How to crack the growth code of products?

How to understand growth? I believe that the core of growth lies in "growth" rather than "increase". "Increase" is just an action. The "growth" of user numbers, stickiness and even value is the core and goal. There are too many false increases in the market with less growth, more growth and less growth, and fast growth and slow growth.

1. What are we talking about when we talk about growth?

Growth is a particularly large category, just like there are a thousand Hamlets in the eyes of a thousand people. When it comes to growth, we often find ourselves in a situation where we are like a blind man groping in the dark, with all sorts of concepts confusing us. In recent years, the United States has only coined one word - growth hacker, while in China, new concepts seem to emerge every day. for example:

Fission. Fission is a very important concept today when traffic costs are high. Its essence is to turn users into communicators and achieve user diffusion and growth, that is, to activate existing relationships and convert them into new traffic.

KOL/KOC matrix marketing. KOL refers to opinion leaders and super nodes on social networks. This concept has actually existed in communication studies for a long time. The popularity of live streaming in China this year has further amplified this concept. Super KOLs such as Wei Ya, Li Jiaqi, Li Ziqi, Sanda Ge, and Simba have an influence on user behavior far exceeding traditional marketing methods. KOLs are not only super nodes that can reach a large number of users, but also super hubs that can carry users' deep trust. By using KOLs as communication agents, brands and products can effectively shape product reputation, drive user growth and value realization. KOC refers to spreading product word-of-mouth through a larger number of core fans in the user network, thereby driving user growth.

Traffic pool. This is a concept proposed by Luckin's operation team, which is a container for accumulating user traffic. This container can exist in the user's mind, such as a brand; it can also be a purely private territory of the product, such as an app or a website; it can also be a private position of other public platforms, such as mini-programs, groups, various social accounts, etc. The traffic pool emphasizes the sedimentation of traffic value.

Growth hacking. This concept was proposed by the United States more than 10 years ago and has become particularly popular in China in recent years. The epitome of growth hackers in the United States at that time was Facebook, in addition to LinkedIn, Pinterest, Airbnb, Dropbox, etc. This concept was introduced to China 4 or 5 years ago. In the past 2 or 3 years, we have seen the lightning-fast expansion of Kuaishou and Pinduoduo, which has brought the growth practice centered on the AARRR Pirate Model mentioned in growth hacking to a higher dimension. These companies make full use of data, algorithms and experimental drivers to find high-value growth levers, and use automation and intelligence in multiple core links to improve growth efficiency and effectiveness, achieve lightning-fast product expansion, and improve long-term product retention while building more stable bilateral or multilateral networks.

Private domain traffic. The so-called private domain traffic operation is in line with the essence of D2C (Directly to Consumer) operation advocated by the new generation of American brands. In the second half of the Internet, the cost of traffic has risen as fast as the price of pork, and private domain traffic operations have become more important. In fact, the essence of private domain traffic is to operate private domain users, establish long-term emotional connections with users, and discover user value through continuous interaction. Private traffic has different focuses in different markets and cultural backgrounds. For example, in the United States, the focus of private traffic for new brands is on independent sites, apps, email direct marketing (EDM), and even the homepages and channels of Facebook, Instagram, YouTube, and Reddit. In India, Indonesia, and Latin America, where WhatsApp is a national application, WhatsApp groups may be the focus of private traffic operations. Private domain traffic is the basic foundation for user growth. Without operating private domain traffic well, it is impossible to achieve lean growth of products.

Live streaming selling goods. Live streaming shopping has been very popular this year. Whether it is the hundreds of billions scale of Taobao Live, or the popularity of Wei Ya, Li Jiaqi, and Simba, we can see that live streaming shopping is re-purchasing users' purchase decision-making process, making social influencers with personalities an entry point for shopping decisions.

In addition, there are many growth concepts such as group purchasing, super membership, second growth curve, automated advertising, dramatization of advertising materials , etc.

So, putting these concepts aside, how do we understand the essence of growth? Growth is not simply about brute force acquisition or lightning expansion. Growth is a combination of multiple strategies and a balanced allocation of models and resources in pursuit of growth goals.

Flow and stock. Many growth traders focus on traffic, but traffic comes and goes, so how much of the traffic can be converted into stock? Can the new traffic be of the same quality or even better than the existing traffic? How is the traffic growth rate? As the traffic dividend further shrinks, the optimization and refined operation of existing traffic, and even the generation of new existing traffic, have become more important.

Attract new customers and promote activation. Attracting new customers focuses on constantly finding new sources of traffic, while promoting activation focuses on improving user stickiness, including preventing churn, which are all basic paths to growth. Growth is the continuous optimization balance of the three basic operations of attracting new customers, promoting activation, and recovering churn.

Exposure and sales. Especially when you want to achieve transaction-oriented growth, you cannot just look at the conversion of front-end traffic, but must trace back to the conversion of the entire chain and look at the overall ROI.

Consumption and supply. Everyone always thinks that growth must be from the perspective of user and consumption, but this is actually wrong. In a multilateral network, we need to balance consumption-side growth with supply-side growth. If the two are not balanced and matched, there is a risk of systemic collapse. Usually, people think that consumption and user-side growth can only be achieved by improving the consumption side; however, growth experts can improve the supply structure, especially by bringing in high-quality and more diversified supply, which in turn forces growth on the consumption side. Simply considering user-side growth is a typical misconception.

Growth Hacker vs Growth Hack The term "growth hacker" was proposed by me. If a growth hacker fails to do his job well, he may become a "growth hacker". Common "growth black" mistakes include: 1) Growth does not take into account the ability of the back-end to accept orders. Too fast growth encounters insufficient service capabilities, leading to a decline in reputation and user loss; 2) Failure to match consumption with supply. That is, the platform fails to provide supply that matches the users brought by rapid growth, resulting in users getting what they want and then losing users; 3) Improper anti-cheating and anti-spam strategies are used, resulting in the conspiracy of fake traffic in the "dark world" of the Internet, which wastes people's time and money and causes chaos in the product ecology. We need to be extra vigilant about this.

