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Growth Models
Sustainable growth
Key Idea
When new customers come from the action of past customers.
Excludes one-time campaigns and actions
Systematic: built into the product’s usage
Comes from actions of past and existing users or customers
There are many ways in which using a product can lead to a growth in revenue
Word Of Mouth (people recommend your product to others)
Side Effect of Usage (people see you using and want to use it too. Or in order to benefit you have to invite.)
In-product purchases (part of the experience of the product requires you to spend money inside it.)
Subscription (or need to re-buy) (access charges, periodicals, expiration or consumption.)
Funded advertising (When advertising gets more users, and is funded from revenue from users.)
Engine of Growth
We know that without growth we don’t have a business
Engine of Growth is a way to reason and organize thinking around this
It is the mechanism whereby a startup means to achieve susstainable growth
The focus of the analysis is around the
metrics
that are necessary
The Metrics not only tell you whether you will grow but guides to where to invest to grow
Four example growth models
Sticky Engine of Growth
Concept: A subscription model that needs to be renewed
Key Metrics
Customer acquisition rate (new customers per unit time)
Churn rate (customers lost per unit time)
Customer retention rate
Rule
Rate of new customer acquistion exceeds the churn rate then the company will growth
Focus
Attracting new customers and retaining the ones you have
Understand why a customer did not renew the service and address those issues.
Example
Home cleaning application and service
Inherent in the service is that the house will need cleaning periodically
The service is inherently sticky
Viral Engine of Growth
Concept
Simple normal use of the product leads to new sales
Powerd by a “viral loop”
Key Metrics
“Viral Coefficient” - how many new customers a single customer brings in, and over what period
Viral coefficient should be > 1 to get exponential growth
Focus
Increase the viral coefficient
Example
Dropbox: strong incentive of a new user to invite additional users
Users were given an incentive to do this, more free diskspace
Paid Engine of Growth
Concept
Simple paid product
Still need to pay attention to metrics!
Key Metrics
Customer Lifetime Value (LTV): How much does a single customer bring in over their lifetime (as long as they use the product)
Customer Acquisiton Cost (CPA): How much (in sales costs, advertisting, etc.) does it cost to acquire a single customer
Growth depends on the simple ratio of customer acquisition cost vs. per customer earnings
Focus
LTV of a customer tells you how much you can spend on customer acquisition
Simply add more money to customer acquisition and you get a predictable amount of earnings from that.
Example
Ad costs $100 and it predictably causes 2 customers to sign up. CPA = $50.00
Average customer spends $25 per year and lasts an average of 1.5 years). LTV = $37.50
If LTV > CPA the company grows, because profits can be invested in more ads or sales people
Welcome
2018 Syllabus
Calendar of Lectures and homeworks
Resources
Lectures
Pilot Project
Welcome!
Lean Startup
Hypotheses
Working on Teams
MVP
Guest Lecture: Michael Skok
Pilot Project Conclusion
Term Project: Startup
Welcome to Term Projects!
Build Measure Learn
Project Planning
The Pivot
The Engine of Growth
Mockups & Prototypes
Testing Techniques
Term Project: Product
Product Market Fit
Jeffrey Beir: Metrics
Business Models
Pricing Models
Andy Payne: Startup Finance
Intellectual Property
Term Project: Business
Finance for Geeks
Founding a company
Real World Survival Kit
Management and Leadership
Dulcie Madden: Startup Teams
Last day converstation
Term Project
Term Project Outline
Minimum Viable Product Info
Hypotheses
Final Presentations
Background
Learning Goals
Grading
Teachers
Lexicon
Interesting links
Credits and acknowledgements