How successful startups use growth loops (with examples)

Dec 18, 2023

What are growth loops?

When they are working, growth loops feel like biking downhill. The same effort takes you progressively faster and further until it feels effortless.

In business terms, your key metrics grow exponentially, while the average investment to create that growth stays the same or decreases. They combine multiple business efforts to create an impact much larger than the sum of its parts.

Growth loops are powerful because they compound and, unlike biking downhill, can go on forever. In this guide, we cover everything you need to know to harness growth loops for your product, including:

• The different types of growth loops
• How to choose a growth loop for your product
• How to measure your growth loop
• Real-world growth loop examples from Substack, Hubspot, and more

Examples of growth loops

Nearly every successful company utilizes growth loops, consciously or not.

Substack

The newsletter platform Substack enables writers to easily share and monetize their work. As they do, it gets the attention of other writers, who discover Substack, join, and continue the loop. It's a virtuous circle where everyone involved benefits.

For this loop to work, the marketing and business development teams must attract popular writers (who often require upfront payments) while the product and engineering teams must deliver a great writing and subscription experience. When this happens, it provides compounding benefits for Substack like bigger writers, better experiences, more readers, and ultimately, more revenue.

Twitch

Twitch is a streaming platform for gaming. Similar to Substack and writers, streamers drive growth by attracting viewers. Those viewers join the platform, generate revenue, and watch other streams. Streamers, new and old, do more to capture that revenue and viewership, and the loop repeats.

Twitch's ties its success to its ability to do this better than its competitors. Other streaming platforms like YouTube and Kick compete with them for streamers, often with large exclusive contracts, hurting the core of Twitch's growth loop.

Tripadvisor

Tripadvisor uses its data on hotels and restaurants to create content that ranks well on search engines. This content attracts users, who review hotels and restaurants, which improves and expands that content.

This data was once hidden in travel agents and local knowledge. By making it public and accessible, Tripadvisor unlocked massive growth.

Y Combinator

YC invests in startups. Their advice and network help startups grow and succeed. The prestige this creates attracts investment into YC startups, improves their network, and encourages more startups to apply. As long as their advice and network continue to be valuable, this loop continues.

YC differentiates itself from other accelerators by being extremely startup-friendly, focused on San Francisco, and having a strong founder network. Each of these is core to the success of their growth loop.

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Types of growth loops

There are many types of growth loops, but five of the most important are:

1. The viral growth loop

Virality is growth through attention, word-of-mouth, and referrals. Users find a product useful or entertaining and share it with others. New users then do the same and the cycle repeats. Ideally, the product becomes more valuable as new users join (AKA network effects) which drives exponential growth.

This is generally good for two types of products:

• Multiplayer or networked products that improve (or only work) when multiple friends or colleagues also use it (e.g. Discord, Figma, Zoom). Users invite others to join so they can use the product together.

• Products that are fun to share with others (e.g. TikTok, Instagram, BeReal). Users share the app or content from the app on social media and other communications platforms to drive new users to join and create more shareable content.

How to measure: You want to know what drives users to share your product and the referral source of signups. To do this, measure traffic and shareability by looking at occurrences of signing up, getting started, and invites or referrals.

2. The performance marketing growth loop

The performance marketing growth loop is using paid marketing to acquire customers, then using the new revenue to fund more marketing. It's reliant on connecting marketing to acquire users (performance) with value (revenue) captured. It's useful for both B2C and [B2B startup marketing][/newsletter/b2b-startup-marketing-strategy].

For example, with Google Ad Words, companies pay per click on specific keywords related to potential customers’ searches. With the correct math figured out (cost of acquisition), this can lead to a growth loop of increasing ad spend and revenue growth.

Products that use performance marketing growth loops generally have high margins (more money for ads), but low organic demand. Good examples include ecommerce and direct-to-consumer goods (e.g. Casper, Warby Parker, Dollar Shave Club) and SaaS software targeting small-medium businesses (e.g. Shopify, Hubspot, Slack).

How to measure performance marketing: Measure the margin between the cost of customer acquisition (CAC) and how much revenue we receive from them (LTV). To do this, combine traffic sources, conversion, and retention with marketing spend and revenue.

3. The organic content loop

Content is the growth loop of creating discoverable content which attracts new users to join and create content. Content growth loops rely heavily on distribution channels like search engines and social media.

Two types of products benefit from this:

• Users discover your product through content other users create and share (e.g. StackOverflow, Reddit, Substack). This is also known as user-generated content.

