The Three Engines of Growth

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Ries identifies three engines that power sustainable growth in any business. The sticky engine: growth through retention. A business running this engine grows when existing customers stay longer than new ones leave. The key metric is the churn rate, the percentage of customers who stop using the product each month. If churn is higher than new acquisition, the business shrinks even with great marketing. The viral engine: growth through customers who bring other customers. A business running this engine grows when each existing customer generates more than one new customer on average. The key metric is the viral coefficient. WhatsApp grew almost entirely through this engine: every user who joined immediately told others, and using the product created a reason to recruit. The paid engine: growth through spending money to acquire customers. A business running this engine grows when the lifetime value of each customer exceeds the cost to acquire them. The key metric is the ratio of customer lifetime value to customer acquisition cost. Most businesses try to run all three simultaneously. Ries argues this is usually a mistake. Understanding which engine is your primary driver and optimising for that is more effective than spreading effort across all three.