Growth Loops are the New Funnels

The AARRR funnel framework has been the dominant guiding framework to metrics, goal setting, and strategic growth conversations. Funnels were a good starting point but do not accurately represent how the fastest growing products grow. It is time to move past the funnel framework and focus on Growth Loops.

This is the third post in a four post series. In the previous posts in the series we went through three important points. Growth wins, the game has changed, and to adapt we need a system of product, process, and team.

This system is just the beginning. We need new frameworks and tools to think about how products grow that incorporate these changes to growth and the lessons we've learned.

The Most Important Question Your Team Should Be Able To Answer

One thing we ask participants in Reforge Programs is to go around their company and ask five different people to whiteboard the answer to a seemingly simple question: How does your product grow?

This seems like a simple question. But what everyone inevitably finds is one or more things:

1. Everyone has a different answer
2. The answer represents only one piece of the puzzle
3. The answer talks about the output of $$$, but not the inputs of usage

This is a BIG problem. If everyone has a different or incomplete picture of how the product grows, then you can't have apples to apples discussions about priorities, metrics, goals, or strategy. This leads to a few things:

• People focused on different things
• The teams moving in opposite directions
• People not on the same page with CEO/exec team/others as to what is most important

“How does your product grow?” is simply the most important question to be able to answer. Growing is the entire reason why products and companies exist (especially in venture backed startups). Companies that continually grow also provide the largest positive outcomes. More importantly, personally in your career if you drive growth at your company, you are rewarded vs others who do not drive growth.

So, what is the best way to answer this question?

Funnels Are Not The Answer

One of the common answers to “How does your product grow?” is a picture of a funnel. The funnel AARRR framework was originally created by Dave McClure. It was a great starting point. It helped me and millions of others level up their game. But the framework is now > 11 years old and since then we've learned a lot about how the fastest software products grow.

The biggest thing we've learned is that the funnel framework is too micro of a view in order to answer “How does your product grow?” It helps explain a specific step within a Growth Loop, but misses the larger picture of the loop itself. When the funnel is applied at the company level and used to explain how a product grows, it leads to a few common issues:

Funnels Create Strategic Silos

When building a new product, the most common approach we see is to “build a great product” and then test a lot of different channels to see what works. This is exactly the wrong way to approach it. This treats product strategy and acquisition strategy in silos. In larger more developed products, you see this silo'd strategic planning as well. Typically the product team goes off and plans their product strategy and then marketing goes off and creates the acquisition strategy.

This silo'd strategic thinking is the cause for most distribution failures. Product Channel Fit tells us why. We commonly forget that we do not control the rules of the channels. The channels control the rules. As a result, we have to mold our product to fit the channels, not the other way around.

To make it worse, we also tend to treat our monetization strategy in a third silo. But, we know due to Channel Model Fit, our monetization model enables or disables certain channels.

Product, channels, and monetization need to be thought about together. They are interlinked. But the funnel framework leads a lot of teams to treat these as silo'd layers.

Funnels Create Functional Silos

It is common for companies to structure teams by layers of the funnel. Marketing owns acquisition. Product owns retention. Sales (if B2B) owns revenue. Then each one of those teams is given a metric that corresponds to that layer of the funnel.

The problem is that the teams then optimize at the expense of each other in order to reach their silo'd goal. Marketing brings in low quality users/leads at top of funnel to hit their goal, but that tanks retention or further down funnel metrics. All sorts of checks and balances get put in place over time to try and fix this which ends up complicating the understanding and goal setting of the metrics.

Funnels Operate In One Direction

Funnels operate in one direction. Put more in at the top, get more out at the bottom. There is no concept of how to reinvest what comes out at the bottom to get more at the top to continue to feed growth over time. In other words, no compounding effect. This means we have to keep putting more into the top to get more at the bottom. More money, more people, more tactics, more channels, more, more, more. This is unsustainable. Understanding the connection of how you reinvest to get more growth changes the way you think about where to focus and what to invest in (more on that below).

What is a framework that represents how the fastest companies grow? One that combines product, channels, and monetization into one system? One that looks for compounding growth vs linear growth?

Growth Loops

"Compound interest is man's greatest invention." - Einstein

The fastest growing products are better represented as a system of loops, not funnels. Loops are closed systems where the inputs through some process generates more of an output that can be reinvested in the input. There are growth loops that serve different value creation including new users, returning users, defensibility, or efficiency.