Are funnels dead? David McClure’s famous AARRR funnel framework has been the guide book for growth strategies for years — the problem is McClure’s funnel framework is nearly 11 years old!
Are loops and flywheels the new thing? Making the transition from thinking about growth strategies from funnels to loops and flywheels could be the key to drive growth for your business in 2019 and the years to come.
Listen to Brian Balfour, Founder/CEO of Reforge, talk about his experience with growth VP of Growth @ Hubspot. Then we’ll cover his journey along the way to scale his new growth masterclass business. Learn from Brian’s extensive knowledge gained from countless hours studying 100s of SaaS companies.
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In This Episode You’ll Learn:
0:00 — Introduction
1:48 — How Brian helps companies at Reforge
3:24 — Brian’s journey from Hubspot to Reforge
4:42 — Funnels versus loops? Funnels versus flywheels? What’s here to stay?
11:08 —Learn how growth cycles play out at Reforge
14:31 — Where do you think paid traffic plays into startups?
20:00 — Examples of building loops into products
22:58 — Brian’s biggest challenges at Reforge
23:53 — Why is Reforge’s business seasonal?
25:45 — The Salty Six to know Brian better
Full Transcript:
DR: Today I invited a new friend, Brian Balfour, on the show.
He was the VP of Growth at HubSpot for about two years, and then over the last two and a half years, he’s been running a new startup, which he calls Reforge, which basically helps other startups install and implement growth strategies into their company. And Brian is one of the guys that’s studied SaaS, studied growth and studied marketing, and learned how do you actually scale these companies?
Brian comes up over and over and over as the guy to go to. So Brian, thanks so much for joining us on here today. I’m excited to kind of dig in.
BB: Man, thanks for having me.
DR: So I guess kind of the first question, is how would you describe what you are doing at Reforge, and what you’re helping companies with right now?
BB: Reforge is a professional education startup. What we focus on is one of the things — that I think a lot of people talk about in our industry today — is that so many things are changing so quickly. Whether we’re talking about the macro-environment, or you just look at like a product manager or a marketing manager’s role, they’ll be on new projects pretty often. As a result, we’re constantly solving new problems, and we need to get up to speed extremely quickly. But for a lot of this stuff, a lot of the knowledge is still trapped in the heads of a very small group of leading practitioners.
So what we do is we basically un-trap that knowledge and package it in a way for a mid-career professional who can get up to speed extremely quickly on the world’s best practices and strategies. They gain like a whole set of frameworks and tools to problem solve on a lot of the initiatives that they’re working on internally, and as a result, they basically can create impact much more quickly, which impacts the company and their career as well.
So tangibly what this looks like right now is basically a series of eight-week programs, hybrid online and live in-person. You apply, we select, we match you with a bunch of really high-quality peers and access to a network kind of along the way. You know, basically just trying to deliver high impact in a short of a period of time as possible.
DR: Very cool, man. And you’ve been doing it about two and a half years, that’s right?
BB: Yeah, that’s correct. It actually kind of evolved out of my time at HubSpot. Basically, I would sit in these one-on-ones every single week with my team, and they would be asking me about what to do in terms of professional development and advancement, and every time somebody would ask me, I would spend hours trying to research recommendations of what to send them. But I just found pretty much everything out there was like too surface-level, entry-level, or wasn’t applicable to the industry, or kind of what we were doing internally at HubSpot,. So I decided I was gonna create something kind of on the side, and you know, I joined up with Andrew Chen, who was formally at Uber, and now at Andreessen Horowitz, and we kind of just like did this thing on the side and it just did way better than I expected.
And I realized, this isn’t a little problem that some of my team is having at HubSpot, this is actually something that most everybody who is kind of in the middle of their career are thinking about.
So I decided to take the leap and focus upon it a little bit more full-time and here we are, a couple years later.
DR: Very cool man. One thing I wanted to ask you about is funnels versus loops. And I feel like loops are what I’m reading about more, and I’m seeing it’s driving growth for us more and more. I’ve heard you talk about it. I think HubSpot at the recent Inbound, said funnels are dead. You know it’s really the loop and the flywheel that’s here to stay.
