By Michael Woloszynowicz

By Michael Woloszynowicz

Saturday, October 29, 2011

AdWords Is Not A Marketing Strategy

For all the startup hopefuls expecting Google AdWords to serve as your primary marketing channel and lead you to quick and easy riches, you better think again. What you're more likely to find is high cost per clicks, low click-through rates, and even lower conversion rates. That's not to say that AdWords is all bad, it's actually a great tool for discovering what keywords your target audience is using in association with your product, but from then on it's up to you to grow through other means.

25 cent cost per clicks have grown to $2-$6, and people's natural ability to ignore advertisements result in paltry click-through rates. Running several experiments over a two week period yielded a 0% conversion rate on 200+ clicks across multiple keywords and nearly $300 spent. In comparison, over the same period, the inherent network effects of our application resulted in a 10%+ conversion rate at a cost of $0.

The key problem with AdWords is that it's a terrible tool to use for marketing a product that doesn't have an established market. If people don't know that the market exists, they can't search for a product that services that market. Fortunately for me, I used AdWords as an experiment to prove this very point, so the loss of $300 can be viewed as market research cost rather than a sunk one.

This is why it's extremely important to find what Eric Ries calls the "engines of growth" for your company. It's not enough to simply build a great product and expect that search engine traffic will do the selling for you. You need to understand the market you're entering and the best way to reach and grow your user base in that market. AdWords is also an expensive way to acquire customers, so you'll have to consider the lifetime value of a customer against the average acquisition cost to determine if it's viable. On the plus side, AdWords is great for running keyword experiments to determine the number of impressions various keywords garner and which generate the highest click-through's. The challenge is determining which clicks actually correspond to your product offering, which would typically be measured via the conversion rate. The problem here is that low volume of click-through's make for poor statistical data, and there is always the chance that your website copy fails to properly convey the value proposition. That being said, these experiments are best run once you've had a chance to perform some degree of quantitative and qualitative optimization on your landing page.

Don't get me wrong, AdWords still has value, otherwise companies wouldn't spend billions of dollars on it. Just expect to compete fiercely for clicks, pay heavily for them, and fail miserably if you're establishing a new market. So my advice for most startups is fight for organic traffic, get social, generate referrals, build virality into your applications, and use AdWords as an experiment rather than a strategy.

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Sunday, October 23, 2011

The Lean Startup Book - Reviewed

Having been a fan and advocate of the Lean Startup movement for some time now, I've been anxiously awaiting the release of Eric Ries' book ever since its announcement. Given the high quality of Eric's blog posts, it's needless to say that my expectations for the book were quite lofty. I'm happy to state that it delivers on those expectations and brings a fresh perspective to the subject, even for long-time Lean Startup practitioners. In fact, it's not a stretch to say that the Lean Startup book will join the ranks of tech circle bibles like The Innovator's Dilemma, Crossing the Chasm, and Inside the Tornado.

For those expecting a detailed step-by-step roadmap of the Lean Startup, you're likely to be disappointed. The subject is simply too large to be covered in one book, and many of the individual concepts have already been covered in other sources (Eric does a great job of suggesting further reading). More importantly, the Lean Startup is not a laundry list of steps on the path to success, and the book never presents it as such. What it does is lay out a framework with which you should approach your startup, and some specific considerations that need to be made throughout its evolution. It succinctly ties together many of the concepts presented throughout Eric's blog, but does so in a manner that doesn't feel repetitive. Having read his blog in its entirety, I rarely found myself reading material that I'd heard before, and was often presented with ideas for the first time. Furthermore, Eric does a good job of reframing some of the more familiar material and making it clearer through context.

The most interesting idea in the book - and it's one that somehow eluded me until this day - is that of the growth hypothesis. Loyalists of the Lean Startup are no doubt familiar with the idea of the value hypothesis, which serves as the foundation for the minimum viable product, but until now, little has been written about what Eric calls "the engines of growth". Although several articles have been published about retention metrics, net promoter scores, etc, I've never seen it framed in such a clear manner. The growth hypothesis serves as a complement to the value hypothesis and aims to discover the best way to reach and grow your customer base, and to rigorously test this alongside your value proposition. These two concepts occupy a good chunk of the book and are described in detail, alongside many real-world examples which crystallize their meaning. The concept is then solidified with one of Eric's most profound and enlightening statements: "Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers", the explanation of which I'll leave as a lightbulb moment to prospective readers. This is just one one of many statements that will leave you pausing and reflecting on your own situation or past decisions and seeing them in a new light.

I'll end this review by highlighting one point that is laid out in the book from the outset. An entrepreneur is not someone who is starting their own business. It's anyone that is creating a product or service under conditions of extreme uncertainty. The reason I emphasize this is that many of you may feel that "I work in a big company, these concepts don't apply to me", and skip the book entirely. If you operate under such conditions, in any company, big or small, I strongly urge you to read the book and spend time reflecting on its ideas. In fact, Eric has done a great job of providing examples of the Lean Startup in the context of large organizations such as Intuit and IGN, and devotes the last few chapters of the book to this very topic (this serves as a good complement to the Innovator's Dilemma). The book is well written, engaging, thought provoking and enjoyable, and most importantly it sheds some new light on the revolutionary concept that is the Lean Startup.

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The book can be purchased on Amazon here.