Building a Sustainable Growth Model

"To build an audience, you help people. To build a community, you help people help each other. It’s a subtle but massive difference in mindset."

"Early on, you do things that don’t scale. At some point, though, you need to scale the things you’re doing. As a result, the number of levers you can rely on for growth at scale is substantially reduced — from a total of sixteen different levers early on (across early supply and demand growth), to only eight down the road:"

"Many of the early levers we used to drive growth were a moment in time things that no longer work at all or at scale. We used them where we could to bootstrap the company for a period."

"It wasn't until 2015 that we built the "R2D funnel" which became the largest attributable signup source of riders turning into drivers!"

"For a product that relies on trust, there’s nothing more powerful than an endorsement from a friend. Airbnb had a similar trust challenge, both on the guest side (“stay in a stranger’s home, are you crazy?”) and on the host side (“have a stranger stay in my home, are you crazy??”). Referrals proved to be the single biggest attributable growth lever on both sides of the marketplace."

"If you’re thinking about exploring this viral loop for your business, my number one piece of advice is to **first see if it’s already happening. Only lean into it if you’re already seeing this behavior**, rather than trying to force it from a cold start."

"For many businesses with this demand-to-supply dynamic, there tends to be some latency. As such, I’d start by looking at the following: 1. **Buyer-to-seller conversion rates in the first month, after the second month, and so on.**"

"“Most businesses actually get zero distribution channels to work. Poor distribution — not product — is the number one cause of failure.”"

"A second type of distribution advantage is developing a unique viral loop that allows you to grow more quickly and efficiently than anyone else in your market."

"A flywheel is just a tool for you and your team to identify and align on which parts of the business matter most. Of all of the things that you can work on, which investments accelerate your flywheel, and which investments don’t matter?"

"For example, in the case of Amazon, their flywheel makes it clear that growth alone will lead to lower costs over time. Thus, their time is best spent adding sellers and improving the customer experience, vs. directly cutting costs."

"Initially for Snap, the biggest growth accelerations consistently came from raw, pure, product-innovation-driven growth. Ephemeral messaging in 2011, Stories in 2013, and face filters in 2015—those drove our growth."

"Many of the most durable inflections came from the company leaning into their primary growth engine (e.g. SEO, virality)"

"Of the 30 companies I looked at, 19 of them started off product-led, but 100% of them added a sales team to assist with growth/expansion. Four completely switch to a sales-led motion. Interestingly, zero went the other way (from sales-led to product-led)."

"The blocks, or buckets, represent different user segments with different levels of engagement. And every single user who has ever used the product is in one, and only one, bucket on any given day. That means the buckets in the model are MECE (mutually exclusive, collectively exhaustive) in representing the entire base of users who have ever used Duolingo."

"We prioritized working on retention over new-user acquisition because all of our new-user acquisition was organic, and, at the time, we didn’t have an obvious lever to pull to supercharge that."

"Where should you invest? In addition to the tips I’ve included throughout, I suggest working your way through these five steps: Step 1: Who are your early adopters? Step 2: Where do they spend time? Step 3: What’s the quickest way you can get in front of this group? Step 4: What’s the cheapest way you can get in front of this group? Step 5: How can you stand out when you communicate with this group?"

"I can confidently say that product teams frequently, or even usually, drive more growth by optimizing engagement with existing key features than by launching new ones. And in an economic environment where engineering budgets and projects are being cut, getting more impact from work that’s already been done is even more critical."

"A correlation analysis will tell you how strongly the use of a feature is related to the movement of your various growth metrics. There are many popular, easy-to-use tools (including some free ones) for quickly doing a correlation analysis, or you can even do it pretty easily in a spreadsheet."

"Linear regression is also often used for predicting averages for user activity, growth, and revenue. For example, at Change.org I used regression to forecast the day and time when we hit 200 million users (and I was within 10 minutes right!)."

"As you explore potential product-market fit, it is crucial to have hypotheses on how you will distribute your product. For example, if you are planning to be product-led, then the product has to be designed with acquisition, monetization, and retention distribution goals in mind from the very beginning."

