7 Tips on Scaling Consumer Companies
By: Lidia Salgado, Director of Business Development
Over the past few months we’ve had several opportunities to hear from prominent players in the New York consumer space, both investors and business operators. Two panel events, co-hosted by EGFS with Silicon Valley Bank and Goodwin, as well as Bonnie Halper’s SOS Investor Breakfast featuring legendary Howard Morgan, are cases in point. In this blog post, we’d like to share the nuggets of wisdom that they imparted on the audiences of those events. While the conversations mostly revolved around consumer companies, we feel that some ideas may be just as relevant for enterprise companies.
Beth Fereirra, a Managing Director of FirstMark Capital and formerly COO of Etsy and Fab.com, believes that two most important questions founders need to be able to answer before setting up a company (and during fundraising) is “why you?” and “why now?”. The latter may have something to do with newly available supply chain opportunities, and the former with your unique position to bring efficiencies to your product’s go-to-market practices, which would help avoid ballooning customer acquisition costs (CAC) as your company scales.
In this context, Howard Morgan, founding partner of First Round Capital and currently Chairman of B Capital, offers a more comprehensive evaluation of what constitutes a great company with his 6P’s: people, product, plans, profits, passion, and persistence. (Product also includes knowing the market you are going after, and planning mostly means financial planning.)
Mr. Morgan also believes that one of the most frequent startup mistakes is coming up with wrong pricing, whether it’s too high or too low.
Benjamin Sun, Partner at Primary VC and a longtime investor in consumer companies (such as Jet.com, WeWork and Maple) advises to focus on 1 key metric at a time. From there you can break it down into multiple drivers, but if you have too many key metrics from the very beginning, you will lose focus and try to do too much. Once that key metric is “solved”, pick another one and go after it. To give you an example, if conversion is important, then number of visitors and time they spend on site are important and can ultimately drive conversion, but in the end nothing matters except the conversion. Other metrics one should focus on is Payback period on spend and Lifetime Value to Customer Acquisition Costs (LV:CAC – 5:1 is a great and 3:1 is ok).
Ben also brought up the Net Promoter Score (originally developed by Bain & Co.). The Net Promoter Score is a number that measures the willingness of customers to recommend a company’s products or services to others. It is used to measure customers’ satisfaction with a company’s product or service, as well as the customers’ loyalty.
Similarly, Linda Kozlowski, COO of Etsy and formerly COO of Evernote, considers it important to focus on consumer evangelism – as well as distribution partners. Look outside the standard marketing approaches, try to be creative, and get your users to do some of your marketing for you. As for partnerships, you’d want to focus on companies you truly believe in. If you structure a partnership right, it could come with a lot of advantages – free product placement, advertising and support. Finally, it could be very helpful as a way to gain traction in areas your products aren’t currently available, or a new market altogether. For Evernote, partnerships with mobile carriers were golden.
In conclusion, there is one more thing to keep in mind. As Beth points out, make sure your product is better, cheaper and faster – that is the only way to break out in a world where building consumer companies is ever more difficult.
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