How to build a growth model for your startup

The Tower of Babel by Pieter Bruegel the Elder, 1563.

Over the past month, I dug deeper on how to build a growth model, looking at some great resources and trying to understand how to build one myself. This blog post is a result of my study. I will show you how you can build a growth model for your startup. We will cover the basis —

1. What is a growth model?
2. When do you build a growth model?
3. How do you build a growth model?
4. What do you after that?

What is a growth model?

A growth model is an equation that you can build to determine different variables in your startup’s business and how they work together and result in sustainable growth. You can see the basic structure of a growth model in this equation.

Source: Growth Equation proposed by Andy Johns

When do you build a growth model?

For me, the essential time to build a growth model is after your startup has achieved product market fit — when the product is itself bringing in an organic flow of users because of its strong core product value and magic moment.

How do you build a growth model?

There are many great resources suggested by some smart folks, but I will suggest three steps to building a simple growth model where you can quickly understand the main growth levers of your/a startup.

Figure out your Top of Funnel sub-equation

The Top of Funnel is the most straightforward part of the equation. This includes all your efforts to acquire users, capture traffic (SEO, PR, Email, Content Marketing) and convert them through the funnel at an increasing rate.

Source: AARRR Metrics — Dave McClure, 500 Startups.

The basic sub-equation of the top of funnel involves all the factors that are essential for the product’s conversion.

You can do figure this out by asking what is the central action that a user must perform in your product. Although you might have other supplementary actions in a product, at any given time there is one central action. Find this out and then jot down all the steps that a user takes while concluding with this action.

Source: The Hierarchy of Engagement, expanded — Sarah Tavel, Greylock

Here’s an example: Let’s take Youtube. Now it’s simple, what is the core action? The core action is “Subscribing”. So, I jot down all the steps that a user takes to arrive at this point.

• Clicks a youtube video link on a website
• Lands on Youtube website (Top-line traffic)
• Watches 1st video
• Searches for other videos
• Creates account on YouTube
• Comes back again to watch videos
• Finds an interesting channel
• Subscribes to channel
• Repeat behaviour

Now I just need to translate this into an equation:

YouTube growth = Top-line traffic * 1st video viewing * Initial experience * search * videos watched per visit * repeat behaviour * account creation * subscription

What’s great about doing this exercise is that it removes all the noise. You tend to focus only on the essential — understanding the bare-boned business model.

So your first part is done.

Find your Magic Moment and Core Product Value

Magic Moment (or Aha! Moment)

I will go forward to suggest that the time between the core action and the magic moment should be as short as possible, although the core action could occur before or after the magic moment. Talking about the magic moment in his article, Andy Johns says,

Ideally, it strikes early and often in the product experience

I try to figure this one out by asking myself some basic questions:

• Is the user journey simple?
• Is there a Magic Moment that I can see in the product?
• Is there a way to reduce the time between the user’s first visit and the Magic Moment?

Core Product Value

This involves your market-size, the problem you are trying to solve and whether you’ve achieved product/market fit.

I try to figure this one out by asking myself 5 questions whose answers must be carefully observed:

• Has the startup has achieved product/market fit?
• Are there a growing number of engaged users (users performing the core action)?
• Does the product offer accruing benefits or mounting losses?
• Is there any semblance of a working network effect/virtuous loop in the product?
• A general observation of the growth curve/cohorts of the retention metric

What do you do after that?

You starting experimenting

You can then begin to carefully and meticulously start running experiments and see what factors affect the company’s bottom line. The smaller your startup, the more different your split-tests should be (big changes vs small incremental changes). This means, if you’re a startup trying to figure out your PM fit, don’t play around with button colours on your homepage.

To sum up, a growth model is a basic equation that takes into account your user journey, the emotional response your product incites in the user, and the value your product offers. Building a growth model is not absolutely essential, or even futile if you’ve not validated your hypotheses about your core product value, magic moment, etc.