"Founder-led growth is the best path here, where the founder drives growth efforts across product-led, marketing-led, or sales-led motions. The benefit of founder-led growth at this stage is quick decision-making, tight alignment to vision and customer, and, perhaps most importantly, leading by example to set up the growth mindset within the company culture."

"Most companies find the vast majority of their growth from just one of those four growth engines, and until you’ve scaled your core engine, time spent optimizing a secondary or tertiary engine is rarely time well spent."

"The restaurant industry is very tight. Every restaurateur sure knows each other -- so if someone is trying something out, there is a virality that takes place. We benefited from that. A year or two later, with the transient nature of restaurant employees, they are bouncing every couple of years -- if they go from one restaurant that’s using OpenTable, the first thing they say to the owner is that you have to get this software."

"Also, look for opportunities that might turn pre-existing assumptions on their head. The team was optimizing traffic coming from paid marketing channels because they’ve historically converted better. Yet, the bigger opportunity is in profile referrals."

"The most important problem in marketing is this: If we spend an additional $1,000 on some marketing activity, how many additional sales would we drive? Marketers sometimes refer to this concept as “incrementality.”"

"Marketing mix modeling (MMM): a statistical modeling technique that marketers use to determine which channels in their marketing mix deserve credit for sales, in order to reallocate budget to the highest-performing areas"

"Each of these methods has strengths and weaknesses, but by triangulating the truth through combining multiple methods, you can get a more accurate measurement. The goal of triangulation is to determine how many of your sales are “incremental,” meaning they wouldn’t have happened had you not invested in marketing."

"A common pitfall of early-stage startups is trying to invest in too many engines at once and not nail any. At scale, in order to win a market, you have to become world-class at your primary growth engine."

"In the case of paid marketing and SEO, you are competing for a customer’s attention. Paid marketing becomes a business-model competition (who can turn this customer attention into enough value that they can bid more than anyone else for that attention), and SEO becomes a ranking-algorithm competition."

"Your job as a founder looking to grow your product is to (1) creatively execute two to three kickstarting tactics and (2) become world-class at one primary growth engine. That’s essentially your high-level GTM strategy."

"By this point, you have a startup idea, a product, some early users, and hopefully a glimmer of product-market fit. Even if you don’t have any of these, you should still be thinking about how your product will grow as you scale. How you grow will impact what you build, and what you build will impact how you grow."

"SEO becomes a ranking-algorithm competition (who can capitalize on their content in such a way that ‘deciders’ like Google want to continue to send traffic their way)."

"It took years to build critical mass by launching at enough schools to see a significant inflection in our growth and the development of real network effects. This August, we reached fourth overall in Apple’s App Store and second on the Social Networking charts, while maintaining a tailored and closed network for each school."

"Normally, to grow your business, YOU need to go find every new users or customer. However, if you’re building a product like DoorDash, Faire, Substack, Dropbox, Eventbrite, and many of the companies you’ll find below, a very cool thing can happen: your users grow your business for you. THEY recruit your new users. Magical!"

"The key is that your supply has a clear motivation to bring you demand. With this loop, Cameo can focus most of its efforts into recruiting celebrities, knowing that much of the other side of the marketplace will come along for free."

"Go through your own flow. Put yourself in the shoes of your major customer groups. Where do you find yourself getting stuck, confused about what to do next, or distracted?"

"Start with your business’ north star metric —whether it’s revenue, subscriptions, or media consumed— and figure out what set of levers move that metric. [...] This combination of levers is often referred to as a company’s growth model. When you do this right, all of the levers add up to 100% of what drives the business."

"Start by mapping out the major steps of how users would interact with your product-led growth motion, such as marketing site, free version, and checkout flow."

"Run through the entire user journey from a customer's perspective to understand where potential bottlenecks and pain points exist. This includes the initial website visit, the sign-up process, the initial product use, and finally, the purchasing process."

"The concept of atomic networks is powerful because if you can build one, you can probably build two. Each one often becomes easier, because each network can be intertwined with the next—Slack’s success within one company can help it become successful in another, as employees move about and introduce the product to new workplaces."

