The Pitfalls of Forecasting Product Growth

Startups are all about growth, and investors are keen on seeing traction. But blindly focusing on achieving a "hockey stick" growth curve can lead to misleading and inaccurate forecasts.

• Traditional forecasting methods often rely on lagging indicators like user acquisition and revenue, resulting in a false sense of security.
• The focus on output metrics like MAU (Monthly Active Users) ignores the underlying mechanisms and inputs required to drive growth.
• This approach can create a disconnect between the actions taken and the actual results, leading to unrealistic expectations and a lack of understanding of the true growth drivers.

The Importance of Forecasting Inputs

A more effective approach to forecasting product growth lies in focusing on leading indicators and inputs, rather than just outputs.

• Leading indicators are the key metrics that drive your desired outcomes and can be directly influenced.
• By shifting the focus from outputs like user growth to inputs like content marketing efforts, you gain a clearer understanding of the factors that are truly affecting your growth.
• This allows you to identify bottlenecks and implement strategies to address them effectively.

Creating a More Effective Growth Forecasting Model

A better forecasting model should be built upon leading indicators, growth strategies, and a deep understanding of your product and business.

• Identify specific leading indicators that are relevant to your product and business, such as website traffic, conversion rates, or customer engagement.
• Develop a roadmap that outlines the steps you will take to increase these leading indicators.
• Evaluate your growth model based on the available resources and feasibility of scaling the inputs.

Example: Forecasting SaaS Revenue Growth

Let's imagine you want to forecast the revenue growth of your SaaS product. A traditional forecasting model might simply project a 2X increase in revenue based on a steady growth rate. However, a more effective model would focus on the inputs that drive revenue.

• Leading indicator: Number of qualified leads in your sales pipeline.
• Growth strategy: Increase lead generation through content marketing efforts.
• Inputs: Content creation, SEO optimization, promotion strategies.
• Forecasting: Determine the resources required to increase lead generation by a certain factor, considering content creation, SEO, and promotion strategies.

The Benefits of Input-Driven Forecasting

Shifting your focus to forecasting inputs brings several advantages:

• It allows you to identify and address key bottlenecks in your growth strategy.
• It fosters a more realistic and grounded approach to setting goals and expectations.
• It provides a clear understanding of the actions required to achieve your desired outcomes.

Conclusion: Embrace a Data-Driven Growth Strategy

Instead of relying on simplistic forecasting models that focus on output metrics, embrace a more data-driven approach to forecasting product growth.

• Focus on identifying and scaling the leading indicators that drive your growth.
• Develop a clear understanding of the inputs required to achieve your goals.
• Constantly monitor your progress and adapt your strategy based on the data you gather.

Key Takeaways

• Traditional forecasting models that focus on output metrics like user growth or revenue can be misleading.
• Focus on forecasting inputs, such as marketing efforts, product development, and customer engagement.
• Leading indicators are key to driving real, sustainable growth.