The Three Engines of Growth

With so many ways to acquire customers and hit your growth goals, simple models are helpful like building an engine of growth.

In his classic book, The Lean Startup, author Eric Ries describes three engines of growth. Whether you have a fully defined B2B SaaS marketing plan or not, this three-part model will help you.

engine of growth

1) The Paid Engine of Growth

Definition: Get customers through marketing and sales. This is the traditional ways that all businesses use to hit their growth goals. Ultimately, every startup has a paid engine of growth to some degree. For example, if you outsource “growth hacking” or other tactics to a content marketing consultant, you have a fee to pay. If you are paying sales and marketing employees to create content, make cold calls, and prospect, then you are paying for that as well.

Advantages:

The main advantage to the paid engine of growth is that it is a proven and predictable way to grow. It is also a useful engine of growth when you are starting from ground zero. When in doubt about customer acquisition, this is the best way to go. The key metric to track here is your customer acquisition cost. If you use traditional advertising, aim to use direct response methods to see which advertising grows your user base. Finally, this growth engine lends itself easily to fit into a marketing strategy.

Disadvantages:

The disadvantage of this growth engine is achieving sustainable growth. With a sales team, you will need to manage your sales staff effectively and optimize staff productivity. If you sell your product directly online like Mailchimp or ClickFunnels, you will have to monitor your advertising and marketing performance. In the early days of building your paid engines of growth, there will be many trial and error to find tactics that work.

Tactics

  • Start with outbound growth. Outbound methods like sending cold emails or making cold calls have a place in every company’s growth engine. If you use these methods, it is essential to track your numbers over time. I recommend Close.com’s blog post for insight on this front: Sales Benchmarks: The 30/50 rule for cold emailing & cold calling.
  • Enhance further with inbound growth. The dream of having leads come to you is real! Whether you use a content marketing consultant, a full-service email marketing agency, or an in-house team, inbound growth is valuable. Keep in mind that it can take a year or more to establish inbound growth. However, the long term benefits of inbound are fantastic. A high-quality ebook or blog post you publish today can continue to attract traffic and leads for years into the future.
  • Launch small experiments with online advertising. When you enter the world of online advertising, it is straightforward to spend money fast. That’s why I recommend starting with a small budget of $500 or $1000. Marketing author Russell Brunson likes to test new marketing offers with 1,000 clicks (i.e., 1,000 people). That’s a reasonable advertising idea. Unfortunately, today’s cost per click prices for online advertising means that you may end up paying several thousand dollars to get one thousand clicks.

2) The Sticky Growth Engine (i.e., the customer retention model)

Definition: Many of the world’s most successful subscription businesses like Netflix and Amazon rely on the sticky engine of growth. The focus on this growth engine lies in optimizing customer loyalty and engagement. Managing for low churn rates is critical for this strategy. If your business model involves recurring revenue, this method is vital to achieving a sustainable business model.

Advantages:

The advantage of this strategy is that it encourages long-term thinking. To retain customers on a subscription basis, the overall customer experience (or customer success in the SaaS context) becomes critically important. Customers will not keep paying if the product doesn’t work for them. Second, this growth engine also encourages companies to focus on making the product excellent continuously.

Disadvantages:

This engine of growth assumes that you have a customer base in place already. If you are just getting started, you will need to use the paid engine for growth and understand your SaaS marketing channels. The other disadvantage of this model is that it may discourage innovation to a degree. This engine encourages you to take steps to keep current customers happy and engaged.

Tactics

  • Measure and improve churn rates for exponential growth

To grow through retention effectively, you will need a clear understanding of your churn rates. For the best results, consider measuring churn in more sophisticated ways (e.g., cohort analysis – how do customers acquired in 2017 perform with customers acquired in 2019?). Further, it may be helpful to increase the frequency of churn monthly. When customers leave, it is critical to understand why and act on that knowledge.

  • Develop a referral program to increase your rate of growth

Word of mouth is great! Unfortunately, too many companies rely on word of mouth referrals accidentally. That would be like putting fuel in your vehicle only occasionally and then wondering why it is difficult to go anywhere. The better way is to build a referral program that rewards customers for growth. Rewards could be monetary (e.g., the Freshbooks affiliate program) or take other forms (e.g., get a free month of access).

  • Invest in customer service, customer success, and training programs.

Many of the world’s largest technology companies have something in common. This common feature isn’t product or staffing. Microsoft, Google, IBM, Salesforce, and Cisco all offer training programs on their products. In some cases – like Cisco’s legendary advanced certifications – the certifications become an essential contributor to the brand. By equipping your customers to develop a high level of proficiency in your products, they may be less inclined to seek alternatives elsewhere.

Tip: Track product usage as well so that you can determine which features attract the most attention.

3) The Viral Engine of Growth (i.e., the viral growth engine)

I’ve saved this engine of growth until last for a reason. It is exciting, but it tends to be the most difficult to develop. Yes, there are success stories like the major social networks. Yet, the industry is littered with far more attempts to “go viral” than successes. That all said, it is still worth understanding this engine of growth.

Definition: the viral engine of growth is a situation where other people spread the word about your product. This is how I first learned about the Google search engine – a favorite high school teacher told me about it.

Advantages:

When it comes, viral growth can be almost magical! Each customer then comes into the business can bring more. My favorite example of the viral engine of growth is Hotmail. The company included a link to joint Hotmail in every outgoing message. At the time, free webmail was a relative novelty as well. Therefore, Hotmail was positioned to stand out as a novel offering and use a viral mechanism.

Disadvantages:

Of all the growth engines, the viral engine is the most difficult to design and build. It tends to be most common in consumer-facing products like social media platforms. To a degree, you might consider Slack – acquired by Salesforce for billions of dollars in 2020 – as a B2B example of viral growth. If you are running a B2B startup, the viral growth engine probably should not be your focus.

Tactics

  • Go back to the basics of your target audience.

To have any hope of triggering a viral growth engine, knowing your target audience inside out is vital. For example, a B2B startup founder might think through the levers of influence outlined in “Influence: The Psychology of Persuasion” by Robert B Cialdini and choose authority. In that situation, your marketing strategy will focus on getting reviews in Capterra and recognition from Gartner. You might also make some targeted purchased of banner ads to increase brand recognition.

  • Track and measure your viral coefficient.

For a viral engine to work, you need a way to track it. Indeed, traditional SaaS metrics, like customer acquisition cost (CAC), will help. However, the viral coefficient tells you how well your customers are spreading the news about your product.

The viral coefficient is the average number of customers each customer brings you. If you achieve a viral coefficient of two, each current customer will bring you two more customers. To get these answers, train your sales team to ask customers how they heard about your company. If you have a self serve product, encourage current customers to use tracking links through an affiliate program.

  • Build a viral factor in the product

Your customers are not interested in your rapid growth goals. Therefore, you cannot expect them to hunt for ways to share your product with other people. That’s why I suggest looking for ways to build a viral factor or network effects into the product. For example, a social media platform or communication platform like Slack becomes more valuable as more people use it. In addition, consider offering free invite codes.

What To Do Next

At this point, you’re probably considering two questions.

1) Which engine of growth is right for my B2B startup?

2) How do I increase the effectiveness of my customer acquisition and marketing?

You might continue your research further by reading up on SaaS marketing channels. Or you could do yourself a favor and contact me today to discuss your marketing needs.

Leave a Reply

Your email address will not be published.