1) A business with a product that nobody needs or that people can do without cannot scale. A clear market that is potentially large and where your business is solving a real, tangible problem is a prerequisite for growth and scale. It is amazing sometimes how this simple truth is missing in many businesses. In technical jargon, this is called product-market fit.
2) Investment in growth and scaling when a tangible market problem is not being solved is likely to be a waste. This applies to both digital and non-digital businesses.
3) A key validation that your business is solving a problem of a fairly defined homogenous group of customers is when those customers are willing to pay for use of the service or someone is willing to pay for their use of the service.
4) Where customers are acquired with free services as an acquisition strategy, the test of product-market fit is that they graduate to use other paid services on your platform.
Read also: How can Nigerian businesses ensure financial resilience amidst uncertainty?
5) A common learning among the fintechs that have scaled was that they solved the problems of large potential markets that incumbent players have traditionally ignored, where such uncontested or least contested markets have the potential to scale. They leverage technology and new business models to solve the problems of the large excluded markets, from Opay in agency banking to Paystack in SME online payment collection or Flutterwave in cross-border payments. The lesson is that you are not likely to succeed as a start-up in a head-on collision with incumbents who have more resources than you.
6) When you have found product-market fit, you need to run and scale as quickly as possible. Most markets around here in Nigeria and Africa can probably just take 2-3 players at scale before the market is locked up. Scale is an advantage due to cost economics and network effects where it is available.
7) Through experiments and iteration, find or define, as early as possible, the profile of potential early adopters of your product. They are likely to be those who have the biggest problem or pain that your product solves. Focus your initial acquisition investments on them. Your marketing investment will be more efficient this way rather than scattered targeting of diverse customers.
8) Finding a market gap is not enough. You need to have a good product design to drive uptake of your services. Solve real problems and remove the friction of usage. Design thinking is good. Complement it with the ACCORD design principle to drive rapid adoption and usage of your service. A: Your product or service must demonstrate a clear advantage over existing behaviour or products in use to drive rapid adoption. C: the higher the compatibility of your product with existing customer behaviour, the more rapid its adoption; C: design your products to be simple; the higher the complexity of your product, the lower its potential for rapid adoption; O: observability of benefit in use: the more observable the benefit of your service or product in use, the higher your product adoption; R: risk: the higher the perceived or real risk of using or trying your service, the lower its adoption; D: make it easy for target customers to try your service. The more divisible it is to try your service, the higher the potential for its rapid adoption. This Everett-Rogers principle applies to both digital and non-digital businesses.
9) A simple way to imagine building a growth and scaling model for your business is to imagine it like a triangle, in which the base is the size of your customer base and the height represents the degree of usage, usage frequency, and use occasions of your service by your customers. Everything you are doing in growth and scaling to get the triangle bigger is expanding the base and increasing usage at the height. Become granular and scientific about what drives your customer base and the usage of services.
10) Customers are not the same in value and revenue potential. It is important to relate your customer lifetime value (LTV), the net revenue over a customer’s lifetime, which is revenue (cost to serve them) over the lifetime of the customer on your platform, to the customer acquisition cost (CAC). The LTV/CAC ratio, ensuring it is greater than 1, is one of the most important metrics of your business. If your projected LTV to CAC ratio is less than 1, you are acquiring value-destroying customers.
11) Essentially, it means you must build and work on a clear monetization and profitability path in your growth and scaling programme. If you scale, for example, where your net customer lifetime revenue is less than your acquisition cost, you will be scaling at an increasing loss, and you will begin to erode your capital. Ultimately, your business and your growth will not be sustainable. It is important to keep a clear eye on the unit economics of your business.
12) In many businesses, from telecoms to banking and fintech, there is a natural tendency for your average revenue per customer to decline as you go deeper into your market base and exhaust the higher level of quality and high-value customers. At the same time, there may be cost pressure on acquisition as competition increases, which implies that your customer‘s lifetime revenue to acquisition cost degrades. This is where the deep science of scaling begins: the constant daily iteration to extend the lifetime of your customers and their daily usage and revenue generated, understand their behaviour, get them to use more products and services, remove frictions, and keep them happy. Those who do these well will have a compounding scale and growth advantage over their competition.
13) Some of the best ways to accelerate acquisition are to design your product in such a way that its increasing or expanding usage among your base generates compounding activities that bring in new customers. The most obvious one is great experience and good word of mouth, which generate a large advocacy base among your customers and encourage their friends and community to come onboard.
a) During the cashless implementation, the unique reliability of Opay generated a large word of mouth and customer advocacy that made the business grow in several multiples. You can also formalise this through deliberate incentives and referral programmes.
b) An even more powerful one is when your customers advocate and recruit their peers and communities for you because they get more value when they use your product together, generating virality. During the cashless period, for example, traders and their customers who needed to trade with each other were persuading each other to get on the Opay platform so that trade and payments between them could be smooth and reliable.
c) Such things as word-of-mouth and customer advocacy in referrals and virality effects can potentially create a powerful, continuous, and reinforcing loop of growth. Find your own growth loops, design them, and make them inherent in your product. Build clear metrics to track their effectiveness and continuously optimise them.
