thederekjohnson.com

I was listening to fellow startup CEO, Charles Seybold of LiquidPlanner yesterday and he said something that resonated with some of the new initiatives I am working on at Tatango. He said his company is currently spending money on conversions, not demand. Wow, what a simple phrase, but so powerful for any entrepreneur starting an SaaS (software as a service) company… Spend money on conversions, not demand.

But Derek, your traffic is crashing… this can’t be good for your company. To be honest, right now I could care less about my Compete traffic. This is definitely a far cry from when I would wait for this information like a kid waiting for Christmas morning. You can see evidence of this from a 2009 Tatango blog post where we touted that we had made the top 100 Seattle Startup Index.

Let me give you an example of what a conversation with my team would be like during that time….

Derek - “Guys we need more subscriptions (revenue), any ideas?”

Team - “Yea, drive more traffic to the website.”

Derek - “Great idea, get to work.”

What resulted from these conversations were innovative marketing campaigns and more press, which drove more and more traffic to the website.

Looking back, we were doing things completely backwards. What we ended up with was a website and revenue model that wouldn’t scale efficiently. Why wouldn’t it scale efficiently? (Definition of efficient: performing or functioning in the best possible manner with the least waste of time and effort) Well think about it, lets say our goal was $1,000 in new subscriptions per month ($100/subscription) and our conversion rate was 5% of all new unique traffic to the site. With this example, it would take 200 uniques to meet our monthly goal. For hypothetical purposes, lets say one employee could generate 100 uniques per month, so you would need two employees to reach your monthly goal. Now if you focused your efforts on raising that conversion rate from 5% to 10%, you would only need one employee per month to reach your monthly goal. Much more efficient!

Obviously there will be a time to focus on demand, but not after you have exhausted all your options to increase your conversions. For Tatango, we still aren’t there yet. We will be though.