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Many of the biggest implosions in recent history – especially ecommerce – have been due to startups getting addicted to paid marketing while fooling themselves on Customer Acqusition Costs. As spend scales, it always gets more expensive and harder to track – never less. A familiar story: New product launches. Nice spike, but it dies down. The product is low freq – gotta spend to grow. Marketing spend increases, it’s profitable! More is spent, more money is raised via VCs. OMG this is working! Party! Suddenly top line hits a ceiling. Payback period goes from 9 months to 12, then more. Unit economic profitable, but not with staff + HQ. Without top line growth, more investment dollars can’t be raised. Budgets get slashed, then layoffs. Even slower growth means a pivot is in order. Try something else, also powered by paid marketing. Maybe subscription? Premium? Try another thing. Then another. Irrelevance – or maybe bankrupcy. This happens enough that y’all should be nodding your heads now – it’s tough, but there’s a pattern. This is the Paid Marketing Local Max.

  • TC

    Tad Chef

    almost 2 years ago #

    Yeah, I can't believe how many companies depend on the big gatekeepers Google and Facebook instead of building an actual audience for themselves.

    Paying Google or Facebook to get customers is not a viable business model. It's a workaround. When you depend on ads you are doing it wrong.

    • HB

      Harold Buttkins

      almost 2 years ago #

      Using Google and Facebook, even if it's paid ads, isn't the issue when it comes to trying to build an audience. The problem is relying solely on that channel - quite frankly relying on any one channel for customer acquisition is a problem.

      • ES

        Emil Shour

        almost 2 years ago #

        Agree with you, Harold.

        Paid is an important channel especially when you need to grow fast and test different messaging to see what attracts customers, but you have to balance it with lower cost channels that grow slower.

    • MG

      Melvin Guo

      almost 2 years ago #

      Yeah, I totally agree with you. Companies should focus more on building a better audience.