In a recent This Week in Startups episode, host Jason Calacanis (@Jason) interviewed Adam Bernhard, CEO and founder of Hautelook.

Interview starts at about the 2:00-minute mark.

Hautelook offers a new “sample sale” each day that lasts for 48 hours and features a limited number of clothing items from 8-10 designer labels. Hautelook works with the labels to take over their “exhaust” or written-off inventory and sell it at a ridiculously low price (up to 75% off retail). Since the clothes are available for a limited time and the hottest brands are constantly being rotated, members are eager to come back quite often to check out, what is quite literally, a new store every day. This gives Hautelook some very sticky customers.

Hautelook is the latest in a string of “flash sales” companies competing for your spending dollars with “today only” or “only 100 available” sales. Though not a new concept, flash sales are making an impact in a big way with how people are buying online. Within the clothing space, there’s Gilt Groupe, Ideeli and Kaboodle. Unless you’ve been living under a rock, you’ve heard of “deal-a-day” pioneers Groupon – limited number of one-day only coupons redeemable at a local business – and Woot – one-day sale on a single product available in a limited quantity.

What is making these companies so successful is their ability to tap into people’s social community to generate new users and sales. Hautelook’s “Invite a friend, get $10″ promotion has helped them grow to more than 2.5 million members since launching in 2007. This incentive not only encourages members to refer their friends, but keeps the money they earn within the Hautelook system for future sales. The more people they refer, the more money they have to spend at Hautelook. It’s a win-win-win across the board for member, referral, and Hautelook.

Though no solid estimates are available at this point, Jason is bullish about his prediction of a 10x growth in 3 years within the flash sale clothing space. Looks like Hautelook couldn’t agree more, as they recently raised $31 million in funding. Already at 200+ employees, Hautelook will look to keep pace with their hiring, plus expand their customer acquisition efforts to social media and maybe even a mobile offering. They are also considering expanding to other verticals, where flash sales are popular.

Looking forward to hearing more about Hautelook’s success!

We started the series by talking about What’s a Viral Loop? and saw examples of successful viral loops. Last post we covered How it Works in the most basic form of a viral loop.

In this post, we are going to cover the most important part of the viral loop – the viral coefficient.

Viral Coefficient

Let’s go back to our viral loop diagram to understand how we can calculate the viral coefficient.

The viral coefficient refers to number of new users acquired for each of the existing users passing through the viral loop. For example, if 1 user enters the viral loop, sends 10 invites to their contacts, and 1 of those contacts accepts the invite and becomes a new user, we would have a viral coefficient of 1 or 1 new user acquired.

x = 10 invites
y = 1 new user / 10 invites = 10%
v = 10 x 10% = 1

If more than 1 contact accepts the invite (let’s say 2), then the viral coefficient would now be 2 or 2 new users acquired.

x = 10 invites
y = 2 new users / 10 invites = 20%
v = 10 x 20% = 2

The viral coefficient is the key performance indicator you can use to measure the growth provided by your viral loop. In fact, once you know your viral coefficient, you can quite accurately predict future user growth. Next post we will talk about the viral coefficient relates to viral growth patterns.

What’s your Viral Coefficient?

We started the series by talking about What’s a Viral Loop? and saw examples of successful viral loops. Then, we went on to explain How it Works in the most basic form of a viral loop. Last post, we talked about how to calculate the Viral Coefficient – the measure of performance in a viral loop.

In this final post, we are going to show you how the viral loop relates to user growth rates. Ideally, you want viral growth!

Viral Growth

Remember the formula to calculate your viral coefficient?
v = x * y
where
x = average number of invites
y = new users / average invites

Here’s a table to match different viral coefficient values to their corresponding growth patterns.

Where does your viral coefficient fit?

Let’s go back and visit our example in the last post. We had v = 1 or we had 1 new user for each existing user – linear Most people would be quite happy with linear growth. I mean, it is free advertising through word-of-mouth testimony after all. But is that good enough? Is that true viral growth? Is there more growth available?

Let’s show it a different way, by observing a graphical comparison of different growth rates. To do, this we’ll start with 10 users and extrapolate over a series of time periods the different viral coefficient growth rates.

If you had your pick, which one of these three lines would it be? (I hope you picked the green one).

This graph shows a much clearer perspective of what true viral growth looks like – v > 1!. A viral coefficient greater than 1 provides an accelerated growth rate, that any social community should aspire to have.

Going back to our example, since we’re already at v = 1, small, incremental changes to either one or both of our two metrics with push the needle into viral growth territory.

1. Increase the number of average invites (x)
   x = 10 + 1 = 11
   v = 11 x 10% = 1.1
2. Increase the acceptance rate of new users coming from the invites (y)
   y = 10% + 1% = 11%
   v = 10 x 11% = 1.1

It’s that simple!

I hope you enjoyed this series on Viral Loop. Our goal at CloudSponge.com is to enable your social community for viral growth. Talk to us today, and see how we can help you to GO VIRAL!

In part 1, we talked about What’s a Viral Loop? and highlighted examples of successful viral loops, plus described the common characteristics found in a viral loop. In this post, we are going to illustrate how a viral loop works, so you can learn how to implement one for your social community.

How It Works

Viral Loop Example

This diagram illustrates a typical example of how a viral loop works. Many have coined this as “invite-a-friend”, “tell-a-friend”, “refer-a-friend”, “social invite”, “viral invite”, but they all pretty much mean the same thing. This is a common viral loop found on many social networking or community sites.

Here’s how it works.

1. Call-to-Action: Every viral loop starts out with a call-to-action (CTA) – a compelling reason why users would want to invite their family, friends, colleagues in the first place. Typically, this would be to join your community as a new user. Other examples could be to share interesting content, or refer to a product to purchase. The sky’s the limit for what’s the right CTA. Whatever it is, make sure it’s something people will want to act on and share with others.
2. Import Contacts: Once you have come up with a strong CTA, you will want to allow your users to create their own guest list. To do this, you will need to import their contacts from their favourite address book using a service like CloudSponge.com. Once you have imported contacts, you may also want to allow users to pick and choose contacts, rather than adding the entire list of contacts.
3. Send Invites: Now that your users have their guest list, it’s time to send an invitation. You will want to have a short message explaining why the guest is receiving the message along with a link to the CTA. Depending on the contacts imported and the CTA, this invite could be in the form of an email, Twitter update, or Facebook status update.
4. Accept: Once a guest receives the invite, they must choose whether or not to act on it. If they accept and respond to the CTA, congrats! – you have a viral loop. The more invites and responses you get, the more new users you can expect to add to your community.

So, there you have it – a simple viral loop anybody could implement for their community site. In our next post, we will talk about a viral coefficient – a key performance measure to evaluate your viral loop and predict future user growth.

Stay tuned…

Starting May 1, 2010, we will be offering our customers import credits on a pay-as-you-go, as-needed basis. This pricing model will give you the flexibility and freedom to buy credits whenever you need them.

Thanks to everyone who submitted their feedback! This pricing model supports what you told us you would be willing to pay for a contact importing solution. More importantly, we believe this pricing reflects the true value offered by CloudSponge.com.

Between now and May 1, CloudSponge.com will continue to be available at no charge for all customers.

Click Here to learn more about the pricing details.