DR: What are your thoughts on that? How should startups think about flywheels vs funnels?
BB: Yeah, I mean, I think to be clear, I think our concept and definition of a loop at Reforge and among kind of our community, is kind of different than HubSpot’s. HubSpot kind of came to a semi-similar but different conclusion, like post my time at HubSpot.
We actually never talked about loops while I was there internally. And so Andrew Chen, Casey Winters, Shaun Clowes, and I sat down to really define this framework. And we have a blog post around this on Reforge if you’d like to read more about it.
But the extent of it is that we often look, you know, historically we looked at growth through a funnel most popularized by Dave McClure and the pirate metrics, you know, the AARRR, like acquisition, activation, retention, referral, revenue.
But when you look at the fastest growing companies, and how they’ve actually grown, and why they grow as fast as they can. What you see is a totally different dynamic. And rather than growth taking the shape, the thing that is powering growth — rather than taking a shape of sort of this linear funnel where it has a very defined start and end point — actually takes the form of a loop, in the sense that whatever this loop does or generates it can be reinvested back into the first step of the loop. What that does is create more of a compound interest effect, and that’s part of what’s fueling this growth over such a long period of time. And so, there are three different things that can be like invested back, that a loop generates and be invested back into a loop.
The first is, of course, users. A loop can produce users and those can be reinvested back into the loop to generate more users.
Those are broadly defined as viral loops. A loop can produce content, or some other digital asset, that can be reinvested in a loop. You see this in play in companies like Pinterest, or in the B2B audience at G2 Crowd would be a great example.
Or the loop generates money that can be reinvested. And this is more of like paid and sales loops. And so when you actually take a look at and start to frame your business around loops, it starts to change a few different things.
One is that you know, when you form a loop, it actually includes both, it’s both a mixture of your kind of marketing channels, products, and your monetization model holistically in one. Rather than it sort of being separate pieces. You also sort of start to see and identify like different lever points that match inches when you reinvest it. And so whereas you might think the big friction point is one thing. But when I’m looking at it through a funnel, when you start to look at it through a loop framework, you might find totally different things.
And then of course third, in order to properly execute these loops, you actually need to build different types of teams, cross-functional teams, as well as sort of different types of quantitative models to actually sort of evaluate and prioritize different product initiatives.
So that’s kind of like the general concept and where it stemmed from. And this came from just looking at like over 100 companies and talking to just tons of, tons of leading practitioners about like their views and their approach these things over time.
DR: Yeah, I recently just bought the 23andMe DNA kit on Black Friday.
Signed up for that so I can get my DNA analyzed, and get my health and ancestry. And I just got it back I think two days ago. It was about three weeks turn around time. And I’m sitting there at lunch with the team, and I’m like reading off all my stats and telling everyone all these cool things that the thing told me, and like right there somebody else signed up for it because I got my stats back and was reading it. And I just thought if I’m 23andMe, I’m thinking, how can I put all my money into shortening that cycle, where I can get that back a day later instead of three weeks later. Because that’s where like this loop starts to close, and I start telling everybody else about it. But I can’t do anything until I get my results back.
Is that an example of what you’re seeing in startups?
BB: Yeah. Well, exactly. When you look at a product like that, you can start to try to reconnect the dots to form a loop. Once again, as you just mentioned, you start to think about a different set of things, right?
You might switch your mental model from just like, how do I spend more money efficiently in paid acquisition to acquire more customers, to actually let me think about this connection more. How to make that connection stronger. How to accelerate it, right?
And so that’s just once again, it kind of changes the frame of thinking and the math around it. And part of the tough thing about loops is that you have to look at them over a period of time, right? Like going back to that financial analogy, right?
Compound interest only looks incredibly compelling when you play it out over time, versus if you look at more linear methods through funnels, those are kind of like instantaneous deposits, right? So an instantaneous deposit in the short-term might look a little bit better, but those instantaneous deposits run out, right? The question is, how do you kind of put that money, or in software terms, those users or other assets to work for you to like keep generating more of the same thing over time?
