Growing revenue faster than traffic is the best way to build a large business. Lean startup methodology is a framework for achieving this dramatic revenue growth.
Immediate post-launch revenue is a linear function of traffic
At the launch of most consumer, advertising and SaaS businesses, revenue grows linearly with traffic. The more visitors, the more ad impressions, the more ad revenue. For SaaS companies, the more visitors, the more conversions, the more revenue.
To make a big business, however, revenue has to grow at a rate much faster than traffic. The chart below illustrates this ideal case:, traffic is in blue, revenue is in red and a traffic threshold is in gray.
How do you get there?
The lean startup movement’s core concepts are reaching an initially minimum viable product (MVP) after iteration, then intelligently and profitably scaling marketing spend to acquire customers.
After a company has reached a MVP product that the market wants, the company needs to dramatically reassign resources to sales funnel optimization.
The most successful companies shift roughly 50% of resources, including engineering, to refining the sales funnel. Across sectors (consumer, advertising and SaaS), this trend has been consistent. With half the company devoted to improving the sales funnel and a product proven to satisfy market demand, all that’s left is the hardest part: execution.
Updated: Example companies
At the Freemium Summit today, Drew Houston of Dropbox said 30-40% of his engineers focus on conversion funnel optimization and mentioned Dave McClure’s Startup Metric for Pirates as an important element of his conversion funnel. Sean Ellis’ 12 in 6 consultancy helps companies develop effective conversion funnel practices using his experience from LogMeIn. There are many other examples of this methodology put to practice. These are just a few.