Growth loop is a closed system where the output can be reinvested directly into the input.
In more simple terms, growth loops bring new users to the product, whatever the process.
The types of growth loops a company has and the way they are combined is core to understanding how companies grow.
See also napkin vision under prioritization.
What Is Easy to Get Wrong
Thinking In Funnels
No company grows like funnels model it. Because it would mean you're just shoveling money in but it's not being re-invested.
Some funnels do have referrals as part of them but visually they are still misleading.
Funnels enable silos. What tends to happen is that teams get split apart by funnel stages and the messages in each stage are different. Plus teams start blaming each other if there's no single north star metric.
Overthinking In Loops
Not everything is a loop. Just because you can visually draw it on paper as a loop, doesn't mean that you're actually re-investing the output back into the input. Pay close attention to that.
Not Thinking Through Incentives For Every Participant In The Loop
Just because you can generate content, doesn't mean it's valuable and someone wants to distribute it to others. For example, not every content that a user generates is interesting for other users.
Just because you are building a referral program, doesn't mean someone is interested in those rewards. For example, big companies are not motivated by 10€ referral bonuses but individual users might be.
Not Building Incentives Around Habits
Giving a one-time freebie or, even worse, a lifetime discount is usually the worst thing you can do.
What you should incentivize, is developing habits. Don't give them a free delivery - give them a free delivery after 5 orders. Don't give them a free ride - give them a 25% discount on the next 5 rides.
This applies to user activation - so both for referral programs and re-activation and loyalty programs.
Creating A Growth Team Too Early
While you are still a startup (searching for the Four Fits), the whole company should be concentrating on finding the fits. Otherwise, you're putting the burden of activation and monetization on a single team.
You need everyone to be thinking of how the puzzle pieces fit together before you can hire a team to optimize certain pieces.
Not Separating The Growth Team
The growth team should be separated from the rest of the product organization and have different metrics for success. While they can and should learn from the rest of the organization, they shouldn't be dependent on it (this means they shouldn't share resources).
Loop Participants
There are three different participants in every growth loop:
- Value receiver
- Value generator
- Value distributor
They all have their reason (incentive) why they participate in the loop. Sometimes some roles might overlap (for example, the value gets distributed by the same person/company that receives value).
Types of Value Generators And Distributors
There are four types:
- Users - the users of your product
- Suppliers - replaceable players in the ecosystem whose target group matches with yours, they are on your platform
- Partners - non-replaceable players in the ecosystem with whom you have some target group overlap but they work off your platform
- Company - your company
Incentives (Value Promises)
There are three types of reasons why people use products:
- Social capital - doing favors for others and being perceived as a useful person to know
- Personal capital (utility) - the product allows the person to get something done
- Financial capital - the person gets paid for doing something
When a given market is new and the product novel, it gets recommended just because people want to recommend cool stuff to others. They hope that they will be perceived as cool and helpful as well.
However, there's a shift towards personal and financial capital, when a market matures. Suddenly there are many products that all do more or less the same thing. So, the incentive to recommend the product shifts to financial capital.
Types of Growth Loops
Viral Loops
Viral loops are categorized by the value promise (incentive) to the distributor:
- Personal Viral Loops
- Financial Viral Loops
- Social Viral Loops
They usually have:
- Quick time to value;
- Broad value prop;
- Network effects.
Content Loops
Content loops are categorized by the value generator:
- Company-Generated Content Loops
- User-Generated Content Loops
- Supplier-Generated Content Loops
Paid Loops
Paid loops are categorized by the value promise friction (i.e. how hard is it to do something useful with the product):
- Ad Loops
- Sales Loops
- Integration Loops
Examples of Growth Loops
Check out example loops on the main page.
How Are Growth Loops Measured?
- LTV / CAC > 3 (kill all channels that are below that)
- Payback period of your investment - double down on the loops that pay back in the least time possible (best in class do it under 3 months for B2C, and under 8 months for B2B)
