Written in collaboration with Andreea Serb
TL;DR: A Growth Acquisition Strategy (GAS) is an action plan that defines how your product and distribution channel will help your company acquire, retain and grow customers sustainably. This article highlights the three Generations (Gen) of Growth Acquisition Strategy (GAS) observable since the beginning of the digital era.
- The 1st Gen — GAS, the Traditional Inbound Marketing Strategy, has been the first digital model developed for lead acquisition. Although being a very performant strategy in its early stage, the adoption by the masses combined with the evolution of customer behavior has broken the effectiveness of this strategy.
- The 2nd Gen — GAS, the Product-Led Strategy, came out to fill the gaps observed in the customer lifecycle under the 1st Gen — GAS. It is shaped in a way to maximize, from the very beginning of the customer lifecycle, the time spent by the user inside the product rather than outside. Using that process enables companies to drastically improve the quality of their leads based on critical in-product behavioral data instead of biased data from outside of the product.
- The 3rd Gen — GAS, the Growth Loops & Compounding Effects Strategy, is a compelling model that aims to build a closed loop system in which one cohort of users lead to another cohort of users. Above all, the 3rd Gen — GAS reveals the importance of the notion of distribution-centricity, as opposed to the now common notion of product-centricity, to build a sustainable company.
Andrew Chen explained in his not-too-recent but still popular post, The Law of Shitty Clickthroughs, that “Over time, all marketing strategies result in shitty clickthrough rates.” He used the example of the average clickthrough rates of banner ads when debuted on HotWired (78%) in 1994 versus Facebook (0.05%) in 2011.
A few months later, Brian Balfour illustrated and expanded Andrew Chen’s theory to Growth Tactics in his article Growth Is Never Done.
The purpose of the Cycle of Growth Tactic Effectiveness’ graph is to highlight the 4-step cycle of effectiveness that every GAS goes through over time. It always starts with the discovery of a new tactic that clears high return on investment for its innovator. The second step corresponds to the optimization of this tactic by an early base of adopters to achieve its peak of effectiveness. Then, the tactic becomes widespread through the adoption by the masses which leads to a clear drop in its efficiency. And eventually, the tactic becomes outdated.
On the other hand, the Law of Conservation of Attractive Profits from Clayton Christensen is also deeply connected to the GAS.
When attractive profits disappear at one stage in the value chain because a product becomes modular and commoditized, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage.
Although C. Christensen refers to a “product” in his Law, it is still applicable to a GAS. So, it could be understood as such: when a Growth Acquisition Strategy becomes commoditized, a new adjacent one becomes valuable.
Throughout this article, we will see how the Law of Conservation of Attractive Profits is being proven correct.
Growth Acquisition Strategy — 1st Generation (1st Gen — GAS): Traditional Inbound Marketing Strategy
As written by Andreea Serb in the article “Deconstructing Content Marketing”, the concept of inbound marketing was coined by HubSpot’s Brian Halligan, co-founder and CEO, but with the dynamic expansion of the digital world, it only really started to grow in 2012.
Ever since, HubSpot methodology has inspired hundreds of thousands of marketers and businesses — becoming a pioneer in the field and driving countless companies to implement the same growth strategy.
To understand what inbound marketing does, here’s the definition as per the company’s website.
Inbound marketing is about creating valuable experiences that have a positive impact on people and your business. How do you do that? You attract prospects and customers to your website and blog through relevant and helpful content.
Once they arrive, you engage with them using conversational tools like email and chat and by promising continued value. And finally, you delight them by continuing to act as an empathetic advisor and expert.
Unlike outbound marketing, with inbound marketing, you don’t need to fight for your potential customers’ attention. By creating content designed to address the problems and needs of your ideal customers, you attract qualified prospects and build trust and credibility for your business.
Unsurprisingly, this methodology has been adopted en masse by companies ranging from start-ups to SMEs to corporations.
However, as defined by The Law of Shitty Clickthroughs, this en masse adoption had a serious impact on the efficiency of this GAS. The CAC rose dramatically mainly due to a cost increase in SEM.
