Entrepreneurs always ask what the one number they should focus on for raising money. I always say “90 day retention numbers for your acquisition cohorts”. There’s a common view in silicon valley and around the tech sector that growth is the one thing you should focus on. But it’s hard to grow if you are churning your users. And if you are paying for user acquisition, as many startups do in search of growth, then retention/churn becomes even more important.
This issue was highlighted in a Forbes post on Homejoy, which apparently had a retention problem. A former employee said:
Retention was clearly bad, and that’s what killed us
This is a huge conundrum for entrepreneurs who want and need to grow in order to build confidence with investors (both existing and future) and to attract and retain talent.
This all comes back to stepping on the gas before finding product market fit. You might think you have product market fit and so you scale up your hiring, your marketing, your sales, and your capital raising and spending.
But if you can’t retain a healthy percentage of your users past ninety days, you don’t have product market fit yet and all the investment you make in your business is just money down the drain.
So focus first on your 90 day retention numbers and make sure to nail them and prove you have product market fit. Then scale.
