Before you think about building another feature or enhancing the look and feel of your interface to save your flagging product, stop and take a step back. Are you sure that you don’t need to take it around the back of the barn and shoot it? Hat tipped to Kevin O’Leary.
It’s easy to be distracted by incremental improvements. Particularly when you are seeing some usage of your app. But there are bigger questions to ask other than if something is working or not. Ultimately, it must be working phenomenally well to be seriously considered a business.
Let’s say you have a consumer-focused subscription service (like we did with Diddlyi.com) and you’ve seen hundreds sign up at $9.95/month over a period of a year. At first you think you’ve spotted traction, or what Paul Singh calls “the new intellectual property”. 100 people in 3 months and about $1,000 as your monthly recurring revenue (MRR). You know there are people canceling and you’ve even gone to the trouble of calculating the monthly churn rate which you find is about 6%. Not bad you say since that’s only 6 people lost for 30 people gained that month.
Meanwhile you’re following Des Traynor’s rules for finding the optimal features to develop for your service and are convinced that this is continuing to drive growth. In fact, you’re up to 40 new customers a month now.
Then when you get to 200 customers you start noticing something. Despite all the development and design enhancements that you’ve been staying up all night working on, the churn rate is barely budging. It sticks at 6% so you’re losing 12 customers a month now. Plus your onboarding improvements seemed to reach a peak with 40 customers a month following through to signing up for a subscription. OK, 200 customers/$2,000 MRR/6% churn/40 new customers/12 cancelations.
Then this happens:
300 customers/$3,000 MRR/6% churn/40 new customers/18 cancelations
400 customers/$4,000 MRR/6% churn/40 new customers/24 cancelations
This is where it gets really tricky. Remember, you’re pulling in $4,000 a month, you’ve been working on this for a year or two, 40 new people every month are seeing the benefit of your service and 400 customers are using your product regularly enough that they can justify the expense.
But … for all the work you are doing you are only gaining 16 customers a month. That’s an additional $160/month. Even if the expenses associated with your business are low just thinking about the profit after tax is taken away is depressing.
So what do you do?
I’d be interested to hear what you think in the comments, but here are some ideas that come to me:
- Consider it a small lifestyle business to complement a salary from elsewhere.
- Admit that consumer product metrics are all terrible (thanks to Andrew Chen who also inspired this post with this).
- Completely rethink how your product is being delivered (which probably involves at least heavily maiming it first).
- Take it out the back!