DR: How far out should companies be looking before they can really start to get the picture of here’s how loops play out, here’s how growth cycles will play out in your company?
BB: Yeah it really depends on where the company is at in sort of the broad stage of things, right?
Certainly at the very, very beginning of the company, it’s still about a question of product/market fit, but I would argue that too many companies have become too silent on product/market fit, and actually never think through what we would call a growth mode (which is basically a systematic explanation of assuming that we do hit product/market fit).
How does this thing grow? What are the loops in the system that we think we’re going to deploy?
Even then, even if you like, once you have that hypothesis, you need to think about a loop that almost has, every loop requires a certain amount of fuel to like kickstart it and get it going, right?
And so, where does that fuel come from? Fuel is what I would categorize as sort of a set of linear tactics. Do things that don’t scale. The real scrap even manual stuff. Accessing a very small ceiling but highly targeted channels.
Right? Like things like that. And so the whole point is that you invest those things to kind of get the loops kind of spinning, and then as that happens, the amount of return that you’re getting from the loops overtakes what you’re getting from the linear channels. Then, all of a sudden, the math starts to become, well actually, it’s much more compelling for us to spend our limited time and resources just optimizing the steps of the loop, rather than fueling it with kind this tinder, this initial fuel.
And so the challenge is most startups I see in that state never think about the medium to longterm loops, right?
And so they never ease off of those initial linear tactics, and those things run out. It sort of like hits a ceiling, right? Or vice versa, which I see much more.
Rarely is that they’re thinking almost like too longterm, right? And they never get that initial fuel. So this is part of the art of figuring out how to balance and manage and shift this time and effort and resources over time. And then, of course, much later in the stage of the company is then it becomes an exercise of like well actually, how do I start to sequence and layer on brand new types of loops in the business that enables whole new like curves of growth?
And these things sort of later in the stage of the business start to look at what we would call internally at Reforge, macro loops, right? Those are things that we commonly refer to as different forms of network effects, embedding scale, things of that nature, which also take the form of a loop, but you typically can’t enable till like a much later stage.
So that’s why you see companies like, you know, HubSpot or Slack or anything start to enable platforms, different types of software platforms and integrations and all that kind of stuff into their business. So there is a bit of an order of operations to these things and layering on these things over time. It’s just, once again, that exercise is a little bit different depending on where you’re at in the company.
DR: Okay. And where do you think paid traffic plays into startups? Like how should they be thinking about it? Is that just like the kindling, first get that thing out there to get the loop started and get the flywheel moving, and then maybe back off for a while? How do you think about it?
BB: I mean, essentially, paid marketing should always be looked at as, you know, it’s funny, if you would’ve asked us I think three years ago, we would’ve been having this conversation where like everybody was touting, they spent like zero money on like paid marketing, and that was a phenomenal thing.
And I looked at that as like, well actually, you’re just kind of under-optimizing. Yeah. The challenge is when paid marketing or basically a paid loop where you basically spend money, you convert a percentage to acquire customers, a certain percentage of those become paying customers who generate money which you can reinvest back into acquiring more customers.
When that thing is the core, the centerpiece of your entire growth model, that’s a big red flag to me because paid loops always sort of, the economics always decrease over time and what we see most across a lot of the companies we interact with is that they actually don’t anticipate or underestimate how those economics change over time.
And that’s because typically in paid marketing, you start with the audience that produces the best economics, your most targeted audience, and then you move out in concentric circles, wider and wider audiences. But as you do that, all the missteps of the loop, all of those conversion variables and the steps in the loop start to decrease over time. So you’re basically reducing the output and as you reduce the output, you’re not able to reinvest it as much, right?
As much money, and so anyway, this thing compounds in the reverse direction. Where paid marketing is a phenomenal thing is where you have some other type of loop at the core of the model. And you’re layering on paid marketing as an accelerate to that thing.
So whether that’s more of like a content-oriented loop, or Enviroloop, or something else. I think there’s a lot of reasons why we’re seeing sort of the rise of bottoms-up or product-led sort of SaaS-driven growth models. This is part one of it, and there’s a broader thing with paid marketing right now which is that it’s concentrated across a few very different companies.
