2.1.2 Modeling Your Business for Growth

If there is one concept that we hope to convey, it is that fostering growth for your product should be systematic and strategic rather than guesswork. Therefore, the next topic that we’ll cover is how to model and understand the engines of growth for your product and in your company. It is tempting to rush right into experimenting with changes to your marketing or product implementation, but that often leads to less impactful initiates or wasted effort.

I learned this lesson the hard way in one of my former startups, AtmaGo, which was a social network for poor urban communities allowing members to share information, buy and sell, and to organize around local initiatives such as community neighborhood watch. We made the rookie mistake of focusing primarily on acquiring new users, which seemed like a no-brainer. We focused on testing various marketing initiatives ranging from grassroots outreach to partnerships with community organizations as well as on product improvements to make the signup process as easy as possible, but user growth only increased marginally.

Without really understanding our growth model, we reasoned that users were not able to find the content that was interesting to them, so we started experimenting with the homepage to make the search more prominent. But growth still didn’t really budge. Next we tried making the search less prominent and replaced it with a filter that would display the most popular posts. Again, this change led to little discernible progress, so we hypothesized that maybe the posts themselves were not engaging enough to get readers to sign up. We tried changing the posts by making the pictures bigger and re-arranging post titles and buttons. This went on for a while, but it was not really making a huge impact on our user growth. Acquiring new users felt like pushing a boulder up the hill, and we felt like we were spinning our wheels.

We decided to take a step back and really determine the true sources of growth for our social network. We broke down how AtmaGo worked as though we were trying to explain it to our grandparents.

AtmaGo was an information hub for urban communities where users created posts about topics in their neighborhoods such as crime reports, events, and tips. Other users read that content, voted on it, commented, and shared it. AtmaGo was essentially a marketplace where the product was content and the consumers were readers. We assumed that interesting, substantive posts are more likely to get views, votes, and comments. Furthermore, we hypothesized that post authors are more likely to post again if readers voted up or commented on the posts that they wrote previously. This was the full cycle of how AtmaGo worked as a kind of marketplace for content about one’s neighborhood.

In modeling our business, we realized that our growth didn’t just depend on acquiring new users. More fundamentally, AtmaGo only worked if the site had engaging posts, since that was driving the network effects: when readers engaged with the content, it encouraged authors to write more. In addition to this, after reviewing our website analytics, we found that the majority of new users were finding AtmaGo through search engines like Google, which was sending them directly to specific posts. Content was not only driving user engagement and the entire cycle but also our main marketing channel.

After finally modeling our growth, it dawned on us that we were focusing on the wrong areas. It’s not that optimizing the registration process was a complete waste of time, but we should have directed most of our effort on making it easier and more rewarding for authors to post new content. We should have spent more time on improving the design to encourage readers to vote and comment on posts, which would have provided authors with greater incentives to post. We also should have focused on making the writing process easier and asked ourselves, “How else do we give affirmation to the content creators, so that they will create more posts?” On the marketing front, we should have focused our efforts on trying to reach leaders that would write engaging content. Taking some time to really think about our business and to model it, would have made our growth efforts much more efficient and effective. Creating a growth model for your business will not only help you strategize, but it will also help you uncover new areas of potential optimization that you may not have thought about previously.

Every business is slightly different, and every business leader has a different way of thinking about not only how the business functions but also about improving growth. This means that there is no “correct” model. Rather, the right model is the one that makes sense to you and your colleagues and helps you all effectively develop growth. There are, however, some best practices to help you get started.

Start with the Customer Journey Map

This chapter started with how to create a customer journey map because it is an extraordinarily useful tool for uncovering the details your entire business as well as understanding how each of the stages in the customer journey affects growth and profitability. In reviewing the customer journey map, pay special attention to the following factors:

• At what point do your customers experience substantial value from your product or service? For some things such as news sites, the value is almost immediate when readers navigate to it and read an article. For other products such as cloud-based project management software, a user might not experience real value until far down their journey. The user might have to register, join a team, post tasks, assign tasks, and see those tasks completed before they finally appreciate how useful the software is.
• What elements of the product or the overall experience generate value for your customers? Let’s consider Facebook as an example. I would say that the most valuable part of the experience is seeing my friends’ updates about important events in their lives such as finishing a degree, getting married, or having a baby. However, I also find other features very useful such as being able to plan events and invite my friends to them, and there are many other ways that Facebook is valuable to me. A related questions to ask is, “How does one customer’s actions improve the experience for others?”
• What elements of the product or overall experience detract from the value you are providing? Focus on areas in the customer’s journey where they might run into roadblocks such as signup, checkout and payment, reordering, content creation, sharing, and searching. Often times, improving these areas will result in greater value for the customer and strong growth for your business.
• How does your business make money? This might seem like a ridiculously simple question, but the trick is to delve one level deeper within the context of the customer journey map. Let’s say that you are running a user-generated content website such as Twitter and you earn revenue from pay-per-click advertising. On the surface, the answer is obvious: the more users click on the ads, the more revenue your business generates. But how do you increase the number of clicks? Perhaps you need more content, better content, or more readers.

Seeking answers to the above questions from your model will help you isolate the key engines of growth for your company.

Abstract Your Model

A helpful next step is taking parts of the customer journey map that most directly drive value and creating a simplified diagram. This will allow you to focus on the key parts of the overall customer experience as well as how they relate to each other. For example, let’s imagine that you are tasked with developing a growth model at Facebook. An abstracted diagram representing growth at Facebook might look like the following.

It starts with one Facebook user. That user invites his friends. The group of friends post updates about their lives and share pictures, videos, and even news articles from online publications. The friends enjoy seeing updates from each other and invite more friends to their network, which means that they will be having even more interactions on the site, and the cycle starts over. Furthermore, Facebook makes money through pay-per-click advertising and the more users it has, the more content they create, the more those users visit Facebook, and the more ads they click. (By the way, there are countless other ways that you could model growth at Facebook.)

The guiding principle in creating a good growth model is to abstract enough to focus on the key drivers of growth and revenue without including too many details such that the model is difficult for others to understand. Your model should be simple enough for your CEO or board to understand, and you should always test your growth strategy with it to ensure that your tactics are driving the key variables.

It’s important to keep in mind that you can always delve deeper into what underlies the variables as you are developing your growth strategy. Also, in what format you capture the growth model for your business does not matter much. I always prefer to have both a diagram that shows how the variables are related to each other as well as a simple equation that can be used for creating more rigorous models in spreadsheets allowing your to gauge how changing the variables will affect the overall growth metrics. You should use the model that suits the context. You might use the simpler equation for a board meeting and the rigorous spreadsheet model with your team. Whatever the format, your model will help to inform and ground your growth strategy.

Be sure to check back tomorrow to learn about different kinds of growth models that you might use. New sections of Growthzilla are published every weekday.