is that company at actually doing business with its customers is really what the NPS is reflecting.

And then and then the one other thing with NPS, it's kind of a strange example that I like to use, but certain categories just aren't going to score very strong in NPS. And so like a good, a good example might be like adult diapers. So you know, like, people who people who can't not go to the toilet in their clothes. That if you ask those people, how would you feel if you could no longer use this product, they would probably say I'd be very disappointed because I I need this product. It's

embarrassing if I if I if I can't like protect my clothes, but are they going to recommend it to other friends? Probably not. It's an embarrassing product. So on the NPS, you know, so some products, maybe aren't that aren't that like, important. So like, like a viral video on TikTok, for example, like, how would you feel if you you couldn't watch that video again? Like, I've already watched it, but I wouldn't

care. But I've also told 10 friends about it. And so I, I recommend that video a lot. So so but so maybe it's not a must have, but it's just so funny that it's great to recommend it. And so so there's, like, what drives recommendations is, is usually a little bit different than what makes something a must have product. And so that's, so but when you're a startup, great customer service for a product nobody needs,

doesn't really matter. So when you're a startup, or even a big company that's created a new product, before you even have a business before you can even start to grow something, you need to validate that it's it's a must have for at least some kind of targetable customer. And so that's why the that the Sean Ellis test has become so important for, for, for companies, and startups in particular. And what's, what's actually kind of

interesting, so I did, I was just in Japan, not not very long ago, in about this time last year, actually, yeah, like April last year. And it was at the end of a trip around the world, where I where I went to a lot of countries where my book is sold. And I, what one of my biggest surprises of that trip was talking to so many very successful entrepreneurs, including one of the very, very successful founders in Japan. And almost all of them

said, wow, that Sean Ellis test is the most valuable thing that I've learned from you like that I didn't I didn't understand how important it was around the world to so many different businesses. Yeah, it's useful. And yeah, we use that too. Yes. Oh, by the way. So I was curious, you know, let's say you have a, you know, the company has a good mission, vision and working towards the mission, vision and building product. But let's

say you did Sean Ellis test and you got a 40% or 50%. But the people are loving the how to say the feature that how to say, not a main feature, but the sub feature or like a sub project. And in that case, how should what should we do? To read? Yeah, I mean, it's a hard decision that, you know, obviously, a founder might be passionate about their vision. And maybe this isn't their vision. So yeah, maybe maybe they decide they they want to keep going after their

vision. That what what I feel like, though, is that product market fit is so hard. It is like I have the Sean Ellis test, but I don't think I have any, any advantage over anybody else in the world on getting to product market fit. It's really hard to have an idea, build that thing, and then get feedback from customers that they actually, you know, this is a must have, I can't live without this thing. And so when you have that, that's, that's an asset that is very, very hard to create,

recreate. And so if you if you say, that's not the business I want to build, it's a big risk, because the chances of you being able to find product market fit, again, are very, very low. And so a lot of businesses really change their whole business when they when they learned what that must have use case was. So Instagram, for example, look more like Foursquare when when it first came out, and then then they discovered that the the photo sharing part of a bigger app was the thing that mattered. They

changed the business to be around that thing that mattered and rebranded it as Instagram. And then it was one of the fastest companies to reach a billion dollar plus sale at that point. And so that even like so many companies that you could think YouTube started as a dating site, and then and you know, kind of videos for dating, but then they then they discovered that this is where the most value was. So I think of like, finding that value is is much more of like, you know, kind of a crowdsource, you you put it out

there and you just you just don't know. And so for me personally, if I had something that's not not what my vision was, but I'm getting a bunch of feedback that this is what customers think is very valuable. I personally would say, okay, that's what I'm doing. And what's really interesting. So two of my most successful startup investments, I don't I don't do very much startup investing. But the two most successful ones that I did where I didn't work for the companies were one was Ring, if you know, the video doorbell company.