There are companies, Facebook and Google, and all kinds of stuff. The inventory’s becoming saturated, and it’s unclear. We’re not at the peak, but it feels like we’re pretty close right now. So we’ll see how that all plays out.
DR: Yeah we were looking at some of our Facebook spend. Before Proof, we were a marketing agency and we did a ton of stuff with paid traffic. So that was kind of our bread and butter going into this and helped us launch Proof quickly. But it was funny, we were looking at like our metrics last week compared to even like three years ago. And it was like the cost of a click now is what we used to be able to get a new trial for back in the day, or an actual lead or anything like that. It’s just like the economics have changed so dramatically. But yeah, it just doesn’t work the same way.
BB: Yeah, I mean, internally at HubSpot, like when I started there, paid marketing internally was just like the devil basically. But we were working on these new products that actually had some viral loops sort of at the centerpiece of it, so I used paid marketing as a way to jump-start and accelerate those things. And it was extremely successful. I remember we were acquiring users for like 40 cents, 50 cents a pop from Facebook ads.
The glory days, right? But even in the limited time like two years, right, we saw those economics massively decrease for both internal reasons of us kind of expanding, right, once again, that target audience in concentric circles, but then the macro-environment of these things becoming more saturated over time. Paid marketing is more of an excepted, I actually think HubSpot just released something about how they view paid marketing as part of the inbound marketing strategy and the philosophy that they sort of preach. Once again it’s like whenever you see something that’s all or nothing or it feels like a binary argument, most often that argument is completely wrong, and the real answer is some form of a balance or understanding when to use what.
DR: Yeah, totally. And I think when I look at like growth, talk about loops, and all this, it tends to trend towards like consumer based products.
It’s easy to talk about like Lime scooters and Bird, and oh, here’s how they’re doing it, or even maybe like in B2B more of the like a team, you know, like Slack.
Outside of that, what are some other examples of companies that are B2B that are doing this well? A Salesforce or a HubSpot, or a Gusto, or an Intercom? How can they build these kinds of things into their products?
BB: Wel,l I think all of the ones you just mentioned all have pretty strong loops at the core of their model. Others I would add onto there would be companies like InVision, which I think today at the time of this recording, raised a massive amount of funding. Zapier would be another one that I would put up there that’s generated some pretty compelling both content and integration loops.
G2 Crowd would be another one that has utilized content loops within the B2B setting. You know, about 50% of Reforge students are B2B. About 50% are B2C. And we always get this question from B2B folks.
I think the default thinking right now is that B2B is fundamentally different than B2C. In my opinion that is completely wrong. All of these same frameworks and principles apply. The difference is just that typically the cycle time on all of these different loops in the B2B world are slower. And so in practice, it can feel kind of different but in reality, it’s not.
Now the trade-off of that is that typically in the B2B models, while these cycles are slower, the monetization models tend to generate much higher revenue per customer. So that’s kind of, that’s sort of the trade-off. But at the end of the day, in the B2B world, you’re still targeting an individual, or a set of individuals, or a progression of individuals and so all of these. I think a lot of times B2B marketers, and I’m including myself in that, just over-complicate this set of thinking and so, if you see, I think if we did like a historical timeline, you’d just see all of like B2B marketing initiatives start to just look closer and closer to consumer stuff from a few years prior.
Once again, this is not because B2B is different than B2C, it’s just that the cycles are slower. And so it takes longer for these things to play out.
DR: No, that makes a lot of sense. Okay, the last question before we wrap up here if you’re doing this for yourself now. You’re not just teaching others how to do it, you’ve got your own company, your own startup that you’re trying to apply these things too.
How are you doing that at Reforge, and what are some of the challenges been of doing this just for your own company?
BB: Well I think the challenge is with Reforge is that it’s by nature of the way that we’ve constructed right now is a seasonal business. We run right now two cohorts per year. One in kind of the spring, and one in the fall. And whenever you deal with seasonality in the business, it adds just another extra layer of complexity. The feedback cycles on all of this stuff just end up being much longer. And so yeah, the pertinent problem’s a little bit different.
