Why Businesses Fail at Sustainable Growth & What to Do Instead

Growing your business with a siloed ‘growth’ team won’t work.

To create sustainable growth, every member and team of an entire company needs a growth mindset. Underlying this organizational need is a recognition that the customer does not experience your product via one internal team or marketing tactic at a time, but rather as a singular journey from start to finish—and each organizational function and team member facilitates that experience.

Typically, growth strategy is viewed as a series of funnels, channels, tactics, or hacks that need optimization. Businesses following this belief tend to develop strategic & functional silos within the company (intentionally and unintentionally), where one team focuses on building an amazing product or feature first, while another team is responsible for testing potential channels to see what works and scaling the growth strategy. That leads them to think about product, acquisition, and monetization in completely different buckets.

We need to think about product, channel, and monetization models all together in one cohesive ecosystem. That is where great strategies are created. Understanding these relationships and aligning strategy across teams helps us identify which strategies are likely to succeed in the future.

But we know that treating these as silos won't work because of how these pieces interrelate with each other. When companies create siloed functions across growth, achieving ambitious goals become unattainable and people lack an understanding of the root problems. Siloing them ignores the interdependencies across product, channel, and monetization models.

Growth Depends on Synergy Across Growth Models

Product and channel have to work hand-in-hand or run the risk of developing a product that doesn’t conform to the right channel for the audiences. There are a limited set of channels out there where your customers live and your product needs to be. For example, if a student loan debt consolidation product learns that their audience primarily engages on Snapchat, then their product will need to be capable of communicating its value prop and converting users from a short form video on that channel. Conversely, an enterprise software company that relies on written reviews to convert customers and whose audience might not engage on Snapchat may be a poor fit with the channel. Snapchat will not conform to work for the product, so it’s important to make sure the product fits with the channel in order to unlock a new growth strategy.

Similarly, the channel and model also have to fit, since we know that various monetization models will enable or disable certain channels. For example, it wouldn't make sense to market a $10k CAC B2B product on WhatsApp, just as it also wouldn't make sense to acquire customers for a casual gaming app with an enterprise sales team. We have to align the fit between the model friction and the channel's influence.

Thinking in silos also creates friction in execution, where one team optimizes their part of the business at the expense of the other. For example, optimizing an acquisition funnel to increase conversion might impact retention. You can optimize the top of the funnel all day, but it might not improve the throughput of people reaching the bottom.

How the Top 1% of Companies Grow

In the many years of working with and learning about how the top 1% of companies grow, we've found that the most successful companies look at growth through an integrated lens.

In 2015, Zynga was spending enormous mountains of cash on paid acquisition ($200 million per year and higher), but they weren’t seeing the type of profitable return that could grow the business. Data problems were distorting their source of truth on results: because teams worked in silos they were picking the wrong goals and incentivizing other teams to optimize for the wrong things. Nothing was working synergistically.

Over the course of the next three years, they set new goals and true north star metrics to measure them, cleaned up data, and developed a rigorous testing process. They then re-organized into a central growth team that included performance marketing, analytics, creative, lifecycle, engineering, and product, filled resource gaps like hiring a VP of Growth and a Head of Creative, and implemented processes ensuring every member of the team worked in concert to impact the goal in a structured, measurable way. They went from being a stagnant company to one that was growing ahead of its peers, ultimately resulting in a healthy EBITDA and a stock price that 5x’d over the next five years.

A Blueprint for Growth

In order to move fast without running into the same types of issues Zynga did originally, at Mavan we lean into a proprietary process called a "Growth Blueprint.” In a rapid and concentrated effort, using The Blueprint we identify roadblocks, gaps, and opportunities across the growth functions of your business so we can prioritize the biggest opportunities and start executing immediately.

Our approach combines both qualitative and quantitative research. We tap subject matter experts within our exclusive network whose past, relevant experience can help shape our roadmap and get to measurable results faster. These experts help inform us what works well and what areas of opportunity exist, across both strategies and execution.

Companies should reflect on their current approach and ask themselves if they are taking a siloed or integrated approach to growth across functions. One clue that they are taking a siloed approach is whether they tend to look for solutions to a single channel or functional area individually as the presumed constraint to growth (“we need a new Facebook agency because our UA metrics aren’t good”). Looking at problems one at a time can be useful, but tedious and likely to produce false positives if the right metrics aren’t factored in. 

Only when companies think about product, channel, and monetization models all together as interrelated functions do they find the true constraints to growth. By taking time up front to diagnose problems and identify the highest impact areas to focus on, companies can speed up time to results and save months of costly trial and error on growth tactics.

by MAVAN

The Untold LTV:CAC Story

Growth and product leaders aim to hit the holy grail metric that is lifetime value (LTV) to customer acquisition cost (CAC) of 3.0+ because this is the standard for a healthy business according to investors and venture capitalists (VC). While you are right that the LTV:CAC ratio is a strong indicator of business health, this focus overlooks a key point the ratio offers: your ability to compete with other products. To build a scalable product, you must have a healthy business with a growing LTV to afford higher and a constantly rising CAC.

