Understanding Your Growth Equation: Your Practical Guide win in your niche
Updated: Aug 17, 2023
TLDR
A new approach to growth awaits you. It’s simple, but different. It’s about shifting focus away from the end-result, towards the cause. The metrics that can predict success. 'Leading indicators'. Pinpointing them, aligning your team around a single, powerful 'North Star Metric', and working backwards from the problem you must solve.
This isn't a complex formula, but a way to orchestrate your team towards exponential growth: 'What Is The Problem You're Trying To Solve?' (WITPYTTS?)"
Turning that company-aligning insight let's you develop an "Equation for Growth" and then focus time and resources where they drive the most impact.
(We're covering more parts of identifying and solving churn in the funnel. All 4 parts to the series are available here, and our guide to applying Complexity Theory in business and ecosystems is here.)
The Power of Outcome-Back Thinking to organise daily activity
The first step is always crucial. It sets the tone. A beginning of a successful venture? Or a struggle? Like in a journey, growth begins with the destination in mind. What Is The Problem You're Trying To Solve?' (WITPYTTS?)
An "Equation for Growth" lets leaders better focus time and resources towards where they drive the most impact.
Leading indicators. Predictive. Actionable. Not like lagging indicators, which are reactive, historical. Your North Star Metric (NSM), the central beacon, the guide that ties everything together, aligns every department towards the grand finale - success.
Consider an advertising agency.
Their growth might follow this pattern:
Profit = Revenue - Cost, where Revenue ≈ Number of proposal invites x Average project size x Win rate x Project quantity x Project duration.
It's a map of leading indicators. Assembled to guide. Identify the most impactful part, rectify it, and your growth continues.
This 'outcome-back' approach mitigates misalignment and wastage of resources, solving a common, yet often overlooked problem in many organizations; startups and companies alike.
Busywork is the everyday work that don't directly drive your company's growth. While these tasks might feel like you're getting work done, they don't significantly contribute to your company's advancement towards its growth targets.
A map of leading indicators can guide daily activity to where it best drives growth. This is actionable leadership.
So often, companies get mired. Swept up in a whirl of activities. This activity? It amounts to little. Little that contributes to growth. Little that drives the larger picture.
Busywork feels comfortable. Easy to measure. We've always done it this way, right? Writing whitepapers. Researching and quoting reports that aren't in real-time. Sticking to old processes. Small tweaks on old products. This work? It hums. It buzzes. Does it elevate? No. We are busy, yes. But busy does not mean growth.
Now, let's picture the opposite. Imagine work that truly drives growth. Growth-Driving Work. These are not just actions. They are deliberate strokes of strategy. Significant. Measurable. Impactful.
How does it happen? Through understanding the levers of your business's growth equation. Understanding what needs to be focused on. The leading indicators.
Growth Equations help eliminate the department siloes that cause wastage and a loss of speed
Team misalignment and siloes are possibly the greatest threat to innovation. When teams function in isolation, the focus on the customer is lost, and the opportunity for creating better, faster, cheaper value for our ideal customer segment is lost. That reimagining of a new customer reality is ambitious, and unnecessary waste only burns your runway.
Efforts duplicate, initiatives scatter, and in the end, it's not the market that's the competition, it's the incentives and priorities within your own, various teams. Conversely, when teams are aligned and incentives synchronized, they become best positioned to drive growth.
It's a reason why founder-led companies often succeed where others don't. Founders have the influence to focus and re-focus on the customer, and make sure each team is adapting to that updated focus too.
Often, we find ourselves caught up in the details without understanding how they connect to the bigger picture. We don't ask ourselves, "What is the problem you're trying to solve?" But, when we shift our thinking, when we start with the outcome and work our way back, magic happens. And when we de-silo teams, bringing everyone together under a common goal, cross-functional teams are more natural, more effective, and the experience and expanded perspectives of what is possible maximise your ability to find product-market fit.
Misalignment and siloes? They're the invisible thieves. They steal your time. Your resources. Your energy. But when you align your teams, when you synchronise incentives, the story changes. Growth becomes a team sport. Growth becomes a system. Siloes crumble. Initiatives align. Everyone's moving together, charging towards that product-market fit.
So, how do you start de-risking your growth? It begins with understanding the growth equation. When you know where you're going and have everyone moving in the same direction, you reduce waste and accelerate your growth journey. It's all in the power of alignment. It's all about de-siloing and synchronising for success.
Consider a SaaS company. The easy road? Increase free trial users. But what's the larger leap? Improve the trial-to-paid conversion. Enhance user engagement. These actions matter. They bring measurable impact. They shift the balance. Balance between customer lifetime value (CLTV) and customer acquisition cost (CAC).
The Growth Equation eliminates Vanity Metrics, or bundles them with enough context to make them more aligned to Growth
Vanity metrics, as the term suggests, are metrics that look good on dashboards and reports but don't have a real impact on your business's core objectives. They can be misleading because they paint a rosy picture without being tied to tangible business results.
