Image credit: Nina Matthews Photography
I often get questions from other startups about whether they should be running ads and if so, why and when. Startups largely fall into 2 categories: pre-product/market fit and growth stage. The purposes for running ads at these two stages are very different. This post focuses just on pre product/market fit, and next week, I’ll talk about the latter.
Pre product/market fit:
If your company is pre-product/market fit, your goal is to find a product or service that meets a need, that your customers love, and that you can scale. Startups often fail, because they try to scale before they find product/market fit. If you try to run ads at this stage to scale your business, you will become jaded with the results.
But, running ads at this stage is a great way for you to get feedback on your product quickly. Since most entrepreneurs only have limited runway, your most valuable asset is time. Unfortunately, most entrepreneurs act as if money is the most valuable asset. This is because time doesn’t appear to have a monetary cost.
Suppose you take out ads at $1 cost-per-click on say Google AdWords, Facebook Ads, and LaunchBit (our ad network for email ). Say you are able to learn within a week what direction to take your product when you drive 500 visitors to your application and spend a total of $500. This seems like a lot of money. But now suppose you want to drive that traffic organically and your site is largely unknown. You spend time dropping links in forums, writing to bloggers, and answering questions on Q&A sites. It could easily take a couple of weeks to a month to get 500 visitors under these circumstances. (I know very well, since this is what I used to do to drive traffic to my nascent sites ). Not only does this tactic take 2-4x more calendar time, but it also eats at your own time that you could spend doing other things. But, even assuming you value your own time at $0/hour (though you should value your time more — even as much as $1000/hour), the 2-4x in additional calendar time means that you have 2x-4x greater living expenses that you have to pay before you can move your company forward. So, if you are paying cheap rent, food, and transportation at say ~$1000/month in the Silicon Valley, you’re spending an extra $250-$750 just living while your company is stagnant. You are much better off getting feedback to learn this week than weeks from now.
At this stage, ad expenses should be thought of as user research or an investment in customer development. And as you iterate your product, ad networks continue to be a good resource for getting new cohorts of your target demographic to learn quickly and improve.
More next week on running ads during the growth stage of a startup…