Do Major Holiday Discounts Help or Hurt Your Business

 

What is it about Memorial Day, July 4^th, Labor Day and the Christmas season?  They bring out all the big discounts, which gets shoppers flooding to the malls to save money, especially on big ticket items like cars and mattresses, as examples.  And the sellers of those products bring out their best prices during these holiday seasons, trying to capture has much market share against their competitors as they can.  But the question I ask is: why?  Yes, you are driving more revenues, with the holidays often representing 30% of their total annual volume.  But, if you are sacrificing material bottom-line profits by slashing prices in the process, why play that game?  This post will dive deeper into whether you should or should deeply discount your products, during the holiday season or in general.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #361: Let Ad Campaigns ‘Breathe’—Over Optimization Can Suffocate Results

 

I have been a digital marketer for over 30 years, living by the mantra of making data-driven decisions that maximize your return on ad spend (ROAS).  Like any good marketer you will always be testing and tinkering with your ad campaigns to optimize your copy, creatives, lading pages and messaging in a way that will get you the best results, in the form of your highest ROAS or lowest cost of customer acquisition (CAC).  But something happened with one of my businesses in the last few months, where over-optimizing the campaign actually caused the wheels of the bus to fall off.  I had never seen that before, and I thought this case study was worth sharing with you, so you don’t repeat this same mistake.

The Situation

We had been growing our Restaurant Furniture Plus ecommerce business pretty consistently over the last few years.  The growth strategy was almost entirely Google Ads focused, where if we wanted to increase revenues, all we needed to do was spend more money with Google year-over-year.  And, that we did, increasing our annual advertising budget from $100,000 to $2,000,000 over the last few years.

Things were largely going fine.  As we scaled advertising spend, our revenues scaled along with it in a pretty consistent straight-line kind of way.  We weren’t overly optimized in our efforts, we simply managed the campaign with a few high level metrics to make sure we were heading in the right direction.  Those metrics included our ROAS and our Cost Per Lead (CPL), which were largely unchanged over the years, ignoring one-time anomalies in the market, like COVID in 2020.  We biased CPL over CAC since we could easily tie Google Ads into our Call Rail tracking data at the campaign level, and we couldn’t easily connect our CRM data to Google, at the time.

But, after we upgraded our CRM with one that better enabled a direct data tie to Google Ads,  we thought the campaign could perform more profitably if we engaged a more sophisticated marketing agency that had more experience in running campaigns based on CAC instead of CPL.  An agency that would be more “in the weeds” than we were as business executives, optimizing everything within the campaign, including the keywords, creatives, landing pages, product segmentation, audience targeting, etc.  We felt the biggest opportunity was managing the campaign at the CAC level, as opposed to the CPL level, since we figured knowing if a customer purchased from us was more important than if they contacted us.  Sounded pretty reasonably, right?  But, keep reading.

Our Ad Agency’s Plan

Our advertising agency was very bullish on connecting our CRM data directly with Google Ads, to let Google know which ads of theirs lead to actual buying customers.  The agency had a lot of success with their other clients with this strategy, and there were confident it would work for us.  We did a lot of work to set that up, and launched it, crossing our fingers it would lead to a material decrease in our CAC and a material increase in our ROAS.

But, what followed had us all scratching our head.  Instead of improving our campaign, this action actually hurt our campaign.  All of our marketing metrics started to move in the opposite direction—our CAC doubled and our ROAS cut in half.  None of us really had an explanation for what had gone wrong, until we started to do a little more digging.

What Happened?

The single change we made, which we thought would help us, actually hurt us.  We changed our primary data point that we wanted Google to optimize for from number of leads (e.g., phone calls and email form fills) to number of customers (e.g., closed transactions in our CRM).  And, more specifically, we didn’t care about online customers that purchased on our website, we only cared about offline customers that purchased with our team of expert project managers, because our average order size of offline orders was 3x that of our average order size of online orders, by adding that personal human connection and having the opportunity to upsell the order.  But, from a data perspective, that meant we went from sending Google 1,000 datapoints a months, from the phone calls and emails, to only sending Google 100 data points a month, from the offline transactions that were directly sourced from Google.

