In fact, survival mode should only be reserved for those periods when uncontrollable external forces conspire to create a substantial impact to business as usual.
You know, like a global pandemic that threatens to take down entire economies.
But I’ll save how to do survival mode for another post. Because even when external circumstances dictate that a startup go into survival mode, every day that startup remains in survival mode brings it another day closer to failure.
If a startup isn’t growing, it’s dying. So you should be thinking, planning, and acting in growth mode all the time. Here’s how to transition your company up and out of the muck.
The moment of truth is CAC and LTV
It’s said that if you want to create a successful business, find something you do well at low costs and high margins and repeat it over and over until something stops your progress. This is true. This is much easier said than done. And it’s nothing that you can just luck or viral your way into.
One of the companies I’m advising hit their growth moment of truth last week. It was a moment we had been chasing for the better part of six months, and it came to fruition when they put real numbers for Cost to Aquire a Customer (CAC) and initial Lifetime Value (LTV) into a spreadsheet.
This is the first step on the path to growth mode.
Their CAC data covered every part of addressing their market, from various marketing channels to conversions to onboarding. They had rows and rows of data for each path to closing the sale — from optimal and desirable paths to costly and clunky paths — and the true costs associated with each.
Their LTV data addressed each of their tiers of service, their churn, and what they could project moving forward. They threw out all the outliers — the freemiums, the VIPs, the beta testers — until they were working with real, defendable dollar figures.
I should mention that those numbers sucked. High CAC, low LTV. But that’s fine. It’s like stepping on a scale for the first time in a long time. Those first few pounds are the easiest to lose.
The growth levers are found between CAC and LTV
The reason that CAC and LTV spreadsheet was a watershed moment is because now the company is no longer throwing darts. Instead of having to randomly decide which features and initiatives to prioritize, they can now create levers to reduce CAC and increase LTV.
So imagine they put CAC on the left of a whiteboard and LTV on the right. Those levers are going to be created in that white space in the middle. And they’re going to be created by providing the kind of value that minimizes CAC for those customers with the highest LTV.
Low cost, high margins, repeat.
Now, if I could tell you exactly what features and initiatives you need to build to do that, I’d be your CEO. However, I can give you the guidelines that you should be building those features and initiatives around.
Get to the levers
The first step is to connect CAC to LTV, and that’s going to require some assumptions and some research.
For example, your cheapest-to-acquire customers might not be your best customers. They may be costly to onboard and maintain, they may not value your product or service, and all that in turn may dramatically lower their LTV.
Time to acquire is also a factor. For example, viral and word-of-mouth customers may be super cheap to acquire, but reaching a critical mass of these customers is the kind of time-based math that a lot of would-be entrepreneurs never consider. A company has to maintain an infrastructure to serve its customers and also needs to be able to take advantage of economies of scale. So there’s a natural break-even point of customers-over-time for the business.
Draw lines from CAC paths to a unique LTV for each path, then break that LTV out annually or even monthly, and multiply it by the number of those customers you can close in a month. Then target the most profitable customers you can acquire the quickest.