Underspending on Paid Advertising

“We’ve achieved great month-over-month growth, and that’s all with zero spent on marketing!” 

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I’ve heard founders make this proud statement hundreds of times.  It appears to be a badge of honor to have grown your startup without handing a bunch of money over to Facebook and Google for their ads.  It is also the advice that most investors give to founders.  It goes something like this: ” If you can grow your startup with organic growth only, then you really have something special.”    

Sure – I won’t argue with that statement.  Organic growth is fantastic.  But, many founders are foolishly under-spending on paid advertising.  Here’s why: 

* Facebook and Google ads scale very well.  If you can spend effectively on Facebook or Google and achieve a good CAC to LTV ratio, then you can scale your business that way.  There’s no shame in spending on advertising if it works. 

* Advertising is a great learning environment.  The Lean Startup movement has long embraced paid ads and landing pages with nothing behind them to test business concepts quickly.  For some reason, founders seem to only use that tactic when they are first thinking of business ideas.  People should continue using paid ads on an ongoing basis to refine positioning and messaging, launch new products, test new customer segments, etc.  The rapid learnings from paid ad campaigns are fantastic.  A few hundred dollars and I promise you’ll learn something.  Just pay close attention and fund the campaigns with enough spend to make sure you’re getting significant learnings in short periods of time. 

* Leaving money on the table.  Marketing teams should explore all possible channels for growth.  Paid advertising is a channel that has proven time and time again that it can be very effective.  If it really didn’t work, Google and Facebook would not be worth a combined $582B.  Of course all startups should strive to provide great customer experiences that lead to organic growth, but they should also explore paid advertising channels.  If they do not, they are just moving slower than they could.  Why would anyone do that? 

* Answer questions about CAC.   I frequently ask if people have tested paid advertising and frequently get no’s in reply.  It leaves me wondering if the unit economics of the business will work.  The fact is it’s really hard to tell until you have a known CAC (customer acquisition cost) number that should stay consistent going forward. 

* Organic Growth Acceleration.   If you have a good NPS (net promoter score) and you know that each new customer will generate 1 more customer, then you should absolutely be spending more on acquisition.  It makes your effective CAC much lower than what it seems and I don’t know many quicker ways to acquire customers.  Organic growth and SEO growth and content marketing are all very long-term investments that most people should be doing, but I’d suggest thinking of paid ads as a way to prime the pump.