Alex Schultz (Facebook VP of Growth) argues that retention is the single most important factor for sustainable growth. He explains how to construct and interpret a retention curve (percent monthly active versus days since acquisition) to assess product–market fit and gives examples from Facebook and startups (Airbnb, Coursera) including a case where the method predicted one-year advertiser value to within 97%.
Chapters
So what do you think matters most for growth? You've had loads of lectures and people have said it over and over. So what do you guys think matters most for growth? Someone give me an answer. Great product. I agree. Great product. What does great product lead to? Customers. Customers. And what do you need those customers to do? Spread the word. Someone said stay on your site. Someone said that. That's it. Retention. Ret. Retention is the single most important thing for growth. Now we have an awesome growth team at Facebook and I'm super proud to work on it. But the truth of the matter is we have a fantastic product, but getting to work on growth at Facebook is a massive privilege because we're promoting something that everyone in the world really wants to use, which is absolutely incredible. If we can get people on and get them ramped up, they stick on Facebook. So many times I've advised multiple startups. My favorite was working with Airbnb, but I've worked with Coursera. I've worked with other ones that haven't done as well as those guys. But the one thing that is true over and over and over again is if you look at this curve, percent monthly active versus number of days from acquisition, if you end up with a retention curve that asymptotes to a line parallel to the x axis, you have a viable business and you have product market fit for some subset of market. But most of the companies that you see fly up who talk about growth, hacking and virality and all of this other stuff, and they try so hard not to swear, but it'll happen. Their retention curve slopes down towards the x axis and in the end intercepts the X axis. Now when I show this chart to most people, they say that's all well and good, you had a million people a day in terms of growth. When you started the growth team at Facebook, or you were at 50 million users, you had a lot of people joining the site. So you had a ton of data to do this. We used the same methodology for our B2B growth, getting people to sign up as self service advertisers. We used this analysis to understand how much growth we were going to have in that market as well. And in that place, when I joined Facebook, the product was three days old and within 90 days of the product launching, we were able to use this technique to be able to figure out what the one year value of an advertiser was. And we predicted it for the first year to 97% of what the number turned out to be. So I think it's Very important to look at your attention curve. And this is how we did it. If you see here, this red line is number of users who have been on your product for a certain number of days. So a bunch of people that should say zero, but a bunch of people will have been on the product. All of your users will have been on at least one day. But if your product's been around a year or whatever, you will have 0 users who've been on it 366 days. Make sense? The curve's sensible, cool. So what you then do is look for all of your users who have been on your product one day. What percentage of them are monthly active? 100% for the first 30 days, obviously, because monthly active they all signed up on one day. But then you look at 31, every single user on their 31st day after registration. What percentage of them were monthly active? 32nd day, 33rd day, 34th day. And that allows you with only something like 10,000 customers or whatever. So to get a real idea of what this curve is going to look like for your product and you're going to be able to tell does it asymptote and it'll get noisy out towards the right hand side, like I'm not using real data. It'll get noisy out towards the right hand side, but you'll be able to get a handle on does this curve flatten out or does it not? If it doesn't flatten out, don't go and do growth tactics, don't go and do virality, don't hire a growth hacker. Focus on getting product market fit. Because in the end, as Sam said at the beginning of this course idea product team execution, if you don't have a great product, there's no point executing well on growing it because it won't grow. Number one problem I've seen inside Facebook for new products, number one problem I've seen for startups I've advised has been they don't actually have product market fit when they think they do.
