Cracking the Code: Quantifying Your Growth Strategy for Scalable Success 📊

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Over the last few posts, we've been diving deep into the nitty-gritty of crafting a Growth Strategy that's poised to catapult your business into the stratosphere. 🌌

In those posts, we've laid down the foundational algorithms and tactical strategies by defining those essential Growth Principles and architecting your Growth Base Model! 🚀

But today, we're leveling up to the next phase of your Growth Strategy journey. But first, let's hit the refresh button on what you've learned so far:

1️⃣ Growth Principles

The foundation of your growth fortress.

• Value Proposition: Define your Primary Value Promise (PVP). Are you boosting users' Personal, Financial, or Social Capital?

• Company Context & Financials: Clarify your goals—profit maximization, rapid growth, or market domination. Identify your North-Star Metric and understand your financial limits: max CAC (Customer Acquisition Cost), target CLV (Customer Lifetime Value), and payback periods. You can read more about it here.

2️⃣ Growth Base Model

This is where the magic happens! It's time to map out the Growth Loops that'll lead you to victory! (Think of it like designing the blueprints for your marketing machine.)

• Set Your Qualitative Properties: Define the players in your game (customers, partners, influencers—the whole growth squad!) and figure out what makes them tick.

• Define Your User Journey: Understand how your users move from curious newbies to loyal fans (and maybe even brand evangelists, if you're really good).

• Map Out Growth Loops: Identify those growth-hacking loops (Paid, Viral, Content, or a delicious combo of all three) that'll drive success.

Today you are going to dive deeper into the third pillar of the Growth Strategy…

3️⃣ Quantitative Properties

In this phase of constructing your Growth Strategy, our mission is to determine which Growth Loops to prioritize based on their impact on your business's KPIs. Plus, we'll develop a framework to measure the effectiveness of your results—or at least, what they should be. 📊

• Define Loop Steps and Outputs: Break down each action and its outcome within every phase of the loop to turn abstract concepts into tangible metrics.

• Define Conversion Formulas: Establish the mathematical equations that quantify the relationships between different loop phases.

• Evaluate Conversion Variables: Assess how variables might fluctuate over time, impacting the loop's performance.

• Assemble and Evaluate: Compile all the components and run diagnostics to ensure your model's accuracy.

1st) Define Loop Steps and Outputs

First things first—list out the Growth Loops you plan to implement. Remember that in our last episode, we discussed how to curate a list of Loops that will make a real difference to your enterprise.

If you missed that memo, I highly recommend you reboot and catch up:

Assuming we've got our map of Loops ready to roll.

Once you've listed all the Growth Loops that will exponentially boost your company's revenue, it's time to deconstruct each step of these loops.

At this juncture, you need to drill down into each action your user must take within the Loop and define a quantitative output for each one.

To define our loop steps, let's get into the specifics:

• Value Generation Step: Identify the primary entity or action that's responsible for generating value within the loop—think content creation by users in the Pinterest paradigm. Key considerations include understanding who is generating the value, the process they use, and the resources required.

• Value Distribution Step: Focus on how the generated value gets disseminated or shared. This requires pinpointing the distributor, their methods, and the actions needed to effectively get the value into the right hands.

• Value Reception Step: Zero in on those who receive the generated value. Understand their needs, how they encounter this value, and the process they undergo to engage with it—like signing up for a service or returning to your platform.

Next up, define the outcomes for each step—the measurable outputs for every phase of the loop.

For example, following our last post example about Reddit, here is a resumed version of their user generated content loop:

But this is a more deconstructed version of it:

When defining outcomes, aim for absolute metrics (e.g., number of new users, pieces of content created) rather than relative metrics (e.g., conversion rates). Absolute metrics provide a better understanding of scale, which helps prioritize which parts of the loop need your focus.

2) Define conversion formulas

Now, let's crunch some numbers and define the conversion formulas for each step in the loop. This will help us understand how many users enter a step and progress to the next.

