Recognising good growth

When I wrote last night about Growing the right way I said that startups should aim to grow sustainably. This morning I thought I would say more about what that means, starting with characteristics of unsustainable growth:

  • Adding users who are unlikely to engage (e.g. incentivised traffic, users recruited under false pretences)
  • Adding users via channels that will never become economic
  • Selling products without a clear path to positive gross margin
  • High churn rates
  • High return rates
  • etc.

Note that many of these statements are conditional on a future event – don’t do X unless Y is likely to happen. It is this future looking element which makes distinguishing between good growth and unsustainable growth tricky and makes it tempting for startups make the case that their unsustainable growth is actually good growth in order to raise money and buy themselves time to figure out the right answers. My post yesterday described the dangers with this approach.

Sustainable growth comes from having a product that customers love, and has the following characteristics:

  • Positive unit economics (i.e. revenues per user > cost of acquisition + cost of delivery)
  • Good understanding of the benefits provided to customers
  • High referral rates
  • High net promoter score
  • Loyal customers
  • etc.