Product Operations: How to Essentially Explore Product Growth?

Don't panic when you encounter a cold winter. The more chaotic the surroundings are, the more you need to calm down. The only way is to think calmly: How to scientifically plan your own value growth? Only by finding ways to maintain and enhance value can we stand firm in the cold winter.

All products focus on growth, and the growth-related "Growth Hacker" books and methodologies have become loyal fans of major Internet product teams.

Since the "growth hacker" methodology originated from large companies such as Facebook, it is actually more suitable for product teams that have certain successful business prerequisites. For start-ups or cold-start products, I personally believe that "growth hacking" is not the best choice.

1. Idea and Product

The idea that choice is more important than hard work has been widely misunderstood by some of my friends. This sentence may have been influenced by some self-media that sell anxiety, and has unknowingly become the value of life for many people.

Normally, hard work is 10,000 times more important than choice. There are some special cases that cannot be ignored, such as: working hard to do something immoral, working hard to do something illegal, working hard to the extreme...

The results of these efforts without a lower limit are of course not good, or even worse. Perhaps this is the correct interpretation of the saying "Choice is more important than effort".

Growth success = idea + product team + execution luck. (Thought is choice, which is the original intention of entrepreneurship or product manager.)

There may be many sources for the birth of ideas, but the most suitable one for making products is like eating - the idea of ​​eating comes from physical hunger and curiosity about taste. If you eat to complete a task or dream, then the meal will not be a meal.

For example: In order to help the poor with food, no matter how delicious the food is, the focus will be diverted when it comes to eating. Therefore, the idea of ​​creating a product should be as spontaneous and original as eating.

The problems you encounter are your own users. The product demands created by original ideas are most likely to hit the market pain points. Only spontaneous passion can maintain long-term focus and curiosity. This idea of ​​mission and belief will unconsciously gain external support and help.

Professional entrepreneurs and product managers need more self-training, including multiple experiences and stop-loss thinking. After obtaining a large number of business models that filter out failure minefields, the feasibility of the product can be deduced based on the data to achieve a lower chance of failure.

As experiences change, ideas begin to iterate, and with a passionate attitude, you will have better creativity and your products will grow healthier. This is the fit between ideas and products.

The so-called self-cultivation, family management, governance of the country, and peace in the world, if you want to create a perfect product, the most important thing is to be in a perfect state first, and then give full play to your heart. Before product-market fit (PMF), the idea must fit the product first, and PMF will follow naturally.

2. Products and Market

The first important milestone in business is product-market fit (PMF), which is recognized as the watershed of the product. Many people even divide the product stage into before and after PMF. Its importance is self-evident.

There are many PMF signals, mainly manifested in obvious growth data, including demand that may surprise the entrepreneur himself. Most of my products have gone through the PMF stage, which is reflected in the fact that the data feedback of a certain product function released during the iteration process is particularly obvious, users flock to it, and even the server keeps crashing.

Of course, not all PMF signals grow at a very fast rate. According to the different growth rates, they can be divided into two different types of products: pushing stones down the mountain and pushing stones up the mountain.

One type is easy to grow, even if the company’s organization is chaotic and the execution is not very good, but the product keeps up with the general trend. The so-called pig in the wind, growth is like pushing a stone down the mountain. Many of the current short video and live broadcast celebrities do not have any special talents, but they become popular without knowing why. In the end, most of them will return to their original state because they are not worthy of their positions.

The other type is difficult to grow, even though the team is very efficient, the product value is constantly improving, there is a relatively stable word-of-mouth sharing NPS, and there is good retention data, but the growth is slow, similar to pushing a stone up a mountain. Many content products, such as Douban, Babytree, and early Kuaishou, do not grow that fast, but their product ecosystem is healthy, and their reputation and user stickiness are also very good, so their value is also very high.

Of course it would be best to be able to ride on the trend so that you can quickly harvest data, but what is more important is your original intention. After the wind has passed and product growth has slowed down, the biggest problem that arises at this time is the team mentality. Under the same predicament, founders with different original intentions make very different decisions, especially before they have rich professional and life experience. Back to the previous topic, in this case, choice is more important than effort.

Summarize 4 PMF methods:

1. Core

In the early stages of a product, we focus on depth rather than breadth, we don’t trial and error in core values, and the so-called iteration of core functions is just an excuse for our own mistakes.