They're the most if you're familiar with the show Shark Tank, I know that they have it in a lot of different countries, you probably have something similar in Japan as well. But the most successful company to ever be on Shark Tank was this company Ring, and I was the very first investor in this company Ring. And the reason was that I, I invested in the founder, and he didn't even know what he wanted to build. When I invested in him, he he was just trying a lot of different ideas. And Ring wasn't even one of the ideas.

And so sometimes being so passionate about one direction is not necessarily where your path to success is. He's very passionate about Ring now. Once he saw this is what the opportunity is and he thinks about all the good in the world, reducing crime and all these things, it became his passion. But he didn't start it going into it with that passion. Another company, Connectifier, same thing. These guys played around with a lot of ideas before they decided to go in something that was a recruiting kind of tool that ultimately ended up selling to LinkedIn.

Again, another very successful business, but they didn't know what they were going to build at all when they started out. And so I actually think early vision can sometimes be a little bit overrated in terms of what makes a good entrepreneur. There's a lot of people who have great visions that fail, including me. I've failed when I've pursued a great vision where I'm going down a path now where I'm going to be launching some startup initiatives myself in the near future.

And I'm taking a much more similar approach to my two most successful investments where I don't know exactly what we're going to build. We're going to be trying a lot of different things. But when you get that signal of product market fit, then the vision is like, where can we take this? What can we do with this asset? But the asset of you've created something that is indispensable for people is a very hard asset to create and a very valuable asset once you have it.

Quick question. Why did you decide to invest in these founders? So the first founder, I just knew how the one with Ring, I just knew how rigorous and effective and that he's a very persistent founder. And I just trusted him. I thought he would do really well with that. The second founder, I didn't invest until after they had found this thing that was working. And I knew they were both very smart guys, the two founders.

And I saw enough signal in what they had created that told me, OK, I think this is a big opportunity. And I actually helped them. I didn't just invest, but I helped them find the – I made the introduction that led to their main investor through the whole company. And that investor sent me a very nice thank you gift after they made a few hundred million dollars from that introduction. And yeah, so like I – yeah, but I think the moral of that story is when you somehow create something that people can't live without, that you have the start of something that can be great.

When you just have a great idea and a great vision, you kind of don't have anything yet. I see. And it sounds like you're pretty good at finding great founders or great successful founders in the beginning phase. So do you see any common points in those successful founders when they met them for the first time, like Dario Houston or Ring founder? I think I've actually been really lucky. I mean, on that, I don't know that I'm so good at finding them.

I just – yeah. I think so. But yeah, any common points? You mentioned persistent. I think that's a characteristic. If I'm working with someone, if I'm going to actually be working with them, then that's where I really look at the chemistry. Like is this going to be someone I enjoy working with? But from investing as a founder – I mean investing in a founder, it's really – yeah, it's that persistent, that grind, their willingness to – if they basically say, oh, I need to keep paying myself a lot of money while I'm figuring this out, that's a huge red flag for me.

These guys – one of the things these guys told me who were – who sold their business to LinkedIn, while they were trying to figure out what idea to build, there's kind of this common phrase. I'm sure you guys have heard it, ramen profitability. Have you heard – because like in the U.S. when someone is in college, like sometimes they don't have any money to eat and all they can afford is like a very cheap ramen.

Not the good stuff you get in Japan, but something that's a cheap, bad package of ramen. And so it's sort of like almost become symbolic of being very careful with your money in a startup. And it was funny with these guys who built this company that sold to LinkedIn. The company was called Connectifier that they told me that while they were trying to come up with ideas, they did an analysis on like what is the cheapest way to eat so that they can stretch their money out as much as possible.

And they realized that ramen was a terrible investment. Even though it's cheap, it just didn't have any nutrients in it. And so they decided that actually investing in peanut butter was a much better way to sustain ourselves and keep our costs down and get enough nutrition and filling to be able to keep persisting. But like that's the mentality of like when they're thinking through like what's going to give me that persistence and drive where I can make that money last was really impressive to me.

