Startup Engines of Growth, Revisited
When Eric Ries began blogging his Startup Lessons Learned — the primordial soup for The Lean Startup — in 2008, growth was a desirable trait but poorly understood subject, and “growth hacking” was merely a glimmer in the eye of a few exceptional marketers in California.
At the same time, my little startup, Stormpulse.com, was a friends and family funded endeavor with millions of visitors but an incomplete vision. As a two-man band, my co-founder and I constantly struggled not only to keep the lights on, but to jockey our attention between product, sales, and marketing efforts. We’d push one forward only to scramble to get the others “caught up.” And that was on a good day. Inevitably, one would fall behind, dragging the others, and our momentum, with it.
This problematic pattern continued into our funded stage. Adding people didn’t solve it. Launching better versions of our product, releasing on a faster schedule, hiring PR, bringing on a marketing manager — none of these put an end to the dilemma: how can we make progress in one area without falling (more) behind in others? Every forward motion creates a wake of debt. Proverbial ditch diggers slinging earth into other employee’s holes.
Rapid growth is sustainable iff it is self-reinforcing.
This arrangement makes growth hard, and the thought of rapid growth downright terrifying. “Accelerated the treadmill until they face planted!” scrawled across your deadpool autopsy report.
Breaking this cycle at Riskpulse began with the discovery of some wisdom tucked within a fantastic article on Amazon AWS written by Ben Thompson (Stratechery). As Ben’s retelling of the legend has it, Bezos once sketched Amazon’s business model like so:
This defines a positive feedback loop, which is the heart of Jim Collin’s (Good to Great) flywheel model. As Brad Stone describes in The Everything Store:
Bezos and his lieutenants sketched their own virtuous cycle, which they believed powered their business. It went something like this: lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.
By design, each business element (department, role, function) is engaged in a pay-it-forward motion; progress for one necessarily eases progress for the next. This is the anti-thesis of the growth dilemma described earlier. Here, the most critical variable for each function is a pointer to the output of a different function.
This is the essence of the kind of momentum that won’t smash your teeth in. To achieve this, we refactored our approach to growth at Riskpulse by making deep R&D (née customer-directed research) a core competency and focusing our marketing team on converting the output (exhaust) of that research into content, which increases the ratio of early adopters in our funnel, improving conversion rates, landing more deeply-engaged customers that highly value (and sometimes pay for) research. Circuit complete!
Blueprinted this way, it’s obvious why the weakness of all flywheel implementations is the chicken-and-egg dilemma: where do you start, and can you even ‘run the cycle’ without constructing the complete loop first? No, you can’t, which is why @bhorowitz’s case for the fat startup is valid. It isn’t about the raw amount of cash (we continue to do more with less), but rather the irreducible complexity of these machines. You can’t evolve (or lean) your way to this kind of positive feedback loop without billions of years of randomness.
Is this flywheel contraption the same as any of the three engines of growth Ries delineated?
- Viral: famous and infamous, acquiring users when they invite friends.
- Paid: shelling out bucks to acquire users via SEM or other paid channels.
- Sticky: building an engagement-driven experience that retains users.
The flywheel architecture shares a fundamental property with viral — the actions of some participants quickly feed back into the engine and create more growth. In that sense, the flywheel essentially exhibits an internal virality. However, after 7 years of growth hacking, business model design, lean canvases, and unicorns, these engines do sound less than comprehensive or robust — islands of solid ground for us to beach our landing craft, but now part of a much larger archipelago. As Patrick Vlaskovits recently shared:
Years of experimentation (with hard lessons) mean we can understand growth more deeply now; to build sustainably growing companies, we must.
In a recent blog post, Chris Dixon observed that “exponential curves feel gradual and then sudden,” in, for example, the rise of smartphones and their rising tide of apps. Bottom line, “the core growth process in the technology business is a mutually reinforcing, multi-step, positive feedback loop between platforms and applications.”
Through Chris is commenting on platforms and applications at large, the modern startup, composed of squads connected through microservices, is beginning to look awfully similar.
Today, we can appreciate Ries’ engines of growth as the prevalent methods of acquisition and retention, some of which can drive the hockey stick; Dixon’s observation can help us evaluate the market conditions under which the hockey stick will occur. But underlying and preceding both is the design of the internal engine you will need to minimize the weight of your own fuel and avoid explosion upon reaching escape velocity.
