Interview Series #1 episode 4:
Sam Carter asks Jake Higgins what are the crucial indicators of success in new ventures
#fospha #grwthclub #interviewseries4 #entrepreneurship
Sam Carter, CEO of Fospha, asked Jake Higgins, a founding partner of the Grwth Club about the crucial indicators of success in new ventures
Sam: So we talked a lot about when you go in, you look at sort of how to level up data and attribution and you sort of three-step process there. What about the other things that you look at when you go in? And the reason I ask is that I'm also quite surprised at how little consistency there is in the businesses.
We work between the businesses with their approach to everything from the setup of the channels, the agencies, the tech stack, the team, and there really isn't like a playbook for DTC marketing. So as much as you'd like to share of your own playbook with us today, when you go into an organization, when you have and when you do, what are the things that you're looking at first? Because you know that they're like the biggest opportunities to do something different quickly.
Jake: Yeah, I think for DC business, or any business really, it's always the model. Understanding how much flex they've got in the CAC is critical and understanding what the repeat rates are and so on. And so it's just customer economics. Everything is customer economics. And especially if you're focused on D to C, even more so because D to C has specific limitations as a business model.
It has opportunities as well, but it has limitations. And those limitations are the fact that it doesn't create network effects, so the product doesn't get better the more people use it, and also it doesn't create obvious opportunities for viral loops, member, get member and so on and so on. Or sharing activity that's happening from your app, for example, right move sharing properties or whatever.
So that's a big limitation compared to say, a marketplace or an app or something like that, which hurts your repeat rates. So I think if we're talking about D to C, the first thing you'll be looking at is what the cost to acquire the customer and then what is that lifetime value? Like, how do those repeat rates hold up and where is the business currently on its level of aggression in terms of that CAC payback? Is it breaking even on first order? Is it payback after six months? And so on. And there's no right answer as to that level of aggression because that level of aggression is set by the board and the CEO in terms of the strategy. And that level of aggression is also supported by the financial strategy and the fundraising strategy and so on.
And what we're seeing in the market right now is that with the interest rates going up and fundraising drying up, those who were on a very aggressive stance and probably raised on a much higher valuation are finding it a period of adjustment to getting those profitability metrics in line. So that's the first thing you look at because if you've got a lot to play for in the CAC, if you've got a lot of flex on that top end, then you're going to have a very different marketing plan than if it's really tight. And also it's going to help you zero in on. Is this a product that the repeat rates can grow over time? Are they increasing the product range? What's happening there in terms of the kind of customer lifetime value side of it? So that's obviously the most important thing. Can you get 30% increase in retention? Can you get 30% increase in AOV? Those kind of things can be a massive game changer. And sometimes businesses don't have a good handle on those metrics. A lot of the time they do. But maybe the strategy is not aligned on this is the financial strategy, this is the marketing strategy, and this is the kind of customer strategy and product strategy. So that's the first thing you look at. You look at the model, you look at the commercials, and then very quickly after that, it's team. And a lot of my job is quite psychological in many ways. It's supporting newly promoted CMOS, newly promoted heads of growth and all the rest of it. Supporting the CEOs and being a sounding board for them and challenging them in the right place. So I would say it's model and then it's team. Do we have the right people to then execute the strategy which the model requires?
Sam: Very nice. Yeah, well, that sounds good to me. I mean, I think on the first point, you said some businesses will have a really good handle on their LTV, others maybe less. So one of the things that we do tend to find, even if they've got a great handle on it, is it's a bit more static than what they're seeing every day and the sort of the CACS and the CPAs and the different platforms. So in the worst case, I think it touches on what you were saying, but the worst case scenario, this is what we're establishing as RLTV, therefore this is what we're setting as our CAC target.
And then the mindset is all, how do I do an activity that's lower than that. So you start again with this mindset of like what's my activity? Which is the lowest CAC rather than actually really? And I think it sounds like what you're saying with the testing that headroom is I always want to be pushing to do the max, to spend up to the maximum I can afford to spend relative to my lifetime value. I think that requires quite a dynamic thinking about like, I really want to know, have I got more headroom today than I did yesterday?
Jake: It's often quite a psychological relationship between the CEO and the CMO or the head of growth, because if you're requesting for the business to swallow a higher CAC, that's obviously potentially in the untrained eye, just being like, oh, just copping out. Your job is to get the CAC low as possible. And so that's why they're so important that that relationship. There's so much trust and a new CMO might need to get a lot of quick wins other places before that they can say, look, we need to push our payback period backward sin order to invest in brand or what have you.
So yeah, that's a really deep one, I find. And it's not the best thing to do if you're new to a role to charge in and say, hey, we need to kick back the payback period. And I think at the moment, it's been quite a sugar kind of high period in terms of there being lots of capital and in terms of there being a lot of channels for DTCs that were quite cheap. And now everyone's got to earn their loaf of bread by hunting out new channels, by innovating on increasing AOV, increasing retention rates and really doing the graft. And that is to answer your question about many different companies do things differently and there's not a playbook, thereshouldn't ever be like a playbook, as in do this, add this checkout thing or something like that. And whenever you hear those things, it's a bit suspect.
But there should always be a playbook around process and systems because the process and the systems are basically the same in whatever company, really. And at its heart, the growth process, a sit were, is a process of prioritization, ruthless prioritization and testing big bets, bigger the better. And the art rather than the science of it, is how you can test the big bets without sucking up loads of resources. And that's really, again, to use the same crappy metaphor to earn your loaf of bread, that's what you need to do. And what I've definitely seen over the last five years of bull market in terms of invested capital and stuff like that, is that there's quite a lot of coasting happening, especially in product management, website management and stuff like that, at the level of big bets that people are willing to take, just not there.
A lot of teams are testing small things and it's management of the status quo and that's fine when the market's in one way, but as soon as the market goes the other way, you move from peacetime to wartime. And wartime requires some urgency. And you can walk into a room and you can tell if a business has that urgency to it. You can tell if they're making big bets, you can tell if they don't feel like they have a right to exist. And that's what you want from a growth team, really.
They have to be the people in an organization that are pushing that kind of wartime urgency, as it were, and making those big bets. Prioritizing. When you're prioritizing, it should feel like the thing that you're saying no, that you're not going to do, should feel so painful. You should be saying, no, we're not going to do that, even though you think if you did test that, that could be the best thing the business ever did. And you need that kind of ruthless prioritization, I think, especially in this particular market.
Sam: Yeah, well, certainly one thing we've observed in a bear market is a lot more clients asking about retention dashboard.
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