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Three components of a successful startup
Expert Where Behavior, Business & The Brain Meet
You cannot test your way out of a broken product.
Make the hook model part of your product DNA.
Successful startups need: growth, engagement, & monetization–each is necessary but not sufficient.
Lesson: Hooked with Nir Eyal
Step #5 Engagement: Three components of a successful startup
There’s no science around that. I mean most of the time startups are struggling with engagement. They’re struggling to figure out how do they find ways to get people to engage.
What’s tragic to me is that startups will construct their product without considering the “hook” model in the first place. They’ll have a great idea and they’ll go headfirst into building stuff without a hook. And so it doesn’t matter how much A/B testing you do if you don’t have a hook. You can’t test your way out of a broken product. That you fundamentally have to have these four basic steps in order to create a habit-forming product.
Now, disclaimer here. Just because you have a hook doesn’t mean you’re going to be the next Facebook. There are three components that are necessary for any successful product: growth, engagement, and monetization. Every new product needs these three things: growth, engagement, and monetization. What I work on is engagement. That’s my specialty, engagement, and particularly habit-forming products. Just because you have an engaging product but has no growth and no way to monetize, means you’ve got diddly.
So, you have to have all three. Each is necessary but not sufficient. Just as if we have lots of growth but no engagement, we know what happens there. Those are leaky bucket businesses. We’ve seen many of those, these companies that find some new viral channel. They get big but because they have no engagement, they plummet and users leak out the bottom of the business. They turn out. So we have to have all three: growth, engagement, and monetization.
High engagement is a good indicator of product/market fit but then again so is growth. If people are, that can also be a barometer of product/market fit. You know, there’s this debate. Is growth more important? Is engagement more important? I don’t think there’s an either/or. It’s necessary but not sufficient. So if you get too far ahead of growth without engagement, you’re sunk because you’re just churning through users because you’re not retaining anybody if your engagement stinks.
But, the same can be said if you’ve got great engagement, but you’ve only got 10 people. You’ve still got nothing. You’re not going to be a successful product if you don’t figure out a way to grow.
So they’re, the short answer is, they’re both are very important. In fact, and add monetization to the mix. If you don’t have some idea, I’m not saying you need to monetize the first day of your business, but you need to have some kind of theory about how you’re going to monetize.
Now some businesses, monetization becomes their first priority. There are some companies that, that’s from day one. Very capital-intensive businesses require a monetization strategy upfront. Whereas, other businesses can kind of put that on the back burner, knowing when we get there, if we nailed growth and engagement, monetization will fall into place. So they’re all three very important.
If your product doesn’t require unprompted user engagement—and lots of products don’t—you can get users to come back to your product in all sorts of ways. You can have search engine marketing. You can have advertising. You can have a physical storefront. All different kinds of ways to bring users back. So you don’t need habits if that’s how you bring users back to your product. However, if you require unprompted engagement, if your business model requires them to come back on their own, out of habits with little or no conscious thought, then you need these hooks.
And it applies to enterprise as well as consumer products if the product is something that’s adopted ground up. So if you look at GitHub or Salesforce or Stack Overflow, these are enterprise products where the front line use these products and as they use them, then the managers saw, “Hey, wow, this is becoming a big part of our organization. Where do I send the check?”
Those products required habits just as well as these consumer products. And also, enterprise products that are perhaps bought top down but then require people to use every day, they also need these hooks. Not always, because sometimes the product can be mandated and you know, the investment of, “You’re going to lose your job unless you use this product,” can be something that’s coerced onto people you could say. But yeah, if it’s something that people should use on their own, unprompted, then the same rules apply.