7 Must-Know Tips for Building a Scalable Startup Growth Engine
Discover the key to unstoppable growth with these 7 proven strategies for building a sustainable startup engine
Almost every marketer is familiar with Lean Startups’ three major drivers of business growth. Eric Leans opined that business growth can be achieved in three ways, namely;
This is where customer retention is at the heart of your strategy. The sticky driver tries to measure three metrics. Namely; Customer Acquisition, Retention and Churn rate.
For businesses to achieve growth;
The rate at which you acquire customers must be higher than your churn rate. It doesn’t make any sense to acquire 30 new customers while losing 50 customers in the same period.
Retaining customers, for many businesses, is often more important than acquiring new customers. And any business that cannot keep its customers will fail.
The core message in “STICKY” is Customer Retention
Viral growth is often achieved through organic word-of-mouth and referrals. The more people talk about your product or services, the higher the chances of acquiring new customers.
Virality is often achieved through;
Product-infused engagement or network
ChatGPT is the latest example of a product that has driven incredible growth with virality
Paid means acquiring customers through paid channels. However, in this case, one must seek to acquire the highest quality customers with the lower customer acquisition cost.
It is, however, glaring that classifying growth with the three major drivers is inadequate because it doesn’t factor in many other types of drivers, and how it can be sustained in the medium and long term.
SUSTAINABLE GROWTH ENGINES
What is a Sustainable Growth Engine?
A sustainable growth engine or loop is a growth channel or multiple growth channels where the cost of acquiring or retaining a customer is significantly lower than the Lifetime Value (LTV) of the customer.
The cost of acquiring a customer (CAC)of a paid channel should be lower than the average Lifetime Value(LTV) of the customers.
If you spent $2,500 on Facebook Ads to acquire 200 paying customers. Your Customer Acquisition Cost (CAC) is $12.5
An average customer pays you $40 per month and stays for 6 months before churning. We can say a customer LTV is $40 x 6 = $240.
Technically, you’ve spent $12.5 in marketing to get a customer that pays you $240! And that is a sustainable channel for marketing!
However, if you spent $2500 to acquire 10 paying customers at the same rate, You’ll have spent $250 in marketing to get a customer that pays you $240. And that’s a loss and unsustainable. Even without considering what’ll cost you to service the customer.
For startups to achieve business growth through paid marketing, you must find advertising channels that’ll give you the highest quality customers (High LTV) with the lowest possible acquisition cost.
Building a powerful growth engine for your startup means you'll have to invest in atleast one of the “Sticky, Viral or Paid” drivers.
THE MODERN ACQUISITION GROWTH ENGINES
A startup can hack growth around 6 major growth engines.
Virality: Word-of-mouth, Referrals, etc.
Content: SEO, Videos, Newsletters, etc.
Sales: Outbound, Inbound Sales
Performance Marketing: Social media ads, Google ads, other PPC ads, etc.
Partnership: Integrations, affiliates, API, collaborations, etc.
Offline: walk-in locations, product demos, fairs, branding etc.
You can combine 2 or 3 of the above growth engines depending on the type of product you have. . Let’s look at examples that are closer to us.
Airbnb = Virality + Performance Marketing
Booking.com = Content + Performance Marketing
Hubspot = Content + Sales
RelianceHMO = Sales + Virality + Performance Marketing
Jumia = Content + Performance Marketing
How do you think your own startup will grow? When decided, start building growth teams with the domain expertise of the growth engines you’ve identified.
Retention and Customer Engagement should be at the core of the growth engine or loop you might want to build. For startups that have achieved a product-market fit, it’s often easier to retain your existing customers than acquire new ones.
Virality can be induced as part of product-led growth initiatives. Find the point in your customer interaction funnel, where your customers are most happy with you and optimize that point for virality.
Do NOT try to build growth engines around channels or hacks that are not sustainable or can’t be done at scale. Brand Marketing, Events and Everyday PR aren’t known to be sustainable.
User-generated content is like unpolished diamonds. When used well, can help you create the growth engine you deserve with virality.
Your customers have in their connections, people with similar traits or who behave like them. Finding the best way to let your customers market your product to their connections is what a referral strategy is all about. Hacking this will give you an endless growth loop.
Many have argued that performance marketing or even sales are not sustainable growth engines. you can, however, characterize a growth engine as;
- An acquisition system that can be piloted by customers. E.g. Referrals, Word of Mouth, UGC, etc.
- An acquisition system that’ll have the highest average Revenue: CAC ratio. I.e A system that brings in high-quality leads with the smallest possible acquisition cost. E.g. SEO, Affiliates, Partnerships, Integration, or even Ads, etc.
- An acquisition system that can be piloted by-product: E.g. Product branding, B2C2C or B2BC customer exposure. Products like Calendly, Typeform, etc have benefited immensely from this.