How Headway Took Over the Microlearning Market in Just 3 Years
Breaking down the growth loop that rocketed 🚀 a tiny startup to the front of the pack in a crowded space
We are so back
A few weeks ago, I asked you which company should be the focus of the next Growth Loop Teardown ♻️. The people have spoken, and it was never a close race.
With one company taking a comfortable 80% of the vote, the polls technically hadn’t even closed yet when I cracked open the laptop to dig deep on the winner by a landslide: Headway.
As a reminder of how this works, here’s what to expect in this teardown:
👉 What growth loop(s) I think drive most of the product's actual growth
👉 How do they work (w/ diagrams, screenshots etc.)
👉 Why it works well for them
👉 What we all could imitate or steal
Let’s get loopy, shall we?
Here’s what you need to know about Headway 📚
Headway is an EdTech company with Ukrainian roots that was founded in 2019 by Anton Pavlovsky. In just 4 years, they grew from a 3-person startup into a team of 170+ people, serving tens of millions of users (more on that later).
While the company has set its sights on the broader education market and started expanding into new corners of it, the core of their business is the Headway mobile app, which offers a simple value proposition:
“Grasp the book’s key ideas in less than 15 minutes.”
If that sounds familiar, it’s because it’s essentially the same promise as Blinkist, Imprint (formerly Lucid), 12min, getAbstract, Shortform, and countless other apps.
But none of those other apps are seeing the same EXPLOSIVE growth that Headway has over the past few years, as illustrated beautifully by Thomas Petit:
So what is the growth loop that enabled a tiny startup launch “yet another book summary app” into a crowded market & become the undisputed market leader in just a few years?
And the answer is ….🥁
Well, the short answer is paid ads 🤷🏻♂️
The long answer is more interesting, because the details mean everything.
Wait - paid ads are a growth loop?
Many people are surprised to hear that paid ads can be a "growth loop” - isn’t the exact reason we try to find growth loops to avoid having to burn money on ads?
What makes a loop well, a loop, is the fact that it’s self-reinforcing.
More input => more output => more input => and so on indefinitely.
The problem for many, many companies is that they haven’t managed to make paid ads function as a loop, yet are still desperately spending on ads anyway.
But if you can spend $1 on ads to earn $2 in revenue and quickly* reinvest that $2 into more ads, it’s a loop. I don’t make the rules. 😂
A shout out to the OG
Headway isn’t the first app in their space to reach massive scale with paid ads.
Blinkist actually did it first. You know those ads:
“The average CEO reads 52 books a year”
“The company that’s harder to get into than Harvard”
“Meet the app that all the intellectuals are using”
By working with Outbrain before other apps (those ads at the bottom of news articles, etc.), they found a way to put their ads EVERYWHERE for a fraction of the cost of traditional channels.
But even they couldn’t keep up when Headway burst onto the scene.
So buckle up, this teardown is going deep on how Headway cheaply acquires users, monetizes them quickly and profitably, and reinvests to scale fast.
The Loop
Here’s what the basic ad loop looks like:
Basically, ads bring users who pay money, which is used to buy more ads.
In the case of Headway, the vast majority of the ads run on Facebook and Instagram, and those ads lead either to the app store, OR to a web experience.
In an appearance on Steve Young’s App Marketing by App Masters podcast, Headway Product Manager Yeva Koldovska sketched out the different user journey nicely:
Variant 1:
Ad ➡️ App Store ➡️ App ➡️ Buy Subscription in-app
Variant 2:
Ad ➡️ Web Onboarding & Purchase Funnel ➡️ App
Variant 3:
Ad ➡️ Web “Landing” Page ➡️ App ➡️ Buy Subscription in-app
We’ll get into the details, but here is roughly how loop looks for Headway:
A game of inches
Paid Ads are what’s called a “constrained domain”. Competition is insanely high, everyone is playing by the same rules, and success usually comes from finding and exploiting a series of small advantages. In a constrained domain, 1% here and 1% there make a big difference.
To properly function as a loop, a few criteria need to be met:
Profitability
Payback
Scalability
Let’s take a closer look at how Headway manages to meet all 3 of these criteria, and - maybe more interestingly - the advantages that help them “spin the growth wheel” faster than competitors. 👀
Sweet, sweet profit 🥰
There’s an old business joke that goes something like this:
"We lose money on every sale, but make up for it in volume!”
