I was in SF and heard a pitch from a very interesting startup. The founder showed how they had lots of partnerships with big companies that were trying to better understand their users. What was strange was that the big companies didn’t give the startup their users information. The startup had found a way to get the big company users into their app. Sounds strange? Hard? Difficult? YES, because it is.
This strategy I'm going to explain I call it “fly fishing” and it’s because of the similarities it has with the sport.
Brief explanation of the sport (which I’m not an expert in). The most important part is that you have to catch the fish without using bait. Why? Because a fish caught with bait will swallow it and you will have to kill (in most cases) the fish if you wanted to take the hook out of it to put it back to the river. Using flies instead of baits makes it a “sustainable” sport (or ethical/fair if you want) due to the fact that you don’t kill the fish.
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I explained a version of fishing with bait when I wrote the post “1 trick to get a VC.” You get one company as a customer (the bait) that is also part of the VC portfolio, to later obtain the meeting with a perfect referral. If the fish or shark (VC) eats the bait (portfolio co’ w/referral) then be prepared☺
So let’s move to our example, that doesn't involve getting a VC directly but will explain how it does indirectly.
When you fly fish you use flies (you didn't expect that surprise). You throw the line over and over to the river (casting). The idea is that the fish will see the fly and eat it. Because they will realize it is not bait (food) they will spit it out or avoid it. If you cast fast enough times you will “catch” a fish. But often you will lose the flies while casting fast. You create so much friction at casting (acquiring users) that you lose flies on the movement. Is it worth to catch the fish?
In our example the flies are our users. To be able to obtain your users you buy them cheap (same as flies that you know you will lose). You maybe remember how PayPal grew their user base by paying $10 for a sign up + $10 for referring a friend. This made them grew exponentially. The difference it’s that their strategy was to keep that users and transformed them into paying customers. Well, here it is the same with flies, you can buy as many as you want while you still pay for them.
The problem is that your strategy is not to get users but get the fish. In the startup strategy the fish are big companies that have in common the users we are buying (but they already have them as paying customers).
So as an example; I pay to obtain users in an specific city that I know they will probably be also paying customers of the retail stores (restaurants and supermarkets). My interest are not the paying customers (short term) but being able to leverage them with the retail stores. This could be for better engagement, selling more to them or build loyalty. I’m interested in the retail stores because they are the one with big bucks (specially for marketing, aka ads).
So the strategy goes like this:
I want to get the big companies as customers but they won't talk to me because I'm a little (no traction) startup. So I buy users with a filter that makes them the specific target customers of a big company. I get their data and then go to the big company and I try to leverage them and get them to pay me to keep them engaged and loyal.
On the fishing side you cast and bring back and as you do you lose flies. The same with customers because they feel manipulated (specially when you are asking for all their data even if you are paying them).
If you get enough users (or enough casts) you maybe can get the big company (fish).
This strategy can work but it’s very very risky. Mainly because if the company knows that you are using their brand or name to target the users, you can get a letter of “Cease and Desist” which is the fish just knowing you are trying to fish her and just leaving that part of the river and swimming away.
When the strategy works you get one big company to pay and their LTV (life time value of customer) is bigger than the CAC (customer acquisition cost) of the users so you are locked down and good to go. That’s what startups think. “I got the big company as a customer! Recurring revenue!”
What they don't understand is what made the company start paying you (users) will fade away if you don't provide real value to them.
Money (in small quantities) is a limited motivation and
won’t stand the course of time.
Maybe it will get you enough time to try to get funded. Here is where the strategy indirectly tries to get you a VC meeting. I will say that startups that use this strategy are always thinking about raising funding. If they are using it as a long-term user or partnership acquisition it won’t have a happy ending. It’s unsustainable.
Remember that in fly fishing, even if you catch the fish, you need to put it back in the water and try to catch it again. You need more flies to keep the fish coming. You need more users to keep the company paying. But without real value, you run out of money, and then out of flies & users.
Think twice about going this path. It’s not only a risky (legally speaking)
but also an unsustainable one.
The only real sustainable thing about this strategy is the natural ecosystem of the river. In other words, you need to first give value to your users to later be able to get it for your startup.
PS: Hope you find this post helpful. If you did please share it with other founders. Also tell me on Twitter how it went, I’m @JDcarlu
