Hi, readers. This is AdExchanger Senior Editor James Hercher, bringing you this week’s dispatch from the world of commerce.
Today, we’ll start with a recent claim made by Jennifer Hyman, co-founder and CEO of the online fashion brand Rent the Runway, on the 20VC podcast about venture-funded businesses.
“Performance marketing and growth hacking ruined a generation of startups,” Hyman declared.
Fifteen years ago, Rent the Runway, one of many promising startups with a data-driven mentality, was riding high on a new cash infusion from Silicon Valley VC backers. At the time, profitable online platforms like Google, Facebook and Expedia had seemingly put together an unbeatable playbook for growth.
“When you raised money from a VC in 2009, 2010 or 2011, the first thing they would say is ‘You need a growth team,’” according to Hyman.
Facebook ads were cheap, and Google Search was easy. VCs encouraged brands to spend big on online advertising acquisition costs. And if the lifetime value of customers was greater than the paid media prices, that was evidence the model was working.
“We should do this all day long,” Hyman said. “Cha-ching!”
Unhacked
This data-fueled “growth hacking” mentality was effective when it came to short-term metrics.
Changing the color or display of the buy button on a product detail page, for instance, might slightly improve or reduce the average purchase rate of that product – which is fine. Nobody’s against converting customers at a slightly higher rate.
The problem is that those marketers were focused on metrics and product display page tests, not growing the number of people who love the brand.
“What happened was all of these startups wasted an incredible amount of time and money building these growth departments that were just pushing chess pieces around the board,” Hyman said.
The chess analogy is a sharp one. Although marketers may have felt like they were making gains – capturing an enemy’s piece – they never actually grew their own side.
“There was an arrogance where we thought that we were smarter than these old-school companies who were spending their marketing dollars on things like retail stores and billboards and events,” she said.
And that’s the rose-tinted outlook on growth hacking.
The more cynical take makes the so-called VC performance marketing playbook look more like a guide for growing into a big, strong fly – as written by a Venus flytrap.
“Those VCs also were investors in Facebook and in Google,” Hyman said. “They wanted you to spend money on those ads.”
Is it all a performance?
During its first decade, Rent the Runway had big VC-backed competition, including Stitch Fix, Jet (before its acquisition by Walmart) and Bonobos (another Walmart purchase).
Those brands have struggled to keep their head above water – and Jet no longer exists – but their VC backers were comfortably hedged, in a way, because all these startups were pouring money into Google and Facebook, where the same VCs were more heavily invested.
And the irony of it all is that the growth hacker mindset doesn’t necessarily help grow a brand.
Creating a simpler checkout or cleaner and more enjoyable site is the basic work of any brand that sells online, Hyman said.
But running hundreds of tests on site elements and making slight adjustments in style and presentation can mathematically affect metrics without actually bringing customers any closer to the brand.
The upshot is that marketers and entrepreneurs misallocated budgets from what is now often thought of as “brand marketing” – or even money earmarked for physical product development – to direct response or performance marketing.
Performance marketing is the “kind of advertising that makes you feel good” as a marketer, Hyman said, because “you feel like customers are coming in and converting.”
Rent the Runway has always capped its performance budget at 10% of revenue, she said.
“But even that 10% of our revenue that I was spending on performance marketing, I wish that I can go back in time and say [to myself], ‘That’s stupid.’”
In retrospect, Hyman said, she would have hired more engineers to improve customer experience flows and focused on brand-centric marketing to create an emotional connection to the brand.
“The funnel,” she said, “has been inverted.”
