The AARRR model is broken
The most popular growth marketing framework, AARRR, teaches us that growth is not only about driving acquisition, but also about optimising activation, retention, referral and revenue.
While this is true, the framework can’t answer crucial questions such as “Why does retention impact acquisition?”, or “Why are many products wildly successful without any referrals?”
Tips
- The AARRR model, or “Pirate Metrics”, were invented by famed Paypal alumnus and founder of 500 Startups, Dave McClure, to emphasise that growth is more than just acquisition. AARRR encourages you to look at the full marketing funnel. We think that’s great advice, however…
- … The AARRR framework also leads marketers to compartmentalise their growth engine in unhelpful ways. All parts of the funnel are connected in a “growth loop” where existing users need to somehow bring in new users. Each piece influences the others. If one piece is broken, the entire loop won’t work. You can’t compartmentalise beyond a certain point.
- The move beyond AARRR is to recognise that compounding growth is always cyclical, or loopy. Referral or revenue are simply two pathways to turn retention of one cohort, into acquisition of the next cohort.
- Referral turns retention of existing users into new acquisition of users (it closes the loop), via mechanics like word-of-mouth, ambassador programs, “powered-by” loops, and similar mechanisms. Retention thus influences acquisition!
- Revenue is an alternative pathway to turn retention of existing users into acquisition of new users. You reinvest the revenue from cohort A, to fund paid advertising or a sales team to acquire new users. If you can lift revenue, you can increase acquisition power.
In Practice
Imagine your car unexpectedly stops on the highway. The engine needs troubleshooting. Maybe it's the alternator, spark plugs or transmission. Or perhaps the issue is a flat tire, broken serpentine belt or dead battery.
Here’s the thing: you don't need to replace every part to get the car moving again. Just as a broken down car often needs just one component repaired to get running again, startups don't need to optimize every funnel stage to gain momentum.
Instead, smart founders methodically test to identify the weakest link holding growth back. Just as mechanics run targeted diagnostics, startups should validate assumptions through research and experimentation. Once the core bottleneck is identified, fix it first before balancing other areas.
For Tesla, the 'broken part' was expensive batteries, so they focused tirelessly on reducing costs through manufacturing innovations. For Airbnb, it was building critical mass in both host and guest networks, so they growth hacked supply in key markets.
The AARRR model overindexes on compartmentalization when holistic thinking is needed. Funnel stages are interconnected in nonlinear ways. Startups must zoom out and identify the most broken gear in their particular growth engine, then fix that bottleneck before balancing all elements.
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