Books In Minutes: The Lean Startup Chapter 10 – Grow
I now know I should be monitoring actionable metrics, and optimizing them until a point that I can decide to pivot or persevere. To grow effectively and sustainably, we could first identify which engine of growth the product suit best, and then focus on the metrics that run the engine. But first, let's check out the four ways to achieve sustainable growth.
A one-time activity that generates a surge of customers does not help in the long term. Ries has a simple rule for sustainable growth:
New customers come from the actions of past customers
- Word of mouth - The product is so good that users proactively share it with others.
- As a side effect of product usage - The product is naturally exposed to others when it is used.
- Through funded advertising - The product is exposed to people through advertising. The money used for advertising should come from an excess of revenue.
- Through repeat purchase or use - The product is designed to be got by a subscription plan or is purchased for repeated needs.
To find out what metrics we should focus on first, let's determine what engine our product has.
If the product is designed to attract and retain customers for the long term, it is equipped with the sticky engine of growth. The two metrics to focus on are the customer acquisition rate and churn rate.
The product is equipped with a viral engine if the usage of the product is designed to be exposed to people naturally. The metric to focus on is the viral coefficient, which is how many new customers out of ten could an existing customer recruit.
If the product requires in advance investment in money to drive the sales, it is equipped with a paid engine. The investment could be, for example, advertising or sales forces. The metrics to focus on are cost per acquisition (CPA) and customer lifetime value (LTV).
Though possible, it is very complicated for a startup to operate more than one engine of growth at a time. Ries suggested us to focus on just one engine of growth in the beginning. If we already have our leap of faith assumptions made clear, we would know which engine of growth suits us best. Only after we operate the engine thoroughly should we consider pivot to another one.
Startups don't starve, they drown.
Product/Market Fit: if you are asking, you're not there yet.