Written by: Connor Dales, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Have you found yourself busier than ever and struggling to keep pace with the latest economic trends trying to find your footing as it relates to sustainable consistent revenue (and profit!) for your company? We're just over two years coming out from the last economic downturn, and we're facing another potential recession. So, what exactly does this mean for small and medium businesses?
The fastest-growing products are better represented as a system of loops, not funnels. Loops are closed systems where the input through some process generates more of an output that can be reinvested in the input. There are growth loops that serve different value creation including new users, returning users, defensibility, or efficiency.
Here is a prime example:
The driving force behind Pinterest's growth is the following loop:
User signs up (or returns)
They activate you on the product with specific/relevant content
You save new content or repin existing content which gives Pinterest quality signals
Pinterest distributes the quality content to search engines
A user finds the content via search engines and either signs up/returns (see step 1)
These are two of over 20 growth loops that’s been identified in our research that drive acquisition, retention, defensibility, efficiency, or a combination of the four. Those that understand them and organize their product/teams around them will be the ones who create the most value. There are two primary reasons why Growth Loops are the key to the fastest-growing products.
Loops provide sustainable compounding growth
Loops force you to answer, “How does one cohort of users lead to another cohort of users?” You focus on how you reinvest the output of one cycle of the loop into the next cycle of the loop to get more output. This creates a compounding effect that is more sustainable. Not all loops are created equally. You'll be tempted to draw a ton of loops for your product, but what that typically means is that you just have a ton of low-powered loops that aren't sustainable. The fastest growing products are typically powered by 1- 2 major loops that transition over time. Measuring and understanding the power and health of your loops is critical to understanding where to concentrate your focus.
Loops are more defensible
Loops combine how your product, channel, and monetization model all work together in a single system rather than treating them as silos. As a result, they end up being more specific to your product and company making them harder for others to replicate. On the other hand, strategies and tactics that aren't specific to your product/user/model can be replicated with ease by others. As they get copied, effectiveness decreases and always trends to zero requiring you to constantly invent new strategies and tactics. This decreases its longevity as a working sustainable model over the long term.
How Growth Loops Change Everything
Once you start looking at things through the loop framework, you start to make a quite different set of decisions.
You approach growth from a different perspective
Once you start viewing things through loops, you stop approaching acquisition, product, and monetization in silos. It forces you to think about how the three work together in a system. You stop thinking about the never-ending cycles of more tactics, more channels, more of everything just to keep filling the top of the funnel, and you start thinking about how what you are producing can be reinvested and deployed towards.
You make investment decisions differently
If you had two options, which one would you choose?
Initiative A: Output of the initiative gives you 500 new engaged users this week, but nothing after.
Initiative B: Output of the initiative gives you 20 new users in week one, 22 in week 2, etc, (growing 10% WoW) for every week going forward.
Hopefully, you choose Initiative B. This highlights how you make investment decisions differently. Rather than looking for the short-term bumps and sugar rushes, loops help you start looking for the things that will compound over time producing much better results over the long term.
You organize and goal terms differently
As product, data, engineering, and design play a larger role in outcomes like acquisition, retention, and monetization. Loops as you can see above traverse typical functional lines. To enable and improve them you typically need every function represented working towards the same goal, the output of the loop. This helps the teams align and organize around the loop rather than by function and therefore reduces the teams optimizing at the expense of each other as it will be reflected in the output of the loop.
Putting Loops Into Action
Understanding loops, how to measure them, and how to map them to your product/service is just the first step. It is a phenomenal qualitative tool to change the way you think about growing a product. But it is hard to represent all the individual levers and their effect on your metrics. You need to translate your loops into a quantitative growth model to help communicate, prioritize, make strategic bets, set goals, and drive your metrics roadmap. We'll go through this a little further speaking to the advantages and benefits growth loops provide.
Benefits of Growth Loops
Fundamentally, loops help you determine how to reinvest the output of one cycle of the loop into the next cycle and get more output. Instead of having a linear output, loops create a compounding, multiplier effect.
Which is essential to sustainable growth.
There are three core elements that you should have for each step in the loop:
What: The action/activity that happens in the loop Who: The persona (company, user, supplier, etc.) doing the action Why: The reason or incentive to take that action
In the example of Pinterest, in the third step, the incentive for users to repin or save new content comes from the need to gain personal or social capital. They want to come back to the platform to revisit the cool images they saved and gain recognition from friends or other users when their pins get seen.
Understanding the user persona, their intent, and their behavior is the starting point of building a growth model. Once you have these listed down you can add metrics to each stage and start with baseline data to form a growth model.
Growth Loops For The Win!
As CEO of Reforge, Brian Balfour, speaks about: a growth strategy should answer the fundamental question: How does your product/service grow?
In any organization, you may get a set of different answers — a marketing-focused answer, a sales-focused answer, or a product-focused answer.
If everyone in your organization has a different view of how your product/service grows then you’ll be referring to different metrics, goals, and will have vastly differing priorities. A growth strategy is the one that brings all stakeholders onto the same page and makes
them work as a cohesive unit wherein every individual is aware of how they are contributing and ultimately to what end.
