As a startup founder, growth is surely a top priority. I remember when I started my business, I was overwhelmed with so many growth strategies to choose from, knowing which was right for me, my company, and my team.
I want to talk about a growth strategy gaining popularity in: Growth Loops. I first came across the growth loops strategy "Advanced Growth Strategies" with Reforge. So, let's dive into what growth loops are, how they work, and how you can create one for your startup.
what are growth loops?
The Growth Loop: A Simplified Example
Growth loops are a compounding growth strategy, where the user of one cycle 'energizes' the second cycle. As seen in the image above, by reinvesting outputs into new inputs fuels the next growth cycle.
It is made up of 3 components:
input: the trigger that prompts the user to take action
action: the behaviour the action takes
output: the reward/benefit the user receives for taking action.
When the user receives the reward, they are more likely to take the action again, which creates a cycle of growth. Lets, for example look at Airbnb's growth loop:
Input: a user stays books a stay
Action: the user stays at the property
Output: a positive experience.
In this example, this positive experience then prompts the user to book another stay, creating a self-sustaining growth loop - i.e the user keeps coming back.
To share another example with Airbnb, let's think about the 'referral growth loop'.
Input: A current Airbnb user shares their referral link with a friend who has never used Airbnb before.
Action: The friend clicks on the referral link and signs up for a new Airbnb account. Once they complete their first booking, the current user and the friend receive a travel credit.
Output: The current user receives a travel credit that they can use towards their next Airbnb booking, and the friend receives a travel credit that they can use towards their first booking.
how to create a growth loop for your startup
Creating a growth loop is no easy task, you have to have a deep understanding of your target audience, understand how they interact with your product and what they value.
Here are some steps to follow when creating a growth loop for your startup:
Identify the key metrics that matter for your startup: The metrics you choose should be aligned with your business goals and should help you measure the success of your growth loop.
Map out your customer journey and identify potential loops: Identify the steps your users take when interacting with your product or service and look for opportunities to create a growth loop.
Test different inputs and actions to optimize the loop: Experiment with different inputs and actions to see which ones create the most significant impact on your growth loop.
Use data to continuously improve and refine the loop: Use data to track the performance of your growth loop and make adjustments as needed to improve its effectiveness.
why use growth loops, what are the advantages
Growth loops offer several advantages over traditional marketing methods, let's talk through a few:
Faster and more sustainable growth: Growth loops can help startups grow faster and in a more sustainable way than traditional marketing methods. With the goal being that the loop becomes self-sustaining.
More efficient use of resources: Once a growth loop is established, it requires fewer resources to maintain, making it a more efficient use of resources compared to traditional marketing methods.
Ability to generate feedback loops: Growth loops can help startups generate feedback loops that can improve product development and user experience. This feedback can help startups make better decisions and create better products.
Growth loops vs AARRR funnel
The AARRR funnel model (Acquisition, Activation, Retention, Referral, and Revenue) is a popular framework used by startups to measure their growth.
The AARRR funnel can be useful for startups - and to be honest, it's where my brain first goes when I'm thinking about growth (something I'm working on 🤪) but, it has its limitations.
Customer journey is not linear: The AARRR framework assumes that customers move through a linear journey of awareness, acquisition, activation, retention, revenue, and referral. However, in reality, customer journeys are rarely linear and may involve multiple touch points and channels. 💫 Growth Loop Framework is more flexible and can account for non-linear customer journeys.
Focuses on one-time actions: The AARRR framework focuses on one-time actions that customers take, such as signing up or making a purchase. What about ongoing customer engagement or the long-term value of a customer. We can't think in such a linear model, this will cause issues down the line. 💫 Growth Loops emphasizes ongoing engagement and retention, it's its purpose as the goal is self-sustainable growth over time.
Limited scope of measurement: Don't only focus on conversion rates and revenue. We have to remember other key metrics: LTV, NPS, CAC etc. 💫 Growth Loops can incorporate a broader range of metrics that reflect the full customer journey.
Does not account for feedback: Growth is iterative, and does not account for customer feedback. The growth loop framework emphasizes continuous feedback and iteration, allowing companies to refine their strategies based on customer insights and data.
While both models can be effective, growth loops offer several advantages over the AARRR funnel. Specifically, growth loops can generate faster and more sustainable growth and can be more efficient in their use of resources.
Growth loops offer a powerful growth strategy for startups looking to achieve sustainable and scalable growth. By identifying key triggers and behaviours, you can create a self-sustaining cycle of growth that can drive compounding growth over time. By following the steps outlined in this post, you can create a growth loop for your startup and start generating growth today.
I hope this helps you think about the benefits of a new growth strategy for your startup! If you have any questions, you know I'm around and love to talk about this stuff!