Growth Loops

You just read about a ton of channels, along with the minimum CACs we've seen on those channels. Case closed, right?

We lied.

We've seen two cases where you can get lower CACs than what we said.

1. When you have a product that's clearly the first of its kind. (50x better than the alternative.)

2. When your product has a growth loop.

For #1: these sorts of products don’t pop up often. So, don’t be overly confident that this is you. Overconfidence will lose you money.

#2 is what we'll focus on here. It also doesn't apply to every product.

Growth Loop Examples

Growth loops are when you can take an output of your product and can repurpose it as an input: an acquisition channel.

Some examples:

Reddit

1. A user signs up for Reddit from an acquisition channel (say, they heard about it from a friend).

2. They find the backyard chickens subreddit and post about what they feed their Australorp breed.

3. Someone googles "Australorp diet" and comes across their post.

4. That person signs up for Reddit.

5. That person finds a new subreddit and starts posting.

6. And the cycle continues.

The first user's output (the Australorp post) becomes the new user input (the content that ranks in Google).

Slack

1. A programmer joins a Hot Startup and gets invited to their Slack. (Hearing about Slack for the first time.)

2. Programmer leaves Hot Startup to found Hotter Startup of their own.

3. As founding CTO, Programmer hires New Programmer.

4. Programmer installs Slack because they're comfortable with the UI, and invites New Programmer.

5. New Programmer leaves Hotter Startup for Established Company that only uses email.

6. New Programmer recommends Slack.

7. Etc.

The output (the invited Slack user) becomes the input (the Slack installer/inviter) over time.

Why Growth Loops are Powerful

With a growth loop, each new user really gets you, say, 4 new users. That means you're getting 4 new users for the price of one. Which means you can divide your CAC by 4. So if it costs you $32 without a growth loop, it only costs you $8 with a growth loop.

That's huge. Read that again.

Loops are sometimes why we recommend students make product changes, or find ways to keep users around longer, or work on a referral program, earlier rather than later. They drop your CAC. They compound. They open up previously untouchable channels and make everything easier.

Some products don't lend themselves to growth loops and that's OK. You can't force them. For example, if your product is payroll software for accountants, don't force your users to throw meetups. That's not why they use you.

But it's worth thinking about growth loops to see if they do apply.