From Growth at all costs to profitable growth, Lessons learned from Gusto

As head of marketing at Gusto I shifted us from “growth at all costs” to profitable growth.

ARR grew 100x in 4 yrs while CAC <12 mos.

Now every company is asked to do the same.

I shared how we did it in a recent talk to @ycombinator & @sequoia founders.

Here’s the summary:

First, let’s take a step back.

It’s no secret that investors—public or private—are no longer rewarding growth at all costs.

In public markets, the index of unprofitable tech companies has fallen twice as much as Nasdaq.

Now CAC, burn multiple and profitability are king.

Here’s what’s going on in a typical board room right now:

  • Board: Capital is now expensive. You need a path to profitability.
  • CEO: We need to grow more efficiently.
  • CFO: Marketing spends a lot. What parts drive revenue?
  • CMO: It’s hard to pinpoint
  • CFO: Let’s cut it all

6 months later: growth is dead.

Here’s the conversation at the next board meeting:

Board: Why aren’t you growing faster? Your competitors are outpacing you.
CRO: We don’t have the pipeline.
CEO: Let’s hire a new CMO.
CFO: crickets

Why does this conversation keep happening?

For a decade we’ve built ad-centric growth engines that wasted $19 out of every $20.

You can’t just take out a scissor and cut your way to profitable growth.

Most Exec teams eventually find this out the hard way.

At Gusto I learned that growing at all costs is fundamentally different than growing efficiently.

Companies need to change 4 things:

  1. Shift to program-level CAC
  2. Invest in conversion, not just demand
  3. Launch new programs iteratively
  4. Design an operating cadence
  5. Shift to program-level CAC

To drive profitability, you have to understand CAC at the program level, not overall.

Build realtime infrastructure to see conversion and CAC for expensive programs like ads.

Calculate CAC quarterly for smaller programs.

Cut/optimize constantly.

You can have a finite number of “influencer” programs that accelerate (but don’t generate) revenue. e.g. content that nurtures deals.

Use a revenue attribution model for these programs since program-level CAC won’t give the full picture.

Fold the cost into overall CAC.

  1. Invest in conversion, not just demand

There are 2 growth levers.

Demand helps you get in front of the right buyers. CPC = $$$

Conversion gets them to buy your product. CPC = 0

At Gusto we built a growth engineering team to drive conversion. The ROI justifies eng salaries.

When I first took over Gusto’s marketing, ~100% of our spend went into generating demand (ads, content, PR). CAC >20 months.

We redirected ~50% of budget to conversion and analytics. CAC <12 months & ARR grew way faster.

Don’t just cut. Reallocate budget to efficiency drivers.

  1. Launch new programs iteratively

All new programs require optimization to become profitable. Most never do.

Fund experimentation liberally, but in small amounts (<$50k).

Define a gate to get additional funding in 3 months. Cut programs that don’t hit the target.

  1. Design an operating cadence

Create quarterly goals across GTM teams, and turn those goals into weekly targets.

Design a system of weekly and quarterly meetings and dashboards to track progress and course correct.

Bring finance, sales and marketing leaders together weekly.

Technology can greatly accelerate these efforts, especially for high ROI but high effort areas like conversion.

This problem is near and dear to my heart.

After slogging through this for years, we decided to build Mutiny – a platform that does this automatically for everybody.

There is an entire ecosystem of companies that are helping drive efficient growth.

Among the most valuable are data and analytics companies such as Clearbit, 6sense, Segment, Amplitude and Snowflake that enable clean GDPR-compliant data to power personalization and conversion.

CFOs & CEOs should partner with the CMO to understand their growth levers, cash guzzlers & efficiency drivers.

Reallocate your budget & team to drive efficient growth from the ground up.

Otherwise you’ll throw the baby out with the bath water & your company will pay the price.