I’ve been reading this conversation last week and the subject has been on my mind since then. So here it goes, my two cents.
What Marco Marandiz states I find it to be true: many brands are running their business exclusively on paid. And it goes beyond that. If you hear we’re looking for a marketing expert, technology strategist or growth hacker, be almost sure they’re talking about Facebook Ads, Google AdWords, retargeting and programmatic.
Growth hacking & Growth are often times confused and fully identified with paid, DSPs, third party data, personal data a̶b̶u̶s̶e̶, m̶u̶d̶d̶y̶ SEO practices and the list goes on. And it can’t be further from the truth.
A growth hacker is supposed to drive growth through retention, upsell, organic acquisition first, then find the right balance with paid. And I may add here, with a care for ethics and respect towards consumers along the way — you know, zero-party data and trust.
I’m totally NOT head over heals on DSPs and programatic — that’s not growth hacking, btw! They’re some of the most expensive, dirty, misused and overestimated forms of growth, when used as single life-line for brands.
Why isn’t paid THE solution, specially for early stage startups (but also for large brands)?
1. If your product can’t succeed in gaining at least some organic traction, you’re either doing something really really wrong and /or you lack product market fit.
What can you do so wrong? Well, let’s see: the product has major quality issues and doesn’t deliver on its promise; your UX / design delivers a sub-par user experience; anything that might detract your current user base from spreading the word and recommending your product to others. That’s how organic growth works.
What happens when you rely solely on paid? Well you can gain paid traction. Nobody says you can’t. There are enough people out there to find some who are attracted to your promise. But the cost of conversion is at a level that you’re practically throwing money out the window.
There is (or was) a rule of thumb for seed investors: LTV:CAC ratio at 5:1 or at least 3:1. That means the CPA should not go higher than 30% of LTV. It goes without saying, if you’re spending $200 and your consumers spend on average $200 on you, that’s definitely not a model to predict success.
Paid conversion is tricky, fickle, whimsical, prone to seasonalities, inflexible with your budget. Stop or reduce your ads volume for a month or two and you’ll start optimising from scratch. When you have to deliver MoM growth to performance reviewers, it won’t be so easy, nor fun.
2. LTV:CAC ratio is not exponential by definition.
When talking about high growth, I’m thinking about the hockey stick. Relatively exponential. But LTV:CAC is a ratio. It delivers linear growth.
Money in, money out. You put 1 you get 3. You put 2 you get 6, shall I continue? Fine, fine, the more you spend, the higher the chances the CPA will go lower, but I’ve never seen a CPA hockey stick. Not down, anyway.
Relying solely on paid to deliver growth, is like relying solely on Newton laws of physics to build a space ship that travels between stars.
3. Paid doesn’t build you a MOAT
If there’s one question that used to drive me crazy in every pitch presentation was “What’s your moat?”. It doesn’t make it less valid. It’s true that words like IP, patents, proprietary technology is music to investors’ ears. But building, nurturing and expanding your loyal base should be the music to yours.
Can you build loyalty only through paid? Can you build a moat through paid? Do you have that much money and are you willing to spend them like that?
What happens when the next competitor, with a next generation tech, comes with a smart strategy that combines organic, retention and paid, at a lower cost than you? How long will your customers stay loyal?
These are top 3 on my mind right now. A fourth one, personal: I find paid practices to often be misused and slip into the dirty, muddy, unethical and thieving territory. Not going to mention in detail the almost weekly bits of Facebook accepting to pay back advertisers for faking reports or Google unethical practices. There’s AdContrarian for it — totally recommend you subscribe to his newsletter, btw.
So what’s left to do? OMG!
1. Organic growth is about word of mouth and referral. Yes it can be incentivised, it can be encouraged, it can pushed, but it also has to be nurtured in an honest way.
So first, make sure your product delivers. If your product is below expectations and consumers are not happy with it, no strategy, smart gimmick, tactic and viral, no human being can drive sustainable growth, long term. Fix your product than go-to-market. A necessary but not sufficient condition.
2. Organic growth is about accessibility and reputation.
What does that mean? SEO, ASO, voice search. Reviews and ratings. Customer Support. Whatever facilitates a user’s access to information about your product, access to your product (duh!) and gives them a positive perception about you.
3. Finally, it’s about growth loops, product hacks and micro hacks. And you can read more about it here: https://www.reforge.com/blog/growth-loops.
And the joke from the title is on me :P … nothing will change after this post.