238: Deadly Shortcuts Founders Should Avoid
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In today’s episode, Steli and Hiten discuss the various shortcuts that startups need to avoid at all costs. While tactics like inflating sales figures, copying marketing tactics, discounting and reporting vanity metrics might lead to short-term gains, the long-term effects are disastrous. Taking the path of least resistance is tempting, but does not lead to any value addition. Tune-in to discover why you need to plan for the long-term to create the successful business you desire.
Time Stamped Show Notes:
- 00:03 – Today’s Startup Chat is about deadly shortcuts that should be avoided by startups and founders
- 00:27 – Startups are tempted to resort to shortcuts in a bid to grow faster, but they often end up stumbling
- 00:59 – One of the shortcuts that startups take is trying to purchase big leads of potential buyers or leads
- 01:08 – In a bid to meet their revenue goals, startups end up purchasing low quality email lists
- 01:52 – Emails have not been updated and nearly 30% of emails bounce—therefore, you end up getting only 70% of emails
- 02:25 – Your email address will be on the spam list
- 02:39 – Google might block your email address
- 02:59 – Open rate and reply rate is really dismal
- 03:25 – In most cases you will not end up converting even a single customer
- 04:10 – Another popular shortcut is blindly copying a marketing tactic
- 04:30 – Customers might not be even using that marketing channel
- 05:28 – Begging is another shortcut to be avoided at all costs
- 05:44 – Requesting clients to make a purchase to meet sales target; heavy discounts and option to cancel purchase at a later date are the incentives offered
- 06:22 – Carrying this too far might lead to fudging numbers
- 07:05 – You are thinking you are fixing your today’s problems but you have signed your death penalty for tomorrow
- 07:26 – Goals that a company sets for the next two quarters are going to be based on the fake success of this quarter
- 07:41 – Your future numbers will be worse because of a high level of churn
- 08:21 – Discounting: another shortcut that will only cause long-term harm
- 08:32 – In the short run, you will make a lot of money; over the long run, people start waiting for you to offer a discount
- 09:03 – Groupon is a classic example of a company which has utilized this shortcut time and again
- 10:00 – A 5-10% discount offered by ecommerce companies can still be justified somewhat since this is already built into the price
- 10:19 – Picking vanity metrics to satiate egos and create delusions
- 10:35 – Some startups tend to report convenient numbers only—numbers that display the complete truth are not displayed at all
- 11:00 – For instance, tech companies tend to report total number of users. However, metrics such as active users, last 30 day signups, and activity levels are not reported at all
- 11:52 – Everyone in your startup will have delusions about success
- 12:35 – While Myspace was focused on accounts created, Facebook was focused on active users
- 13:20 – Your metrics to a certain degree should make your life uncomfortable, it should push you to work harder
- 13:55 – Taking the path of least resistance is a big blunder
- 14:44 – Rather than purchasing a trashy email list, there is a need to put in effort and build your own list using the latest tools and by sending personalized messages
- 15:10 – Most things that will net you significant gains are through lot of trial and error or deliberately thinking through what you are doing, why are doing it and why it is right for you and your business
- 16:14 – Do the right thing—don’t go the easy route and always think long-term—shortcuts lead to places where nobody wants to visit in the first place. They don’t really lead to where you want to go or what you want to create!
- 16:30 – End of today’s episode
3 Key Points:
- Taking the path of least resistance is disastrous for your business. Think long-term and you will end up going where you want to go.
- Do not use convenient metrics to report your numbers—this serves no purpose but to satiate your ego and create false delusions of grandeur.
- Inflating sales revenues is another shortcut that should be avoided at all costs—this leads to a higher churn rate and a temptation to fudge your numbers.
Hey everybody this is Steli Efti.
And this is Hiten Shah.
And in today’s episode of The Startup Chat we’re gonna talk about bad lead shortcuts that founders and startups should avoid. So, you know we’ve seen all kinds of shortcuts that people take, startups take that they think will get them to the goal faster, better and easier. And we seen how taking these shortcuts can be really deadly and can make you stumble and make your whole startup really go down the drains. So we are going to highlight a bunch of these that we’ve seen in an effort to help you avoid these shortcuts. I can share a bunch of them, Hiten you can share a ton of them and we’ll go back and forth on these. So let me kick things off, I think, so one of the shortcuts that I see a lot of startups take is trying to purchase big lists of potential buyers, lead less.
