I want to introduce the topic of growth loops using the following scenario, which was originally featured by growth and acquisition expert and founder and CEO of Reforge, Brian Balfour.
Imagine that you are tasked with making an investment decision to promote the growth of your product or service. There are two ways to approach this:
Initiative A: You invest in an initiative that generates 500 engaged users, but requires continued investment to get there.
Start B: You invest in an initiative that generates 20 new users in the first week, 22 in the second week, and continues to attract more users in the future, with a compound growth rate of 10%.
Which initiative seems the most attractive?
I think you, me and Brian have the answer to that question.
The above illustrates how growth loops work. A growth loop is a model that uses a compound growth strategy to create a self-contained system. They are essentially acquisition loops, providing the means to generate repeatable customer demand.
That said, by the end of this article, you will understand exactly what is a growth loop and why you should use this model rather than more traditional funnel models. I will then provide examples so you can see this model in action before developing your own.
What is a growth loop?
The growth loop is a popular framework that is changing the way marketers think about customer demand and growth. As I mentioned, a growth loop is a self-sustaining growth system where a user’s action creates an output that drives customer demand even further.
The growth loop has replaced limited funnel growth models.
Traditional growth models use a funnel-based concept, which many consider to be flawed. A growth funnel details all of the stages a potential customer will go through when making a purchase, starting with sensitization then ending with converseon. The problems with this approach when thinking about growth are that:
1. Funnels work one way: They have a beginning and an end. This makes us think that devoting more resources, time and energy to the top of the funnel will increase production. This is not a sustainable way to approach demand generation. We are talking here about acquisition efforts that require more and more resources.
2. Funnels create functional silos: The funnel concept breaks down growth into layers, and each layer belongs to a single team. For example, the sensitization stage is the responsibility of a marketer, and the conversion step falls into the hands of the sales staff. This creates organizational silos. Departmental teams work to achieve their specific metrics without worrying about the impact of their efforts on other departments operating at a different stage of the funnel. For example, marketers might attract poor leads to maximize brand awareness, but this makes it difficult for sales teams to drive conversions further down the growth funnel.
Growth loops eliminate these problems by changing the way we think about growth:
1. Growth loops provide long-lasting compound growth: Growth loops focus on the question: “How will one cohort of users convert another cohort of users?” The production of one cycle is reinjected into the start of the next growth cycle. This creates a cumulative effect that is self-sustaining.
1. Growth loops break down organizational silos: Loops look at how teams of people from 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 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 explain viral, paid, and user-generated (UGC) content loops.
THE VIRAL GROWTH LOOP
1. Users will come to a site from a search query or a shared link.
2. Users will share the page, product or content, or invite other users to the site.
3. These new users will behave the same, so the process repeats.
THE PAY LOOP
1. Users are acquired through paid acquisition marketing activities (e.g. Facebook/Google ads).
2. Users visit a site through these marketing activities and the user transacts on the site or registers.
3. The cash generated from this transaction funds the expansion of paid marketing acquisition activities, driving more users to visit the site.
4. These new site visitors also complete a transaction on the site.
5. The process repeats.
THE UGC LOOP
1. A user visits the site where they can generate content (eg, Pinterest).
2. User-generated content is then indexed by search engines.
3. More users discover the platform through search.
4. The process repeats.
GROWTH LOOP EXAMPLE
Ultimately, growth loops are hypothetical. It’s up to you to design a growth strategy that will inspire your users to get the most out of the growth loop concept.
To illustrate an example of a successful Growth Loop in action, I will refer to how we use Growth Loops in my business.
At WordSmiths, Inc, we create quality content for our clients to drive growth and organic traffic to their site. In this sense, the viral growth loop is adopted for our customers:
1. Search Engine Optimized (SEO) content is delivered and published on our client’s webpage.
2. Users visit the client’s web page from their search query. Because users find content both engaging and useful, they share it with others through other online channels.
3. As a result, more users visit our client’s site through the shared links they receive.
4. They also find the content useful and engaging and share the content with others.
5. More and more users come to our client’s site, resulting in exponential growth in demand.
The growth loop model has improved the way we think about acquisition marketing. This shifted the focus of growth from siled teams to a more integrated approach. The model provides a self-sustaining and compounded growth effect that yields better long-term results.
Remember that there is no miracle solution in marketing. It’s up to you to know your KPI and adapt your loops to your market.
Growth Marketer helping businesses grow. VP Growth Marketing at Agorapulse, Founder of WordSmiths, Inc.decision science podcast host