Part Of A Racing Car – Dan Hockenmaier is the founder of Basis One, a growth strategy company. He is also a partner in the Monetization + Pricing program.
Lenny Rachitsky is the author of popular newsletters about startups, products and developments. He previously led supply growth at Airbnb.
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When he published The Playbook for Customer Acquisition a few months ago, he looked at three basic “lenses” of customer development.
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If you’re building a consumer business, these are just three choices for long-term, sustainable growth. However, choosing the right “path” is only one of many decisions to build a successful business. In this post, we work with the team to extend this framework and provide more practical advice for developing an overall growth strategy.
If you ask 10 people around your company, “How does our product grow?” you’ll often get 10 different answers. You may hear “create amazing products” or “PR” or “SEO”. This inconsistency is a big problem as it forces teams to spin their wheels with poor planning, untimely conditions, and low-impact tasks.
To avoid this, you and your team need a solid understanding of how your business will grow. We call this the growth model for your business. This will help you know which growth investments to invest immediately, which ones can wait, and which ones to avoid.
Think of your business as a high-performance race car. The same components that make cars go faster are also components of growth models.
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While all four components help your business grow faster, understanding your growth engines is the most important part as they are the only components that have the ability to sustain themselves. In other words, the engine naturally generates output that can be reinvested in further development. However, this is also known as a growth loop. We’ll summarize the basic ⚙️ growth engine setup and scaling below, then look at 💥 turbo boost, 💧 lube and ⛽ fuel. Finally, we discuss how to implement this conceptual model and avoid common pitfalls. ⚙️ Growth Engine(s) Growth engines will drive most of your growth, so it’s important to get them right. As shared previously, companies primarily grow through four potential engines of growth:
There are two additional types of growth engines: partnerships (e.g. channel partners, affiliates, mergers) and physical spaces (e.g. retail locations, shelf placements), but these are less common, so we’ve gone there for simplicity. Exclude from this post.
Only these four basic engines can be used to account for the progress of every breakthrough success. Here are some examples.
When a company breaks even early, it almost always gets most of its growth from just one engine. Companies that can reach mega-scale usually know how to deploy incremental growth engines over time.
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A previous post outlined a three-step process for determining which engine is most likely to drive development: verify, commit, and scale.
The first step is to make sure the given loan is right for your business (and as cheap as possible). There are two ways to check this. One is deciding which lane is right for your business model. Second, look at the data.
Once you’ve validated your channel, the next step is to commit your lanes. In our experience, most companies underestimate how large and well-trained it will be to turn these lanes into superhighways.
Working in your lane usually involves two things, and both can be scary, especially in corporate life.
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Once you’ve committed to your lane and started seeing meaningful results, the next step is to become world-class at your lane. This third phase is characterized by overcoming diminishing returns. Almost every customer acquisition channel gets harder over time because you’re getting less and less intent customers.”
Next we have turbo boost. Like a turbocharger in a car, it is a tactic that can accelerate growth over a period of time, but does not provide sustained acceleration. These include:
These tactics are not “engines” because in most cases they are not sustainable and cannot be repeated at scale. These are referred to as “linear” efforts in our Growth Series and Advanced Growth Strategy programs. For example, any startup that has received a “TechCrunch bump” knows that it can significantly increase their traffic, but it is often unclear what to do next to get more media attention. Therefore, this initial press promotion is difficult to use.
However, turbo boost can be a very useful tool to kick-start and accelerate the pace of growth, especially at key inflection points for a company, such as sparking an initial spark or launching a new product or going to market.
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Turbo boost is also known as linear boost. Our growth series programs cover linear and circular growth in detail. Access the full tutorial (Linear vs. Loop) here.
Lubricants do not directly improve engine performance. Also, the engine will stall if there is not enough lubrication. There are three main types of lubricants.
Retention is key to the growth model and influences all other inputs to the model. This is important because improving retention can improve the rest of the funnel.” – Brian Balfour
Lastly, we have fuel. Without it, even the most sophisticated engine will not work. The type of fuel required depends on the type of growth engine you are running.
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All cars need fuel to run, but loading too much can slow you down. For example, the more users you monetize, the more revenue you have to reinvest in sales or marketing, but it also affects metrics like conversions or retention. The more expensive the product, the less likely it is to convert. Similarly, asking customers to introduce your product to their friends can help increase word of mouth, but too many distractions can slow things down and degrade the user experience.
⚙️ Understanding your growth engine, 💧 lube, 💥 turbo boost and ⛽ fuel will help you avoid 6 common growth pitfalls.
“Most mistakes made in development are using the wrong development method at the wrong time. Thinking about where your product is on the development S-curve helps you understand where to focus.” “on average.” – Casey Winters, CPO @ Eventbrite
You need to find a scalable way to “fire” the engine before you get customers or capital. This is done by starting out by focusing on Turbo Boost (e.g. PR, Events, Direct Access) early on and shifting efforts to the core engine over time.
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This error is most common at the beginning of the infancy phase, before the engine pushes forward with development. All engines are a function of the customer’s underlying amount or the capital they have. Investing in Turbo Boosts makes sense, since there are none to begin with.
In contrast to the above, startups are failing to invest heavily in turbo-boost engines whose engines are invisible, or transition to development engines that scale over time.
It will need to focus more on turbo boost to gain early customers, but at some point it will need to shift its efforts to accelerating its growth engine and optimizing with lube oil. Many teams fail this conversion and try to scale up by running more and more turbo boosts. It will not scale and will burn the engine (and the team) because the team is spread across many small initiatives with low impact instead of focusing on a handful of victories with high potential.
This is one of the most common mistakes new product teams make when I ask, “How is your product growing?” The answer is usually a long list of turbo boosts. This is usually because there is no assumption about what the growth engine is, and as a result they are compensating by trying to fit a lot of little things together.” – Brian Balfour (Founder/CEO, ex-VP Growth HubSpot)
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3. Focus too much on 💧 lube, when all you really need is a ⚙️ growth engine or 💥 turbo boost
Optimizing the growth path is a common failure mode. In fact, the ROI for these initiatives is always low because we’re optimizing for a small stream of customers compared to all potential new customers worldwide. It’s better to focus on turbo boosting to attract more customers than improving what you already have.
Investing too much time here is often a downside, even for late-stage companies, as you end up reaching the upper end of the S-curve instead of using your resources to find another engine that will work. Can be installed to extend the ceiling.
This failure mode occurs when teams fail to realize the true potential of their current growth engine and instead start focusing prematurely on a new growth engine. focus on
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