How to Increase Profitability Fast: 6 Specific and Actionable Growth Tactics
A lot has been written about how the days of cheap capital are over, resulting in a shift from growth-at-all-costs to cost-cutting and a focus on profitability.
In a recent interview with Aarthi and Sriram, Serial entrepreneur and investor Elad Gil predicted a delayed effect between capital drying up and its impact. Specifically, he argued that we’d see another wave of startups having second-round layoffs and many running out of cash entirely in mid-2023.
So what should startup leaders do? How can you extend your funding runway and get to break-even?
There are no good choices, but here are 6 of the fastest, most effective, and least-painful growth tactics you can implement today to increase profitability:
1. Give your team air-cover to shut down everything that's not your top 3 initiatives.
This one is hard for leaders to hear, as a lot of CEOs tend to be ambitious idea-machines. I’ve found that dutiful junior leaders will keep the trains running on time for any project assigned to them: continuing to ask for resources. So as a leader, you need to make it clear that they can completely pause those projects.
I first heard the phrase “let fires burn” in a Masters of Scale interview with Selina Tobaccowala. She describes that prioritization isn’t about doing everything, it’s also about actively deciding that some fires are worth putting out, and some fires we should agree to let burn.
For example, I have an event marketing lead with a great attitude, who continues asking the data team to work on the event marketing dashboards. The data team dutifully takes her requests and tries to balance Event Marketing with everything else.
From my vantage point, I can see that punting on the event marketer’s request has little impact, while some of the other data projects they are juggling could be worth $10M a year in revenue. It’s my duty, then, to stop forcing the team to juggle, and instead give them air-cover to ignore Event marketing for a quarter.
2. Improve early retention by focusing on the handoff between Sales and Product.
According to one Zendesk study, when a net promoter score is anchored high early on in a customer's lifecycle, it tends to remain high, even after repeated screw-ups. For most businesses, one of the biggest loss-of-leverage points is at the hand-off between departments. Because sales and product/customer success are often rolled up into different parts of the business, there’s a natural silo between them, there's often a clunky customer transition. The result is a big opportunity where small fixes can dramatically shift that early NPS score, which, in turn, drives higher customer retention.
Here’s an example: I was working with a product manager tasked with updating our payment confirmation page. That particular PM reported into product, and didn’t have to think about / wasn’t measured on customer retention. She had no idea that 20% of our customers churn between her payment confirmation screen and the second week of their subscription.
By connecting the PM with the sales and support teams, we were able to give her a breakdown of our biggest churn drivers, align on our first-time user a-ha moment, and redesign the confirmation screen to optimize for that. We had the sales, support, and marketing folks work together to completely rewrite that payment confirmation page to drive the user toward the a-ha moment and reinforce actions that help mitigate churn. The result of a renewed focus on this hand-off from sales to product has resulted in our 2-week retention rate increasing from 80% 6 months ago to over 90% today: that’s double-digit millions in ARR saved.
Second example: I'm currently in the process of migrating our sales team’s phone system to DialPad. After we signed the contract, it took them three weeks to line up an onboarding specialist—delaying the migration 3 weeks.
We’d been considering dropping Gong.io and using DialPad for call coaching as well, but that delay made me a lot less likely to want to depend on DialPad. Had that hand-off been smoother and faster, DialPad could have been on track to double their ACV with us in the first 3 months.
So if you want to attack your churn rates, don't focus on the renewal conversation. Instead, concentrate on the first few days and weeks after your customer signs the contract and make sure that handoff is smooth, issue-free, and delightful.
3. Leverage automation to give your Customer Success team more leverage.
In the last five years, marketing and sales teams have become much more data-driven and automated thanks to rev ops —but Customer Success has been more insulated. It's a lot less likely they're using sales automation tools like Outreach/MixMax, and it’s also likely that they lean almost exclusively on 1-to-1 synchronous support.