Of course, this is a recipe for disaster, but it’s actually what many companies are doing when they try to grow through paid ads.
Simply put: the revenue you earn from users MUST be higher than the cost of the ads you ran to acquire those users. Marketers use metrics like LTV:CAC and ROAS to measure how profitable their ad campaigns are.
In the case of Headway, they offer a variety of different subscriptions, but their “core” offer is an annual plan with a list price of about $89.99 / year in the US and other “Tier 1” markets. Pricing differs by country and they offer a variety of different discounts (more on that later). Odds are that Headway’s has an average customer lifetime value of slightly less than that (say around $70-80 net of app store commissions), and word on the street is that average CAC was around $30-40 at the point when they rocketed past Blinkist.
These numbers are fuzzy because they are not channel-specific, but it’s clear that paid ads are the primary acquisition channel, and it’s likely that a huge portion of their organic downloads are actually a second-order effect from their paid ad campaigns (basically: people see an ad, try the app, then tell their friends about it - technically it’s a combination of a paid loop and a viral loop, but one drives the other).
Ultimately, it seems they approximately double their money on every dollar they spend on paid ads. 🤑
But how do they manage to acquire users profitably - and more profitably than competing apps?
Here are a few key components of Headway’s game:
Bold but smart discounting increases revenue per user
If you’re not in the subscription mobile app business, you might be surprised to hear that for most apps - even Freemium ones - around ~80% of revenue come from subscriptions initiated in the user’s first session. Headway understands and leans into this more than any app I’ve ever seen, using a very smart approach to monetizing new users.
At the end of their onboarding (side note: we could dedicate a whole Teardown to that onboarding), users are offered a 7-day free trial that converts automatically to a yearly subscription (e.g. at $89.99). This is par for the course for subscription apps, but what they do next is fascinating.
Statistically speaking, as soon as the user declines that trial in onboarding, the odds of that ever converting drop massively. But Headway has a unique and clever way to overcome this.
If a user does NOT opt for the free trial, as soon as they drop into the “main” app experience, they see a pop-up that offers the user "a “Gift For You”. As a user, you open the gift and discover: a MASSIVE discount on a yearly subscription (no trial this time).
Most apps would shy away from this, either because it feels a bit “icky” or “desperate” to be offering a massive discount in that moment.
But this is actually SO smart, because the user’s motivation level typically peaks during their first session. They’ll never be this motivated again (they literally just “signed” a commitment pact in onboarding) and, they are statistically unlikely to ever pay full price since they declined the trial. From the combination of those 2 facts, we can assume they are probably price sensitive.
And now, BAM! Headway making $45 for an annual subscription from a user that otherwise was probably never going to pay a dime.
I don’t know how much revenue comes from this offer, but I suspect it’s a meaningful chunk. And every time a free user comes back to the app, this “gift for you” notification sits on the home page, tempting users to check it out.
While this might bring DOWN the average LTV per paying customer, when you think about this on a “LTV per user” basis, an approach can make a huge positive impact, which is incredibly important since they are paying money to acquire each user through ads. This is also a good reminder to think critically about what you optimize for. 😉
Web-to-app user journeys drive conversions & net revenue
In a post-iOS 14.5 world, web-based onboarding for apps has become increasingly popular, but Headway seemed to really lean into it early and more heavily than other apps.
By having ads leading to web-based landing pages (leading to the app store) or even web-based onboarding, Headway is able to capture more profit in a couple of different ways:
In her interview with Steve Young, Yeva Koldovska also mentioned that by running ad campaigns beyond the usual “app promotion” campaigns, they’re able to reach a totally different audience that uses Facebook on their laptop - an audience that is typically a bit older and has more money to spend.
In the case of web-based onboarding, they are also collecting payment on the web instead of via the App Store, which means they also conveniently have avoided paying Apple/Google’s commission on those customers 😬.
These journeys also help them gather more data on users than would be possible with app campaigns alone (particularly for Apple users). Speaking of which:
Creative Targeting: matching topics to audiences
Anyone who has tried to run a paid ads program in the past several years has learned (often the hard way) that your success will boil down to finding “winning creatives” (i.e. highly effective ads). People like Nick Candler (ex-Calm) have made a science out of this (check out his blog The Meta Game).
But in Headway’s case, there’s an additional wrinkle. Their value proposition and content library is extremely broad, so there are many different customer segments using it for very different purposes.
