10. GROW

10. GROW

1. The engine of growth is the mechanism that startups use to achieve sustainable growth.

   • SUSTAINABLE GROWTH is characterized by one simple rule: New customers come from the actions of past customers. There are four primary ways past customers drive sustainable growth:
     • 1. Word of mouth. Embedded in most products is a natural level of growth that is caused by satisfied customer’s enthusiasm for the products.
     • 2. As a side effect of products usage. Fashion or status, such as luxury goods products, drive awareness of themselves whenever they are used.
     • 3. Through funded advertising. As long as the cost of acquiring a new customer (marginal cost) is less than he revenue that customers generates (marginal revenue), the excess (marginal profit) can be used to acquire more customers. The more marginal profit, the faster the growth.
     • 4. Through repeat purchase or use. Like subscriptions or voluntary repurchases.
     • PRODUCT|MARKET FIT: Describes the moment when a startup finally finds a widespread set of customers that resonate with its product.

2. ENGINES OF GROWTH: The sources of sustainable growth power feedback loops that are called engines of growth. Each is like a combustion engine, turning over and over. The faster the loop turns, the faster the company will grow. Technically, more than one engine of growth can operate in a business at a time.

   • Successful startups usually focus on just one engine of growth, specializing in everything that is required to make it work.
     • The engines of growth framework help them stay focused on the metrics that matter.
   • Engines of growth are designed to give startups a relatively small set of metrics on which to focus their energies. Startups have to focus on big experiments that lead to validated learning.

3. The STICKY ENGINE OF GROWTH: Companies using the sticky engine of growth track their attrition rate or churn rate very carefully. The churn rate is defined as the fraction of customers in any period who fail to remain engaged with the company´s product.

   • The rules that govern the sticky engine of growth are pretty simple: if the rate of new cuter acquisition exceeds the churn rate, the product will grow.
   • The speed of growth is determined by what the churn rate compounding, which is simply the natural growth rate minus the churn rate.

4. The VIRAL ENGINE OF GROWTH: products that exhibit viral growth depends on person-to-person transmission as a necessary consequence of normal product use. Customers are not intentionally acting as evangelists; they are not necessarily trying to spread the words about the product.

   • Growth happens automatically as a side effect of customers using the product.

5. The VIRAL LOOP: its speed is determined by a single mathematical term called the viral coefficient. The higher this coefficient is, the faster the product will spread. The viral coefficient measure how many new customers will use a product as a consequence of each new customer who signs up.

   • Example: For a product with a viral coefficient of 0, 1, one in every ten customers will recruit one of his or her friends. A viral loop with a coefficient that is greater than 1, 0 will grow exponentially, because each person who signs up will ring, on average, more than one person with him or her.

6. The PAID ENGINE OF GROWTH: each customer pays a certain amount of money for the product over his or her lifetime as a customer.

   • Once variable costs are deducted, this usually is called the customer lifetime value (LTV).
   • Suppose an ad costs 100 bucks and causes 50 new customers to sign up for the service. This ad has a cost per acquisition (CPA) of 2 bucks.
   • If the product has an LTV that is greater than 2 buck, the product will grow. The margin between the LTV and the CPA determines how fast the paid engine of growth will turn.