For many, being a founder is the first time they've had to think about product strategy.
Here's how I think about it.
All products can be broken down into growth, activation, retention and monetization.
- Growth – Are more and more people using your product? It's an indicator of whether there's a lot of people who want what you're building.
- Activation – What % of users have actually tried the product? A person might have signed up for Grab but hasn't tried Grab unless they've taken a ride. It's an indicator of how effective your onboarding experience is.
- Retention – What % of users still use the product after an extended period of time? An indicator of whether people like or find your product useful.
- Monetization – How much profit can be generated by the product? An indicator of whether you can build a business around the product.
If more and more people (growth) are trying your product (activation), continually using it (retention) and you can generate profit (monetization) then you're onto something. Your job as a founder is to work on the pieces so this becomes true.
A few things to keep in mind.
- Interconnected System – Products are an interconnected system composed of these 4 pieces. The performance of each piece impacts the performance of the others.
- Higher Activation → Higher Retention – It's impossible to retain users who haven't been activated. Therefore by improving activation you often see an increase in retention.
- Higher Retention → Faster Growth – This happens for 2 reasons. First, if you're losing more users then you're gaining, your active user base is shrinking. Second, if retention is high then people like your product and are more likely to tell others.
- Faster Growth → Lower Retention – Often to grow faster, you target a new user segment that you might not understand as well or use your product differently. They might not like your product as much (it was originally designed for a different segment) so retention drops.
Your product strategy starts by stack ranking how important each is to the current state of your product. Is it more important to work on retention or monetization right now? This is my general rule of thumb.
- Early Stage Startups – Retention > Activation > Growth >> Monetization. Focus on building something people want. That means working on retention and activation.
- Seed Stage Startups – Growth > Retention > Activation > Monetization. Retention and activation should be high. Now focus on building something a LOT of people want.
- Later Stage Startups – Monetization > Growth > Retention > Activation. Growth, retention and activation should be high. Now focus on building a business.
Think about the progression as prerequisites. If high retention and activation, then work on growth. If high retention, activation, growth then work on monetization. If at any point one dips, go back and work on it before progressing.
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