A Simple Growth Framework
If you want to grow faster, the first step is to know what’s holding you back.
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One of the most common questions CEOs ask sounds simple: “How can I grow my business faster?” It’s a simple question with no simple answers. In fact, sometimes it has no answer at all.
If you want to grow faster, first you need to understand why you aren’t growing faster already. To do so, I like to use the simplest possible growth framework which considers four factors:
Prospects. How many potential customers do we reach every day/week/month?
Conversion. What percentage of potential customers do we convert into customers?
Value. How much do we make from each customer?
Retention. How many customers do we lose every day/week/month?
Each one of these factors is critical to growth. Often, when you think about growth you see the need to improve all of these factors. That might be true, but you can’t fix everything at once!
There is always one factor which is the biggest culprit in holding back your business.
The easiest way to find it is to look at each factor in turn while assuming the other factors are all perfect. For example, do we have enough prospects to hit our growth targets assuming we have great conversion, retention and high value? Of course you never have perfect conversion, retention or value but by removing those factors you can see more clearly if prospects are the problem.
Likewise, is our value high enough to make enough money if we assume we have all the prospects we need and a high conversion and retention? If your revenue per customer is too low, then you will struggle regardless of the other factors and that should become obvious.
It is likely that all of these factors are not as high as you’d like them to be. However, one of them is the biggest problem and the farthest from where it needs to be, and that’s where you start. If you can improve that factor, it’s the first step towards improved growth.
The key to this framework is to understand how to control for the other factors. Your conversion rate will never be 100%, so how high can you reasonably expect it to get? Is 75% possible? 50%? 5%? Whatever it is, it needs to be at the top of the range of reasonable. Industry benchmarks can help, but often it’s your expertise in your market and business that will help you set these values.
Yes, these factors are interdependent. The higher your conversion rate, the lower your retention might become as you convert more customers that were never likely to be satisfied. Similarly, your conversion rate might go down if your price goes up as you extract more value.
However, this framework isn’t trying to help you understand those dependencies. The goal here is to find out where the biggest problem lies so you can focus on solving it! Solving that problem might require you to understand the dependencies involved, but that is step 2.
Such a simple framework is only useful to identify where to focus your effort to solve a problem. Still, the simplicity of it cuts through an otherwise complex web of issues and helps you get started on solving problems. It also helps in getting the entire team to understand and commit to that starting point.
So, the next time you’re having a discussion about growth, start with the simple question: Where should we start? This framework might help.
For more on Growth, see: