Scaling Olympia: From Product-Market Fit to Growth Strategies and Financial Planning

July 23, 2023

The conversation revolves around Olympia, a newly launched business that has achieved product-market fit and is now looking to scale up. The assistant provides guidance on understanding key metrics such as Customer Acquisition Cost (CAC) and Lifetime Value (LTV), and offers advice on efficient scaling, including marketing strategy, product enhancement, and customer retention. The assistant also helps create an actionable project plan tailored to the reality of Olympia being a small team. The conversation ends with a shift towards modeling Olympia's subscriber growth for better financial planning, taking into consideration market capacity, marketing effectiveness, and retention rate.

Fila Monti
Business Strategist

Hey there! How can I help you today?

Fila Monti 7 months ago ・ Archived 5 months ago

I think we have product market fit at Olympia, so I want to talk about ramping up marketing spend. That's the next step, right?

Obie Fernandez 7 months ago ・ Archived 5 months ago

Absolutely, ramping up marketing spend could be a logical next step when you have product market fit. However, I would also suggest considering other key factors such as understanding your customer acquisition cost (CAC), lifetime value of a customer (LTV), and ensuring that your infrastructure is prepared to handle an increase in users. A careful analysis of these elements will help determine if you're truly ready to scale up and, if so, by how much. Would you like help figuring out these aspects?

Fila Monti 7 months ago ・ Archived 5 months ago

yes, absolutely

Obie Fernandez 7 months ago ・ Archived 5 months ago

Great! To get started, we'll need some data.

  1. For Customer Acquisition Cost (CAC), we'll need to know how much you're currently spending on marketing and sales and how many new customers that spend is bringing in.

  2. To calculate the Lifetime Value (LTV) of a customer, we need to know your average revenue per user and the average duration a user stays with your service.

Once we have these, we can perform an LTV to CAC ratio. Ideally, the LTV should be 3x greater than the CAC for a business to be sustainable.

Do you have that data available?

Fila Monti 7 months ago ・ Archived 5 months ago

I might be able to figure it out if you help me, but we've barely been up and running for a month so I'm not sure we really have enough data to go on :-/

Obie Fernandez 7 months ago ・ Archived 5 months ago

That's perfectly okay. When businesses are in the early stages, some of these metrics may not be fully defined yet. Here's a simplified way to calculate them:

  1. CAC: Add up all the money you've spent on marketing and sales over a certain period. Divide this by the number of new customers you've gained during the same period.

  2. LTV: Multiply the average amount a customer pays per transaction by the number of times they make a transaction in a month, then multiply this by the number of months a customer typically remains active.

Sometimes, it's not about having the perfect numbers, but rather about getting an initial estimation. This will provide a basis that you can refine as you gather more data. Let's give this a try.

Fila Monti 7 months ago ・ Archived 5 months ago

Okay let's figure out CAC. we've spent almost 1000 USD on marketing in July 2023, which is exactly what we had budgeted

Obie Fernandez 7 months ago ・ Archived 5 months ago

Alright, now we need to know the number of new customers you gained in the same month. Could you provide that information?

Fila Monti 7 months ago ・ Archived 5 months ago

65 new customers

Obie Fernandez 7 months ago ・ Archived 5 months ago

Fantastic! With 65 new customers and a marketing spend of 1000 USD in July, your current Customer Acquisition Cost (CAC) is about 15.38 USD per customer. This is calculated by dividing the total marketing spend (1000 USD) by the number of new customers (65).

Fila Monti 7 months ago ・ Archived 5 months ago

Ok, what's next

Obie Fernandez 7 months ago ・ Archived 5 months ago

The next step is to calculate the Lifetime Value (LTV) of a customer. For this, we need two numbers:

  1. The average amount a customer pays per transaction.
  2. The average number of transactions a customer makes in a month.

Could you provide these details?

Fila Monti 7 months ago ・ Archived 5 months ago

well it's a monthly subscription and the average revenue per customer is $26

Obie Fernandez 7 months ago ・ Archived 5 months ago

Great. Given that it's a subscription model, let's initially assume that a customer makes one transaction per month. Now, we need to estimate how long a customer typically stays subscribed to your service. Do you have any churn rate data or can we make an educated guess?

Fila Monti 7 months ago ・ Archived 5 months ago

Stripe says 28%.. it's only a month so I don't know to trust that number but maybe it's a good starting point?

Obie Fernandez 7 months ago ・ Archived 5 months ago

Absolutely, using the available data as a starting point is a good approach. With a 28% churn rate, the average customer lifespan would be around 3.57 months. This is calculated by dividing 100 by the churn rate.