And the way they do this is, there’s many websites that offer you just like, you know, industry specific email lists and startups just think “Hey if we just go there and buy 10,000 of these emails”, they do some math, “And then we send all of them an email. Let’s say out of the 10,000 you know, I’d say 2,000 open the email. Out of the 2,000 that open the email, I’d say 1,000 respond. Out of the 1,000 that respond, let’s say 500 buy, well shit! If we get 500 customers in the next two or three months we’ll have all this revenue and things are gonna be exploding and this is gonna be awesome”. So they go and just spend you know, 10K, maybe a dollar a pop on an email. They send the bulk email to this like really cold and really raw and usually very low quality email list and then a number of things happen. Number one, these email lists are usually very outdated. They’re full of people that you know, once somebody puts that data in, it stays there forever, they don’t really clean their data bases a lot. There’s no interest to clean their database in most cases. So, right off the bat what I see is that around 30% of those emails bounce or just inaccurate anymore, these people don’t work at these companies anymore, whatever. Right? So you purchase 10,000 but you really just got 7,000 emails that are still accurate. And then you send a bulk email and 7,000 … By the way you might just get your email account closed right away or you might get so many flags of being spam from people, that you know, all of a sudden no email that you send anymore is being received by anybody because it all goes straight to the spam folder. If your email is hosted by Google you might just get your email account blocked and not be able to receive or look at your emails at all. So all kinds of bad things happen to startup that send mass emails, tens of thousands of emails at once, that is not a good idea if they are cold. Let’s say even the people that receive the email, that you got 7,000 to open it, usually … Oh 7,000 people to receive it, usually the open rate is really, really bad on these super harsh and cold emails. Maybe out of the 7,000 you get you know, 2,000 to open it and then the reply rate is really, really low you know, out of the 2,000 that open it you might just get you know, 100 to respond out of which a lot of responses are “Not now”, “Not interested right now, please take me off your list” or “Yeah, this sounds interesting I’ll look into it”. In most cases you’re not gonna convert even a single customer out of that, just kind of like 10,000 cold email you know, one to many approach is not really, specific. Buying massive email lists and then sending like a one bulk email and dreaming that, that’s gonna get you a win fall of new customers, is a shortcut that will get your email banned. Will get you on spam lists, which will hurt your startup forever. Will get you to lose a ton of money and will get you hated by people; build a bad reputation and it’s not going to get you a lot of customers. So, it’s one of those shortcuts that’s easy to avoid but I still see a lot of startups take.
Don’t buy email lists. They don’t work. I like that. So, shortcut, I’d say one of the most common shortcuts in marketing, is when people decide that they read some blog posts of some marketing tactic, they didn’t really understand it necessarily, although they don’t know that and they basically decide to copy it. Here’s the mistake and why I consider it a shortcut. You haven’t really thought through whether your customers are you know, in that channel, their using that channel or you can even get customers from that channel or users; and you decide that just ’cause this person, this other person who blogged about it had success with that marketing tactic growth app or marketing channel, whatever way you want to look at it; or whatever you read, that you will too. So you just go ahead and use it, do it and then you fail. And then you wonder why you failed. It’s ’cause you took a shortcut and you didn’t take the time to put the lens on your own business and think through “Is this applicable to my business” or “Am I just copying it blindly”. So a lot of people copy these tactics and these marketing things blindly. And I feel like that’s a pretty big shortcut. A very common shortcut I see and they wonder why their marketing is not working.
Love it. Yeah. So, next shortcut that founders take and startups take that will get them into trouble is, well, the one thing that comes to my mind is, begging. Right? So what happens, once in a while is that, this happens in sales but I have seen it in other situations where a startup will want to … A sales person maybe in a startup will want to hit a certain growth number in a certain quarter and because they are so behind they start begging their customers. So they’ll tell customers things like “Hey, I really just need you to, can you do me just a favor right now? Can you just put in your credit card and then what I am gonna do is I’m gonna give you a discount or make it in our billing system so that you’re charged in three months and you can cancel in, by the end of the month if you really don’t want to buy but I really need to make my quota. So if you just said “Okay” to put in your credit card information, independently if you buy or not, that would be a huge help to me”. Right? This is not as uncommon as you would think. I’ve had a founder friend, I mentioned this in a much older episode, a founder friend of mine text me once and asked me “Hey can you please open a paid account on our site, I have a board meeting next week and we just need to hit certain numbers and we’re way behind, so I am trying to get as many of my friends to put in their credit card and have a paid account. I’ll pay you the money personally back afterwards”. And I was “Wow”, this is soul crushing right? And we talked about that. Like how painful it is to hear a founder you know, this is not even just begging, this is actually more in the lying category of like just faking these numbers in a way that’s desperate. To hit certain quote en quote milestones that are important to investors or somebody else. Don’t do this shit! This is so short sided. Your quote en quote thinking you’re fixing your today problem but what you’re doing, you signed your death penalty for tomorrow. You’re literally fixing a small problem today in a way that creates a massive problem tomorrow. Right? You’re creating all these fake accounts. Now what’s gonna happen next? They’re all gonna cancel, so your churn is gonna be really bad. You’re creating all these fake accounts, which means what? That the goals that the company is setting for the next few quotas are gonna be based on the fake success you had this quota. So all the goals are gonna be crushing on top of it, not just it was unrealistic to accomplish these numbers, because you are not accomplishing them right now anyways although it seems you are, you’re also gonna have even worse numbers than you had this month because of all this churn. It’s just gonna create all these problems, all these issues for your startup. Don’t beg people to give you money because you want to accomplish some goal. Doesn’t matter if it’s customers or friends and family. Don’t beg people to create accounts. Don’t beg people to give you your account. Sales people often times they’re just like “Hey do me a favor, if you know you’re gonna buy anyways just buy now so my quota looks good, because I need to hit certain numbers”. This is a common tacit for sales people and it’s one I particularly hate so please don’t do that.
