Organic SaaS Growth: #13 The definitive guide to growth loops

This is a complete guide to growth loops.

You are going to learn everything about building growth loops for the viral growth of your SaaS business.

Super successful SaaS businesses use growth loops for exponential growth.

Slack, Zoom, SurveyMonkey, and a lot more have achieved compounding growth using growth loops.

With the help of today's research, you can too.

Whether you're new to growth or a pro, you'll find everything, from basics to advanced concepts in this definitive guide to growth loops.

Let's dive in.

1. Growth Loop Fundamentals
2. Funnels vs. Growth Loops
3. Quantitative Model For Growth Loops
4. Types of Growth Loops
5. Risks Factors
6. Building a Growth Loop

First things first, let's get some basics clear.

I'm going to discuss what, why, and how of growth loops.

So that you know what you are getting into and can understand advanced topics covered later in this post.

What is a loop?

A loop is a process or a system in which you connect the end to the beginning.

In engineering terms, a loop is a process in which you feed the output back to the input. This way, the output of a cycle becomes the input (or one of the inputs) of the next cycle.

Thus the result compounds.

What is a growth loop?

A growth loop is a system that takes a growth indicator, processes it, outputs more of it and then feeds this output back as input for the next loop cycle. This way, the growth indicator compounds and increases exponentially with every cycle.

For example, if the number of active users indicates growth of your SaaS business, then the growth loop will take active users as input, process them through a system, add new actives users, and then take these new users as input for the next growth cycle.

The end of each growth cycle triggers a new and bigger growth cycle, thus forming a self-sustaining growth loop.

How does a growth loop works?

At the very basic level, a growth loop works by making it possible for active users to get more value out of a product by bringing more users to it.

Consider a project manager who uses a Trello board as a personal space to keep track of various projects. She will greatly benefit if she can discuss and track all projects right in a Trello board. She can do this by creating a team board and bringing everyone in her team on Trello.

To make a growth loop work, the user must receive real value for bringing in more users to the product.

The growth loop will not work if the value offered is not important to the user.

For example, you can get enormous benefits from a Product Hunt launch of your product in terms of new signups, more revenue, and media coverage if your product ranks among the top products of the day. For this reason, you will go out of your way to promote the PH launch and bring a lot of new users to PH.

There are many types of growth loops, each working differently from others. I will discuss each one in detail a little later in this post.

What are the benefits of growth loops?

Growth loops offer two benefits:

1. Low-cost compounding growth.
2. A unique growth model that can not be easily copied and hence is defensible.

Low-cost compounding growth: Growth hacking is about leveraging systems for compounding growth. In the case of the project manager, Trello might have invested a few dollars in acquiring her as a user. But the cost to acquire each of her teammates as an active user is zero.

Each of these newly active users can further invite and bring more users to Trello.

Hence growth loops offer low cost, compounding growth.

Growth loops are unique to a business. In the above example, the value that the project manager and her team will draw by collaboratively using a Trello board is more than the features of the Trello. This value is the sum of the core product functionality, onboarding flow, UX, help documents, customer support, community, messaging, and even the future improvements in the product.

Growth loops are built on the possibilities of an active user drawing more value from a product. An Instagram user might signup and start uploading her photos to share them with her college friends. With time she might realize the possibility of becoming an influencer and landing a modeling assignment. This realization will motivate her to promote Instagram handle to a lot more people, bringing more users to Instagram.

But what if Instagram's links shared by her on Facebook do not generate a preview, thus making them less click-able?

What if Trello does not offer a free plan, and the project manager has first to take buy-in from the CXOs, loop in the finance department, activate Trello's enterprise plan, and only then invite her colleagues?

Will that fit with Trello's positioning, product, and the growth model?

Not really.

To make a growth loop work, every part of the growth model — product, channel, pricing model, market, and the message, all have to fit-in and work together.

A competitor can copy the share button, the UI, and even the onboarding flow. But it is almost impossible, even for the closest competitor to copy all of the moving parts of a growth machine. Hence growth loops are unique to a business and are highly defensible.

A competitor can also quickly copy your Facebook or Google ads but not your growth loops. By the time you fine-tune a growth loop and get it working, its design will be unique to your business.

Hence a growth loop is an important part of growth hacking and should be a part of your overall growth strategy.

Funnels are useful.

Funnels have brought billions in revenue for a large number of businesses.

A lot many successful SaaS businesses regularly use funnels as part of their growth marketing.

You should have funnels set up, checked, optimized, and at the forefront of your growth activities.

However, the funnel framework has a shortcoming.