Baidu Search, QQ Communication, and Ali Stores, the core value of the product has been determined from the beginning. If the core value is wrong, it means it is wrong from the foundation.

2. Competition

The product formula of Yu Jun, the father of Baidu Tieba: Product value = (new experience - old experience) - conversion cost.

The premise for launching a new product is to surpass the experience of competing products. Innovation has no competitors, so the Internet is all about pursuing innovation.

3. User switching costs

Apple iWork is generally recognized to have a better experience than Microsoft Office, but users' dependence on Office products exceeds the functional experience, so iWork cannot compete with Office.

The conversion costs of products such as WeChat relationship chains and mobile phone numbers that have been used for many years also exceed the experience. For products such as group buying, takeout, travel, and hotel and tourism, users choose products based on the extent of the discount, and the switching cost of such products is very low. Therefore, Meituan can catch up through team execution.

4. Simplicity

The product does not require users to think, and the fastest way to reach the core of their needs is to use it.

Don’t pile up functions and filter out unimportant added values, so it will be simple. Simplicity also means doing something to the extreme, not copying or plagiarizing. Being able to create simplicity may lead to creating greatness in the future.

5. Details

The new products are highly targeted, and users should show curiosity and enthusiasm as if they had discovered a new continent.

The reason why good products are loved is mostly reflected in the tiny details. In the early stages, you don’t need to focus on the number of registrations, but instead pay more attention to data such as activity, retention, revenue, sharing, and optimize every tiny detail. Product iteration tasks emerge at this time, and every tiny optimization will bring about huge changes in the data.

summary:

There are many cases of death after PMF, and I am one of them. Therefore, the importance of this stage may be exaggerated. After this stage, the product’s death is no longer due to competition, but it is very likely that funding and team will be the cause. The author’s most recent short video product had very good data in terms of growth, activity, retention, and sharing, but the company’s strategy was exploration, and it died heroically before it could achieve economies of scale.

In order to avoid similar regrets in the future, it is very important to align market goals with business models, and to have rational profit plans and corresponding resource allocations.

3. Market and Business

“We are entering a trillion-dollar market.”

This is a phrase that investors hate and it’s hard to encourage colleagues with, but if you take it seriously, it will be one of the biggest mistakes you can make. Because they do not have enough understanding of their own capabilities and market measurement, they imagine the goals in a random way, and the plans and executions they make are bound to be distorted.

1. Niche Market Target

In the early stages of a product, it usually enters a narrow niche market, which is an industry subcategory. The market target cannot be based on the total industry volume and requires segmented calculations.

Take this article as an example: the number of WeChat official account users/the number of knowledge content users/the number of growth topic users/the proportion of competitor articles/the possible proportion of this article in the future, which respectively represent the total threshold of industrial users, the total threshold of industry users, the total threshold of niche market users, the proportion of competitors and the possible proportion of oneself in the future. The data that should be calculated in this article is the total threshold of users of the growth topic and the possible future share of this article, that is, the total threshold of users in the niche market and its own possible future share.

2. ARPU value

The average net profit contributed by each user in a certain period of time. It is recommended to calculate the ARPU value for 12 months. After defining the niche market, the ARPU value can be adjusted through pricing.

3. LTV

The calculation formula for user lifetime value is complicated and exposes the author’s IQ, so it is not recommended.

The pricing model refers to the price of the product that users can accept, which is determined based on comprehensive data such as the total number of users in the niche market and the pricing of competing products.

High-price model: If the ARPU value exceeds 1 million yuan, then a market target of 100 million yuan only requires 100 users per year. This model is suitable for To B enterprise service products. There are many data SaaS and technology SDK engines on the market, including well-known ones such as Alibaba Cloud, Tencent Youtu, SenseTime, and Megvii.

Low-price model: If the ARPU value is only 1 yuan or lower, then the niche market target of 100 million will require more than 100 million active users each year. This model is very common. Social products such as WeChat and TikTok are more representative. The value of a single user is low and can only be monetized through advertising, which requires a sufficiently large active user base.

Self-proportion: This is a variable. It is difficult to predict accurately. The objective target is set at 10%. If the product has a strong network effect, you need to seize market share as quickly as possible.

