Lesson: Growth from User 0 with Morgan Brown

Step #8 Loops: Running tight loops

There's a lot of merit in studying what other companies have done in trying to reverse engineer and figure out what's worked and what hasn't worked. I think you have to be careful on a couple of levels. One is that companies tell revisioned as histories of what actually happened. So the stories you hear are not always exactly what happened and so taking today's stories and trying to apply them to your company at an early stage, usually won't work.

The second thing is that your business, your customers are completely different than any other business. It doesn't even matter if that business has been in your same vertical, like your economics, your model, your product feature set, probably who your target customer is, have all changed. And whether it's just a function of time or that you're actually in a different vertical or what not, those differences mean that tactics and strategies won't map one to one and if you try to just take something that someone else has done and apply it to your business, it likely won't work.

I'm a big fan of the saying "Steal like an artist" and I think you can steal from other people, but what artists do is they steal from other people and then they make it their own. And I think there's a difference between just copying what other people have done versus being inspired by what they've done and applying it to your business. And I think that can actually be really effective. I think some of the most transformative business growth comes from people applying things that have occurred in outside industries in their industry, but you have to make it your own. You can't just make a carbon copy of it an expect it to work.

So the concept of a funnel is really important for kind of user accounting and being able to figure out if something is working, a conversion rate. Money goes in at the top, or time goes in at the top, users come out the bottom and so I think it's an effective analogy. I also think it's a little limiting and kind of dangerous for growth, too. I think the best companies don't think in terms of funnels. They think in terms of loops and it's more of a mind set thing. Like if you think of your business as a loop, where there are inputs and then there's a feedback loop and it kind of continues to grow the business, it's a continuous process, it's actually a lot more Transcription by www.speechpad.compowerful. And it could be a viral loop, but you could have a paid acquisition loop, you could have an organic loop.

But if you think of your business as an input that then drives kind of continuous acquisition it's a much more powerful metaphor to think about growth then a funnel, which is kind of one way. And even if you have a funnel and then you're talking about referral at the end of it, just the notion of kind of a one way mindset can kind of be limiting. So I like to think in terms of loops because I think that the fastest growing businesses are built on the back of loops, they're not built on funnels.

Every product needs to be seeded in one way or another, and you can seed it through PR, word of mouth, personal connections, or paid acquisition. And so I actually believe that even with a free product or a product that is a freemium model or that type of thing, for the very early first group to try and get some learning, I think it's totally okay to pay for initial users. I will caveat that and say that you need a really strong loop to make those paid users turn into free users. I think one of the problems with paid acquisition is it can kind of turn into a very addictive kind of thing and it can be unsustainable. So I think if you look at Groupons and some other companies like that that it's really easy to get addicted to high velocity paid growth but it's ultimately unsustainable.

So I think you really have to figure out if you have a sustainable growth engine even if you're using some paid channels very early on to get just that seed level. But you want to be careful and not advocate for burning a bunch of cash when you don't have any immediate opportunity to make it back because I do believe in ROI based marketing. But I also believe that very early on, you need to get initial people from somewhere and you could spend three months trying to get PR to pay off, which is just as dangerous as burning cash some other ways.

Organic growth can be much more expensive than paid growth if it's done wrong. If you wait for it forever or if you don't seed it properly, you can do a lot of work on the organic growth side without any results. Tom Tunguz from Redpoint has a great explanation of the progression of growth, where he talks about performance based paid advertising being a very fast cycle time, fast response time, where you can grow it quickly, you get immediate feedback and so it's a very easy thing to do first.

And then you can layer on top of that some of the longer term, harder to measure, less immediate performance stuff like content marketing, brand marketing, and that type of thing. And so I really like that model of thinking about things, is like what are the things that maybe don't have massive scale. Like you can say obviously the brand over a long enough horizon has massive scale. Coca Cola, a perfect example. But in a very short time horizon, if you're a start-up investing in brand early on is probably the wrong investment because you'll run out cash before your brand really starts to pay a ton of dividends.

Now there are exceptions to that rule, but I think most of those exceptions kind of prove the rule rather than invalidate it. So I think if you work on fast feedback cycles with things you can get immediate answers back, it's a much better idea. Much more successful.