Growth Models: Architecting Organization-Wide Strategy Beyond Numbers

Growth models are often associated with startups aiming to scale rapidly and predict their growth trajectory. They provide a structured way to project growth by connecting acquisition costs, customer conversion rates, and long-term value creation regarding revenues and customer lifetime value.

Yet their potential extends far beyond this conventional use. As organizations grow and manage multiple products within a portfolio, growth models can evolve into powerful tools for strategic decision-making and organizational alignment.

In a recent conversation with a Chief Product Officer from a leading multi-product digital organization, we explored how growth models have become central to their strategic planning. “Our teams need to be able to manage econometric models and time series,” he emphasized, “because they are the tool through which we connect business objectives to product decisions and necessary investments.”

This evolution of growth models from simple projection tools to strategic frameworks reflects a broader shift in organizational growth approaches. As Teresa Torres noted in our discussion about empowered teams, not all behaviors that create customer value translate into business value. This underscores the need for a more sophisticated growth modeling approach connecting customer behavior, business outcomes, and organizational capabilities.

Understanding Growth Models

At its core, a growth model is a system that connects several critical elements of business growth. It covers how paid and organic customer acquisition channels feed users into the system through various costs and mechanisms. These channels lead to conversion points where users transition between states – perhaps from free to paid users or casual to power users (e.g., browsing to transacting on a marketplace). The model setup requires figuring out how these conversions generate revenue through subscriptions or transactions. Ultimately, you need to estimate your customer’s lifetime value or, even better, understand the payback period and the expected user value to the company in the following lifespan. A portion of this value is reinvested into acquisition, creating a cyclical growth engine.

Growth models become particularly powerful when integrated with continuous experimentation. Rather than remaining static projections, organizations use these models:

• To form hypotheses about revenue and user growth drivers (mechanisms and performance of acquisitions, conversion rates, revenues per user…).
• To test these hypotheses through controlled experiments that impact such key growth drivers.
• To refine their understanding (and model) based on results.

As Teresa Torres explained in our recent podcast conversation, connecting product discovery to business outcomes is key:

“I think the mistake people make is they start at the product outcomes level. So they just look for what are behaviors in the product that creates value for the customer and they start there. And that we do want to look at behaviors that create value for the customer, but not all behaviors that create value for the customer also create value for the business. And that’s where we run into trouble. So I like to start with business outcomes.”

And later, she adds:

“I don’t think every product team needs to have P&L responsibility […] but I do think every product team needs to know how the product outcome they’re driving in turn drives a business outcome.”

For instance, a company might learn that improving activation rates would create more value than acquiring new users. This insight should shape the experimentation strategy, focusing on understanding and improving the early user experience rather than expanding acquisition channels.

Strategically framed growth models can help product leaders achieve precisely this: to go beyond mechanical connections and serve as bridges between strategic intent and operational reality.

The CPO we spoke with describes growth models as “living documents that evolve with our understanding of the business.”

The Growth Model as an Integrated System

A fully functional and extended growth model should integrate three fundamental dimensions of organizational growth:

• First, it should capture the organization’s business objectives—from high-level revenue targets to specific product-unit-level goals, typically intended as revenue lines.
• Second, it should contain several detailed econometric models (statistical assumptions about the impact of certain product elements on revenues) for each product unit, tracking acquisition costs to lifetime value calculations (considering the individual contribution of each product to overall portfolio revenues).
• Third, it must map the organizational capabilities needed to execute the strategic plans.

This integration creates a powerful tool for strategic planning. For instance, when an organization plans to enter a new market, creating a growth model doesn’t just help project potential revenues. Such a model can also help the organization understand what capabilities it’ll need to build, what investments it’ll need to make, and how long it might take to achieve its goals.

The model becomes a framework for strategic dialogue, helping teams understand what they need to succeed and what they need to become.

Check out our original articles on setting up your Growth Model: the latest and the original one where we first presented the spreadsheet.

The Strategic Process: Bringing the Model to Life

The real power of a growth model emerges through its application in strategic planning. A strategic process typically begins with global goal setting and defining organizational objectives. Then, each product team develops insights on how their detailed econometric models are supposed to evolve, showing how they’ll contribute to these goals with key initiatives and focuses. This enables cascading global strategic objectives into the specific product unit and support structure targets—often using the OKR framework.

