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Identify your company’s growth

Every company has its own growth models and loops of feedback that help you drive sustained acquisition, customers and business growth. The idea of growth models is still new in most markets and the idea is quite simple. They answer the question of what ways does your business acquire new customers and are referred to as loops because they are usually circular. Examples of growth models are viral invites, acquisition, and two sided marketplaces.

You can identify high level leverage inputs with a mode that defines your company’s growth and amplify compounding growth with time.  These models also enable you to choose the right metrics to and set your goals so you can understand your growth progress.

– Building a growth model 
– Below are the steps for determining key metrics 
– Infinity growth model
– Develop a mathematical model with assumptions in a spreadsheet 
– Conduct sensitivity analysis on a spreadsheet to deduce key metrics 

You need to think holistically about every cohort of your customers when you identify your growth model and how they can help to acquire a new set of cohorts.  You’ll need to look at the customer journey step by step and map them to discrete actions. Your final cohort can then become the base for the next cohort the beginning the loop again.

When the feedback loop has been identified, you need to mathematically define every step and take note of the total number of final users in the first time period. They will form the starting number of the following time period. Last, you can use sensitivity analysis to deduce key metrics on the mathematical model. Because of a growth feedback loops compounding nature, some assumptions have a greater amplifying impact on growth.

1. User generated SEO content

This is a user generated content loop that most people use as a self-reinforcing growth model. companies like Quora and Yelp use this. The step by step process is:

  • Users sign up
  • Some of the users develop new content
  • Google indexes the new content
  • Non users find the new content

If you run this type of business, the key metrics you should watch are:

  • Percentage of new visitors from search
  • Percentage of currents users that generate content
  • Percentage of new visitors who are signups

With a quick gut check, its plain to see that these are the metrics that would move the needle. When users are given incentives to generate new content or optimize visitors to become new signups, there will be more growth.

2. Viral invite loop

Social apps like Venmo and Snapchat use this model where users can import friends from their contact lists. A lot of companies have seen tremendous growth after adopting the viral loop model. Facebook games like Farmville used a similar method when they launched their graph API by asking players to invite friends to help them harvest Green Wheat which boosted the games popularity wildly. This model is also successful with consumer companies. The step by step of this model is:

  • Users signs up
  • Some of the users send invites to friends
  • Some friends follow through and sign up

The important metrics for this model are:

  • Percentage of sign-ups for an invite
  • Percentage of users that invite their friends

That these metrics boost growths over time makes a lot of sense and if users are given incentives for inviting friends then it generates even more potential conversions. Optimizing these metrics will result in more benefits for the company.

3. Paid acquisition

This model isn’t as exciting as the others but a lot of companies use it to scale successfully. Here. current users don’t help you get new users directly, rather they help you generate revenue which can be put towards acquiring more users with paid marketing. The step by step of this model is:

  • The company uses its money to get a number of users
  • Some of these users upgrade and pay a sum of money
  • The company reinvests the money the users paid into getting a new group of users.

The assumptions of this model are:

  • A number of customers will convert to paying customers
  • CAC: customer Acquisition Cost
  • LTV: Customer Lifetime Value

Optimizing these metrics will not be a small issue, you’ll need resources to do it but when you hit each KPI, it improves the effectiveness of the money spent on it. Lower CACs and higher LTVs make your money acquire more new users and in turn more paying customers to boost your budget for marketing.

4. Two sided marketplaces

This model is becoming more popular by the day, technology makes it easier for sellers and buyers to carry out transactions easily with each other. Companies like Uber, Grubhub etc. are examples of what the marketplace model looks like.

To optimize growth in a two sided market place, which relies heavily on growing value, each side gets something from the other, think of what both riders and drivers can benefit from each other and model out the network effects.

The metrics that need to be focused on in this model are:

  • Acquiring vendors directly
  • Acquiring buyers directly
  • The average number of buyer signups per new vendor
  • The average number of vendor signups driven per new buyer

Most of the time your company’s stage determines who the highest contributors to the growth model will be and sometimes it’s better to focus on growing one side first in the early stages to drive growth on the other side.

Measuring and hitting the right metrics

With a growth model, it’s easier to derive metrics you can drive and measure goals against. When a model is represented in a spreadsheet mathematically you can adjust your assumptions and change your focus area so it leads to more growth. These models are tools that help a company understand what they can invest in to drive growth. When you identify the metrics that will impact your growth model the most, hold your teams accountable for a metric or two and let them focus on tasks that will boost the numbers on these metrics.

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Using data for growth

Next lesson:

lesson 5

Personalizing campaigns with data warehouses

Having the correct data to use for push notifications, personalized emails, livechats or website content, is most times a major pain point when you are implementing a new campaign. This data can be anything from standard data on a user like their email address to complex data like the billing status on their subscription. You can merge this data that is already sitting in your data warehouse with your marketing tools to boost your marketing campaigns.

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