Funnels are unidirectional — moving prospects from top to bottom. Once you have optimized the conversion at each stage of the funnel, you will have to focus on growing the traffic at the top of the funnel to drive growth.

Increase the volume at the top, and you will get more output at the bottom. There are many ways to do it like SDRs, paid ads, events, and content. However, the inherent nature of growth is linear here, and you will get growth only to the extent of volume at the top of the funnel. Even if you do it for years.

Some funnels perform better than others. Content marketing funnels, for example, if done right, compound over time.

I have even seen Facebook ad funnels doing wonders. As revenue from ads grows, you can invest a part of it back and scale the ads. With time pixel trains itself and volume at TOFU increase in multiples, improving from the linear growth for good. You might consider reinvesting a part of revenue as a growth loop, but it is just a case of scaling a well-performing funnel.

With that said, the reality of funnel is that you need continuous activities and investment of resources at the top. Every cohort of top of the funnel prospects flow down and convert independently of past cohorts. Your high ad spends of last month will not fill the top of the funnel this month by itself. In other words, there is no compounding effect.

Compare this to a growth loop that feeds the output of a cycle back to the input. Every cycle grows on top of all past cycles and growth compounds.

Another shortcoming of funnels is in the context of organizational structure, where different teams own a different part of a funnel. Working in silos, each team may work on its own strategy leading to a conflict of interest. This is more likely to happen in a large team and is probably not something you should worry about at an early stage.

Having understood the concepts now is time to dive deep into my favorite part of the quantitative model.

Why is it my favorite?

Because this is where we see the numbers in action and understand how various parts of a growth loop binds together.

Quantitative analysis will help you to scientifically build the growth model and the growth strategy.

I'm going to show you a complete quantitative model for growth loops and will link it later in this post for you to download.

Let's get started.

What is the viral coefficient?

The viral coefficient is the number of new users an active user brings to your product.

The viral coefficient is a measure of the virality of a growth loop and determines its success.

How is the viral coefficient calculated?

Calculate the number of new users an existing user is bringing.

For a SaaS business, it means new paid signups.

However, if you've a reliable monetization process to convert free users to paid ones, you can also consider free and paid users both as your growth metrics.

Here is a step-by-step process to calculate the viral coefficient:

1. The number of users (N): From your user database, find out the total number of registered users. Depending on the nature of your growth loop, you can either consider only paid users or the total number of users (paid plus free).
2. The average number of shares (S): Using tools like UTM links, third-party link/traffic tracking software or a customized solution, determine the number of shares (i.e., invites/referrals/shares) each user sends out to her network.
3. Conversion Rate (R): Using the same link-traffic tracking system, determine the percentage of prospects who signs up out of all those who received the invite.
4. Viral coefficient = Average number of shares per user * Conversion rate
5. For example, say you have ten users with each user sending out five invites. If the conversion rate is 30% then, the viral coefficient will be 1.5 (5 x 30%)

What is a good viral coefficient?

The viral coefficient should be greater than 1.

The requirement for the viral coefficient to be greater than one is based on the premise that only new users will participate in a growth cycle and will send invites or referrals. One reason for this is the limited social circle to which we are comfortable sending invites or sharing a product.

Having the viral coefficient higher than one ensures that in each successive loop cycle, more users are participating in the growth than the ones in the previous growth cycle so that growth process can continue.

I am going to explain this with an example.

If there are ten new users at the beginning of a growth loop cycle and the viral coefficient is less than 1, say 0.6, then at the end of this cycle, six more users will be acquired (10*0.6). For the next cycle, only these six users will send out the referrals and will bring three new users (integer part of 6*0.6).

This way, the number of new users will go down in each loop cycle and eventually it will reduce to zero.

Eventually a SaaS growth loop will stop if the viral coefficient is less than one.

If the viral coefficient is greater than 1, say 1.2, then at the end of the first cycle, 12 (10*1.2) users will be acquired. Two more than the original number of users. This way, with every cycle, the number of new users will increase, and the growth loop will keep running.

The growth explodes if the viral coefficient is greater than one.

Here is a loop cycle wise calculation of new users.

The premise that only the new users participate in a growth loop cycle is not always valid.

For example, a teacher who is using Zoom to deliver an online course will invite her students every time she starts a new batch. Some of her students will be new to Zoom and signup only because of her invitation. So she is participating in Zoom's growth loop multiple times.

Another aspect is that not all users will participate in a growth loop. In the Zoom's example above, it is safe to say that only a few enrolled students will keep using Zoom or have the necessity of using Zoom beyond that online course. Also, only a handful will go on inviting more users to Zoom.

