Growth is the lifeblood of every startup. The changing market has moved tech away from the “grow at all costs” approach, and moved us into a new and rapidly changing era. Companies are being faced with the conflicting pressures of needing to conserve cash and extend their runway while also needing to hit ambitious growth targets for future capital raises.
The recipe for success during this tumultuous time is simple: Capital Efficiency.
Invest in Your People – Figure out who your key difference makers are and make sure you are incentivizing them to stay. In this time of feast and famine, the top talent can still easily be swept away by a well capitalized startup. Reducing burn does not mean putting additional strain on what is already a peak “burn-out” time.
Hire (the Right) Contractors & Consultants – Hiring contractors and consultants is a no-brainer for reducing burn. No recruiters, no benefits, no payroll tax. Flexibility to pivot quickly if an experimental vertical isn’t producing. Be sure you are hiring people who have true expertise. Hire executors. Now isn’t a time to spend months and tons of cash for a “strategy deck.” Align your incentives. Consultants that charge you a percentage of ad spend aren’t aligned. Incentivize key down-funnel performance and not putting a larger number into Facebook.
Data is King – This is a non-negotiable. It is shocking the number of early stage companies who are flying blind, relying on top of funnel metrics and can’t actually answer where their best users come from. Capital efficiency starts with your largest line items. If you don’t truly know where to put your next ad dollar, (or where in your funnel to fix) you are literally burning money. Having proper analytics and martech in place to understand your full funnel, your best advertising channels, your best copy and creative and your best targeting is a must. Right away.
Understand the Customer Journey – Know your customer. Who they are. Where they live. What they like. What their pain points are. How are you acquiring them today? What are their concerns and questions along their journey? Where in the funnel are they dropping? Why are they churning? How can you get them to engage in more profitable behavior? Knowing these answers and rapid experimentation to improve upon them is one of your biggest levers to pull for capital efficiency, faster payback and improved profitability. Good data, robust lifecycle and rigorous experimentation are your answer.
Control Your Costs – At the top of the list of reasons for this slide into longer payback periods are the rising costs of ads. A year over year 2-4X in CAC has become common. Facebook CPMs are the last thing from stable and seasonality is very real. Anytime you have a channel with a truly fixed CAC, lean-in. Referral is your best friend and affiliate partnerships with a fixed CPA are a close second. Word of caution here: set the right conversion event to pay out on and monitor down-funnel performance closely (see Data is King).
Think Like an Investor – Every decision you make is under the microscope. Consider what is and isn’t contributing to your bottom line and lean in and pivot accordingly. Frequent touch points with a variety of investors can guide your north stars for your next capital raise. In the early days of shifting market dynamics consensus isn’t universal and prevailing logic can shift like the wind (see Q2 of 2022).
Alex Harris is the Co-Founder of Fiat Growth, a leading growth shop with a full stack team of 27 elite and seasoned growth experts hailing from companies like Chime, SoFi, PayPal, Credit Karma, Ripple, Steady, and Amex. Fiat Growth along with their capital arm Fiat Ventures provide full performance, data, partnership, go-to-market and investment strategies and execution.