Suhail Doshi describes the Shark Fin Effect: startups that grow fast through viral acquisition but ignore retention crash hard. A 7% monthly churn compounds to 58% annual loss. He's watched it kill 15 startups and says B2B founders must model growth with churn constant and run experiments to fix it.
Chapters
Are people coming back to me? This is probably one of the metrics that is greatly ignored by most startups, and it's often the reason why. I've seen companies, even with millions of users, actually die. I've seen probably 15 different companies that grew virally and then just died. The company died. And I want to demonstrate this in a graph. I called this the shark fin effect. And what happens is you're slaving away and you find a way to go viral, right? Maybe you're going super viral on Facebook or Instagram or something and you're like, wow, I have struck gold. I'm acquiring tons of users. My life is awesome. I'm going to be a billionaire. It's great, right? And the problem with this is that if it happens too early, but you didn't quite think about retention and becomes really problematic. So basically what happens is the app goes viral and then eventually the rate at which you're losing users becomes high enough that you can't acquire the new ones. It's really important to really think through retention. So making sure that you're tracking whether a brand new user, someone who just signed up, what percentage of those users will come back like a week later or 30 days later, it's really important to track a longer period of time because a week later is just not a harsh enough metric. And it's important to see how fast you'll end up losing users because you'll have to figure out a way to find new ones. And that becomes really, really hard at some point if the number of users you have starts to become quite high. I want to give you a slight story. If you have revenue churn and your revenue churn is say 7% per month, you might think, awesome, I'm keeping 93% of these dollars every single month. This is awesome. I'm doing really, really, really well. The problem is it's 7% monthly churn. And if you extrapolate that out over 12 months, you're actually losing 58% of your revenue in a year. It's really harsh. For some reason, this thing is not mathematically intuitive to most people. I don't know why. It wasn't even mathematically intuitive to me early on. And if you think about it, you're spending all of this energy with marketing and improving the landing page and improving the getting starting flow, and you're doing all of that. And if you don't have retention, if you're losing that 7% every single month, you have to somehow make up for that 58% that you lost going into the new year. And if you start thinking about it, you're like, wow, we're making a million dollars and we're losing $580,000 and we're starting the year now. You have to do that and grow on top of that. And we. And once your base of revenue gets really high, it becomes really hard to keep up. And you kind of have this really long arc of a shark fin effect, basically. So it's really important to look at your monthly churn and this will be the single cause of death. But the problem is it's the worst kind of death. It's really flat growth. But it occurs eventually in four or five years if you're able to acquire users. And I mention this not only because I talked to some founders about this, but but this is also something that really hurt us in the early stages of Mixpanel. And we really had to figure out a way to fix this. And there's all kinds of ways. You can use product, you can use pricing, there's all kinds of ways to experiment with this. But this thing probably gave me the greatest number of nightmares and lack of sleep, I think, ever. So I really want to stress that on all B2B companies here. Really think through this number and think about almost graph like, okay, what would our rate of growth be if churn stayed constant? It's really important.
