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"If you can't get Facebook working, you probably don't have product-market fit"
If you're after outsized growth as a consumer business, getting your performance marketing working is essential.
A few weeks ago, I had a drink with a founder friend. He and I both had businesses that did well during lockdown and fell apart after. I failed to find PMF for Wine List, and we ran out of money. He pivoted and is now doing very well.
We both discussed how hard we found acquisition post-lockdown. I can still remember it now. £100+ CPAs for a £40 product. No matter how much we tested and iterated, we just couldn’t bring them down. At the time, I had a feeling that something wasn’t right, but I rationalised that we just needed to be more creative.
My friend, who experienced the same, instead pivoted his business and now enjoys first-purchase profitability and very strong 30-day LTV.
“If you can’t get Facebook working, you probably don’t have product-market fit.”
This sounds like a provocative (and self-interested) comment. But the reality is it’s a unit economics fact with one proviso: that you’re trying to build a business with £100m annual revenue potential.
You comfortably need £100m in annual turnover to hit a billion exit. And that’s what VCs are all looking for.
If you’re ARPU is £10, you’re going to need 10m users to get there.
The number of businesses with more than 10m users you can count in a single screen of one spreadsheet. Everyone will know the names of those businesses because by nature, they have to be universal, and global.
Your ARPU dictates your growth engine
Startups at the top of that chart – those that have £10 ARPU and 10m users – you know.
There aren’t that many ways to acquire customers for under £10 each scalably. It’s network effects businesses. It’s those with inherent virality baked into the product. It’s those which generate searchable content by proxy of being used (hey eBay).
At the other end of the spectrum, a company charging £10k per user per year ‘only’ needs 10,000 of them. Finding 10k customers with £10k to spend is hard. That’s why you need incredibly well-paid sales teams that will build multi-year funnels and deals. 👋 Palantir.
Most B2B and SaaS falls into the £1,000 ARPU category.
Most consumer, especially DTC & ecom falls into the £100 ARPU category.
There’s two things to note then if you’re a consumer business with £100 ARPU.
You need a believable route to 1 million users
You need to be acquiring customers well below £100 each
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Your growth engine if you’re a £100 ARPU product will be performance marketing
“But what about SEO?”
Does SEO satisfy a route to 1m users?
If you convert 5% of traffic, that means you need 20m visits to get 1m users.
And say you occupy position 1 in SERPs, and got 50% of all searches, that means you need 40m high-intent searches in your area to acquire 1m users. If you’ve got 40m high-intent searches, and no competition, amazing. Stop reading and go build this product.
I’m not saying SEO is bad. I love SEO. I cut my teeth in SEO. It was my first marketing love. SEO will be part of the strategy eventually for how we grow out business at Amphora.
Nor am I saying you can’t build a consumer business on SEO alone. You can. But it won’t be a unicorn, it won’t be something investors are happy with. You can probably very comfortably build an SEO business that nets you £1-10m/year.
But it doesn’t get you there.
What about organic?
You could definitely build an organic TikTok brand at the moment that would get you into the millions in ARR. There’s quite a few people doing it.
But is this a strong strategy? Unsure.
First, TikTok will almost definitely pull its organic reach like every other social platform does when it really needs to monetise. Second, we don’t know what that scale is. Is it closer to the SEO opportunity? Or is it closer to the VC opportunity?
What about brand marketing? Even Airbnb have joined this the brand train now?
Building a brand is insanely expensive. Airbnb have spent 15 years and hundreds of millions establishing their position in the world. They are now a universally recognised brand – not because of brand marketing, but because they shipped great product, growth hacked, and then build an insane growth engine.
Covering London buses in a campaign for two weeks does not build a brand. Brand marketing requires millions in investment to get right, and even then you still need the activation performance layer to bring home the bacon.
There are so many beautiful, purpose-driven brands in consumer startups – I work with many of them – but brand marketing is not the growth engine.
Where does this reluctance come from? What’s the backdrop
Warby Parker, Allbirds, StitchFix, Blue Apron. We all know these names. Go back to 2019 and these were the heroes of the DTC world. Allbirds does nearly $300m in annual revenue. These were the disruptors.
But over the last few years, while the NASDAQ has dropped 25% since its peak, most of the DTC darlings are down 90%.
This is tough. This spells concern for investors. The route to being a billion-dollar-DTC now feels tarnished.
