pivot from an ad-based growth loop

Published on May 14, 2020

Loops are a powerful driver of growth within a startup.

The traditional way of thinking about growth in the context of startups was through using funnels. Your goal was to get as many users to go through a funnel as possible. The more users who are going in at the top, the more users who will come out at the bottom.

The trouble with this way of thinking is that it assumes that the only way to grow is to put more people through your funnel. Funnels expect that users will fall off at some stage, and when a user completes a funnel, that is it. The user has done what you wanted them to.

If you want to build sustainable growth, loops are a good bet. Loops are closed systems where an input goes through a certain process and generates an output. This output can then be invested in another input, and so it compounds over time.

One of the most common types of loops is an ad-based loop. Here is how an ad-based loop looks:

  • Platform pays for ads, which attracts user
  • User signs up
  • User engages with the platform
  • The user’s engagement causes the platform to earn revenue, allowing them to invest more money in ads

This is a solid growth loop. Ads can be used to attract users, and as those users engage with your product, you can earn revenue which can be used to cover the costs of more ads.

However, this growth loop does have a key drawback: ads are not sustainable. After a certain point, when you have engaged your main target demographic, ads start to face a point of diminishing returns. Each ad, past a certain point, will attract fewer users, because you have already activated many of the people who are going to click on your ads.

Ad-based loops are good for raising awareness when you are building a startup. If you are still trying to prompt initial engagement, then using ads can be effective. Ads allow you to get users on your platform who can give you feedback.

As your startup grows, you should try to pivot away from ad-based growth loops. This is because, as I mentioned earlier, ads are not sustainable. While ads may help you get an initial user base, ads cannot scale to helping you grow 10x each month, or to help you reach millions of monthly active users.

That’s where content-based growth loops come in. Content-based growth loops, which can be either user-generated or company-generated, are loops whose input is user content. Here is an example of a content-based growth loop:

  • A user sees some content
  • The user consumes that content, then signs up
  • The user creates content
  • The user's content is indexed on Google

In this loop, users drive growth, rather than ads. When a user creates content, that content is indexed on Google. This, in turn, allows the company to raise awareness for its content and expand its value proposition. As more users see this content, more users will be encouraged to sign up, who then create content -- this loop goes on and on.

This approach is sustainable over time. As you get more users, more content will be created on your platform. You don’t need to pay for these users to generate content; they will do so naturally because they see value in your platform.

Content-based growth loops are harder to crack. You need to figure out how to get users to create content for you (or develop your own strategy for pushing out company-generated content), which can take months or years to perfect. In fact, there is never a point where a loop is complete -- you constantly need to iterate on a loop to ensure it remains viable.

This is why it makes sense for startups to look at ad-based growth loops first. It takes time to build up a sustainable growth-based loop. However, as your startup starts to grow, you should look at pivoting away from ads and toward more sustainable methods of growth.

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