Should a Startup invest in Paid Ads or focus on Organic Growth?
Since we started Aheadads, we have interacted with loads of startups and entrepreneurs. Some of these entrepreneurs are at their initial stages, bootstrapped and looking to get more customers.
A lot of them have approached us for getting SEO done for their website. Because, it is a well-known fact that SEO is necessary for a business to be discovered by potential customers online.
However as I interacted more with startups, I figured out that there is a common problem between all of them. It is the lack of money as well as lack of time which plagues them. And every startup, in its initial days faces this challenge. Most of them are chasing investors to get their first round of funding. And they only have limited money in the bank to help them sail through till investor money comes in.
This made me think about the all-important question – should a business invest in paid ads or organic growth?
We have worked with several businesses in their SEO strategies. We have also worked with businesses on their Facebook and Google paid ad campaigns. And we have seen tremendous success in both.
I believe that a startup which is bootstrapped, and is not generating any revenue should never opt to work with an external agency in the first place. The reason is simple – you cannot afford to pay an agency at this stage when every buck you spend is seen as an expense rather than an investment. More so, if you are planning for SEO. SEO is a long term strategy. It may take 6 months or so to bring in results. Which means you will have 6 months of continuous cash outflow till you start getting organic hits to your website. Can you realistically afford that?
The irony is, every startup owner understands that SEO is a long term strategy and results take time. And they engage an external agency being fully aware of the timelines for SEO. But they start feeling the heat after 2 months of engagement. And in most cases, they stop the engagement because they start treating it as an expense. Net result – it is a “lose-lose” situation for both parties. The agency loses a client midway. And the startup loses its 2 months of money and time.
What do you in such a scenario?
Focus on quicker forms of customer acquisition. This is where paid ads play a very important role.
A paid ad will get you results almost immediately; whether the result is favorable or not is a different discussion altogether. But most importantly, you are assured of immediate results. For example, if you have an e-commerce website, and you are looking to test if your target customers will actually buy your product online or not, then paid ads will give you immediate results.
Facebook is a very important platform for a startup to take advantage of. Facebook paid campaigns are powerful and you can laser target your audience through your campaigns. You can assign a budget of INR 2000/day to test the success or failure of your campaigns.
I know you will be thinking, spending INR 2000/day is equal to 60K a month! Which early stage bootstrapped startup with ZERO revenue can afford that?
My answer to this is – If you are spending INR 2000/day, you can almost immediately calculate if you are generating revenue>= INR 2000/day. In other words, you can immediately generate revenue through the ads. As long as the revenue is equal to cost, the investment is worth it. And if you are failing to generate any revenue, you can always stop the ads, go back to your heat map data and figure out why customers are not buying your product/service. The feedback loop is quicker and can prevent you from heart burn later on. Spending INR 2000/day for 5 days (resulting in INR 10000) is a smart choice, if you can use this data to fix any potential issues with your website.
Does that mean – All startups should focus on paid channels and not on organic growth?
The answer depends. If you think that you have a product/service for which you can identify the right audience on Facebook, then go for it. If not, and you have to rely on a spray and paint strategy, then Facebook paid ads may not yield great results. For example, if you are in the business of Personal loans, then Facebook may not be the right strategy for you. Because on Facebook, you will not be able to identify customers who are seeking loans at that very moment.
So you may need to rely on Google Adwords as your paid channel. Since Google Adwords are search based, the ads are triggered when someone is looking for personal loan on Google. This makes the ads relevant and chances of the user becoming your customer are higher.
However Adwords present 2 challenges:
Low Click Through Rate – Your ad will occupy only 1 position in the Google search result page. A user can still go ahead and click on any of the other paid/unpaid listings. Research shows, only 2% people click on an Adwords result.
High Bid Value – A lot of your competing companies may bid for similar keywords which result in driving up the cost per click. As a result, your cost of customer acquisition will be higher.
In case of Facebook paid ads, the cost of customer acquisition is lesser. This is because, you are not bidding for keywords. Rather you are bidding against your competitors who are targeting the exact same demography as you are.
Chances of 2 competitors targeting the exact same demography are quite less. The way you target your audience on Facebook shows how creative and skilled you are with Facebook audience analysis. As a result, your bid value will be lesser as compared to Google ads.
But this does not undermine the importance of Google Adwords as a channel for your paid campaigns. You can still work on the basic math where Revenue is > = Cost. As long as this equation works out, go ahead and implement it. Even if you are not making profits initially, at least your product/service is being purchased by new users. This increases your business reach and your chances of getting repeat purchases and referrals.
I only recommend startups to go for organic growth strategy when:
Facebook Ad is not a good option
Google Ads is a favourable option but costly
You have competency in-house for SEO (or you have enough capital runway)
As a startup, money and time are both in short supply. Therefore invest wisely in avenues which get you results quickly. If you feel an agency is too expensive, then work with a freelancer or hire an intern or do some self-learning to master the art of online paid advertisements. After all, if you rely on online channels for your business growth, then self-learning and becoming an expert in this space will serve you in good stead in the long run.
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