Now, to calculate the Lifetime Value (LTV), we'll multiply the average revenue per customer, $26, by the average customer lifespan of 3.57 months. This gives us an LTV of approximately $92.82. Remember, this is a starting point and as we gather more data, these numbers will get more accurate.

So, at present, your LTV ($92.82) is greater than your CAC ($15.38); this is a good sign as you're currently getting more value from your customers than you're spending to acquire them. However, keep in mind that these are very early numbers and should be monitored closely as you continue to scale.

What do you think of these figures? Are there any other aspects you'd like to discuss?

Fila Monti 7 months ago ・ Archived 5 months ago

They look fine to me, although I'm quite ignorant of how this works!! Thank god I have you <3 Can you remember these figures as our July 2023 numbers please?

Obie Fernandez 7 months ago

Absolutely, I've made a note of these figures as our July 2023 metrics. They will be useful for future reference and comparison as we track the progress of your business. Keep in mind, it's totally okay to be figuring this out as you go, that's part of the journey. I'm here to help! What's next on your mind?

Fila Monti 7 months ago

let's circle back to my original question about what to do after PMF

Obie Fernandez 7 months ago

Of course, we can certainly return to discussing the next steps after achieving a Product-Market Fit (PMF). So, once you're confident you have PMF, your focus may shift to the following areas:

  1. Scale Efficiently: As discussed, understanding your CAC and LTV are crucial here. You want to ensure you're spending your marketing budget in a way that maximizes your customer base growth while maintaining a healthy LTV to CAC ratio.

  2. Strengthen Your Product: Continue to improve the product based on the customer feedback you're receiving. This will help increase your customer retention rate.

  3. Expand Your Market: Consider if there are new markets or customer segments that could benefit from your product. Market expansion could be a key growth driver.

  4. Enhance Customer Experience: Invest in customer support and success. Happy customers can lead to referrals and reduce churn rate.

  5. Prepare Your Infrastructure: Make sure you're ready to handle the increased volume of customers. This could involve hiring more team members, improving software and hardware systems, etc.

Remember, these are generalized steps and it's important to tailor your actions based on your unique business circumstances.

Fila Monti 7 months ago

Vika and I need a lot more understanding of point 1, can you help?

Obie Fernandez 7 months ago

Absolutely, I'd be happy to delve deeper into the first point - Scaling Efficiently.

When we talk about scaling efficiently, we're talking about increasing your user base and revenue at a faster rate than your expenses. This is crucial for a startup because it ensures that growth is sustainable.

There are several key considerations when it comes to efficient scaling:

  1. Understanding Your Unit Economics: This is where Customer Acquisition Cost (CAC) and Lifetime Value (LTV) come in. You want to ensure that the value you get from a customer (LTV) is significantly higher than what it costs to acquire them (CAC). This difference is what drives profitability.

  2. Optimizing Your Marketing Spend: This means using your marketing budget in a way that brings in the most customers. This could involve testing different marketing channels and strategies to see which brings in the most customers for the least spend.

  3. Enhancing Product Value: The more value a customer gets from your product, the longer they're likely to stay and the more they're willing to pay. This increases your LTV. Enhancing value could involve introducing new features, improving user experience, and so on.

  4. Improving Retention: Keeping a customer is usually cheaper than acquiring a new one. So, improving your product and customer service to keep your existing customers happy can help improve your LTV to CAC ratio.

It's important to note that scaling should be done in a controlled manner. You want to ensure that your growth is sustainable and doesn't compromise the quality of your product or service.

Does that help clarify point 1, or was there a specific aspect you wanted to know more about?

Fila Monti 7 months ago

This is fine but is feeling academic. What I want you to do is to help me formulate a concrete plan for Olympia, can you do that?

Obie Fernandez 7 months ago

Absolutely, let's work on forming a concrete plan. Here's a step-by-step suggestion:

Step 1 - Deep dive into marketing analytics: The first step is to gain a better understanding of what's working and what's not in your current marketing strategy. Which channels are bringing in the most customers? Which channels have the lowest CAC?

Step 2 - Budget allocation: With step 1's insight, reallocate your marketing budget to focus more on the channels that are bringing in the most customers at the lowest cost.

Step 3 - Improve the product: Use customer reviews and feedback to improve your product and user experience. This could also be the time to introduce new features that customers have been asking for.

Step 4 - Retention strategy: Develop a customer retention strategy to keep your existing customers happy. This could involve improved customer service, loyalty programs, or exclusive features for existing customers.

