Living in the Middle of the Funnel (MoFu)
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AVNISH BAJAJ
FOUNDER & MANAGING DIRECTOR

As the Internet bubble began to burst in early 2000, the nascent Baazee story quickly went from one of multiplying revenue to one of holding on tight for a bumpy roller coaster ride.

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In this episode, Avnish Bajaj, (Founder & MD, Matrix India)  talks about MoFu: what it takes to continue retaining & engaging your users post the initial burst of customers, how to evaluate CAC, and what metrics to keep a track of.

Living in the Middle of The Funnel (MoFu)

Salonie: Hi, and welcome back to the Matrix Moments podcasts, this is Salonie and we are back with Avnish Bajaj, Founder and Managing Director of Matrix partners India. In today’s episode we are going to be talking about living in the middle of the funnel. So, Avnish I have heard of ToFu which is top of the funnel and bottom of the funnel, but what is the significance behind MoFu? 

Avnish: It’s just a good word, sounds interesting. Thank you Salonie, thank you for having me back. A while ago, I think it was post business school. I was attending a business seminar and the speaker said something which today I think it is very obvious, but it was very interesting at that point of time which was: in any business, the top line is vanity, the bottom line is sanity and the cash flows is a reality. Essentially if you are running a business and you have the top line and you have the bottom line it’s all looking good and you do not have cash flows coming out of the business then your business is not going to survive, that is really the reality. This is some what in the similar vein. So, in any business there is typically a conversion funnel, the conversion funnel starts at the top which is the ToFu, that is the top of the funnel and honestly, I think there is a lot written about it, there is a lot that people understand about it and this would be typically marketing techniques, how do you get more traffic? More visitors to your website? So on and so forth or app and then a  lot is often understood, maybe not written about but understood about the bottom of the funnel, that is where your ultimate outcomes are, whatever you trying to do. I think it is interesting and it is something that I have been thinking about over the more recent past, that not often do we talk about the middle of the funnel, the MoFu, tongue and cheek and in my view, what distinguishes the Mofu from the Tofu and we will not talk about the bottom right now because that is the ultimate outcome, is that often the top of the funnel can be bought, in my view the biggest difference of the middle of the funnel is that it cannot be bought and we can talk about specific examples as we go along, but truly I think the middle of the funnel is where the rubber hits the road and you realize whether you are adding real value to your customers, whoever they might be and that to me is where real success versus, failure of business is determined which is why I think it is worth having a quick chat about it.

Salonie: So, can you share some examples with us of the various companies that you have worked with and you have observed this middle of the funnel phenomenon in?

Avnish: So, I think beyond companies, I think it will be interesting to talk about sectors. Let’s talk about social media or there are a lot of these chat apps or even if you look at instagram and Facebook. The top of the funnel metrics are again well understood. They are your DAUs, which is your Daily Active Uniques, your MAU which is your Monthly Active Uniques, WAUs and often people look at various versions of how you can get beyond that in terms of customer value prop. For example, you start talking about engagement or you talk about retention. So, retention are metrics like D30-D90 and we will not get into details of that but essentially you could push a lot of marketing out and ramp up your DAUs, ramp up your MAUs, the minute you start going deeper into those metrics you will start realizing whether you are adding real value or not. For example, most of your customers are churning out, then your retention matrix will be lower. However, for me the real MoFu of social media is actually mots- minutes of time spent, and again I’ll go back to, like you can choose by using various notifications by using all kinds of engagement tactics to try to retain your users but ultimately you cannot make them watch and this is like, we often say you take the horse to the water, but you cannot make him drink. 

