Demystifying Growth for Product Managers — Part 1 (What is Growth? and What are Growth Drivers?)

The views here are a culmination of my own experiences as well as knowledge; they don’t reflect on the work I have done and the companies I have worked for in the past or present. My explanation is terse, so please clarify over comments if you have questions. TL;DR — It’s a multi-part series on Growth strategies and tools. I have also attempted at dispelling some myths around growth roles in companies — Growth Marketer, Growth Product Manager or Growth Hacker (or whatever that is).

What is Growth?

When you build a product, you want people to use it. Then, you want people to use it almost daily and use most of the features. Then you want people to pay for it (in a freemium business model. Then, you want people to keep paying (which is of course dependent on whether the user is repeatedly using the product). And sometimes you want people to refer your product so that you get a viral effect of getting new users. It’s like a funnel. Many of you have already seen the funnel (see the image above). At each stage we work to maximize the number of users who entered the funnel and minimize churn at each stage.

In the most simplistic terms, the way to grow your users is to understand the growth drivers at each stage and then make sure that you have a strategy and tools to address those drivers.

Thing to note: We will discuss different organizations and how they handle growth. However, I believe that every Feature Product Manager/Owner should understand how their feature contributes to this funnel and be responsible to grow users using their feature.

Find out what your growth problem is

Whether you are a Chief Product Officer, Group Product Manager or even a Feature Product Manager, start from the company level. First look at your business model and the company context. Company context helps us understand the growth problems to solve For e.g. What is the business model — freemium, subscription? Do I need to upsell users a premium product when they have been using a free version? Is it a subscription model? Do I get monthly recurring revenue?

The growth problem can surface from your data. The best place to start is to look at cohort metrics. Cohorts are a group of users who visits/downloads your product on a particular day. You then keep a track of them and see how many of them have used your product, how many paid for it and how many keeps paying for it.

You may notice the following things

  1. Not many people are downloading your product or visiting your product website. This is a user acquisition problem. The metric to track is downloads, sign-ups/registrations, visits, referrals etc. based on the type of product you have. When you don’t have new users, you can’t have daily users. Please note that registrations is a good metric to start but keep an eye out on the downstream metrics to decide whether your acquisition strategy is correct (we will delve into this on another blog post)
  2. Large # of users joining but only a few users are using the product on a daily basis. This is a user activation problem. The metric to track is DAU or MAU.
  3. Now you have got a lot of free users. However, not many of those free users are buying the paid version. This is a user conversion problem. The metric to track is # of paid subscribers or paid users or monthly recurring revenue.
  4. Having paid users is great! But how do you keep them paying? Some of them leave the product for good and some of them become free users again. This is a user retention problem. The metric to track is churn.
  5. Now that you have repeat and engaged users, why not use their networks to grow more users. This is a referral opportunity. The metric is viral co-efficient.

We will get into specifics for each of these in upcoming posts.

The funnel growth problems are good for Group PMs and Feature PMs. However, most company CPOs and CFOs look at the business growth metrics such as the following, which we will delve deeper in another post:

  1. How do I grow my user base? What about paying user base?
  2. How do I increase my monthly recurring revenue (MRR)per user or average revenue per user (ARPU) or Gross Merchandize Value (GMV)?
  3. How do I reduce my Customer Acquisition Cost (CAC) or Subscriber Acquisition Cost (SAC)?
  4. How do I manage Churn?
  5. How do I improve my Gross Margin?

Some of the trade offs the CPO/CFO/GM faces -

  1. If I want to increase MRR or ARPU or GMV, I may raise my subscription free, transaction fee or add a lot of ad units, but I may annoy my users and they will churn or stop using my app or become a free user etc.
  2. If I want to retain the user, I may have to incentivize the user. Will giving discounts help short term churn? What other growth drivers I can use? Build features? Build habits? Build differentiation?
  3. If I want to reduce CAC/SAC, I won’t invest in marketing efforts but I also won’t grow my user base.
  4. If I want to improve the Gross Margin, I may have to lower my costs of goods sold thereby potentially compromising on the offering.

All these questions, will lead to the CPO declaring what is important for this quarter or year — retaining users (manage churn) or increase paid subscribers or getting new and active users or even figuring out which marketing channels are the best to acquire customers. This is the starting point for Group PMs and Feature PMs to start rattling their brains.

How to find the Growth drivers?

It depends on what the growth problems you are focusing on. We will delve more into behavior change however here are some examples: ability to do a certain action quickly for e.g. signing up for an app, using the app to it’s full potential, creating a profile, sharing an artifacts to invite other users … the list doesn’t end. How do we know all these?

