Retention is Hard, and Getting Harder - Here’s Why

This is part three in a series I’m producing on the topic of retention in preparation for the launch of Reforge’s Retention + Engagement Series. Both this blog series and the Reforge Retention + Engagement Series are being created in collaboration with Casey Winters, former growth leader at Pinterest and GrubHub, and Shaun Clowes, VP of Product at Metromile and former Head of Growth at Atlassian. Subscribe to get the rest of the series.


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Brian Balfour is the Founder & CEO of Reforge and was previously the VP Growth @ HubSpot. Prior, he was an EIR @ Trinity Ventures and founder of Boundless Learning (acq by Valore) and Viximo (acq by Tapjoy). He advises companies including Blue Bottle Coffee, Gametime, and Help Scout on growth.

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Casey Winters is an EIR at Greylock Partners. Previously, he was a Growth Lead at Pinterest and GrubHub. He advises companies including Tinder, Eventbrite, Reddit, and Pocket on scaling and growth, specializing in retention and engagement.

Shaun Clowes is the VP of Product at Metromile and was previously the Head of Growth at Atlassian. His approach to growth focuses on activation and retention with an emphasis on the thinking, processes and discipline necessary to grow through product features and engagement. 


If you've been following along in this blog series on retention, you know that retention can make or break your company.

In the first post, The One Growth Metric that Moves Acquisition, Monetization, and Virality,  we dove into how retention can make your company. Specifically, we walked through the 4 ways in which good retention helps you build a competitive advantage by:

  1. Driving acquisition
  2. Improving monetization
  3. Building acquisition muscle
  4. Accelerating payback period

In the second post, Why Retention is the Silent Killer, we revealed how retention, can break your company because:

  1. It requires a long-term view (often multiple years) to understand its impact.
  2. It’s easy to choose the wrong retention metric, which leads teams to focus on the wrong initiatives.  
  3. It requires not just breadth of customer retention, but also depth of engagement to drive sustainable growth.

When we combine these two factors - the power to compound growth and the power to kill it - the importance of retention becomes obvious.

But that’s not the full story. The last thing you need to understand about retention is that it’s hard to improve, and it is getting even harder.

In his blog post, Acquisition is Easy, Retention is Hard, Hiten Shah outlines some excellent points on the challenges of retention for SaaS companies. I’d like to expand on his points and walk through how the same issues apply to every tech product.

In this essay, we will examine how 3 market dynamics have created the perfect storm - making retention much harder than it used to be:

  1. Increased competition
  2. Channel fatigue
  3. The rise of monopolies in tech

Then we’ll dig into each of these factors individually to understand more deeply how they affect retention throughout the three stages of the user lifecycle:

  1. Onboarding
  2. Habit formation
  3. Long term retention and engagement

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3 Reasons Retention Is Getting Harder

As mentioned above, there are three main reasons retention has gotten harder - fierce competition, channel fatigue, and the rise of monopolies - let's walk through each below.

Fierce Competition

Trying to operate in almost any vertical, regardless of whether it’s B2B or B2C, has become fiercely competitive. Let’s take a look at a few examples of how competition has heated up for different industries.

An obvious example is the marketing technology sector - we all know how crowded it is, but to see its evolution from 2011 to 2017 is still shocking. Take a look at this market map from 2011. It was crowded even back then.

marketing_technology_landscape_2011.jpg

Now, compare it to the same map from the same source but for 2014, just three years later. Yikes.

marketing_technology_map 2013.png

And for the grand finale, here’s the same map for 2017, only now there are so many competitors it’s nearly unreadable. How do they survive?! Or do they?

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Just to be sure, let’s look at a few of the less obvious industries and see how they compare.

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Agriculture and trucking, two “old school” industries that have been comparatively slow to adopt new technology, are both starting to get crowded too, and will only become more so over the next few years.

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In the early days, when technology was first beginning to transform each market, most software companies were building products to meet an unmet need. B2C products were filling time slots in people’s days with new technology experiences. Now, almost every moment of everyday is served by a tech product.

B2B companies were building products to solve business challenges with software for the first time. Now there are a multitude of software products competing to solve every problem imaginable, entertain you, or help you run your business, whereas before there were only analog solutions or no solutions at all.

To win in the face of this increased competition, companies have had to transition from filling a hole with a decent product that that solves a problem well enough, to replacing an existing product with something substantially better. That is a very different and much harder game.

