Get out of the paid growth trap?—?focus on product

In the past few months, I’ve been in board meetings, pitch meetings and product development meetings in which a disturbing trend has emerged: the solution to nearly every problem involved very expensive marketing and sales tactics.

• Overall unit economics and growth were solid, but when growth was stalling, fixes in paid marketing were the proposed solution
• Inbound “organic” and/or rankings increased with more SEM/SEO spend, so current spending levels were viewed as a floor and growth was dependent on more spend
• Customer conversion was slow, so sales resources were added

Pouring on paid channels is an addictive way to grow because you can turn them on quickly. They are feedback loops that allow hyper-optimization and clear ROI, and if you execute well, you can find great product/channel matches that pay off handsomely in some kind of growth. I’ve seen different startups find these channels in outdoor advertising, endorsement radio, Facebook/Instagram, YouTube, app store optimization, classic SEO/SEM, and turning on SDRs or sales tiger teams. Marketing’s job is to bring users to a product’s front door, so of course, you need to invest in acquisition channels but it’s the over reliance on paid/expensive solutions that I’m cautioning against.

No matter the channel or method, at some point saturation or stalls occur. Paid growth can mask the fact that a company hasn’t found what its target market truly values; it may even hide the fact that there isn’t true product market fit. In B2B cases, expanding a funnel before good PMF is defined also runs the risk of making conversion from your funnel worse. This only gets more complicated if the company has already reached some level of scale. The product processes are often not in place to rapidly iterate what should be the foundation of growth and conversion all along: great product.

Know that while good product does not guarantee success, great success isn’t possible without it. Our best performing companies — even in today’s hyper competitive environment — still grow fastest organically (Quizlet), have high NPS scores (Roadster +85), and are named leaders in their categories because of their product’s value and vision (Alation — Gartner MQ & Forrester Wave leader).

Don’t mistake this as saying you don’t need paid acquisition as part of a growth strategy — you do. But it can distort your perception of the value your customers actually get from your product and if they’re truly willing to tell their friends about it. This seems logical in the consumer world, but even in B2B, great products shorten sales cycles, increase win rates, and in some rare examples, sell themselves. Slack famously already had 73,000 paid users and was adding $1 million in annual recurring revenue every four weeks before spending a dime on marketing. Zendesk disrupted its market with its free trials and the ease of self-service for customer conversion.

To get out of the ‘paid growth’ trap, here are three simple things you can do to make sure you have a good product engine at the core of your growth.

• Do great product discovery process. I’m seeing too many companies not doing this well. They create something that works well enough, put it in the hands of some customers and think, “Voila! Now we just have to go fast!” You simply can’t skip the being systematic about the process that ensures everything you’re building is “usable, useful and feasible.” Great technology is not the same as a great, highly-valued product that meets real market need and can be monetized. Just talking to customers isn’t enough; you have to do it often and nimbly in a way lets you try 10 ideas and throw out 9. On the B2B side, win/loss analysis is a great vector to quickly learn about what buyers value and where the competition is driving the market.
• Watch engagement + retention more than LTV : CAC. Do the work to know what keeps the kinds of customers you want engaged and retained. Learn what creates long-term valued customers and focus on that for your business to sustainably grow. LTV : CAC tells you if you’ve found a good acquisition channel, not whether or not your customers engage enough for healthy retention. Engagement and retention metrics are relative to each individual product and important to look at together. Track user cohorts and retention by acquisition channel. Since retention is a lagging indicator (and really lagging for most B2B companies), don’t shy away from measurements like NPS, customer expansion or any other adoption/utilization metrics.
• Focus on the entire customer journey (buyer journey for B2B). Product teams can get so focused on activities inside the product they forget about the entire funnel of future prospects or customers swarming around the product. Understanding the full funnel goes beyond just what happens in the product (marketing and sales play vital roles). It is just as important to consider how your target discovers your product and lives their very busy lives. What motivates customers to seek a solution? What is their process as they assess various products? What gets someone to act? What gets them to engage even if they aren’t a paying customer and become a potential evangelist? In the very best products, strong product teams are cross-functional and have clarity on their business outcomes, not just feature sets. Make sure you’re not overly siloed as an early startup — that’s when things should be most collaborative across every major function.

The best possible growth scenario is when everything works pretty well organically so when you add on paid, it’s the same as pumping gas on a burning fire. Just make sure product is at the heart of your fire.

www.costanoavc.com