Takeaways From the Book "Growth Levers and how to find them"
Recently finished reading a brief and super practical book “Growth Levers and How to Find Them” by Matt Lerner and here are my some of my main takeaways.
North Star Metric (NSM)
The NSM is the one metric that best represents the value your product delivers to customers and correlates with long-term growth. It serves as a guiding light for the entire company, ensuring all teams are aligned toward the same goal. Everyone in the company should be aware of NSM and should be able to connect how their work contributes to NSM.
Revenue is a Lagging Indicator
Revenue is the result of many actions that happen earlier in the customer journey, such as acquisition, engagement, retention, and satisfaction. Since it's a lagging indicator, focusing solely on revenue can obscure the underlying factors that contribute to long-term growth. In other words, by the time revenue changes, it's too late to address the issues that might have caused those fluctuations.
For example, a business could temporarily boost revenue through aggressive marketing campaigns or discounts, but if customers are not truly engaged or loyal, that revenue spike won’t be sustainable.
Focusing on revenue can tempt businesses to take actions that boost short-term financial gains at the expense of long-term growth. These actions might include increasing prices, cutting corners on quality, or reducing customer support—none of which contribute to lasting success.
Matt suggests that a good NSM is customer-centric because the ultimate goal of a business is to create value for its users, which will in turn lead to revenue. Metrics like customer engagement, user satisfaction, or retention rate are better reflections of how much value customers are getting from the product or service. If customers are happy and continue using the product, revenue will follow naturally.
Key Drivers
Once the NSM is set, the next step is to identify the key drivers—the variables or metrics that influence the NSM. These drivers are things that, if optimized, will directly impact the North Star Metric. Typically, key drivers revolve around user acquisition, activation, retention, and engagement.
Growth Levers
Growth levers are specific actions or optimizations that have the potential to influence key drivers, and thus, boost the NSM. They are the tactical moves or experiments that can lead to measurable growth if successful.
Rate-limiting Step
The rate-limiting step is the most significant constraint that prevents a company from scaling faster. It’s the factor that, if improved, would have the largest impact on growth. Just like in chemistry, where the slowest step in a reaction limits how fast the overall reaction can proceed, in business, the rate-limiting step controls how quickly growth can happen.
How to Find the Rate-Limiting Step
To identify the rate-limiting step, Lerner suggests using data and asking critical questions about the business's growth funnel. Here's how you can find it:
Map Out the Customer Journey:
Break down the entire process from the first customer touchpoint to conversion, retention, and eventual advocacy.
This can involve mapping out all the steps from awareness to onboarding, engagement, retention, and so on.
Measure and Analyze Conversion Rates at Each Stage:
Look at the drop-off rates or conversion percentages at each stage of the funnel.
For example, if only 5% of free trial users convert to paid users, this conversion stage might be a bottleneck.
Identify the Weakest Point:
Find the stage in the customer journey where performance is weakest or where the largest percentage of users fall off.
Ask yourself: Which part of this journey is holding us back the most?
Focus on High-Impact Metrics:
Metrics like customer acquisition cost (CAC), churn rate, and conversion rate at key stages can help pinpoint where the rate-limiting step lies.
Look for Slowdowns in Scale:
If one department (like sales or customer service) is overloaded or one channel (like ads) is delivering poor results, it may indicate a bottleneck that’s preventing growth from accelerating.
Improving the Rate-Limiting Step
Once you’ve identified the rate-limiting step, Lerner suggests focusing on that specific stage to unlock growth. Here's how to improve it:
Experiment and Optimize - Run experiments to see how changes at that stage can improve performance. For instance, if the problem is onboarding, try offering better tutorials, a simplified onboarding process, or personalized assistance.
Remove Friction - Identify any points of friction in the process and eliminate them. In the onboarding example, friction might be a complicated signup process or a lack of clear guidance on how to use key features.
Improve Product-Market Fit - If users are not engaging after signing up, the product may not be addressing their needs or providing enough immediate value. In this case, revisiting your value proposition or improving product usability can help.
Focus Resources - Allocate resources—whether it’s money, talent, or time—to solving the bottleneck. If onboarding is the problem, prioritize efforts to improve the user experience at that stage before investing heavily in acquiring new customers.
Track and Iterate - After implementing changes, track how the key metrics improve and iterate further. Keep testing and optimizing until the bottleneck is no longer holding back growth.