• Your product generates a large amount of data, which you use to create content (e.g. Tripadvisor, Zillow, Expedia) that attracts users who generate more data. These companies rely heavily on programmatic SEO, which is the process of turning data into content that shows up in search engines.

How to measure: Figure out what drive someone to create and share content and what content gets attention. To do this, measure traffic, conversion, and usage events. Read more in how (and why) our marketing team uses PostHog.

4. The sales-led growth loop

The sales process creates a growth loop where acquired customers grow the company's revenue, which enables the company to improve the product and hire more salespeople.

Products reliant on sales-led growth loops generally have large contracts with high levels of support and customization. Solutions are often tailored to the specific customer and require a large amount of time and effort. For example, sales is a growth loop for enterprise SaaS companies (e.g. Salesforce, SAP, Oracle) and big consultancies (e.g. McKinsey, Deloitte).

How to measure: Sales has many of its own special metrics unrelated to product and marketing. This doesn’t mean measurement isn’t helpful. Trial usage, lead conversion, usage after conversion, and account-level analytics can help sales teams do a better job.

5. The product-led growth loop

In a product-led company, improving the product is the main driver of growth. There are many ways to do this, but we think talking to users and building something they want is the best one. The loop goes:

1. You build something and ask for feedback
2. You use that feedback to improve what you've built and guide what you build next.
3. Your improved product attracts and retains more users, who provide more feedback (and revenue) to fuel the loop again.

For example, many early-stage startups talk to users to understand their problems, and then build a product that solves them. They repeat this loop to grow towards product-market fit.

How to measure: There is a simple sign a feedback loop is working: Are users providing feedback? Beyond this, you should measure your core product metrics. For startups, these are likely related to measuring product-market fit, such as user engagement, retention, and their PMF score.

How to choose your growth loop

You need to answer two questions to pick the right growth loop for you:

1. Who are your ideal users?
2. What benefits do those users get as part of your growth loop?

1. Who are your ideal users?

Understanding your ideal user helps you decide where to put your effort. If your ideal user won’t pay for your product, a sales-led growth loop won't work – a product-led or viral loop would be better. This creates a growth loop that better aligns with what they want. Growth loops are about creating win-wins.

Let's imagine, for example, you work at LinkedIn. Your ideal user is a newly graduated business professional. They have less income, so they are less likely to pay for a subscription. Sales and performance marketing are less likely to work.

What you can do is create a connection between their network and content creation. They value their network a lot, and creating content is free. When a user creates and shares content, their network pays attention. With this attention, the user engages with their network, and LinkedIn sells ads. When other users see the benefits of this, they share content, and this cycle repeats.

2. What do they get out of it?

A user needs a win-win to repeatedly take an action that fuels a product’s growth loop. They need an incentive, whether it is status, attention, or money. Smart companies build this incentive into the core of their product.

Hubspot, for example, builds free tools small businesses benefit from, like "Website Grader" or "Email Signature Generator" and offer a decent free tier.

These freebies get a lot of attention which drives signups, and some turn into customers. They invest more in their overall product (including their free tools) and create a B2B viral growth loop.

There are many creative ways to incentivize users to join your growth loop. Optimizing existing win-wins with users, as well as finding new ones, fuels the growth loops that help products succeed.

Frequently asked questions about growth loops

What is the difference between funnels and growth loops?

Growth loops are a similar framework to funnels like AARRR pirate metrics. Both are a series of events leading to a desired outcome.

The difference is that funnels are linear, while growth loops are cyclical. Funnels are a series of events that lead to an end like a conversion. Growth loops are a series of events that continuously lead to more events. Loops focus more on the potential for compounding growth.

Companies often use both:

• Growth loops are useful for high-level strategy, such as linking your product strategy to how you plan to grow awareness and interest in it.

• Funnels work well for lower-level optimizations, such as optimizing an onboarding flow, or for analyzing the effectiveness of your growth engine and looking for signs of weakness.

What is the difference between network effects and growth loops?

Network effects focus on users. With network effects, the value of a product increases as more users join. A network effect can be a part of a growth loop, but it doesn’t have to be.

Growth loops focus on the product or business. They don't necessarily have relate to users. For example, sales or organic content growth loops focus on internal processses. This makes growth loops more strategic and planned than network effects are.

Further reading

• How to write great product survey questions (with examples)
• How to start a growth team (as an engineer)
• The most useful product health metrics

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