The Secret to Building an Enduring Billion Dollar Business

Nir's Note: Sarah Tavel recently gave an outstanding talk at this year's Habit Summit at Stanford. Below is a few words from Sarah and the slides from her presentation.

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Building an enduring, multi-billion dollar consumer technology company is hard. As an investor, knowing which startups have the potential to be massive and long-lasting is also hard. From both perspectives, identifying companies with this potential is a combination of “art” and “science”?—?the art is understanding how products work, and the science is knowing how to measure it. At the earliest stages of a company, it comes down to understanding how a product is built to maximize and leverage user engagement.

I think of user engagement as the fuel powering products. The best products take that fuel and propel the product (and with it, the company) forward. Just how products do that is something I’ve been thinking about for most of my career.

At Nir Eyal’s Habit Summit this week, I presented a framework for how I evaluate non-transactional consumer companies I’m looking to invest in that synthesizes some of this thinking?—?I call it the Hierarchy of Engagement. 

The hierarchy has three levels:

1) Growing engaged users

2) Retaining users, and

3) Self-perpetuating

As companies move up the hierarchy, their products become better, harder to leave, and ultimately create virtuous loops that make the product self-perpetuating. Companies that scale the hierarchy are incredibly well positioned to demonstrate growth and retention that investors are looking to see.

I encourage you to use the Hierarchy of Engagement framework when thinking about your own product, and building out your product roadmap. But, like most frameworks, I am continuously improving the hierarchy and would love to hear your thoughts. Let me know what you think.

*NOTE: If you didn't attend the Habit Summit this year, you can get a video pass to see all the talks you missed (including Sarah's) here: https://HabitSummitVideoPass.eventbrite.com

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