The growth loop has replaced limited funnel growth models.
Traditional growth models use a funnel-based concept, which many think of as flawed. A growth funnel details the set of stages a potential customer will go through when making a purchase, starting with awareness, and then ending with conversion. The problems with this approach when thinking about growth are that:
Funnels operate in one direction: They have a start and an end. This makes us think that pouring more resources, time, and energy into the top of the funnel will boost output. This isn’t a sustainable way of approaching demand generation. Here we’re talking about acquisition efforts that need increased resources.
Funnels create functional silos: The funnel concept breaks down growth into layers, and each layer is owned by a single team. For example, the awareness stage is a marketer’s responsibility, and the conversion stage falls into the hands of sales personnel. This creates organizational silos. Departmental teams work to meet their specific metrics with no regard for how their efforts impact other departments operating at a different funnel stage. For instance, marketers could bring in poor leads to maximize brand awareness, but this makes it hard for the sales teams to drive conversions further down the growth funnel.
Growth loops remove these issues by changing the way we think about growth:
Growth loops provide sustainable compound growth: Growth loops focus on the question, “How will one cohort of users convert another cohort of users?” Output from one cycle is fed back into the start of the next growth cycle. This creates a compounding effect that is self-sustaining.
Growth loops remove organizational silos: Loops look at how teams of people operating in different areas—such as marketing/sales/product—work together to drive growth in a single system. There are no functional steps assigned to specific divisions.
The three types of Growth Loops
There are many different types of growth loop strategies. Below I’ve listed three common and specific tactical steps to give you an idea of how growth loops work. I’ll explain the viral, paid, and user-generated content (UGC) loops.
The viral Growth Loops
Users will arrive on a site from a search query or a shared link.
Users will share the page, product, or content, or invite other users to the site.
These new users will behave in the same way, so the process repeats.
The Pail Loops
Users are acquired through paid marketing acquisition activities (e.g., Facebook/Google ads).
Users visit a site through these marketing activities and the user transacts on the site or signs up.
The cash generated from this transaction funds the expansion of paid marketing acquisition activities, driving more users to visit the site.
These new site visitors also make a transaction on the site.
The process repeats.
The UCS Loops
A user visits the site where they can generate content (e.g., Pinterest).
The user-generated content is then indexed by search engines.
More users discover the platform through a search.
The process repeats.
Growth Loops Examples
Ultimately, growth loops are hypothetical. It’s up to you to design a growth strategy that will engage your users to get the most out of the growth-loop concept.
To illustrate an example of a successful growth loop in action, I’ll refer to how we use growth loops at our company.
We create quality content to drive growth and organic traffic to our site. In this sense, the viral growth loop is adopted for our purposes and demonstrate to our clients how they can do this too:
Search engine optimized (SEO) content is delivered and published on our webpage.
Users visit webpage from their search query. Because users find the content both engaging and useful, they share it with others via other online channels.
As a result, more users visit our site through the shared links they receive.
They also find the content useful and engaging and share the content with others.
More users come to our site, giving exponential demand growth.
Here are a couple more case studies that reflect and serve as prefect examples of the growth loop model:
HubSpot: HubSpot is a software company that sells to small businesses. Its growth loop is based on three input channels: free tools, organic search traffic, and word-of-mouth. The company offers several free tools, such as the HubSpot Marketing Grader, that users find valuable. This helps attract new users through organic search traffic and word-of-mouth. Once people use HubSpot’s free tools, the company provides value by helping them grow their businesses. This, in turn, leads to increased sales and more customers, which completes the loop.
LinkedIn: LinkedIn’s growth loop is powered by its network effect. The more members join LinkedIn, the more valuable the platform becomes for users and businesses. LinkedIn’s growth loop is based on four input channels: organic search traffic, word-of-mouth, social media, and paid advertising. LinkedIn attracts new users through these channels and provides value by helping them connect with other professionals worldwide, find jobs, and grow their careers. This eventually leads to increased sales and more customers, which completes the loop.
Final thoughts
The growth loop model has improved how we think about acquisition marketing. It’s moved the focus of growth from siloed teams to a more integrated approach. The model provides a self-sustaining and compound growth effect which gives better results in the long run.
Remember, there is no silver bullet in marketing. It is up to you to be aware of your ICP and tailor your loops to your market.
We can't be sure what's going to happen in the months and years ahead, but these business owners all agree that with the right mindset and preparation, small businesses can continue to thrive.
Connor Dales, Executive Contributor Brainz Magazine
Connor Dales, is a serial entrepreneur, business coach-consultant and a leader in leveraging systems for small, medium, and large sized businesses in addition to serving its owners by facilitating and cultivating strong leadership growth. He's an accredited ICF Certified Coach and has a wealth of knowledge and experience in business and personal/professional development. Connor is passionately committed to ensuring business owners and their teams breakthrough their bottlenecks and challenges to maximize their profitability and elevate their levels of impact! He is the founder of Meta View Coaching Solutions, a coaching-consulting company and online education business on a mission to transform companies from ordinary to extraordinary.
