In Reforge, we spend a lot of time on Growth Loops. Self-reinforcing systems create compounding returns. They are a powerful force. While every company's Growth Loops are different, there is one that they all share in common.
The steps of the loop are:
The product grows.
That growth attracts a higher volume and quality of resources (money and people).
Those resources enable the company to solve new, meaningful problems that create more growth.
It sounds simplistic, I know. But it explains the core reasons why companies lose momentum:
They don't leverage that growth to attract a higher volume and quality of resources.
They fail to hire the right people.
They misallocate those resources to projects that don't result in growth.
Play The Loop Forward
One of the parts of loop thinking, is to play the loop forward multiple cycles, then work backwards to what you need to be doing in this cycle to enable future cycles. Not doing this leads to some common mistakes:
Not having an idea of the number or size of bets needed to maintain growth.
Not acquiring the resources needed to enable new bets (hiring and raising capital take time).
Getting to a place where you need to create growth, but not having the resources to enable the bets that maintain momentum.
All of these lead to a loss in momentum and the loop starts to reverse.
Loops Can Work Against You As Much As Help You
The challenge with self-reinforcing systems is that they can reverse on you and rather than creating compounding benefits, they instead create compounding destruction. Here's a common scenario:
A company misallocates resources to projects that don't result in growth.
Company growth starts to flat line.
Flat growth makes it harder to attract the right resources.
Which makes it harder to both maintain current initiatives and solve new problems that create growth.
So what do you do in these situations?
"Resetting" The Loop
The counter intuitive thing is you typically need to "reset" the loop which typically creates contraction before it drives growth. A hypothetical scenario. Which company would you rather invest in or join as an employee?
Most people choose Option B because the company is showing new growth and momentum which gets the positive reinforcement of the loop spinning again.
Resetting the loop requires cutting initiatives and/or people in order to focus the fire power in a concentrated area with higher return potential. But a lot of teams don't do this. They try to keep all the plates spinning in the air while also fixing whatever issues created the flat line growth in the first place. It feels like you are using all your energy just to maintain and stay afloat. This is a losing strategy. You need to cut some weight in order to move forward.
"What do we need to do now, to have +50% YoY growth in 5 years?"
That was the question the HubSpot exec team was asking that led to hiring me in late 2013 (about a year before the IPO). They were playing the loop forward. At the time, what they realized is that it was unlikely they would be able to produce that growth with just the inbound marketing product line. What they concluded was:
They needed to create new product lines.
Those product lines would take years to build to a point they were contributing meaningful revenue.
It would probably take multiple bets to find one that works. That included multiple product bets, but also a bet on a new growth motion.
I was one of many hires to help create the new product lines like the HubSpot CRM and the HubSpot Sales tools, as well as transition the growth model from marketing led to product led. It took the team multiple bets to get those successes. But I'd say it worked:
Related Posts: Substack's Core Growth Loop, Why Focus Wins
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