Continuing our digging into The Growth Spiral framework, we will be going deeper into one of the key phases of the framework. I am assuming at this point you have a bird’s eye view of our Growth Spiral framework and how to measure your growth. If not, I would advise you to start there.
Today, we will start diving deeper into the Engage phase of the customer journey to drive sustainable growth. Here we will look into how Retention-led growth plays a big role in the growth of your company. In the Engage phase, we focus on:
Active users: Increasing the number of active users → User/cohortgrowth
Active usage: Increasing the frequency of usage → Stickiness/Habit
In the early stages of growth, most companies focus on acquiring users. Companies seeking growth might go a step further to focus on driving usage of the product’s core value. This is what we call the invite phase and we will cover this in a separate post. For your product to achieve its full potential and create the most value for most users, it must GROW.
Ideally, all the new users you acquire would continue to engage with the product forever as your product grows. In reality, that’s not how it shapes up. A quick look at retention curves of popular apps will confirm this. So now, retaining your users becomes a major factor for growth. As you notice, the top 10 apps do a phenomenal job of holding their customer’s interest.
The majority of products achieve this by engaging users to consistently deliver value at each touchpoint.
This is not a mere coincidence. They actively prioritize and consistently execute various strategies as well as tactics to improve retention. This is true even if you are in a strong pull-market.
Benefits of retention-led growth
One common question that arises when I work with high growth companies is: Why lead with retention? We will see this in an example that follows. In this example, we will be using the Quick ratio and retention rate as a way to measure the growth and health of the business as seen below.
Now consider a fast-growing company we will call “Supercab”. Supercab is a venture-backed company in a fast-growing market segment. They are quickly approaching the coveted product-market fit. They have a couple of strategies available to them.
Acquisition-led model: here we focus on improving our acquisition funnel and don’t actively do anything to improve retention but only stabilize it.
Retention-led: here we leave the acquisition stable while focusing on improving retention
Based on your understanding of the numbers above, which do you see is better for sustainable growth. Now if you said Retention-led, you will be correct. As you can see by focusing on improving retention, Supercab can potentially grow better.
Retention is the best indicator of product-market fit and the most important lever for sustainable growth.
Now, if you are a founder or part of a fast-growing, venture-backed startup, you are never running just one strategy. It’s mostly the question of resource allocation and prioritization. So, what if Supercab did acquisition well in addition to retention-led growth? As you might have noticed, they can get 50% better growth built on the backs of retention. This is the compounding effect that a retention-led growth strategy provides.
A note on embedding & lock-in
If you are a SaaS product, one of the fundamental moat available to you is lock-in. Simply put, the company/user using your product is locked in to continue using your product. This enables you to expand your revenue by providing value-added products contributing to your Expansion.
But wait, what if you are a consumer company or a bottom-up SaaS product. Even then this will work to your advantage. Most consumer plays have the problem of multi-tenanting. If the users don’t use your product, they are probably using an alternative. The alternative could be an inefficient product or a competitor. By engaging and delivering value consistently you create an unimpeachable position in the user’s mind. The lucrative top-of-mind recall. Let’s take the SuperCab example again. If every time a user wants to take a cab ride and SuperCab is top of mind, then it is their customer to lose.
By now I hope you are convinced about the effectiveness of the Engage phase and retention led growth. Let's start the Engage phase by setting up the foundation and increasing the number of active users. Here are some quick tips to get you started on your journey to executing it.
Step 1: Segmentation
Segmentation also sometimes know as cohort analysis is the best place to start your journey to understand growth levers. Segments or cohorts are just a fancy way of saying grouping users based on some commonalities. So instead of looking at all users in one broad view, cohort analysis breaks them down into groups. In our playbooks series, we will dive deeper into how to do better segmentation.
For now, I recommend starting with behavioral segmentation, which is grouping users based on their behavior within your product. Once you have a fair amount of confidence in your segments, start looking for the following:
see how their behavior changes over time
look for patterns that influence their engagement with your product
compare different groups to identify best practices and use cases
Step 2: Understand your super users
If you are building a valuable product, you are most likely solving a problem or satisfying a need in the market. The early adopters of your solution are people with the highest pain point. They are the ones most engaged with the core value that your product provides. Understanding how this group interacts with the product is the best way to improve overall retention.
To identify your super users, start with a hypothesis about which features are core to the product’s value proposition, Once you’ve identified your “magical moment,” segment your users based on how, and how frequently, they engage with it.
Next, find ways to talk to them to understand:
Empathy: Who are they as a person? What does their life look like? What needs are we satisfying for them?
Journey: What was their experience using your product? What were some points of friction?
Workarounds: What did they do to overcome that?
Expectations: What is their version of a “magical” experience?
(We plan to cover this in more detail in a future post on research methods available to startups)
Step 3: Remove friction and Entice
Once you understand the key behaviors and friction surrounding them, its time to fix them. Now, as a fast-growing company, you may not be able to fix every friction point. So to prioritize, we seek the help of a cognitive psychology phenomenon called “The Peak-end rule”.
Dr. Kahneman puts this the best as below:
We judge an experience by its most intense point and its end, as opposed to the total sum or average of every moment of the experience. So tap into empathy, end on a high and make people feel great about using your service. - Kahneman, D. (1999) Well-Being: The Foundations of Hedonic Psychology
To apply this, just look at your ends and see how you can make those points “magical”. Then look at the negative peaks during the experience and make them less painful. Remember delighting users is nothing but reducing their effort to achieve an outcome and exceeding expectations while doing that.
Step 4: Measure and Repeat
Always remember, Your company’s retention isn’t ever going to be static — so you need to pay constant attention and put in the time and effort to calculate it and optimize it. Once you are through one cohort, traverse to the next one. Continue to measure the different experiences and avoid falling in the silver bullet fallacy.
Direct your attention towards getting customers to stick around, and you’ll build a stable foundation with huge potential for internal growth.
No silver bullets, just solid strategy.
I hope you found this helpful in kick-starting your Engage Phase of applying The Growth Spiral model. We are planning on following up with more posts diving deeper with case studies, and tactical frameworks for everyone.
Meanwhile, If you are an Accel founder and interested in getting early access to upcoming material and the Growth community we are building, please email: firstname.lastname@example.org or partner from your investment team.