Our growth isn’t working.
Our growth isn’t working. Our numbers are going up, but we all know internally it’s from a bit too much of a lean on paid acquisition. The people who use our product love it loudly and tell their friends and acquaintances. We’ve got good retention and incredible engagement. It’s clear that we have the early blooms of product/market fit.
But really, we haven’t found enough users. And more importantly in advance of a Series A, we haven’t found a repeatable plan or replicable channel.
It’s late December 2019. I feel like we were just here. See my viral tweetstorm about the chaos and depression that we lived in December of 2018.
This time, the challenges are different. We have capital (whew, immediate existential crisis relieved). We have users; we have products that work; we’ve even got great feedback coming in. We’re on the precipice of solving a massive problem. Everyone knows that the benefits system (taxes, retirement, health insurance) doesn’t work for independent workers or the changing workforce.
But our numbers just won’t explode. I don’t really know why I think they should. Everything we’ve tried has been a toe dip into things other people tell us might work. Content. Write a handful of blogs. SEO. Try to rank a few words. Social media. Post a photo, maybe two. Partnerships. Put up a couple landing pages. Press. Get a post on some named sites.
Why don’t we have a million users yet? I don’t know. I’m not a very patient person, but I’m pretty sure we’ve done everything we need to be an unstoppable rocket ship. What gives?
Everyone in our orbit believes we’re onto something big. Investors from top firms, academics at ivy league schools, think tank gurus at the leading institutes, politicians, Twitter: all asking for time to discuss portable benefits and the changing nature of work.
As a storyteller, I’m often far too quick to oblige. Everyone loves positive feedback, and I’m incredibly passionate about the future we see where there’s a personal safety net that expands and contracts automatically as your work status and needs change. It’s elegant. It’s turning all of the System 2 activities of manual financial management into System 1 subconscious problem solving using technology.
At the end of the year, though, I had an important realization. If I didn’t refocus my energy on finding the people who needed our product in a systematic and cost-effective way, none of the rest of it matters. The investment we’ve received to date is not to make me a “thought leader.” It’s to deliver an ambitious solution to a complex problem for millions of people who need it.
The suggestion from most people is naturally to hire someone great. Find an A-player growth person at a fast-growing startup and woo them with equity and the opportunity to lead something that will be huge. As the CEO, my job is to bring in great people, give them direction, and let them excel.
While it’s true that I need to hire great people, the question of when to hire them is not always as clear. Most companies that have raised what we have raised should be hiring for this type of role. We shouldn’t. Not yet.
Because of the complexity of the integration and product we are building with legacy insurance systems, investment infrastructure, and banking (arguably the most modern APIs of the bunch), we needed to raise a lot of money. $6.1M in VC to kick off 2019, after bootstrapping a few million to get the product off the ground, was necessary.
Compared to other Seed rounds of $2–3M, the investment made it seem like we were much further along on traction than we were. We believed it somewhat ourselves. If we raised 2x, we must be 2x as successful. Obviously this isn’t true, but it’s hard to keep perspective on everything all at the same time. When it came to traction, we were still in our early crawling stage.
So when I realized that I personally needed to be the one leading the charge on building our first growth channels, I got some push back. I was reminded my job was to steer the ship, not print flyers and hand out t-shirts at events. But I think that the pushback I got is because I was being compared to the size of our investment. This point of view misses a few things that I’ve come to realize about early traction.
[These insights, by the way, are framed mostly in my world of B2C with a frosting of FinTech on top. I know nothing about enterprise sales, marketplaces, or social networks. Sorry.]
Early traction can’t be outsourced
Most VC-backed tech founders are product people. They want to build a thing to solve a problem, and that’s great. They often have technical (my cofounder) or industry (me, financial services) expertise that gives them unique insight into a product that could exist.
Rarely do people start a company because they are passionate about building distribution channels. I guess it happens, but from my vantage point, it’s incredibly uncommon.
Founders then have a choice: do I spend my time building the product only I can see or finding the channels to deliver that product? Most choose to build for obvious reasons.
So, traction gets outsourced. One way traction is outsourced is to pay for it: digital channels with really high CAC do still work if your goal is just to get people into the product. The second way is to hire a person to be in charge of traction: growth, acquisition, marketing, whatever you want to call it. Let someone else be accountable for growth metrics.
Neither of these strategies works.
Paying for traction covers a lot of problems. And a lot of companies go pretty far if you’re good enough at fundraising to mask the unit economics problems until an exit (see: S-1’s of almost every unprofitable company in the last five years). Tides are changing, though, and a focus on profitability (rightfully) is more of a priority in earlier stages. Paying your way to traction will probably sink your Series B.
Hiring someone, on the other hand, seems like it could be the right idea. But before you’ve put in the basic building blocks, seeding a growth team creates a lot of overhead when you don’t even know what traction will look like. Andy Johns also makes a good case for why even after the initial legwork is done, a growth team may not be right for your company. In fact, I don’t think it’s right for us at Catch.
Founders must build the first successful traction channel
Founders need to lead early traction for three reasons:
- An intuitive understanding of the mission and vision before you have product/market fit is very hard to communicate
- The ability to fundamentally change direction after feedback requires complete autonomy in decision-making
- Being close to users/customers is critical to making a better product and roadmap more quickly
While talented growth people could maybe do the job with the right understanding of the mission and enough autonomy, it isn’t actually good for the company if the founders release this responsibility too early.
One of our advisors recommended I read the book Traction. I have. It’s a bit dry, but I acknowledge it’s a gold mine of tactical advice. Every early stage founder should read this book.
To paraphrase a major section of the book: you should spend an equal amount of time on product and traction. Having founders deeply involved in the execution around building traction makes a better product.
Founders who have no understanding of or passion for getting to know their users are very unlikely to succeed. They won’t be able to adapt or grow quickly enough to respond when the market doesn’t match their expectations. (If you’re considering taking a job at an early stage company, ask questions to see how deeply founders know their customers.)
Building a traction channel is hard
Ok, maybe this isn’t the insight of the year. But it’s worth pointing out a few things on why it’s hard to get your first channel working.
Talking to potential users is scary. There’s a lot of rejection and indifference. It’s a much safer place to talk to a podcaster who tells you you’re amazing. A lot of writing has been done on how to talk to users and why it’s hard, so read more about it here or here if you’re interested. Intuitively, though, I think we all understand what it feels like to have people be apathetic about something you spend all day every day working on.
Traction is also hard because a lot of companies do what we did last fall. Founders don’t know how to build traction so you try a smattering of tactics that other people have said could work. You don’t really know what “work” even means, so you’re throwing wispy little spider webs out into the universe unsure of how they’ll ever form a net for you to bring in users with.
The best channels that you’ve probably heard about are also ones that are already on their way to being saturated. It’s one of the things that I’ve always found fascinating about marketing. As soon as something is a “best practice,” it’s often either super vague or not good enough to give you a competitive edge. And startups have to have an edge in acquisition, because we’re often up against companies that throw $5M at a single commercial during a football game.
Knowing that traction is hard and that it’s my job to figure it out is a good place to start. So we’re back to Catch and where we started 2020. What are we doing next? How do we break our dependency on paid acquisition and build our first channel? I’ll break down our Q1 strategy and our traction efforts in Part 2.