One more thing that you should keep in mind that in some cases, the total number of users you can acquire is limited by design. Some of the people who had received the invite in the past but chose not to signup will receive it again and not join again. The market will saturate. Andrew Chen has discussed this concept here.

Viral Coefficient Sensitivity analysis

When the viral coefficient is higher than one, even a slight increase in its value can result in multiple fold growth.

I have captured a broader viral coefficient spectrum on a log scale.

The bottom line is when the viral coefficient is greater than 1; viral growth picks up.

How to increase the Viral Coefficient?

The viral coefficient has two elements: the number of shares and the conversion rate.

You can improve both of these to some extent by engineering product features and designing a growth loop around customer behavior.

I will discuss creating a growth loop in detail later in this post.

Viral Cycle Time

Cycle time is the time between a user sending an invite and someone becoming a user using that invite and send at least one referral herself.

A shorter cycle time means the company is acquiring new users in less time, hence its growth will be faster.

Viral Cycle Time Sensitivity Analysis

In his post on growth loops, David Skok has shared the following formula to determine the number of users at any time in a growth loop given its cycle time.

I have used this formula to analyze the user growth for different values of the cycle time of a viral loop.

As cycle time increases from 1 to 50, the number of acquired users reduces sharply.

The formula above has the viral coefficient and the cycle time as inputs. To understand the quantum of the effect of each of these variables, I have calculated growth in the number of active users for a range of cycle times at different viral coefficients.

Let's compare the sensitivity of user growth for both cycle time and the viral coefficient.

When the cycle time is large say 50:

At VC=1.5, number of users at the end of 60 cycles = 29

At VC = 1.2, number of users at the end of 60 cycles = 25

A 0.16 times increase in number of users.

When the cycle time is small say 1:

At VC=1.5, number of users at the end of 60 cycles = 11030540614880

At VC = 1.2, number of users at the end of 60 cycles = 33808009

A 326269 times increase in users!

It is evident that when the viral coefficient is higher than one, you should focus more on reducing cycle time than increasing the viral coefficient of a viral loop.

By reducing cycle time, you are increasing the compounding effect.

"Shortening the cycle time has a far bigger impact than changing the viral coefficient."

Retention

A key strength of the SaaS business model is the recurring revenue.

To get recurring revenue from a new user, you will have to make the user keep using the product. Users that renew their subscription are called retained users.

If you can not retain users for long enough, then all your acquisition efforts are wasted. Low retention also raises questions about the quality of your product as well as the product-market fit.

Hence user retention is an important metric to SaaS growth.

A simple method to calculate retention is to find the percentage of users that have renewed the subscription, i.e.

Retention Rate = (Number of renewed users / Total users ) * 100 %

A good way to retain users is to find ways to increase their engagement with the product. Another way is to help them discover value fast.

In this quantitative model, I am showing you the effect of variations in retention rates on the SaaS growth.

Let's assume a retention rate of 80%. This means that 80% of total users have renewed their subscription.

To find total users in a month, add rolled over users to the newly acquired users.

I am assuming that the acquisition loop cycle time is one month, so that it matches the retention loop cycle. In reality, this may not be the case, and you will have to change your model accordingly.

User retention at 80%:

With an 80% retention rate, the business has lost almost 90% of its initial active users within ten months.

Let's see user retention at 95%.

With a 95% retention rate, the business has lost around 40% of its initial active users over ten months.

That is a huge difference.

Therefore with everything the same, you should focus a lot of effort on retaining your users.

Retention Curves

You will lose some users. It is a part of everyday business.

Some users will no longer need your product, some users will switch to alternatives, and some users will grow beyond your offerings.

The retention curve is a reliable tool to decide whether or not you should be worried about losing active users.

You can create a retention curve by plotting month-on-month retained users against time. To keep the data sanity, use retention percentage rather than the exact numbers.

There are three types of retention curves:

1. Declining
2. Flattening
3. Smiling

Let's see each in detail.

Declining Retention Curve

When a large number of users are leaving month-on-month, and the total number of users is declining. This can happen because you could not find a product-market fit (e.g. Google+) or something better has come up, making your product obsolete (e.g. Blackberry phones).

A declining retention curve is alarming. It leads straight to business failure. If you have such a retention graph, you should focus all your energies in figuring out the reasons for users leaving and building solutions to retain them.

Flattening Retention Curve

If, after the initial excitement, the number of the user starts stabilizing, i.e., the total of retained users and newly acquired users start hovering around a fixed value, you will get a flattening curve.

Though not very encouraging flat retention curve suggests that business is floating. The level at which the retention curve has flattened will determine whether you can survive or not. If you have only a few users, then it is a problem.

