I recently got interested in product growth, specifically user retention and engagement. During my research and inquisitions, I stumbled on a growth concept called Growth Loops.
Growth loops is based on a system of compounding loops dependent on the existing user base of a product. Growth Loops answer “How can I get another cohort of users based on one/several of my existing cohorts without extra investments in user acquisition?”
Previously, I thought of growth as a funnel with different steps — Awareness, Acquisition, Activation, Retention, Referral, and Revenue (AAARRR) called a funnel framework.Growth hackers usually use this framework to find bottlenecks by cutting an organization into pieces and determining where to focus the most attention.
However, as effective as the funnel framework has proven, its implementation could be improved. The funnel framework creates silos resulting in structures being set up in organizations with divided responsibilities — for instance, acquisition managed by marketing, retention by the product team and monetization by the business team. The effect of this ‘silosing’ is that metrics are tracked differently by different teams, which leads to teams improving one metric to the detriment of the other metric because the organization is not thinking of the system as a whole. Additionally, organizations invest primarily in activities that fail to guarantee success.
The main focus should be finding a strategy to reinvest what comes out of the bottom of the funnel to get more growth up top in a compounding manner — which is a Growth Loops concept.
How Growth Loops work in 3 steps:
- An input: a new or returning user is created.
- The new or returning user goes through a series of actions or steps that generate an output, such as an invite, some monetary incentives, etc.
- The output can then be directly reinvested in the input to generate another cycle of the loop, making the loop spin over and over and over again.
Growth Loops vs Funnel Framework:
For product managers to compete in the tech ecosystem, their growth needs to compound. But at the same time, growing linearly means investing in resources like technology, people, or capital to ensure growth. But then, what’s the guarantee? With Growth Loops, you can generate more returns while reducing cost and effort by compounding. Growth Loops combine all the elements of your audience, your product and your monetization model into one and uniquely tailor them to your product. This growth tactic cannot be easily replicated.
So, how can you implement Growth Loops into your product?
Every step in your loop has three(3) major components.
- The ‘What’ is the action happening in that loop step. Is the user receiving value, generating value or distributing that value?
- The ‘Who’ seeks to answer the question, ‘Who is completing the action of this step of the loop’? Four (4) main categories of people could be completing the action — Users, Suppliers, Partners, or Companies.
- The ‘Why’, the most crucial piece, seeks to answer the question ‘Why is the ‘Who’ doing the ‘What’ at this step of the loop’? And this could be for any reason, from personal, financial or social motivation.
In conclusion, while the funnel framework is valuable for growth, it is essential to recognize that it is only a part of the overall picture. For example, you need Growth Loops to maintain user engagement and ensure they continue using your product.
Bonus — not everything should be described as a growth loop. If it’s not a loop, it’s not a loop. So don’t bother overstretching it.