Operationalizing Viral Loops: Nail Product Market Fit First, Then Work On Growth
A viral product is great because it means that you are acquiring users for free. In fact, it’s a lot better if you can build a product where you can acquire users free. Getting users for free is better than paying for your users. In addition, a free channel is typically a proprietary channel. If you’re paying to get users into your product. You’re typically at advertising or using other channels that anybody else can also acquire in the same way. And as a result, everyone’s competing and prices tend to go up over time.
So when people talk about CAC/LTV ratios, you have a better business if your CAC is lower than your LTV. But if you have CAC at all, that is usually not a great way to build value long term, in my opinion. I think it’s just less defensible. If you can build a viral loop, then you can build a powerful and valuable long-term business and product.
Focus On Product Market Fit First
First, I just want to make a note here that product-market fit has to come first. A lot of companies make the mistake that they’ll start working on growth and figuring out how to come up with the exact right channels to really put fuel on the fire and really grow their business before they’ve nailed the product market fit for their company and for their product. You should not focus on growth until you’ve really figured out the product market fit.
In general, if you can get a loop going, that’s a lot better than a funnel. A funnel basically says you have to get 100 people in at the top to get a certain number of people out at the bottom. And that’s the end of your process. But a loop can result in compounding growth. If you get people into the flywheel and it’s working, then you can have your existing customers help you get new ones. For this process to just continue going on its own and to grow on its own. So basically, you have a new user who’s coming in. This is a new user or returning user, but they’re now your input for the cycle. Next, they take a series of actions and steps, which results in getting to an output. Amazingly, the output is something that can once again be used as an input. This is the important part of what makes it loop.
The Viral Coefficient School of Thought
So to go back to thinking about public health from 100 years ago, there is a formula for the viral coefficient. I’m not going to get into all the math and science. However, what it really boils down to is thinking about this from the perspective of usage, spread, and conversion. Those three pieces together will determine how viral your product is.
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About the speaker
David is an investor and advisor to over 30 software companies, both independently and in conjunction with other firms including Trinity Ventures and LiveOak Venture Partners, where he is currently a Venture Partner. Previously, David was Chief Business Officer at Turo, which he joined when it acquired SocialStudio, a software company he founded. Before founding SocialStudio, David was VP Product at Yammer; Senior Director of Growth at Playdom; and worked in product marketing and management at YouTube and Google. He started his career as at the Boston Consulting Group. David received his bachelor's degree and MBA from Yale University.
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