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Why referrals must outpace churn for compounding software growth
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Key takeaways
- A certain percentage of customers will churn, but a greater percentage of people will come in via referral.
- The alternative scenario is you just don't lose people.
Chapters
Full transcript
Locally archived YouTube transcript with timecodes. Speakers are assigned heuristically and may be corrected editorially.
0:00We do 400,000 revenue a year. We teach people how to like list books on Amazon. We're selling the software. We want to grow the software company. What do you think my constraint is? >> Might be expectations. Like a lot of software takes a very long time to get right. So, typically for software, you want it to grow organically on its own in a compounding manner. It grows by X% per month just off word of mouth. You want a resting growth rate. Once you have a resting growth rate, then you can add gas to it. There's two ways that you can grow software. A certain percentage of customers will churn, but a greater percentage of people will come in via referral. If you have that, you can still have high churn, but still have compounding growth because more people refer than churn.
0:35The alternative scenario is you just don't lose people. If you lose some, the people you keep spend more money with you. Spending more money on marketing is completely irrelevant if they're all going to fall out the other side anyways. You just have to have more referrals than churn. So, you have net growth that compounds without advertising.