In a booming economy like India, where high-speed internet penetration has reached almost all of the 1.5 billion people, it is only natural for start-ups to go after a large user base from the get-go. But, as we have seen in many cases, the cost of user acquisition in business-to-consumer start-ups can often outweigh the potential revenue brought into the fold by new users who stay. This is especially true when companies are trying to establish new business models.
During the initial stages of creating a new business, using platforms like Google and Meta for paid marketing on a large scale is a capital-intensive proposition. One smart strategy for success is to focus on organic user growth first and then amplify that with paid marketing. There are multiple phases to this journey of scaling users while building a company.
Doing Non-Scalable Things
This is something which might be contrary to popular belief. A non-scalable model can let you improve the product, because in the early days, what you are trying to do is to test what is working and what is not, and refine the rough edges. You are not trying to hyperscale from day one; in most situations, you are figuring things out. But getting those insights right is what matters a lot more.
Magicpin is a very unique business, which is driving online demand to offline merchants.
In the early days of the company, using platforms like Google and Facebook was never the starting point for us. What we wanted to do instead was to test if people are going to be interested in sharing where they are spending money for our rewards or if local merchants would be willing to spend with us for getting users.
It was about building what is usually referred to as a minimum viable product or testing the hypothesis, which is reducing the risk. In the first week of the company, we were standing in the North Campus of the University of Delhi and telling all the people who were walking by that if you share your receipts with Magicpin over WhatsApp, we will give you rewards which will allow you to go and avail discounts at the local merchants.
This was far from scalable, but it allowed us to validate our concept, resulting in a run rate of more than 100 daily transactions within that one week itself. It brought home the point that we are on the right track.
Identifying Unique Channels
Once you figure out the core logic of the business, more opportunities always crop up, which will show unique channels for user growth for the business. For example, our merchant side was getting built from the receipts our user side was sharing with us, and that was growing fast.
These receipts have a tax ID on them, and we could reverse-engineer the tax ID into a phone number, and could then send a WhatsApp message to the phone number, which has a link that, when the merchant clicks on it, shows him that he is ranked seventh in his neighbourhood, and the six merchants that he knows around him in that category are ahead of him. And our pitch to this merchant is that you do not need to pay us anything upfront—by just accepting Magicpin at your store, we will give you a new demand engine that will get you ahead of your local competition.
This let our merchant acquisition be guided by our customer acquisition—we were not only acquiring the right merchants but acquiring them at very low cost. Even till date, 95% of our merchant acquisition is without having feet on the street.
There are a bunch of user acquisition channels which are unique to a start-up. Even today, 90% of our customer acquisition happens through non-paid organic channels. Our user referral model gives high quality users special incentives if they get their friends on board. There are multiple levels to it—the better the user behaviour, the higher the referral incentive.
Once the base premise is proven and there are channels that are tried and proven, it is time to scale while measuring the CAC-to-LTV ratio (Customer Acquisition Cost to Lifetime Value). Google and Facebook might be the best options for a business at this point, and by all means go for it if the equation is working out—or till the point this is working out.
For Magicpin, we got our partner merchants to put up a Magicpin signage board outside their stores. This becomes an effective yet frugal offline marker because customers walking down the street would know that they can use their reward points at these stores.
This way to reach new users builds on a core asset of our business model—our merchant partners—and is a win-win for customers and merchants. Once companies identify such unique assets that are proprietary to them, scaling them and even developing new revenue streams becomes possible.
In conclusion, it is a long game, and instead of rapidly scaling up right from the start at any cost, spending the time to find what is working, and scaling that will create truly meaningful and sustainable channels for companies.
However, this requires trying out many channels and experiments over a long period, as it is only obvious in hindsight on what works and what does not. Thus, persistence becomes key, as is true with most areas involving building start-ups.
Anshoo Sharma is the CEO and co-founder at hyperlocal ecommerce firm Magicpin