Think of a recession as a sharp curve on an auto racetrack—the best place to pass competitors, but requiring more skill than straightaways. The best drivers apply the brakes just ahead of the curve (they take out excess costs), turn hard toward the apex of the curve (identify the short list of projects that will form the next business model), and accelerate hard out of the curve (spend and hire before markets have rebounded).
Covid-19 is generating a series of economic and behavioral changes that are affecting every tech industry from travel to gaming. Some companies are seeing the worst performance in their history. Others are taking advantage of the rapid changes in consumer attention by being quarantined at home. These changes are drastically affecting the customer acquisition machine of almost every company out there.
You can find more graphs of the impact across different industries here.
At this point it is likely that you have a clear idea of where your company is now:
- You were hit hard and your urgency is around maximizing the runway while rethinking your whole model.
- You were somewhat affected but the business is still surviving.
- You benefited and are taking advantage of it to allocate more resources into your acquisition strategy.
Despite that, it’s important to clearly understand the actual health and strength of your company, both during the crisis and after the coming recession by positioning your company in two matrices we find helpful:
Matrix of impact in your structure and current cycle:
Matrix of how to react taking into consideration the market and financial context of the company within the vertical:
By understanding where you are in the matrix and the recommended reaction, you are in a good position to start planning for the months ahead. However, there are also a couple of important elements that are rapidly changing with the crisis: the marketing industry and user behavior.
What is changing in the marketing industry:
- Large advertisers in affected industries (travel, transportation) are decreasing marketing spend at a large scale. This is leading to an overall decrease of CPM’s of almost every industry.
- While a decrease in CPMs can sound tempting if you’re in a non-affected industry, take in consideration that user quality is also decreasing: your ads are being shown to lower intent users.
- Users are taking more time to convert. Both to key conversion events (signup, product feature) and key monetization events (in-app purchase, subscriptions). This is due to the lower attention span mentioned earlier and a shift in consumer behavior to being cautious about “what I’m signing up for”. This is happening not just for paid channels but for every other kind of channel.
Based on this information, I recommend a series of responses:
- Keep your eye on internal performance. While CPMs are decreasing, the amount and timing of conversion are changing as well.
- Cohorts, cohorts and cohorts. Analyze each cohort’s revenue behavior compared to old ones and adapt your forecasts or prediction models to this new user behavior. Also consider analyzing non-revenue behavior. People may start using your product differently; understanding this difference can lead to adapting the conditions to improve revenue behavior.
- User engagement strategies are more important than ever. How are you dealing with new users? What mechanism do you have in place to promote the actions you want them to take? Consider not just product features but strategies like lifecycle communications.
- Listen to your customers once again in light of the new macro situation. Their idea of your product may be different, you can be more important than ever (Netflix) or not useful at all right now (Waze). In any case, understand what has changed due to new user behavior.
- Keep an eye on the upside. Post-crisis forecasts can look very attractive, with less competition for customer acquisition and disruption to the competitive landscape in general.
- There’s a big difference between churned and dormant. Identify what’s the case for your users because the tactics you take for each segment are different.
- The data of your experiments is likely unusable now. Move away from long-term tests and put more emphasis on quick tests where the data is actionable immediately. Data from recent months should be heavily discounted when forecasting the future.
- Breakdown the components of LTV and measure a set of metrics that acts as an early indicator of future revenue or customer intention. For example, measuring the activation rate in shorter periods of time or measuring events such as “add to cart” instead of “purchase”.
Lastly, I recommend to build your growth scenarios around the potential shapes of economic recovery
The type of curve you predict your company and industry will have in the future gives you a signal on how to act post-recession and also a better sense of when to start hitting the gas pedal again.
Data is one of our core values at TheVentureCity. Regardless of the ideas and hypothesis of our team, we encourage our portfolio companies to come up with their own answers based on their data. That’s why during the first month of our growth program we push so hard on data instrumentation.
This will allow you to rewrite your growth playbook, make necessary adjustments and position your company towards the crisis.
Keep these four things in mind while rebuilding your growth strategy:
- Maintain the growth of your retained users: how can I keep them happy and engaged even under new circumstances?
- Stop and/or replace underperforming channels of acquisition: be pragmatic and stick with what is working. Experimenting on new channels is not recommended
- Plan for the future depending on the shape of the curve you expect
- Pay attention to changes in user behavior and how that affects your company
Growth doesn’t need to stop, it needs to be adjusted. Rebuild your growth strategy because eventually, the crisis will pass.