A retention curve can flatten because you have acquired the maximum possible user base within your market. In this scenario, you should focus on increasing user engagement and maximizing revenue.

Smiling Retention Curve

In this case, the number of total users first decline and then after a while start increasing. This can happen when your team finally discover product-market fit, and users start talking about them.

A smiling curve indicates that user engagment is increasing and you have built something of value.

You can learn more about retention in this post published by Sequoia Capital's data science team.

With this, I've covered a complete quantitative model for the growth loops.

You can use this quantitative model to design and analyse a growth loop for your business.

Download Quantitative Model

Growth loops are unique to a business and hence can take a variety of forms.

However to study and learn growth loops you will need to a definite framework.

I am going to make it super easy for you to study and understand all kinds of growth loops.

To begin with, I am categorizing growth loops into two broad categories:

1. Growth loops based on their objectives
2. Growth loops based on their design

As it turns out, these two broad categories cover almost all kinds of growth loops.

So without further ado, let's dive right into the details.

Types of Growth loops based on their objectives

Here are the two kinds of growth loops based on their objectives:

1. Acquisition Growth Loops: To drive acquisition
2. Engagement Growth Loops: To drive retention

We have seen in the quantitative model above that acquisition and retention are the two key pillars of SaaS growth.

A SaaS business that drives a lot of signups but can not retain its users and in effect, sees a massive churn is wasting its money on acquisition and will never see sustainable growth.

A SaaS business that can not acquire new customers is surviving on a small userbase. Though this situation is still better than the previous one and you can survive for a few years, but at best, you have a small business with a lot of inefficiencies.

Building growth loops to drive both acquisition and retention should be your long term goal.

At an early stage, you need to have some paying users. Beyond that, if you have to pick one, focus more on retention than acquisition.

Why?

Because to improve retention, you will have to figure out ways to improve user engagement. Highly engaged users are usually the delighted users and stay with the product for long. Thus retention is an output.

Even with a few clients, you can improve the product, discover new opportunities, fine-tune messaging, and build something big. Substack, for example, made its product with just one user.

Alright, let's see these loops in detail.

Acquisition Growth Loops

These growth loops motivate users to bring new users and enable them to do so in the most frictionless manner.

Since these loops have to reach out to the target audience, they work smoothly outside the SaaS product.

Let's see how an acquisition loop works:

1. A new user signs up to gain some value/benefits from the product
2. She starts using the product
3. The product is designed in such a way that its usage by a user fuels its distribution. No extra work required.
4. Prospects discover the product and interact with it
5. A percentage of these prospects signs up to gain some value/benefit from the product.

Let's see some real-life examples of acquisition loops.

Substack offers an embeddable email signup form to all its writers. This way, a writer can use it in places like her website to grow her email list.

When a reader signs up for a newsletter, she starts receiving the newsletter in her inbox and can also read it on Substack. Every new signup to a newsletter is also a user acquired by Substack.

Substack's acquisition loop works as follows:

1. A writer signs up and sets up her newsletter.
2. She embeds the signup form on her website and publishes her newsletter.
3. A percentage of her website visitors discover the signup form, subscribe, and in effect, become Substack's user.
4. Prospects discover the product and interact with it
5. Some of these subscribers decide to create their newsletter.

Once on Substack, a reader can use the platform to discover other newsletters and read past posts. This is different than regular email marketing tools like Mailchimp or Convertkit, who quietly sit in the background and focus on email delivery and analytics.

Only a small percentage of readers will start writing their newsletters. At first glance, the viral coefficient seems low. However, a writer can bring readers to Substack not just once, but multiple times. Every time a new post is published. Therefore, a writer is participating in the acquisition growth loop multiple times.

Pinterest let search engine index the content created by its users. This way, the content shows up in Google search results.

This helps Pinterest with traffic, SEO, new users, and growth.

User-generated content is far more scalable than the blog created by an editorial team.

Here is the Pinterest's acquisition growth loop:

1. She discovers existing content or creates new content.
2. Pinterest selects the best content and allows search engines to index it.
3. People find this content on SERP (first page of a search result) and visit Pinterest.
4. Some of these visitors sign up and start creating new content.

Another business using a similar acquisition growth loop is Quora.

If this loop seems obvious to you, then remember that not all websites allow search engines to index their user-generated content (UGC). Making the UGC public does not suit all kinds of business models.

Here are two such examples:

1. Emails published using Mailchimp are not discoverable publicly.
2. Customer data on any SaaS CRM is not searchable via search engines.

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Mailchimp puts its logo linked to its website at the bottom of emails that its users send.