Remember, Google is an algorithm, and it needs data to digest to do its work.  And, the more data, the better.  By making this move, we were effectively “starving” Google, by cutting back the datapoints.  And, what does Google’s algorithm do when there isn’t enough data to work with?  It becomes paralyzed and doesn’t know what to do?  So it starts “spraying and praying” across its entire network, where it can hopefully generate more useful data and results to work with.  And, what happens to your advertising effectiveness during this time?  It basically gets flushed down the toilet.

The Fix

Once we learned what the issue was, it was a simple fix:  we basically return to our old ways, telling Google to optimize on the leads data, instead of the transaction data.  That started feeding Google’s algorithm again, and good things happened.  Our ROAS and CAC returned to the historical levels, once the campaign wasn’t strangled and suffocating anymore.

The Lessons Learned

There were many lessons learned here.  First of all, we mentioned it above, Google needs data to work with, and there is a minimum amount of data that Google needs for its algorithms to successfully do their job.  We had basically choked it.  Secondly, there were a lot of very smart veteran marketers around the table that all collectively bought into the strategy that failed.  So, even experts can make mistakes.  In this case, the agency’s success with other clients was due to those other clients being materially larger than we were, sending Google a lot more data than we were able to send them.  And, lastly, there is a point in your marketing campaigns that you simply have “over-sharpened” your pencils, to the point the tips break off when you press on them.  Yes, campaign optimization is good and needed, but over-optimization could end up being the noose around your neck.  So, as you are tuning up your campaigns, don’t turn the dials up too high, or you may bust a few springs along the way.

For future posts, please follow me on Twitter at: @georgedeeb.

Trying to Scale Your Startup? The Odds Are Not in Your Favor!

My colleague and serial entrepreneur, Scot Wingo, of ChannelAdvisor, Spiffy and Triangle Tweener Fund fame, recently posted on LinkedIn, how hard it was to scale a business.  He referenced data from a book by Verne Harnish, the founder of Entrepreneur’s Organization, called Scaling Up: How a Few Companies Make It . . . and Why the Rest Don’t.  The core of the story was this graphic:

What the graphic basically says is, of the 28,000,000 businesses in the United States, only 0.061% actually get larger than $50MM in revenues.  And 96% of all businesses, never get larger than $1MM in revenues.  I was so taken back by the data here, that I thought it was worthy of a deeper discussion.

Read the rest of this post on Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb@georgedeeb.

[VIDEO] A 'Fresh Set of Eyes' Can Help Turnaround Struggling Businesses

I was recently interviewed by ASBN, an online "television network" serving the small business community, about how a "fresh set of eyes", can help turn around struggling business.  As you will learn, sometimes the founders are simply too close to the business, to clearly see the "forest through the trees".  I thought this video turned out great, and I wanted to share it with all of you, to see if a fresh set of eyes can help your business.  If so, you know who to call.  I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick, Shyann Malone and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #360: How to Survive a Difficult VC Funding Environment

 

CB Insights, a leading research organization that tracks venture capital financings, recently released its report on the state of the venture capital market in 2023. The long story short is: it was a terrible year for raising capital. The global market was down 30% year-over-year, to its lowest levels in six years. The U.S. market fell to its lowest levels in 10 years, down 21% in the last quarter alone. Gone are the days of “unicorn” creation (companies worth more than $1 billion), mega-sized financings, and excessive valuations. And, investors simply can’t exit the investments they have already made, with an anemic IPO market. A pretty bleak picture if you are a startup raising capital today. So, what are you supposed to do to navigate these choppy waters? Buckle up and read on, for some useful tips based on my past experience surviving markets like these.

Step 1: Batten Down the Hatches—Cut Expenses

Don’t fool yourself into thinking your story is better than all the others, and that you will have no problem raising capital. Once VC’s put their heads in the sand, it is pretty much across the board, with a few exceptions if you happen to be in a hot market like artificial intelligence, fin tech, retail tech and sustainability. So, that means you need to get your expenses down to the absolute bare minimum. And, yes, that most likely means making the tough decisions of downsizing your staff, to survive the storm.

