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Original article

Sustainable Product Growth

Key Takeaway

• For Entrepreneurs: Sustainable product growth hinges on achieving product-market fit and maintaining positive net growth, which is best measured by high retention rates and a quick ratio greater than one.
• For Investors: Investing in products with sustainable growth potential requires identifying those with strong retention and positive net growth, as these are more likely to scale sustainably over time.

Summary

The article "Sustainable Product Growth" by Sequoia emphasizes the importance of sustainable growth in product development. It outlines a framework based on two key factors: product-market fit and positive net growth. The framework categorizes products into four growth scenarios: "leaky bucket," "death spiral," "end of life," and "sustainable growth." Each scenario is characterized by specific metrics such as retention rates and quick ratios, and the article provides case studies to illustrate these concepts.

Insights

• Product-Market Fit: High retention rates are a strong indicator of product-market fit, which is crucial for sustainable growth.
• Quick Ratio: A quick ratio greater than one indicates positive net growth, which is essential for sustainability.
• Growth Scenarios:
  • Leaky Bucket: High quick ratio but low retention rates, indicating unsustainable growth.
  • Death Spiral: Low quick ratio and low retention rates, leading to negative growth.
  • End of Life: Low to average quick ratio with high retention rates, suggesting a product with a core engaged user base but struggling to grow.
  • Sustainable Growth: High quick ratio and high retention rates, indicating a product with strong potential for long-term growth.
• Case Studies:
  • BranchOut: Started as a leaky bucket and transitioned to a death spiral due to low retention and slowing new user growth.
  • Timehop: Initially showed strong retention but failed to adapt and eventually moved to an "end of life" scenario.
  • Netflix: Achieved sustainable growth by continuously evolving and expanding into new markets.

Implications

• Focus on Retention: High growth without retention is unsustainable. Entrepreneurs should prioritize achieving product-market fit.
• Adaptation is Key: Continuous evolution and expansion into new markets can help maintain sustainable growth.
• Understand Your Growth Scenario: Identifying your product's growth scenario can help you take appropriate actions to achieve sustainability.