Bought volume and natural volume; endogenous traffic and externally purchased traffic. After many growth links are completed, the product may bring in a lot of natural endogenous traffic, which is the so-called "natural hit" or "self-generated traffic". We need to think about how to continuously generate natural traffic in product design. Being a senior traffic buyer who purchases traffic externally and increases the quantity and quality is a very learned job. It is actually very difficult to spend money well.

Having listed so many concepts about growth, today I would like to focus on sharing the path, momentum and techniques of growth. True entrepreneurs are particularly capable of understanding the true meaning of growth and leveraging growth potential, rather than being confined to grasping specific "techniques". If you don’t have an understanding and guidance of growth at the “Tao” level, you may get lost and fall into a path of no return in your mad journey.

Many of the things I have done in the past 20 years have been related to growth, and I have experienced many pitfalls in the process. The growth system that I understand has four core modules, which can be described in Chinese philosophical terms as: understanding the way, seizing opportunities, optimizing skills, and recognizing people.

2. Mingdao: The underlying laws that drive the growth flywheel

The so-called clear path is to drive the growth flywheel, that is, to pursue the most efficient growth, it is necessary to follow the three major laws.

Law 1: Power Law

We must understand that everything in this world is not naturally evenly distributed, and the "Matthew Effect" is the truth of the world. We see this in the distribution of global wealth, successful entrepreneurs, and even the influence of internet celebrities.

When achieving growth, we must take the power law into consideration, that is, we must find the growth lever . Faced with complex growth tools and growth pressure, we often tend to fall into a situation of all-out attack and chaos. But when you are faced with 100 growth strategy options, there are naturally a few that are the most effective. To be a good growth master, you must grasp the most critical points, find the growth lever with the highest ROI, and then increase this lever to maximize the benefits of growth. Remember, not all points can become fulcrums, only a few points can become fulcrums.

Law 2: The Law of Compound Interest

There is a very inspirational mathematical formula. 1.01 to the power of 365 is equal to 37.8, and 0.99 to the power of 365 is equal to 0.03. If you are 1% better and work 1% harder than others on average every day, and focus on the right things, then after a year, you may be several steps ahead of your competitors. So keep doing the right things for growth. As time accumulates, you can use the compound interest effect of the growth lever to gain an advantage over your competitors. If you can get quick feedback, the compound interest can circulate faster, which can further amplify the growth advantage brought by compound interest.

Why can the Internet force traditional industries to accelerate their upgrades? Why do many things have to be digitized today? Because only digitalization can obtain feedback faster and more comprehensively; based on the feedback, more correct growth directions and functional improvements can be iterated; with the superposition of data-driven growth leverage and the compounding effect of rapid feedback iteration, the Internet can therefore help traditional industries evolve faster.

Law 3: System Law

All product growth is achieved through various complex systems; however, in the abstract, any complex system or structure is very simple and is just a connection of a set of elements. If we can break down these elements and identify the connections between them, we can optimize the evolutionary direction of the system. The study of how systems work is called system dynamics. Some people call system dynamics "the eye of God". System dynamics is also the earliest science to study growth constraints, dynamics and boundaries.

In a system, the connections between all things can be simply summarized into four types of connection relationships: cause and effect chain, reinforcement loop, regulation loop and hysteresis effect. The causal chain is self-evident; when the causal chain is made dynamic, it forms reinforcement loops and regulation loops. The cause enhances the effect and the effect enhances the cause, which is the "reinforcement loop"; the cause enhances the effect and the effect inhibits the cause, which is the "regulatory loop". To achieve a growth flywheel, simply put, is to find a "reinforcement loop"; in the real world, a more continuous combination of "reinforcement loops" and "regulation loops" may be needed.

It is recommended that students who have a deeper interest in growth spend some time studying system dynamics, especially the research of EF Wolstenholme. He summarized the more complex and dynamic combinations of the system's four connection relationships into four model groups and nine basic models.

The four model groups are:

1. The Underachievement model group refers to the expected reinforcement loop encountering an unexpected regulatory loop, and growth is hindered. For example, we have seen the tragedy of the commons, insufficient growth and investment, and even the ceiling on growth.

2. Out of Control model group: The expected regulation loop encounters an unexpected reinforcement loop, and the situation is out of control.

3. Relative Achievement: The expected reinforcement loop encounters an unexpected reinforcement loop, resulting in a winner-takes-all situation.

4. Locked model group (Relative Control) refers to the expected regulation loop encountering an unexpected regulation loop, triggering a zero-sum game. It usually manifests itself in vicious competition and target erosion.

I will interpret the three basic models included in the obstructed model group to see how we can understand the nature of growth based on the knowledge of system dynamics.

The first is the Tragedy of the Commons archetype, which refers to the situation where multiple parties try to profit by competing for limited public resources, and their respective benefits eventually drop to zero. It is essentially a reinforcing loop of "eat more and occupy more" encountering a regulatory loop with limited resources. For example, investing in mining machines to mine Bitcoin is a typical "tragedy of the commons." As we all know, the Bitcoin network issues a fixed amount of 12.5 bitcoins every 10 minutes to mining machines involved in bookkeeping around the world. This revenue model is a commons with rigid constraints. It is indeed profitable in the early days, but as more mining machines join in, the average rate of return will drop rapidly. When the electricity consumed by all mining machines every 10 minutes reaches the value of 12.5 bitcoins, which is equal to the mining income, everyone's income will shrink to zero, resulting in a total loss.