In India vs. let’s say in China, my view for example, speaking specifically to this sector if new media is going to replace old media, I don’t know how much television you watch but I guess if we ask a lay person they would probably be watching 2-3 hours. In new media, people get excited about 10 minutes of time spent, 20 minutes of time spent. If new media, is really going to replace old media we should be talking about hours of time spent and actually in China, these products are talking about 80-100 minutes of time spent, the ones that are really successful, So, to me MoFu for new media is mots. Let us look at e-commerce, fortunately we have moved beyond this, but for the longest period of time GMV (gross merchandise volume) used to be what everybody used to be talking about. Mine is bigger than yours, I have more GMV than you do and one of the investors I really respect, he told us why are we measuring something that never goes through your cash flow statement? the reality is after GMV, comes returns(?), then comes discount so on and so forth. Now, in my view as you start going down the funnel for e-commerce, the things you need to start thinking about are things like contribution margins, cohorts, how much of repeat is coming and really the ultimate is especially in a sector like e-commerce, where discounts rule, if you give something away, you will have a lot of repeat customers. If you are continuing to give something away, they will keep coming back because they are still getting it for free. So, what I try to look for is non-discounted cohorts. So, if you are really adding value to your customer they will come back and they will buy without discounts, right? So, that is an example. Now, I can give you number of different ways of looking at it, but I think the larger point is, instead of going all the wat to the bottom line, looking at xx, looking at losses, looking at all of those things which are the bottom of the funnel vs. again the NVM, the GMV, like that, I think the difference here is that we are talking again in the middle, where it is the contribution margin, how much discount you are giving, how many of your users are coming back without discounts, how does that translate into xx (lifetime value to customer acquisition cost?) So, I think that is an example of e-commerce sector. I am just very quickly taking the last example, for example fintech: loans disbursed, people I have often heard fintech companies say our approval rates our two minutes three minutesour loans disbursed are x 100 crores a month, right? It is very scary, this is a risk business and the faster~, if you are approving very fast, and you have no loan defaults, I would say okay, maybe they are onto something but again, that is the top of the funnel vs, the middle of the funnel. So, the vanity metrics of saying I am approving very fast, you know pushing out so many loans, without the sanity matrix and without the middle of the funnels what are my default rates, do I have leading indicators that the customers that I am approving are actually good customers, what is the correlation with default rates? I think those are very critical and that would be an example of  the middle of the funnel. 

Salonie: and what would be your one piece of advice to founders who are actually living in this part of the funnel? 

Avnish: So, I think not enough is thought about by founders, in my view, one of my colleagues in venture capital says this very well, that you really have to earn your way to a lot of these metrics, you can’t buy you way into these metrics right? So, I would say now not to generalize but as a median I think the emphasis on real customer satisfaction, really figuring out whether you are providing real value to your customer, is still I would say is a little bit lagging in our country, more than others. Where I look at, and maybe its a function of stage of the evolution, things like net promoter scores. Net promoter scores vs CSat which is customer satisfaction score is sometimes not very well understood by entrepreneurs, Csat is a measure of satisfaction, NPS is measure of virality. These are two different things. So, I think, I often tell people, if you have a customer delight officer or a customer delight function, you’ll never need a customer satisfaction function because it’s one step lower.

Salonie: Right

Avnish: So, I think if you look at Amazon, which is today’s most valuable company out there or maybe close to it. They are built on this tenet of customer obsession. So, I think truly if you have that customer obsession then you would worry less about the top of the funnel, how many people are walking in all the time? vs. how many people are you engaged with and how many people are you delighting? And I think thats my one big piece of advice to founders. I think the ultimate test of that is, I would love for companies to go through periods. Maybe two-three months periods, not long periods. Just switch off marketing, and if you have a real business, your business should continue to grow without marketing, and I advice some of the founders I work with, that marketing is a great tool to multiply product market fit, marketing is a great tool to multiply attraction, but marketing should not be the tool to get attraction. True product market fit, true value proposition to the customers should be the way to get attraction, and once you have that, then marketing is just throwing fuel on the fire, but it should not be starting the fire. 

Salonie: Got it. Interesting. Thanks Avnish. Thanks for listening. You can find the transcript version of this podcast on matrixpartners.in . You can also follow us on Twitter and LinkedIn for more updates.