One of the most stressful points in a startup CEO’s journey is when you’re a few months into using up your previous round’s cash and you realize that your numbers are far from where they need to be.
Unfortunately, most founders go through this.
I sure did.
I was the Co-Founder & CEO of a B2C travel start-up, RoutePerfect. Our product was a multi-destination trip planning engine for independent travelers. When users booked their trips, we took a cut.
Five months passed since we raised our second funding round, and our numbers were not even close to our targets. Our growth target was at least 2X between rounds. Ideally, over 3X. If we could get that growth, our round size, valuation, and share price would all go up. Everyone will be happy.
If we wouldn’t hit at least 2X, raising our next round would be painful. Not so nice things may start happening to our valuation. Our startup would not be on the trajectory we wanted it to be on.
Piecing together the numbers that got us to the last round was a big scramble. Some parts could not scale. We needed to develop more growth engines.
We took a few bets in parallel. Our team developed promising features, we pursued partnerships with scalable platforms, and we made a couple of key hires. I spent a lot of time reading up on growth hacking techniques, hoping to find some pragmatic growth ideas.
Growth hacking is about finding ways to grow fast, on a limited budget, using experiments, data, and a dose of creativity. It comprises two parts: Getting users into your funnel and converting them into customers.
We were very serious about the user acquisition side of growth hacking. Our team filled spreadsheets with ideas for testing. We executed many of them. Every once in a while, we found new user acquisition opportunities that moved the needle.
None of them scaled.
Our users came from many sources. But we could only count on performance marketing for reliable scaling.
At the time, the value we were able to extract from each user was 2.5 cents in gross profit. Our average traffic cost was around 20 cents/user.
Our model was not working.
Some startups may disregard model profitability to grow fast, at least at certain periods of their journeys. We couldn’t then. We had to fix our model first.
We had to reach a positive ROI and scale from there.
Doubling your funnel’s efficiency leads to 3x growth
We focused on improving our conversion funnel.
Many entrepreneurs only focus on the user acquisition part of growth hacking. They ignore the conversion part. That’s a mistake.
For startups, one of the most reliable ways to grow is to optimize the conversion funnel.
Conversion Funnels are the series of steps you take your users on, from your first contact with them, until they convert. The conversion rate measures funnel efficiency.
Doubling your funnel’s conversion rate means that you double your new customers.
If you have 10K visitors a month generating 100 new sales at a 1% conversion rate, doubling your conversion rate to 2% will get you 200 sales.
If you double your funnel’s conversion rate, you also double the efficiency of all your marketing activities.
Let’s say you spend $5K on a marketing activity that gets you 50 sales. If you double your funnel’s conversion rate, that $5K now gets you 100 sales. Each dollar spent on this campaign gives you back twice as much as before.
If that happens, it makes sense to pump more money into your existing marketing activities.
Not only your existing marketing activities become more efficient when you improve your funnel’s conversion rate. All potential activities do too. Some activities that did not make the cut before, now become viable.
By doubling your conversion funnel’s efficiency, you immediately double your new sales. In addition, you can increase the budget for your current activities and launch new ones that have become profitable.
Altogether, if you double your funnel’s efficiency or conversion rate, you can get the 3X growth you want.
I’ll write that again.
If you double your conversion rate, you can grow by 3x.
What improvement is possible?
Our conversion funnel at RoutePerfect was so dysfunctional, we had to reimagine it completely.
After deep research, we made radical changes to the flow of the site. Even to some parts of our model.
During the first few months, while we were making the biggest changes, we were all over our funnel. Pretty much the whole team focused on stabilizing it. We monitored all inputs from our site, spoke with customers, ran surveys, and conducted user tests.
After the new funnel was stable, we continued to optimize it.
A year later, we reached positive unit economics.
Our unit economics graph (it’s a seasonal business so down in Q4’s)
Read How to reach positive unit economics – actionable tactics for tech startups
After two years, we drove our customer value above 50 cents. That’s 21x higher than where we started.
During this time, we improved our conversion rate by 12X
It was not the only time I was involved in improving the funnel by over 10X.
Before founding RoutePerfect, I led the growth and marketing of a b2b SaaS startup, ARX. Over two years, my team and I improved the funnel’s conversion rate by 16x, fueling rapid scaling, and leading to the company’s acquisition by DocuSign for nearly $100M.
Read B2b SaaS: How we multiplied ARX’s conversion rate by 16x and scaled to a $100M exit
Doubling your conversion rate is a very reasonable target.
Transform your funnel into a conversion machine
Standard types of sites or products have standard funnels. For instance, the funnel of most simple e-commerce sites goes from homepage to category page to product page to checkout.
If you have a standard product, it’s best to stick to a standard funnel. That’s what users expect.
Tech startups create innovative products that help people or companies solve problems in a different and better way. Innovative products that offer a better way of doing things don’t have a standard funnel to follow.
Innovative products need innovative conversion funnels.
An optimal funnel is one that users find natural, clear, and compelling. They get exactly the information they want when they want. The flow is effortless, and they are in control. They feel that someone really understands them. They want to learn more about your product. They want to buy from you.
Most startups create a sensible funnel at the time they launch their first site. They then improve their website incrementally over time.
Startups usually do not make radical changes to their initial funnel. Doing so is very risky. Radical changes can soak up a lot of resources with nothing to show for it.
This is a very big problem. As a startup with an innovative product, your funnel is rarely optimal.
If you don’t challenge the funnel itself, you’re leaving a lot of growth potential on the table.
Most startups do some level of A/B testing and conversion funnel optimization. But without rethinking the funnel, optimization efforts have limited potential.
There’s a better sequence of steps, messages, and offers possible. If you find it, you’ll improve your conversion rate dramatically.
By sticking to your existing funnel, the best you can do is a local optimum.
To create the optimal conversion funnel for your innovative product, you must understand the users you can scale with. What triggered them to search for a solution? What problem are they trying to solve? What steps do they take to solve their problem? Where does your product fit their solution journey? What is their decision process and mindset at every step? What are their alternatives, and concerns?
To maximize conversions, your funnel needs to have exactly the right steps, messaging, calls to action, and trust elements to fit your users’ solution journey.
Often, the best way to get the biggest lifts, the 2x, 3x, 5x, is to reimagine the funnel.
Read How to create a conversion funnel you can scale with: A detailed guide for tech startups
Scale by optimizing your conversion funnel
Your funnel is sub-optimal. It prevents your startup from growing at its full potential. Nailing your funnel can be the difference between success and failure.
To optimize your funnel, you need to reimagine it. The best way to do that is to understand your potential customer’s solution journey — the steps they take, their goals, concerns, decision process, actions — and align your funnel to that.
If you optimize your funnel, you can multiply your conversion rate.
If you double your funnel’s conversion rate you can grow by 3x.
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