Similarly, in the past 2-3 years, many overseas tool companies have taken advantage of loopholes in the advertising systems of Facebook and Google AdWords and tried to monetize in violation of regulations, violating the policy red lines of Facebook and Google platforms. This eventually led to Facebook and Google banning large-scale illegal overseas tools, and even completely stopping the originally valuable advertising form, causing the overall decline of the overseas tool industry.

The Growth Limits archetype refers to a situation where a rapidly growing growth loop encounters a regulatory loop that inhibits growth, which is what we usually call the growth ceiling and plateau. In the second half when the penetration rate of mobile Internet is approaching its peak, many C-end products have reached the plateau of growth. Often, a product grows very fast because it is small in size. When the fast-growing reinforcement loop encounters the regulation loop, it will encounter a growth ceiling. Therefore, when doing investment and product development, you should always think about TAM (Total Addressable Market). If a product's TAM is naturally small, or its TAM is already highly penetrated, then even if the growth team is excellent, it is unlikely to achieve significant growth results; unless the growth team and the product team can reconstruct the system's growth loop, or remove the original regulatory loop. The second growth curve, which has been particularly popular in the past two years, is to find new breakthrough points under the growth ceiling model.

The Growth and Underinvestment archetype refers to the situation where a fast-growing reinforcing loop encounters a regulatory loop of underdeveloped or underinvested R&D, production, service, and even management capabilities, leading to a decline in service reputation and experience. In the past few years, Tesla encountered problems such as production capacity trap and lack of service capabilities. Despite a surge in users, it was on the verge of bankruptcy. It was not until the opening of the Chinese Super Factory and the expansion of its service capabilities in the past two years that Tesla returned to the track of rapid growth. Why do some people say that sometimes slow growth is fast? It is because we need to constantly examine the R&D, sales and service acceptance at the back end of growth, and even whether the audit and quality control capabilities match; timely adjust the growth rhythm and ensure that the back end capabilities are in place, in order to achieve sustained and healthy growth.

Those truly successful companies are the ones that did the right thing at the right time. They were able to follow the system laws of the obstruction model, avoid the tragedy of the commons, navigate through growth cycles, and make up for their shortcomings while taking off. Only then could they defeat the curse of obstruction and achieve exponential growth.

In short, understanding the laws of the system can help entrepreneurs use the "eyes of God" to understand the underlying logic, boundaries and constraints of the growth system and establish a more flexible growth system.

"Tao" sounds abstract, but it is related to life and death and is very important. I hope that all entrepreneurs can become “adept” at growth.

3. Taking advantage of the trend: Growth experts are all trend masters

This year, I sometimes hear entrepreneurs complain about why they were born at the wrong time. As soon as they started their business, they entered the "second half of the Internet" and encountered challenges such as lack of traffic and funds. But if you look at it from the perspective of growth, there are opportunities for entrepreneurship at any time and there is room for growth.

An anti-common sense rule is that sometimes it is easier to achieve 10x growth than 10% growth. Why do you say that? A 10% growth usually only requires optimization according to the original logic; but to achieve 10 times growth will force you to change your logic and thinking and think about the truly important driving engine. Entrepreneurs tend to get caught up in the daily operations of every detail in the early stages; but they don’t think enough about asking themselves whether there are bigger trends and growth levers that can be utilized.

Andy Grove once said that every strategic turning point shows a 10x change, and every 10x change leads to a strategic turning point. How to understand it? As an entrepreneur, you should always pay attention to the surrounding ecology, which key elements are undergoing qualitative changes at 10 times the speed, and then seize them. The qualitative changes of these key factors can affect a single element of the product ecosystem to undergo five to ten times of change in the next six months to a year.

Next, I summarized the eight major momentum dividends, including big trends and small trends. In fact, the phenomenal Internet companies in China and even the world have basically reaped these dividends, and perhaps more than one dividend.

1. Internet infrastructure is changing at an exponential rate

All of the Internet phenomenon-level companies that have emerged in this wave have seized the dividends brought by the migration of Internet infrastructure from PC to mobile Internet and from 3G to 4G, which has achieved double-speed coverage of the population. It can be said that all super unicorns are unicorns of the times. Behind their extraordinary growth is the super potential of seizing the exponential changes in infrastructure.

For example, the popularization of 4G in China began at the end of 2013, and from then until 2018, it has been increasing at a rate of 200 million new users per year. The explosive growth of domestic short video applications fits this exponential growth curve. It can be said that short videos and live broadcasts are one of the biggest beneficiaries of 4G.

2. The emergence of new traffic platforms with double speed

Seizing the new traffic platform with double speed is crucial for entrepreneurship. For many new brands, whether selling goods or services, if you have not started to use WeChat + Mini Programs in the past two or three years, if you have not taken advantage of the new traffic opportunities of Kuaishou, Douyin, Xiaohongshu, and Bilibili this year, and have not tried live streaming on short videos and e-commerce platforms, it will be difficult to break through the siege and stand out.

Although today's Internet industry has reached a plateau as a whole, there are still many opportunities when you look at it with a growth mindset. The flowers are the same every year, but the people are different every year, and new traffic platforms appear every year. In addition to the various video and community platforms mentioned above that are still growing wildly, perhaps the soon-to-be-released WeChat for Enterprise 3.0 will be one of the new traffic platforms that can be expected in 2020.

2020 is the first year of 5G. Perhaps the second half of the year or even 2021 will usher in a large wave of phone replacement. Every wave of phone replacement is a new opportunity to reshuffle the apps. The user growth potential brought by 5G may not be as great as the massive user coverage brought by 3G to 4G, but if we look at the growth of certain categories from the perspective of device coverage, it may be an infrastructure-level rather than a simple traffic dividend from a new traffic platform.