"Payback period: Average time to pay back CAC. Gross margins: Net sales revenue minus the cost of goods sold. ARPU: Average revenue per user. Growth spend efficiency: CAC/LTV."

"The growth engine is a self-sustaining growth loop that drives nearly all your growth long-term. Of all the components, the growth engine is the most important because it’s the only component that can be self-sustaining—creating an output (e.g. revenue) that can then be reinvested into more growth (e.g. ads)."

"Turbo boosts are one-off events that accelerate growth temporarily but don’t last. There’s some overlap here with kickstarts, but the difference is that kickstarts are effective for getting you started (e.g. unscalable, scrappy, low investment), while turbo boosts can accelerate growth at any point."

"Fuel is the input that your engine runs on. The way to think about fuel tactically is to work backward from your engine—the more (right kind of) fuel you have (e.g. more users), the faster you’ll grow (e.g. more virality)."

"When paid marketing is just a function, optimizing campaigns in a cubicle, it doesn’t inform the rest of the business and the funnel doesn’t work. There just isn’t much you can do to optimize paid ad campaigns. Instead, our supply organization was fully aligned behind what the demand was looking for."

"Think about product-channel fit: How can you create a product / company / organization that the machinery of the org was built to fulfill the needs of the customer from that channel?"

"People talk about Product-Market Fit. We realized we needed Product-Channel Fit. And it became clear Google AdWords was that for us. Initially, SEO was the primary growth driver, but eventually, growth started to level off because we were doing some gray-hat stuff and Google started to penalize us."

"Digital blockbusters are not about a million one-to-one moments as much as they are about a few one-to-one-million moments. Extended to the full world of hits, this new finding suggests that articles, songs, and products don’t spread like in the first picture we saw. Instead, almost all popular products and ideas have blockbuster moments where they spread from one source to many, many individuals at the same time—not like a virus."

"Even though products don’t grow virally for long, it’s still absolutely worthwhile to optimize mechanisms of virality (e.g. word of mouth, invites, referrals, a remarkable product), since that can drive ongoing (free) growth. At the same time, to ignite (and re-ignite) moments of “virality,” you’ll need to invest in getting large one-to-many broadcasts. For example, PR, influencers, TV."

"Beyond simply growth, it’s equally important to look at components of ARR (new, retained, expansion, resurrection, contraction, churn) and customer concentration, and be mindful of the sustainability of growth (e.g. how’s sales efficiency and CAC payback? How does new ARR compare to sales and marketing spend?)."

"For B2C businesses, a payback period ofless than 1 month is GREAT, 6 months is GOOD, and 12 months is OK. And the exceptional cases can pay back their acquisition costs on the first transaction."

"The biggest mistake founders make when calculating their payback period is looking at revenue, without subtracting the cost of good sold (i.e. margin): “If a startup acquires a customer for $100, and that customer generates $10/mo in revenue, with 80% gross margins (or $8 of monthly gross profit), the payback period on a gross profit basis is $100/$8 = 12.5 months.”"

"It’s important for teams to report payback on paid CAC, and not blended. Teams will eventually want granularity into customer quality by acquisition channel, but as a starting point, it’s important to understand how customer value and retention differ for paid vs. organic cohorts and make decisions accordingly."

"Businesses with a high proportion of annual plans will have a shorter payback period because you collect the cash up front! This is a key lever for businesses to pull, especially D2C companies that go after affluent consumers, or really any B2B product. You're effectively getting a ‘loan’ from your current customers to buy more future customers."

"It is important to remember that what really matters is the ultimate LTV of the customer. If your product is incredibly sticky (i.e. more than 5-year LTV) or shows high growth in account (through additional usage fees/upsell/cross-sell), an 18-month payback period may be really good."

"I tend to start with a baseline of wanting to see payback within 6-12 months. That’s usually something that you can predict with relatively decent confidence and, if you’re growing quickly, allows you to account for that the fact the makeup of your customer, product, and even pricing may change a lot within a year."

"Increasingly, startups are focusing on payback periods over LTV/CAC ratios because accurately calculating LTV for an early-stage company is highly suspect. This is the same reason you don’t want long payback periods for early-stage companies."