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Suhail Doshi: I've Watched 15 Companies Go Viral and Then Die. It's Called the Shark Fin Effect.

By Suhail Doshi · Startup Growth · 1 min read

You go viral. You're acquiring tons of users. You think you're going to be a billionaire. Then the rate at which you're losing users becomes high enough that you can't acquire new ones. I've seen probably 15 different companies grow virally and then just die.

Key Points

The Shark Fin Effect: you go viral, but without retention, you eventually can't outpace the users you're losing
7% monthly churn sounds fine — but extrapolated over 12 months, you're losing 58% of your revenue in a year
This also hurt Mixpanel early on — it gave Doshi the greatest number of nightmares and lack of sleep

You're making a million dollars and you're losing $580,000. Now you have to make up for that and grow on top of it. Once your base gets really high, it becomes really hard to keep up.

The Shark Fin Effect

Doshi: Are people coming back to me? This is probably one of the metrics that is greatly ignored by most startups. And it's often the reason why I've seen companies with millions of users actually die. I've seen probably 15 different companies that grew virally and then just died.

I call this the Shark Fin Effect. You're slaving away and you find a way to go viral — maybe on Facebook or Instagram. You're like, wow, I have struck gold. I'm acquiring tons of users. I'm going to be a billionaire. But if it happens too early and you didn't think about retention, it becomes really problematic. The rate at which you're losing users becomes high enough that you can't acquire new ones.

15 companies grew virally and then just died. You think you've struck gold — but without retention, it's a shark fin.

7% Monthly Churn = 58% Annual Revenue Loss

Doshi: Say your revenue churn is 7% per month. You might think — awesome, I'm keeping 93% of these dollars every single month. But if you extrapolate that out over 12 months, you're actually losing 58% of your revenue in a year. For some reason this is not mathematically intuitive to most people. It wasn't even intuitive to me early on.

You're spending all this energy on marketing, improving the landing page, improving the getting-started flow. And if you're losing 7% every single month, you have to somehow make up for that 58% you lost going into the new year. You're making a million dollars and losing $580,000. You have to make that up and grow on top of it. Once your base of revenue gets really high, it becomes really hard to keep up.

7% monthly churn. Sounds fine. But that's 58% of your revenue gone in a year.

The Worst Kind of Death

Doshi: This will be the single cause of death — but it's the worst kind of death. It's really flat growth, and it occurs eventually in four or five years.

This is also something that really hurt us in the early stages of Mixpanel. We had to figure out a way to fix it. This thing probably gave me the greatest number of nightmares and lack of sleep ever. Really think through this number — graph out what your rate of growth would be if churn stayed constant.

The worst kind of death. Really flat growth. It hits you in four or five years. This gave me the greatest nightmares ever.