High-level growth: building and applying 3 growth models

Building a growth model is in the lower half of finding the growth driving force in our growth panorama. After building the model, it will also help us find the focus area when applying the model.

No.1 What is a growth model?

The growth model is the process of finding all the segmented indicators that have an impact on the North Star indicator and linking these segmented indicators with a simple formula. In fact, it is the process of breaking down from the North Star indicator to the sub-indicators.

Why build a growth model?

1. For example: Everyone plays games. When playing games, they input commands to the characters in the game. After being processed by the game console or computer, the input leads to a result for the game character or plot. So if you want to control the input, it is accomplished by controlling the input.

2. For example: You want to lose weight, and changing your weight is your North Star indicator.

By changing the behavior of the controlled input variables, you can influence your output variable results, which is the North Star indicator.

3. For example: The same principle applies when we are doing growth.

Your North Star Metric is daily active users. It is difficult for us to do anything directly to increase daily active users. What we can do is to influence these segmented indicators, such as app downloads, user activation rate, and retention of old users.

Input variables: single factor, directly actionable by the team, behavior;

Output variables: Affected by many factors, the team cannot directly operate and the results.

Therefore, the growth model helps everyone break down an unmanageable result or North Star indicator into some actionable segmented indicators, and then everyone can improve the final result through the segmented indicators;

No.2 How to build a growth model?

There are three steps to building a growth model:

For example, NetEase Cloud Music is an application for listening to music, so:

• Step 1: The North Star indicator is the total listening time
• Step 2: Draw the user's core conversion path
• Step 3: Assemble the Growth Model

Introduce two commonly used growth model frameworks:

1. Growth model application: full chain funnel model

Total listening time = number of app downloads * first visit % * first listening % * continuous listening % * average listening time

For example, the number of downloads per day is 30,000, and 50% of people open my app for the first time every day. Among the first-time visitors, 33% listen to songs for the first time, and 5% continue to listen to songs (number of old users listening to songs/total number of old users (days)). The average listening time is 20 minutes.

Full-chain funnel model: Advantages: It displays the main sub-indicators that affect the North Star indicator, marks the conversion rate, finds opportunity points, and is easy to build.

Disadvantage: The North Star metric cannot be calculated directly.

2. Growth Model II Application: Factor Decomposition Model

• Factor decomposition model: Advantages: It displays the main sub-indicators that affect the North Star indicator, marks the conversion rate, finds opportunity points, and is easy to build.
• Disadvantage: The North Star metric cannot be calculated directly.

No.3 How to apply the growth model?

1. Application 1: Find the focus area - the driving force for growth with little effort

• Question 1: If you want to grow your North Star Metric, there are many things you can do in AARRR. How do you decide what to do first and what to do later?
• Question 2: Small companies have limited resources. How can they find the most cost-effective point to maximize growth effects?

Case 1: Airbnb finds its driving force through growth model

If the industry average indicator cannot be raised to the same level as the industry, then there is no point in trying to attract a lot of traffic, and a lot of it will be wasted. Therefore, at this stage, this point is the most important focus for Airbnb.

Case 2: Sass software uses different user groups to decompose growth models and find opportunities.

A cursory look seems to reveal that apart from the slightly lower usage purchase rate, there doesn't seem to be any other problems. A more useful method at this time is to decompose the growth model according to some important user dimensions.

The two most important parts of the customer acquisition channel are official accounts and advertising. Clients may have large companies and small companies, and the growth model can be further split according to the number of people. After the split, comparative analysis can be conducted to discover some potential opportunities.

For example, the trial registration rate and purchase rate of users from paid advertising sources are low, but the subscription length is very long. This may suggest that this channel does not have many of our precise users and we need to find ways to improve the precision. However, the life cycle of users from this channel after becoming paying users is relatively long, which means that we can also optimize this channel to find more interested users instead of blindly pursuing traffic.

For example, the trial purchase rate of small companies is very low, and the subscription length of paid users is also relatively low. Then our software may not be suitable for small companies. It may be that teamwork software has a large number of visits but not much demand for small companies. In this case, large companies may be the group we focus on.

By comparing different dimensions through the clustering pattern decomposition growth model, the segmented indicators of his growth model can also help us find opportunities to improve the North Star indicators.

2. Application 2: Finding specific growth ideas

• Problem 1: The business is complex and it feels overwhelming. I don’t know where to start to drive growth.
• Question 2: I want to improve the North Star Metrics, but I still don’t have any specific ideas when it comes to products, operations, etc. What should I do?

Case: Taobao uses growth models to simplify its business and find growth ideas

In order to increase order value or get users to a specific page of interest, a good thing about the growth model is that it abstracts complex things, which makes it easier to sort out ideas.

3. Application 3: Guiding indicator splitting and team collaboration

• Question 1: As the person in charge of growth, after setting the North Star goal, how do I distribute the work and ensure that the execution team and I have the same ideas to reduce mistakes?
• Question 2: As an executive team, how can we clearly understand our tasks and make the right decisions in the fast-paced daily work?
• Question 3: If there are multiple teams in the company working together to drive growth, how do you ensure that everyone is working in the same direction?

Use the growth model to break down the North Star indicator into segmented indicators.

Common factorization growth model framework:

• Horizontal decomposition: First, decompose by user group through "addition"
• Vertical decomposition: Decompose by “multiplication” according to the user funnel

Note: Split and segment indicators are key

Follow the MECE principle:

• ME: Independent of each other, each sub-indicator is completely independent (to avoid conflicts when subsequently assigned to teams)
• CE: Completely exhaustive, segmented indicators cover important factors affecting growth (avoiding blind spots in growth)

Collaboration model 1: Each cross-functional team is responsible for a specific indicator

Collaboration model 2: Multiple teams work together to promote the same segment indicator

The segmentation indicators can be further broken down, taking the number of new users as an example:

Target: 500,000 new users per year

Number of new users = operation channel customer acquisition team (400,000) + BD business cooperation team (50,000) + product recommendation team (50,000: for example, old customers bringing in new features, etc.)

The operation channel customer acquisition team is the main team responsible for new user indicators, while BD and products are support teams.

Case: How NetEase’s multiple teams collaborate to drive growth

Scenario: The commercialization department splits the annual revenue target into various product lines. Under the revenue target of a single product line, how can several departments collaborate to promote it?

The first attempt: Each department had its own independent KPI, but the indicators of each department affected each other. For example, the revenue indicator of the advertising department increased, but the user activity indicator of the product department decreased. It was difficult for departments to communicate in a timely manner. Each team was an expert in the field, but when they were brought together, their output was reduced.

The second attempt: Establish a user growth center and change to the OKR model. First, each department has a common North Star indicator. At the same time, different segment indicators are split into the product department and the experience department to ensure that there is no intersection between the segment indicators. The team cannot consider only improving the segment indicators and ultimately support the growth of the North Star, avoiding mutual harm.

Summary: Building and applying three growth models

Author: Four Fields

Source: Four Fields