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Apr 18, 2019 09:34:59

The Worst Way to Grow a Startup

by @coreyrab PATRON | 473 words | 🐣 | 46💌

Corey Rabazinski

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Companies consistently think that they can raise money and grow exclusively using PR and paid advertising ad infinitum. The thought is, with a good product (in their eyes) and enough money in the bank, you can shove anything down consumers throats with mid-century modern Instagram ads and a few mentions from a fitness influencer.

The problem with that strategy is eventually, and usually quicker than most companies realize, acquisition costs creep higher and margins are squeezed as they try to scale. Once early adopters and core audience segments have been saturated, it takes more to cash to effectively reach the next up-market group of potential customers. That is also when competitors start to enter the auction and bid on the same ad inventory. Even in hyper-niche markets, this can cause negative ROI ad spend quickly.  

CMOs of these companies would have consistently better outcomes if they instead focused on building just one defensible inbound channel before spending a dime on advertising. Allocating budget towards testing traditional inbound channels like content, search, organic PR, and referrals driven by customer experience are great ways to build momentum. Once that momentum is captured, advertising is a great way to fuel the fire.

The benefit of this approach is that once you have something that works, it continues to work without much maintenance or cost. For example, Ahrefs, an SEO software company, has become a prominent source of search engine optimization research. They product in-depth annual reports about the state of the industry and these become reference material for anyone that needs to stay current on the topic. This strategy helps with search traffic and also builds credibility with its core audience which in turn sells software. The stuff works. 

Distribution strategy and partnerships with platforms with large existing audiences is another way to capture early momentum. For instance, Steamery, a DNVB steamer brand, had the brilliant idea that steamers should be sold next to clothes, not appliances. With great branding and a beautiful product, they were able to sell this idea to boutiques and departments stores. This strategy helped them go from $1.5m in revenue in 2017 to $4.1m in 2018. 

For software companies, marketplaces are a great outlet to plug into. Finding a way to offer value to a specific audience that already using a supplementary tool is a useful foundation to build from. Several large companies have been built by starting as Stripe or Wordpress or Heroku add-on and there are countless other examples of add-on marketplaces with audiences big enough to sustain a company. 

There are many inbound strategies to try, but the best framework to use is to make a list, prioritize opportunities based on difficulty, cost and impact and then test. Work down the list and keep swinging until something sticks. It is a much better route than trying to build your company on the back of diminishing returns. 

Originally published at coreyrab.com

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