But hold your horses—it's not as straightforward as simple division. We need to consider conversion variables and external resources.

Imagine your first funnel step is the number of visitors hitting your landing page. The conversion rate from visitor to sign-up dictates how many of those move on to the next loop step.

This helps us identify which variables in our loop need optimization when we launch.

Your Loop's conversion formula hinges on three key variables:

1. Previous Step Output: The output from the prior step serves as the input for the next.

2. Conversion Rate: The percentage needed to transform the previous step's output (your current input) into this step's output. Essentially, the percentage of users completing this step.

3. External Resources: Optional but crucial—these are external elements fueled by human capital (referrals, word-of-mouth, social sharing).

After mapping out these elements, your framework should resemble something like this:

But let's get real—metrics are often in flux due to factors like seasonality, scalability, or dependencies on other metrics.

For instance, when you ramp up paid media spend, initial results might be stellar, but performance can dwindle as you scale.

This usually sets the maximum scope of your Growth Loop—the peak performance before diminishing returns set in.

For a deeper dive, check this out:

Metrics Variables

It's essential to recognize that metrics over time can take one of four trajectories:

1. Stay Constant

2. Decline Over Time: Due to scaling challenges, seasonal factors, or market saturation.

3. Improve Over Time: Thanks to data accumulation, learning algorithms, etc.

4. Bi-directional: Starting off one way and flipping the script later on.

So, how do we apply this knowledge?

We evaluate each conversion variable to anticipate how it might evolve. This involves three steps:

• Identify Each Conversion Variable: Extract every individual variable from your conversion formulas and list them.

• Assess Current Performance Baselines: Gauge how these variables are performing now. Ensure you use a consistent time frame for all variables.

• Predict Changes Over Time: Since variables rarely remain static, forecasting their fluctuations is vital for refining your model and strategy. This affects the loop's output and highlights potential growth constraints.

Your analysis should look something like this:

3) Putting it all together and more considerations

Now, let's synthesize all the components.

Start by charting out all the critical steps of your Growth Loop, their formulas, baseline metrics, and any churn rates to consider.

For example, a classic viral loop might include these steps:

But we can dissect this further into more granular steps:

Next, assign metrics and their baseline values—how much completion we expect from step to step. Don't forget to factor in external metrics like investment levels or churn rates.

Then, list out the variables affecting these metrics. Some will improve over time; others might decline.

Ultimately, your comprehensive model should look like this:

It's advisable to run this exercise across multiple Loops to determine which one offers the highest ROI.

However, when stacking them side by side, consider these external factors:

• Cycle Speed: How quickly does your Loop complete a full cycle? This is crucial because a Loop might seem more attractive but takes longer to yield results, affecting its efficacy in the short term.

• Resource Intensity: Paid Advertising requires a significant budget, while the Viral Loop might require more creative effort but less capital.

• Scalability: Viral growth can scale rapidly but is unpredictable. Paid campaigns are scalable but at increasing costs.

• Risk Level: Viral campaigns carry the risk of negative publicity if not well-received. Paid campaigns are more controlled but can be expensive if not optimized.

Here are some articles that can help you with the lessons of this post:

• Learn about the different types of Growth Loops and their quantitatives and qualitatives properties

• Unlocking the "Why" Code: How to Crack the Qualitative Properties of Growth Loops

• Paid Growth Loops: Exponentially Increase your Revenue with Paid Marketing

• Viral Growth Loops: How to Turn Your Customers into a Referral Army

• Content Loops: Unlock the Secrets to Unlimited Growth

Other newsletters that I am reading

• Growth Archive: Get real-world marketing examples every week from successful B2B projects that you can replicate for your own business

• Better Letter: The behind-the-scenes playbook for how to launch, operate and grow a profitable newsletter with paid ads 📈

• Scalable: 🚀 Practical know-how for founders to build winning startups

That is all for today friends.

Keep measuring, keep optimizing, and keep growing!

Jojo