Stacking user acquisition loops like SurveyMonkey
Stacking user acquisition loops on top of each other is a great approach to keep growth going after the first phase of growth. In this article, I explain how to do it.
The key to growth is not linear but exponential growth through compounding user acquisition with high retention. That can only come from a product with strong Product/Market Fit.
Earlier customers are easier to acquire and retain because they’re (by definition) early adopters and more prone to use your product. While later users are harder to acquire, acquisition strategies become more efficient over time. So, we’re dealing with two opposing forces. That taken into account, organic growth always slows down at some point and new levers have to be found. One way to keep growing is to find more suitable user acquisition loops and connect them to the already existing ones, which is what this article is about.
A good example of that strategy is SurveyMonkey. The freemium survey company, founded in 1999, recently went public and has 60 million signed up users, 16 million active ones and 600,000 paying ones.
Decent revenue growth, generous employee stock compensation, and high administrative costs all describe SurveyMonkey, the pioneering “freemium” software company that supplies surveys and analytical tools to individuals and businesses.
It’s a company with strong brand, long history, and a showcase for many Growth best practices. But SurveyMonkey’s history also comes with a lot of drama: the death of its CEO [name?] and husband of Sherryl Sandberg and the struggles to compete with younger startups.
SurveyMonkey shares fell 11 percent on Monday after one of the survey software vendor’s major competitors, Qualtrics, disclosed in its IPO filing that it's the bigger of the two companies and is growing much faster than its rival.
Qualtrics said in its IPOfilingon Friday that revenue for the first half of 2018 jumped 41.7 percent to $184.2 million. Over that same stretch, SurveyMonkey reported 14 percent growth to $121. 2 million in sales. Qualtrics also had a narrower loss than SurveyMonkey and even turned a profit last year.
On top of that, SurveyMonkey is losing money and has high debt, which seems to be one of the main motivations for the IPO:
Only in Silicon Valley would a highly-indebted, 19-year-old company that loses oodles of money attempt to go public on the strength of a less-than stellar track record.But for the debt part, it’s a normal story. Decent revenue growth, generous employee stock compensation, and high administrative costs all describe SurveyMonkey, the pioneering “freemium” software company that supplies surveys and analytical tools to individuals and businesses. But SurveyMonkey also sports a balance sheet that is long on debt—$317 million, about $100 million more than it had in revenue last year—and short on cash, $43 million at last count. (It raised debt years ago to delay its IPO and for growth.) Because of the service on that debt, SurveyMonkey loses money, $24 million last year, and it wouldn’t have made much if it didn’t have the interest expense. (It plans to use the IPO money to pay down debt.)
All that being said, there’s still a lot we can learn from SurveyMonkey in terms of Growth. In this article, I want to focus on user acquisition loops and how SurveyMonkey stacked them on top of each other over time.
The art of creating user acquisition loops
There are several ways to create user-acquisition loops: new product features, integrations, partnerships, referrals, and scalable channels like SEO or ads. They depend on the product, market, and business model and are different to funnels because they self-compound. The concept of funnels and channels works well for linear, but not exponential growth.
Organic Viral Loops are the classic example: a user signs up for a product, invites other users, which then again also invite more users, etc.
Sign-up -> Other users are invited -> Other users sign-up ...
There are different types of loops, like Casual Contact Loops (concept by Reforge) for UBER: people sign up for UBER because they see branded cars on the streets, get curious, have a use case in which they need a ride and sign up.
Sign-up -> increased number of rides -> rising awareness -> more sign-ups …
Loops come out of the product, they cannot be chosen at random.. In the early stage of a company, you want to focus on getting one loop right. Later on, you can stack others on top to drive growth. SurveyMonkey’s product has an inherently virality loop, similar to products like Jira or Slack, which makes things much easier. People receiving a survey through SurveyMonkey get exposure to the product. They’re often users first and then senders.
Survey sent out -> Receivers get to know SurveyMonkey -> Increased brand awareness -> users encounter a use-case for surveys and remember SurveyMonkey -> More sign-ups -> More surveys go out ...
In this article, I want to introduce two loops that are less often talked about: feature and partnership loops.
New feature / product loops
New features or products can drive compounding growth. SurveyMonkey, for example, started as simple survey tool and nowadays provides features for all sorts of surveys, quizzes, market research tools, and forms for SMBs and enterprises. It also added specialized products for specific purposes like NPS or internal employee surveys to its portfolio. New features open the door to new customer segments and increase retention.
New feature/product -> increase product value -> new market segments -> more sign-ups -> increased revenue -> more features/products …
More features aren’t always better, there is definitely a limit after which they only add to feature bloat and actually decrease the value of a product. But if they cover more complementary use-cases, in this case getting feedback, the value usually increases. That increased value leads to more brand awareness, which has a positive impact on all sorts of channels and the sign-up rate. This in return allows you to make more revenue, which you can invest in building out more product features or completely new products.
I highly suggest testing new features before rolling them out and keeping the onboarding process for new users focused on Core Product Value. A good measurement is retention of new cohorts and sign-ups. If both are going up you know you’re on the right track. Of course, you also want to segment product usage for features to get an understand who uses which feature when.
Another Growth channel is integrations because they provide exposure through other products and increase the value of the product itself. We’re talking about several kinds of integrations: classic product integrations like being able to add Jira tickets in Slack, for example.
SurveyMonkey integrates with all sorts of apps, from Slack to Hubspot, Marketo, and Tableau. The increased awareness and exposure coming from that leads to higher demand for other products to integrate with yours.
Integration -> more exposure -> increased value -> higher demand for other products to integrate with yours -> more partnerships for integrations …
Then, there’s also the integration of product partnerships, for example shipping a Samsung phone with Android and/or a certain app by default. The same goes for Google being the standard search engine for Firefox (or other browser), and all kinds of other use-cases. Such partnerships can be decisive for Growth because they leverage the efforts of another company. At the same time, especially early stage startups sometimes give too much away in partnerships, which can be quite dangerous.
The question for SurveyMonkey is whether it can keep stacking loops on top of what it currently has to find new ways to grow. There are many linear ways to grow: International expansion or adding more channels like PPC, SEO or Email, for example. But the goal should always be to build loops.
Growth can also come from existing users. SurveyMonkey has only 4% of users paying for the service, so there should be much more room for growth, even though SurveyMonkey already increased prices in the past:
SVMK’s user growth has been minimal over the past year, but it has grown revenue by raising prices on existing users. The company increased its average revenue per user (ARPU) from $351 in the first six months of 2017 to $400 in the first six months of 2018, a 14% increase.
Prices increases are always tricky. On one hand, there’s often a certain elasticity, meaning for many users the price can be higher than assumed (look at the iPhone X, for example). On the other hand, overstepping price limits can close certain market segments off.
It will be exciting to see how SurveyMonkey keeps growing and fends off competitors in the future. To me, the key lies in user acquisition loops.