Hello Bar adds its logo at the bottom of the pop-ups that its users integrate with their websites.

Drift adds a link at the bottom of the chatbot's window that its users integrate with their websites.

When someone finds the link exciting and clicks on it, she is taken to the product's website.

Here is the Mailchimp's acquisition growth loop:

1. A user signs up.
2. She creates and sends an email to the subscribers of her email list.
3. Some subscribers find the Mailchimp's logo at the bottom and click on it.
4. A percentage of these visitors sign up to the Mailchimp to send emails.

Superhuman exploded on Twitter with who's who of startup world tweeting about it out of nowhere.

It is a productivity app that makes it super easy to use Gmail.

The first thing you will notice about Superhuman is that they do not let people to signup. They have a waitlist and manually onboard users one by one.

So, their acquisition loop begins at someone joining the waitlist.

Then the question is, how will you build a waitlist?

Whether in the outside world or on the internet, no one likes to stand in a queue.

Unless their imagination has been excited so much that they are ready to stand in queue for long durations — to buy an iPhone, to grab a Harry Potter or, in this case, to get access to Superhuman.

But it took years of effort to Apple and JK Rowling to build that kind of brand equity.

How can a year or two old startup working on something as dull as email can get people excited about it?

Maybe by delighting social media ninjas, rewarding them to praise the product left, right and center, and then mysteriously bottleneck the supply.

Here is the Superhuman's acquisition growth loop:

1. A new user signs up.
2. Superhuman's founder, onboard her in-person, get her inbox all cleared, and in the process, displays the power of the product.
3. This is once in a lifetime experience, and the user is super delighted. In this moment of delight, the user is offered a reward if she shares her joy on Twitter.
4. She tweets praising Superhuman, and her followers notice it.
5. A percentage of her followers check out Superhuman's website and sign up for the waitlist. This process works wonder if the user is an influencer with a large following, like a lot of Superhuman's users.

Over time, hundreds of 'blue-tick' people started praising Superhuman on Twitter, and its growth compounded.

Another example is from last year when I came across the secretive YourStack by Product Hunt team that was talking about pancakes. The YourStack website and even its Twitter account were not public. I joined the waitlist and was asked to Tweet about YourStack if I want to jump ahead in the waitlist.

This was a pre-launch word-of-mouth acquisition growth loop where the curiosity and the desire to be superior, i.e., the desire to have access to something exclusive, drove WOM.

Before I talk anything more about WOM growth loops, I want to clear a widespread misconception. Many people believe that word-of-mouth happens by itself. This is wrong. Reality is, growth teams carefully design word of mouth loops using behavioral data and research.

Having a delight-generating product or a curiosity-generating pre-launch engagement is necessary but not enough. Word-of-mouth loop is not a random tweet or media coverage. It is a well designed, sustainable, and reliable growth channel where if you change the input, the output will change.

There is a reason for so many tweets about Superhuman — users get one month's free access equivalent to $30 if they tweet.

In the case of YourStack, the reward of jumping ahead in the waitlist fueled word-of-mouth.

Word of mouth usually works with products that are very strongly positioned. They are built for a particular type of people and may not be appreciated by the rest of the world.

Such products can very easily attract negative word-of-mouth and go down the drain. If at the beginning people outside the target audience get access to such products, they won't like it. Their first thought would be that the product does not work. Hence in their conversations and probably in their tweets, you will find negative word-of-mouth. Brian Balfour has written about it here.

Team chat application Slack also has strong word-of-mouth evident by its Twitter wall of love.

Zoom is a special kind of SaaS product that has virality built-in. The example of an online course creator that I have discussed earlier in this post is an example of its acquisition growth loop. Whenever she uses Zoom to deliver her course, she is a probable participant in the Zoom's acquisition growth loop, bringing new users to Zoom.

Similarly, Product Hunt's acquisition growth loop is driven by those who launch their product on it and promote the listing to maximize the upvotes.

There are many ways to build an acquisition growth loop. This post at NoGood for example, discusses the use of growth loop along with the Nir Eyal’s “Hooked” model.

Before I move to the next topic, it's important that I point out something more.

Most of the successful businesses build more than one growth loops to drive acquisition.

The success of your business should not depend on just one acquisition growth loop.

Engagement Growth Loops

Most of the SaaS products are way less intuitive you would like to believe.

Most users are way busier than you would like to believe and have ten other important things to do than breaking their head with your SaaS product.

It takes a lot of time and a lot of engagement for a user to understand a SaaS product fully.

And if a user does not understand the product, she is going to leave, never to come back again.

This is where engagement loops come in the picture.