Channel Fatigue

Let’s start with an analogy. Imagine you hear about a party at a hot new spot. You’re one of the first people to show up, so you chat with a few of the other early arrivals. The conversation is pretty engaging and it’s easy to hear everyone.

But word about this party travels fast. Over the next hour more and more people arrive at an ever increasing rate. Now the party is crowded, and you’re stuffed into a corner trying to chat with a few folks. The background noise is deafening and you can’t really hear, so you start to check out - it’s just harder to stay engaged in the conversation (even if you want to) when there’s so much distraction.   

This is what it’s like for consumers today. Email overload and the onslaught of endless push notifications have made people nearly immune to re-engagement efforts, even if they like the product, but especially if they were “meh” about it in the first place. This noisiness means it’s getting harder and harder to successfully pull users back into your product to help them build a habit of regular usage (more on habit formation in a few minutes).

Based on data from Kahuna, Andrew Chen, Reforge Growth Series and Retention + Engagement co-host, finds that up to 60% of users opt out of push notifications. When you combine this dynamic with that of inbox blindness, you start to realize that the primary methods for retaining and engaging users are getting less effective every day.

To compound the issue, there are fewer channels for reaching your target audience, and we haven’t seen any groundbreaking new channels emerge in the last few years. As competition continues to increase, channels become more and more crowded, throwing users into downward spiral of channel fatigue.

A small number of channels + lots of competition + little channel innovation = channel fatigue

Notification Overload Slide.jpg

Bad actors take this issue of channel fatigue from bad to worse. You may be a standout copywriter and you may come up with the the most engaging notifications and emails out there, but that won’t matter. Your job will be harder, simply by virtue of operating in the same channel as spammy notification and email pushers who exacerbate and accelerate fatigue.

Companies with infrequent use cases - think any OTA and most retailers, like Orbitz, Pottery Barn or Ski.com - are prime examples of these players that overload people with email in an attempt to stay top of mind or manufacture demand.

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Monopolies

Lately, the big joke around town has been that Evan Spiegal, CEO of Snap, is actually Facebook's VP Product. Just take a look at Instagram stories and you’ll know why.

What’s interesting here is how this joke hints at a deeper issue. We’re seeing an ominous trend in which the Big Three - Facebook, Google, and Amazon - are leveraging their network effects to build monopolies that have the power to crush (or absorb) any new startup or product that could threaten their dominance. They either push upstarts out of the market before their products have a chance to take hold with customers, or buy them before they can reach their full potential.

This dynamic isn't appearing only in B2C. As public B2B SaaS companies scramble to fuel continued growth, many copy game changing features proven out by smaller, cutting-edge competitors. Salesforce Chatter, a real time social collaboration and messaging application for companies, launched in June, 2010, is a great example. Salesforce rolled out that product a few years after both Yammer (2008) and Slack (2009) started to prove out the model with enterprises, startups and other businesses, and was able to go live with 10,000 customers on day one of its public launch.

The ease with which these bigger players can expand into adjacent businesses is shocking. They have a path to dislodge smaller competitors via existing distribution, and the money to buy their way into the market. Both of these factors allow them to move quickly to establish dominance and kill retention for less established incumbents. For example, Amazon’s recent big moves with AmazonFresh via the purchase of Whole Foods, threatens the long term survival of smaller, younger players like Instacart and Blue Apron.  

Though these types of power plays make it harder for startups to survive, I'm not condemning these dominant players. In a world where innovation is happening faster and faster, it’s hard to stay on top. Copying what’s working is a winning strategy, and one we’d probably all go after if we were in the driver’s seat at one of these companies.

So, how do these 3 factors make it harder to move retention?

How Competition, Channel Fatigue, and Monopolies Affect Retention

To begin to understand this dynamic, let’s examine it through the lens of three key phases of the user’s lifecycle:

  1. Onboarding
  2. Building a habit
  3. Long-term retention and engagement

Onboarding

Let’s say that you are a professional comedian and you land a gig in front of thousands of people. But, there’s a catch - this isn’t your average gig. It’s a game that you have to win over and over again to see your set through to the end. It works like this - if you make people laugh hard in the first minute, you get to stay on stage and earn more money. If you don't make them laugh in that first 60 seconds, you’re a goner. You’re booed off stage and you won’t be paid a dime.