Another problematic aspect is that, while the prospect appreciates being educated on a topic through relevant and helpful content, his experience as a buyer does not happen without friction. As a result of dissociating product and acquisition strategies, the buyer journey becomes cumbersome when it comes to product interaction.
On the Cycle of Growth Tactic Effectiveness’ graph seen in the introduction, we can safely affirm that today the Traditional Inbound Marketing Strategy is transitioning from the #3 Tactic Adopted By The Masses to the #4 Tactic In Fatigue Stage. It is very unlikely that any company adopting this strategy today will get a positive ROI.
Growth Acquisition Strategy — 2nd Generation (2nd Gen — GAS): Product-led Strategy
While in the 1st Gen — GAS product and lead acquisition strategies are thought separately, the 2nd Gen — GAS makes the product an essential part of the acquisition process by focusing on driving product engagement.
This change of focus is due to the discovery of the leaky bucket analogy — a recurring pattern too often observable in the 1st Gen — GAS. The leaky bucket phenomenon is assimilated to a significant increase in leads acquisition which are, in the end, mostly not qualified for the product. For any remiss growth marketer who doesn’t spend a sufficient amount of time digging into the quality of his leads, this can create a wrong sense of accomplishment.
Thus, what usually happens, is an important user drop-off throughout the funnel (mostly during the Activation and Retention stages). The common mistake in that situation is to always pour more money into acquisition to keep increasing the number of new leads coming in, instead of fixing the holes in the leaky bucket.
A better approach to developing a sustainable growth for your company would be to start by ensuring that there are no (or as little as possible) holes in the bucket before opening the floodgates of lead acquisition.
And fixing the holes always start with product engagement as explained in this article from Sequoia Capital.
If a product adds value to a user’s life, they’ll naturally engage with it. They’ll use it more deeply and more frequently. That means engagement drives stickiness, which drives retention — and that, in turn, drives growth.
The 2nd Gen — GAS, also called Product-led strategy, has emerged in the wake of this discovery to help growth strategists focusing on the right outcome for any early-stage company.
In their well-written book Mastering Product Experience (in SaaS) With Product-led Strategy, the team at Aptrinsic describes this strategy beautifully:
A product-led go-to-market strategy is an action plan that describes repeatable and scalable processes for how a company acquires, retains, and grows customers, driven by in-product customer behavior, feedback, product usage, and analytics.
Now let’s take a look at the ins and outs of a Product-led Strategy (2nd Gen — GAS) in comparison of a Traditional Acquisition Model (1st Gen — GAS) based on the Aptrinsic team’s graphs:
- Traditional Acquisition Model (1st Gen — GAS)
Companies that follow this approach involve three of their teams throughout their customer lifecycle. First, the marketing team is in charge of providing a certain quantity of leads to the sales team by using a variety of channels and various pieces of content. Among the quantity of leads generated, a first selection is made by the marketing team based on pre-defined criteria.
Leads that fulfill these requirements are then moved into the Marketing Qualified Leads (aka MQL) bucket which is the starting point for the sales team. The first step for the new team in charge of the MQL is to re-qualify them following new criteria in order to define with more precision whether they could become customers. This shorter list of leads is called Sales Qualified Leads (aka SQL).
The sales team is then in charge of closing a certain amount of deals from that list. It is usually during this last step that the SQL has a first glimpse of the product through a live demo made by the sales team. Eventually, the customer success team takes over to carry on with customers.
This Traditional Acquisition Model, still used by an important number of companies, had the merit of defining a clear process on how to internally deal with lead generation. However, the main problem with that approach is that it substantially omits the user experience.
This model fails to provide a positive user experience mainly due to the long period of time happening outside of the product. This “outside of product engagement” journey is a critical source of friction for the prospect.
In the real-time world we are living in today, where immediacy has become a norm, it is very frustrating for any lead that showed interest for a product to not being able to have an immediate hands-on it.
Conversely, a lead that has downloaded an e-book (or any other piece of content from the company) for information purposes only and is being contacted by a sales person will also have this feeling of dissatisfaction.