That's really interesting. So we should do the same thing. But regarding the revenue, sometimes, okay, we pass the product market and we set the clear North Star metric, I think. But let's say North Star metric, the number is growing, but revenue is plural. It's not correlated. In that case, what should we do? And does that happen? Yeah, it definitely happens. And part of that is, to me, building a successful startup is like a series of puzzles and you're doing these puzzles. And the first most difficult puzzle is product market fit.

That puzzle is where almost all failure happens. And then another really important puzzle is what is the right business model? Okay, I've identified this thing that people can't live without. And it's a special blanket that keeps homeless people warm at night. Maybe that's good for society. Maybe you can get the government to pay for it, but you're not going to get homeless people to pay for it. So you might have product market fit, but there's no revenue model there.

And so part of it is like, now that I have something that people can't live without, is there a way I can monetize that? But it's also like software is great most of the time because you have no real cost with it, no marginal cost with it. You have some fixed costs, but if you're selling a car or you're selling some kind of device, then it's not just will people pay money for this, but will they pay more money than it costs me to produce this? So that's like unit economics start to come into the picture.

And then even if it's just like they pay a little bit more money than it costs to produce this, then I have nothing left for marketing. So again, the business model doesn't work even if the product is indispensable. So business model is one of the pieces you need to get right. And then even if you have the business model right, if I can't find a way to acquire customers, like if there's no channel that I can spend money or if there's not like a free referral or some other way that I can get the customers, and I have a great business model and I have a product people can't live without, but if I can't get customers, I'm still going to fail.

That's another big, important puzzle. So all of these, and then these puzzles need to fit together too. So like if I have to pay a lot to acquire my customers, there's a lot of education, it's maybe a product we're selling to businesses, then I have to be able to charge a lot for that product. So maybe then I have to make the business model puzzle fit with the puzzle on acquiring customers. So it's a lot of risk, but again, product market fits the biggest risk. And so often the North Star metric, like I've seen the other happen probably more commonly like with people who have like a business school background.

Maybe they'll really figure out how to grow revenue, but their North Star metric isn't growing. And North Star metric is really a reflection of value, like how much value customers are getting from the product. So if revenue is doing this, but value is like barely going up, eventually revenue is going to come down. That's just like not sustainable growth. If the value is not there, then people will probably fail.

to be canceling. And when those cancellations happen, you're gonna get that crashing. And so what you want is a North Star metric and revenue that move together. But as you see, like growing that North Star metric is gonna be more about finding ways to drive distribution. And that also is gonna be about generating enough money to fund those distribution. And then the North Star metric is more of a function of like how good is my product market fit?

And it's almost like how much of that product market fit am I delivering over time? But yeah, that's why startups are so hard. That's why so many people fail is that, getting all of those pieces right is really hard. And again, none of that really comes back. I didn't really talk very much about activation in those sets of puzzles, but that's why activation is so important is because if I can get activation right,

then my retention will be stronger, which means I'll be retaining those customers, which means that's gonna be driving that North Star metric. And if I can activate them, they're much more likely to pay, they're much more likely to keep paying. So that means my revenue is gonna grow. And you heard the example from Log Me In, I couldn't get the customer acquisition channels working until we got the activation working.

And then suddenly the customer acquisition channels work great. And so activation is just a really important place to focus for new companies, because if you don't give customers a great first experience with your product, that they're not gonna come back for a second experience. And then you're not able to retain them, keep them, get any of the benefits of them, spreading the word and all the things that a successful business looks like.

That totally makes sense. But at the same time, nowadays, bringing aha moment earlier as possible, that matters. But at the same time, nowadays people use AI, and there are so many AI laptop tools. But AI does great job by itself. So meaning, I think the people's, how to say, the threshold to feel aha moment to product is I think getting higher and higher, because many startup company create, you can use AI to bring better experience.

