AdWords sucks for serious early-stage startups. If you disagree please leave a comment, and I’d love to be a part of the conversation.
I’m not an AdWords hater. AdWords is an incredible tool and can be very useful for businesses of all types – including startups. It just sucks for early-stage tech startups.
The Costs: AdWords is expensive, in terms of both cash and time. In order to really get any value out of AdWords, you have to put a lot of time into managing and optimizing your campaign. You should be continually varying your keywords and ad text in order to make your ads truly effective. This takes a lot of time, and it also costs a lot of money. You could hire a firm to help with that, but that is going to cost more money. So why not just avoid it altogether? At least in the beginning.
Unfortunately, I’ve seen numerous startups throw away their precious startup capital on AdWords, just to eventually run out of money and go belly-up. Use that money on building a great product instead.
“Innovation is Cheaper than Advertising”
– Seth Godin, Free Prize Inside
Your Website Won’t Convert: In all likelihood, your website is not great at converting traffic to users. If you are EXTREMELY lucky you will get 2% of the people that come to your website to sign up (aka your conversion rate). It is more likely that you’ll get under a 1% conversion rate, especially with a new site or product. THIS IS NORMAL. Do not freak out. Also, conversion rates are generally lower with paid visitors than non-paid visitors, so don’t let your analytics deceive you. This is likely because people know they are clicking on an ad, so they are naturally more skeptical.
Unless you are super-niche and in a low-competition market, you are likely to have a CPC (Cost-per-Click) of somewhere in the $.50 to $5.00 range. Using the conversion rate guide of one to two percent, this will mean a likely CPA (Cost-per-Acquisition) of somewhere in between $25 and $400 dollars. This means you’ll be paying most likely well over 20 dollars per user. See the chart below for a breakdown of basic AdWords costs.
Example Cost-per-Acquisition CostsNote: AdWords pricing and conversion rates vary wildly. CPCs for high-price items (e.g. boats, 4-star hotels) are a lot more expensive than cheaper items (e.g. bananas).
So, before you start spending on AdWords, make sure your site will convert. Nothing makes people convert more than having an awesome product.
Validate Your Product: Most tech entrepreneurs are extremely self-confident. While this is definitely a required trait, it can also cause them to have unrealistic delusions of grandeur. It is common for a startup CEO to think that the only thing they need to be successful is more people seeing their incredible website. They might think their site will immediately ‘go viral’ with just a few more eyeballs. AdWords seems the logical way to get those eyeballs.
They budget a significant amount of money towards getting more people to come to the site via paid ads. Unfortunately, what tends to happen next is deafening silence. The problem is that the market just does not seem to think the site is as awesome as the founders do. This should be expected. This phase is when the concept of customer validation should start.
The term customer validation was coined by Steve Blank is his groundbreaking book The Four Steps to the Epiphany. The concept basically means understand how your product fits within the market. In other words, listen to your customers.
AdWords is generally not used to listen but to shout. And unfortunately, yelling louder (spending a lot of money on AdWords) does not always mean people want to hear what you are saying.
At this phase of your project (just after launch), instead of spending money on advertising, the team should get out of the building and actually talk with potential customers. In early stages, quality feedback can be just as effective as a few customers. It can also be a hell of a lot cheaper.
So to summarize: AdWords is expensive. Be careful when using it. Your product is probably not ready. Get your product ready, and get feedback.