Lesson: Product Growth with Gustaf Alströmer

Step #3 Growth Rate: Growth rate is the percentage change in time period

The growth rate is the percentage you’re growing week by week or month by month, as opposed to the actual raw numbers. The raw numbers might be fluctuating quite a bit but your growth rate should be fairly steady. That should be the one you look at, not the actual numbers.

I would really highly emphasize to spend time thinking about the growth rate versus the actual growth in terms of raw numbers. We always spend time thinking about the growth rate on a daily or weekly basis, I think why come there to even look at that, like what is your daily or weekly growth rate. Weekly, that’s kind of something that they didn’t do five, six years ago but they do today. Your growth rate will wash out all kinds of things that aren’t really true.

If you get featured in the app store, which a lot of companies plan to be, it’s great for that week you get featured and you get a lot of downloads. It doesn’t really say anything about your long-term growth, because you haven’t really figured out anything that is compounding. Once you figure out something that compounds, where let’s say every new user you get, you get another user, or every time someone scans a wine and you get another person finding that wine online or whatever, it could be so many different things that compounds, but you can only find those when you actually track the growth rate, versus tracking the actual raw growth, the raw numbers.

Compounding growth is basically the other side of growth rate. Going back to that app store example, you get featured, you get 100,000 downloads, then the day you are not featured anymore you are not going to have 100,000 downloads. Again, you're going to back to some number close to zero.

If you get 100,000 downloads and that's coming from a source that is a compounding growth source, then you're probably going to have a 100,000, 100,001, two, three users, and you can keep growing because the nature of that growth source; this is how you grow.

To find out if you have compounding growth, just track the source of growth through growth rate. Let's say, "What is the growth rate of people coming in through referrals or people coming in through from SEO, or people coming in through some other source? What's that growth rate?” Pretty fast you can understand that being featured is not compounding growth and a great referral program where you incentivize the users to invite their friends could be compounding growth rate.

Let's say you have some number around 20 to 30% of your users will tell their friends about your product and if you have a million users, then that's a lot more users who are going to tell their friends about the product versus if you just have 10,000 users. That's the difference between compounding growth and not compounding.