Do you know your Business’s Limits?

Eric Ries is an American entrepreneur and blogger who has developed, in his book The Lean Startup, the explanation of three business growth drivers. 

Understanding these growth models allows us to understand how companies grow and at the same time understand what are the limits to that growth.

In today's article, we're going to talk about what these business growth drivers developed by Eric Ries are, so that we can explain the limitations of a company in terms of this growth. 

We are sure you will be interested. Join us. 

The three growth drivers according to Eric Ries 

For any company, it is essential to understand which are the key indicators used to measure its growth. However, there is such a wide range of indicators that it is often the case that the analyses carried out are not sufficient or do not provide the necessary information to take action. 

The business growth drivers scheme proposed by Eric Ries helps to keep the focus on the metrics that are really relevant. According to this author, there are three growth drivers: paid, viral and sticky. Let's see what each one is about: 

1. Paid 

This is the growth driver that is most used by digital startups today. It involves investing in marketing (either traditional or digital), acquiring new customers, getting a profit margin for each of those customers we have acquired, and then reinvesting that margin back into marketing. This engine works very well for those business models that manage to have a low acquisition cost and a very high gross margin. This generates significant cash flow for reinvestment and growth is very accelerated.

2. Viral

The viral growth driver is produced as a side effect of the use of a certain product. In other words, the famous word of mouth. The speed of growth is determined by a single mathematical term called the viral coefficient. This indicator is measured by analyzing how many new customers each customer we acquire brings us. In the digital age, we can create campaigns of referrals with benefits that help boost this growth driver. 

3. Sticky

This growth driver is the one that attempts to attract and retain consumers for the long term. The most important indicator to pay attention to is the customer attrition rate. If the acquisition of new customers exceeds the attrition rate the business is on the right track. This driver is the most common in recurring business models. 

Well, now that we know what the different drivers of business growth are, let's analyze what the limitations are for a company to continue growing. 

What are the limits to business growth?

Any of these growth drivers has limitations. Otherwise, any company could be growing and billing to infinity. Let's analyze what these limitations may be in each case. 

1. Limitations in the PAID growth driver

There are two key factors that can bring limitations to a company operating under this growth driver. On the one hand the gross margin and on the other hand the time in which the company recovers the money it invests. This will depend very much on the business model.  Businesses that have a very small profit margin per sale or that take a long time to recover the money they invest in getting each new customer, as may be the case of a SAAS for example, may find this growth driver a bit limited and will probably need the support of other strategies. However, even those companies that grow a lot with this growth driver also reach a point where they hit a ceiling. A common limitation is channel or even market saturation. At this point, it is necessary to look for new channels or to think of strategies to enter new markets.

2. Limitations in the VIRAL growth driver 

The limitations of this growth driver is that it depends on people's recommendation and this is difficult to measure and therefore to optimize. You can run referral campaigns and in fact many companies have done so successfully, but at a certain point, to make a leap, the investment must be higher and with a growth driver of this kind it is difficult to be certain how much you can count on month by month to reinvest again. 

3. Limitations in the STICKY growth driver

The limitations of the companies that operate under this growth driver are precisely the amount of time it takes them to recover the amount of money they have invested to attract customers and the need to be constantly adding value to their service so that those customers do not drop out a few months after having contracted the service. 

Limitations that companies can control

Of course, there are many, many more factors that can limit the growth of a company. Some of these factors can be controlled by companies and optimized, and others cannot because they do not depend on them, such as changes in a country's economy or climatic catastrophes. In closing, we will make a list of some of the most common limitations of companies in which it is possible to work and look for strategies that will allow them to continue growing: 

• Limitations in market size. 

• Saturation of sales channels. 

• Small margin to invest in acquisition marketing. 

• Logistics problems and poor customer service which make CLTV levels very low.

• Very slow payback. That is, they need a long time to recover the investment they have made in customer acquisition. 

• Using organic channels as the only growth driver.

These are just some of the limitations of business growth. If you have identified with any of what we have talked about in this article, do not hesitate to continue researching our blog. We have a lot of content for you to analyze and put into practice in your business. 

Can you think of any other business growth limitation? We'll read you in the comments!