Viral Growth – Exponential?
Viral growth
Whoever speaks of viral marketing – on Internet, in marketing departments of huge companies, on marketing and Internet marketing forums – always brings its selling point: effortless exponential growth. However, is it truly exponential? No. Here is why.
It’s probably best illustrated with the traditional spiel of MLM marketers – a special case of viral marketing. They say something like:
You get $1 commission per month for every person in your downline up to level 5. Imagine that you recruited just 10 people, and then every one of then did the same and so on… Then you get:
You
1st level, 10 people 10x$1 = $10
2nd level, 100 people, 100*$1 = $100
3rd level, 1000 people, 1000*$1 = $1000
4rd level, 10000 people, 10000*$1 = $10000
5rd level, 100000 people, 100000*$1 = $100000
Total: $111,110 per month
Nice, isn’t it?
Saturation point
If you’ve been around the block a few times, you already know where the trouble is. Of course, recruiting 10 people is hard in the first place, but that’s not the biggest problem. The biggest problem is that it started long ago, and you are actually on the 10 or 20th level downline from the founder. What does it mean, to be on the 20th level? It means that if the logic above worked, the founder already would have downline expressed as one with 20 zeros afterward. Right, 100,000,000,000,000,000,000. For reference, all humankind is around 5 billion people, that’s 5,000,000,000, less than one with 10 zeroes afterward. See the problem? Almost everybody, who could be recruited, is already recruited. The product already hit saturation point.
Saturation point is one example, how viral marketing hits the ceiling, and once it happened – no growth. So, actual curve for viral marketing is never truly and exponent, but rather a curve like this:
Viral Marketing Curve
It’s exponential at the beginning, but hits its limits and stay more or less constant after that. In fact, you may start losing customers without a chance to acquire new one, in which case it may even go down.
Ok, if that’s not MLM and you decide to use some form of viral marketing, you are the founder. So why should you worry about saturation? You know, your product is great, there are millions of potential customers out there, and you will be very happy long before you’ve got even the first million of customers, right?
Capacity constraints
Well, there is a reason why you should in some cases. The problem is that market saturation is only one kind of capacity constraints, that is when you hit a limit on a resource, you need to grow. With market saturation you hit the limit of the market capacity, but there are other capacities, you may hit, for example:
When selling physical product, capacity of your suppliers, your manufacturing capacity, your processing capacity (too small space for inventory, too few people in shipping).
When selling Internet service, capacity of your servers or bandwidth. If you use Twitter, have you seen a picture of whale carried by little birds? It means that Twitter reached it’s backend capacity – throughput – and was unable to serve your request.
When you make money on personal services – like speaking at seminars or consulting, your own time.
Even if you sell informational product, you may hit bandwidth limits, your server capacity, or your own capacity to handle customer’s questions.
Not all capacity constraints are fatal or even bad.
In fact, sometimes, it may be good. For example, if you hit limits of your own capacity – 24 hours per day – it only means that you need to charge more for your services, which is hardly a bad thing for you.
And sometimes, it may be relatively easily curable. Two small inventory facilities or too few people in shipping are easily cured by oursourcing shipping or hiring more people. Still, that’s no good, because while you adapt, you lose sales and growth. In fact, you may lose so much of a growth that you may have to start all over again. Viral marketing is slow to start, so that could be very noticeable.
The worst thing about capacity constraints and saturation points, is that until you hit them, your viral growth is exponential. It means that once it comes, it comes very quickly. Have you ever heard the old puzzle about the lake and a weed?
A small weed got into a lake. Every day, it duplicates in size. It took 3 months to fill half of the lake. How long is it until it will the whole lake?
The answer is: One day. That’s the power of exponential growth and why capacity constraints are always hit very fast as soon as noticeable growth starts.
Let me explain how it will look for you, if you encounter this problem. You start viral marketing campaign. First day, almost nothing happens. Seconds day, the same. And so day in and day out. Occasional sale here and there, and that’s it. That’s the original growth period, when numbers are still low.
Then you beginning to get some business, but very little, barely noticeable. You are very unhappy, but still it’s better than nothing, and it slowly grows.
And then it grows a little faster, and a little more, and suddenly you are busy whole day. You are happy. You are kicking at full speed, your business is at last the money machine you dreamed of… and that’s when it happen, because the next day you are over your capacity, everything starts to fall apart, your servers are down, your support is flooded with requests, and you have tons of complaints…
Be prepared
So, what can you do? Be prepared. Expect bottlenecks coming to your business. Try to know the expected size of your market and how much of it you want to handle.
If you have a million customers market, there is no need to plan for million customers when you start, but understand that you’ll have to start much earlier than you intuitively may want to. Imagine a viral campaign that grows twice per day with potential market of 1,000,000 customers, your business is only ready for 100,000 customers and you needing a week to upgrade to server 1,000,000 customers. When should you start upgrade? 7 days before you reach 100,000 customers, right? How many customers you will have 7 days before that? 100,000 / 2*2*2*2*2*2*2 = 100,000 / 128 = 782. Right. You have capacity for 100,000 customers, but if your viral campaign brings twice more customers every day, you’ll have to prepare for million customers when you have only 782 customers.
Of course, this example is a little exaggerated. Most viral campaigns don’t bring twice more customers per day — and you should measure and see what the multiplicator is, but you’ve got the idea.
Even better, design your business to have no bottlenecks. Outsource whatever you can to large scalable specialized companies. It’s most likely that it may cost you less than hiring somebody directly. Of course, that may be not an option at the very beginning, but once you get it rolling, this may be your best choice.
And, of course, try to know the real size of your market. If the size of your market is your capacity constraint, if you hit market saturation point, that’s it. You will have to switch from customer acquisition to customer retaining, because that’s all you’ve got. Of course, considering the size of Internet and the fact that more and more new users join it daily, it’s really hard to hit market saturation point, but for some niche businesses that’s possible. If you did, you don’t need viral marketing after that. And, until it happened, worry, learn your market, plan ahead, and enjoy the ride.
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