[Matrix Moments] If you have a real business, it should continue to grow without marketing: Avnish Bajaj

Every startup has its zero-to-100 stage, after which comes the 100-to-10,000 stage. Soon, customer retention becomes as important as customer acquisition. Avnish Bajaj, Founder and Managing Director, Matrix India, reveals what it actually takes to retain customers. 

Recalling an anecdote from business school, he says his professor said that in any business, “the top line is vanity, the bottom line is sanity, and the cash flows is a reality”. 

“Essentially, if you are running a business and you have the top line and the bottom line, it’s all looking good… [but] if you do not have cash flows coming out of the business, [it] is not going to survive; that is the reality,” Avnish says. 

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The top of the funnel can be bought 

While enough and more is written about the top of the funnel, how do you get more traffic? More visitors to your website? Not much is said about retention. 

“Often, the top of the funnel can be bought. In my view, the biggest difference with the middle of the funnel (MoFu) is that it cannot be bought. It is where the rubber hits the road and you realise whether you are adding real value to your customers,” Avnish says. 

This, he believes is beyond companies, and more about the sectors. Taking the example of social media and chat apps, he says the top of the metrics is understood with daily active users (DAUs) and monthly active users (MAUs). It is possible to do a lot of marketing and ramp up DAUs and MAUs, but the minute you start going deeper you realise whether you are adding real value or not. 

“For example, if most of your customers are churning out, your retention matrix will be lower. However, for me, the real MoFu of social media is actually ‘minutes of time spent’ (MOTS). Again, you can choose that by using various notifications, by using all kinds of engagement tactics, to try to retain your users, but ultimately you cannot make them watch and like something,” Avnish says. 

If new media is to replace old media, that will happen when you replace time spent on old media - this is taken into account by hours of time spent. For example, in China, these products are talking about 80-100 minutes of time spent. So, in media, the MoFU is MOTS.

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Focus shifts in the middle of the funnel 

In ecommerce, gross merchandise value (GMV) was a metric for the longest period. 

Avnish says, “One of the investors I really respect asked us why we are measuring something that never goes through our cash flow statement. The reality is after GMV come returns, then comes discount, so on and so forth. Now, in my view as you start going down the funnel for ecommerce, the things you need to start thinking about are contribution margins, cohorts, how much of repeat is coming, non-discounted cohorts. If you are really adding value to your customer, they will come back without discounts.” 

The focus here should be the contribution margin, how much discount you are giving, how many users are coming back without discounts, and how that translates into lifetime value to customer acquisition cost.

Focus on retention

“You have to earn your way into the middle-of-the-funnel metrics and not buy it. Currently, figuring out if you are really providing real value to your customer and emphasis on real customer satisfaction is lagging at this stage in India. Maybe it’s a function of stage of the evolution; things like net promoter scores (NPS) or Customer Satisfaction Score (CSat) aren’t well understood yet. CSat is a measure of satisfaction; NPS is measure of virality. These are two different things. I often tell people, if you have a customer delight officer or a customer delight function, you’ll never need a customer satisfaction function because it’s one step lower,” Avnish says. 

Giving the example of Amazon, he says it has been built on the tenet of customer obsession. If you have customer obsession, you have to worry less about top of the funnel. 

“Maybe two-three month periods, not long periods, just switch off marketing, and if you have a real business, your business should continue to grow without marketing. I tell some of the founders I work with that marketing is a great tool to multiply product-market fit, and a great tool to multiply attraction, but it should not be the tool to get attraction. True product-market fit and true value proposition to the customers should be the way to get attraction. Once you have that, then marketing is just throwing fuel on the fire; however, it should not be used for starting the fire,” Avnish says. 

Listen to the podcast here.

(Edited by Teja Lele Desai)

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