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Engagement The Fuel Powering Enduring, Billion Dollar Businesses
Sarah Tavel
How do you build an enduring, $1B+ company?
The Big Question
At Greylock, we obsess over building enduring, multi-billion dollar businesses.
There are only five publicly traded tech companies created since 2000 that are now worth more than $10B.
Greylock backed four of them.
$10 Billion
4 5:
2011 Co-led Series A in Pinterest when it was 5 employees
2015 Joined as one of Pinterest’s first PMs
Led product for Discovery team at Pinterest
About Me
2012 Joined Greylock investment team. Pinterest reaches 100M+ MAU.
At the core, it comes down to understanding engagement.
Level 3 As users engage, they create virtuous loops in the product.
Level 1
Growing engaged users
Retaining users
Self-perpetuating
Tavel’s Hierarchy of Engagement
Focus on growing users completing the core action.
Level 2 Product should get better the more it’s used. Users have more to lose by leaving the product.
The Goal $1B+
BusinessAn enduring, multi-billion dollar company.
Level 3 As users engage, they create virtuous loops in the product.
Level 1
Growing engaged users
Retaining Users
Self-Perpetuating
Level 1: Growing Engaged Users
Focus on growing users completing the core action.
Level 2 Product should get better the more it’s used. Users have more to lose by leaving the product.
The Goal $1B+
CompanyAn enduring, multi-billion dollar company.
Trope in Silicon Valley has focused on growth and “growth hacking”
Source: Google Trends
A lot of companies have growth early on..iP
hone
Dow
nloa
ds
Source: AppAnnie
But growth comes in different forms.
What matters is not growth of users. It’s growth of users completing the core action.
Core Actions
Pinning
Snapping
Tweeting
Uploading a video
Growing users without growing users completing the core action is the empty calories of growth. It feels good, but it’s not good for you.
Level 3 As users engage, they create virtuous loops in the product.
Level 1
Growing engaged users
Retaining users
Self-perpetuating
Level 2: Retaining users
Focus on growing users completing core action.
Level 2 Product should get better the more it’s used. Users have more to lose by leaving the product.
The Goal $1B+
CompanyAn enduring, multi-billion dollar company.
So, we’ve got engaged users.
That’s great. Now the question is whether the users will stick.
Retention Matters
Company A: 5M new users per month, 80% monthly retention
Company B: 2.5M new users per month, 95% monthly retention
After 6 Months:
Company A: 5M new users per month, 80% monthly retention
Company B: 2.5M new users per month, 95% monthly retention
After 3 Years:
Company A = 25M users Company B = 42M users
Company A: 5M new users per month, 80% monthly retention
Company B: 2.5M new users per month, 95% monthly retention
Create accruing benefits as a user engages, and mounting losses if the user leaves the product.
How do you build your product to retain users?
Accruing Benefits
As a consumer adds data to the product, either explicitly or implicitly, the company uses this data to improve the experience for the user.
“The more I use the product, the better it gets.”
Mounting Loss The longer you stay with the product, the more it
becomes a product you depend on, part of your identity, or a place where you’ve accrued value of
some sort.
“The more I use the product, the more I’d have to lose if I left the product.”
• The more notes you add to Evernote, the more value you get and the harder it is to leave.
• Evernote’s freemium model is like a drug dealer offering a little “taste” to hook users.
On the other hand.. • A lot of anonymity apps look good for
Level 1 but fail for Level 2.
• Twitter has anonymity if you create a profile under a fake name. But because identity is persistent, the app has:
Accruing benefit: new follows/followers
Mounting loss: your investment in your identity such as your follow graph
Level 3 As users engage, they create virtuous loops in the product.
Level 1
Growing engaged users
Retaining Users
Self-perpetuating
Level 3: Self-perpetuating
Focus on growing users completing core action.
Level 2 Product should get better the more it’s used. Users have more to lose by leaving the product.
The Goal $1B+
CompanyAn enduring, multi-billion dollar company.
Okay, so we now have a growing base of engaged users, and a sticky product.
Now the question is whether the engagement of existing users creates virtuous loops in the product.
The strongest virtuous loop is a network effect.
More users pinMore content
Better discovery experience
But there are many other virtuous loops. For example:
User repinsNotifies
existing user
Re-engages user
User discovers pin
Sends pin to friend
Acquires user
Growth Re-engagement
Virtuous loops are really hard to create — most products don’t have them (though many try).
• As strong as Evernote is on Level 1 and Level 2, it falls short on Level 3.
• Evernote’s product is much more about user value than creating virtuous loops.
Successful date
More engaged user
Match with someone
• Tinder has some virtuous loops. E.g, a match sends a notification to a user, which re-engages them.
• But the most important one — a successful date, is an off-ramp, not an engagement accelerator.
Virtuous loops propel a company forward.
Level 3 As users engage, they create virtuous loops in the product.
Level 1
Growing engaged users
Retaining users
Self-perpetuating
Tavel’s Hierarchy of Engagement
Focus on growing users completing the core action.
Level 2 Product should get better the more it’s used. Users have more to lose by leaving the product.
The Goal $1B+
BusinessAn enduring, multi-billion dollar company.
Engagement is the fuel powering most of the enduring, $1B+ non-transactional consumer companies.
Thank you.
www.greylock.com
@GreylockVC
medium.com/@GreylockVC
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@sarahtavel
Sarah Tavel
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