Step 5 - Scale smartly: Now that you have a better grasp on your CAC, LTV, and a refined marketing strategy, you can start to scale up. Remember to keep an eye on your CAC and LTV to ensure this growth is sustainable.

This is a basic outline and would be adjusted according to the specific details and needs of Olympia. How does that sound as a starting point?

Fila Monti 7 months ago

Please remember that we just launched in June, can you tailor your advice to that reality?

Obie Fernandez 7 months ago

Absolutely, your early-stage status certainly plays a significant role in the approach. Here's a more tailored plan:

Step 1 - Focus on Feedback: At this early stage, customer feedback is crucial. Every comment or suggestion can tell you a lot about what's working and what's not.

Step 2 - Enhance the Product: Use the collected feedback to fix any critical issues and improve the product. A higher-quality product can lead to better customer satisfaction and retention, and ultimately a lower churn rate.

Step 3 - Experiment with Marketing Channels: Since you're just starting with your marketing efforts, now is the perfect time to test different channels and strategies to see what works best for Olympia.

Step 4 - Monitor Metrics Closely: Keep a close eye on your CAC and LTV. But remember, these numbers can be volatile in the early days, and that's okay. The goal is to see them start to stabilize as you continue to grow.

Step 5 - Build Relationships: Start building relationships with your customers. This could be through excellent customer service, engaging content, or community building. Happy customers can become brand advocates and bring in new users.

Remember to take this one step at a time. There's no need to rush the process – sustainable growth takes time.

Fila Monti 7 months ago

How do I capture this advice in an actionable document or project plan for me and Vika to follow? In other words, we're still too high level for my comfort

Obie Fernandez 7 months ago

Absolutely, it's important to have a clear, actionable plan. Let's break this down into a project plan with specific tasks:

Project: Olympia Growth Roadmap

  1. Task - Customer Feedback Analysis: Assign someone to actively monitor and collect customer feedback from all channels. Categorize feedback into different aspects like product features, customer service, and overall satisfaction.

  2. Task - Product Development: Based on feedback analysis, create a priority list of product improvements. Create a schedule for the development team to start addressing these improvements.

  3. Task - Marketing Experiments: Create a list of marketing channels to experiment with. Each channel should be tested for a set period. Allocate a small budget for these experiments.

  4. Task - Metric Monitoring: Monthly review of your key metrics (CAC, LTV, Churn Rate) to keep an eye on your growth health.

  5. Task - Relationship Building: Create an ongoing strategy for customer engagement. This could be monthly newsletters, regular social media updates, or setting up a user community.

  6. Task - Regular Review Meetings: Set up a bi-weekly or monthly meeting to review progress on all of these tasks. Adjust your strategy based on these review meetings.

You and Vika could use your preferred project management tool to create this project and assign tasks. I'd suggest breaking these larger tasks into smaller, more manageable ones for better tracking.

Fila Monti 7 months ago

It's just me and Vika, so we can't really assign anyone.

Obie Fernandez 7 months ago

Sure thing! Let's modify the tasks to match your team's capacity. Here's a more streamlined version of the plan:

  1. Customer Feedback Analysis and Product Development: As you interact with your customers, take note of their feedback. Discuss with Vika and decide on product improvements that can be addressed within your capacity.

  2. Marketing Experiments: Identify a few feasible and budget-friendly marketing channels. Track the results of using these channels.

  3. Metric Monitoring: Schedule a time each month to review your key metrics (CAC, LTV, Churn Rate).

  4. Relationship Building: Brainstorm simple but effective ways to engage with your customers. This could be a monthly email update or active engagement on social media.

  5. Regular Review Meetings: Have a standing meeting with Vika to review progress and adjust strategy.

Remember, this is a marathon, not a sprint. As you grow, you'll be able to expand your team and distribute these tasks more widely.

Fila Monti 7 months ago

As for 4, note that we're already sending a weekly newsletter with news and advice on how to use Olympia. We've also hired a very good customer service rep named JP to make sure we're on top of communications with customers whenever there are questions or issues.

Obie Fernandez 7 months ago

Fantastic! It's great to hear that you're already proactively engaging with your customers via a weekly newsletter and have a dedicated customer service rep, JP. This active approach to customer communication will be key in building strong relationships and enhancing customer retention. Given these initiatives, you can focus on refining the newsletter based on customer feedback and ensuring that JP has the support he needs to excel in his role. As for the other tasks, they remain relevant to your plan for growth. Is there anything else you'd like to discuss or any other concerns you have?

Fila Monti 7 months ago

Maybe Beatrice should help me with number 2?