4. Niche extension

Extending from one small market to another, on the one hand, launching value-added services for old users to increase user ARPU value; on the other hand, expanding more niche markets and increasing the user volume threshold.

summary:

First, calculate the niche market threshold, then study the product pricing acceptable to paying users, adjust the ARPU value suitable for yourself based on the overall market situation, and finally, expand to other niche markets based on user characteristics, pursuing double growth in ARPU value and total number of users.

This double growth is the alignment of market goals and business models.

4. Business and Growth

The core of the business model is profitability, which means profit > cost.

Costs include fixed costs and variable costs. Fixed costs mainly include R&D, venues, equipment, etc. Variable costs are related to business volume and are more reflected in the customer acquisition cost (CAC) of generating business volume. Therefore, the core principle of business model design is ARPU value>CAC or LTV>CAC.

Another use of CAC: CAC calculates gross profit margin and does not include zero-cost users brought in through word of mouth. Zero-cost users will generate marginal contributions.

If marginal contribution > fixed cost, the company has achieved break-even; if marginal contribution < fixed cost, it means that the revenue only covers sales expenses and cannot meet R&D and other expenses, and you need to consider whether to adjust R&D investment.

The ARPU value is used to calculate the break-even payback period, and the recommended time is set to 12 months as an early financial reference.

For products with low ARPU values, there is little room for CAC operation, and the corresponding growth channel selection is limited. Many products choose viral customer acquisition because the product’s ARPU value is very low and the CAC budget is limited. For products with higher ARPU values, there is more room for CAC operation, and the corresponding growth channel options are more diverse, with more options for acquiring customers, such as payment.

Product teams that fail to calculate the relationship between ARPU and CAC will most likely have two types of growth managers: spendthrifts and misers. Those who spend a lot of money to acquire customers when their ARPU is very low are spendthrifts; those who are reluctant to spend money to acquire customers when their ARPU is very high are misers.

For To B products with a small total number of market users, the ARPU value is determined based on the profit target.

For To C products with sufficient total market users, the recommended ratio of ARPU to CAC is ARPU/CAC=3, with a payback period of 12 months.

If the ratio of the two is greater than 3, it means that the growth team's market expansion strategy is somewhat conservative, and the growth cost budget and channel selection can be moderately increased; if the ratio of the two is less than 3, it means that the growth team's market expansion strategy may be aggressive, and there is a high possibility that the marginal contribution is less than the fixed cost, so it is necessary to moderately adjust the cost budget and channel selection, or reduce the fixed cost.

When designing a business model, ARPU value and CAC are key factors. Based on the changes in the relationship between the two, products and services with different ARPU values ​​can be launched as appropriate. Increasing the ARPU value can increase the CAC budget. The larger the CAC space, the higher the product growth threshold. Product services can be matched according to ARPU value and CAC layers, and the business model and growth channels will be more in line.

5. Growth and Products

When it comes to the topic of growth, the choice of growth channels depends first on the business model and secondly on product characteristics.

There are 4 types of funnel loops for growth options: content loop, viral loop, paid loop, and sales loop.

There is a point in the channel cycle that is easily overlooked, that is, the growth channel also follows a power law distribution, and about 70% of the growth will rely on one main channel. If you have already identified the main source of your product's users, you need to think carefully before spending a lot of money to expand other channels, as this may lead to CAC overspending.

There is also a situation where the main channel has been blocked and channel transition is necessary. In this case, the product cannot be simply copied but needs to be flexibly adapted according to the characteristics of the channel.

For example: in the transition from PC Internet to mobile Internet, Tencent made the transition through WeChat, Alibaba split multiple products and migrated them horizontally, and Baidu copied for a long time without success, and finally switched its positioning to information flow before barely getting a mobile ticket.

Here is a latest example: Tik Tok’s main growth channel at the beginning was WeChat. Later, WeChat blocked short video external links, and Tik Tok was forced to transition channels. Its product positioning also changed from the original music short videos to recording life. After the successful transition of channels, Douyin also ushered in a second growth life. Within one year, it surpassed Kuaishou to become the number one short video application.

4 Growth Channel Cycles:

1. Content loop

Including UGC and PGC content, content cycle is the main growth product, and content must also be the core value of the product. The essence of content circulation is SEO. For example, Douban, Zhihu, Babytree, etc. all target different niche markets for content circulation, and most of their users come from content searches in related fields.

