How to drive acquisition with growth loops

I am using the concepts of AARRR funnels and growth loops a lot in my day to day work.

• The AARRR funnel (Acquisition, Activation, Retention, Referral, Revenue) has been around for many years and essentially segments your funnel into five different consecutive stages and provides guidance on each of those.
• Growth loops are a more recent (well, not too recent anymore) methodology taught by Reforge and Brian Balfour. A product can be represented by multiple growth loops (e.g. content, viral, paid), whereas each loop consists of an input, one or multiple action(s), and an output that is reinvested in the input.

While I am a firm believer in growth loops, I am also still a fan of the AARRR funnel (Acquisition, Activation, Retention, Referral, Revenue), and that is not only because it is referred to as pirate metrics which is a badass name, aarrr 🏴☠, but also because it’s often a great stepping stone to explaining growth loops.

When I am talking to first-time founders or junior product/marketing managers, very often not only loops but also the older concept of AARRR funnels is new to them. They are, however, always familiar with one of the stages of the funnel (e.g. acquisition, retention) which facilitates painting them a picture of the complete AARRR funnel and its advantages.

I found that once the idea of the funnel is understood, it is easier to explain the concept of growth loops because essentially you take the end of the funnel (and this end may be mid-funnel, e.g. retention) and connect it to the beginning of the funnel to create a growth loop. For example, a retained user may generate content on the app that can be read by others and thereby accelerates acquisition of the app. The output (content in the prior example) is directly reinvested in the input (acquisition), and thereby further fuels the loop.

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Acquisition growth loops

I don’t write a lot about acquisition, but I wanted to share how I am looking at user acquisition and growing user bases on a high-level. Note that this view is again influenced by Reforge (big fan 👋) and the concept of growth loops.

There are four main growth loops that have the potential to drive user acquisition. These acquisition growth loops are

1. Content: either the company or the user generates and distributes content. This helps both on the short-term (e.g. through shares in social networks) and long-run (e.g. through SEO or better product experience through larger content inventory).
2. Viral: users refer your product to other users. This includes word of mouth, incentivized referrals, as well as organic invites (e.g. to work on the same file, or look at the same photo album).
3. Paid: spend money on ads to acquire users. While this growth loop can be established quickly nowadays, you need to ensure to spend your money on the right channels and right audiences, keeping your CAC payback periods at a minimum. Paid can also help accelerate other loops.
4. Sales: hire a sales team to acquire users. For obvious reasons, this only scales in B2B or B2G environments, and not in B2C 🙂 I sometimes like to consider Sales as part of paid loops, instead of paying for ads you are paying for your sales team but you also need to find the proper channel, audiences, creative, etc.

All of these growth loops can be fed by one-time events such as PR or conferences that may lead to spikes but will never establish consistently reliable growth. Let me provide a few more thoughts on each of these growth loops.

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Content loops

Content can be such a powerful growth loop to scale your business. Many companies have realized this, and with the recent evolution of ChatGPT I assume content generation has seen yet another spike. However, company-generated content is not the only possibility. For some apps such as LinkedIn, users jump in and generate content.

By leveraging user-generated content, apps can tap into the collective creativity, knowledge, and experiences of their users, creating a more engaging and valuable user experience. The LinkedIn app is a great example, as it leverages user-generated content to create a thriving professional networking platform where every piece of content potentially captures and/or engages new users. Users generate content for example by performing any of the following actions:

• Users create and curate their own professional profiles. Users can showcase their skills, work experience, education, achievements and so forth, allowing users to build their personal brand and attract relevant connections and opportunities.
• Users can write and share posts and articles, updates, events, and other industry insights to LinkedIn’s newsfeed. Users can also engage in discussions by commenting on personal and group posts.

In more detail, one particular user-generated content loop of LinkedIn looks the following:

1. A new user signs up (after finding a LinkedIn profile on a search engine)
2. The new user creates a profile
3. LinkedIn indexes the new profile in search engines
4. Potential new user finds the user’s LinkedIn profile when searching for the person

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Note how in this example the user generates the content (= new profile), but the company distributes the content (by indexing the profile in search engines). In other apps, the user is also responsible for distributing the content (e.g. sending surveys in SurveyMonkey).

User generated content loops have the great advantage that your users are doing the hard work of generating new content on your behalf. Establishing such a growth loop, however, is often not the most straight-forward option in many cases as it requires a strong incentive for your customers to generate (and distribute) content.

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Viral loops

Viral loops are often also referred to as referral loops, since it is the consumer who shares (or refers) the app with his friends. Getting a user to share your app has become much tougher over the past few years since it feels like nearly every application is utilizing some sort of referral program today.

It is, however, important to choose the right incentive for your users to share the app: it might be for some personal benefit (such as getting additional storage or having friends to text on your messaging app of choice) or financially incentivized (such as getting some $$$ in your bank account). And of course viral loops can also originate from having just a phenomenal experience that you want to tell your friends about.

Uber has been great at establishing viral loops early on. Here are a number of examples on how Uber utilized viral loops to grow their business:

1. Referral program: When a user refers someone to sign up for Uber using their unique referral code, both the referrer and new user receive credits or discounts for their next ride.
2. In-app sharing: Uber makes it easy for users to share their experiences and invite others to use the app. For example, Uber’s ride splitting feature allows users to easily split the cost of a ride with their friends or co-passengers. This not only enhances the convenience of using Uber but also encourages users to introduce the app to their social circles.
3. User experience: Back in the days, the user experience that Uber provided (catching a cab within minutes and paying less) wowed every first time customer who immediately told their friends creating a viral growth loop.

The concept of viral loops is also deeply intertwined with the so-called k-factor, also known as referral coefficient, that is used for measuring the virality and growth of a product or service through word-of-mouth marketing. The k-factor, however, specifically focuses on customer referrals and not any kind of viral growth. I will write about how to measure it in one of my upcoming posts.

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Paid and sales loops

Paid and sales growth loops are probably the two most straightforward cases of growth loops. Maybe even too straightforward so that many do not even consider them as loops which can be a mistake.

Why might it be a mistake? Because you risk missing out on the key concept of growth loops which means that you can increase your output depending on the performance of your key action (generating revenue from newly acquired users) of the loop. In case of paid loops, the output is that you can reinvest the revenue into increasing your acquisition spend and/or hiring new sales reps.

There are two main variables that accelerate paid loops:

1. CAC payback period: The faster you recoup your paid acquisition spend (hit your CAC payback), the faster you can reinvest into paid acquisition.
2. LTV: The higher your LTV per user, the more you can reinvest into paid acquisition.

While the paid acquisition loop refers mostly to spending money on advertisements, affiliate programs, influencers, etc., the same principle applies to sales growth loops. When your sales team sells faster or at higher LTVs than your competition, you can hire more salespeople.

Make sure to keep monitoring your CAC payback periods and LTV so that you only continue scaling your paid acquisition to a point where you are still acquiring at profitable rates. And do not make the mistake of utilizing paid acquisition growth loops only. While they are a great way of kicking off acquisition quickly, you should also use the generated revenue to accelerate other more sustainable loops.