Why Product Managers should do Growth Accounting & Modeling — TGW#3

Welcome back to The Growth Weekly! 👋🏻

I’ve already received a few great comments on the newsletter. Don’t hesitate to let me know what you think about it!

Growth Accounting & Modeling

The biggest enemies to product growth are strong opinions that lack data to prove they’re valid.

It’s hard to keep the focus in roadmap development on product success. There are a lot of opinions, ideas and possible improvements laying around.

Deciding on what (not) to do next is the single most important thing and requires you to have a good overview of your current growth.

We discussed previously that you need to have the right product analytics in place. But that’s only the first part. I know it sounds dull, but you need to do something called Growth Accounting.

It’s a (mostly spreadsheet-based) overview of whether your product is growing and in which areas. Specifically it focusses on your new, churned and retained users and where they are coming from. If you need help on this, read this article:

Diligence at Social Capital Part 1: Accounting for User Growth

The next thing you do is making predictions about your active user base (e.g. WAU).

Let’s say you have a product that has 1k new users every week, but your retention is low (Only 2,5% of your users is active still active 12 weeks after their first session). That would give you this model:

If you can’t read this well, hit me up and I’ll send you the template.

If you’ve done this, you’ll be able to predict your WAU and also make a graph of their origin, which will give you great insight in where you should put your efforts and map out the different scenarios:

A low retention WAU prediction based on current situation.

Prediction based on increased efforts on acquisition.

Prediction based on increased efforts on retention.

This should be the starting point for your roadmap priorities. You can go as granular as you want within these predictions and build your model as you wish. Maybe include signup rates, viral loops…?

Different scenarios for the same product.

Go ahead and try this for your product. And please let me know what you find out!

In the meanwhile, here are a few great articles I’ve read in the past week.

Interesting Articles

1.

Andrew Chen (Former Driver Growth Lead @ Uber, currently General Partner @ a16z) has published the amazing slide deck he used to show a16z what to look for when funding startups. I love how it focusses on deep growth accounting and making sure the product shows sustainable user acquisition and engagement loops.

The red flags and magic numbers that investors look for in your startup's metrics - 80 slide deck…

2.

Gustaf Alströmer(Former Growth @ AirBnb, currently YC Partner) speaks about unscalable growth tactics for early startups as well as sustainable growth strategy. A very down-to-earth AMA that deserves your reading time.

Growth AMA with YC Partner Gustaf Alströmer

3.

Already a few weeks old, but still gold. Jeff Chang talks about how to make your SMART goals Achievable and Relevant. Very relevant to the opinion on Growth Modeling above is how everything leads to the one 12-Week-WAU metric to align all teams.

Setting achievable and relevant growth goals | Building a high impact growth team series

How do you measure growth?

Please let me know. I’d be more than willing to have a chat with you about it. 🙌🏻

Also, if you have any questions for me, let me know.

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