A Few of My Favorite Acquisition Loops - Invites
A walkthrough of the Invite Loop and the nuances that make it a viral loop, a content loop and a double loop
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This is a follow up post to the template loop and the profile loop. In each of these I break down a very specific loop type including why it works, who uses it successfully, when to implement your own, what the limitations are and how to measure it!
Need a quick overview on Growth Loops? Check it out here.
Oh do I have a great one for you this week - the invite loop. Is it an acquisition loop? Is it a retention loop? Dare I say it… could it be a monetization loop?
The invite loop is probably one of the most ubiquitous loops out there, but its success can vary widely depending on your business. Remember that not every loop will work the same at every company (a story on that later in this newsletter).
What It Is and Why It Works
The invite loop can take on many forms and operates across acquisition, retention and monetization.
Invites as a Viral Loop
The most obvious form of the “invite loop” is as a viral loop. In the viral loop a user is sharing the platform with another user. You can think of inviting a friend to a social network (a social viral loop), sharing Lyft with a colleague in exchange for a financial reward in the form of ride credit (an incentivized viral loop), or inviting a colleague into Slack (an organic viral loop).
Invites as a Content Loop
A less obvious and increasingly more common variation of this is as a User Generated / User Distributed content loop. This is much more common in multiplayer B2B products where collaboration on a particular document, board, or spreadsheet is core to the usefulness of the product. This is companies like Notion, Coda, Miro, Google Docs, or even sharing a file with someone in Dropbox.
Invites as a Retention Loop
When a user in the above content loop shares an invite to a piece of content with someone who already has an account in the product then this loop becomes a retention driver. If I share a Notion document with a collaborator who has used Notion before then the simple act of inviting that person into my document triggers a series of notifications that acts as a drive of engagement. Maybe you haven’t logged into Notion in awhile and now, to collaborate with me, you do!
Invites as a Monetization Loop!??!
But wait, it gets better. If collaboration is both core to the product and its monetization model—like in the case of most of the tools above where the number of collaborators is limited—then inviting more people into the product to collaborate with you also drives increased monetization of the product.
There are a few reasons that this works particularly well:
It taps into core psychological principles
It is central to the use case
It has a built-in branching factor
It acts as a double, or triple, loop
Core Psychological Principles
Two of the principles I mentioned above are social recognition and financial benefit. With social recognition the act of inviting someone signals that you are “in the know” about a product or service. When you invite someone new you can bask in the glow of your insider knowledge.
Financial benefit is fairly self-explanatory, but a lot less effective now. People like to get stuff. The double-sided referral exploded in popularity because you got something and I got something (money, credits, storage, stock trades, reduced commission, etc.) This still works somewhat well but the novelty of getting “stuff” has worn off and the death of ZIRP means companies don’t have as much they can easily give away. I have a story on the financial incentive and the psychology of money in my “risks and limitations” section at the end.
Central to the Use Case
This is especially true in Network Effects businesses, but also multiplayer/collaboration businesses where the product’s value increases as more users join. Slack and Discord, Facebook, Notion, WhatsApp, Uber and Lyft, PayPal, Zoom, and hundreds more are all significantly less valuable (in many cases, useless) without inviting more people to the platform.
Built in Branching Factor
The branching factor is the average number of new users that each existing user successfully invites to the platform. Most companies allow people to send multiple invites and because of the psychological principles and the use cases above people are likely to send a lot of invites. Of course, there is a downside to this in that it can cheapen the invite if people abuse it and send too many. Don’t let that happen.
Single, Double or Triple Loops… oh my!
What’s better than a single or double loop? A triple loop. You can see it in action with Notion. The invite loop facilitates both acquisition and reminders via collaboration invites and the product requires you to pay for more collaborators (see below), which you steadily build through using the product to… invite people to collaborate! What a magical system.
When to Leverage the Invite Loop
I’ve already outlined most of the use cases when invites make a lot of sense: network effects products, collaboration products, and products where a creative incentive could motivate sharing. The double-sided referral invite loop has run its course I’m afraid. You know that these programs jumped the shark right around the time that the SaaS referral platforms appeared.
There have been some more creative uses of invites – leveraged to unlock access to new features, like at Robinhood or jump the waitlist like Clubhouse. But none of this is new—nearly 20 years ago (wow!) Gmail launched with an invite-only loop which simultaneously created buzz, a fear of missing out, and an air of exclusivity. But going back even further (before the advent of software) you have invite-only country clubs appearing in the late 1800’s. What’s old is new again!
So if you’re a network effects or collaboration product you should absolutely be leveraging invites.
Let’s instead talk about when you shouldn’t.