DR: Why do you do it seasonally?
BB: Why do we do it seasonally?
DR: Yeah, why’d you decide on that? If that creates some of those extra challenges?
BB: Because a piece of the program is a live interaction component, and so live with peers as well as we bring in all the VPs from Dropbox, Facebook, LinkedIn, all that kind of stuff, and so to basically have that piece of component in the model, we have to do sort of a live sequence cohort where everybody’s kind of going through the material at the same time. So that’s the main reason why.
But we do deploy a lot of these things in our application process. We actually have some viral loops built into our application process by pulling in your colleagues as well as these vouch mechanisms, which pull in managers, which then fuel the managers, bringing in more colleagues.
So we deployed it that way. And there’s a number of content loops built in our model through just like, you know, traditional content marketing. So we do deploy a lot of this. But Reforge as an overall state I would say is sort of in that middle of I would say, in terms of where the pendulum is between linear tactics to kickstart all of these loops, versus deploying it all towards loops, we are still like a little bit more in the linear tactics working our way over to the other shift. So that’s just kind of where we’re at. That’s kind of just where we’re at as a business, and working our way to the long term.
The Salty Six
DR: Yeah, yeah. Very cool. Looks like a sweet program, so I’m excited to see where that goes. Alright man, so just wrapping up here. I’ve got what I call the salty six. It’s just six like rapid-fire questions for us to just get to know you a little bit better. Answer them, you know, relatively briefly. And we’ll kind of fly through them here. So are you ready?
BB: Let’s do it.
DR: This is my favorite part of it. It’s like a little shotgun.
What do you do for fun?
BB: Well lately I’ve been watching University of Michigan basketball, which has been a pleasant surprise this season, especially after we just got destroyed in football by Ohio State. So that’s where I went to school, and that’s where I grew up. And so it’s giving me some joy right now.
DR: Okay, very cool.
Do you have a morning routine? And if so, what is it?
BB: Yup, I do. So I basically, I wake up, I don’t set an alarm, but it’s typically like 7:00-ish a.m. And then I immediately go for about a two, two and a half mile run. I come back and do, oh get coffee, sorry, I missed the most important thing there. Coffee. I was an advisor for Blue Bottle Coffee for a while and learned a lot about coffee, and so now I’m unfortunately a coffee snob. But anyways, I get the coffee, I do typically a couple hours of my most intensive work, a lot of writing, a lot of thinking. I then take a shower and then we have, our team is mostly remote right now. We have our team sync at noon and that takes me to about noon.
DR: Gotcha. Very cool. Love it. This kind of rolls into that last one.
How do you focus during the day? And structure to make sure that you’re getting the right things done?
BB: I mean, I’ll be honest and say, there’s probably so many more things I could do to be more focused. But one thing that I’m very protective of is I very rarely have meetings in the morning.
And that’s because it’s my most productive time and I try to do my most energy-consuming activities, thinking activities in the morning, and then save all sorts of meetings and other just like logistical operations stuff for the afternoon. A couple of recommendations here. If you’ve never read the book, Power of Full Engagement, I strongly recommend it. I read it like eight or nine years ago and that’s kind of where I established this routine from.
But the things that I fail at, I had a really hard time establishing a meditation routine, even though I know it’s very beneficial and I feel better after it. And I was starting to see myself get sucked into social media, but I just deleted all social media from my phone and stuff about five days ago. And so I’m only five days into that experiment.
DR: Are you like shaking and going through the withdrawals?
BB: I’m shockingly not. It’s just like, you know when it’s just not there with like the little red bubble icon? I mean, this is all the stuff we teach is like habit formation, right?
So I kind of know the psychology behind it. But yeah, when it’s not there giving you that little thing of dopamine sucking you in, right? I think you’d be surprised about how little you think about it.
DR: Yeah. Very cool.
What book has impacted you deeply in the last few years?
BB: Oh, in the last two years?
DR: Yeah, just the last couple of years.