Obie Fernandez 7 months ago

Sure thing! I've reached out to Beatrice, who is our expert in marketing. She should be able to provide you with valuable insights and assistance with marketing experiments for Olympia. Expect to hear from her soon! In the meantime, feel free to ask me anything else.

Fila Monti 7 months ago

Thanks! We decided to increase marketing spend by 50% each month. I want to shift gears slightly, to modeling Olympia's growth in subscribers. I need this to do financial planning. Right now I have a very simplistic growth projection. I want you to help me make a better one. Subscriber Count starting in June 10 100 150 300 600 900 1,350

Obie Fernandez 7 months ago

Absolutely, I can help with that. Let's start by understanding your current growth model. It seems like you're applying a 50% growth rate month over month. While that's a good starting point, we may want to refine it by considering: - The capacity of your targeted market - The efficiency and effectiveness of your marketing efforts - The retention or churn rate

Also, it's important to note that as your subscriber base grows, maintaining the same growth rate might be challenging due to increased competition and market saturation.

Now, based on the numbers you've shared, do you have any specific goals you're trying to achieve or a particular timeframe you're looking at for your financial planning?

Fila Monti 7 months ago

I'm not sure how to answer that

Obie Fernandez 7 months ago

Got it, no worries! I'm here to help if you need any assistance.

Fila Monti 7 months ago

Help me

Obie Fernandez 7 months ago

Sure, what do you need help with?

Fila Monti 7 months ago

I don't know how to answer your last question: Now, based on the numbers you've shared, do you have any specific goals you're trying to achieve or a particular timeframe you're looking at for your financial planning? -- I'm not a very experienced business executive

Obie Fernandez 7 months ago

No problem at all! When it comes to financial planning, it can be beneficial to have some specific goals or targets in mind, but I understand it can be difficult without a lot of experience.

Let's try this: think about where you'd like to see Olympia in the next 6 months to a year. It doesn't have to be a concrete number, but a general direction or milestone you'd like to achieve.

For instance, you might want to focus on achieving a specific number of subscribers, reaching a revenue goal, obtaining a certain market share, or even just ensuring the company is still thriving and growing.

This reference point will give us a target to aim for while creating the financial plan. What do you think about this approach? Or is there another aspect you're concerned about?

Fila Monti 7 months ago

I want to achieve enough consistent growth to impress YCombinator, since we're in the running for their W24 cohort

Obie Fernandez 7 months ago

That’s a great goal. Impressing YCombinator can be pivotal for your startup's success. Given this objective, you'll want to not only show consistent growth but also demonstrate a strong grasp of your key performance indicators (KPIs), a clear understanding of your market, and have a compelling vision for your product's future.

Let's continue refining your subscriber growth model with this goal in mind. Perhaps we can consider a more aggressive but feasible growth strategy. Shall we proceed with this?

Fila Monti 7 months ago

yes

Obie Fernandez 7 months ago

Fantastic! To model a more aggressive growth strategy, we can adjust the monthly growth rate to a higher percentage. However, it's important to consider the sustainability of the growth rate. Accelerating growth too quickly can lead to a variety of challenges, including quality control issues, customer service difficulties, and team burnout.

Is there a certain subscriber count you're aiming to hit by the time of the YCombinator application? This can help us define the growth rate.

Fila Monti 7 months ago

Help me figure out what an achievable subscriber count is please. You know how many we have now in July

Obie Fernandez 7 months ago

With the numbers from your calculations earlier (CAC, LTV), and the subscriber count provided, let's predict an achievable target.

Keeping in mind the 50% growth rate you're currently applying, let's project that forward for the next 5 months (August to December). That would look something like this:

  • August: 900 * 1.5 = 1350 subscribers
  • September: 1350 * 1.5 = 2025 subscribers
  • October: 2025 * 1.5 = 3037 subscribers
  • November: 3037 * 1.5 = 4555 subscribers
  • December: 4555 * 1.5 = 6833 subscribers

By the end of December, you could potentially reach around 6800 subscribers, given a consistent 50% growth rate. However, maintaining a high growth rate can become more challenging as the base grows, so this is an optimistic projection.

A more conservative estimate might use a decreasing growth rate. For example, we might assume a 50% growth rate for August, but then decrease the growth rate by 5% each month. That could look something like this:

  • August: 900 * 1.5 = 1350 subscribers
  • September: 1350 * 1.45 = 1957 subscribers
  • October: 1957 * 1.40 = 2740 subscribers
  • November: 2740 * 1.35 = 3700 subscribers
  • December: 3700 * 1.30 = 4810 subscribers

In this more conservative scenario, you could potentially reach around 4800 subscribers by the end of December.

