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2022 Wrap: Fear Is The Mind Killer
Warren Buffet famously said in 1986, “when everyone else is fearful, be greedy; when everyone else is greedy, be fearful.”
In 2022, the abundance of capital and consumer confidence finally turned into a time of fear. As often happens, the bigger the boom, the worse the bust, and we are now seeing a nuclear winter in IPO markets, over-hyped tech collapses (FTX, anyone?); even e-commerce growth is decelerating. Media is fanning the flames of panic as strong negative emotions bring clicks.
And yet, as a Chinese proverb poetically says, a crisis is an opportunity riding a dangerous wind. There are companies that are faring marvelously through this period and are poised to not only continue thriving, but to accelerate their gains - not just due to competitors dying, but most importantly, due to smart investments placed when everyone else is in 100% defense mode.
This moment, when everyone is panicking, is the moment when world-class talent becomes available; when groundbreaking partnerships become viable; and finally, when a careful allocation of capital is especially rewarded (in contrast to last year’s “spray and pray”). Let me look at a couple of companies in my vicinity that did this well.
Hungryroot, a grocery delivery service, posted 45% YoY growth in Q3 on a 9-figure revenue base, versus the eGrocery industry increase of 4%. This growth also comes with the best retention numbers in the company’s history. I wanted to share some lessons learned based on what I had my hands in:
Doubling down on your differentiating factors can be extremely effective. “15-minute delivery!.. Eye-popping discounts!.. 50k SKUs delivered to your door!…” - these are the messages from other eGrocery players in the past couple of years. Hungryroot, in contrast, is all about making it easier to eat healthy; about pre-populating the shopping cart with ultra-personalized recipes; about understanding each consumer’s needs better than anyone else.
Conversion focus can bring down your breakeven period. In a down market, it’s compelling to bring down the breakeven period of your advertising investments; the way most companies do this is by dropping ad spending, which brings down CAC. An often overlooked route gave Hungryroot an edge: we discovered several significant conversion improvements, which lowered CAC. We did this by having product, design, and market research work closely together to identify messaging and UX improvement opportunities across the funnel.
Personalization can be a source of powerful LTV improvements. When considering how to bring down breakeven periods, LTV is almost never considered a lever, as it’s “too hard” to move. I beg to differ. At Hungryroot, we were able to significantly improve LTV by focusing on personalization, with food experts and AI nerds working closely together. For example, we’ve significantly improved the onboarding quiz that helps us figure out the dietary preferences of our consumers. Our starting point was to ask our staff chefs, “if you were signing up as a private chef for a family, what would you ask them?”
StartEngine, an equity crowdfunding marketplace, just expanded its already solid position with an acquisition of a major competitor. I saw the team do an amazing job on a couple of factors that contributed to this strength:
Renewed focus on roadmap alignment between business and engineering groups brought significant gains in conversion and basket size (AOV). Optimizing UX flows to have less friction produced outsized results (an almost 1.5x improvement in conversion rate!), especially on mobile. In a down-market, this focus on core flows made their advertising dollars work harder.
Doubling down on a key influencer. Kevin O’Leary of Shark Tank fame is an influencer for StartEngine, and they drove more value out of this existing relationship. A live startup pitch competition, Kevin’s face on the homepage, Kevin’s voice in emails… it all helped, and it didn’t involve additional advertising spend.
Reducing friction for the supply side (companies). By focusing on metrics around lead progression through the onboarding funnel, the team has been able to quickly increase the speed and thus the number of supply-side offerings. Marketplace content volume is a key variable for network effects, so this again paid off handsomely, without new ad spend.
Grubhub, a restaurant delivery giant, pulled off an amazing feat this year. Grubhub occasionally pursued partnerships to drive consumer demand, notably Yelp and Lyft deals forged in the past 5 years. In 2022, they went after the big kahuna and secured a deal with Amazon, where Amazon Prime members get free delivery on Grubhub.
More households in the US have a Prime membership than put up a Christmas tree, so new customer potential is massive. Given that Prime membership growth is slowing and Amazon Retail just had a big layoff, I suspect Amazon was more amenable than ever to add a valuable service to their Prime offering on favorable terms. For Grubhub, I would guess new customers brought in by Amazon are much cheaper than those acquired via paid media - and their LTV is likely similar.
Indigo, an agriculture tech company that helps farmers earn and sell carbon credits, saw a big acceleration in adoption; the company quotes 5 million acres enrolled and 2k farmers participating. The team at Indigo made a strong push to align technology and account management efforts this year, helping reduce the friction in the Carbon process for farmers - through process and software-based improvements. A related effort, aligning marketing lead pipelines with sales efforts via measurement and automation, also helped with the volume.
MidoLotto, an app where consumers can order state lottery tickets, capitalizes on spikes in organic demand when jackpot numbers skyrocket. Being responsive to consumers’ organic intent - investing more when more consumers are ready to buy - makes your breakeven periods shorter. Find a way to adapt your financial plan to these cycles. The old adage holds true: it’s easier to sell skis in the winter.
AppSumo offers deals on software. They doubled down on a holiday they created, SumoDay. Marketplaces have powerful network effects; a concerted boost for both supply (deals) and demand (buyers) in a short window of time is a great way to have disproportionately high returns. AppSumo team also doubled down on their top influencer, their founder/CEO, investing significant effort into organic content that consistently brings free leads.
Tiege Hanley offers skincare subscription boxes for men. They found success by expanding the product catalog. Tiege also improved profitability by raising prices, and they could do that because their offering is differentiated enough. Another reason behind this pricing power has been the ease of subscription management: clients are managing their deliveries by pausing or canceling, then coming back.
Focus on clarity of understanding of key flows within conversion and retention. Don’t just look at CAC as a single number; map out the full conversion funnel like Hungryroot, Indigo, and StartEngine did. Don’t just look at LTV as a single number; split it out into churn funnels as Tiege and Hungryroot did. Understand your breakeven periods in detail, and shoot for them to be below 6 months in this market; 3 months if you want to wow investors
Advertising can be made much more efficient via efforts outside of the marketing team. Your landing pages, sales funnel, and messaging can have a stronger effect on your marketing break-even than just the total ad budget. Improve them like Indigo and Grubhub and Hungryroot did.
Extract more value from what you’ve already been doing. If you have a partnership or a top influencer that’s working well, find a way to get more value out of it, as StartEngine and AppSumo did. If there’s a seasonal pattern visible from space, lean into it, as LotteryNow did.
If you are successful with the first 3, the tailwinds of advertising marketplaces will be on your side. As other brands scale back their spending, if you’re able to keep yours steady, you will be on the winning end of macro dynamics. Your winning bids will be lower; given that most ad platforms are based on auctions, you’ll pay less for your winning bids because others are willing to pay less.
If you’re interested in learning more about any of these concepts or are curious about ways to apply these learnings to your business, get in touch with me.
Thanks so much to my team at Hungryroot that teaches me how to be better at marketing, product, design, engineering, data science, and overall strategy every single day.
Thanks to my clients, who don’t just ask me for advice, but allow me to meddle in their world enough to see this advice through and learn alongside them. I realize how hard it is to let an outsider mess with your world. I’m grateful for the opportunity.
Every advisor needs their own mentors to make them smarter. This year, my special thanks go to Jeff Weiser, Operating Partner from L Catterton, who made me so much better across marketing, strategy, and measurement - all the stuff Hungryroot and companies I help benefit from.