Growth at the cost of quality

The country I live has seen an exponential growth in the startup sector. Billions of dollars being pumped in by investors, unimaginable user acquistions made in a short span of time and eye-popping salaries being offered to the deserving candidates and now employees is how startups have been getting all the limelight here.

But hey, I’m not going talk about what you already know, thanks to plethora of news sources these days.

What I want to highlight is that, are investors aware of the shortcomings? Is the growth which they are promised by startups of any value or or it’s just another way of inducing them to invest more?

Since I work for a social media app company, app install business is a very vital part of my professional life. Cost per install and app click rate are the words I live by now(Trust me, in a literal sense).

As interesting and overwhelming it was to learn about this business for me a year back, is now sadly mundane and repetative now.

Reason

Well I like to take upon realistic challenges(they are the opposite of what your management assumes as a challenge :P) wherein not does only the end result sate my hunger for achievements and appreciation, but also acts a great learning experience.

Problem

So bringing back the cake of startups to the table, the first cut I’d like to make is – Startups do have a vision, but in the rush to achieve so much often lose track of execution which is the key “stable” growth.

What I mean by above is, every startup in my country wants growth in terms of enormous app installs, but often forget about the key element i.e. quality of audience.

They would rather drill down and keep a tight check on cost per install, but seldom look at the quality of user base they are building. Getting an install for almost $0.30 is a not an impossible job here and that’s what these advertisers are interested in, CHEAP INSTALLS!

But what they ignore is the basic math –

Suppose firm X acquires 10 users/day for app installs from platform A at a cost of $0.30.

Average daily churn rate is 30% which means 3 users uninstall the app on the same day.

So now the remaining 7 users give a monthly revenue of $40.

Now on the other hand, we’ve another platform which promises 6 installs per day at a CPI of $2 but with a churn rate of 5% and average revenue per user as $400.

Moment of truth – which platform does the advertiser go with?

Of course, the first one coz all they want to achieve is the short term goal just to prove a point to investors that there investment isn’t going down the drain even though that growth might be simply futile.

You’ve been doing it wrong

The second cut I’d like to make is of user retention — So assuming startup X had done great job by acquiring a healthy group of users who have an average purchase pattern of $500 per week, but are these users loyal enough to stay ok your service for a long time?

Well, the answer is no.

You acquired these users by giving humungous discounts and offers. Never once did you try to differentiate your brand on the basis of other important factors like USP, quality/genuinity (major factor in India) or loyalty bonuses.

So ulitimately where does the user’s loyalty lie — to discount and offers. Hence, till the time you’re giving the customer heavy discount of their favorite products, they’d be your best buddies. The moment you pull the plug of discounts, they’d visit app store/google play and download your competitor’s app. And the worst part is, this can’t rectified either coz everyone is using this same strategy for user acquisitions.

So before you run short of money and the investor’s start breathing down your neck for ROI, start creating a user base which is acquired with an objective/tracking metric as “quality” and not volume.

Conclusion

Start with smaller investment on multiple platforms do gauge the quality of audience acquired (do a deep dive analysis of each platform). Once that is done, pump more money in the top ranking platform (as per the results).

Lastly, divide your audience into buckets to define a clean and effective re-engagement strategy to milk them. Obviously, that would come post understanding of user behaviour on your platform/product.

The catch

But here’ what, don’t immediately give up on the platforms which did not perform as per your expections. Maybe your strategy was wrong or your weren’t targeting the right audience.

Keep experimenting until everything fails coz every user acquired matters, but keep budgets in control.

Hence, start small and grow big!