The moment will come that your initial acquisition campaign saturates as you scrape the most qualified users across entry points. This can and will happen quickly. While at Digit (a popular mobile fintech app), we learned that at a certain CAC we could safely and effectively scale spend to a certain threshold, but anything beyond that would yield significantly higher CACs. We were dominating a niche audience we had thought was much broader and quickly began to realize that our bids and CAC needed to be much higher to reach the next level of scale.  

Here’s where I find many growth teams fall into the trap of solely focusing on external factors negatively impacting their CACs. At Digit, we initially spent too much time prioritizing new users and lowering our CAC instead of improving the core product to achieve sustainable and scalable growth.

Stop Obsessing About Your LTV:CAC Ratio and Simplify to Core Components

If this is the beginning of your journey to understand and improve your LTV:CAC ratio, here’s some primer material that will jumpstart your knowledge and help you understand the rest of this post:

Each part of the ratio is equally important but requires a different approach. Now that you understand why any good team leverages a LTV:CAC ratio, let me explain why you can't always lean on this metric as the north star.

Instead of concerning ourselves only on CAC and macro environmental factors out of our control, at Digit we focused on building sustainable and scalable growth, which meant increasing LTV and worrying less about CAC. 

Every company will face rapid deterioration of their unit economics with pressure from both revenue and cost as you scale growth. Many teams grow into the fallacy that CAC is easier to improve with new creatives and channels. This is not always the case. While finding new creatives and channels seem easy, they are not. They are often more difficult and time consuming than focusing on developing and improving your current products monetization model. 

Creatives are a long term play where you may go months on end without finding a single winning creative. The company can end up burning months of ad spend and resourcing without a single winner which will then soon become obsolete. The same goes for new channels. Growth teams need to have a rigorous experimentation schedule that hypothesizes and churns through new channels to find new areas of inventory that have no guarantee in scalability and user quality. It’s not that a strong creative engine and channel experimentation roadmap is not important, but more so that there can be other higher impact levers to pull first. 

Once you’ve tested new creatives, channels, and other efforts to improve your CAC like brand awareness and conversion funnel optimization—but still find yourself capped on the ability to scale or meaningfully reduce CAC, it’s time to move on as it could imply you’ve picked all the lower hanging fruit already.

Building Sustainable CAC? Bring Product & Growth Together

So how can we improve the monetization of a product? Well, growth and product teams need to be joined at the hip at all times. Bringing these two together provides full transparency of a user's journey from acquisition to monetization to ensure there is a tight conversion funnel which will maximize LTVs.

Growth teams need to have full transparency and ownership of the conversion funnel instead of a handoff after acquisition. Product needs to be constantly developing and iterating on features to drive LTV higher. Every single person on the team needs to understand where traffic is coming from, both organic and paid, and what the user journey and interactions are down to the most important monetization events. This should be a collaborative effort where each team brings new ideas to the table to help drive feature utilization and monetization higher. The end goal is to yield a maximum LTV beyond your current target of an LTV:CAC ratio of 3 or higher.

At Digit, we bridged the two teams by developing a process called Demand Testing. Demand Testing would take both teams joint hypotheses on new features through a rigorous experimentation framework. We advertised new features that didn’t yet exist and measured top of funnel performance paired with qualitative research to understand if there is a product market fit and extrapolated downstream cost metrics utilizing the initial top of funnel data. This led to the development of new features that helped increase the overall LTV of our core audience. 

Why Increasing Your LTV Will Build a Sustainable CAC 

Having high LTV products will help you sustain volatile and rising CACs.

We are now living in an unprecedented time with privacy changes from Apple and Google that have large impactful macro factors to everyone’s growth strategy. Just because your marketing is efficient now does not mean it will be in 30 or 90 days from now. Aim to have a high LTV product that provides you more runway and flexibility to weather these storms while maintaining growth.

Building high LTV products will also help you successfully manage through these volatile times where CAC’s will fluctuate. The ability to win auctions with stronger bids will have you outpacing your competition as more advertisers compete. This is particularly important as more competitors are relying on tools that automate bidding and budgeting across broad targeting campaigns, which helps level the playing field across beginner and experienced media buyers.

It’s important that you focus on the things you have full control over to create a high LTV business. To do this, build strong cross-functional teams that communicate with each other to further improve the LTV through process and experiment driven workflows that tie top of funnel acquisition with lower funnel conversion and monetization. Whether you build new products to expand your audience or tighten your funnels to avoid a leaky bucket—prioritize continuously experimenting with onboarding and monetization mechanics to ensure you’re optimizing your LTV.

by MAVAN