It’s the first concept they teach you in introductory finance. Compound interest is a simple, yet powerful idea at the heart of all modern financial markets.
Albert Einstein once called compound interest the eighth wonder of the world, and man’s greatest invention.
Smart money managers know that they can leverage compound interest to grow their investments and beat inflation. The longer the hold period, the higher the interest rate, and the more frequent the compounding, the higher the returns will be. Exponentially higher.
What does this have to do with user growth?
Think of user growth the same way you would think of money growth. The initial investment is your initial user base, and the interest rate is your referral system. If 1 out of 10 users refers another user once per year, your effective interest rate is 10%, compounding annually.
Acquiring users before you build in compound growth is the same as making money and shoving it under your mattress. It’s there for you in the future, but it’s slowly losing value to inflation instead of gaining value through compounding.
The longer you wait to build growth into your product, the longer that money sits under the mattress, and the more growth you’ve lost out on. Forever
I frequently join projects for clients that go something like this:
“Oh, you’re the growth guy. Great! We have this amazing product (or this amazing website), and we need you drive us a ton of traffic, so we’ll grow exponentially and make a bazillion dollars.”
“Yes. I say. I can drive you a lot of traffic that will lead to many purchases, signups, subscriptions or whatever you’re after, but what are you doing about compounding that growth?”
Every growth hacker knows that acquisition is just one piece of the puzzle, but for many, it’s the largest piece. “Lets focus on getting users first, and then deal with that other stuff later,” They say.
But the lessons of money management teach us that the earlier you can start compounding your money, the better.
A strong growth engine starts with compound growth in mind.
So start early, and invest in:
- Customer success
Perhaps above all else, customer success. Word-of-mouth is the most powerful compounding of all.
You wouldn’t put your money under your mattress, so why would you do the same to your users?
I’m applying these methods to growing uptime monitoring with Happy Apps. Check it out.