…Become your Enemy

“To know your Enemy, you must become your Enemy.”

- Sun Tzu

Sun Tzu, the ancient Chinese military strategist and philosopher, emphasizes the importance of understanding one’s adversary deeply, including their mindset, strategies, and motivations, to effectively anticipate and counter their actions.

While Sun Tzu’s quote was originally meant for warfare, its implications hold true in various aspects of life, including leadership and business strategy.

Leaders often fail at “Execution” when they

• become overly passionate about their vision/ideas but have a poor strategy
• have an inefficient leadership team
• do not have a trusted advisor(s) to help them realize the true state
• just go with their gut feeling and not trust the actual numbers such as unit economics
• have poor acquisition strategy.

“Leaders often convince themselves and others that buying more lifeboats will save their ship.”

“Unit economics” involves analyzing the financial performance of a business at the individual transaction or customer level.

CAC (Customer Acquisition Cost) is a critical metric in the context of unit economics for businesses.

Understanding and effectively managing CAC is essential for businesses to ensure that the cost of acquiring customers is sustainable and contributes positively to the company’s overall profitability.

A high CAC relative to the customer’s lifetime value (LTV) can indicate potential challenges in the business model, as it may become difficult for the company to recover the cost of acquiring customers over the course of the customer relationship.

Organizations often fail to calculate CAC accurately or they overlook the numbers for various reasons, despite its potential impact on the financial health of the business.

Reasons why the Executives often overlook CAC:

• Not considering all the factors while estimating CAC: Executives may not have a comprehensive understanding of unit economics or may rely on incomplete metrics.
• Focusing on growth at all costs: Executives prioritize rapid growth and market share acquisition without considering the long-term implications of high CAC.
• Assuming that high CAC is a future investment: Executives may justify the spending by anticipating that customers acquired now will continue to generate revenue over an extended period, eventually justifying the initial acquisition expense.
• Assuming that it is necessary to stay competitive in the present market: In competitive industries, Executives may argue that high CAC is necessary to stay competitive. They might believe that aggressive spending on customer acquisition is essential to capture market share and prevent competitors from gaining an edge.
• Too optimistic about the future success of the company: Executives may be optimistic about the future success of the company and may believe that improvements in operational efficiency or changes in strategy will bring down CAC over time. This optimism bias can lead to a temporary acceptance of high acquisition costs.

While there might be short-term justifications, ignoring the impact of high CAC for too long can lead to financial challenges and hinder the overall success of the business. Successful companies often find a balance between aggressive growth and cost efficiency to ensure a healthy and sustainable business model.

“Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.” — Jack Welch

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