Sunday 16 June 2019

Startup diary: Acquisition and getting people to your product is vital lesson

Listen up: To drive users to Voxgig’s site the company produces produce content in as many different forms as they can manage, including articles, newsletters, podcasts, videos and the like. Stock image
Listen up: To drive users to Voxgig’s site the company produces produce content in as many different forms as they can manage, including articles, newsletters, podcasts, videos and the like. Stock image

Richard Rodger, Voxgig founder

Last week I covered the 'Fundamental Equation of SaaS'. This is basically a business tool that lets you measure the health of your software-as-a-service (SaaS) startup.

To grow new revenue you need to understand where it comes from - the equation helps you do that.

The premise of this startup diary is that you can follow along as we make our business decisions, both good and bad.

To make better decisions, you need to use models of the real world to try to figure out what will happen when you press buttons and pull levers in your business.

This is one of those models.

The SaaS equation is a mathematical model, which makes it very easy to use a measurement tool for decision making.

The equation is: new revenue = acquisition-times-conversion-times-average-revenue (per user). What does that mean? It tells you how much new revenue you can expect this year in your startup.

Acquisition is, simplistically, how many visitors you can get to your website, or newsletter, or podcast - it's how many people walk into your shop.

Conversion is the percentage of visitors that buy. They kicked your tyres. Did they walk out or ask for a test drive?

In our world, you can expect a typical conversion rate of 2pc, if you're lucky.

Finally, average revenue (per use) tells you how much you'll make this year from each customer.

It's very important to remember that this equation only covers new revenue.

To calculate your total expected revenue for the year ahead, you take your revenue for last year, add in the new revenue and subtract what is known as 'churn'.

This shows a lovely feature of the SaaS business model, one that I find very attractive: repeating revenue.

Our customers pay by the month, so you can fully expect to retain most of last years' customers this year - you don't have to keep running to stand still.

The catch (there's always a catch) is churn - you lose some customers over the course of the year. Hopefully not more than 5pc to 10pc. You have to make this up with new revenue (and then some).

That's why you need to be obsessed with new revenue - it's how you grow and keep investors happy.

This week I want to talk about the 'acquisition term'.

The great thing about a web-based business is that you don't need to worry about costly distribution channels - you are your own distribution channel.

The terrible thing about a web-based business is that so is everybody else, and you have to fight for attention.

The professional solution to this is called 'inbound marketing'.

Generate enough high-quality content and customers will beat a path to your door.

Just producing great content worked wonders 10 years ago.

Now that the technique has been 'professionalised', it's not quite so effective any more. Everybody knows that it's important and every body is producing reams of content - running to stand still.

Worse, content production is expensive. Many SaaS companies reach a point where they are limited more by the amount they can spend on online advertising, than either the volume or quantity of inbound marketing content they produce.

This is especially true of business-to-business solutions, which we are.

If high-quality content is no longer good enough to drive acquisition, what can you do?

We're tackling this problem in three ways: variety, events and virality.

We still believe in high-quality content as a fundamental driver of users to our site. That's why we produce newsletters.

But we hypothesise that different people like to consume content in different ways.

That means instead of focusing on blog articles (the normal approach), we produce content in as many different forms as we can manage: articles, newsletters, podcasts, videos and the like.

We opt for relatively low volumes with relatively high quality. We tone down the 'selling' and prioritise value for the reader, listener or viewer.

Getting this balance right is hard (we had to re-launch the Event Professionals newsletter when we mis-targeted the content of the first few editions).

By providing our content in a variety of formats we hope to reach a wider audience through their preferred medium of consumption.

This is a hypothesis - that's why we track the metrics very carefully. Over the course of this year we'll get a good measurement on the effectiveness of this decision.

We wouldn't have much credibility if we didn't believe in the power of events. Getting like-minded people together in the same room is a powerful experience for everyone.

As an introvert it took me a long time to appreciate how useful events could be.

The trick is not to try to 'network', the trick is to provide value to the other attendees (speaking at the event is one obvious way), so the interactions with you and your team are a net positive (that's a vast topic for another day).

At Voxgig we really feel that as the world becomes more digital that events have, paradoxically, become more popular - it's just a feeling, but over time we'll be able to measure this directly through adoption of our platform.

The downside to events is that they don't provide the reach of online content.

You talk to far fewer people, so you have to have a bigger impact to those that you do meet.

The upside is that when you make a good impression, you can build that into a really strong relationship - this is where you find your super-fans.

I've written previously about our EventProfs meetup, which we hold monthly in Dublin. This month we're launching EventProfs London - today, in fact.

Finally, the third tactic is virality.

You have to make it easy for existing users to invite new users onto your system.

We're lucky that the events industry provides many opportunities to do this (well, perhaps not lucky exactly - it's one of the reasons we chose this industry).

We're focusing on the event organiser-speaker interaction for the moment. Let's see how many speakers our organisers will bring on board, and vice versa.

That's going to be a critical number to measure.

All of these tactics come together to provide us with an edge over competitors who focus on inbound marketing alone.

But there's no certainty here - these tactics are hypothesis-based and we'll soon find out, scientifically, if they are true or false.

Marketing update: The speaker's newsletter is back in business with 5,393 subscribers and an open rate of 12pc.

Our hypothesis for the dip in growth seems to have played out - the turn of the year is not going to be a good time for newsletter growth.

This effect was too small to notice this time last year, as we only had a few hundred subscribers, and many of them knew me personally, so would not unsubscribe (not too quickly anyway).

In looking back at our numbers we can sort of see an effect but there's too much noise to make out a clear signal.

What do we do now? The decision here is to do nothing.

That's a valid tactical choice. We make a note of this and review next year (by which time it may not matter so much as we'll have new metrics to cause minor panics).

The other newsletter, for EventProfs (Event Professionals) is seeing good early growth - 113 subscribers and an open rate of 44pc (falling as expected).

The open rate for the Speaker's newsletter did not reach industry benchmark levels until about 2000 subscribers.

Let's see if EventProfs has the same behaviour.

The podcast is suffering a little as we focus on the new newsletter and the launch later this month.

Startup life is all about trade-offs and you've just go to accept that.

Richard Rodger is the founder of Voxgig. He is a former co-founder of Nearform, a technology consultancy firm based in Waterford

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