Before everything else, let me define textbook Growth to set context. The basic premise of users using your product is behavior change. How can we fit the usage of your product in their daily life — something they were used to living without. Some of you may remember this Fogg’s Model: Behavior Change = Motivation + Ability + Trigger. All we do in Growth is change behavior from not doing something to do something. All the three variables are mostly inherent and internal to the user. For example, I am hungry now (which is my trigger) and I am demotivated to go and take out food in the freezing cold. However, I am able to open my fridge door and eat left overs. As a PM in Caviar or Uber Eats, my goal is to influence these variables and override them externally. Now, I get a push notification from the app which says, “It’s rainy in San Francisco, do you want to order your favorite food”. The push notification is a trigger which is external, the motivation is guided by the context in the push message (it’s rainy outside) and I am able to tap on the push notification and search for my favorite cuisine and order. Motivation and Ability can be a trade off. If I am not being able to search for what I want or say my ordering process is cumbersome, even though I am motivated to order online because of rain, I am demotivated to order it via this app. I may order it via another one where I able to place an order easily.

The idea is to motivate the user by sending a trigger and make sure the user is able to get what they want. Sometimes, you will work on all three or just one. Most growth strategist rely heavily on only one of these. For e.g.

  1. Trigger — Send emails, send push notifications, call out the action on homepage, show ads, social media based on contexts
  2. Motivate — 20% off through Sunday 06/30 using coupon 23VX33ER, feeling lonely? try Grindr
  3. Ability — One-click ordering in Amazon, Credit Card Scanning in Uber app for Payments, Making Playlist creation easier in Spotify.

In addition to behavior change, one must also think about making it a habit and not just one time behavior change. There are a lot of models available to learn about habits — Hook Model by Nir Eyal is one of them. On a very high level here are couple of concepts you may want to explore -

  1. Rewards — Human beings are pleasure seekers. It’s the anticipation of pleasure or rewards that leads us to act on things. So our products should definitely promise rewards which are unexpected and variable. For e.g. different types of notifications on Facebook notification center leads us to click on the Facebook badge.
  2. Hedonic Adaption —Hedonic adaption as a concept suggests that humans falls back into a static equilibrium mental state after repeated exposure to either happiness or even sadness. Hence they adapt to anything. We should take this account to build product features which have always an element of surprise. That anticipation of the surprise is one of the reasons why users use the product over and over again. Hence, change layouts, add new features as appropriate.
  3. Cognitive Load — the amount of mental effort required to do something is cognitive load. There is an interesting article by a growth marketer from Dropbox who attempts at quantifying these loads when we use a product. There are other frameworks too such as CES (customer effort score). The idea is to build your own framework with baseline effort numbers and test it with users to build your own model.
  4. Processing Fluency — how quickly can our mind process information and assimilate it. Processing Fluency also has an effect on Retrieving Fluency (how one retrieves information from memory). Repetitive patterns in design increase processing fluency and so does summarization, ratings etc.
  5. Investment — the more a user invest time and effort in a product the higher is the switching costs to switch to another product. For e.g. I built my profile in OKCupid by answering a lot of match questions. It will be hard for me to build another such dating profile in another dating app. One must think of how to make sure a user is motivated enough to invest in their app by clearly showing amazing rewards for e.g. in OkCupid’s case it’s their match recommendation.

The goal is to how quickly you come up with ideas for growth drivers, test them, learn from them and repeat this cycle.

What does working in Growth mean?

Growth is an oft misunderstood concept in our industry. Although it’s quite clear from the name itself, many companies grapple to define the strategy and have a cohesive story that trickles down from business to product as I mentioned above. Growth work is a mixture of (1) Strategy to grow (2) Build products to support the strategy (3) Execute the strategy using the growth products. I have observed the following organization configurations to do this -

  1. Marketing + Product — Marketing team owns #1 and #3 and relies on 3rd party vendors for #2. Within #1, they only motivate and trigger for behavior change but misses out on increasing the ability to change behavior. So a product team builds features and increase the ability (removing friction) to change behavior. But in isolation the product team may not know if they are correctly prioritizing the removal of friction or making a feature usable.
  2. Centralized Growth team — includes a bunch of analysts, engineers and MBAs who crunch numbers, do A/B and multi-variate tests at the speed of light and own parts of feature development (at least makes sure that usage of a particular feature is easier and hacks it and demonstrates results and hands it over to the feature team to prioritize and productize it). The positive is a cohesive growth strategy and execution. However, there can be alignment issues with feature teams (unless product development is decentralized across the organization so that anyone can access any sandbox and work on code for prototypes and testing).
  3. Decentralized Growth teams — Product Growth teams + Marketing + Specific Funnel Team + Platform teams + Strategy team — Acquisition is handled by marketing team and each product team has growth marketers who optimizes activation and retention of each product feature/products. There can be a specific team who addresses one funnel metric for .e.g conversion — converting free used to paid etc. Strategy team will be constantly crunching numbers to figure out growth problems and drivers. The strategy team can be centralized for the entire company or can be decentralized based on parts of the funnel. Also there can be a platform teams usually builds the platforms and tools needed for e.g. Email and Push systems, in-app systems, analysis tools etc. Each team is focussed on one specific funnel metric or an enabler. This is a coordination nightmare unless there are processes in place. If well coordinated, this model works well as there are a lot of headcount to work on growth.

There can many more such configurations and there is no one answer. As long as there is one single growth strategy (for the whole funnel), roadmap alignment and prioritization, scalable platforms and fast iterative execution of the strategy, you can be assured of growing users who will enjoy your product and will refer it to others.