# Three Engines of Growth

## Purpose
Identify and optimize the single growth engine that will drive sustainable growth for your business, avoiding the trap of trying to optimize everything at once.

## When to Use
- Deciding how to invest in growth
- Choosing between competing growth strategies
- Diagnosing why growth has stalled
- Aligning team around growth metrics
- Evaluating product-market fit progress

## Process

### 1. Understand the Three Engines

Every sustainable business is powered by one primary engine:

**1. Sticky Engine (Retention)**
Growth from keeping customers longer
- Key metric: Churn rate vs. acquisition rate
- Formula: Growth = Acquisition Rate - Churn Rate
- Focus: Engagement, habit formation, switching costs
- Example: SaaS products, subscription services

**2. Viral Engine (Word-of-Mouth)**
Growth from customers bringing customers
- Key metric: Viral coefficient (K)
- Formula: If K > 1, exponential growth
- Focus: Product quality, shareability, referral incentives
- Example: Social networks, collaboration tools

**3. Paid Engine (Advertising)**
Growth from reinvesting revenue into acquisition
- Key metric: LTV > CAC (with margin)
- Formula: Marginal Profit = LTV - CAC
- Focus: Conversion optimization, channel efficiency
- Example: E-commerce, transactional services

### 2. Identify Your Primary Engine

**Which engine are you optimizing for?**

Most companies can grow through multiple engines, but successful companies focus on ONE primary engine and optimize everything for it.

**Diagnostic questions:**

**For Sticky Engine:**
- Do customers use your product daily/weekly?
- Is there high switching cost?
- Does value increase over time (data, network, customization)?
- Is churn rate below 5% monthly?

**For Viral Engine:**
- Does using the product expose others to it?
- Do users naturally share or invite others?
- Is your viral coefficient approaching or exceeding 1?
- Does the product improve with more users (network effects)?

**For Paid Engine:**
- Do you know your customer lifetime value?
- Can you profitably acquire customers?
- Is LTV > 3x CAC?
- Are there scalable paid channels available?

### 3. Optimize Your Engine

**Sticky Engine Optimization:**

| Metric | How to Improve |
|--------|----------------|
| Churn Rate | Better onboarding, engagement features, success programs |
| Engagement | Daily use cases, notifications, habit loops |
| Expansion Revenue | Upsells, add-ons, usage-based pricing |
| NPS/CSAT | Product quality, support, proactive outreach |

**Key Focus Areas:**
- Onboarding experience (time-to-value)
- Daily/weekly engagement hooks
- Customer success and support
- Feature adoption tracking
- Cohort retention analysis

**Viral Engine Optimization:**

| Metric | How to Improve |
|--------|----------------|
| Viral Coefficient (K) | Invitation mechanics, sharing features, referral rewards |
| Cycle Time | Faster onboarding, immediate value, easy invites |
| Conversion from Invite | Better landing pages, social proof, incentives |
| Network Effects | Features that improve with more users |

**Key Focus Areas:**
- Make sharing/inviting seamless
- Create value that requires others (collaboration)
- Referral programs with two-sided rewards
- Social proof and public usage

**Paid Engine Optimization:**

| Metric | How to Improve |
|--------|----------------|
| LTV | Pricing, retention, upsells |
| CAC | Ad creative, targeting, conversion rate |
| LTV:CAC Ratio | Both of the above |
| Payback Period | Faster time-to-value, annual prepay |

**Key Focus Areas:**
- Conversion rate optimization
- Channel diversification
- Pricing optimization
- Customer segmentation (different LTV by segment)

### 4. Measure Progress

**Sticky Engine Metrics:**
- Monthly churn rate (target: <5%)
- Daily/Weekly Active Users (DAU/WAU)
- Net Revenue Retention (target: >100%)
- Feature adoption rates
- NPS (target: >50)

