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What is Cannibalistic Growth? What are the characteristics?
What happens when Growth Eats Growth?
When Growth eats Growth
As you grow more and more (especially by buying growth) and add new users, a bunch of things happens -
1. Paid acquisition channels become expensive over time. This happens because now you are expanding your Geo. You are moving beyond power users, who may not convert at all or as fast as power users.
2. Growth & Gravity - Eventually every channel becomes flat or comes down. Now, you need to pay more to buy the same growth. You are burning more fuel to achieve the escape velocity.
3. ROI < 1 on ad spends (-ve ROAS). No re-investing loop.
4. Worst case scenario will look like this - Expansive acquisition (High CAC) → Low engagement and frequency as your acquisition is diluting (Beyond Power users) → Churn increases → your LTV cohort is shrinking (Low CAC: LTV or High payback period)→ thus Margins are shrinking → High burn rate + Low cash to burn for new acquisition → Negative growth kicks in. For the lack of a better word, basically, you are dying. Your own growth is eating you away.
5. In this scenario you must find ways to increase your LTV otherwise your contribution margin will start shrinking. To increase LTV - Find the new customer segment or find the different problems of the same customer segment. Basically either increase % conversion or increase AOV. This needs to happen, so you can re-invest the cash for a quality acquisition.
6. The Law of large numbers kicks in at this point. This simply means - Expansion results in a declining growth rate. So growth itself halts growth.
7. You have a Non-flattening retention curve and still spending on acquisition.
8. You have not defined/not tracking guardrail metrics. This happens when one metric up causing another down. Also, put a system to track the false positives.
9. The growth team slowing itself. Heavy on ideas and light on execution. Speed in random directions doesn't help. Growth teams are about Precision & Velocity.
10. Gauge the non-discounted demand/ un-incentivized demand of your product. Find the % distribution of discounted and non-discounted demand. If rewards expectations by users in your referral program are high, then you need to check the ROI from this channel and bet on it carefully.
11. High % of Un-scalable growth ideas in your experiment pipeline - short-term growth ideas. You are not able to find big bets that can give you 10X growth.
12. Triggering Negative network effect caused by bad experience/ negative referral / negative word of mouth.
One needs to be cautious when scaling up. The CAC should either go down or remain flat. There are probably 100 more reasons, causes, and characteristics of Cannibalistic Growth. Know any? Pls, put in the comment.