On February 7th, Stacklist hosted leaders from Rent the Runway, Aaptiv, Soko Glam and Scentbird to participate in a panel discussion on “B2C Marketing & Acquisition Strategies for Startups” in New York City.
Ethan Agarwal, Founder & CEO of Aaptiv, shared his experience launching and scaling an audio-based fitness app. In 2017, impressed by the distinctiveness of Aaptiv's product, Insight Venture Partners led a Series B investment to help the company expand internationally.
This post summarizes some of Ethan’s insights on how to effectively grow and scale a consumer-based startup.
How did you go about the MVP process? Did you build the product out fully or do a smoke test? When did you start focusing on fundraising?
I’m a solo founder, and this is my first startup, which made it incrementally harder. For me, I always felt that a product is a perspective: This is my view on beauty, on fashion, on tech, this is my perspective on that thing that I’m putting out there. I had a perspective on audio fitness. I didn’t know how to build the tech behind it, but I knew that if you were going to be trained, it should be in a medium that works best, and I believe audio was the best medium. That’s how I started.
What I realized early on is that when it came to raising money, investors need to hang their hat on something. That something can be that you have an incredible team with two great exits, and the team is enough to invest in it. It could be that the technology is so fascinating that you need to invest in it.
In my case, I didn’t have either of those things. Instead, I hung my hat on growth. I said that if I can scale this thing quickly, then it will reach a point where investors can’t ignore it. The only way we raised our Series A round was through significant topline growth. In September ’15, we did $2k in revenue, and then we kept growing month to month until we reached a point where investors couldn’t say no.
That was the anchor. It took a while to get there, and I knew that I didn’t have the other things that investors usually look for, but I felt like I had the ability to grow the business.
How did you determine your branding? Is it the same today as it was initially?
In my opinion, when you’re a startup, you either build a strong product and the brand develops off that product, or you develop a strong brand and then build the product later.
In our case, I wanted to build a product first because audio fitness is something that people haven’t done before. Also, my background isn’t in brand building; it’s in business. I felt more comfortable and had a much stronger perspective on building a product.
We’re two and a half years into building the company, and we’re still evolving the brand, but I’m okay with that because we spent the last few years building the product. Now, we're comfortable with the product and focusing on building the brand on the back of that.
You grew pretty rapidly. Was that attributed to press and hustle or was there something else that contributed to that?
We invested heavily in acquisition from day one. I started with $100 per day on Facebook advertisements, then went to $200 a day and then to $1,000. I did this intentionally for two reasons.
For one, I knew that I had to stand out in a crowded market where the perception of the product is that it’s a commodity and most fitness apps are the same. I had to stake my claim and prove that our product is different, which I could only do through paid advertising.
Second, I knew that my business was going to have a significant impact. The more data that I collected on user behavior, the better my product became. I needed to get it into the hands of many people as soon as possible, and I was willing to buy my first 10 – 15k users because I knew that the data I acquired on those users would attract my next 100k users. The organic percentage grew as a percent of total every month, to the point where half of our growth is now organic. You just manage your LTV / CAC ratio through that whole stage to justify the acquisition.
Let’s dive deeper LTV and CAC. Some people are extremely conservative, where they look at last-touch attribution, LTV of customers and expected payback period to determine the spend. Others have more of a blended CAC. What was your perspective?
We looked at from a blended perspective. As an early stage company, targeting LTV / CAC between 1 – 2x is healthy because you want to grow as quickly as possible. Where we are now, we’re still at 2.5x, and we stay there intentionally because we manage cash more carefully now as a more mature business.
LTV is not a measurement just based on a static cohort. Long tail contribution is significant. People don’t just sign up and start paying immediately. People sign up, see a few stories about you, hear about you from friends and maybe sign up six months from now, which is why multi-touch attribution is ideal. The LTV of a cohort is not determined immediately, it’s determined over some long tail, and as your business develops, you typically net 30 days.
What are some of the unique dynamics of being a part of the mobile app space and some of the challenges that that entails?
The biggest challenge with mobile is data attribution. Even today there are several basic things you can’t track, or you find out two days or two weeks later that the data you tracked was wrong. You’re banking on confidence and your ability to determine what looks like an outlier. That gets better gradually, but it’s still difficult.
If you’re focused on growth and mobile exclusively, you need to hone in and think specifically about what you want to track and what tools will you use to track your data. Because my background is in finance and I used Excel for years, my first intuition when starting this business was to track every tap and swipe. But that's just not feasible if you want to be successful.
Be very specific about what you want to track. Is it getting someone to the purchase screen? If that’s the case, then you need to develop the funnel that gets people to the purchase screen and measure your results. Make sure the measurement tools that you’re using are accurate. If there are significant spikes in volatility, understand why. If you can’t explain the spike, then that means that there’s something you need to look into. Focus on the specific metrics you’ve decided to track and spend your energy on determining the accuracy of that data. If you don’t, then you’ll be all over the place and won’t be able to measure anything meaningful.