This sponsored post is produced by Nexercise.
Continuous, up, and to the right growth is a myth that many successful and high-potential companies will never achieve. But in startup pitch land, entrepreneurs everywhere routinely display graphs showing how their revenue, their users, or new paying customers will quickly increase month after month and quarter after quarter. The truth is that this is an obligatory slide (and frequent founder delusion) associated with pitching a tech startup to the world.
The reality is that many companies — more than you may expect — are seasonal. The very harsh reality is that many startup founders do not realize how seasonal their companies actually are until the seasonality smacks them in the face through numbers that aren’t going in the expected direction.
This three-part series will share founder perspectives on how to manage a seasonal startup, what you should watch out for, and how to address the challenges that will inevitably come your way.
Part I will help you access whether you have a seasonal startup. Part II will help you understand the seasonal nature and when and where to spend your resources, namely time and money. Part III will discuss fundraising in a seasonal startup and how to position it.
Finding out you have a season startup — the hard way
As a less experienced digital fitness startup a couple of years ago, we knew that Nexercise was going to have seasonality associated with New Year’s resolutions. We were excited because we knew that our January monthly active user count would be higher than each of the preceding 11 months. And since our lead product at the time was ad-based, we were anxiously waiting for the January revenue to start rolling in. So January came, and as expected, usage went through the roof. We even doubled down on it by running paid advertising campaigns starting right after Christmas and running through the first part of January. But as our active users and app sessions were piling up, the money wasn’t keeping pace. What had happened?
What happened is that we had just received our first true lesson in seasonality. We observed industry seasonality from an engagement perspective the previous year. But we hadn’t been monetizing our app at the time and didn’t experience the seasonality of advertising. The associated lack of revenue growth shocked us.
Advertising is seasonal as well
What we know now is that advertising budgets are sparse in the first six weeks of every year and unless a fitness company (or the ad partners it works with) have fitness specific campaigns, the total impressions and revenue per impression will be much lower than what you had just seen in Q3 and Q4 of the preceding year. That month, we learned that seasonality extends beyond our own product and industry and into the prevailing market. More specifically, we learned that consumer exercise activity and non-fitness targeted brand advertising expenditures are counter-cyclical. Fortunately, we learned our lesson and turned our January revenue around the following year. But I don’t want to spoil Part II of this series so I’ll end our part of the story there.
Competing seasonally has challenges
Sharon Schneider, Co-founder and CEO of Moxie Jean, also had a steep seasonality learning curve. As an upscale reseller of high quality, lightly used children’s clothing, her company lives by the seasonality you would expect in clothing and fashion. Not only back-to-school but holiday shopping is prime for the brand, including gift-buying for friends and families. So it would stand to reason that Moxie Jean would love November and December.
The catch is that big box retailers turn on the advertising floodgates in the last two months of the year. Sharon states, “In November and December it just gets so expensive to compete with big box retailers that we would be spitting in the wind to try to break through the noise.” So here you have a business that is uniquely positioned to take advantage of certain seasons, but as a startup, lacks the resources to compete with the big companies.
So what’s a startup to do? If you’re a founder, you know that pack it in, give up, and throw in the towel is not in our DNA, so we figure it out. Part II of this series will provide some insights into how founders navigate these challenges. We’ll hear how the on-demand parking company, SpotHero and Codementor, the 1:1 help marketplace for developers, navigate their seasonal challenges.
But in order to get the most out of these posts, you’ll need to consider whether your startup is seasonal. But how do you know? We’ll leave you with these items to ponder.
Your startup may be seasonal if…
- In the absence of press, a product feature, or recent social media traction, a key metric (active users, revenue, activations) increases or decreases unexpectedly and then normalizes. Look for patterns. They can be weekly, monthly, or annually.
- Your advertising rates (Cost Per Click, Cost Per Install, etc.) change unexpectedly.
- Press suddenly becomes more or less difficult to get.
Greg Coleman is the Co-Founder and COO of Nexercise, a TechStars company focused on helping people exercise more consistently through its Sworkit personal training app and Challenges motivational app. In addition to being a TechStars alum, Greg has an MBA from The Wharton School and a BS in Electrical Engineering from the US Air Force Academy.
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