BB: I think this is probably one you’re gonna hear from everybody, but I really enjoyed Principles from Ray Dalio. Even though I don’t believe, not believe, I don’t subscribe to 100% of his stuff, just like very systematic, raw, honest approach is something that generally has just become more of my style over my years, over the years of me working.
DR: Yeah, I feel like you read that book, and I’m like, okay I gotta create this like algorithm that I can run every decision of my life through and it’s gonna spit out like yes or no. And then you kind of pull it back, you say, okay, maybe if I just start building a few rocks into my life I can kind of run decisions based off that.
BB: I would add to this, it’s not a book but I think it’s just as high quality, if not more high quality, is most of the stuff by Tim Urban at Wait But Why. He has a number of articles on like figuring out what you want to do as a profession, really big life questions like, should I get married to this person? And just observing how he researches and writes things, I think is an impactful thing in itself.
DR: Yeah, very cool. Those are some of the first blog posts I really started loving and would just lay in bed. You know, it takes 45 minutes to read one of ’em. And those were awesome.
Number five, What’s the best purchase you’ve made in the last year or so for under $150?
BB: Oh, under $150? I was gonna say like, I just got the new Apple Watch, and I tried the first gen and was pretty disappointed, but the new Apple Watch, like I’m in all these workout competitions with a few friends and I would say that it’s actually gotten me to work out more.
But that was definitely more than $150. Under $150… I told you I’m kind of a coffee snob, but it’s this kettle for pour-overs and I’m totally blanking on the brand right now, but it’s very distinct sort of all black matte kettle, heats incredibly fast, and I don’t know, it’s just sort of something simple that, you know, I drink coffee every morning, I don’t know. I think it’s like maybe like $80, or something like that. So if you drink coffee, I highly recommend it.
DR: Send me the link afterward. We’ll make sure we put that in the show notes, the link to that.
BB: Yeah. That was a solid one, for sure.
DR: Okay, very cool.
And then number six. What do you think has been the primary reason that you’ve been successful up to this point in your life? What’s driven that?
BB: I mean, it’s kind of a loaded question in the sense that it assumes that I think I’m successful.
And I think, I’m sure some people would say that, but I guess the way that I think about it is that there’s just like a pretty big delta between where I am today and some of the things that I would love to achieve.
So, the way that I would rephrase that question is kind of, what has been the most beneficial in my past so far?
And by far it’s been just really investing in writing, and to be honest, my blog is part of that. I started my blog mostly because writing really helps me think and get clarity around a lot of things. I can’t remember who wrote this post recently, but it’s called, it’s basically the writing is thinking, and that’s what I’ve just like learned over time.
And then just like publishing, like 5% of what I actually do has led to pretty much every single company I started and the job I’ve had including HubSpot.
And some of the most significant professional connections in my life and I think that’s just because, one thing I think we should all move towards as professionals act more like designers, meaning building a portfolio of showing off our work.
It’s just harder for people who work in like product and marketing because a lot of our work is just like thinking, or analysis. So we need to find ways to display that work, and I think it just yields an amazing amount of dividends, so that’s what’s been the most impactful for me.
DR: Very cool. Love it.
Well, Brian, this has been awesome man. So, so helpful. I’m thinking of a lot of things that I want to apply at Proof here based on what you said. And again, I’ve appreciated a lot of your work. Even before this interview, I think it’s been really impactful for how we’ve kind of launched products and tried to grow at Proof. So if people want to find out more about you, follow you, read your blog posts, where can they find you?
BB: Again, my personal blog is just brianbalfour.com, just search my name, it’ll come up. Feel free to subscribe. I send very few emails.
But I try to make them impactful when I do. And then check out any of the programs at Reforge. Applications will open up early in the new year. We have the growth series, the retention and engagement deep dive, and kind of an advanced growth strategy one that goes really deep on this concept of loops, and like quantitatively modeling them out. And we’ll have more coming out in 2019. So, would love to have any new listeners part of that.
DR: Sweet. Very cool, man. Alright, well thanks for listening, thanks for watching if you’re on YouTube or Facebook watching this. And thanks for joining us for Scale or Die. We’ll see you at the next one.
<em>This interview has been edited and condensed.</em>