Most are pursuing some kind of personal growth or more productive alternative to social media, but what that looks like varies drastically. Some people use Headway to learn how to improve their fitness. Some use it to improve family & romantic relationships. Some are looking for career or business advice.
So what do you put in your ad? Headways has taken a topic-driven approach. There’s usually the undercurrent of a “personal growth challenge” and a notion of “stop scrolling, start learning”, but the ads vary quite drastically in what kind of books and themes are highlighted.
Their game is simple in theory and complex in practice: use data to try and match the right topics to the right audience.
For example, I ONLY ever see Headway ads that are hyper focused on business success. But others might see fitness-related offers, or ads focused on parenting, or generally “getting your shit together”.
In the App Masters podcast I mentioned earlier, Yeva Koldovska dropped a few hints here.
In the onboarding of the app, user are asked a LOT about their topic interests, challenges, goals, and much more. So they gather a ton of data and use that create personas, and create ads designed to appeal to those different personas they see.
To gather more information about their audience than they normally be able to in a post iOS-14.5 world, they use tactics like web-based landing pages & web-based onboarding to more capture data about users.
This data can be used to help find & appeal to the right niche audiences for different ads. Note: Yeva is not on the UA team, so how this works in practice is probably very nuanced.
The end result though? More “personalized” feeling ads are more effective, which likely leads to higher conversion rates and lower customer acquisition costs.
And at scale, that personalization can become a competitive advantage. 🤓
Bonus: Finding value beyond Tier 1 markets
When comparing Headway’s traffic to Blinkist’s on SimilarWeb, one thing that struck me is how Headway’s traffic seems to be more geographically diverse.
Headway is not one of those apps that only targets the US/UK/Northern Europe. They’re finding customers in markets that are considered “harder to make money in” but that also are cheaper to advertise in.
Like many apps, the vast majority of their subscription revenue comes from Apple users, so my guess is they’re doing things like targeting English-speakers with iPhones (read: rich people) in less competitive geographic markets when competitors were hesitant to do so or couldn’t make it profitable (more on that when we talk about monetization).
Payback makes you rich 🤑
While it’s great to acquire customers profitably, you also need to get paid quickly enough to continuously reinvest your profit into more ads.
This can be a big problem for subscription businesses that get paid slowly over time (think about your classic monthly subscription business). If you can’t keep ramping up your ad spend because of cashflow issues, you’ll struggle to keep the “loop” going.
While Headway does have monthly and quarterly options, the majority of customers are on one of 2 types of yearly plan we mentioned earlier:
The yearly offer in onboarding (full price, with a 7-day opt-out trial).
A heavily discounted annual plan offered to all free users who declined to do the 7-day trial (more on that later).
As a result, they capture MOST of a customer’s lifetime value up front (let’s say on average, it might be around $50 net of App Store commissions).
Discussing the exact payback period for mobile apps can be complicated, because the App Store typically pays out proceeds only once per calendar month, with 1 calendar month delay. So that means from the moment a purchase is made, it can take anywhere from 4-8 weeks for the developer to actually get the cash.
For that reason, several companies have popped up that specialize in “working capital for user acquisition”, where essentially you get paid back faster in exchange for giving them a small cut (shout-out to Pollen).
At Headway’s scale, I think it’s safe to assume they’ve found a solution like this, and recoup their ad spend within ~2 weeks or so.
If you can turn $35 ad spend into $50 cash every 2 weeks, things get interesting fast.
It’s hard to comprehend without running the numbers, so to illustrate, I made a spreadsheet with some rough napkin math.
Basically, with those kind of economics, your biweekly ad budget can go from around $1000 to $17 million within a timeframe of 1 year. 🤑
Note: I don’t know how much Headway’s actual ad budget is, and this kind of model is very sensitive to small changes in the assumptions. If you play with the numbers though, it really reinforces the point about paid ads being a constrained domain:
A small difference in LTV or CAC changes the math completely - just a swing of a few bucks in the wrong direction can turn a money machine into a lifestyle business, and a lifestyle business into a money pit.
Still, this example makes it clearer how a no-name startup like Headway could become the market leader in such a short period of time.
Let’s get scalable 🎵
Assuming you are able to acquire customers profitably with ads and recoup your cash + profit fast, you still need to be able to actually reinvest that money for the loop to work.
That means you need a LARGE target market, otherwise you’ll exhaust your audience quickly.
