How to ensure you're building a successful B2C?

This is quite a vast and hard question to answer. Recently I heard a speech from Tom Blomfield (founder of Monzo) at Y Combinator Startup School. His points were incredibly clear hence I decided to share them here.

As we know from Paul Graham (founder of Y Combinator) growth is at the essence of a startup. Therefore measuring growth is of uttermost importance. Growth can be either organic or paid.

B2C growth benchmarks

Good growth: 15% month-over-month = 5x your user base yearly

OK growth: 10% month-over-month = 3x your user base yearly

Bad growth: <5% month-over-month = unlikely to be successful

Tom argues that a successful new B2C company should aim at reaching a minimum of 50% organic growth and 50% paid. Below 50% you're probably toast. Based on his experience the best B2C companies have a split of 80% organic + 20% paid or even 100% organic. Monzo famously reached 1M customers before spending on marketing and advertising. But...

How can your company achieve organic growth?

The best consumer companies incorporate virality and network effects to grow their user base organically.

How to incorporate virality & network effects in your service?

Virality - "A user introduces a new user to the service"

Ask yourself - What are the sharable moments in your service? Which moments in the product do people naturally want to share? How can I make it extremely easy for my users to share these moments? Take these answers and build viral loops in your product or service.

Network Effects - "When a product gets better with more people joining"

Ask yourself - How can I create viral mechanics? How can my service get better when more people join?

Examples:

In its early days, Facebook prompted users to tag their friends in the photos they were uploading on Facebook. They asked to tag their friends even if they were not Facebook users. By doing so, the people tagged would receive an email saying "John Doe added a photo of you" - "Signup to view".
For Monzo, building a network effect mechanic meant empowering their users to send and receive money really quickly and easily within the bank.

Paid acquisition

Whenever you're spending money to acquire customers via paid marketing, advertising or referral you are achieving paid growth. This means that every customer you acquire has a CAC (Customer Acquisition Cost). It's important to measure CAC to an active, monetized, retained user not simply a signup. The question your CAC should answer is:

"what costs us to generate a user that sticks around long term?"

Paid referrals

When offering paid referrals you should consider that you could be cannibalising word of mouth - organic growth. To some extent, you may be paying a user to refer to a friend when that user would probably do it for free if you built a good viral loop.

Paid referrals may also be subject to fraud. Many people may try to milk paid referrals for personal gains.

Paid advertising

When doing paid ads, you really need to know where the people are coming from. The best way is to ask users when they sign up. If you understand where they are coming from and your spending per channel then you can understand your CAC. Record forever in your database where users are coming from and be sure to be able to track the Lifetime Value (LTV) for each channel/user coming from each channel.

Unit Economics

"Revenue per customer - variable cost"

Every Monzo new customer used to generate $50 in revenue. The variable costs for Monzo were:

Sending out cards
Customer service
Frauds
Transaction fees.

All variable costs should be tracked on a per-customer base. Ask yourself - how did each cohort perform? How much revenue does each type of customer generate? How much variable cost do they generate?

While calculating unit economics, you should not account for fixed costs like salaries as they won't change by getting new customers. It's key to be aware of unit economics as scaling negative unit economics it's very dangerous. Get unit economics positive and then scale or be ready to pay the price.

Retention / Net $ retention

In consumer companies, tracking retention is more complex than in B2B businesses. There are two hard things in calculating retention in B2Cs: the recurrence of an action in a period of time and the magic moment.

What is the right period to measure if customers are active or not?

How often would a good customer typically be using your product or service? Twice a day like for Facebook? Every day? Once a week? At least one transaction per week like for Monzo? Once a month? Once every six months like for Airbnb? Or even once a year?

What is the user's magic moment with your service?

Magic moment - "a user behaviour or activity that predicts long-term retention"

For instance, Facebook understood that if a user added approximately 7 friends in the first 10 days of usage, the user would be very likely to keep using Facebook a lot.

Don't get fixated on the exact number or precise definition of what is the user magic moment for your business. Find an about right metric for that tipping point. It's vital for your business that you understand what this magic moment is, and that you re-engineer your product on-boarding to ensure that as many users as possible hit this magic moment as soon as possible. For instance, Facebook built a pop-up inside their signup flow.

Net Promoter Score

"From 0 to 10, how likely is a customer to recommend your product to a friend?"

Any user/customer voting between 0 to 6 is a detractor, 7 or 8 is neutral and 9 or 10 is a promoter. The NPS is calculated as the % of detractors - the % of promoters. For instance, if 50% of users voted 9 or 10, 25% 7 or 8, and 25% voted less than 7. Your NPS will be: 50 - 25 = 25.

As a new B2C company, if your NPS is not extremely high, you have to re-engineer the product to make something that people love. NPS correlates extremely well with word-of-mouth referrals. An NPS of 50 is the minimum baseline for any new B2C company. Monzo's NPS oscillated between 75 and 80. Tesla reached an outstanding 96.

A low NPS for a big old B2C is a good sign that you can disrupt that industry with great customer service and a great proposition.

It's extremely important how you gather your NPS data. Changing the moment you ask for it, or the way you ask for it may greatly disrupt its calculation. Keep it consistent, ask always at the same point in the customer lifecycle. Ask it in the same way to all customers.

After users answer, you should always ask a qualitative question to understand why they voted that way. Why do you like the product? What's wrong with it? The answers to the detractors will provide you with great insights to fix all the things they don't like and could potentially improve your NPS and the shareability of your service.

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