3. Generational change and the squeeze out of large platforms

The new generation pushes the old generation forward. The rise of Snapchat is the result of generational changes and the crowding-out opportunities provided by the Facebook platform . Today, there are still many young entrepreneurs trying to launch a new generation of social platforms. Although there are many difficulties, there are definitely opportunities. The essence is to use new experiences and innovations to please the new generation of young people.

4. Category Change

Entrepreneurs and investors in the consumer industry are thinking almost every day about whether they can reap the benefits of category change. When a category encounters an opportunity for structural change, either demands based on new scenarios begin to flourish, or category innovation brings new and unique features and experiences that begin to grow wildly, these may indicate that category transformation is beginning to occur. Category changes can often directly hit the minds of users and bring extraordinary growth.

For example, Luckin Coffee and Heytea, the former enjoys the category bonus of China's low coffee penetration rate, while the latter enjoys the new category bonus of boutique instant tea drinks with social currency attributes; Perfect Diary, a cosmetics brand targeting young consumers, enters the young people's cosmetics category based on its high-quality supply chain and outstanding product capabilities, and uses new traffic platforms such as WeChat, Xiaohongshu, and short videos to achieve explosive growth.

5. Technological innovation or supply chain revolution

As opportunities for to C platforms become fewer, technological changes or supply chain innovations from the B-side have become particularly important. If new technologies or supply chain reconstruction can bring about a cost reduction or efficiency improvement of 5 to 10 times or more, it will also eliminate the regulatory loop caused by the original technology and supply chain efficiency ceiling and realize a new enhancement loop; applying our previous obstructed model, the growth ceiling will be broken and the product will return to the growth track.

Also based on the winner-takes-all model in the system law, when Google and Apple were competing with Microsoft, they were faced with the Windows ecosystem that Microsoft had established and there was no possibility of breaking through, so they chose to start a new growth loop, namely the Android ecosystem and iOS ecosystem of mobile Internet. Therefore, truly great entrepreneurs do not need to fight on the old battlefield, but should seize the opportunity of technological change and decisively start a new growth curve.

6. Sudden changes in population structure

Population is one of the most important variables affecting growth in economics. Changes in the global population structure create many growth opportunities. For example, the rise of single people in China. There are more than 200 million single adults and more than 80 million adults living alone, and the number is still increasing. This has led to mini appliances becoming a standard in the lives of singles. On Double 11, single rice cookers, single washing machines and single refrigerators became hot-selling products. In the next two years, the number of elderly people in the world will exceed half of the population. Entrepreneurship focusing on the silver-haired group may have great growth potential.

7. Subculture becomes mainstream culture

We see that the more a subculture represents young people, the more likely it is to break out of the circle and become mainstream culture. The evolution of Bilibili is an example. Similarly, trendy toys are likely to evolve from a niche hobby among young people into an interest and hobby for a larger circle in the next few years. When subculture breaks through the barriers of circles and is understood and accepted by more people, it will have the opportunity to spread faster.

8. Major regulatory policy changes

Major regulatory changes can also be a catalyst for growth opportunities. For example, the rise of China's electric vehicle industry, where one out of every two new energy vehicle owners in the world is from China, is highly related to the country's strong support for electric vehicles and new energy vehicles.

The above eight potential dividends are the main scenarios and important levers that we have seen that influence the quality changes of key elements. Entrepreneurs should always think about how to leverage momentum for growth.

Trends are so important, so how do we seize the opportunity? Why are some entrepreneurs naturally more perceptive and better able to understand and grasp trends?

To summarize using concepts from economics: To determine whether traffic can become a trend, we need to detect both the leading indicator of dust rising, the coincident indicator of dust taking off, and the lagging indicator of dust flying.

For example, when investing in the secondary market, one needs to understand the economic conditions at the macro level. The GDP growth rate should be an effective indicator, but usually each country's GDP data is released quarterly. It is obviously too inefficient to wait until the GDP data is released before making investment decisions. If we can find leading indicators and seize more sensitive signals to make judgments, we will be able to grasp the pulse of the economy more promptly. For example, the Purchasing Managers' Index (PMI) is a very important monitoring indicator system among economic leading indicators, which can reflect economic changes at the beginning of each month.

If entrepreneurs learn to compile their own indicator system and track and observe changes in the industry in a timely manner, they may be able to gain knowledge that surpasses others. Some alternative leading indicators may not be accurate, but being vaguely correct is better than being accurately wrong. The growth team of a mature Internet company must compile a three-type indicator system to monitor competitors, channels, and its own products. For example, various search indexes, download volumes of competing products, changes in orders of competing products upstream of the supply chain or certain categories may all be leading indicators worthy of attention; the activation volume of App products, changes in the coexistence ratio of competing apps and one's own apps, and the number of comments and shipments on product social media may be synchronous indicators; and the traffic consumption of each app on the operator platform and the number of packages shipped by the logistics platform may be lagging indicators. Dynamic monitoring and analysis of three sets of indicators can provide insight into the evolving trends.

Next I will talk about how to optimize, that is, the practical methodology for growth.

4. Optimization Technique 1: Optimize five factors to make it easier to absorb flow

The first thing to be clear is that good growth starts with constructing products with traffic niches. Creating a good product that naturally brings its own traffic is the most important thing.

Ecological niche refers to the fact that in an ecosystem, each species has its own role and status, occupies a specific space, and performs a specific function. No two species' ecological niches are exactly the same. Those species that are able to reproduce often occupy relatively advantageous ecological niches, are more likely to obtain survival and living resources, and are more likely to avoid and defend against attacks by predators.

The Internet ecosystem also follows similar rules. Some products naturally grow in the fertile soil of traffic and can be better nourished by traffic. I define this characteristic of Internet products as "traffic niche" , which means that products and services have the physique and potential to absorb, carry and diffuse traffic, making it easier to accumulate traffic potential and create natural hits.

