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In early May 2022, the macro economic landscape shifted dramatically. Startup capital which had been historically very cheap and relatively easy to raise became much more expensive and rare. The result was a tightening of marketing budgets as the "growth at all costs" era of company building came to a screeching halt.
Mutiny's co-founder and CEO Jaleh Rezaei previously led marketing at Gusto and was part of growing the company's revenue 100x between 2013 and 2017 when the market was cold and growth capital was hard to come by.
Knowing that other companies would benefit from her experience, she prepared the profitable growth blueprint and presented it behind closed doors to the portfolio companies of Y Combinator, Sequoia Capital, Insight Partners, Uncork Capital, and Cowboy Ventures.
The full recording of the presentation is now publicly available here:
Here are the top takeaways from her presentation with additional resources to help you achieve profitable growth:
Takeaway 1: Reign in your spend first, then invest in profitable growth Takeaway 2: Ensure you have the components of a proper growth engine Takeaway 3: Set CAC targets for marketing Takeaway 4: Create scorecards to show total and incremental CAC across every program Takeaway 5: How to decide what marketing programs to cut Takeaway 6: Don't starve programs and technology to avoid cutting people Takeaway 7: If you don't focus on conversion, it's really hard to get big! Takeaway 8: Design an intentional, tops down operating cadence that aligns your GTM team Takeaway 9: Create a MECE revenue dashboard Takeaway 10: Weekly targets increase program-level performance
The future of fundraising and new business is uncertain. Therefore, decreasing unnecessary spend to a rate that you can sustain whether the markets improve or not will need to be the first order of business.
We recommend cutting your spend to a point that you have at least 30 months of runway. This will ensure that your company can weather even the coldest market downturn and still come out the other side alive.
We also suggest aiming for a burn multiple of less than 1.5.
To calculate your burn multiple, divide your net burn by your net new ARR (annual recurring revenue). This helps you measure how efficiently your company can turn spend into new revenue.
Image source: David Sacks, Craft Ventures
Think of your growth engine as having two components: demand and conversion.
Most marketers spend 90% of their effort building on the demand side of the growth equation. This typically means adding another demand program to the mix to increase the number of leads being handed to sales. This works to a point, but the problem is it will become much harder to get the necessary budget to launch a new program in the new era of company building.
That's why the most resilient companies are able to pull the second growth lever – conversion.
Conversion is the secret behind the most resilient companies. By increasing the conversion rates of your existing programs, you're able to grow more efficiently and use less capital.
The one piece of advice I would give to CMOs is to position marketing as a strategic growth lever for the company. Know the math for how $1 invested in marketing yields a multiplier for the company in revenue.
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Having a target of growing profitably is important because it allows you to have a clear benchmark of how much you’re able to spend on acquiring a customer, regardless of the macro economic environment.
We suggest a 12 month payback period. Here’s a breakdown of how to set the target marketing CAC:
Say your annual contract value (ACV) is $100k. In order to achieve profitable growth, you’re going to need the CAC to be less than that. On average, sales makes up 60% of the CAC, and marketing 40%.
With a 25% opportunity to close-win conversion state, that means you can spend up to $10k on marketing per opportunity. With a 10% lead to opportunity conversion rate, that means you can spend up to $1k per lead.
With these CAC targets clearly defined, the whole sales and marketing team now has visibility into how much cash they can invest into the growth programs, knowing that it will lead to profitable growth within 12 months of closing.
Here are all the inputs we consider when calculating marketing CAC:
This calculation works well because it takes into account all the costs associated with that program so you can compare the efficiency of each side-by side using a scorecard. Here’s what the program scorecard looks like:
This helps you to allocate your limited budget towards the most valuable opportunities and programs that will lead to profitable growth.
When you use CAC payback as your primary measure of spend efficiency, you'll begin to find marketing programs that fall into three buckets:
Here's how to decide if it should be cut, or modified:
If the program is small, undifferentiated from your competitor, and has no line of sight to profitability, cut it.