Alongside this, you’ve had years of knockback.
Apple made performance marketing harder
Covid disrupted buying habits and supply chains
Brexit hampered European supply chains
War caused inflation and has kept most of the west teetering on recession
🧘 Focus on your core growth engine: performance marketing
“We’re looking to diversify our channels away from Facebook.”
I hear this a lot. I get it. The game suddenly feels harder. Last-click attribution now makes your ads look like they’re failing. That mixed with your margins that aren’t improving makes you explore all options.
For many brands to get to the £100m mark, diversification is going to be required. If you’re a DTC, working out your retail path is probably a smart thing to consider. But retail isn’t cheap, you’re going to have to be pretty big already to get that working.
But if you’re still figuring this out. If you’re still early. If you’re doing under £25m/year in revenue, then the thing that is absolutely vital for you, is nailing your performance marketing.
Performance marketing is one of the only ways you could acquire 1 million active customers. (And let’s also remember it’s 1m active customers, you will probably have had to acquire 2-3x that many to get to those active ones).
If your audience is on TikTok, you should be spending every resource you have in nailing TikTok.
If your audience is on Instagram, focus every penny and attention there.
Getting any of these channels working takes significant amounts of work. They will look like they aren’t working for a long time.
How to properly test performance marketing channels and not give up too early
It’s not enough to put a handful of ads live, then go hope for the best. Testing these channels requires work.
So how should you approach it?
Optimise for learning, not for results
Insights → Hypotheses → Experiments → Learn → Repeat
I see ad accounts all the time where they’ve had one winner, plowed money into it, it’s ran dry, and then months are spent trying to re-push that ad live with different setups. More often than not, this is based on chasing results not learning.
Your rate of learning is the most important thing. If you do 3 experiments per week, you’ll get to the answer 3x faster than with 1. And infinitely faster than with zero. Winners are important – learn from them, but don’t throw everything away at that time and stop learning.
Commit the right resource to learning
Channel tests are expensive. You can’t throw £1k at this problem and expect to find product-channel fit. Whether you’re approaching inserts, partnerships or Facebook Ads.
If you’ve got a target £75 CPA, you’re going to need to be spending £2-4k/week to really start learning. If it’s £25, you’re going to need £1-1.5k/week. That’s your media. Your creative costs on top of it.
Too often I see companies start off with small budgets, and you just don’t get purchases. You can easily spend £750 on an ad that doesn’t convert at all if you’re only spending £25/day.
Committing the right level of resource is vital.
👉 Check out my Minimum Viable Marketing calculator to see what budget you need
Think holistically about measurement
Last-click is dead. If you followed the letter on last-click, then you’d probably spend every pound you’ve got on brand keywords on Google and remove all money from Meta.
Today, we need to be thinking more holistically about measurement. For bigger brands, that means econometrics, marketing mix modelling, and longer-term thinking. For smaller brands, add in the ‘how did you hear about us question’ and start using that to see if your marketing budget is split up well.
If you’re single channel, look at a whole marketing blended CPA. We do this with a couple of clients that are single-channel. Meta under attributes by 1.5-3x in our experience. We’ve done the hold-out and incrementally tests to validate.
Go back to first principles
Marketing was about hacks for a long time. But today we’re back to core principles.
Know your customer. Understand their problems. Use their language. Communicate how your product improves their lives. Earn the right to their attention.
Exceptions to the rule
Rules are there to be broken.
I asked a lot of people for exceptions to the above rules when drafting this article. One person pointed out Freddies Flowers to me, who hit millions in turnover via door-to-door sales. Their story is an incredible one and one that’s noticeably different to most DTCs and startups.
I recently spoke to some of the team who were there and will be covering this in future weeks, watch this space.
Outside of that, there are of course exceptions if you’re not chasing a VC exit. If you’ve got a bootstrapped business, there’s a strong chance a diversified acquisition strategy, where you spend time focusing on SEO and organic and brand, is sensible.
We only ever hear the stories of VC-backed founders. But there are tens of thousands of entrepreneurs selling stuff, running profitable multi-million-pound businesses. Don’t stop what you’re doing. The above is a lens for those in the VC market.
If you have other stories of startups getting to 8, or 9 figures without performance marketing. I would love to have a 30-minute chat with you and tell your story. Hit me up.