In the face of a funding winter, where capital seems scarce, there is still a noteworthy pool of venture capital awaiting innovative ventures. However, the rules of engagement - eligibility criteria for funding consideration - have undergone a significant shift and become more nuanced.
Start-ups that prioritise customer love, sustainable growth, focusing on building strong unit economics, optimising operations, and cash flows have a higher probability of raising funds. This in turn means overcoming gaps in robust growth strategies, particularly among early-stage start-ups, and demands a re-evaluation of growth metrics as 2024 gains momentum. In the current dynamic environment, placing a high priority on customer retention strategies alongside customer acquisition efforts is not merely a ‘good to have’, but is becoming very much essential.
The Funding Crunch of 2023: Navigating Challenges
Global venture capital funding in 2023 declined by 38 per cent compared to the unprecedented levels seen in 2022. This funding contraction compelled start-ups to streamline operations, concentrating on unit economics and other avenues leading to profitability.
Venture capitalists too shifted their focus towards robust business models with tangible customer traction and demonstrated results. However, this also created opportunities for well-positioned start-ups with compelling value propositions and a clear customer-centric approach to garner the attention of VCs.
The bottom line is this: for start-ups to be considered for funding, they need to demonstrate a robust business model which seeks to sustain their run-rate not only through their value proposition, but also an effective customer acquisition and retention strategy (implemented from Day 0!).
Customer Retention: A Strategic Imperative and Day 0 conversation
As we step into 2024, the imperative for a customer-centric growth strategy cannot be overstated. The conversation around retention was often treated as later date conversation in the early stages of a business, which is no longer true. This paradigm shift is crucial for varied reasons, the most important of which is the fact that customer retention is 6 times more cost-effective than acquisition of new customers.
The investment in maintaining customer satisfaction for existing customers yields more substantial returns than the allure of attracting new customers. Moreover, repeat customers tend to spend nearly 67 per cent more, highlighting the valuable contribution of customer loyalty to sustainable revenue growth.
In the competitive and volatile start-up ecosystem, the risk posed by customer churn is quite significant, with steep consequences to the smallest shifts. A mere 5 per cent loss of customers can lead to a 25 per cent reduction in profits, underscoring the significance of prioritising retention from the outset.
This shift in mindset towards retention not only safeguards against profit erosion but establishes a resilient foundation for long-term success. By recognising retention as a day 0 conversation, start-ups can position themselves strategically, reaping the benefits of a customer-focused approach that goes beyond the initial stages of acquisition.
Strategic Investment in Customer Engagement Tools
With the ever expanding competitive landscape and an increasingly discerning customer base that is constantly evolving, brands have their work cut out for themselves as far as customer engagement is concerned. Ensuring that customer engagement strategies are implemented effectively, real time, and at scale, start-ups must adopt a data-led approach, that is augmented and supported by the right tools. Consider incorporating platforms that can make a significant impact:
Data-driven optimisation: Utilise key metrics like customer retention cohorts, lifetime value, and engagement rates to iteratively refine engagement strategies, leveraging data as a primary tool for understanding market gaps, customer needs, pain points, and purchasing habits.
AI-powered personalisation: Leverage data insights to provide personalised experiences across various channels, such as emails and push notifications, tailored to individual customer preferences.
Automation tools: Liberate resources from repetitive tasks like triggered emails and loyalty programme management, enabling the allocation of valuable time to strategic initiatives.
Omnichannel nurturing: Foster lasting relationships by engaging customers through their preferred channels, whether it's email, WhatsApp, or -app messaging, ensuring a consistent and connected experience that transitions seamlessly between platforms.
Martech Enabling A Comeback in 2024
All of the above can be achieved with the support of the right tech enabler, specifically martech; empowering start-ups with tools and expertise to personalise, automate, optimise, and above all, elevate customer engagement.
According to a study by McKinsey, AI-powered platforms today can affect a staggering average increase in customer retention rates to the tune of 15-20 per cent, a 10-15 per cent boost in average order value, and up to a 50 per cent reduction in customer churn.
Furthermore, as each start-up has a unique set of challenges - no two can ever be exactly alike -there needs to be a conscious departure from a ‘one-size-fits all’ approach. Full-stack and customisable martech solutions will be the defining force that will empower start-ups to unlock new levels of customer engagement in 2024.
In conclusion, prioritising customer retention from the get-go, and investing in appropriate engagement tools position early-stage start-ups not only to survive but to thrive in 2024. Whether making a comeback or pursuing sustained growth, strategic customer engagement is pivotal for success in the New Year.
-Authored By Nitya Shah, Lead, WebEngage Start-up Programme