So in that sense, I mean, in the era of AI, so how has the activation changed? How do you think the activation process change or it doesn't change? So one, I think that AI, AI can't really figure out your activation for you. Just like I can't look at a product and say, okay, let me tell you why your activation is so low. If you just do this, your activation will be great. I can't do that. And so AI can't do that either.

But what I can do is give you a lot of ideas for tests that will improve your, some of the ideas might hurt your activation, some will improve it, but it's the process of testing that helps you find the best way to activate new customers. And that's where I think AI can be really helpful. It can allow you to run a lot more tests more effectively. It can help process the data. This and this worked, this and this didn't work.

Give me 10 more ideas. AI can start to give you, can be like a good ideation partner. It can even help to build the experiments for you. So AI can do a lot of that, but you still need the data and experimentation to improve the onboarding. The one place where AI can also help, I'm not sure how much that impacts activation and onboarding, but is in personalization. It can, AI can drive way better personalization,

but I generally think of that as more of a retention piece than just the onboarding piece, because it doesn't know what to personalize early on until it learns more about you. Yeah, exactly, yes. And you published a book in 2017, and now 2025, has anything changed in- So yeah, the best part of the book is that we really wrote it about the principles and the fundamentals of growth. And again, like I just said,

those are never gonna change. The principles and fundamentals, how you execute within those principles and fundamentals will change a lot. There's new channels that have emerged that didn't exist in 2017. AI, obviously a huge potential driver of a lot of things. I think for, especially for startups, you can, a team of two or three people working and figuring these things out can perform like a team of 10 or 15 or 20 people before.

You can just move so much faster and process data faster and try things faster. So, interestingly, I reached out to my co-author just like this past week and said, I think we should write a blog post. I don't wanna write a book on AI because in six months, I'll look back and say, what a stupid book that was, because it's changing so fast. So what I said to my co-founders, we should write a blog post that just says,

what would change in hacking growth if we wrote hacking growth today with all of these AI tools? And so kind of highlighting some of these pieces. So we're brainstorming it and we're gonna hopefully come out with something pretty soon that we'll, so yeah, keep it up. My sub stack is seanellis.substack.com. And so keep an eye on that. We'll get something out hopefully in the next few weeks on that. And I think, but again, at the end of the day,

the principles and the fundamentals of growth don't change with AI. It's just your ability to execute way faster and better within those principles is what changes. Thank you. And sorry, time is running out, but you know. Okay. Yeah, but- Oh, wow, yeah, we went the full hour. So you already shared many advice and life lessons, but do you have anything else you wanna share or any advice to startup founders or product manager or growth founders?

Yeah, so what I would say, I think the, I think when I went around the whole world, I really compared kind of startup ecosystems in a lot of countries. And I would say that Japan is probably one of the countries that struggles the most with creating lots of startups. That was just my impression. Obviously, like I don't know that for sure, but I was able to compare with a lot of countries. And, but I also met some of the most impressive

entrepreneurs from my entire trip in Japan. So I know it's possible. I know there's some good companies there. I think that, you know, I personally didn't want to become a founder again after my last company because the risk is so high. And I know that part of what holds more people from being founders in Japan is culturally, there's just like a little bit less appetite for risk. And so I understand that because I myself

didn't wanna take that risk. The reason that I am going to go back and become a founder again is because of AI. AI, what makes a startup risky is to get to product market fit, I have to hire an engineer or maybe I am an engineer and I can do that. But even if I'm an engineer and I'm building my own products, it means I'm not in a job that pays me a lot of money. So whether you save money by doing it yourself

or you pay someone else, like it's still expensive. And that it's gonna take months and months to try different variations of products, to maybe get to product market fit. Like that's really hard and takes a lot of time. So like I look at it, I'm 54 years old. I look at it like, maybe I find product market fit and build a company that becomes pretty good. And it takes me about 10 years to do it. Do I really wanna spend the next 10 years?

