Lenny Rachitsky: belief

Transcript context

…Product market fit. If you know that your business sells into audiences. Let's say you are a social media influencer or you had a really strong email marketing game, or organically your content surfaces within Google search results. Or, you did a lot of direct mail and linear television and billboard advertising and that worked. If other things work, it is highly likely that paid acquisition will work. The issue for most companies is in this incorrect assumption that the data that is provided through paid channels allows you to have full end-to-end understanding of attribution. Which is wrong, it's never been that way. And the other aspect of this is the patience to understand that every business is unique, and these metrics that we know are important are different for every business. Lifetime value, like propensity to repurchase, ROAS, which is return on amount spent, CPA, CAC, all of these different things are different for every business. Even if I worked with two hotels in the same city, they would have different results based on the nuances of their budget, their brand, the market that they sit within, the services that they offer, and so on and so forth. I think that everything else, the main problem here is that nobody should expect an overnight turnaround with performance marketing. It is a very difficult channel to manage, and that's why people hire experts like us to help them with it because it's a never ending problem with constantly changing issues. It's always been like that, that's not a new thing since pandemic, or whatever. And it will take some time to work out what works. I have this framework of there's these four growth channels, basically growth engines is what I call them. There's paid/performance marketing. There's SEO, there's virality in their sales. And essentially there's some companies whose growth is almost primarily paid. A few that come to mind are booking.com, which we know well at Airbnb, which is almost all paid growth driven. Credit Karma comes to mind as a classic paid performance marketing. I keep coming to paid growth as my term, so I'm just going to stick with that. TikTok initially was very performance marketing, paid growth oriented. Wish was another one I think about. And I want to talk about how much things are changing within this realm. But before we get there, do you think there's still an opportunity for startups to emerge where they get to scale almost exclusively through performance marketing? And this question actually came from Twitter, someone tweeted this randomly the other day. And I was like, oh, that's a great question for Jonathan. And by the way, her name is Liz. And I was like, oh, that's a great question for Jonathan, and by the way, her name is Liz Georgie asked this question, so there you go. I'll put it this way. Every unicorn from the 2010s era that scale did performance marketing, but not everyone during that time who did performance marketing scaled. So I want to remove the bias here that just because all the successful organizations did this didn't mean that it was a magical channel for everyone. We had plenty of projects that we worked on that flatlined during that period. And so the sense that there was a period of time where this was easy or it worked on any project is not correct in my opinion. With that said, we see companies that are spending millions of dollars a month on performance marketing channels like Google and Meta still, despite all the ups and downs that they have faced and they do so profitably. And I think there's some really great examples of companies that have scaled in relatively recent times, almost exclusively through paid. Grammarly is a really good example of this. They have been good at solving for this problem that exists around understanding the cost per acquisition versus lifetime value, how sticky customers are, predicting how much revenue can come from a customer and backing out into therefore how much we can pay per click and per lead and so on and so forth. Athletic Greens is another good example. So Athletic Greens is actually a pretty old company. I think they've been around for 10 years. I think they have retail distribution. I think they have done a lot of the more classic marketing things that are important in terms of developing that channel mix. But I think the amplification of that brand really, really gained traction quite recently where now everybody knows what Athletic Greens is, and that's because they're buying loads of ads on TikTok. They're buying loads of ads on other social channels like Facebook. They're investing in podcasting partnerships. But this is all digital paid acquisition. And so it had a wonderful effect on this really interesting business that they had already built. So yes, it's still doable. We still see people doing it, and I think that there's been a bit of a reckoning in the performance marketing industry pertaining to things like privacy and the changes that Apple made and people being very creeped out at how their data is being used rightfully so. And then obviously the economy in 2022, we had a terrible macroeconomic shift where interest rates rise and inflation's out of control. And so of course the first thing that people cut are typically marketing budgets and we see Facebook and Google and other ad channels directly suffering from that. So all of that said, these storms pass. And so when the economy improves, generally speaking, I imagine people will go back to trying to find as much inventory from a pay per click point of view that they can purchase as possible and figuring out the economics of how to do that.…

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