Yeah. That’s begging. Okay shortcut. Discounting.
So I find time and time again companies wanting to discount their products; whether it’s a SaaS product, an e commerce product, anything. And there’s one key thing they don’t realize, in the short run it might make you money, a lot of money actually because you’re giving your product away for a cheaper price. In the long run what happens is people start waiting for you to have a discount before they’ll buy.
And it causes so many problems. Where all of a sudden your brand is associated and thought of as more of a discount brand. And when I drop the mic on this one I just bring up one company name. You can probably guess what it is. Groupon.
And that’s all I gotta say and people are like “Oh yeah. Got it”. ’cause you know what takes back when you go to Groupon, a discount, a massive discount of something. And that’s their brand. They can’t branch out of that. And those discounts aren’t even good for the businesses that they’re brought on and provide the discount. So I mean think about going to, at least half if not 80% of the Groupons that I’ve ever done, the service is off because people are just not happy taking your money at that point. And so that’s an extreme example of what happens when it’s a discount and what happens to the ecosystem of you know, your customer, yourself, if you’re a market place, if you’re e commerce like it all adds up. And I’m not saying like don’t offer a 10 or 20% discount if they give you an email if you’re running an e commerce sight. I’m talking about the whole discount sales and all those kind of things. You know? The 20% coupon or 10% or five percent off for the email, even though I don’t like it, I totally get why e commerce is doing that. It’s because they built that discount into their margins. That being said I still think that if you want a brand that people aren’t waiting for a deal to buy from, don’t ever offer a discount.
Yeah, that’s a pretty bad one. I’m going to give one final one which we’ve talked about. Well, final one for me. Maybe you have one more. Which is something we’ve talked about a lot. A lot a lot. To me it’s a shortcut. We’ve talked about it on multiple podcasts in lots of different ways. It might be even a theme of the podcast, which is, I think a shortcut is to take the easy way. The easy way is the way, just like I was referring to. A lot of these things even in all these shortcuts we’ve mentioned, it’s like you’re taking the easy way out. You’re doing the easy thing. You’re doing the thing that is the path of least resistance. But you might not have evaluated whether it’s the right thing for you. A great example is when you buy those email lists and they don’t work for you. That was the easy way out. You didn’t build the email list, you bought it. It just didn’t work. This has been consistent. Most people believe that and have seen that these lists don’t really work. At the very least, go on LinkedIn yourself. Use appropriate tools. Find people’s emails. Send a personalized message. Tends to work a lot better. The same with the marketing one where you’re taking the easy way out if you think that what worked for someone else is going to absolutely 100 percent work for you. To me it’s just a shortcut in general to think that the easy path is the first thing you try, that it’s just going to work. That also goes to the fact that I think it’s a shortcut to think that you do things and they just magically work. Most things that are worth accomplishing or worth doing or get you significant gains are either through a lot of trial and error. Or through very deliberately thinking through what you’re doing, why you’re doing it, why it’s right for you and your business, then actually executing properly on it. Usually things that work are a combination of both. Of being very deliberate about your audience, your customer, your product, your business, and using that as your lens to decide whether certain things are going to work, in marketing, in sales, and almost every other part of your business. Then doing a ton of trial and error with that framework in place to figure out what the things that really work are for you. Don’t take the easy way out. I think that’s the thing we all want to do as humans. It’s a shortcut. It’s not necessarily going to work for you unless you get lucky, and luck doesn’t really, you can’t count on luck.
Yeah, amen. I don’t have anything to add to that. I think that’s a beautiful way to wrap this episode up. Do the right thing. Don’t go the easy route. Think long term, and really understand that shortcuts often lead to places nobody wanted to visit in the first place. They don’t really lead to where you want to go, what you want to create. I think that’s it from us for this episode. We will hear you very soon.