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.
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