Good products usually have the following characteristics or factors. If you do it right, your product will usually naturally attract more traffic than other products.

1. S factor/search factor

In essence, Internet traffic can be divided into two categories: search traffic and social traffic. Of course, part of today's search traffic has evolved into recommended traffic; in addition, today's searches are increasingly integrated with communities and scenarios. For example, there are a large number of searches on YouTube, Instagram, and Amazon.

It is inconvenient for mobile users to input data manually in many scenarios. Coupled with the prevalence of recommendation engines, search is often easily overlooked. However, search is still an important source of traffic today. For example, a large proportion of Zhihu's traffic comes from search; one of LinkedIn's core growth strategies is to optimize personal profiles for search engines, which is conducive to crawler crawling and search engine inclusion. In turn, search engines naturally divert traffic to drive LinkedIn's growth.

If a startup company can optimize some features for search engines, create a sufficient number of words, be crawled by crawlers, and perform targeted optimization for different search engines, accurate traffic from active searches will naturally emerge.

In addition to general search optimization (SEO) for Google and Baidu, today's search is being integrated into more and more scenarios.

For example, store search optimization (ASO) is increasingly important today. To some extent, App stores are reducing the weight of traffic brought by rankings and increasing the weight of searches and recommendations. ASO does not mean to add keywords, but to modify the features of the product in a way that makes it easier for search engines to index it. For example, optimizing the collection of high-frequency words and store search rankings, expanding the collection of massive long-tail words, active and real-time comments, etc.

Social search optimization (SSO) is also worth paying attention to. Today, the search function in WeChat has become an important traffic entrance. The search results are direct. When searching for a public account, brand, or mini program, you can hit the keywords to directly display the relevant results within the public account and mini program, and quickly complete the transaction loop. The targeted optimization of WeChat’s search function by mini programs in 2020 may bring unexpected growth dividends. Similar social platforms also have search dividends that can be explored.

Finally, there is e-commerce search optimization (ESO). JD.com and Alibaba are essentially search companies. Search is the core distribution logic of goods, and targeted optimization will naturally bring good returns.

2. I factor/interaction factor

A good product should learn to use gamification design, interactive design and IP attributes to create flow for users.

First of all, the appearance of the product is very important . 80% of the receptors in the human brain are related to vision, which requires good product design.

Secondly, if the product has good gamification design, users can easily enter a flow state . The term "flow" was proposed by psychologist Mihaly Csikszentmihalyi. It refers to a psychological state that people experience when they are concentrating on a certain behavior - entering a state of selflessness and forgetting the existence of time.

Good flow design should give people clear goals and timely positive and negative feedback. Why do people feel great about buying things on Pinduoduo? Because Pinduoduo’s product design contains a lot of gaming participation and reward mechanisms, which make people produce dopamine, become excited, and don’t feel pain when spending money.

It is also very important to design good authoring tools into the product. Many traffic-based products can provide users with good creative tools and encourage users to share and produce content. According to the endowment effect in behavioral economics, once an individual owns an item, his evaluation of the value of the item will be greatly increased compared to before he owned it. Therefore, the platform will encourage users to create. For example, LinkedIn encourages users to create resumes. Once you pay the time cost and participate in creation, the probability of you staying on the platform will increase.

3. H factor/hook factor

There are two types of "routines" for Hook Factor. The first type is value-forward , using popular and lead-generating products to accelerate user entry into usage. For example, if you are selling high-priced products with long decision cycles, you can design drainage products to attract users to complete their first order and then guide users to convert. Taobao's early rise was based on the "9.9 yuan free shipping" strategy; Tmall has a similar strategy every year on Double Eleven, where users pay a deposit first and then get a double refund on Double Eleven, so the probability of users breaking their promises is extremely low.

The second category is value reservation , which extends user retention. When designing a product, users should be left with some regrets or thoughts every time, leaving a "hook" to attract users to come back again. For example, half-price for the second cup, coupons for discounts on purchases over a certain amount, etc., are actually all value reservations.

When investing in consumer products, I also prefer products that are natural and have a memorable taste. Why do Moutai and Coke always sell so well? Why are the stock prices of Fuling Zhacai and Haitian Soy Sauce performing so well? In addition to brand recognition, they actually have taste memories and weak addictiveness, and come with their own hook factors.

4. K factor/fission factor

When it comes to growth, we often talk about how many users return when N users forward your product or content. Sometimes KOLs forward content and spread it through fans, which can lead to a huge return flow, and the K factor becomes very large instantly; sometimes, because the product has vitality, the K factor is very stable, but it can continue to win user reputation.

In product design, we can design viral creation tools, optimize forwarding scenarios, mobilize social KOL/KOC participation, and accelerate product diffusion and fission.

5. W factor/reputation factor

Word-of-mouth factor is also very important. Good reputation brings its own growth momentum. During the product design and growth process, you can stimulate user participation and build a core fan base for the product by providing a more friendly word-of-mouth collection and feedback mechanism.

In growth hacking, there are also some indicators to judge word-of-mouth factors. For example, a user disappointment survey asks users how they would feel if they could no longer use the product. If more than 40% of users answer "extremely disappointed", it means that the product has good room for growth.

Net Promoter Score (NPS) is also a frequently measured indicator. Tesla, Peloton, Apple, etc. have relatively high NPS indexes, which will provide invisible support for the brand and drive growth.

5. Technique 2: Digitalization drives optimization of growth and revenue

After talking about how to optimize the five factors and make the product easier to attract traffic, let’s look at how to optimize growth revenue based on digital drive.

1. Rich user portrait dimensions are the foundation of growth hacking

First of all, it needs to be made clear that rich user portrait dimensions are the foundation of growth hacking and the core basis for product optimization, retention improvement and transaction conversion. Mature Internet companies are constantly capturing user portraits. In addition to natural attributes, today's user portrait dimensions will also examine scene attributes and social attributes.