14) The beauty of the above is that the growth is organic and the acquisition cost of customers is very low, which gives you stronger unit economics.
15) Partnerships are also a key way to accelerate acquisitions with low acquisition costs. Find platforms or businesses that have the customers you need, where your partnership with the platform increases their value to their customers while you also expand your customer base.
16) Don’t be generic. Build and find differentiation within your category. It will make your acquisition costs lower and more organic. You will not need to overpay to acquire customers or retain them. The customer economics of the business with regards to LTV and CAC tend to degrade the more generically undifferentiated your business looks. You will be competing on price; pay more to acquire customers and retain them. Customer lifetime on your platform gets shorter as customers jump around while your customer acquisition cost (CAC) increases, leading to LTV/CAC degradation (the Uber-Bolt challenge).
17) Your brand and reputation matter. They complement your acquisition and retention efforts and sometimes help you charge higher price premiums that improve your margins, as we see in the telecom industry. Pay attention to it. You do not necessarily need to be big to be deliberate about your brand and reputation. It may not even be about market spending. It is about what you do, what you stand for, what your market sees or perceives, and even those you associate with.
18) Growing and scaling businesses and doing so efficiently and profitably is a lot of science. From your headline numbers, such as Gross Transaction Value (GTV) or Gross Merchandise Value (GMV) in e-commerce, to your take-rate and revenue, you have to break them down into three to four levels in terms of their levers, or what drives them, and put metrics around those drivers, activities, and customer behaviour. You should build a construct of your gross transaction value (GTV) and their translation to revenue, the drivers and levers that drive them, and doggedly power on the levers and expected customer behaviour. You should also be clear about the lead indicators of your transaction volume to ensure your GTV goal happens.
19) Your drivers and levers in your GTV or revenue construct are not the same or equal. Pay most attention to the most critical levers. Set clear metrics of performance at those critical levers and ensure they happen.
20) Customers that are acquired have to be kept engaged in the usage of your services. Engagement is usually measured by the frequency of usage metrics such as daily active users (DAU) and monthly active users (MAU). As much as possible, depending on the nature of your business, you want your customers to use your product daily and drive your DAU upward. It may also be useful to separate revenue-generating daily active users (rDAU) from your DAU, where not all active customers are revenue-generating. In telecoms, they will call this revenue-generating subscriber (RGS) measured in 30 days (RGS 30 days) and RGS 7 days. Different ratios of frequency of usage will give you different insights for engagement action, such as DAU/MAU, rDAU/DAU, MAU/YYAU (yearly active users). Engagement actions to drive up your usage frequency or more use-occasions will include what frictions you need to remove, the incentive you need to deploy to stimulate usage, the content or information that customers need to see to elicit the behaviour required, or propositions to deploy to achieve your DAU or MAU objectives. Engagement will also include deliberate cross-selling or upselling of other products and services to your base. The higher your product usage per customer, the more sticky your active customer base and their revenue generation are. Set clear objectives for DAU and your MAU, or product usage per customer, derived from your revenue objective, and drive your customer behaviour to achieve the objective.
21) Vintage, Cohort, Segment, or Usage Bucket Analysis of different customer types with regards to age or channel of acquisition, customer lifetime and frequency of usage or product or service usage patterns and preferences, growth of usage, maturity, and decay is usually useful in revealing customer behavioural insights for growth and targeted engagement programmes of your customer base. Invest well in your data analytics competency. to drive your revenue programme.
22) Set retention and loyalty objectives. What is the acceptable level of churn or dormancy given your business objectives?. The best loyalty programmes may not even be loyalty programmes per se, but they engage customers who use your products frequently and regularly. Active customers don’t go dormant or churn.
23) Have deliberate programmes to win valuable, churned customers back. Have win-back programmes if you have had significant churn. Measure the effectiveness of your win-back programme and continuously iterate to improve. The telecom companies have historically had some of the best practices in win-back programmes.
24) Your active customer base = acquisition-churned (dormant) + win-back. Master those levers and their potential contribution to growing your active usage base.
25) Good curiosity about data (quantitative and qualitative) and good problem-solving skills are critical requirements to be a good business scale or growth manager. Slice your data in curious ways to reveal hidden insights, triangulate your insights for validation with other sources, and define problems correctly and disaggregate them to build solutions are skills one must have. You must also be a good team player because the best quantitative analytics and creative reasoning that solve revenue growth problems may reside with different members of the team.
Best wishes as you scale your business and its revenue.
Olu Akanmu gave these reflections recently at a Business Growth Conference of Tech, Media and Retail Industries.
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