One of the most common mistakes I see operators make when pursuing growth is allocating their time to the wrong place. Especially when you’re early on, there are so many ideas, strategies, hacks, and other shiny objects that try to grab your attention. Resist the temptation!
Easier said than done, I know, but you have limited resources. It’s important for you to narrow your focus to the most important growth area and go hard at it rather than spreading your efforts all over the spectrum.
But what is the most important area?
There are two primary dimensions to growing your user base: new user acquisition and existing user retention. Both of these elements are critical to fueling growth and, for your company to be successful in the long run, you’ll need to be strong in both areas. To help you to figure out where to focus in the short-term however, you can use a simple 2x2 matrix.
Low New User Growth & High Retention (Invest)
Congratulations, you’ve built something that your users love! The people that you are bringing on to your product are clearly getting value out of it; otherwise they wouldn’t stick around. This is a great start and is a signal that you are ready to focus on new user acquisition and invest in marketing efforts to bring on more users.
In this stage you should be testing different acquisition channels, implementing a referral program, partnering with affiliates and strategic brand partners, etc. Figure out your channel-market fit and invest more in the channels that are working. Note that this is not a free pass to ignore retention going forward; it’s important to monitor retention of the users you bring on from different channels.
Low New User Growth & Low Retention (Iterate)
At this stage driving growth feels like pulling teeth. You’re having a hard time bringing on new users and the new users that do sign up don’t retain well. Don’t let this get you down; many successful startups went through this stage and lived to tell the tale. When you’re in this stage, the truth is that your product isn’t good enough yet. You don’t have product market fit. All of your time and effort should be concentrated on iterating on your core product/idea and trying to find PMF.
In this stage you should be spending a TON of time with users. It is absolutely critical to listen to their feedback so you can continue marching towards building a product that addresses the core problem you set out to solve. Remember to always bring it back to the problem you’re solving rather than the solution you were planning to build. This helps you remain focused on the user’s needs and can guide the iterations and pivots that you make.
High New User Growth & High Retention (Optimize)
Congratulations, you’ve done the unthinkable! You’ve built a product that users love and it’s really starting to grow. Reaching this stage means you’ve found your first big growth drivers. You should now focus on optimizing and testing additional lubricants for those growth drivers to get them humming even faster.
In this stage you should be using data to help you identify the biggest opportunity areas for the business and constantly testing different things to help optimize those areas. It’s also important to recognize that the growth drivers that are working for you right now can only bring you so far and that you should be thinking proactively about what might be the next big S-Curve that will take your business to the next level. Great further reading on linking S-Curves together in this post by Parsa Saljoughian.
High New User Growth & Low Retention (Improve)
We’ve got good news and bad news here; there is clearly demand for your product but the product isn’t meeting the expectations of the users that are being brought on. The core message here is that you need to focus your efforts on continuing to improve your product. You’re clearly tackling a problem that is worth solving and you’re making real progress, you just need to improve the experience enough to build a stronger foundation so that your user acquisition efforts aren’t bringing new users into a leaky bucket.
In this stage you should spend significant time understanding your users and what is driving poor retention rates. Is your marketing overpromising or is your product under delivering? Use both quantitative and qualitative methods to help you understand where you need to improve to drive your retention rates higher.
Conclusion
The ability to be consistently working on the most important thing at any given time is what separates winning companies (and individuals) from the pack. Understanding the dynamics of new user acquisition and existing user retention is vital for guiding your business's growth strategy. Remember that no stage is permanent; they are part of the cyclical and iterative process of growth. Your business might oscillate between these stages, and that's perfectly normal. The key is to be aware of your position on the 2x2 growth matrix and tailor your efforts accordingly. With the right focus and alignment, you can turn challenges into opportunities, drive growth, and ultimately build a product that not only attracts but retains users. Stay resilient, keep iterating, and success will follow.