If we look at growth from the user's perspective, there are three core things, which are often referred to as the "three axes of growth" - attracting new users, activating users, and preventing churn.

The core of attracting new users is to constantly look for changes in traffic sources and value depressions, and to increase the potential of retained traffic; activation focuses on improving user stickiness, increasing user frequency, and maximizing the conversion of traffic momentum; and preventing churn focuses on optimizing uncomfortable user experiences, rebuilding user trust, actively awakening low-frequency users, and fully tapping into user dividends.

To analyze user portraits, you first need to examine the natural attributes of the population, such as region, age, gender, etc. A mature growth team will also conduct cross-research on these attributes;

Then, through behavioral characteristics, we continue to look for high-value user behaviors and focus on optimizing these characteristics, because these characteristics are important growth levers. Behavioral characteristics can include browsing content, social network/node distribution, purchasing behavior/consumption interests, etc.

In addition, the environmental attributes need to be analyzed based on the user's scenario. For example, takeaway products need to consider weather attributes, live broadcast products need to consider the user's network environment, and so on. Facebook's growth team will target users in regions with relatively poor network infrastructure such as Africa, Latin America, and India, and work with operators to create a lightweight product, Facebook Lite, which does not require data traffic, to achieve rapid growth.

2. Conversion Funnel: From AARRR Pirate Growth Model to RARRA Lean Growth Model

The traditional AARRR funnel model is also called the "Pirate Model". It is a five-level funnel, including Acquisition (user acquisition), Activation (user activation), Retention (user retention), Revenue (revenue), and Referral (user recommendation).

The AARRR funnel model is a typical traffic dividend thinking, which is to maximize the traffic opening and reduce the loss at each layer.

The improved RARRA growth model focuses on improving user value and efficiency dividends, maximizing traffic collection, improving user stickiness and fission efficiency, and pursuing the most efficient growth. RARRA is in line with the concept of lean entrepreneurship, and I call it the "lean growth model."

The RARRA model emphasizes that retention is the first priority and the core of all growth optimization. Products that cannot retain users are worthless no matter how powerful their functions are or how innovative their designs are. Different types of products have different best practices for retention indicators. For example, Facebook’s classic “40-20-10” rule is a reference retention indicator for evaluating whether a content or community social product has basically passed the test.

After Retention is done, we optimize Activation to help users find the Aha moment as early as possible. We then optimize Referral to increase the fission factor, expand sharing scenarios, and drive sharing return. On this basis, we calculate the Revenue model and the Unit Economic Model (UE). After we have a positive gross profit or reach the ROI target, we finally consider Acquisition. In the user acquisition stage, we also optimize channels, materials, and new user experience based on the Retention and UE models. This cycle repeats itself, with continuous iterative optimization based on data and experiments until the optimal balance between new additions, retention, and UE is reached.

The RARRA lean growth model, which puts efficiency first, provides an implementation handle for the lean startup approach of advocating building a minimum product (MVP) and achieving PMF (product-market fit). Because retention is the first indicator to test the product value hypothesis, only when retention meets the standard can it be possible to determine whether the MVP is successfully built. After entrepreneurs have improved retention to a certain level, they can then deduce which of the other links is performing best, that is, find the best growth lever to optimize first, and then consider other links. When RARRA reaches a certain combination value, we can infer whether PMF has been achieved by benchmarking with the best products in the industry and combining user surveys and NPS. Only in the PMF state can we truly consider large-scale growth in purchasing volume.

RARRA is not only applicable to pure Internet apps. For entrepreneurs of enterprise services, hardware + software services, new retail combining online and offline, or DTC brands, the lean growth model can also be used to optimize product and operational efficiency. For example, many entrepreneurs in the fresh food industry only focus on the number of new customers, orders and GMV, but do not spend enough time optimizing user retention, repurchase and frequency, and on this basis adjust the supply chain and optimize UE. As a result, we can see that many companies are in a mess. In the most difficult track, we must respect and abide by the laws and disciplines of lean growth. If a startup’s growth is not based on retention but simply on attracting new customers, and it cannot find the optimization lever, the outcome will definitely not be good.

3. Behavior Slicing

The so-called behavioral slicing is to continuously group and segment user data, also called "Cohort Analysis" (group analysis or cohort analysis). Through slice analysis and full dataization, we build a correlation model between user behavior and RARRA to find the points that should be optimized. Based on slice analysis of massive multi-dimensional user behavior data, we can find many deep insights and counter-intuitive correlations in the product. The most commonly used scenario for slice analysis is to group channels and materials according to retention or revenue to optimize the efficiency of buying volume. However, the various behaviors of new users, the various interaction strategies and algorithm strategies during use can all correspond to the four goals of RARR for combined analysis. In this process, you can get a lot of magic numbers to help you find the best optimization point.

For example, we can analyze which user behaviors will lead to high retention. For example, if a Facebook user follows 7 friends within 10 days or the first search satisfaction rate on Baidu is over 50%, the user will have good retention. We can use this slice analysis to do targeted optimization of the product.

Many startup teams analyze growth channels, user volume or sales data, but do not pay enough attention to recording and understanding user behavior, and fail to establish in-depth relationships between user behavior and retention, activation, referral return and transaction conversion. Slice analysis capability is one of the most important tools to help a startup team establish cognitive gaps, and deserves special attention from the startup team.