Easy right? You are a professional comedian after all.

Wait, it gets better. Now let’s say you show up only to find out that 15 of the best professional comedians in the world were on stage right before you. You’re up after Jerry Seinfeld, Dave Chapelle, Amy Schumer... your job just got a whole lot harder.

This is exactly what happens in user onboarding when someone tries your product for the first time. You've got a very short window to make a great first impression. If you succeed, the user moves onto the next stage. But keep in mind that the user has very likely tried a bunch of different products previously that meet the same need.

The key insight here is that to make that first good impression the delta in product value that you need to deliver on over competing solutions has increased, while the time you have to do so has decreased. It may have gotten easier to get people to hand over their email, signup, and try your product, but delivering on a standout first experience has gotten a lot harder.

Opposing Forces in Onboarding.jpg

Building A Habit

Making a good first impression during onboarding is the first phase of retention. Though that is hard, it isn’t the hardest part.

So, what is?

Getting the user to build a habit around using your product. Though this has always been tough, it has become more difficult with the increase in competition, channel fatigue, and pressure from big players.

You have two forces working in opposition here:

  1. The challenge of rewiring user behavior
  2. The challenge of overcoming channel fatigue

First, since you have more competition, your product likely won’t be meeting an unmet need or filling a void for your user. So, instead of wiring a new habit, your product must replace an existing habit.

By nature, existing habits are deeply ingrained. This means to break an old habit and introduce a new one, you must find something unique and untapped around which you can rewire the new behavior. The bad news is that replacing an old habit is much more difficult than building a new one from scratch.

The second issue, is that you have increased channel fatigue working against you, making the tools to do this rewiring less and less effective over time.

Long Term Retention and Engagement

Now let’s say you are successful with making a good first impression, and building a habit. Whew, you’d think it’s time to celebrate, wouldn’t you?

Nope, not even close - the game isn’t nearly over yet.

What about keeping your users around for the long haul? What is to stop one of the other major players from copying you and leveraging any potential network effects they’ve developed to muscle you out of the market? What will you do to keep your users choosing your product day in and day out, week in and week out, when they have dozens of other options?

The importance of long term retention and the risk of being crushed by monopolistic players can be seen in how brutally competition between Facebook and Snapchat is playing out. According to 2015 mobile data from Quettra, Facebook retains 98% of users 90 days after install, Whatsapp retains 77%, and Instagram retains 48%, whereas Snap retains only 33%.

Unlike Facebook and its other properties, Snap hasn’t figured out how to retain its users for the long haul. When we combine this issue of long-term retention with copycatting from Instagram and Facebook, which appears to be correlated with slowed user growth for Snap, we start to see why Snapchat seems to be failing.  

If we compare Snap’s path, with those of other companies that Facebook attempted (unsuccessfully) to take on - Pinterest, eBay, Craigslist, GoFundMe and YouTube - we see that it is possible to thrive in the face of pressure from the big players.

Pinterest is still growing despite Facebook and Instagram’s efforts to build save buttons and collections. Craigslist and eBay are still dominant marketplaces regardless of Facebook building its own marketplace. GoFundMe is still leading in the fundraising space even though Facebook launched its Fundraisers feature in 2016. And of course, YouTube still dominates video after Facebook launched native video. The common denominator among all these companies that thrived in the face of attacks from the social giant is that they’ve built their products to retain users for the long-term for their specific use cases.

Because the market is always evolving, the factors that influence how our users engage with our products will always be in flux too. The competitive landscape will change, marketing channels will change, and some level of threat will likely always be looming from bigger players in the market.

We need to adapt with these changes - those of us building companies today no longer have an option - we have to build methodical and systematic approaches for deepening engagement to maintain retention over the long-term, if we want to survive.

To build this process for systematically improving retention, we need to break retention down into three phases:

  1. Activation
  2. Engagement
  3. Resurrection

The user mindset and product goals are different at each phase, which means we need different qualitative and quantitative frameworks and strategies to improve retention. In Reforge’s Retention + Engagement Series, we go in-depth to build out and explain these frameworks, walking through examples from the most accomplished growth practitioners at the fastest growing companies to help you understand how to apply winning strategies to your own product.

If you’ve learned a few useful things in this series of blog posts, and you’d like to learn more about how build this systematic approach to retention and engagement for your product, apply for Reforge's Retention + Engagement Series here.

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