And you need an ad platform that makes it easy to reach those people continuously. For example, you’d struggle to build a loop around Super Bowl 🏈 ads because the opportunity only comes once a year.
In Headway’s case, their product appeals to a broad audience that they are able to reliably reach through the Facebook ads platform.
Why this loop works so well for Headway in particular
Headway has a few characteristics that make this paid ads loop work especially well for them.
A large target audience
What percentage of people do you think would agree with the statement: “I want to read more books but don’t have enough time”?
Like…everybody? I think you could argue that the market potential for book summaries is probably larger than the market for actual books, and Headway has thousands of titles.
That’s important because paid ad loops scale fast, but run out of steam just as quickly if your audience is too small or your offer too niche. As your unit economics get squeezed, the loop collapses.
A broad offering
Because Headway offers many different books on many different topics, they have more opportunities to tailor their ads & messaging to their audience, and give people the feeling that the message feels personalized and highly relevant, and also enables them change things up more easily so people don’t get sick of the ads. A single-product business usually doesn’t have that luxury.
User’s willingness to buy annual subscriptions paid up front
I want to stress that nothing about this loop would work if Headway wasn’t so successful in getting users to pay up front for the year. Even if their customer lifetime value stayed the same or even increased, the model wouldn’t work nearly as well if all of their customers were on monthly subscriptions.
That’s a nice thing about personal growth as a category, is it kind of has that “gym membership effect”. People join & pay in a moment of maximum willpower, and are more willing to go long-term right away because they want to stick with it.
Pay yearly for Netflix? No thanks, I’ll go monthly. Pay yearly for an investment in my growth and learning to better myself? Let’s go.
A culture of experimentation & dose of bravery
Headway tries a lot of stuff, and they also try stuff that others are too scared to do.
Offer a massive discount immediately after onboarding? Most app marketers would never be willing to do this because of a fear of looking “cheap” or user backlash.
Lean into web based onboarding knowing that Apple or Google might not like it? They did it before many others.
Use cringey, lame hooks in their ads (e.g. “Take the 28-Day Real Man Challenge”) because it might work? That might not have got the go-ahead at other companies, but Headway was willing to try it, and guess what - it works!
Will it last? 🔮
Hard to say.
The thing about paid ad loops is that they almost always degrade over time. Headway most likely are already not enjoying the same unit economics today that they had during the period when they rocketed past Blinkist et al.
In order to keep the party going, they’ll need to continue finding ever more ways to monetize users quickly and profitably to counteract (likely) increasing acquisition costs.
There’s already some evidence of pressure here, as Headway has started putting more and more effort into building out a B2B model as an additional revenue stream. Usually when a B2C company does that, it’s because the unit economics on the consumer side are becoming more and more challenging.
I for one will be watching eagerly 🍿
But either way, what a ride! 🚀
What you can learn (or steal) from Headway
I can think of a few takeaways here, but let me know in the comments if you had additional ideas.
Get creative with discounts
That “gift for you” offer from Headway is so incredibly simple yet likely SO impactful in terms of making the unit economics of their model work. Are you missing out on opportunities to do the same in your business?
I think this could work particularly well if you are in one of those “high motivation" spaces like: Health, Fitness, Education, or Personal Growth
Be willing to ask a lot of questions in onboarding, and use that data to your advantage!
In that episode of the App Marketing by App Masters podcast, Steve Young and Headway Product Manager Yeva Koldovska talked a bit about how they use data from onboarding to run more targeted ads and build data-driven personas.
But it’s also a great way to tailor the user journey to drive more conversions and higher engagement.
Friction in onboarding is often seen as universally bad - but there’s GOOD FRICTION and BAD FRICTION. Asking a question that helps you create a buyer & user journey that feels slick and personalized is almost always worth it, even if that means an extra tap.
Find lean ways to take advantage of additional platforms
Headway has had a lot of success with both web-based landing pages (for topics mentioned in ads) leading to the app store, AND with web-based onboarding.
It has helped them tap into new audiences, gather more data than they would be able to by sending people directly to the App Store, and it has likely made them significantly more profitable.
Many product teams are (for good reason) very wary of going multi-platform too soon (“you want a web app too!?”), but Headway’s approach shows this can be done in a relatively light-weight way that is 100% worth the additionally complexity.
Ok, that’s it for this edition of Growth Loop Teardown! What were your top takeaways? What did I miss? Who should we Tear Down next?
Let me know in the comments!