Stop Buying Your Users

Forget conventional wisdom — your direct response (DR) dollars are in the wrong place. Ben Lerer explains.

Let me say this first: I’m all for marketing and paying for users under the right circumstances. If you truly understand your customer, your margin profile, your lifetime value, and what a user is actually worth to you, then sure, buying users can be a good tactic.

But let me ask you a tough question: why do founders continually try to raise early stage money to “invest in marketing?” Because there’s a good chance it’s the wrong move.

There’s a pervasive startup belief that this magical user acquisition arbitrage exists. It’s a reaction to the rapid response of Facebook, Google, and the other CPA-driven, self-service, limitless-inventory destinations. They created an expectation that you can immediately start growing by spend alone. While this might have been true a few years ago, like in those few special moments right after Facebook first launched its mobile News Feed ad product to drive app downloads, it doesn’t work anymore. Every big brand puts big money into direct response and bottom-funnel platforms and programmatic display, and unless you’ve got something special beyond DR, odds are you’re just throwing money into the void.

To this point, I see plenty of companies with unsophisticated products hiding behind their DR marketing spend to drive revenue. Sure, it looks good on a graph and gives them the metrics they need to raise money, but it’s not sustainable. Even worse, it masks major problems; even with an enormous pool of potential users on social and digital, if you don’t have a killer product with an avid customer base, you’re going to dump money into user acquisition until you run out of steam.

Here are the high-level questions you should be asking yourself:

  • Am I building a sticky product that people want?
  • Profitability aside, do the users I acquire actually love my product?
  • Are my customers becoming brand advocates and power users?
  • Am I sincerely looking at the behaviors of my users and their interactions with my product, or am I just worrying about my acquisition funnel?
  • What big, brand-building moves am I making?
Ultimately, before you ever think about your marketing dollars, you should be focused on creating a truly unique brand that’s conversational, that’s special, that sells itself, and that will grow with or without marketing.

For example, if you’re Warby Parker, you put your dollars into developing a home-trial program. Instead of shouting, “Our shit’s only $99!” at the world, you invest in creating an experience that actually lets people wear the product. If you’re Casper, you spend the money giving people 100 days to try out your mattress, and giving them time to experience the difference it makes in their lives when they’re sleeping well.

If you don’t have a killer product with an avid customer base, you’re going to dump money into user acquisition until you run out of steam.

If you’re Chubbies, you spend it in an incredibly rapid product development cycle where you’re constantly rolling out new, limited-run products just for your audience. If you’re Everlane, you put your money back into your product and lower your price point.

And look at The Black Tux. They spent nothing on marketing for years, and built a brand with great service that spread through great word of mouth. It was only after they really understood the behaviors of their users and perfected their referral program that they eventually started to target a very specific paid user. Because of this approach, they grew enormously on limited resources, and the depth and breadth of their customer understanding became a part of their marketing strategy. And that’s the way this should work.

I know the long game isn’t easy. It takes a strong constitution and conviction and patience because it doesn’t happen overnight.

Delayed gratification is tough, but when the world “bubble” is floating around and you see later-stage VCs tighten their belts, you should know they’re not going to be looking at your top-line number. Instead, they’re going to want to know that you understand your margins, your lifetime value, your path to profitability, and your relationship with your consumer, and unfortunately, your Facebook budget can’t give you that info. It might not be the conventional wisdom, but moving your dollars out of DR and into your brand is going to help you win and win and win every time.

Read more about Ben Lerer and the rest of the LHV team, and check out other Lerer Hippeau investments.

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