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Growth loop: How to achieve self-sustaining compound product growth

The growth loop model has improved how we think about acquisition marketing.

Growth loop: How to achieve self-sustaining compound product growth
[vegefox.com/AdobeStock]

I want to introduce the topic of growth loops by using the following scenario, which was originally presented by growth and acquisition expert and founder and CEO of Reforge, Brian Balfour.

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Imagine you’re charged with an investment decision to promote the growth of your product or service. There are two ways you can approach this:

Initiative A: You invest in an initiative that generates 500 engaged users, but requires continuous investment to do so.

Initiative B: You invest in an initiative that generates 20 new users in week one, 22 in week two, and continues to bring more users going forward, with a compound growth rate of 10%.

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Which initiative looks the most attractive?

I think you, me, and Brian have the answer to that question.

The above exemplifies how growth loops work. A growth loop is a model that utilizes a compound growth strategy to create a self-sustaining system. They are basically acquisition loops, providing the means of generating repeatable customer demand.

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With that said, by the end of this article, you’ll understand exactly what a growth loop is and why you should use this model over more traditional funnel models. I’ll then provide examples so you can see this model in action before you develop your own.

What is a growth loop?

The growth loop is a popular framework that’s changing the way marketers think about customer demand and growth. As I’ve mentioned, a growth loop is a self-sustaining growth system whereby the action of one user creates an output that drives even more customer demand.

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The growth loop has replaced limited funnel growth models.

Traditional growth models use a funnel-based concept, which many think of as flawed. A growth funnel details the set of stages a potential customer will go through when making a purchase, starting with awareness and then ending with conversion. The problems with this approach when thinking about growth are that:

1. Funnels operate in one direction: They have a start and an end. This makes us think that pouring more resources, time, and energy into the top of the funnel will boost output. This isn’t a sustainable way of approaching demand generation. Here we’re talking about acquisition efforts that need more and more resources.

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2. Funnels create functional silos: The funnel concept breaks down growth into layers, and each layer is owned by a single team. For example, the awareness stage is a marketer’s responsibility, and the conversion stage falls into the hands of sales personnel. This creates organizational silos. Departmental teams work to meet their specific metrics with no regard for how their efforts impact other departments operating at a different funnel stage. For instance, marketers could bring in poor leads to maximize brand awareness, but this makes it hard for the sales teams to drive conversions further down the growth funnel.

Growth loops remove these issues by changing the way we think about growth:

1. Growth loops provide sustainable compound growth: Growth loops focus on the question, “How will one cohort of users convert another cohort of users?” Output from one cycle is fed back into the start of the next growth cycle. This creates a compounding effect that is self-sustaining.

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1. Growth loops remove organizational silos: Loops look at how teams of people operating in 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 different 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 the viral, paid, and user-generated content (UGC) loops.

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THE VIRAL GROWTH LOOP

1. Users will arrive on 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.

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3. These new users will behave in the same way, so the process repeats.

THE PAID LOOP

1. Users are acquired through paid marketing acquisition activities (e.g., Facebook/Google ads).

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2. Users visit a site through these marketing activities and the user transacts on the site or signs up.

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 make a transaction on the site.

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5. The process repeats.

THE UGC LOOP

1. A user visits the site where they can generate content (e.g., Pinterest).

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2. The user-generated content is then indexed by search engines.

3. More users discover the platform through a search.

4. The process repeats.

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GROWTH LOOP EXAMPLE

Ultimately, growth loops are hypothetical. It’s up to you to design a growth strategy that will engage your users to get the most out of the growth-loop concept.

To illustrate an example of a successful growth loop in action, I’ll refer to how we use growth loops at my company.

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 clients:

1. Search engine optimized (SEO) content is delivered and published on our client’s webpage.

2. Users visit the client’s webpage from their search query. Because users find the content both engaging and useful, they share it with others via 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, giving exponential demand growth.

FINAL THOUGHTS

The growth loop model has improved how we think about acquisition marketing. It’s moved the focus of growth from siloed teams to a more integrated approach. The model provides a self-sustaining and compound growth effect which gives better results in the long run.

Remember, there is no silver bullet in marketing. It is up to you to be aware of your ICP and tailor your loops to your market.


Growth Marketer Helping Companies Scale. VP Growth Marketing at Agorapulse, Founder of Word Smiths, Inc., Host of Decision Science Podcast

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