Bursts of Color - Hunting Rabbits (Again)
We talk with a *lot* of startups that experienced fast growth and seemingly great Product-Market-Fit in 2019-21. And then everything changed. Reduced customer demand. The rise of AI. Tight capital markets. Et cetera.
Details vary, but results are the same: customer LTV is down and CAC is up... sometimes so much that we now lose money on every sale. As a result, the companies are completely rethinking their "go to market" - from customer segment to pricing to sales and marketing. And in many cases, the search continues.
My hat is off to all of the tenacious folks who are being creative and thoughtful about finding the right approach. The time between breakthroughs can be very discouraging. But it’s in there somewhere!
Three related suggestions:
1. Know You're Not Alone
In 2020 a fellow investor shared this analogy about Hunting Rabbits, which feels highly relevant for many companies today:
We're like a village that has survived by hunting deer. But now the deer are gone. We think the deer will come back someday, but we don't know when, or how many. So yes, we can survive off frozen deer meat for a while. But it will be better if we can learn to hunt rabbits.
2. Be Unboring With Customer Outreach
With the rise of AI-powered SDR tools, I worry that there is a race to the bottom with lame but high-volume customer outreach. My spam filter caught 40 such messages yesterday alone. Yuck. By contrast (and maybe counter-intuitively), I find that the most successful sales approaches are often slower, more personalized and even IRL. Someone once got my attention by delivering a pizza from my favorite local spot.
Along these lines, I loved this post from The Chainsmokers' Alex Pall about his time as a club promoter:
Every night, I’d send hundreds of text messages, inviting people to come out. Mass texts were not an option - everyone needed to feel special because they were to me. Convincing someone to come out on a Tuesday during a New York blizzard is an artform, and I took it to the extreme.
I would send out messages based on interests and preferences. If I knew people preferred hip hop, I wouldn’t invite them to ‘80s night. If I knew they were on a budget, I’d offer drink tickets, or if they were big spenders, I went hard on bottle service. I would add clever jokes so they were enjoyable to read, and just humanize the whole experience.
3. Don't Scale Bad Unit Economics
It's no fun to have slow growth, much less shrinking revenue. And for venture-backed businesses, there are many incentives to "keep growing no matter what." But in today's sober market, spending $100 in sales for every $50 in revenue is not likely to end well.
Founder/investor Jasper Platz has some thoughtful points here about Post Product-Market-Fit Mortality:
Product-market fit takes different shapes and isn’t always easy to identify. Telling yourself that you have it, when you don’t will lead to bad outcomes. Maybe your CAC is really high or you don’t have a repeatable customer acquisition machine. Or you have bad gross margins. If your basic unit economic model isn't working yet, throwing more money at it will not fix it. You just bury yourself under a huge stack of preference shares and devaluing your common equity.