Growth Loops Are the Key To Exponential Growth
How to create leverage on your Go-to-Market journey
In this article, you will learn:
That compound interest is the key to exponential growth (the leverage)
What are Growth Loops
How are Growth Loops different from funnels
Five types of Growth Loops
How to start building your Growth Loop
Create leverage on your Go-to-Market Journey
“Compound interest is man's greatest invention.”
Albert Einstein
Last year, I was on a mission to create a best-selling Amazon book, Go To Market Strategist. Since I self-published, I needed to ensure that I hit >500 preorders on the first day, which will be enough to get me to #1 charts. I calculated that I need 3000 signups for the launch to hit this number. But how to get them?
First rule: Go where the audience is. Since the ICP (Ideal Customer Profile) for the book were founders, product managers and growth experts, it was logical to select channels where they are - it was a combination of LinkedIn, Substack, and B2B influencers (and I failed to break through the noise on X and with podcast). I started my campaign in September 2023, and the launch was planned for November 15th. Here is the exact chart to observe how the numbers were moving. At the beginning of November, I felt blue. I thought that I was failing the mission … until things exploded:
After 100s of posts by myself, my community, and B2B influencers on LinkedIn, I started seeing our efforts' compound interest. We created a critical mass of presence that totally changed the trajectory of this launch. What happened?
Growth Loops are the secret ingredient of exponential growth
A straightforward Growth Loop started to form in my content engine.
The most basic example is a word-of-mouth loop, in which a user signs up for your product, uses it, and then tells others about it or directly invites them to use it.
According to Reforge, Growth Loops are closed systems where the inputs, through some process, generate more of an output that can be reinvested in the input. They serve different value creation, including new users, returning users, defensibility, or efficiency.
For each stage of the loop, you define:
What is the action?
Who performs the action?
Why are they performing the action?
And it keeps on spinning 🔁, creating more growth loops.
The fastest-growing products are better represented as a system of loops that create hockey-stick-looking growth curves. Unicorns 🦄 such as Loom, Figma, Miro, Spotify and many, many more use the mechanism of growth loops.
Long story short, here is why we 💜 Growth Loops:
They give you leverage
Key to exponential growth
Near-zero CAC (Customer Acquisition Cost)
Account expansion + impact on activation & retention
The holy grail of Product-Led Growth
Funnels vs. Growth Loops
“Growth Loops are legal Ponzi schemes. You get one user in. They bring more users to you for free.”
Ognjen Bošković
When I started working in growth marketing back in 2010, our go-to framework for understanding how the customer journey translates to business was The Pirate Metrics - AARRR (Acquisition, Activation, Retention, Referral, and Revenue) by entrepreneur and investor Dave McClure. We were enthusiastically drawing funnels on every whiteboard that we could find and tweaked our growth strategies and analytics system to make them measurable.
My problem with funnels has always been that they siloed responsibility and ownership for different stages of the funnel to different departments instead of aligning them towards a single objective. And you and I both know from our consumer life that we also share and recommend products that we do not buy, right? During COVID, I estimated I attracted 2000+ people to Miro because I was running my workshops there. And I did that by using a free tier myself.
Product leader Aakash Gupta explained 7 key differences between Growth Funnels and Growth Loops:
Growth expert Ognjen Bošković emphasizes that it is not a dilemma between making funnels and Growth Loops. You start by building a funnel. If you are building Growth Loops, you will still need funnels to get the initial traction, something to feed the loop predictably. Growth Loops take some time to build up and take off, but if you get them working, they produce compound interests. Due to many factors, like ad fatigue, the growth slows down on your GTM journey, and you can no longer rely only on your funnel to grow.
5 Types of Growth Loops you should consider
Ognjen Bošković and I elaborated on different types of growth loops you can consider implementing in your product. Growth Loops depend on your product, business model, user preferences, and many other factors. After careful analysis, we agreed on 5 types of growth loops that you can consider.
Viral Growth Loop. This Growth Loop will happen if you have a shareable and relatable piece of content. Users feel some emotion connected to using the product.
Example: At the end of every year, Spotify runs a popular campaign summarizing what a user has been listening to on Spotify. It makes a custom video for each user sharing their top songs from the year. When they do this campaign, all of the social media platforms are overwhelmed by people sharing their videos.
Usage-Based Growth Loops: Where users use a product or a certain feature and share it in the product with others.
Example: When you use Loom, you record a video and send it to someone to watch. It can be a team member, a follower on social media, or a business partner. By sharing the video, you display the value of Loom to others, and if they find it valuable, they can take it for a spin as well.
Collaboration Growth Loop. Through collaboration with other people, you are exposed to the product. Once someone using the product tells you about it, that word-of-mouth motion can be productized into a Growth Loop.
Example: Figma is a design tool for prototyping. It is very likely that you discovered it when someone presented or shared a design Figma file to review or collaborate on. Then you dive into features, start exploring and if all goes well create your next design prototype in Figma.
User-Generated Growth Loops: Users create and share the content. You provide a platform to enable them to do that.
Example: Google is the largest search engine and has a user-generated content Growth Loop. Companies create content that’s shown to people searching based on queries and set content. The more people create content, the more people will find good answers to their questions on Google. The more people will be using Google, the better the inputs will get, and the cycle goes on.
Referral Growth Loop. In the beginning, there was a referral growth loop. Get your first customer, make them happy, they'll tell about you to their friends and family. In the digital age, it became possible to take control over this process and optimize it for maximum performance.
Examples: A happy Dropbox user unlocks more space on Dropbox by inviting colleagues to join the platform as well to unlock the benefit. It is a growth loop working well since 2008 and one of the most epic examples ever.
But where to start?
Start building your Growth Loop
When we start working on building growth loops with my portfolio companies, we always anchor on existing recommendations and share preferences. For example, if you built an AI tool for writing posts on LinkedIn, a natural growth loop would sit in content (visuals) created by free users. It would be a usage-based loop.
If you are a developer tool, for example, you can utilize developer platforms to collaborate with your peers. This example is a collaboration loop by product growth leader Ben Williams, who ran growth on Snyk.
Are there some instances in which growth loops will not work well? Of course - if a product is embarrassing to share, if a professional user wants to keep it as their secret sauce, and like everything in growth marketing, a growth loop can get old and saturated.
Remember the Farmville invites or pokes on Facebook? Yeah, I am probably older than you are. There is a point of saturation you can reach before it becomes annoying or relevant to users. As long as you have recommendations going on organically, you are on a good track to have a fighting chance by creating a growth loop.
When considering Growth Loops, you should play a long-term game. If you aim to build something really big and ambitious or aim to conquer a market segment of an industry, Growth Loops are usually the go-to tool for companies aiming to achieve exponential growth.
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Big thanks to Maja for sharing such a great article on the Startup Istanbul Substack! 🙌 If you're interested in startups, venture capital, or entrepreneurship, this is a must-read.