In the prospect’s mind, these two points of frustration can be summarized as follow: “Don’t tell me, let me try!”.
Lastly, this process also creates internal frustration and complains that are often created between marketing and sales teams with regards to the quality of the leads transmitted.
- Product-Led Acquisition Model (2nd Gen — GAS)
In comparison with the Traditional Acquisition Model, the Product-Led Acquisition Model is shaped in a way to maximize, from the very beginning of the customer lifecycle, the time spent by the user inside the product rather than outside. Using this process enables companies to drastically improve the quality of their lead qualification based on critical in-product behavioral data instead of biased data from outside of the product.
Implementing this strategy requires the growth team to pay close attention to the customer lifecycle with the aim of reducing as much as possible the time it takes for their leads to access their product.
As observed earlier, the 1st Gen — GAS involved three teams throughout the customer lifecycle: Marketing, Sales and Customer Success. In the 2nd Gen — GAS, the product team is also involved in addition to the three others.
In a nutshell, the Product-Led Acquisition Model introduces a new notion as a replacement of the MQL and SQL seen earlier. The new way for qualifying the leads happens within the product and are called Product Qualified Leads (aka PQL).
A product-qualified lead (PQL) is a prospect that signed up and demonstrated buying intent based on product interest, usage, and behavioral data.
— Mastering Product Experience (in SaaS) With Product-led Strategy
This change has a much bigger impact on the customer lifecycle and within the teams than it can seem at first sight. First, internally, this approach requires teams to work cross-functionally as their scope of action is not as demarcated as it could be in the 1st Gen — GAS, where sales and marketing teams owned their own part of the customer lifecycle. Defining a PQL accurately requires marketing, sales and product teams to work side by side.
Secondly, the customer lifecycle is profoundly impacted by this model. The time spent by the prospect outside of the product is significantly reduced as the primary objective is to get him to sign up for a product or free trial as early as possible in his journey.
No more lead forms to fill out in order to be qualified subjectively by the marketing and sales teams. From the moment the prospect has signed up for the product, the company’s teams have the capacity to analyze his behavior and interaction with the product.
Thus, the subjectivity used by marketing and sales teams when defining whether a lead could be considered as MQL and SQL in the 1st Gen — GAS is replaced by an objective analysis based on behavioral data through PQL in the 2nd Gen — GAS.
And the bottom line is that a well-crafted 2nd Gen — GAS helps companies reduce their CAC and increase CLV whilst creating a frictionless customer experience.
On the Cycle of Growth Tactic Effectiveness’ graph seen in the introduction, we can safely affirm that today the Product-Led Acquisition Model is transitioning from the #2 Tactic Optimized to #3 Tactic Adopted By The Masses. Most of the most successful SaaS companies, such as Mixpanel, InVision, Zoom.us, have already adopted this strategy for more than a year and is now followed by the masses of SaaS start-ups.
Growth Acquisition Strategy — 3rd Generation (3rd Gen — GAS): Growth Loops & Compounding Effects Strategy
The aim of the 3rd Gen — GAS is to push one step further the 2nd Gen — GAS’ objective of bridging the gap between product and growth acquisition strategy by establishing the growth loops concept.
The Reforge Team, in their recent growth post series, has brought to light this new approach that aims to bring the Growth Acquisition Strategy into a new era. A new era where Dave McClure’s AARRR framework becomes outdated and replaced by the Growth Loop system.
- Loops are the secret weapons for sustainable growth
Giving credit where credit is due, the Reforge Team has done great work in explaining the Growth Loop system.
The fastest growing products are better represented as a system of loops, not funnels. Loops are closed systems where the inputs through some process generate more of an output that can be reinvested in the input. There are growth loops that serve different value creation including new users, returning users, defensibility, or efficiency. (…)
Loops force you to answer “How does one cohort of users lead to another cohort of users?” You focus on how you reinvest the output of one cycle of the loop into the next cycle of the loop to get more output. This creates a compounding effect that is more sustainable. (…)
Loops combine how your product, channel, and monetization model work together in a single system rather than treating them as silos.
