The Three Engines of Growth for Start-Ups

Marketing
October 2, 2020

Building momentum of leads, conversions and repeat business is critical for growth in any business, and using the right growth engine will go a long way to sustain that.


The Sticky Engine

If your business model is built on high-volume sales or a subscription-based product, then the sticky engine of growth is where you need to focus. The key here is establishing your retention rate as a metric by identifying your acquisition rate vs churn rate. When you boil it down it’s pretty simple - If your acquisition rate is higher than your churn rate, then you’re retaining customers and your growth should increase. Getting that retention rate up will increase growth exponentially and this is when you’ll really start to see results as your customer base begins compounding. If this sounds like a model that would be a good fit for your business, start focussing on how to increase your retention rate.

To recap, acquisition rate minus churn rate = retention rate


The Viral Engine

Does your business work on lower volume of items or services sold, but the services or items themselves are of a much higher value with a lot more work and thought put into them? Perhaps they’re custom made items or a service tailored towards an individual based on their needs. Then perhaps focussing on producing new customers through a viral engine will be better suited to your business. The key formula here is the ‘viral co-efficient’. How many more people will each new customer bring with them? If the number is higher than one, this is where you will start to get exponential growth in the number of leads and conversions. As you can imagine, if one customer brings two new ones, and each of those two bring another two each, the numbers begin adding up pretty quickly.

The viral engine can be super effective as it often requires no advertising budget. Word of mouth is the best form of advertising as the recommendation comes from a place of trust - knowing the person who’s recommending your product or services will give the potential new customer the peace of mind that your business can be trusted and the results will bring them satisfaction.

To recap, viral co-efficient = customers x how many new customers they bring


The Paid Engine

The Paid Engine consists of, you guessed it, paid advertising. But be careful, as you can quickly burn through your advertising budget if these dollars aren’t put to work effectively. It’s easy to spend advertising dollars on the wrong audience or sectors, so you want to make sure you’re funding a campaign from reliable revenue at the appropriate rate.

The other important factor with the paid model is constantly fine tuning the engine so it’s running economically. If you’re spending $100 on advertising a day and after some adjustments, can generate the same amount of new leads for $50 a day then you’d be mad for not doing so. Customer behaviour can change, as well as the market as a whole, so it’s imperative to be mindful of any significant changes that could affect your advertising campaign.

To recap, revenue per customer minus acquisition cost per customer = paid growth rate


Based on “The Lean Startup” by Eric Reis


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