Thursday, February 12, 2015

Lean Startup Chapter 10

Here are my notes from Chapter 10

The engine of growth is the mechanism that startups use to achieve sustainable growth.
Sustainable growth is characterized by one thing: “New customers come from the actions of past customers.”
There are four ways customers drive sustainable growth:
1. Word of mouth - caused by satisfied customers' enthusiasm for the product.
2. As a side effect of product usage - product drives the awareness of themselves whenever they are used (ex. luxury items or Facebook)
3. Through funded advertising - Advertising paid for out of revenue, not one-time sources such as investment capital. .
4. Through repeat purchase or use . Some products are designed to be purchased repeatedly either through a subscription plan (a cable company) or through voluntary repurchases (groceries or lightbulbs).

Shawn Carolan said that, "Startups don't starve; they drown." because there are always a many new ideas about how to make the product. The engines of growth framework helps them stay focused on the metrics that matter.

Companies use the sticky engine of growth track their attrition rate or churn rate very The churn rate is the fraction of customers in any period who fail to remain engaged with the company's product. The rules: “if the rate of new customer acquisition exceeds the churn rate, the product will grow. The speed of growth is determined by what I call the rate of compounding, which is simply the natural growth rate minus the churn rate.”
Its focus needs to be on improving customer retention.

Online social networks and Tupperware are examples of products for which customers do most of the marketing

Ex. Hotmail was slow growing company at first then they added this to the bottom of each email
"P.S. Get your free e-mail at Hotmail" along with a clickable link.
This increased their customers exponentially.  

The viral engine is powered by a feedback loop, called the viral loop , Its speed is determined by a single mathematical term called the viral coefficient . The higher this coefficient is, the faster the product will spread. The viral coefficient measures how many new customers will use a product as a consequence of each new customer who signs up. “Put another way, how many friends will each customer bring with him or her? Since each friend is also a new customer, he or she has an opportunity to recruit yet more friends.”
A viral loop with a coefficient that is greater than 1.0 will grow exponentially, because each person who signs up will bring, on average, more than one other person with him or her. For example look at the chart below:
Companies that rely on the viral engine of growth must focus on increasing the viral coefficient more than anything else, because even tiny changes dramatic changes. A consequence of this is that many viral products rely on indirect sources of revenue such as advertising.

It is recommended  that startups focus on one engine at a time.

Product/market fit to describe the moment when a startup finally finds a widespread set of customers that resonate with its product:

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