For mobile content products, such as short videos, headlines, public accounts and other products, the function of content is to distribute and retain users, and growth mainly comes from viral cycles.

2. Viral loop

Cycle formula = viral coefficient * cycle speed.

Viral coefficient = user base sharing rate conversion rate > 1, and the cycle speed is that the shorter the cycle of each round of user sharing, the faster the speed.

The requirements for viral products are, first of all, high value. Let me quote Yu Jun’s formula again - product value = (new experience - old experience) - conversion cost. Only high-value products can win user reputation. Secondly, the product must be suitable for most users. Only when it is suitable for the general public can it be more shareable and can guarantee sharing conversion > 1. Finally, timeliness. The faster the product functions and content that can instantly meet user needs, the faster the cycle.

For example: compared with the communication function of social products, the live broadcast function is more immediate. Therefore, live broadcast will be transmitted faster. Compared with ordinary content, news content is more timely, so news will be transmitted faster.

The characteristics of viral growth products are value first, popularity second, and immediacy third, so not all products are suitable for viral growth. Those growth managers who always talk about product fission are mostly talking about a promotion model rather than a product form.

3. Payment cycle

That is, ARPU value > CAC. The first is positioning. The fit between channel positioning and product value is the basis of conversion rate. The second is design. Paid advertising is a test of user patience. Advertising slogans and material design need to be sufficiently focused. A/B testing method is the most widely used in advertising.

4. Sales Cycle

Usually, To B products require one-on-one sales. It is the sales manager's responsibility to understand the sales funnel and iron army culture. There are two calculation indicators for the growth manager.

Personnel productivity conversion cycle: The first few months after a salesperson joins the company are usually a loss. The average conversion cycle from the time a person joins the company to the time they achieve full productivity is calculated. Only based on the cycle can the CAC be scientifically calculated to design the team size and adjust job configuration in a targeted manner.

Position configuration:

If the product sells quickly and each person can close multiple customers per week, then obtaining customer leads is very important. It is best to set up an independent pre-sales support department to obtain customer leads.

If the product sales are slow, each person may not be able to close a customer every month. Then, consultative sales, in which the salesperson takes charge of both pre-sales and sales, is the most efficient. Regarding after-sales, if the product renewal rate is fast and customers renew their contracts every month, when customer churn is serious, it is best to set up an independent after-sales support department to increase the renewal rate; if the product renewal rate is slow and customers renew their contracts every year, then find ways to increase the product renewal rate, or have sales serve as after-sales.

summary:

In the five steps from idea to growth, the alignment of growth channels with product features is the last step rather than the first step. Companies that put the cart before the horse will suffer losses or even fail. There are many such cases, which is also the reason I mentioned at the beginning of the article - why "growth hacking" is not suitable for startups and cold-start products.

6. Final Thoughts

Due to the digital flatness of the Internet, if products cannot be quickly integrated and replicated, they will likely lose the first-mover advantage. Therefore, all products focus on economies of scale, and all platforms focus on network effects.

This zero-sum market attribute requires that products must strive to seize market share in the early stages, and only after they have fully competed and gained pricing power can they consider commercialization. As a result, many vicious competition methods have emerged, such as burning money to clear the market.

When encountering the so-called capital winter, the current layoffs, bankruptcies, mergers and acquisitions, and bloody IPOs will occur. It is best to understand the law of value when dealing with the cold winter. The consistency of price and value is usually accidental. Under normal circumstances, prices fluctuate, but in the long run, price and value will be equal. Therefore, there is no need to be nervous when encountering a cold winter. Keep improving value, and the market will return to the moving average sooner or later.

From Internet tools, e-commerce, O2O to industrial Internet, the digital factor has decreased year by year, while the traditional business component has become increasingly higher. From Hema Fresh to Luckin Coffee, many industries no longer distinguish between online and offline, and this trend will surely extend to more industries in the future.

The long-term value moving average will no longer have industry distinctions in the future. It will be a new starting point for everyone, so it is best to calm down and start asking yourself from the beginning: How to scientifically plan your own value growth?

I have always been cautious about the topic of growth, and only started writing after my thoughts came to my head recently.

This article organizes and analyzes five dimensions, hoping to trace the roots and question the essence of growth. If you think that product team execution is the prerequisite for growth, I hope that the 5 steps in this article will bring you luck in success.

Source: Lao Chen (fengqitalk)