All In or Diversify
Hi, I’m Zach — I’ve built my app business to about $4m in annual recurring revenue. Building a successful app business is really hard. That’s why I write a weekly newsletter about the things I’ve learned along the way. My goal is to help you grow your business and profit. If you want to learn more about the app business, I highly recommend subscribing.
Something I struggle with is where to invest company resources. Currently, my company is working on 3 products. We have Hashtag Expert which is still by far the biggest revenue driver of the entire company. Last month, we spent $120k or so on ads for Hashtag Expert. This lead to $258k in revenue. That profit margin of $138k is what’s funding the rest of the company.
Currently, we’re investing in improving Hashtag Expert with bi-weekly sprints. We’re constantly going through survey data, customer support tickets, and overall user-feedback. Insights from those sources are determining our product roadmap. So Hashtag Expert is getting better week over week. We’re also building out a web-paywall flow so users can sign up and pay for the app on our website. This is in part because of our concerns over the ATT changes and also so we can own the subscription management aspect of the app. We’re investing in content-marketing and have an SEO writer composing 2+ articles per month. We’re going hard on social media, making regular posts every week centered around user-education. We’re starting to try some influencer marketing. We paid a TikToker to make a video promoting our app and we’re collaborating with a YouTuber this week hopefully.
So on the Hashtag Expert side, we’re making lots of investments. In theory though, we could be making more. Instead, we’re also iterating on our app Caption Expert which is currently making barely any money. It has a community of users but as of today, there’s no active subscription product in it. We’re mostly focused on gaining users, improving retention, and figuring out a way to get more and more downloads with a combination of organic and paid channels.
Then, we’re prototyping our new app Like Expert. We’re seeing some really interesting data on it. We’re iterating super quickly. We did a soft TestFlight launch last weekend. We got a ton of feedback there and are just about done implementing it.
This is where I struggle though. When do you decide to go horizontal and when do you decide to go vertical? Here’s what I mean—theoretically, I could take all of that $128k operating profit and invest it back into Hashtag Expert. We could get 10 SEO writers, build an android app, a web-app, and invest deeply into improving our core generation algorithms. Whereas currently, we’re doing some sort of hybrid of going horizontal and vertical.We’re not investing every dollar into Hashtag Expert, but we’re still investing the majority of our dollars there. On the other hand, I’m very aware of the risks that this hashtag business has. So we’re making horizontal investments into Caption Expert and Like Expert which both have potential.
My framework for deciding how much investment a product should get is simple. Ask yourself how much bigger could this get? Bigger here means user base and revenue potential. Here, I’ll rate each of my products on a scale of 1 to 10 in terms of how big their revenue potentials are.
Hashtag Expert: 6/10
I could see Hashtag Expert getting to $500k revenue a month, or even close to $1m, but I cannot see it getting too much beyond that. There are inherent risks in the product and the category itself.
Caption Expert: 8/10
I can see Caption Expert becoming a very popular app with tons of users, but the revenue piece is tricky. It attracts younger users and individuals who are less likely to spend money. With lots of users though, you can figure out revenue later.
Like Expert: 10/10
For a ton of reasons, I’m incredibly bullish on Like Expert. It has the potential to be both very popular among users and generate loads of revenue. At the moment, we’re still prototyping and proving out the concept. Until we have some solid evidence that the market likes this app, I can’t justify investing more than we are right now.
At the same time, looking at each of these products in a vacuum isn’t correct. They are all related and we can cross-promote. In fact, that cross-promotion and the suite of products angling is central to our operating philosophy right now. We’re laying down the groundwork to build a suite of social media tools. At some point in the future, I could envision us selling a group subscription that comes with seats: i.e. paying $5/month/product/seat. So a 20 person company could subscribe to our entire suite for $5*3 products * 20 seats = $300/month.
Anyway, I wanted to highlight the nuance needed to discuss how you should invest in your apps. It’s not as simple as should I put it all into one app and ignore all the others. Like most things in life, app investments exists in a gray area.
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