By: Tom Murray | Managing Director
At Jump, we specialize in hyperscaling companies revenues by marrying the art of storytelling with the science of media buying. Over the past few years, we’ve seen the good, the bad, and the ugly of business trying to scale to new heights. We’ve learned a lot and aggregated some of the recurring themes we’ve seen time and time again. If you are trying to grow your own business, taking these things into account is a MUST if you intend to have not just a business, but also to build a brand for the future.
1. Focus on building a business first, and a brand second.
This might be a controversial opinion to founders of new DTC & eCommerce businesses, but this needs to be said at the beginning. When you start up a new company, you have a business, but you do not have a brand yet. Brands are reserved for the top echelon of companies that have been around for quite some time. They are ubiquitous with culture, and can even light up on an MRI when consumers see certain brand logos.
With many of these new-age companies going public like Uber, WeWork, etc (or trying to such as Casper), there has been a recurring trend, which is that they are nowhere near profitable, while also taking in a ton of venture capital dollars. It is quite easy to engineer growth (spend money to grow user bases at any cost), but it is much tougher to engineer profit. While the 2010’s was a decade of venture capital companies giving companies hundreds of millions of dollars on the chance of becoming profitable, the 2020’s should be a time where businesses focus on profitability first, foregoing the allure of high monthly average users, or total customer counts. While this does not mean every single transaction needs to be profitable, as it can sometimes mean spending more on the first order to get the user in the door, but over time if you have a strong retention plan in place, the lifetime value (LTV) of the users increase. With that said, keep in mind that LTVs are not a single static number. Users that come in on a large discount on order number one of a potential subscription have a much higher churn and lower retention rate than someone who doesn’t.
2. Focus on performance over branding in the beginning.
Similar to the first point, in order to grow your business into a brand, you’ll need to have a healthy business that lasts long enough to become a brand. This means ensuring that people are buying your products at reasonable costs. The rise of startup brands has led to the increase in what Fast Company calls “generic startup design”, which if you have been on any New York subway or Instagram, you’ll know exactly what this means. A pastel / bright color pallette, with products in unique positions, typically laying flat at a specific angle, on an overall very clean looking ad. Here is an example of one below - is it selling the water bottle or the tennis racket? Who knows, but one thing is for sure -- if everyone starts creating creative that looks like this (and they already are), it means that no one stands out from the crowd, and all of these products start to blend in.
This means that in order to be successful, you need to break the status quo, and use performance marketing conversion principles in your ads. Some examples of conversion principles in ads would be using text overlays in creative (something Facebook has frowned upon ever since releasing their 20% text rule), adding in things like [brackets] in the creative to break up specific text, the use of hands in creative, longer-form creative that potentially doesn’t fit all in the viewport, and the list goes on. Almost all of these things are “against creative best practices”, but direct response advertisers know that these small tweaks to ads can have the biggest impact and drive profitable campaign growth.
Optimizing creative for conversion principles sounds quite logical, but there is an inherent problem with it. And that is, what typically converts better, doesn’t often look the best. And when a founder sees what their brand looks like, it could make them upset that the brand isn’t perfectly polished. Or that if someone else sees the ads (like a potential investor), they might not like what they see.
But if an investor has to choose between a company with a better conversion rate, better cost-per-acquisition, and profitability vs. a company that has a nice looking brand image, they will be more likely to go with #1. Don’t believe me? Take Zoom, one of the leading companies for conference meeting software. It is not a sexy company, or idea, since it is just basically a video chat, but it is profitable. Had you had invested $10,000 in the IPO at $36 a share, you would be up 80%. It has traded as high as 3x at over $100, and currently sits in the $75 range at the time of writing.
What about some of the other Wall Street darlings such as Uber, Lyft, Smile Direct Club, and soon to be Casper? All 4 of these companies are vastly unprofitable, but were widely talked about successes for years before going public.
- Uber: Debuted at $42 a share, now trades at around $36; $7 Billion+ in losses in 2019
- Lyft: Debuted at $87 a share, now trades at around $48; $1 Billion+ in losses in 2019
- Smile Direct Club: Debuted at $23 a share, now around $16 a share; $400 Million+ in losses in 2019
- Casper: Loses $349 on every mattress according to their S-1. As Professor Scott Galloway from NYU eloquently puts it - “The economics work better if Casper sent you a mattress for free, stuffed with $300.”
This was a long-winded way of saying that businesses need to focus on profits first, before worrying about the nitty gritty details around how an ad should specifically look. I am not saying that all ads should pass through this filter, but often times we have conversations over specific parts of the ads that we know will increase conversion rates, that end up getting disapproved from brands because they feel like they don’t fit the brand. We always say “test it”, and let the performance speak for itself. As a business, you are satisfying your customers, not yourself. Your ads need to drive conversions, and certain ad elements are designed specifically with the psychological nature of people in mind to help move them along their customer journey.
3. Channel Expansion is an absolute NECESSITY.
Many of the recent start-up brands have built their business by leveraging Facebook and Instagram ads with great success, and that is perfectly fine. However, there comes a point where an expansion needs to happen. Facebook ads are not getting any less expensive, with over 7 million advertisers on the platform (which has been constantly growing every year). Expanding to new channels is a must if you are looking to grow your business.
The number one place we’ve seen that is ripe for expansion is none other than Google. Google is of course known for their search ad business, but they have two other networks that provide both scale and quality that most advertisers claim don’t work.
Can you name them?
They are none other than the Google Display Network (GDN) and YouTube. Many advertisers tried running on these networks, were not successful, and then wrote off the channel as a losing channel. We find great success on both of these networks, which means when they do work, there is plenty of room to scale, seeing that the GDN covers 95% of the internet, and YouTube is the world’s second largest search engine with over 1.9 Billion monthly active users.
Both of these channels have released newer targeting tactics that can help you find your specific customers on these sites. Targeting options such as custom affinity, custom intent, search query audiences and others have been introduced to find quality users across the web as users browse. In addition, adding in machine learning bidding algorithms and optimization such as Target CPA (tCPA), and Target ROAS (tROAS) allows Google to find your most likely converters at the most efficient prices over time.
After maxing out the Facebook and Google channels, there are still more digital networks to hit that are going to still be more efficient and cost effective compared to direct mail, subway ads, and other out-of-home advertising. Networks such as Pinterest, Snapchat, Yahoo Gemini, Taboola, Outbrain and others can help you introduce new users to your brand, while then using your better converting channels such as Facebook and Google to close the deal.