If you wonder "how to increase user engagement?" then engagement loop is the answer.

An engagement loop is an experience that helps a user to progressively unlock the product's value, keeps her engaged, and in effect, reduces churn.

To improve retention, you should think about shortening the user's journey to value discovery.

The objective here is to engage an existing user to win her trust and loyalty rather than attracting new users, as in the case of the acquisition loops.

Let's see how an engagement loop works:

1. An uncertain user takes action and uses the product.
2. The product generates positive feedback.
3. The user's confidence in the product increases.
4. The user spends more time engaging with the product, learning about it, and using it.
5. Positive feedback is generated, and the user begins engaging with the product more frequently.

With every loop cycle, positive feedback reinforces the user's trust in, and loyalty to the product. Every loop is a reinforcing loop.

An engaged user trusts the product and is highly likely to be a loyal customer.

Let's see some real-life examples of engagement loops.

Youtube engages its users by showing them recommended videos based on their behavior.

When you search and watch a pop music video, Youtube considers pop music as your interest area. Next time Youtube shows you a list of similar videos so that you can readily watch them without going through the search action.

Their present algorithm is super sophisticated that uses all your internet activity and predicts the topic that you are likely to be interested in. That's how they recommend videos on topics you were just thinking about.

Over time, your Youtube homepage becomes a reflection of your interests, desires, and personality. It becomes your personal space.

Who is not at ease in their own space?

No wonder, Youtube is a massively successful product.

The positive feedback here is the video recommendations and curation on your homepage.

There is another engagement loop on Youtube. It is when you subscribe to a channel.

Whenever that channel uploads a new video, Youtube sends you a notification. Hence asking you to engage.

The positive feedback here is keeping you updated about the latest videos from your favorite channels.

Trello is a collaboration tool for teams. You can use it for project management, task management, and keeping things in order.

You can tag a team member in a comment on a Trello board and have a conversation.

However, Trello is an independent app that people are unlikely to visit often.

Hence the team member might not read your comments on time. This may cause disruptions and delays in the project. Ultimately this will led you to stop using Trello.

Trello has following engagement loop to solve this problem:

1. You write a comment for your team member and tag her.
2. Trello sends a notification to her email address that contains your complete comment.
3. She can reply to your comment directly from her email or can visit the Trello board.
4. You and your growth team can have discussions all the time on Trello, with each receiving all updates on emails. Overall, product engagement increases.
5. The positive feedback here is the notification on email, as well as the ability to reply from email.

Google sheets is an alternative to MS Excel. A few benefits it offers are autosave and easy share. An excel user will find these features immensely beneficial.

On using Google sheets the first time, the user will pleasantly discover that all the work gets autosaved, and she is no longer required to press ctrl+s at regular intervals to save the work manually.

Features like this need no product education and quickly display the product's value. This helps in building a user's trust in the product and keeps her engaged with the product.

On using the product further, the user will discover that she can even collaborate with her teammates. Together they can work on the same sheet and even can discuss the same window.

With more engagement, she will also discover that she can easily share the sheet's link with others and has control over who can view and edit it.

Now she has no reason to go back to MS Excel. Google has a highly engaged user who has high trust in the product.

As her usage will increase, Google will find it easy to convert her to a paid user of the G Suite.

The positive feedback here is the frictionless solution to the problems faced while using MS Excel and better product experience.

Uber & Ola (Uber's rival and the market leader in India) have designed their engagement loops by offering attractive discounts to early as well as frequent riders.

These discounts motivate riders to use these apps every time they want to hire a cab instead of hailing a taxi on the road.

A better service — clean car, fair pricing, reliable routes, and better address system in case of a bad experience or you leaving something behind in the cab. These benefits fuel the engagement loop. Discounts without these benefits can not drive growth for long.

If you are a new user, you will need to use the service a few time to realize all these benefits. Discounts make it possible for you to use the service so that you can understand these benefits and become a life long user.

As you can see, a key important factor in the success of an engagement loop is the progressive delivery of value. If you can not deliver value, no amount of notifications, emails, and updates will retain users.

Highly engaged users are less likely to churn.

You should also think about users who have downgraded from paid to free plan while designing an engagement loop for your SaaS product.

Andrew Chen has published an interesting deck that discusses some of these concepts.

Types of Growth loops based on their design

There are three main types of growth loops based on their designs:

1. Viral Growth Loops
2. Content Growth Loops
3. Sales Growth Loops

Let's see each in detail.

Viral Growth Loops

A viral loop fuels the growth by merely making users use the product.

Just by using Zoom, the course creator brings more users to it.

