This is the second blog post in a series about building growth systems. After writing about Product & Growth as a fundamental belief system, I will now introduce the concept of sustainable growth systems, why they are relevant and what to consider when going through the process of building them.
Systematic growth optimisation and engagement loops have been an important part of my product management practice since 2011, but it has been just recently that I had the opportunity to connect all the dots about building growth systems.
It was like having the feeling of finally validating an assumption that has been dwelling in my mind for years. Fully end-to-end sustainable growth models are feasible, and they are a crucial success factor on how leading organisations use network effects to dominate the marketplace.
Advanced growth systems create exponential results and defensibility. Some prominent thought leaders believe that if your startup is not compounding, you are basically dying because the shared market is limited. Current research indicates that network effects account for 70% of the value creation in tech, and only 20% of organisations have it.
Some examples of products that are in the 20% bucket: github, airtable, tiktok, fortnite, trello, slack, spotify, tinder, segment, quora, shopify, airbnb, zapier, wordpress, stripe, credit karma, robinhood, eventbrite, cb insights, headspace, docusign, surveymonkey, evernote, soundclound, hims, lime, drift, allbirds, masterclass, postmates, gofundme, postmark, ipsy, xero, snapchat, whatsapp, youtube, salesforce.
Systems of compounding self-reinforcing loops
Let’s say you are part of a team that is building a subscription-based product. In that case, the mission of the product team would be:
- Get the right users in front of the product;
- Convince them to try it;
- Engage them through the user experience;
- Increase recurrent usage up to a point they understand the value to subscribe/pay;
- Get them to subscribe to our product;
- Ensure they continue to use and pay;
- Get them to refer our product to other potential users.
In addition to that, to become a leading organisation you would also need to strategically improve the current product with a compounding growth lens — where for every one unit of fuel you put in, you get more than one out.
In essence, an advanced growth system which creates exponential results and defensibility is built by combining a series of micro and macro loops. Which together create some sort of engine that systematically and sustainably get and retain more customers, and improve its effectiveness over time by self-reinforcing its qualitative and quantitative attributes.
Entering Growth Loops
Growth Loops are closed systems of combined micro and macro loops where the results of each cycle are reinvested back in the model triggering more spins of the loops continually, consequently, creating an effect of compound interest over time.
Micro loops are the core of the system and where the direct action happens (acquisition, engagement, retention, etc.). There are viral, content and paid loops.
Macro loops act as a booster in the system, making it more efficient when scaling it up, increasing speed and creating defensibility. They can be activated when effectively combining Micro Loops and when driving product development towards creating network effects. There are direct, cross-side and data network effects, economies of scale and brand.
When creating a growth model, Micro and Macro loops are combined through cycles. There are combinations made from different cycles of the same loop and from intersecting different loop types.
What to consider when building a growth system
In a nutshell, a Product Management practice that has growth systems as a fundamental belief is a continual and actionable process of modelling. It’s about:
- Assessing and mapping your current model (value proposition, monetisation, growth);
- Identifying its constraints and levers;
- Prioritising key opportunity areas of impact;
- Ideating and experimenting on model improvements and variations;
- Precisely investing on the most actionable initiatives and scaling them by building a systematic process within the product experience, which continually improves itself driven by the user behaviour (motivation + ability + triggers) of the right cohorts, consequently resulting in business success.
It’s important to notice, however, that this approach to product management is not suitable to all organisations. Implementing a systematic process means building an engine, an automated system that operates at scale. For that reason, this approach is more suitable for businesses which are starting to get traction (Problem/Solution Fit > Product/Market Fit) or are already scaling their validated model.
It’s also an inherently cross-functional and dynamic approach, and not all scale-ups are ready to implement it straight away. For example, many organisations are still fixing their organisational and tech debt, and don’t have a minimum “well oiled” product ops where teams operate autonomously.
If that’s the case, what you can do as a product leader is to start influencing the right mindset — the scale-ups which nail this approach started by having it as a north star first.
Once your organisation is ready to start building advanced growth systems, the first step towards creating the right strategy is to assess and map your current model. So, you might ask yourself:
- How does your product grow?
- Where and when growth is constrained?
- What are the points of leverage?
Once you have identified key opportunity areas to improve your model, you then create a strategy through a systematic and compounding lens:
- What is the most suitable growth method?
- How might you structure your team and product operations around it?
After implementing it, you then go through a process of continual observation and experimentation with an emphasis on finding key catalysts in the system (potential tweaks that could asymmetrically unlock relevant results).
The art of modelling the system
Similar to when modelling any system — where your goal is to get to a simple formula that combines a series of key variables — building an advanced growth model starts by defining which are the qualitative and quantitative properties forming your loops.
Micro Loop qualitative properties are not very different from the ones described in Nir Eyal’s well known The Hook Canvas. There are roles (value receivers, generators and distributors), actors who perform those roles (users, suppliers, partners or organisation), and their motive triggering them to act (personal, financial or social).
In terms of their quantitative model, Micro Loops set of properties are: the Returns produced by a loop cycle or a combination of them (e.g. number of new or returning users, usage, financial, key actions, inventory); the respective Cost/Investment to generate them; and the variables that make up their growth elasticity curve — Min Scope (minimum investment threshold needed to generate a loop cycle or a combination of them), Max Scope (their maximum performance threshold), and the Speed in which they scale from Min to Max Scope.
As being activated just after effectively sequencing Micro Loops, Macro Loops properties are inter-related with the Micro Loops in which they are commonly paired, consequently, inheriting its roles. They also have the Constraints limiting its compounding speed (total number of users in a network, frequency of core action, one side of the network, amount of data globally/locally, rate and returns of scale, awareness/perception).
In addition to that, Macro Loops have their own Min and Max Scope as quantitative properties, including their Key Metric of performance (e.g. active users, active core actions, liquidity, user value, revenue/cost per product).
A better prioritisation and communication method
Having the practice of modelling at the centre of its approach makes Growth Systems very effective in driving clarity, purpose and trust to product teams. For example, it makes a prioritisation method like RICE more effective by using a validated method to measure Impact and Confidence and by better connecting them to team OKRs.
According to Reforge, there are four steps to go through when connecting your growth system to your development process:
- Deconstruct your model: what are the sequence of key assumptions we have to prove for our model to be right or wrong?
- Codify your analysis: what quantitative or qualitative insights should guide our execution?
- Understand your roadmap drivers: what are the unconscious thoughts informing our roadmap?
- Align it with your values and mission: how do our company values or mission inform our model?
Building growth systems that create compounding results is not an easy task for sure, but being aware of its importance, learning its principles, and having it as a north star can be a game-changer for your product management practice.