Now that we have a better understanding of what growth loops are, let’s see, in a more abstract way, what a natural phenomenon such as the spread of disease can teach us.
In nature, a disease spreads when four elements interact: a host, germs, a medium, and a recipient. An infected host sneezes or otherwise spread germs that carry infection out into the environment. These germs are then spread through a medium, such as the atmosphere. Then, a recipient inhales, ingests, or otherwise absorbs the germs and becomes infected in turn. Now the recipient becomes the host, and the cycle repeats. If it happens often enough, an epidemic results.
— Platform Revolution by Geoffrey Parker, Marshall Van Alstyne, and Sangeet Paul Choudary
In their book Platform Revolution, Geoffrey Parker, Marshall Van Alstyne, and Sangeet Paul Choudary show how the spread of disease, that requires as little as four elements, creates a closed cycle that repeats endlessly. Let’s dissect their parable following the Growth Loop system:
- Input: infected host
- Step 1: host sneezes or spread germs that carry infection out into the environment
- Step 2: germs are then spread through a medium, such as the atmosphere
- Step 3: recipient inhales, ingests, or otherwise absorbs the germs
- Output: recipient infected and becomes the host (closing the loop)
The spread of disease is an excellent example of a natural growth loop with compounding effects, the inputs (infected hosts) through some steps generate more output (recipient infected) that becomes a new input. These never-ending loops create a “sustainable disease spreads” over time.
Based on that observation, the authors found a common pattern in successful platform strategies. This pattern is also based on four key elements — the sender, the value unit, the external network, and the recipient — to create an endless Growth Loops system.
Now, we will see how these four key elements are integrated into SurveyMonkey growth loop’s illustration below:
- The sender is initially a user that took an action of creating a survey and distribute it.
- The value unit is the survey that the sender distributes.
- The external network is every channel of distribution that the sender uses to spread to the recipients.
- The recipient is any person that finishes the survey. Once the survey filled out, this person is encouraged to create her own survey through SurveyMonkey’s branding and landing page. At this point, there is a possibility that the recipient closes the loops and acts as a sender.
Thus, the goal is to design growth loops where the sender aims to spread the value unit using an external network to as many recipients as possible. Eventually, a certain proportion of these recipients will create a value unit as well and therefore, generate a growth loop model with compounding effects.
Gathering the four key elements with the growth loops system shows the power of the 3rd Gen — GAS.
- Is distribution-centricity underestimated in comparison to product-centricity?
From Elad Gil’s compelling interview with Marc Andreessen, a particular insight caught my attention. Marc Andreessen shared the notion that a startup will sometimes have a better product but get beaten by another one that has a superior distribution channel.
This approach of distribution-centricity above product-centricity is a brand new idea that is worth exploring. Nevertheless, it is important to put a bit of context around this interview in which M. Andreessen gives his advice for companies that have already reached the product-market fit stage. It means that you still need a great product to get to product-market fit. But in the scaling stage, the distribution matters even more than the product.
In fact, the general model for successful tech companies, contrary to myth and legend, is that they become distribution-centric rather than product-centric. They become a distribution channel, so they can get to the world. And then they put many new products through that distribution channel.
— Marc Andreessen
One of the biggest mistakes you can make is focusing all your energy on building a great product without thinking of its distribution channel. The earlier your product strategy integrates its distribution channel, the harder your product will be replicable in the future.
Today, approaching acquisition and product in silos presents a significant risk of failure. When crafting your growth strategy, it is essential to think of it as a “growth loops model” in which both your product and your distribution channel are integrated as part of the core.
On the Cycle of Growth Tactic Effectiveness’ graph seen in the introduction, we can safely affirm that today the Growth Loops & Compounding Effects Strategy is still in its early stages, in the #1 Tactic Discovered, where the field of possibilities and opportunities is still vast.
This article is part of a series which aims to map out the evolution of growth marketing. To learn more, take a visceral journey into the history of content marketing all the way from its humble roots to the present day.