Just by promoting a PH listing, startup founders bring more users to PH.

By attracting new subscribers to this newsletter, I am bringing new users to Substack.

Broadly viral growth loops are of two types:

1. A viral loop in which the product usage fuels growth, e.g., Zoom, Whatsapp, Telegram
2. A viral loop in which a user actively shares the product to drive more value, e.g., Product Hunt, Substack.

A viral loop is challenging to design as it is inherently a part of the business model. But if you can get a viral growth loop up and running, you can expect a massive growth.

Content Growth Loops

Content can be created in two ways:

1. By an editorial team like most of the company blogs or
2. By users like in the case of Substack, Reddit, Quora, Pinterest, Youtube, SoundCloud, Medium, Twitter, Instagram, and Facebook.

User-generated content (UGC) is usually possible when the business is in the publication domain. All the platforms mentioned above have built scalable and easy to use software to let users create, publish, and distribute their content. Users create content for their benefit and, in the process, help these platforms to grow.

These platforms allow search engines to index the user-generated content and gain in terms of SEO.

Whether created by an editorial team or by users, a content loop works as follows:

1. Search engines index content.
2. A prospect discovers the content on SERP and visits the website.
3. Prospect signs up.
4. If its a product, she fuels the product growth paying for it. If it is a publication platform, she fuels its growth by creating new content.
5. As content generates more revenue, the company invests more to create more content.

Content loops are very scalable. There are massively successful blogs, Youtube channels, Podcasts, and Instagram handles. So whatever content type you chose, with efforts and time, you can convert it into a growth machine.

Sales Growth Loops

In case a SaaS business is selling a high contract value software, likely to enterprises, it will need to employ sales development representatives (SDRs). These sales heroes will reach out to the prospects, meet them, demo the product, and close the deals.

If this way of selling starts bringing in new clients, you would like to invest a part of the profit being generated by SDRs into hiring more SDRs, thus kicking off a growth loop.

A note on paid ads

Earlier in this post, I have discussed a Facebook ad funnel. You can create similar funnels using other platforms like Quora, Instagram, Tiktok, Reddit, etc. in place of Facebook for paid ads. If the funnel performs well and your revenue grows, you can scale the funnel by increasing the ad spend. So the funnel will fund its expansion.

You can consider this process of scaling a well-performing funnel by raising the ad spend as a kind of growth loop. I prefer to view this setup as a paid acquisition funnel. Terminology does not matter if you have understood the concept.

The only thing to learn before you start designing growth loops for your SaaS business is the risks involved with the growth loops.

These risks, if unchecked, can be counter-productive and create new problems. Here are the key risks:

1. Dependence on a single platform:
   If your growth loop is dependent on a single platform, you are running a risk of changes in the rules of that platform. For example, if your acquisition loop is built on top of Facebook, then any changes in Facebook's terms of use will in-danger your acquisition.
2. Audience product mismatch leading to poor quality acquisition:
   Attracting the right kind of people to your product is essential. Otherwise, you would be living in the illusion of having an excellent acquisition growth loop in place while attracting an audience that will never become the customer.
   
   I first-hand experienced this when last year we acquired a large audience for an e-commerce store but could not convert much of those signups into buying customers. It turned out there were two segments within the audience — one who was interested only in DIY kind of knowledge content and second, which purchase the products but was not interested in hobby oriented DIY blogs.
3. Good friction, Bad Friction:
   Sometimes, a little resistance in the onboarding process can be useful, filtering out people who are not a fit to your product as well positioning the product as a highly desired exclusive product. Kevin Kwok has discussed Superhuman's good friction here.
   
   However, friction due to bad onboarding design is far more common than the good ones — long signup forms, asking to log in right after signup, no hand-holding to new users, no product education, long delays in replying to support queries — examples of bad friction are many.

So while you design, monitor, and analyze growth loop for your SaaS business, watch out for these risks.

With that, we have come to the last section of this guide.

Now that you have mastered the concepts of growth loops, its time to design one for your SaaS business.

I'm going to reveal a step by step process that you can use right away.

The aim here is to identify growth levers, design strategy around them and build sustainable loops to improve growth rate.

As you have learned above, you need to increase the viral coefficient and reduce the viral cycle time.

Specifically, I am going to cover:

1. Mindset
2. Tech Stack
3. Project Management
4. Audience/User Research
5. Strategy
6. Engine of Growth
7. Omni-Engagement Ecosystem
8. Lean & agile testing

Let's dive in.

Mindset

Growth is a mindset game.

You are trying to attract a lot of people to your product and make them keep using it over a dozen alternatives. You are bound to face a lot of rejections and a lot of failures. This is not something most of us are used to in personal lives. Hence our brains have never developed the required neural muscle.

