Acquisition vs. Engagement in a Land-Grab Market
There is something rarer than a unicorn these days in Silicon Valley. No, it’s not an decacorn or megacorn or whatever else is being thrown around on Sand Hill Road, it’s a true “land-grab” environment where tech solutions are being applied to a problem for the first time, and the market is wide open for whoever gets there first. In these situations, it is obviously essential to get the most users possible on board as quickly as you can, but serious danger lurks for companies focusing solely on the amount of space they can occupy at any given time.
Growth is clearly important (as discussed in the most recent update on our exponential growth in transaction volume), but even--and perhaps especially--in a land-grab where BlueCart is signing up 300, 400, even 600 accounts per month, there has to be a balance between user acquisition and user engagement. Without that equilibrium, hard-fought market share slips away from companies not paying attention, and what’s worse: the leakage may be completely hidden from view, masked by a growth rate that will eventually top out and reveal the erosion beneath.
Over the last couple of months, no less than three different startups in our space have approached us to propose we either buy them out or merge. After each meeting, we politely declined, and then watched as they went out of business, despite having posted incredible growth numbers early on. In fact, we have recently seen a surge in resumes and job applications from even senior level operations employees of similar startups still in business, signaling further trouble for some companies. Odds are high that these problems stem from a failure to fully value user engagement alongside user acquisition.
At BlueCart, we have been acutely aware of this since the beginning, but for a long time had to rely only on the types of anecdotal user quotes (“I love using BlueCart!”) that appear on every startup’s website. Now, with the help of our product team, we’ve done a couple of interesting things to help us quantify the data behind those comments:
We segmented our user base into cohorts, based on the month they started using the platform. This allows us to attribute engagement over time to distinct marketing, sales, and product efforts.
We developed an Average Engagement Index, based on the average number of orders placed by users per day--genius-ly baptized as “AEI”! We track this on a daily basis for operational reasons, and annualize it for big picture analysis.
As you can see in the graph of our Annualized AEI below, our user engagement is actually increasing, and as of February 2015 we already outpaced Amazon Prime’s AEI (Annualized AEI Range 20-30)*.
This is not to say our work is done. It is only to say that now we have the tools in place to ensure our focus on user engagement continues to pay off.
So what is a start-up facing a wide-open land-grab environment to do? By all means, get excited about the potential for growth, and get as many users on board as you can. But don’t let the joy of a hockey-stick user acquisition graph blind you to the risks of a slow leak of current users.
CEO - BlueCart
*This is based on Prime Users spending $1,500 per year at an average order size of $50 (1,500/50 = Annualized AEI 30).