You need to hunker down to focusing on your core business (no side projects) and most profitable product lines, remembering that your marketing efficiency during a down market will also be negatively impacted. So take out your hatchet, and start chopping away at all non-core and discretionary expenses. And when you are done, if you do not have enough cash on hand to survive the next 18-24 months without requiring any additional financing, you have not cut enough. Keep cutting until you get to that point, even if it means you are cutting into your “flesh” at that point. Because if you don’t, you will never live long enough to survive and fight another day, which is the primary goal of this exercise.

Step 2: Revise Your Business Plan for a Downside Case

If your original business plan was to grow 50% per year, spend unlimited marketing dollars, add many new product lines, and expand into new markets, forget it. You will need to table that plan and dust it off in a couple years. For now, you are in survival mode. Focus, focus and more focus is what is needed right now. And whatever assumptions you made in your original plan, cut them all in half. Your cost of customer acquisition will double in a down economy, which means your revenues could cut in half of where they are today. So, focus more on getting additional revenues out of your existing customer base, where you can. And, if you do not have any revenues from a specific initiative you are working on today, those should get zero attention in this market. Only focus on your highest revenue producing product lines, and double down on those.

Step 3: Talk With VC’s to Learn Their Revised Goals and Keep Networking

Just because investors are not writing as many checks, does not mean you stop speaking with them, as they are still sitting on a lot of “dry powder” of un-invested capital. But when you approach them, instead of raising capital and asking for cash, you are asking them what they are looking for in the limited investments they are making today. And, getting their reaction to your revised business plan to see if you are heading in the right direction or not. If they give you any constructive feedback or suggest pivots, listen to them, and consider taking those actions, if it will help you raise capital a couple years from now. And once you and they are on the same page, and you have set some reasonable goals for yourself, keep in touch with them and hit those goals. VC’s are still prefer to invest in the best teams over the best ideas, and if you can prove that you accomplished the goals you set out for yourself, a year after the fact, you will earn a ton of credibility with them for when you re-approach them for a capital raise once the markets improve, and you have over a year of relationship-building with them under your belt.

Step 4: Seek Alternative Investors Outside of Venture Capital

If you have cut all you can cut out of your expense base, and there is still a capital need, you will need to seek alternative investors outside of the traditional venture capital industry. This could be friends and family, angel investors, crowdfunding, venture debt, credit cards, asset backed loans (e.g., securing inventory, equipment, real estate), revenue share loans, home equity loans, etc. Time to pull up your bootstraps and get creative in your potential funding paths. But focus on equity investments, if you can. If you go down the debt path in a down market, it could end up being the noose around your neck, tightening with each month that passes.

Step 5: Think Out of the Box

If the venture capital market is closed based on a flight to higher quality investments, maybe the private equity market is still open for larger businesses raising capital. Maybe consider rolling up a bunch of companies into one bigger business that is more of the size that private equity investors like. For example, the VC’s may not have liked your $1MM profit business, but if you merge with four of your same-sized competitors, the PE investors may like your $5MM profit rolled-up business. There are creative ways to enable those “mergers” in a cash-free way, based on pro rata revenues or profits, and then help those additional shareholders get an exit down the road, when raising PE capital. Roll-ups are a pretty complicated topic, so get some help if you decide to pursue this path. This article I wrote about roll-ups may help you.

Closing Thoughts

When the venture capital markets close, it is critical to take actions like the above to ensure that your business does not close, permanently! Make the tough decisions now, to live and fight another day. Your current shareholders and future version of your business, built for the years that follow, will thank you.

For future posts, please follow me on Twitter at: @georgedeeb.

Firing a Long-Term Employee is Hard — But Often Necessary. Here's Why.

 

I consulted a client that had to do something they had never done before—they had to cut a long-term employee that had been with the company for over 5 years.  Once an employee has been with a company for that length of time, they have basically become “family”, so that is the equivalent of cutting your “brother or sister.”  And, most employees that get to 5 years of service, must have been doing something right during their employment, otherwise they wouldn’t have lasted that long.  But, things can change.  And, in this case, the employee no longer was a high performer, they had quickly become a poor performer, and that was causing broader challenges for the business, as described below.  This post will teach you how to handle situations like these, and why cutting your “brother or sister” may be the only option you have.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.