**Viral Engine Metrics:**
- Viral coefficient (K)
- Invitation rate (% of users who invite)
- Invite conversion rate
- Viral cycle time
- Organic vs. paid user ratio

**Paid Engine Metrics:**
- Customer Acquisition Cost (CAC)
- Customer Lifetime Value (LTV)
- LTV:CAC ratio (target: >3:1)
- Payback period (target: <12 months)
- Return on Ad Spend (ROAS)

### 5. Avoid Common Mistakes

**Trying to optimize all three:**
- Dilutes focus and resources
- Different engines require different expertise
- "Good at all three" usually means "great at none"

**Wrong engine for your product:**
- Not all products can be viral (B2B enterprise rarely is)
- Not all products can be sticky (low-frequency use cases)
- Not all products can be profitably acquired (low LTV)

**Premature scaling:**
- Scaling paid before LTV:CAC is proven
- Pushing virality before product is ready
- Focusing on acquisition before retention

**Vanity metrics:**
- Total signups instead of active users (sticky)
- Invites sent instead of invites converted (viral)
- Traffic instead of conversions (paid)

### 6. Engine-Specific Product Decisions

**If Sticky is your engine:**
- Build features for daily use
- Invest heavily in onboarding
- Create switching costs (data, integrations, customization)
- Build for one persona deeply, not many shallowly

**If Viral is your engine:**
- Make the product inherently social
- Reduce friction to invite/share
- Make inviting benefit the inviter, not just the invitee
- Build for network effects

**If Paid is your engine:**
- Optimize conversion funnel obsessively
- Experiment with pricing constantly
- Build for high-intent purchase behavior
- Create clear, measurable ROI for customers

### 7. Synthesis

After identifying your engine:
- Is your product designed for this engine?
- Are you measuring the right metrics?
- Is your team focused on the right activities?
- What would improve this engine's performance by 10%?
- What engine-specific experiments should you run next?

## Example

**Product**: B2B sales intelligence platform

### Engine Analysis

**Could it be Sticky?**
- Users need data daily for prospecting ✓
- Data quality improves with use ✓
- Integrations with CRM create switching cost ✓
- High replacement cost ✓
- **Assessment: Strong fit for Sticky**

**Could it be Viral?**
- Using it doesn't expose others to it ✗
- Inviting others doesn't help the user ✗
- No network effects ✗
- **Assessment: Poor fit for Viral**

**Could it be Paid?**
- Clear ROI (more deals closed) ✓
- High LTV ($10K+ annually) ✓
- Identifiable buyer (Sales VP) ✓
- **Assessment: Good fit for Paid**

### Primary Engine Decision

**Primary: Sticky Engine** (retention drives growth)
**Secondary: Paid Engine** (initial acquisition)

**Rationale:**
- Viral doesn't work for this product type
- Sticky is strong because daily use + high switching cost
- Paid works as acquisition method, but retention is what compounds

### Optimization Plan

**Sticky Engine Focus:**
1. **Onboarding:** Time-to-first-valuable-insight < 24 hours
2. **Daily Use Hook:** Morning prospecting email with top leads
3. **Data Accumulation:** Custom lists, notes, activity history
4. **CRM Integration:** Deep Salesforce/HubSpot sync

**Key Metrics:**
- Daily Active Rate: 60% of paid users (target)
- Monthly Churn: <3%
- Net Revenue Retention: >110%

**Paid Engine (Secondary):**
- CAC Target: <$1,000
- LTV Target: >$10,000
- Channels: Google Ads, LinkedIn, SDR outreach

### Results Framework

**Month 1-3:** Establish baseline metrics
**Month 4-6:** Run experiments on onboarding (time-to-value)
**Month 7-9:** Test engagement hooks (daily email, mobile alerts)
**Month 10-12:** Measure retention cohorts, adjust pricing

**Insight:** By focusing on Sticky engine, every product decision is filtered through "does this increase daily use or retention?" This clarity prevents feature sprawl and keeps the team aligned on what matters.
