- Understand cycle ratios to determine your own growth multiplier;
- You need a growth multiplier >2 to drive exponential growth;
- Build a product with loops in mind;
- Loops won't work unless your product is loved.
A growth engine is a set of activities that you can systematically undertake to drive growth. This could be as simple as running an AdWords campaign or blogging and sharing your content. Typically though, these are more complex constructs made up of lots of moving parts. Lots of parts usually means that the engine can be iterated on and optimised well by tackling each part at a time. These parts combine to create your growth engine. They wouldn’t be engines unless you could step on the throttle to rev up the engine. So ensure that when you model out your growth engine you know the key levers that you can use to accelerate the engine.
An example could be a store that drives some traffic through an Adwords campaign, collects email addresses by a popup on first visit and then retargets visitors who proceed to view a product using an ad network. They then email the users they’ve collected and ask them to refer their friends. All of these parts combine to create this business’ growth engine. In this case, to accelerate the growth engine you would drive more traffic from the AdWords campaign.
Once you have a growth engine, you should start to think about loops. Here is an example of a very simple loop describing a referral system. For every user acquired they refer 0.4 new users. So that:
Users acquired = 1000 New users referred = (1000 * 0.4) = 400
Users acquired = 400 New users referred = (400 * 0.4) = 160
Users acquired = 160 New users referred = (160 * 0.4) = 64
Users acquired = 64 New users referred = (64 * 0.4) = 25.6 This will continue to infinity!
The ratio between the cycles, in the example above 0.4, is what we call the cycle ratio. We can use the cycle ratio to derive a metric called a growth multiplier using the formula below (it saves us extrapolating all the cycles like the above):
Growth multiplier = 1 / (1 - cycle ratio)
In the example above, the growth multiplier would be:
Growth multiplier = 1 / (1 - 0.4) = 1.7x
This means that for every cohort of users that you introduce to your product (e.g. 1000), you will actually receive 1.7x users (e.g. 1700). 1000 of these were the core cohort and 700 were referred by the cohort.
Be aware of how the growth multiplier changes with higher cycle ratios. If you had a cycle ratio of 0.8 (i.e. a 100% improvement), your growth multiplier would actually be 5 (a 194% increase) as the relationship is not-linear.
Loops underpin the holy-grail of growth marketing, exponential growth. If you have a growth multiplier greater than 2x, your initial cohort of users will generate more than themselves in return and the loop will grow larger with every cycle. This is how we define non-linear, exponential growth.
There are three common types of loops to be aware of: viral, paid and user-generated content. You should see whether you can incorporate one of these into your product.
The Viral Loop
- Users arrives at page
- User shares something or invites people
- Other users click on shared item or the invite
- The other users then share something or invite people
The Paid Loop
- Pay for users to visit site
- Users transact on site
- Generated cash used to pay for more users
- More users transact
The UGC Loop
- User visits site
- User creates content
- Content indexed by a search engine
- More users visit site from search
Caveat: loops are hypothetical and you’ll need to ensure you have a product that people engage with and love to really get loops working within your feature set, this is especially true of the viral loop and the UGC loop.