I spent the past month digging into how to build a growth model. I looked at resources and tried to understand how to build one myself. This post shares what I learned.
I'll cover the basics:
- What is a growth model?
- When do you build a growth model?
- How do you build a growth model?
- What do you do after that?
What is a growth model?
A growth model is an equation you can build to determine different variables in your startup's business. It shows how they work together and result in sustainable growth.
Basic structure: Growth = Top of Funnel × Magic Moment × Core Product Value
Source: Growth Equation proposed by Andy Johns
When do you build a growth model?
The essential time to build a growth model is after your startup has achieved product market fit. When the product is itself bringing in an organic flow of users because of its strong core product value and magic moment.
How do you build a growth model?
Step 1: Figure out your Top of Funnel sub-equation
The Top of Funnel is the most straightforward part. This includes all your efforts to acquire users, capture traffic (SEO, PR, Email, Content Marketing) and convert them through the funnel at an increasing rate.
The basic sub-equation involves all factors essential for the product's conversion.
Figure this out by asking: what is the central action that a user must perform in your product? Although you might have other supplementary actions, at any given time there is one central action. Find this and jot down all steps that a user takes while concluding with this action.
Example: YouTube
The core action is "Subscribing". Steps a user takes to arrive at this point:
- Clicks a YouTube video link on a website
- Lands on YouTube website (Top-line traffic)
- Watches 1st video
- Searches for other videos
- Creates account on YouTube
- Comes back again to watch videos
- Finds an interesting channel
- Subscribes to channel
- Repeat behavior
Translate this into an equation:
YouTube growth = Top-line traffic × 1st video viewing × Initial experience × search × videos watched per visit × repeat behavior × account creation × subscription
Doing this exercise removes all the noise. You focus only on the essential. Understanding the bare-boned business model.
Step 2: Find your Magic Moment and Core Product Value
Magic Moment (or Aha! Moment)
The time between the core action and the magic moment should be as short as possible. The core action could occur before or after the magic moment. Ideally, it strikes early and often in the product experience.
Figure this out by asking:
- Is the user journey simple?
- Is there a Magic Moment I can see in the product?
- Is there a way to reduce the time between the user's first visit and the Magic Moment?
Core Product Value
This involves your market size, the problem you are trying to solve, and whether you've achieved product/market fit.
Figure this out by asking:
- Has the startup achieved product/market fit?
- Are there a growing number of engaged users (users performing the core action)?
- Does the product offer accruing benefits or mounting losses?
- Is there any semblance of a working network effect/virtuous loop in the product?
- General observation of the growth curve/cohorts of the retention metric
What do you do after that?
You start experimenting.
Begin carefully and meticulously running experiments. See what factors affect the company's bottom line. The smaller your startup, the more different your split-tests should be (big changes vs small incremental changes). If you're a startup trying to figure out your PM fit, don't play around with button colors on your homepage.
To sum up: A growth model is a basic equation that takes into account your user journey, the emotional response your product incites in the user, and the value your product offers. Building a growth model is not essential or even futile if you've not validated your hypotheses about your core product value, magic moment, etc.