You just acquired your first users. Now what?

This article is from an episode of Matrix Moments by Matrix Partners India, a podcast featuring candid conversations on what it really takes to survive the startup world. This is heavily revised from the original show transcripts. For the full interview, go here. 

Photo credit: johnschno / Pexels

In this episode, Matrix Partners India founder and managing director Avnish Bajaj talks about MoFu (middle of the funnel), how to continue retaining and engaging users, and what metrics to focus on.

What is MoFu and why is it significant for startups?

I was attending a business seminar and the speaker said something like this: “The top line is vanity, the bottom line is sanity, and the cash flow is reality.” Essentially, if the top line and bottom line of your business both look good but you don’t have cash flows coming into the business, then it’s not going to survive.

In any business, the conversion funnel typically starts at the top, which is called ToFu or top of the funnel. A lot of things are written about this: marketing techniques, how to drive more traffic, and so on. The bottom of the funnel is where the ultimate outcomes of your business are, whatever it is you’re trying to do.

The biggest difference between MoFu and ToFu is that the former cannot be bought. It’s where the rubber hits the road. It’s where you realize whether your business is adding real value to your customers. It’s where the real success or failure of your business is determined.

Can you share some examples of how entrepreneurs should look at MoFu?

Let’s talk about some sectors.

In social media and chat apps, the ToFu metrics are well understood: daily active uniques (DAUs), monthly active uniques (MAUs), etc. And often, people look at various versions of how they can get beyond that in terms of customer value proposition. For example, they start talking about engagement or retention, including metrics like D30, D90, and so on.

But, the minute you start going deeper into those metrics, you’ll realize whether you’re adding real value or not. If most of your customers are churning out, for example, your retention metrics will be lower. You cannot keep on using all kinds of engagement tactics to try and retain them. Like they say, you can take the horse to the water, but you cannot make it drink.

For me, the real MoFu metric for social media is MOTS or minutes of time spent. In China, for example, the most succesful products in this sector are seeing up to 100 MOTS.

In ecommerce, for the longest time, people have been measuring gross merchandise volume (GMV). One investor has asked me, “Why are we measuring something that never goes through the cash flow statement?”

In my view, as you start going down the funnel for ecommerce, you need to start thinking about things like contribution margins, cohorts, and repeat business. In this sector, discounts rule: if you give something away, you will have a lot of repeat customers. If you continue to give something away, they will keep coming back as long as they’re getting something for free.