4. Retention analysis, North Star Metrics and Ahaha moments

As mentioned earlier, retention is the starting point of growth optimization. When doing specific retention analysis, we should also observe it from multiple dimensions, including the retention status of new and old users; from short-term to medium-term and long-term retention. The essence of retention is to enhance users' sense of value and increase their switching costs. In creating long-term user value, we need to add more "hooks" to the product and increase the user's "sunk costs." This is also why short video platforms need to do shopping, transforming from an entertainment entrance to a life decision-making entrance; and why users need to interact with the anchors in the live broadcast room for a long time by giving them rewards, gradually transforming from weak relationships to strong relationship platforms with companionship attributes, thereby driving the formation of long-term relationship chains and generating long-term value.

As a product manager and entrepreneur, you must think about the long-term value and long-term barriers of your product, otherwise your moat will be very narrow.

The so-called "North Star Indicator" is also called "OMTM", which refers to the only important indicator of a product and can predict the long-term value of a product. The North Star Metric is not necessarily directly linked to monetization, but it is highly relevant to future commercialization. Different industries and products will define different North Star indicators, but there are a few points to note:

You must not define some vanity measures as your North Star Metric. For example, simply looking at the number of registrations without considering user retention and activity.

The North Star Indicator should be guiding. It can be broken down into a series of executable indicators, namely "star indicators", through appropriate framework analysis. For example, LinkedIn’s North Star Indicator is Quality Sign-ups with 5 social connections, which includes completing a personal profile, listing at least one job position, establishing at least 5 connections, opening up social permissions, and being searchable by other LinkedIn users.

A good North Star indicator is long-term, directional, and not a vanity indicator. It is related to monetization and long-term value. There are generally three types of North Star indicators: attention-centered, volume-centered, and creativity-centered.

For example, Facebook's North Star Indicator is "the effective viewing time of information feed ads", Netflix's North Star Indicator is "the number of subscribers who watch content for more than X hours per month"; Amazon's North Star Indicator is "the purchase volume per Prime member", Walmart's is "the purchase volume per user visit"; Salesforce's North Star Indicator is "the amount of customer data recorded in each account", and Adobe's is "the number of cloud user subscriptions".

Source: Amplitude

The so-called aha moment refers to the moment when the user's eyes light up or their heart is moved by the use of the product. At that moment, the user discovers the core value of the product: why it exists, why it is needed, and what it has gained. If the aha moment can be sustained, flow state will be formed. This is the feeling we mean when we say a good product is "toxic". Ahaha moments can be analyzed through slice analysis to extract the corresponding behavior combination of users at that moment. By understanding the internal logic of this combination of behaviors, you can guide users to reach the Ahaha moment as quickly as possible on the product, and you can also guide the buying team to find users who are easy to reach the Ahaha moment.

5. Establish a testing system

When it comes to testing systems, the most familiar one is A/B testing, which is to develop two plans for the same optimization goal (such as optimizing purchase conversion rate). Some users use plan A, while other users use plan B. Through statistical comparative analysis, the optimal plan is selected to improve operational efficiency. Usually our product strategy or growth strategy is often decided in advance, and decisions are made based on reasoning. After doing A/B testing, we can choose the verified optimal strategy afterwards.

A/B testing is very suitable for products with a certain user scale and full online presence, but for early-stage startups with small data samples or products that involve offline experience and are also an important part of the experience, the usability of A/B testing is greatly reduced. At this time, simple grayscale testing and A/A comparison testing are often more meaningful and can help verify product value and growth hypotheses.

Even for products where A/B testing is particularly effective, the growth team must be particularly aware of the limitations of making decisions based on A/B testing data. Since people tend to select data that supports their own views, there are also data usage errors such as survivor bias. Coupled with the limitations of modeling and the incompleteness of data, blindly believing in the results of A/B tests without sorting out the logic behind the data may often backfire.

6. Traffic pool operation

Today, when we think about traffic again, we need to change the mindset from simply acquiring traffic to operating a traffic pool. Today, traffic can be divided into three categories. The first is "natural traffic", which is the traffic brought by the extreme explosive product power mentioned above + the ecological niche with its own potential; the second is "paid traffic", which is purchased traffic, including information flow, search, app stores, and continuous operation optimization of e-commerce platforms. We should understand the platform rules and strive to achieve the best; the third is "operational traffic". More effective ways include KOL link empowerment, continuous wave-making capabilities, and subculture and community operations. In fact, this is also an important means to build brands and establish user minds in the new traffic era.

Private domain traffic has been very popular in the past one or two years. From the perspective of traffic pool operation, we need to upgrade from private domain traffic operation to the operation of private domain users and KOL networks. The core is to accumulate the trust capital of specific groups of people and promote the exponential expansion of products or services.

6. Knowing People: Gaining Growth Leverage through Cognitive Management of the Mind

To achieve growth, you must finally learn to “know people”. Most of the decisions made by the growth team in daily operations are based on data. Over time, the team may fall into the "indicator illusion" and ignore the people behind the data. We are used to abstracting users into a group, but no two users in the world are the same. Each user has different preferences and cognitions. Users will make different decisions and behaviors in different scenarios. User preferences and cognitions can also be shaped and changed. Users always pursue the maximization of their total personal utility. Although users pursue rationality, in fact their abilities and attention are limited, so users can only achieve limited rationality.

Understanding the limited rationality and decision-making process of users as human beings can help the growth team design solutions to minimize user cognitive friction in every link of RARRA. It can also help us how to effectively help users create long-term value and achieve sustainable growth of the product.

Regarding the principles of understanding people, economists, psychologists, and sociologists have summarized many particularly important theories in the past few years. These theories are very helpful for understanding users' decision-making logic. I will briefly introduce a few that are more valuable in actual combat.

1. Dual System Theory

The first theory is the dual systems theory, which is elaborated in "Thinking, Fast and Slow" by Nobel Prize winner in Economics Daniel Kahneman. He believed that there are two modes of brain activity, System 1 and System 2. System 1 is fast thinking, or intuitive thinking, which represents instinct and habit. It can make decisions quickly and consumes less energy. This is also formed during human evolution. 95% of human decision-making is done by System 1. System 2 is slow thinking, or rational thinking, which represents human logic and rationality. Its activation is passive, slow, and energy-consuming, and it is under conscious control. Only 5% of human decisions are made by System 2.

