Growth Funnels

24 Sep

You spend a ton of time building a product to solve a particular problem. You launch. Then, either the kinds of people whose problem you are solving never arrive or they arrive and then leave. You want to know why because if you know the reason, you can work to address the underlying causes.

Often, however, businesses only have access to observational data. And since we can’t answer the why with observational data, people have swapped the why with the where. Answering the where can give us a window into the why (though only a window). And that can be useful.

The traditional way of posing ‘where’ is called a funnel. Conventionally, funnels start at when the customer arrives on the website. We will forgo convention and start at the top.

There are only three things you should work to optimally do conditional on the product you have built:

  1. Help people discover your product
  2. Effectively convey the relevant value of the product to those who have discovered your product
  3. Help people effectively use the product

p.s. When the product changes, you have to do all three all over again.

One way funnels can potentially help is triage. How big is the ‘leak’ at each ‘stage’? The funnel on the top of the first two steps is: of the people who discovered the product, how many did we successfully communicate the relevant value of the product to? Posing the problem in such a way makes it seem more powerful than it is. To come up with a number, you generally only have noisy behavioral signals. For instance, the proportion of people who visit the site who sign up. But low proportions could be of large denominators—lots of people are visiting the site but the product is not relevant for most of them. (If bringing people to the site costs nothing, there is nothing to do.) Or it could be because you have a super kludgy sign-up process. You could drill down to try to get at such clues, but the number of potential locations for drilling remains large.

That brings us to the next point. Macro-triaging is useful but only for resource allocation kinds of decisions based on some assumptions. It doesn’t provide a way to get concrete answers to real issues. For concrete answers, you need funnels around concrete workflows. For instance, for a referral ‘product’ for AirBnB, one way to define steps (based on Gustaf Alstromer) is as follows:

  1. how many people saw the link asking people to refer
  2. of the people who saw the link, how many clicked on it
  3. of the people who clicked on it, how many invited people
  4. of the people who were invited, how many signed up (as a user, guest, host)
  5. of the people who signed up, how many made the first booking

Such a funnel allows you to optimize the workflow by experimenting with the user interface at each stage. It allows you to analyze what the users were trying to do but failed to do, or took a long time doing. It also allows you to analyze how optimally (from a company’s perspective) are users taking an action. For instance, people may want to invite all their friends but the UI doesn’t have a convenient way to import contacts from email.

Sometimes just writing out the steps in a workflow can be useful. It allows people to think if some steps are actually needed. For instance, is signing-in needed before we allow a user to understand the value of the product?