Risks and Limitations
Limitations
When I first got to WyzAnt (the tutoring marketplace I mentioned in the profile loop newsletter) it was still early in the double-sided referral invite days. I thought, surely a marketplace connecting students and tutors would benefit from an invite loop! A few years prior I had launched and scaled Lyft’s very successful invite loop which accounted for nearly half of the user acquisition. Why wouldn’t a parent share WyzAnt with another parent if it meant they could get a discount on a future tutoring session?
Remember above when I said that not every loop will work the same at every company? Yep, this is that story. The invite loop flopped big time at WyzAnt.
The reason is one of the first large limitations of the invite loop: user psychology. Just as psychological principles around the rewards of social status and financial gain can help the invite loop so too can social stigma harm it. In this case there is a stigma in the U.S. market attached to tutoring. In other, high-achieving cultures tutoring is a normal part of a student’s life, but in the U.S. proactively sharing that your kid uses a tutor would be admitting that they are a dummy. So no matter how finely optimized the invite experience was, few people used it.
There are plenty of products that people love but don’t want to proactively share. Know if you have this type of product by talking to your users.
A second limitation of the invite loop is incentive structure. In the earlier days of Dropbox when they launched their incentivized invite program one of the amazing aspects was that it rewarded people in additional storage. And that storage, at the time, was meaningful to the user but inconsequential to Dropbox. In other words, users placed an outsized value on that additional 250mb of storage (I said it was earlier days, remember).
What if they don’t understand how to value the product?
In the case of our first version of Lyft’s referral program this was exactly what we encountered. When Lyft was in its infancy we introduced a dollar-value incentive structure for invites. We’d give people $25 or even $50 for a passenger referral. But there’s a problem with that. While $50 sounds really nice now when few people had heard of Lyft they didn’t understand what the value of that was on the platform. Is a single ride $50? Is that 5 rides? How valuable is a $50 credit?
We switched from $-value to giving away a “free ride” with a $-value cap. This transformed the program immediately. People could place a value on a “free ride” in a way that they couldn’t figure out the value of $50 on the Lyft platform.
Pay close attention to the incentive structure and how well people understand the value.
A final limitation of the invite loop is the maximum scope of the loop. Invites are amazing in that they can help you acquire new users very, very quickly. But the downside is that people have finite networks (for collaboration tools these are even more finite) and so you can exhaust the efficacy of your user’s networks quite quickly causing the loop to collapse.
Risks
One major risk to the invite loop is platform risk. Enough growth practitioners operate in a gray area that I think this is something to call out. Platforms can and do shut down invite programs that violate the sanctity of the platform. Everytime someone tried to exploit the Facebook social graph it was only a matter of time before Facebook shut it down. If a platform is big enough to exploit you had better believe they are big enough to cut you off.
A second risk is legal risk. One of my all time favorite examples of this is LinkedIn. There were class-action lawsuits brought against LinkedIn around their practices of importing emails, auto-sending follow-ups, and text messaging uploaded contacts. And while getting sued or receiving a cease and desist may be a badge of honor for many growth practitioners and entrepreneurs I must caution you against it!
The third risk of the invite loop is retention risk. Because of the loop speed (i.e. how quickly the invite loop can spin) you can bring in a large number of new users who either 1) aren’t well-suited for your platform or 2) aren’t that invested in it. When this happens your huge spike in acquisition very quickly leads to a 100% churn. Make sure that you’re throttling invites appropriately and that you’ve built a solid onboarding experience to maximize retention. As with many failed startups: nothing kills a bad product faster than a great growth lever.
Measuring the Invite Loop
To effectively measure the Invite loop, similar to both the Profile loop and the Template loop, you need to break it down into the steps of the loop and the actions/formulas that connect each step.
In this case let’s look at both the invite loop as an organic or incentivized viral loop and a user generated / user distributed content loop.
Viral
New user signs up for your platform
New user activates
User exposed to invite experience
User invites
Sends n number of invites (branching factor)
Receive invite
Act on Invite
User Generated / User Distributed Content
New user signs up
New user activates
Those active users are added to the existing user pool to arrive at total active users
Those active users create new pieces of content
Invites collaborator(s) (branching factor)
Receives invite
Acts on invite
Want to see this in action? Leverage this template.
Wrapping It All Up
The invite loop is a powerful loop for many network effects and collaboration companies. Companies like FB, LinkedIn, Lyft, and Notion have leveraged this loop to great success.
In order for this loop to work for your business you’ll need to make sure that users benefit from inviting other users, the psychology of your user base aligns with the outward sharing of your product, incentives are aligned appropriately, and you mitigate the rapid rise of this loop with an emphasis on retaining high-quality users.
Do you have an invite loop you’re particularly proud of? Reply to this email and tell me about it; I read every reply.