Loops compound indefinitely, funnels leak forever
A funnel is linear: users enter at the top, some convert, most drop out (leak). Each cohort of new users requires marketing spend to refill the funnel. A growth loop is circular: users trigger actions that bring in new users. PayPal's referral loop paid users to refer friends, and each new user could refer more. Slack's network effects loop made each new team member invite colleagues. Uber's driver referral paid drivers to recruit other drivers. Once a loop is spinning, growth becomes self-sustaining; you don't need constant external acquisition. The catch: not all loops are created equal. PayPal's loop required cash subsidies and was expensive per acquisition. Slack's loop was organic (network effects are free). Uber's required ongoing driver recruitment spend. A real loop compounds only if the viralizing action is frequent, frictionless, and incentive-aligned.
Building loops requires changing how you think about retention
Funnel thinking focuses on conversion rates: what percentage of sign-ups become users? Loop thinking focuses on viral coefficient: how many new users does each existing user bring in? A 1.2 viral coefficient means 100 users bring in 120, which brings in 144, which brings in 172, and so on. A coefficient above 1 grows forever (with diminishing returns from market saturation). Below 1, the loop winds down. Changing from funnel thinking (focus on top-of-funnel marketing) to loop thinking (focus on user actions and incentives) requires product and financial restructuring and often cannibalizes near-term metrics (cheaper acquisition) for long-term sustainability.