Growth Engines for Startups
📖 The Lean Startup
A growth engine is a process that startups use to achieve sustainable growth i.e. growth where new customers come from the actions of past customers.
There are three growth engines, each with its own set of metrics:
Successful startups usually focus on a single growth engine. Chasing multiple engines at once creates confusion and leads to poor results.
Applies to products designed to attract and retain customers for the long term. They rely on high retention rates to grow.
Metrics to track: Growth rate, Churn rate, Retention
Rule of growth: Growth rate > Churn rate. The larger the difference, the faster the product grows.
Focus on: Improving the product to make it more engaging and to drive retention.
Applies to products designed to spread rapidly from one person to another. They rely on existing users to bring in new users.
This is different than word-of-mouth growth because customers are not intentionally promoting the product. Instead, they are promoting the product by using it. Viral growth happens automatically as a side effect of customers using the product.
Metrics to track: k-factor
Rule of growth: The higher the k-factor, the faster the product spreads.
Focus on: Increasing the sign up rate and the number of invites sent per user.
Applies to startups that acquire users through ads or sales, make a profit on each new user, and then reinvest the revenue to acquire more users for larger profits. They rely on getting more money from a user than they paid to get him.
Metrics to track: CAC, LTV
Rule of growth: LTV > CAC. The larger the difference, the faster the growth.
Focus on: Increasing LTV and decreasing CAC
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