Growth leading indicators

The problem: some of the metrics “we” (as an industry) follow, monitor, and praise, are lagging metrics. E.g. MAU show you what is happening at the moment, but don’t help you predict the future.

Full article here; cliff notes below.

Andrew Chen (follow, follow, follow) defends the need for leading indicators and a more predictive model.

Image credit: Andrew Chen

Understanding the loops:

  • How defensible and proprietary are they?
  • How scalable and repeatable?
  • How much upside do they bring when optimised?

Ulterior goal: understand the quality of the growth.

Acquisition loops are created on existing platforms and networks, by being: bought (e.g. ads), built (e.g. APIs) or partnered.

Understand how a cohort of new users can generate another group of new users.

Measure the loop efficiency by calculating its multiplier:

Image credit: Andrew Chen

The difference between loops and linear channels: PR, conferences, events, content marketing, etc, are actions that contribute for the virtuous cycle but they don’t scale, they just amplify the loop.

Loops mix:

Monitor loop/channel by period (ideally weeks).

Thumbs up: proprietary loops / low dependance on platforms (instagram, google, …); repeatability and scalability;

Thumbs down: one single loop; spikes; unsustainable traffic; loops that are not loops, just channels.

A startup shouldn’t care much about signups, they should care about how well they translate into paying customers, or active users, or whatever an “activated user” looks like. It turns out that one of the biggest determinants of “quality” of new users is the source of the user. As a result, you want to understand both how signups are being generated by various channels, via the Acquisition Mix report above, but also a sense of the quality by understanding the activation rate by channel.

It’s important to understand the underlying platform of any acquisition loop because things can collapse quickly.

The original article (which is mandatory read for anyone interested in growth) goes on. I’ll review the engagement loops and post notes in a different post.