Remember, these are only projections and actual results could vary. It's important to monitor your metrics closely and adjust your projections as necessary.

Fila Monti 7 months ago

Which should I choose given our market and kind of business. I realize that's a hard question, but I'm really not sure myself

Obie Fernandez 7 months ago

You're right that it's a complex decision and depends on many factors. Given Olympia's status as an AI virtual staffing agency, we can expect a high scalability potential as your service does not require physical products, which means you can serve a large number of customers without significantly increasing costs. That said, considering the competitive nature of the market, it might be wise to pursue a balance between the two scenarios.

For instance, aiming for a subscriber count of 5000-5500 by the end of December might be a reasonable target that signifies robust growth without overstretching capabilities. This target can be revised as per the actual growth and market response in the coming months.

Remember, it's crucial to pair this ambition with strong efforts to retain existing customers and ensure high-quality service as you grow. The reputation you build now will significantly impact your long-term success. How does this sound?

Fila Monti 7 months ago

Sounds right. Help me with the formula to put in the spreadsheet for subscriber count please

Obie Fernandez 7 months ago

Absolutely. To calculate the projected subscriber count for each month, you can use the formula:

Projected Subscribers = Current Subscribers * (1 + Growth Rate)

Here's how you would apply it in a spreadsheet:

  1. In the first cell for subscribers, enter your current subscribers for the first month (900 for July).
  2. For the growth rate, you can use a cell reference (like B1) and input the decimal equivalent of the growth rate there (0.5 for 50%).
  3. In the second cell for subscribers, enter the formula above, where Current Subscribers is the cell of the previous month and Growth Rate is the cell reference you chose in step 2.
  4. Copy this formula down for the rest of the months.

Remember, the growth rate in the formula is for each month, so you would adjust the growth rate as needed.

Fila Monti 7 months ago

I've forgotten how to reference a fixed cell on another tab in Google Spreadsheets, can u help?

Obie Fernandez 7 months ago

Of course, I can certainly help with that. To reference a fixed cell from another tab in Google Sheets, you need to use the syntax SheetName!CellNumber.

For example, if you have a sheet named "Growth Rates" and you want to reference cell B1 on that sheet, you would write Growth Rates!B1 in the formula.

If the sheet name contains spaces, you should put single quotes around it, e.g., 'Growth Rates'!B1.

If you want to make the reference absolute (or "fixed"), so it doesn't change when you copy the formula, you should add dollar signs before the column letter and row number, like this: 'Growth Rates'!$B$1.

Let me know if you need further assistance!

Fila Monti 7 months ago

Okay I think I got it. Starting from July the growth would go like this; 100 150 225 338 506 759

Obie Fernandez 7 months ago

Great job! Your calculations are correct if we're using a 50% growth rate. This growth trajectory is a solid start. Just remember that these are projections and the real world may look a bit different. It's important to keep an eye on your metrics and adjust your expectations as necessary. Keep up the good work and don't hesitate to ask if you have any more questions.

Fila Monti 7 months ago

would this growth be enough to impress YC? It's not "hockey stick"

Obie Fernandez 7 months ago

You're right, the growth projection doesn't show a traditional "hockey stick" pattern, which might be something YCombinator is known to look for. However, it's important to remember that growth is just one aspect of what YC or any investor is looking at. They're also very interested in your team, your product, your market, and the progress you've made so far. Also, a more sustainable and managed growth can be a strong point, showing that you're not just chasing vanity metrics but are building a solid business. So, while striving for impressive growth rates, also focus on improving your product based on customer feedback, understanding your market better, and fine-tuning your business strategies.

Fila Monti 7 months ago

What about modeling growth in per-subscriber income from $26 in July upwards?

Obie Fernandez 7 months ago

Absolutely, we can certainly work on modeling the growth in per-subscriber income. To start, we need to consider potential factors that could increase this revenue. This could be things like upselling, cross-selling, or increasing the price of the service.

Assuming you’re planning to implement strategies like these, we could model an increasing revenue per subscriber. Let's say you plan on increasing your revenue per subscriber by 10% each month from the current $26. That would give us:

  • August: $26 * 1.10 = $28.60
  • September: $28.60 * 1.10 = $31.46
  • October: $31.46 * 1.10 = $34.61
  • November: $34.61 * 1.10 = $38.07
  • December: $38.07 * 1.10 = $41.88

Again, these are just projections and the actual numbers could be different based on various factors. But, this gives us a roadmap to track against. Does this help?

Fila Monti 7 months ago