This phase of the process is particularly critical for two main reasons. First, defining econometric models as simultaneously modular (at the unit level) and cohesive (at the system level) presents significant technical challenges. The models must strike a delicate balance between allowing individual units to operate independently while ensuring their interconnections remain meaningful and manageable.

Despite potential tensions and conflicts, these discussions prevent organizational silos from forming and eliminate the possibility of teams deflecting responsibility onto others when organization-wide objectives aren’t met.

This perspective is well illustrated by Shopify’s approach to growth modeling and metrics. Rather than optimizing for immediate conversion rates or short-term metrics. As explained by Shopify Archie Abrams on a recent episode of Lenny’s podcast:

“Shopify focuses on the total cohort value and incentivizes teams to think about the total number of successful merchants rather than just conversion rates.”

This longer-term, holistic growth modeling approach ensures strategic decisions serve the organization’s broader mission while maintaining team alignment. Such forced collaboration and shared accountability help maintain organizational unity and collective responsibility for outcomes. This alignment becomes crucial in multi-product organizations, where different products might compete for resources or serve overlapping user needs. The growth model helps leaders make informed decisions about resource allocation and identify opportunities for synergy between products.

By carefully managing this process, organizations can create organizational alignment. Providing a shared framework for understanding how different activities contribute to business outcomes helps bridge the gap between different product teams and other functions.

The interviewed CPO shared how their organization uses growth models in quarterly planning sessions:

“These aren’t just financial reviews. They’re strategic conversations where teams share their understanding of growth drivers, discuss dependencies between their efforts, and align on priorities. The growth model gives us a common language for these discussions.”

From Models to Reality: The Feasibility Bridge

This ideal growth process doesn’t stop with planning. Growth models become dynamic tools for scenario planning and capability assessment. Leaders can use them to explore questions like:

• What happens if we double our sales spend? Can we really hire such several new key accounts?
• What if we launch a new premium feature to enter a new market segment? What capabilities would we need?

These strategic conversations about the organizational feasibility of actions identified in the growth model can make it an essential tool.

The CPO we spoke with described how their teams use growth models to make investment decisions:

“When we see that achieving our goals requires developing a new acquisition channel, we’re not just looking at the marketing budget. We’re thinking about the team we’ll need to build, the skills we’ll need to develop, the technology we’ll need to implement. The growth model helps us have these conversations in a structured way.”

Perhaps the most valuable aspect of a strategic approach to growth modeling is grounded in the reality checks it calls for: it becomes a tool to inform an organizational development and executive strategy. Traditional growth models might tell you what numbers you need to hit. Strategic growth models help you understand whether you can hit them – what you’ll need to build to get there, and – more generally – what assumptions you’re making about your organization’s performance and capabilities must stay faithful for your growth strategy to materialize.

This brings us to a critical concept: the organizational gap analysis. When growth models predict needed capabilities—specialized talent, new technology, new hires, or refined processes—they become tools for organizational development planning. They help leaders understand where they need to go and how to build along the way to obtain the desired results.

Looking Forward: The Evolution of Growth Models

Growth models evolve as organizations become more complex and markets more dynamic. They’re becoming more sophisticated in accounting for network effects, more nuanced in treating user behavior, and integrated with organizational planning.

However, the most significant evolution is in how organizations use these models. They’re moving away from treating them as purely predictive tools and toward using them as frameworks for strategic thinking and organizational development.

Our interviewed CPO noted: “The value isn’t just in the numbers. It’s in how the model helps us think about our business and make better decisions.”

The evolution of growth models from projection tools to strategic frameworks reflects a deeper understanding of what drives sustainable growth in modern organizations. While the mathematical foundations remain essential, the real power of these models lies in their ability to connect strategic intent with organizational capability.

Growth models offer more than growth projections for organizations navigating complex product portfolios and dynamic markets – they provide a framework for strategic decision-making, organizational development, and cross-functional alignment. When used effectively, they help organizations plan for growth and build the capabilities needed to achieve it.

Success lies not in the model’s sophistication but in how organizations use it to drive strategic conversations and inform decision-making. As markets become more complex and organizations more distributed, this strategic application of growth models will be crucial for sustainable growth and organizational development.