Imagine the following scenario: you have a brilliant startup idea and you spend a lot of time and effort to build a flawless first version of your product. Once you are ready and you launch, you invest in ads on Facebook and Google in order to drive customers to your offering. However, nobody is buying. What’s the most likely reason for this problem?
While it might be the case that your ad campaigns are not good enough, this is quite unlikely. Optimizing your campaigns will give you a better customer acquisition cost, but it is unlikely to change things fundamentally.
The most important thing to understand about paid ads is that they are growth amplifiers, rather than growth drivers. And you cannot amplify zero.
If the market has no need for a product, investing in PPC (pay per click) ads is one of the best ways to waste money with close to no benefit. To put it in different terms, the effectiveness of paid ad campaigns is determined by the difference between customer acquisition costs and customer lifetime value. If your offering doesn’t have a product-market fit, your customer lifetime value is in reality close to zero.
Consequently, the real growth driver for innovative startups is product-market fit. The better product-market fit you have, the easier it will be to convince your target users to purchase your product or service in general, which will make PPC ads much more effective.
Because of this, paid ad campaigns are typically one of the later steps for building a startup – a part of the growth phase, rather than the early discovery and validation phases.
That said, while paid ads are a terrible way to grow an unvalidated product, they could be a very useful tool for validating a startup idea.
Ad campaigns on platforms like Facebook or Google have the benefit of allowing advertisers to target very narrow and specific audiences. Because of this, you can create a landing page describing and pre-selling your idea, and you can use a PPC campaign to see if people show interest. Website data tools like Google Analytics allow you to examine the behavior of the people you are able to lead onto your landing page. Moreover, you can target different groups of people in your micro-campaigns to try to find the market segment that responds best to your offering.
Generally speaking, if you are able to get good click-through rates and ideally – presales, this is a great indicator for your idea. You can go ahead and build the first version of your product knowing that you have significantly reduced the risk of building something that the market doesn’t need.
If people are clicking on your ads and they are staying on your landing page to read it, yet they are not buying, this might be an indicator that there is interest for a solution of the problem you are targeting, but your exact solution or pricing isn’t the right one. The best course of action is to change things up – iterate on your offering and run another experiment.
If people are bouncing very quickly or if they aren’t clicking on the ads at all, this is a bad indicator. If you are unable to generate any interest in your idea, it doesn’t make a lot of sense to spend time, effort, and resources to build it.
In summary, while you are at the early stages of your project, don’t think that PPC campaigns can jump-start your startup growth. Your first order of business is to find product-market fit. If you haven’t found it yet, PPC campaigns are simply a waste of money. That said, they could be extremely useful as an idea validation experiment thanks to the detailed data that PPC campaigns and web analytics could provide you.
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April 02, 2021 at 11:18PM
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Are Paid Ads A Good Idea For Early-Stage Startups? - Forbes
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