You will need to figure out things that matter, focus all your energy on them, and ignore the things that are vanity.

You will need the grit to take on new challenges and perseverance to stay put till you win.

You will need to remain in control under emotional turmoil caused by the loss of resources due to failed initiatives.

The process of building growth loops is an iterative process of running experiments, like a loop. You start with an idea, implement it, test, and fine-tune it.

Focus on the data and results, not on your emotional triggers; this will keep you focussed. There will be considerable investment of time, energy and financial resources.

Incremental improvements will evolve your growth loops into a lean growth machine.

"You will continue to suffer if you have an emotional reaction to everything that is said to you."

Tech Stack

Building a growth loop is more of an engineering plus data activity than a marketing one. At every stage, you need to capture data, analyze it, and take appropriate actions.

It is a data game. You can not brute force yourself into guessing a growth loop design.

At the very basic level, you need to set up tools for:

1. Link and traffic tracking: To track traffic and conversions
2. A/B testing: To test different versions
3. Deep linking: To take prospects at specific pages
4. Marketing Automation: To handhold users based on their behavior
5. Cohort Analysis: To understand behavior sensitivity

If your product is a mobile app, here is a good read at Phiture by Kevin Bravo to build a tech stack.

Project Management

You and your team will come up with a lot of ideas, design various experiments, and get a lot of results. You have to properly document all these points so that at the end of every iteration, you have a clear view of what has worked and what has not.

You should set up a project management stack consisting of:

1. G Suite: A single repository of quantitative sheets, research surveys, ideation docs, and presentations.
2. Trello Board: For task pipeline and status. Link it with G Suite.

Create an excel sheet which contains details of all experiments along with their results (success/failed) as well as notes on learning.

Every time you decide to work upon an idea, add it to this excel sheet. After it is executed, note down its result, the learning, and the name of the team member driving the experiment. So in all, you will have four columns.

Audience/User Research

You want to know two things:

1. What is important for your active users?
2. What are their invisible behavioral and emotional triggers?

For example, Zoom discovered that, on average, a video conference meeting goes on for 45 minutes. So to convert free users to paying ones, they capped the meetings hosted via free plans at 40 minutes.

Such insights are very useful to design conversion triggers but are usually difficult to discover. You should actively survey your users and visitors as well as extract behavioral data from your tech stack.

Based on this research, design conversion triggers for acquisition and engagement. A conversion trigger is something extremely compelling for the users and enable them to draw maximum value from the product.

With each iteration you will gain deeper insights into the mind of your users. Use these insights to make conversion triggers more and more compelling.

Strategy

With systems and research in place, all you need is a strategy that binds everything together. A strategy that uses the best fit of product, audience, messaging and channel.

Start by measuring your current viral coefficient and cycle time. Use your analytics system to find these values. Once you know where you are right now, you can better design strategies to move ahead.

Next, work on the skeleton of your growth loop. At this stange, you need to have rough idea about the structure of the growth loop, number of steps in it and how the users will interact with it. Overall you need to answer followings:

1. How prospects will discover the loop?
2. How prospects will become part of the loop?
3. How prospects-turned-users will benefit from being part of the loop?

Engine of Growth

Now you are all set to go out in the market and win people's attention. To fuel growth, you need a channel with some element of automation to bring more and more prospects to your website. You can drive this traffic using content, affiliates, paid ads, widgets, and many other channels.

Which is best channel for your business?

Your audience research and strategy should tell you this.

Omni-Engagement Ecosystem

Now when you have a lot of traffic coming your way, you need ways to engage these visitors to benefit from all these efforts.

This engagement is a multi-layer engagement. It means engaging visitors using compelling copywriting, engaging newly signed up users using empathic onboarding, and engaging active users with support.

To learn about end-to-end user engagement, take a look at this omni-engagment framework.

Lean & Agile Testing

While building a growth loop, you should test different strategies and tactics without investing a ton of resources. To do this you can think about ways that will help you to quickly implement your ideas. For example use a read-to-use software instead of a custom made software, take inspiration from your best performing competitors for ads and messaging rather than researching your own from scratch and so on.

Another thing is being agile i.e. be ready to accept new findings and make changes in your strategy.

This case study of Dutch company Picnic's growth loop is an interesting read in designing growth loops.

Use a tool like MobileMonkey to increase visitors' engagement at your website and experiment rigorously.

With more experiments, the quality of your growth loops will improve.

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Interested in designing and implementing growth loops for you business?

• DIY - This research covers everything that you need to design growth loops.
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