My notes: The Basics of Growth — User Acquisition from a16z podcast
[Below are my notes from listening to the a16z Podcast: Basics of Growth 1 - User Acquisition by Sonal Chokshi, Jeff Jordan, Andrew Chen. These are my notes from their great work]
Businesses do not grow themselves; the entrepreneur has to grow them.
Growth marketing is not a series of tips and tricks, hacks that create growth.
It’s a rigorous systemic scientific discipline that requires you to understand business dynamics at a microlevel.
Growth tends to decay over time(gravity). Job of an entrepreneur is to look years down the road and do something that opposes decay. Something like adding new layers on the cake of growth.
One of the key questions in businesses driven by heavy user acquisition is how does the play end? It usually looks pretty good at the beginning of the play but in the middle it starts getting a little complex and there’s tragedies at the end.
Being able to distinguish what is really driving growth is important.
An exponential growth curve: when you break it down it's because it has new markets, new products, reducing friction in acquisition. The whole combo looks like an amazing curve but actually so much. Need to go levels underneath those numbers.
Growth itself halts growth when it gets to different customer groups.
MAU - total monthly users
GMV - Gross merchandise value
CAC - customer acquisition costs
Blended CAC - what it costs to acquire users on paid basis plus “free users”. Might be a false data point because it has free users in it. you don’t know what’s driving the growth.
LTV - lifetime value of the customer
If using paid advertising channels things get more expensive over time because you run out of super excited initial customers they're going to convert the best and as you start reaching other geographies it will get harder/ more expensive
LTV to CAC ratio has a lot of potential variations of numbers that compose it.
It’s incremental profit contribution for a user over the projected life of that user(value to bottom line) and then you compare that to the CAC to understand the leverage you have between what I need to spend to acquire a customer and how much they’re worth. If your CAC is higher than your LTV you’re sunk. Because it’s costing you more to acquire a user…
that magical LTV to CAC ratio which early on says, “Oh, we are three to one, you know, in two years it’ll probably be one and a half to one if you’re lucky,” or something like that. So we typically do try to look for these other sources of acquisition be it viral, be it, you know, some other form of non-paid. What entrepreneurs should think about is what is the unique organic new thing that’s gonna get it in front of people, without spending a bunch of money, right?
The key tactic to build the network effect was the free acquisition of consumers that the more restaurants we had, the more attractive it was to consumers the more consumers who came, the more attractive it was to restaurants. So there is a wicked network effect.
You have to really be creative and really be on the edge of what everyone’s doing. And so if it turns out that everyone’s really into video and they’re really into Instagram right now, you have to think about how does my product actually fit into that trend? And if you can find it, then you can get an amazing killer way to get jump started and if the trend lasts then great, accelerate it with paid marketing, accelerate it with PR, do all that stuff to kind of keep it going.
Paid marketing, good or bad?
If it’s your primary engine:
acquisition economics tends to degrade over time for the reason we’re saying…
It leaves you wide open to competition.
if it is something that you’re using in conjunction with a bunch of other channels and you’re kind of accelerating things, that can be great.
How much paid should you do as part of your portfolio?
You really have to measure the CAC and the LTV and be super disciplined about not spending ahead of where you want it to be and not to do it on some blended number that doesn’t make any sense.
You really want it to be kind of a small enough minority of your channels. Such that if you were to get to a point where it turns out to be capped that you’re okay, that you can live with that.
Don’t worry about sounding professional. Sound like you. There are over 1.5 billion websites out there, but your story is what’s going to separate this one from the rest. If you read the words back and don’t hear your own voice in your head, that’s a good sign you still have more work to do.
Be clear, be confident and don’t overthink it. The beauty of your story is that it’s going to continue to evolve and your site can evolve with it. Your goal should be to make it feel right for right now. Later will take care of itself. It always does.
Image courtesy of Top News In World
