Step by step: Build a detailed growth model
Step by step: Build a detailed growth model
The deepest guide on PLG growth models on the web
Everyone in your company has a different opinion on how your product grows. And it's a problem.
I know it doesn't seem like the worst thing in the world. Everyone has their own view of how the product grows, and they help spin that part of the flywheel, right?
Not so fast.
The problem this creates is: disagreement on what to fund. What seems like a straightforward initiative to one person may make absolutely no sense in someone else's mental model.
Take the example of spending more on marketing.
Your marketer may see awesome AARRR metrics, great LTV/CAC, fast payback period... and conclude we should spend more.
On the other hand, your PM, focused on setup, aha, and habit rates might find that totally irrelevant.
And your CEO, focused on sales-led growth and retention, may find it a small driver of the sales motion.
As a result, no one agrees, and the spend isn't funded.
Your marketer thinks everyone else is an idiot but continues on, ready to "disagree and commit."
Is this really the ideal scenario?
Or - take the example of product experiments to improve aha rates.
Your PM sees the leverage easily in their mental concept: increase aha rates, increase retention, and make revenue go up exponentially.
On the other hand, your engineer, focused on latency and response rates, may not see it as important at all.
And your designer, focused on the easiest to use product, has no ideas why you would inject dark patterns and modals into the product.
The result is no one can agree on what to build.
Your PM gets pushes forward what they think - but behind closed doors, not everyone agrees.
It's not ideal.
So what's the answer?
Build a quantitative growth model.
A detailed quantitative model can give the different parties in the company a holistic view of what actually drives growth.
This makes debates over what to build much simpler.
Instead of ships sailing past each other in the ocean, you can have a reasoned debate on what will drive growth.
The Facebook Growth Model
But there are so many growth models out there. Which should you use?
One of the most famous growth models comes from Chamath Palhipitaya’s growth team at Facebook.
This model is great for its simplicity.
It breaks down growth into three simple steps and an equation:
Top of funnel
This is bringing people into the product. This represents the initial stage where potential users are introduced to the product.
The key question here is: can the product attract traffic and convert it into meaningful engagement?
In Facebook's case, this meant translating visits into free signups.
Magic moment
This is about the user's emotional response when interacting with the product.
It's the moment when users realize the value of the product.
For Facebook, this could be when a new user connects with close friends or discovers a community that resonates with them.
Core product value
This reflects the depth of the product's market appeal and the strength of its solution to a problem.
It's about how well the product fits with its market.
For Facebook, it was about creating a platform that consistently provided value through connections and content.
This model is a great starting point.
Andy Johns, who worked with Chamath at Facebook, swears by it.
I agree. If you haven't built a growth model for your business yet, start here.
But how do you go further?
Growth Models are a Critical Growth Skill
If you're a PM or growth professional, you need to know how to build a growth model.
But, let's face it: most attempts fell flat.
Here's why:
It's not just numbers
The growth model requires holistic understanding
Building one requires the ability to model complex behaviors
Let's break each down.
1. It's not just numbers
Building a growth model isn't just about crunching the numbers and putting together a multi-sheet excel model.
It's about understanding the levers that are worth modeling, choosing the rows that are relevant.
2. The growth model requires holistic understanding
This is a holistic understanding of:
Users
Metrics
The Actuals
Most people don't have skill in all three, let alone the ability draw the interconnections between them.
3. Building one requires the ability to model complex behaviors
On top of having the ability to understand users, metrics, and the actuals, you have to be able to model them together.
You have to be able to connect the user "why" to the actual metrics.
This is why it is important for PMs and growth professionals to have the growth modeling skill.
Not finance.
I hear your skepticism.
Amidst the millions of other things you have to do, the growth model is a tempting one to delegate.
But I think you should own it:
You have the knowledge
You have the intersection of skills
Its applications are most relevant to you
1. You have the knowledge
The unique knowledge of users, metrics, and the actuals lives primarily in the growth team.
Other functions have isolated exposure:
User Research → Users
Product Analytics → Metrics
Strategic Finance → The Actuals
2. You have the intersection of skills
Along with the knowledge, growth is most well-positioned to actually build such a model.
Great growth practitioners aren't just PMs or spreadsheet junkies.
They bring together the intersection of skills.
3. Its applications are most relevant to you
The outputs of a growth model - what metrics matter most, how to prioritize amongst many good things - are most useful to the growth team.
They help you align stakeholders on the priorities of what to build.
All PMs and growth practitioners need to know how to build a growth model.
Today’s Post
In today’s post, we’re going to help you create that growth model that goes much further than the simple Facebook model.
The growth model to help you bring alignment amongst disparate teams.
We’ll cover:
How build a simple financial model
How to build a complex model
Ways to expand the model
Using the model well
Top model mistakes
We end up with, by far, the most complete growth model on the web.
It’s the value of a $2,000 course as just one of many deep dives I’ll deliver this year.
Keep reading with a 7-day free trial
Subscribe to Product Growth to keep reading this post and get 7 days of free access to the full post archives.