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The Backstory

Refer your friends and get 200rs cashback. This is one of the reasons why a lot of startups died or are struggling today, and NO, the reason is not what you think 😳

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Back in 2016-17, when the startup ecosystem was in its very nascent stage, Ritesh Agarwal was the youngest founder of India, Paytm tent was there at every other shop trying to help you with their wallet KYC, and Ankur Warikoo used to just run Nearbuy 😛

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There was this one job - that was in very high demand, and every startup wanted to hire this rare creature who would join their team and get a million users for them in a month.

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Can you guess who this rare creature was?

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Growth Hackers 🦄

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It used to be the sexiest job back then.

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But now, this job doesn’t exist at all 😳

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Why?

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I hazily remember, when I was still in college - Every other day, someone would find out a new app that used to give cashback on referrals, and everyone used to download that app on their phone for a week, but after that, it used to disappear.

Now that I look back at this, the entire startup ecosystem was riding on a hype cycle.

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How do you get 5X-10X new users every quarter? This is where Growth Hackers came into play.

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If you look at the organic way how a user evolves in a product, you will realize the cycle starts from discovering new products via ads or word of mouth. Then they onboard on the product, activate themselves, engage, retain, and then refer.

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If you look at this whole cycle again, you will realize naturally, a user would refer anyone once they have engaged and liked using the product, and hence they are already retained.

But as a growth hacker, my incentive is aligned to get as many users as possible at any cost.

Organically, a user would refer to a new user only after using the product for a long time and only if they liked it. This would ideally take 3-6 months.

But no one has that much time?

I want 10X new users for this quarter, or else I will not be able to raise the next round of funding.

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And this is where the start of the incentive model kicked in

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We started to give bribes to users in the form of incentives to refer the product, even though they haven’t used it. A user just onboarded and will start seeing banners. Refer friends and earn 500rs cashback.

Growth Hackers were the magicians.

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But eventually, the quality of users started dropping. Because of this, user retention dropped; hence the bottom line could never recover, and we see today so many startups that have died, and some are struggling to survive.

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What are the second-order effects of this?

The users coming to your product are not because of the product but because of the incentive they get. Hence, they will stop using your product soon. Once that happens, you will realize that your users are not retaining, and hence you will try to solve that and waste your time and effort.

But the problem to start with was never retention, and it was the users you bribed in the form of incentives to use your product - who never really cared about your product in the first place.

It was all because of how badly the startups and VCs designed incentives for the Growth Hackers.

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One thing you should ask yourself is - what are the incentives of your job, and is it really helping the company’s bottom line (profits)? If not, you should reconsider your career choice. Because now or later - what happened to Growth Hackers can happen to you.

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On the brighter side - I would thank all the VCs for their deep pockets. We enjoyed free OYO rooms, biryanis, and cab rides in the name of growth hacking 💸

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This was it, did you liked reading this?

Do share your feedback with me, so that I can keep on improving and share you insights like these ❤️

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Would be super grateful

Until next time 👋

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Rohan

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001, B 602, Vasant Kunj, New Delhi 110070
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