One easy opportunity is to look for ways to leverage 1-to-many or non-synchronous media. You can do a personalized onboarding sequence in Outreach, group-onboarding webinars where you invite multiple low ACV customers, or Loom videos that departments can watch on their own.
If you’re a growth-stage startup, you probably can't afford to lose customers you already have, but you most likely also can't afford to hire more CSMs. By leveraging more automation, you can shift your focus to higher-leverage activities and automate low-leverage tasks.
At Twilio, for example, I developed our first-ever “simulated-live” webinar campaign, where we pre-recorded a live webinar. This dramatically reduced the level of effort required of the hosts during the live session, and we were able to increase the frequency with which we delivered this webinar.
4. Re-focus Product Marketing to Sales Enablement.
Now is the best time to get back to basics: What are the most common objections for why prospects don’t convert to demos, and why aren’t opportunities closing? When was the last time we iterated on our answers?
At Bloc, like many businesses, price was a common objection. We had begun offering installment plans through Affirm, but we had initially shipped the BNPL service with hand-wavy language like “APRs as low as 6%” and a link to their website.
I wanted to make it easier for customers, so I pushed our product marketing team to build out examples. I told them to take our average purchase price, assume a good but not excellent credit score, show a realistic APR, and calculate what someone’s actual terms would look like so we can get something like “$899/mo. for 36 months.”
It seems easy, but it actually took a lot of work! It required going around in circles with our legal and Affirm’s team for a month. We also needed design support to diagram something we could use in our emails. But the effort resulted in a double-digit lift in the number of customers choosing financing with Affirm (the n was too small to prove a stat-sig lift in purchases overall).
5. Focus Product Marketing on Customer Success.
According to a Forrester study, “69% of US online adults shop more with retailers that offer consistent customer service both online and offline. Poor customer service causes consumers to abandon intended purchases, translating to an estimated $62 billion in lost sales in the US in 2015 — an alarming 51% increase over the previous two years.”
Similar to Sales, start by identifying patterns in helpdesk tickets—maybe you have structured data on why customers churned. Look for the lower-impact tickets: Can we build out documentation so customers can answer their own questions? Are there opportunities for videos or GIFs to communicate better?
Another thing: Consider chatbots. In a previous blog, I mentioned that if you just spent $250 to acquire a lead, the last thing you want is to lead them to a bot. But chatbots can make sense for your support page—after all, people mostly use chatbots to get instant answers 24/7. AT&T is a good example—I already have a 4-line family plan with them, I’m locked-in, and there’s little risk of me churning. That’s the right spot to push folks to chatbots and give support leverage on their time.
6. Squeeze greater efficiency out of your machine.
One way to improve media efficiency is through incrementality testing, which uses holdback groups to better measure the ROI of your ad spend. It’s basically running A/B tests to measure an incremental lift in revenue, revealing if you’re over-spending or under-spending relative to your attribution methodology. The holdback group model makes this one of the best ways to separate the impact of paid and organic and any halo that might not be easy to measure.
If you’re already doing incrementality testing, here are some next steps you can take:
Periodically pause all marketing to get a proper baseline for organic, unpaid traffic
Use a tool like Measured to see where you might be over-spending and under-spending
Find pockets where you can prove with data that you would have acquired that user without the incremental spend
Here’s another area where there’s often low-hanging fruit: Resurrection campaigns to nudge inactive leads. In B2C/D2C industries like fitness, education, finance, and subscription boxes, your best leads might be churned customers. You can automate a trigger-based campaign that focuses on value, offers a discount, or promotes new features or products that give users a new reason to come back.
For B2B, run campaigns focused on leads that fell off the end of your nurture programs without converting. The messaging is similar to the above: Reinforce the unique selling points, offer steeper discounts, and find other ways to reduce risk like money-back guarantees or refund policies. A resurrection campaign is a low-cost, low-effort way to bring leads back into your funnel—and if you’re not already doing this yet, now’s the best time to start.
Got other marketing tips for startups? Let’s discuss them below!