The dual system theory reveals to growth teams that people have cognitive biases . According to research in behavioral economics and psychology, people have approximately 200 cognitive biases. Recognizing these types of biases can reduce users’ selection costs, increase user conversion rates, and enhance growth momentum. Typical cognitive biases include:

1) Attribution error. Since only sufficiently simplified theories can be used by System 1, people tend to simplify things when they encounter them. Than attributing success to yourself and attributing failure to the environment or outsiders.

2) Anchoring effect refers to the fact that when evaluating unfamiliar things, people will use familiar similar things or irrelevant values ​​that they have just encountered recently as "anchors". The anchoring effect has many specific manifestations, such as the peak-end rule proposed by Kahneman, which means that users have the deepest experience of a product at the peak and end of their experience. Experienced growth operations can use this to design a series of peak experiences that improve NPS and product conversions. There is also a concept that we often operate - mental accounting. People have a corresponding mental account in their brains for different scenarios and different consumption, and each mental account has its own budget and separate reference system. Normally, you don’t feel too bad about spending income that doesn’t require much effort, including unexpected income, unplanned bonuses, etc. In addition, people are more willing to spend money on physical health, maintaining family ties, having good luck, and evoking positive psychological cues. These can all be used in marketing and pricing. There are other concepts that you can pay attention to, such as framing effect and endowment effect.

3) Discrimination and stereotypes, such as various types of regional discrimination and occupational discrimination; as well as the halo effect and primacy effect (first impression). Understanding these is crucial for us to establish a positive product persona and leave a good experience for new users. There are many other cognitive biases, such as loss aversion, egocentric bias, numerical proportion illusion, etc., which I will not go into today.

2. Cognitive Dissonance Theory

The second theory is the cognitive dissonance theory. This theory was proposed by social psychologist Leon Festinger in 1957 and is one of the most core theories in communication studies, especially in the field of persuasion. Simply put, human cognition is composed of many cognitive elements (referring to any cognition, opinions and beliefs about the environment, individuals and personal behavior); there are coordinated, inharmonious and irrelevant relationships among these cognitive elements. Dissonance occurs when an individual finds himself or herself holding two or more contradictory cognitive elements. Festinger listed four types of inconsistency: A) logical inconsistency; B) inconsistency in cultural customs; C) inconsistency in cognitive relationships; and D) inconsistency in past experience.

When cognitive dissonance occurs, the individual will feel unhappy, nervous or anxious psychologically, and will have the motivation to resolve the dissonance, and his attitude will change accordingly. In addition to trying to resolve dissonance, people can also actively avoid situations and information factors that may increase these dissonances.

There are usually three ways to reduce or eliminate cognitive dissonance: 1) Change behavior, such as hearing that milk tea makes people fat, so choose not to drink it or drink less; 2) Change cognition, such as admitting that you are a foodie, or hearing that milk tea can relieve anxiety, so you don’t feel too much guilt when drinking it; 3) Introduce new cognitive elements, such as surveys have shown that milk tea is not as high in calories as latte and cola, or these ingredients are easier to metabolize, so drinking milk tea will not make you fat and you can continue to drink it.

Brand is essentially cognitive management, and the underlying logic of cognitive management tools is to design communication and dissemination models based on cognitive dissonance/coordination theory. Therefore, new brands can gain a lot of inspiration from cognitive dissonance and coordination theory on how to find their positioning and effectively establish their mindset.

3. Flow experience

The third theory: flow experience. Flow is a concept created by Mihaly Csikszentmihalyi, the father of positive psychology. It is a theory about creating optimal psychological experience and finding happiness. Flow refers to the feeling of a person being fully focused and immersed in a certain action. The flow state creates an illusion in the perception of time. For a long time, you don’t feel the passage of time and you may even forget your own existence. This state is very similar to the state when a person is immersed in playing games. Therefore, flow is widely used in game design, and this advanced concept has begun to be applied by some growth experts to community and social products, e-commerce products (Pinduoduo is a classic case, and there is also the gamification design of Alipay), and community operations of new brands.

The conditions generally required for flow to occur are: 1) having a clear goal, which is to stimulate the purpose of flow and the source of happiness; 2) timely feedback, which tells us whether we are close to the goal. Being close to the goal creates positive feedback that reinforces the loop; 3) continuously optimizing challenges, which create challenges that match the user's abilities, usually exceeding their abilities by 5%-10% to generate interest. According to the diagram of the flow channel, when the user's ability is higher than the challenge, leaving the flow channel area will make him feel bored; when the challenge exceeds his ability, leaving the flow channel area will make him feel anxious. Only when challenges and abilities of users are constantly and dynamically matched can users stay in the flow channel.

There are some other theories, such as the theory of transaction costs and utility in microeconomics, and the design of peak experience based on Kahneman's Peak-End Principle, which are also worthy of careful consideration and application by growth and product managers in actual growth operations. In short, to become a growth expert, one must not only have strong data analysis skills and a lot of trading experience, but also draw nourishment from psychology, economics, system dynamics, statistics, and sociology, and have a deep understanding of human decision-making and the underlying logic of complex systems, so that one can gain the cognitive advantage of understanding the laws of growth.

Today, when growth has become the eternal pursuit of entrepreneurs, we hope that the growth combination of "understanding the way, seizing the opportunity, optimizing the skills, and knowing the people" can help entrepreneurs acquire the knowledge, common sense, and intelligence of growth, and form the rules, mentality, and approach of growth. Thanks!

Author: Liu Xinhua

Source: Banyan Capital (ID: banyancapital)