How do you maximize your chances of building an enduring, consumer product? This is the big question for consumer companies, and in her #mtpcon San Francisco talk, Sarah Tavel, General Partner at Benchmark, says it comes down to understanding how to maximize engagement.
Tavel’s Hierarchy of Engagement
Throughout her career, Sarah has spent a lot of time thinking about how to understand engagement in products. Over time, she has developed a “Hierarchy of Engagement” as a way to examine engagement and approach how users interact with a product in a more methodical way.
Level 1: Growing Engaged Users
Silicon Valley is very focused on “growth hacking” and achieving virality in products quickly. While growth is important, many companies that achieve incredible growth early on don’t build sustained growth and endure. What really matters is not the growth of users; it is the growth of users completing the core action of your product.
The “core action” is the single action users can take that forms the foundation of your product. It boils down the essence of your product, and is often highly correlated with retention. For example, there are a lot of actions that users can take in Pinterest, but the core action is pinning something to a board. If a user isn’t pinning items to a board in their account, then they don’t really understand what Pinterest is about and they won’t be fully engaged. The Pinterest team also saw that if someone pinned something, they were highly likely to return within a week.
The core action is not the only action that your users will do, and is not the only action you want them to do. But the ultimate goal is to get people to perform the core action quickly and often. If you’re only focused on growing users without getting them to your core action, you’ll burn through early-adopter users and miss the opportunity to get them engaged with your product long-term.
Growing users without growing users that complete the core action is the empty calories of growth. It feels good, but it’s not good for you
Not only do you need to think about growing a core action, you also need to make sure you’re focused on the right core action. To ensure your core action is correct, think about your roadmap and ask, “What features would we build if we optimized for completing the core action? Is that the right thing to build?” You also need to consider if your core action will scale to enough users. The harder an action is to complete, the more motivation is needed to move people to act. If you keep your core action easier to complete, you will have a larger user base to work with as you try to engage users.
Level 2: Retaining Users
Once you have engaged users, you have to get them to stick. Retention matters. A slower growth rate with higher retention will build a healthier product than fast growth with low retention. So how do you retain users? Sarah says you have to create accruing benefits and mounting loss within your product.
With accruing benefits, the more someone uses the product, the better it gets. As a consumer adds data to a product, either explicitly or implicitly, the company uses this data to improve the experience of the user. In mounting loss, the more someone uses the product, the more they would lose if they left. So the longer someone stays with a product, the more its value accrues and it becomes a product they depend on.
To demonstrate this concept, Sarah talks about Evernote. Its core action is creating a note. The more notes you create in Evernote, the more value you get (accruing benefits) and the harder it is to leave (mounting losses). Conversely, anonymity apps such as Yik Yak or Whisper succeed at engaging users in Level 1 and tend to have big spikes in growth at the beginning. But they fail to move to Level 2 engagement, because there is no accrued value or mounting loss.
Level 3: Self-Perpetuating
Now that you have engaged users and a sticky product, how do you create virtuous loops with your users? Virtuous loops are flywheels that convert your users’ engagement into fuel to power your company forward.
The strongest virtuous loop is the network effect. The more a user pins, the better Pinterest understands the user’s interest, and is able to create a better discovery experience which leads to the user pinning more. This cycle feeds on itself, making the product better simply by its users using it more. To create an enduring product, you should focus on maximizing each naturally occurring virtuous loop.
Virtuous loops are really hard to create artificially, and many products don’t have them at all. While Evernote has done well at Level 1 and Level 2 engagement, it has never been able to create a virtuous loop that would take it to Level 3, and growth has petered out.
Build Your Enduring Product
To build an enduring product, you have to take users through the three levels of engagement. You have to get them to complete your core action, create accruing benefits and mounting losses, and finally create a virtuous loop that builds self-perpetuating growth. If you can optimize your effectiveness in each of these three levels, you will maximize your chance of building an enduring consumer product.