An engine of growth in a startup is a mechanism for sustainable growth over time. It is growth that does not depend on a specific action, such as an advertising campaign or a media appearance. Identify which is the engine of growth that can grow your startup and works to ensure that work best for success:
Viral growth driver
Interest in the product is spread from one person to another without being able to do anything about it as does a virus in an outbreak. It is important to understand that, contrary to the word of mouth, the viral is not conducive for the disposal of users to recommend to other users.
The growth occurs automatically by the mere use of the product. Hotmail, for example, is one of the most famous cases. In the first months after the launch of the free email service, growth was slow and only driven by advertising campaigns financed by the previous investment they had achieved. However, everything changed when the end of each email introduced “Get your free email at Hotmail” with a clickable link to your website. Since then the growth was massive and in six weeks got the first million users, five weeks after they reached 2 million, 18 weeks passed 12 million and the company eventually was bought by Microsoft for $ 400 million. Product use by existing users led growth. The growth rate can be calculated with a term called ” viral coefficient. ” The higher the ratio is, the faster the growth.The viral coefficient measures how many new users through each existing user arise.
If the coefficient is 0.1, you will reach one new user every 10 existing. v = 0.1. If the coefficient is 1, there will come a new user for every 1 existing. Therefore, growth will be linear 1: 1. v = 1 If the ratio is greater than 1, will reach more than one user for each existing user. In this case the growth is exponential. v.1.1.Those companies used as the viral growth engine, should focus primarily on increasing the rate of viral before anything else. As a result, this type of growth is typical of companies like Facebook, Twitter or Hotmail does not directly charge users. Monetization should arrive by indirect income.
Fidelity as a growth engine
Those products that have loyal users and is maintained over time can use loyalty as a growth engine. For example, a telephony provider knows that a client will hardly be competitive, unless you are very unhappy. For such products, the key variable is the ” coefficient of abandonment “. This coefficient is defined as the number of customers who stop being faithful over a period of time. The rule governing this type of growth is as follows: if the number of clients is higher than dropouts, there will be growth. The growth rate will be the rate of growth – dropout rate.
Those companies that use as a growth engine loyalty users should focus rather on existing users to increase their engagement and retention rather than acquiring new customers.
Paid advertising as a growth engine
It is the most common form of growth used by companies worldwide. Those companies that use advertising or sales force as a means of growth are part of this category. By definition, each new client generates a certain income for the period which remains customer. This is the ” Life Time Value “(LTV). To purchase a customer will have to invest a certain amount in advertising and / or sales force, this amount is called the ” acquisition cost “or CPA. If the LTV is greater than the CEP, there will be a margin that can be reinvested to buy more advertising to bring more customers. If the LTV is less than the CPA, every penny spent on advertising will generate losses in the company. For example, if a company has a CPA of $ 2 to $ 6 LTV, you will have a gross margin of $ 4. Therefore, if reinvested that $ 4 will have 2 new customers that represent a range of $ 8. For startups, having no variable costs for each additional user, the focus should be on calculating the LTV of each user to find ways of advertising and a sales force that allows him to acquire new users (CPA) at a lower price. The greater the difference, the higher the rate of growth. If you want to learn more about how to calculate the LTV we recommend the following infographic Kissmetrics .
Case Study: Dropbox
Dropbox is one of the fastest growing startups and has had success in recent years. Part of its success, along with an exceptional product, is motivated by using multiple engines for growth. For example, for every friend you bring, they give you 500MB (viral) or if you do the tour they have prepared for new users they give you 250MB (loyalty). Here you can see all the ways to earn more storage space on Dropbox:
In fact, you can get up to 16GB of free storage by referring friends
In other words, Dropbox could have a viral ratio of up to 32 new users per existing user !!