“Engines of growth are designed to give startups a relatively small set of metrics on which to focus their energies”
Eric Ries distinguishes 3 engines of growth.
The Sticky Engine of Growth.
This engine is about engaging the current customers and keeping them as long as possible. It’s the retention. If you don’t know how to engage your customers with your product, it doesn’t really matter how many new customers you acquire. To improve this engine of growth, look at your churn rate. It’s the percentage of users that stop using your product every month. Churn rate should definitely be low. Other metrics, like a number of acquired users, activation rate, or even the purchase rate, have nothing to do with this one.
The Viral Engine of Growth.
Social networks are a great example of how people share stuff. What’s important to notice, viral marketing is not a side effect of people using the product. It’s a strategy. A great example of this comes from the ‘90s when Hotmail started to grow. For each email that was sent using their platform, they put on the bottom “P.S. Get your free e-mail at Hotmail”.
Just like every other engine, in order to build this one, you need the feedback loop. And the metric you want to look at is called the viral coefficient. It’s the number of people that each user brings to your product. For example, viral coefficient = 0.1 means, that every user brings 0.1 more users to your product. Make sure that you have correct metrics in place, and you will be able to measure it correctly.
Be careful with your business strategy, charging users in the early stage, or even showing them advertisement on your platform may kill the viral growth. In order to make users talk about your product, you must make it as user-friendly as possible.
The Paid Engine of Growth.
This one is the most obvious engine of growth – you spend money to get more customers. The most important element here is that you spend less money to acquire a new customer than the total value of the customer is. The total revenue you get from one customer is called the lifetime value (LTV). The money you spend to get a customer is called the cost per acquisition (CPA). If the CPA is much lower than the LTV, your company will grow fast. If the CPA is equal to the LTV, your company is not growing.
As there are 3 different engines of growth, a well-established company should focus on all of them. However, for a startup, that is too much to do at once, so startups should put their focus only on one at the time.