Do I have the energy to spend the next 10 years doing that? With these new AI coding tools, you can prototype products without an engineer just by putting prompts in. And you can literally, you can create a version without an engineer in one day. And you still need to be creative about how am I gonna get some people on this? How am I gonna test it? How am I gonna... But that's where my book will be very helpful

to learn how to get that early traction. But I've mentioned the hardest part is product market fit. So I'm using Lovable for it. So lovable.dev. And I've just rebuilt my website where that was kind of my first step of just like my personal website. So I haven't launched that yet. I'll probably launch it within the next few days. My new personal website is way better than the one that I had before. And I built the whole thing with Lovable.

And, but the next step then is to start to build some apps, but the fact that the design looks great, the engineering looks great. It doesn't mean that I'm not going to be, yeah, I don't think I could grow the whole business without engineers, but I can at least get to the part where I have that product market fit validation, and then I can invest in some engineering resources. So given my low appetite for risk and having seen so many people in Japan having a similar

low appetite for risk, I think the risk has dropped a lot with these tools. So I highly recommend people play around with, whether it's Lovable or Bolt or any of these AI coding tools, really, really reduces the time and risk that it takes to get a product out. And you don't have to quit your day job to do it too. It doesn't take as much time. So I'm going to continue to do workshops and advising and some other things.

So that would be my biggest advice is that Japan might end up being one of the countries that benefits the most from these technologies because it takes so much of the risk out of launching a startup. Thank you so much. And for Lovable team, I would ask this question, but how would you feel if you can't use Lovable anymore? So one of the interesting things with that question is that it also helps you identify

if your product's a bit of a commodity because people answer, I would be somewhat disappointed because I would just use this instead. And so I actually think that that turns out to be a good thing for all of us. So Lovable and Bolt are growing really, really fast. They're adding like $3 million in new annual bookings every week, like $2 or $3 million, like very, very fast growth. And it's because there is massive demand for it.

But I think they're going to turn into commodities where they will become cheaper and cheaper. And so how would I feel? I would be somewhat disappointed because then I would just use Bolt. Of the ones I've tried right now, Lovable is my favorite, but I think they're all evolving so quickly that in another three to six months, you will be able to build some amazing things with these platforms. So now's the time to really roll up your sleeves and get your hands dirty using them.

And I am going to launch a course soon. So again, follow me on Substack. I have a kind of a waiting list that I just posted on there for it, but it's Growth for Founders. And it's the whole idea of like, how do I learn those key growth skills so I don't have to go out and hire that growth professional for the early stuff? So reading my book is a good way to get started with it. But Growth for Founders course will be another way to basically build those critical skills

that will help you get those early customers and help you grow once you have them. Thank you. Yeah, we will put all the information in the description of this video. And so the very last question, and since Grasp is a platform where people share what they're reading, learning as the digital legacy, we always ask this question to the people who we talk to. And so what legacy or impact do you want to leave behind for future generations?

Yeah. I mean, I think part of it is having written the book and things like ice scoring and the Sean Ellis test, I feel pretty good about the legacy that if I step into the street and get hit by a car today, I feel pretty good about the legacy that I would leave behind. And hopefully that doesn't happen and I have an opportunity to add more things. But yeah, from the time where I started blogging and sharing everything I was learning about

growth, I had a lot of people say, why are you sharing that? Keep those to yourself. Those are like superpowers. And I just said, if I share it, it puts more pressure on me to have to keep coming up with new superpowers. And so, yeah, that's how I'm wired more is just like, learn it, share it, and then try to learn the next thing faster than everyone else. Yeah, I really love it. And again, thank you so much for joining today.

You're welcome. You're welcome. It was great to see you both and I hope the audience gets some benefit from our conversation. Yeah, definitely. Yes. Thank you. All right.

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How to Ignite Startup Growth and Build a Billion-Dollar Business| Sean Ellis | Glasp Talk #46

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