Most bootstrapped brands hate “strategy” because it isn’t actionable. Here are three actionable mental models for eCommerce brands to change your POV on strategy.
This content was originally published in the No Best Practices newsletter on 2.12.2023.
Strategy gets a lot of hate on DTC Twitter. This is one of several Tweets I’ve seen over the past few months from founders, operators and other startup/bootstrapped types.
I’m not trying to start ~beef~ here. I love Sean’s newsletter and I’m a certified Ridge-fluencer. But I feel the need to defend “strategy” because (this hurts to say this) there is a dearth of strategic thinking in the eCom and digital marketing world.
Confession time: I have an MBA degree (ducks for cover). Burned out mid-career professionals enter MBA programs across the country hoping to do more strategy and less operations. I was one of them! And a lot of senior folks/brand owners read this as “laziness”.
There are two sides to this story. On one hand, the former consultants and MBA’s I’ve worked with have been noticeably better at structured thinking. When faced with a big and vague problem, they’re more likely to formulate an approach that cuts through the noise.
On the other hand, I have seen consultants utterly fail at bringing their big, strategic ideas to fruition. And, while MBAs can make great marketing leaders at established brands, I can’t think of a single MBA who created something as emotionally resonant as Nike, Supreme or even LL Bean.
Both sides have strengths and weaknesses. And there are certain excesses endemic to the Fortune 500 world that trigger the bootstrapped crowd (I count myself among the bootstrapped crowd…one day I will share those piping hot takes…).
But don’t throw the baby out with the bathwater. Here are three ACTIONABLE strategic principles you can use today to stop (or at least cut down on) the insanity at your brand.
Mental Model #1: “MECE” aka Mutually Exclusive, Collectively Exhaustive
Let’s say that your goal for 2023 is to grow top line revenue at your $10M business by 10% while maintaining profit margin. You have to turn that goal into an actionable plan. Where do you start?
To develop a plan that was simple to delegate and covered all your bases, you’d want to break the goal into parts that were distinct (mutually exclusive) and that encompassed all your potential options (collectively exhaustive).
Is it possible to do this perfectly for every problem you encounter? Debatable. But getting close is harder than it appears. The perfect example: most brands break their growth plan into channels–email, SMS, Facebook ads, website.
But channels aren’t mutually exclusive–a customer interacts with multiple channels on their path to purchase. And customers in varying stages of loyalty, as well as prospects, all interact with the same channels. As the marketing mix becomes more complex, this leads to a multitude of problems that regular readers of this newsletter are familiar with.
A more MECE system might break the goal into customer lifecycle phases first–prospect, nurture phase, loyalty phase–and then ask each team to develop a channel strategy that suits their customer.
Another option: break down revenue into an equation like Visitors x Conversion Rate x AOV = $ and then make a team accountable for each input in the equation.
Asking yourself “Is this MECE?” will help you think about big, vague problems in a more structured and actionable way.
Mental Model #2: Value Sizing
Something that bowls me over is how many brands make decisions on the basis of trends, and nothing but trends.
Let’s take the revenue growth example from the MECE section–when faced with this goal, many teams will simply build a list of tactics and vendors they read about on social media.
Then, the team will run a trial of each tactic based on the vendor’s own “best practices” and measurement system. Essentially, letting the student grade his/her own homework.
There is a better way, and that way is value sizing. Let’s say you have your MECE-ish list of growth levers:
Prospects
- CAC -> media mix, channel conversion rate, media costs
- AOV -> offer, products featured in ads, upsells
Nurture Phase Customers
- % new customers progressing to purchase 2
- % 2x buyers progressing to purchase 3
- % 3x buyers progressing to purchase
- Average nurture phase customer AOV
Loyal Customers
- Average annual purchases from loyal (4x+) buyers
- Average loyal customer AOV
You have limited resources–where do you start? Naturally, you’d want to start with the largest opportunity. For a brand under five years old and under $50M in revenue, that opportunity is almost always going to be improving the efficiency of customer acquisition.
How do you calculate this? Break out last year’s sales by new customers and 2nd, 3rd and 4th+ purchases. You’ll need a net sales number and a number of orders. Now, run some scenarios:
- What if the number of new customers who progressed to a 2nd purchase increased 1%?
- What if the AOV of loyal buyer purchases increased 1%?
- What if our CAC decreased 1%–how many incremental new customers would we have acquired for the money?
- And onward, and onward…
This exercise will quickly reveal your largest growth levers. Caveat: your upside estimates must be realistic.
If you’ve spent five years whittling down your CAC, it’s unlikely that you’ll reduce it by 20% this year (but not impossible!). If you’re a mono-brand eCommerce retailer, it’s unlikely that you’ll retain more than 35 of every 100 new customers you acquire.
If your resources are limited, pick one to three goals that have the highest upside potential.
Mental Model #3: Effort Vs Impact
Value sizing yielded a list of focus areas and a list of KPIs. For example, you may be trying to increase new customer AOV from $50 to $60. Or you could be trying to increase the percent of new customers progressing to a second purchase from 21% to 23%.
This is the part of the process where you develop a list of hypotheses about what will make those KPIs happen. Each of those hypotheses must be tested in a statistically valid fashion. But some will be harder to test than others.
Let’s say you’re focusing on increasing AOV. You could try a “buy more, save more” offer. You could develop a new product at a higher price point. Or you could implement an upsell in your checkout process. (Or many other things. These are just examples.)
Testing the offer requires the least legwork–just spin up a promo code, develop some creative, and see what happens. Testing the upsell might require some web development and/or a plugin. And testing the new product idea might require months of lead time and a significant financial investment.
If you think I’m about to tell you to just do the easy sh*t–you’re wrong! Teams love “low hanging fruit” for the same reasons humanity loves scrolling TikTok and eating cookies–it’s a dopamine hit. But you’ll pick all the low hanging fruit eventually.
My personal opinion–”low hanging fruit” is worth testing, but do it in a structured way, internalize your lessons, and move on. Don’t let it dominate your time.
For tests that require software or apps, proceed with caution. Make sure that the potential benefit of the app isn’t outweighed by its cost. For example–if loyal customer engagement is a $50K opportunity, don’t spend $45K on a loyalty app.
If you’re running a Shopify store, apps can also slow down your site quite a bit. Monitor average page load times after you install the app.
I also recommend running an A/B test to measure the incremental impact of the app. Best case, the app does what it promises. Worst case, it actually makes your conversion rate or RPV worse! (yes, this has happened)
Finally, the product test, aka the “big swing”. Marketers should have more influence on the product development pipeline, because they’re closest to the customer. And you should definitely be testing offers–see this great thread from Dave for some ideas. If you, as a marketer, are forbidden from broaching these topics, that is a BIG problem.
You should be testing one data-informed big swing per quarter and at least one new offer per month. This is where you change the trajectory of your business.
BOOM: just saved you $500K in MBB fees. You’re welcome!