Have You Identified The Engine of Growth For Your Startup?

Startup growth engine
Image credits: KROMKRATHOG at FreeDigitalPhotos.net

Scale or growth is invariably the holy grail of startups. But instead of just scrabbling to achieve growth, which often does not work, it is better to understand some important aspects of the growth engine for you startup and strategically plan out to scale up your startup. Let's borrow some of the concepts given in the book 'The Lean Startup' by Eric Ries and see how we can use them to help us understand the growth mechanism to be used in our own startup.

Simply doing what other startups are doing for growth is a bad strategy. You might end up wasting a lot of effort, time and money on a number of marketing channels with little or no gain. Rather you need to identify and focus you energy on the growth engine that suits the most to your startup. In simple words a growth engine can be understood as the mechanism a startup would use to acquire, retain and grow its user base. As per Eric Ries there are three fundamental engines of growth. Let's see these engines of growth one by one and the various aspects you need to take care of while using them.

The viral engine of growth

The viral engine of growth is the one where your users help you acquire new users. It could be simply by word of mouth or by having features or work flows in your product which make your users invite others. The important metric to understand and measure while using this engine is the number of new users acquired for each of the existing users. In order to achieve a viral growth, you should have each of your users acquiring more than one user for your startup. Higher the number of new users brought by each user, higher will be your growth rate.

It is very difficult to build a viral engine of growth and there is no fixed recipe to create one. But the very first requirement is to have an incredible product that delight your users and they would be happy to invite their friends and secondly make it extremely easy for them to do so. Take care to track the metric mentioned above, i.e. the average number of new users acquired by every existing user, and optimize to increase this number, while using this engine.

The feature to find out and invite one's friends on most of the social networking websites; or the incredible growth hack used by Hotmail in the footer of each mail (Read: How to Use Growth Hacking Case Studies for your startup) are some good examples of the viral engine of growth.

The sticky engine of growth

The sticky engine of growth comes into picture where you need to retain the customers for long terms. If your customers need to pay a regular fee or a pay per use fee for your services or product, this model would be quite relevant to you. This is very much a case when you are catering a niche segment of customers and also in case of many B2B business models.

The most common mistake startups make is that even when it is the sticky engine that suits them the most, they keep their focus on acquiring new customers. Remember in this model, before thinking on getting new customers, you are required to focus on ways to retain your existing customers. So, aim for a high customer satisfaction and try to create some 'aha' moments by surprising your customers, run loyalty programs etc. The metric you need to measure in this case is the customer retention rate or it's opposite the attrition rate.

The paid engine of growth

The paid engine of growth is relatively easy to use. It includes acquiring customers through any form of advertizing or spending on a sales and marketing team to bring more and more customers to your business. In order to grow using this engine, you need to take care to keep the average cost of acquisition of your customer (customer acquisition cost) less than the average total money (life time value) that you expect to make from a customer.

If you are working on a high ticket size product, you can definitely consider the paid engine of growth. You can further re-invest your profits into acquiring new customer to accelerate your growth while using this engine.

Using multiple engines of growth

There is no hard and fast rule on using any engine of growth in conjunction with others, in fact most of the large successful companies use multiple of them. But it is advisable for a small startup to focus on one engine of growth, at least in the beginning. Share your thoughts with us in a comment below.


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