Consider this. Are you tracking visits on your website? Sure, it's a large number. It's impressive. But is it driving conversions? Is it bringing revenue? No. These are vanity metrics. Impressively hollow. Vanity metrics can create focus on busywork. They offer comfort, not growth.
Instead, focus on growth-driving work. These involve metrics tied to business results. They help you understand your growth equation better. They move the leading indicators. The metrics that matter. Conversions. User engagement. Trial-to-paid ratios. These are not just numbers. They're signs of progress.
To sum it up, when choosing what to focus on, always remember to ask yourself: "Is this a vanity metric or a valuable metric?" The answer could change your business's trajectory.
What we do matters less than the impact we make. It's not about doing lots. Busywork or growth-driving work. The choice is yours. It's your equation to solve.
Busywork is simply filling the hours. Growth-driving work is filling the future. It's carving out our trajectory, not just following it. It's shifting time spent in comfort zones towards building launch pads. We need outcome-back strategy that aligns. That elevates. That disrupts.
What we do matters less than the impact we make. It's not about doing lots. It's about achieving lots. Busywork or growth-driving work. The choice is yours. It's your equation to solve.
The Balancing Act of Acquisition Cost: Optimising and leveraging both Paid and Organic Growth
On the path to growth, cost of acquisition per segment or per product, (CAC) and thus the length of your Payback Period is the compass that keeps you oriented. Avoid averages, insight into segments with the fastest payback periods can guide your product and feature roadmap. That alignment can significantly help with engagement and retention.
Avoid averages: insight into segments with the fastest payback periods can guide significantly towards the greater engagement that drives retention.
Paid marketing is rapid. Predictable. But organic growth offers sustainable growth when paired with Paid Acquisition. Ideally, insight from organic growth (that works) should be what drives your Paid strategy. You'll also be more sure that (what's getting you traction through) Organic is putting you more surely on the path to Product-Market Fit.
Both are needed, but many miss the discipline to keep enough focus on the Organic: email, newsletter, community outreach and benefit-aligned organic and incentivised referral referral built into your product and platform.
Many solo and tech founders under-emphasize acquisition from organic and incentivised referral, built into the product and platform.
Consider a Direct-to-Customer (D2C) startup. With a product-led growth strategy, it might look like this:
Acquisition: (Number of paid acquisitions x Cost-per-acquisition) + (Number of organic acquisitions x Cost-per-organic-acquisition)
Engagement: Active users x User activity rate (daily actions) x DEpth of Engagement
Retention: Number of users retained after x days/months
Monetization: Average revenue per user
Different components, harmonized. It paints a picture. Tells you where to fine-tune.
These are leading indicators—proactive measures that can forecast the outcome, unlike lagging indicators like revenue, which only provide hindsight. Knowing 'What is the problem you're trying to solve?' allows the team to focus on improving the right leading indicator and working backwards from there.
Where indicators show you doing well, add that effort to the backlog. Don't focus on marginal improvement when there is other, more significant gain to be made. Where there is significant upside to a leading indicator, thats where you focus.
The Growth Equation let's focus effort away from marginal upside. It becomes a comprehensive lens to remove "busywork" from the business and focus on high impact effort, this quarter.
Your North Star Metric: Aligning Every Initiative and Task
Your North Star Metric (NSM). It's the recurring theme. The guide that cuts through the complexity. The indicator that directs every decision in your journey.
In the D2C model, this beacon could be 'Number of active users.' For a SaaS business, it could be 'Monthly Recurring Revenue (MRR)' or 'Annual Recurring Revenue (ARR).' Your NSM is the score that each department follows. Keep it in view, and develop it in the context of the Growth Equation. Update where necessary, look for ways to optimise net benefit.
FAQ
1. Leading indicators - what are they?
Think of leading indicators as a glimpse of the future. Predictive measures. They allow you to anticipate and act.
2. What's a North Star Metric?
Imagine the central beacon of your journey. That's your NSM. A single measure that's most predictive of your success.
3. How often should we revisit our growth strategy?
Consider a monthly or quarterly review. Adapt and evolve with the changing rhythm of your business.
4. Is every growth strategy the same?
No. Each business requires its unique roadmap. Its own growth levers. Strategic goals.
5. How do we balance between paid and organic?
This balance depends on your progress. Your goals, resources, and market conditions. Your leading indicators guide the way to increase and decrease effort on paid as new user growth and depth of engagement changes.
6. Can our beacon - our NSM - change?
Absolutely. As your business evolves, so does your NSM. Regular revisions keep it relevant.
The Pinnacle of Sustainable Growth
Your growth equation, leading indicators, and North Star Metric – these are the components of your growth. As the architect, you start from the desired outcome, work backwards, correcting for siloes between teams, identifying and solving your critical problems. A growth strategy can be harmonizing, paced to lead your team and stakeholders towards sustainable, exponential growth.
Don't just write growth plans. Architect a journey.