If the program is still in its early days, is strategic, and aligns with your team's core competencies, keep it but be sure to continue to experiment.
If the CAC is good but marginal CAC is bad as the scale of the program increases, cut the budget at the marginal CAC and continue to experiment around the fringe. This will allow you to find new ways to executing that program while staying at a profitable CAC.
Programs like content and brand are notoriously difficult to measure the real revenue impact, but are still crucial in the success of the overall marketing strategy.
For educational programs like content, use multi-touch attribution to directionally measure impact on the pipeline. For brand programs, consider reducing the budget, but keeping the program active because brand awareness helps reduce overall CAC.
When it comes to cutting headcount, everyone would prefer to not. But if you cut all the technology costs and program budget, your people are left with barely any tools to accomplish the job.
From our experience and surveying hundreds of marketers in our community, we recommend as a rule of thumb:
40% of budget spent on people
40% of budget spent on the program
20% of budget spent on technology
In the following chart, you'll see that small increases in the conversion rate from website visitor, to lead, to opportunity, led to a doubling of the resulting revenue without spending any more resources on generating more traffic.
The second growth lever (conversion) is the secret behind the most resilient companies because they have full control over their revenue destiny.
For example, Notion drove 60% more conversions from paid ads by personalizing the messaging that each website visitor saw. Dropbox DocSend drove 110% more freemium to paid customers by showing each website visitor an experience that was tailored to their role and industry.
These are just a few examples of actionable playbooks available in our
At Mutiny, we define an operating rhythm as the process you use to set your strategy and then execute on your strategy. And for us, designing an intentional, tops-down approach to an operating cadence has been the best tool we’ve found for improving execution.
The team around you has probably worked in hundreds of different versions of operating cadences, so it's very important to say this is how WE ARE DOING IT HERE. Otherwise, it can quickly become a mish-mash of poorly defined, redundant meetings, particularly as you scale.
The three key parts of our quarterly process start with:
An offsite culminating in our quarterly OKRs
Pipeline meetings that tracks weekly progress
Growth strategy meetings for longer-term, more strategic topics
See Mutiny's operating rhythm and how we plan our quarterly goals.
*MECE stands for mutually exclusive, collectively exhaustive.
Now that you've spent the time and effort to design your profitable growth engine, it's important to measure its effectiveness over time.
This will give you full coverage into the levers you have for hitting growth goals. Want to avoid at all costs a world in which a function can hit all their team targets, but the company misses the revenue number.
Try to keep this dashboard to 10 stable summary metrics and align specific metrics to business owners. If deviating from the target, you want it to be 100% clear who is the right person to diagnose and coordinate a path back towards plan.
We’ve found that having weekly targets meaningfully impacts program performance. Part of our goal setting process is breaking down big quarterly numbers into weekly targets. This allows us to quickly spot issues or opportunities, understand them better, and then develop action plans. It also avoids the situation of tallying up the score at the end of the quarter and “discovering” something didn’t go as planned.
We recommend investing heavily in having operator-level metrics aligned to your financial model. It’s extremely valuable to know how the activity-level growth levers you’re pulling ultimately impact ARR. In this example below, outbound outreaches in the bottom left panel is linked directly to expected outbound SQLs, new customers, and ultimately ARR. When operating teams, finance and leadership are all using the same metrics, you have a “hands on the steering wheel” effect that is very powerful.
By following the profitable growth blueprint, you'll now have full visibility and control across the two growth levers: demand and conversion. When adding demand programs, ensure they align with your target marketing CAC and add input to the right part of the growth engine.
As your team builds the proficiency in conversion programs, a new world of opportunities will unfold before you. Explore our library of Conversion Secrets for step-by-step playbooks that you can deploy to turn your existing demand into even more revenue. And once you've found one that you want to try, follow this guide to increase the speed that your marketing team can execute.
We will be publishing deep-dives on how to effectively run conversion programs, demand programs, and execute at an operating cadence. Join the newsletter to be notified.
Learn how top B2B marketers are using conversion to grow and apply it yourself.