A Mental Model for Understanding Growth
Discover more from Cody West's Newsletter
A Mental Model for Understanding Growth
I wrote this post to solidify in my own mind the mental model I use to think about growth.
Rather than sitting in Notion, I thought I’d share it along with links to my favorite resources on each subject described in the mental model.
Doing Is Faster Than Reading
You can read this post and all the associated resources, but that’ll only give you a theoretical understanding of growth.
Spend 90% of your time doing and only 10% of your time reading.
I prefer “just-in-time” reading — reading only what you need to execute on what you believe to be the next logical step in what you’re working on.
What Is Growth?
No need to overcomplicate — growth refers to the mechanisms by which a business grows (resources here and here and here).
But how do you identify those mechanisms, so you can influence them?
The answer — start building and iterating on a growth model.
Growth Models
A growth model is like a business model.
It models how your business grows.
It’s an equation where you’re optimizing for the output variable that represents your business growing, also known as your North Star Metric.
The input variables that influence the output variable are called growth levers.
There are three categories of growth levers (we’ll discuss each more in-depth below):
Acquisition: How do you acquire new customers?
Retention: How do you keep the customers you already have?
Monetization: How do you monetize your customers?
The growth levers you can pull depend on how you plan on getting your product in front of customers, aka your go-to-market (GTM) strategy.
Going To Market
The 3 most common GTM strategies are:
Product-led (read more here)
Sales-led
Marketing-led
Usually, you pick one strategy when you first go-to market, and then can add additional strategies as you expand your business.
Product-led sales is a good expansion example.
A business will go-to-market with a product-led strategy and then add sales afterward.
You’ll also hear the term GTM motion, which refers to the sales motion.
There are 3 core categories of GTM motions:
Bottom up
Top-down
Middle-out
You should know what someone means when they say “bottom up” or “top down,” but as a growth marketer, I think in terms of GTM strategies, which are inclusive of how the product is sold.
Now that we have that jargon behind us, let’s dive into each category of growth lever.
Growth Levers
Growth levers are used to influence growth.
Acquisition
Acquisition is how you acquire new customers.
Think, “how does a customer go from never hearing about your product, to either requesting a demo or signing up?”
I use the VACS acronym to remember the 4 categories of acquisition:
Virality (word-of-mouth, referrals, etc.)
Advertising (paid social, paid search, TV, etc.)
Content (organic social, SEO, email, etc.)
Sales (outbound specifically)
Depending on your GTM strategy and product, how you acquire customers will vary.
If you acquire new customers, your business grows as long as you’re not losing more customers than you’re acquiring.
That’s where retention comes in.
Resources
Retention
Retention is how you keep the customers you already have and is driven by value.
People use products to solve problems.
Activation is when your customer has experienced the value of your product and solved their problem (referred to as the “Aha moment”).
You want activation to be as fast and frictionless as possible so more customers activate.
Once a customer has activated, you want them to continue using your product to solve their problem (i.e. product adoption).
To encourage adoption, you can engage your customer with reminders about the value your product brings them.
Engagement can take many forms (e.g. emails with information on how to use the product’s most important features, push notifications, etc.).
Once you retain a customer, you can start thinking about monetization.
There’s a ton of amazing pieces that have been written about retention:
Monetization
Monetization is how you make money from your product.
Do you offer a free-trial or freemium model? Or maybe a mix of both?
How do you price your product? Do you have pricing tiers?
What’s included in those tiers?
Do you show pricing on the website?
These are all monetization questions.
Resources:
Growth Loops & Funnels
The most effective growth models contain growth loops.
What Are Growth Loops?
Growth loops are flywheels that compound growth.
The input into the loop then results in an output that can be reinvested back into the input to keep the loop going.
In Turning The Flywheel by Jim Collins, he discusses a company called Giro Sport Design that made cutting edge helmets for bikers.
Their helmets were objectively better and visually different than any other helmet on the market.
The founder, Jim Gentes, studied Nike and learned the power of social influence (what marketers today would call “influencer marketing”), so he sponsored an American cyclist named Greg LeMond, who later won the 1990 Tour de France wearing the Giro Sport Design helmet.
After LeMond won the race, sales for the helmet skyrocketed.
Collins explained Giro Sport Design’s flywheel (or growth loop) worked like this:
“Invent great products; get elite athletes to use them; inspire Weekend Warriors to mimic their heroes; attract mainstream customers; and build brand power as more and more athletes use the product. But then, to maintain the ‘cool’ factor, set high prices and channel profits back into creating the next generation of great products that elite athletes want to use.”
An End In Sight
At some point, a growth loop will end — the compounding effects wear off because you’ve exhausted the loop.
There are only so many people in the world you can sell your product to.
You have a few options to continue growing:
Find new growth loops
Build or acquire new products
Invest in linear growth (aka funnels)
Most hyper-growth companies only find 1-2 strong growth loops, so after you’ve found your core loops, it may be a losing battle trying to find more without expanding into new products.
If you want to keep growing, you’ll need to invest in building funnels that contribute to linear growth of your company.
Funnels
Funnels have been written about extensively. If you need a refresher, I recommend this article.
There are growth professionals that despise funnels because they’re linear.
I don’t see anything wrong with linear growth, assuming you’ve been running a self-sustaining, profitable company.
The problem is, most venture backed companies, or companies that take on excessive capital don’t operate this way.
They raise a large amount of capital, lose tons of money while they build the company, and then bet on growth loops to either 1) make them profitable before the money runs out or 2) allow them to raise more capital.
If you’re in this position, linear growth may not be an option.
While it’s beyond the scope of this article, it’s worth modeling out growth and burn rate scenarios so you understand the timeline you’re on so you know if linear growth is even an option.
What Growth Means Varies
Growth means something different at every company, so the skills a growth person needs vary depending on the company.
An early stage B2C company with product-led viral growth doesn’t need a growth person that’s an expert in advertising. They likely need someone who’s an expert at product.
A later stage B2B SaaS company with product-market fit and a small TAM will want their growth person to be excellent at sales and demand gen marketing strategies, not viral growth strategies.
The best growth person in the world for Spotify is going to be completely different from the best growth person for Snowflake.
Although that’s true, here’s what Elena Verna see as the unifying qualities the best growth leaders have:
Connect actions to outcomes
Be data-driven
Have a growth mindset
Respect for the scientific method
Hunger for learning
When you’re developing your growth skills, remember this quote from Naval Ravikant:
“Be authentic to escape competition, find what you know how to do better than anybody because you love to do it and it feels like play, & get to ‘retirement’.”
You’ll never be the perfect growth hire for every company, but if you build a skillset authentic to you, you’ll be perfect for the perfect company for you.
Here are some resources for developing your unique growth skillset:
Final Thoughts
I’m always on the lookout for new information that unlocks deeper understanding.
If you have anything specific about growth you think would elevate the bare bone mental model I laid out, I’d love to hear about it. Shoot me a DM on LinkedIn or Twitter.
Until next time.