From Customers to Advocates: The Art of Community-Led Growth

What is a Community-Led Growth strategy and what are the key benefits?

A Community-Led Growth (CLG) strategy is all about creating a community around a product or service, acquiring more customers, keeping the existing customers happy, and making the product better through continuous feedback. Companies are increasingly leveraging community-led strategies to drive growth and innovation.

A company’s community represents its most loyal distribution channel. Community allows a company to create a special relationship with its customers.

At our Annual General Meeting in November 2023, we hosted an insightful panel discussion on "Community Engagement in Web3." This panel featured Mathis Grosjean from Zealy, Martin El-Khouri from Bertelsmann Investments, and our own Damien Roch, partner at Blockwall. Please check out the video below to gain deeper insights from this engaging and informative session.

A Community-Led Growth strategy offers a range of valuable advantages:

• Customer Acquisition: When people enjoy a product or service, they frequently share their experiences within their networks. These satisfied community members transform into passionate advocates, actively promoting the product or brand. This ripple effect of enthusiastic endorsements fuels further growth. Essentially, word-of-mouth promotion plays a pivotal role in expanding the community's reach and influence. This form of word-of-mouth advertising proves to be not only more efficient but sometimes more cost-effective compared to traditional paid marketing methods.
• Customer Retention: Businesses lose over $75 billion each year due to poor customer service¹. After just one poor service experience, a staggering 72% of consumers are inclined to switch brands². Communities are like friendly teams where people assist each other by offering advice, solving issues, and answering questions. This teamwork reduces the need for many people to reach out to customer support for help. A strong community can make more customers happy and keep them coming back. A 5% increase in customer retention can lead to a significant 75% boost in profitability³.
• Product Improvement: When companies interact with their communities, they learn a lot about what community members like, what they want, and the problems they face. This kind of information is really helpful for making products better, deciding which new features to add, and planning what to do next with the product. It makes sure that the product meets what users need and want, making them happier with it and more likely to use it. An engaged and listened-to community is a powerful asset for continuous improvement and innovation.

How could startups benefit from a Community-Led Growth strategy?

In the initial stages of a startup, it often lacks a significant user or customer base. Acquiring the first set of users can be challenging due to limited awareness of the product or service, a situation commonly referred to as the cold start problem. The tech products that tend to be both widely popular and highly profitable typically rely on network-based principles. Network-based principles mean that when more people use a product or service, it gets better and more people want to use it, creating a cycle of growth and popularity. When your network is small it is extremely difficult to grow the company.

How could a startup overcome the cold start problem and accelerate growth?

In Crossing the Chasm, Geoffery Moore argues that the best way to build a successful startup is to begin with a niche audience (early market) and later expand to broader mainstream markets.

An effective approach to growing the network could be to begin by cultivating a community around the product or service. For instance, take the case of Mike Cessario, CEO of Liquid Death (sells water), who produced a $1,500 advertisement before even manufacturing any cans. He invested $3000 in Facebook ads, garnering 3 million views and generating thousands of orders. Remarkably, within just three months, Liquid Death surpassed Aquafina in terms of Facebook followers. After the campaign, Liquid Death boasted a robust and dedicated community, characterized by active participation, brand loyalty, and enthusiastic word-of-mouth promotion, further driving its popularity and market presence.

Web 3.0 startups are at the forefront of championing a community-driven, bottom-up approach where consumers are not just users but also owners with skin in the game.

These startups are increasingly using airdrops as a strategy to cultivate and engage communities around their products or services. Airdrops serve as a significant incentive for attracting new users to a Web 3.0 platform or project. Airdrops can pique the interest of potential users who might not have otherwise engaged with the platform. Furthermore, governance incentives, such as granting voting rights or decision-making power in correlation with token ownership, encourage long-term user engagement. Users who have a say in the direction of the project are more likely to remain active and committed.

This community-led growth model empowers early adopters by providing them with financial incentives to actively participate in product testing, offer essential feedback, and become fervent advocates for the company. Their ownership stake serves as a compelling motivation, aligning their interests closely with the company's success.

How could established brands benefit from a Community-Led Growth strategy?

Every brand has its community which consists of its most passionate customers. Established brands could leverage their community to fuel a community-led growth flywheel. Effective acquisition strategies often leverage social media, word-of-mouth referrals, and partnerships with influencers or other communities to draw in new members. This type of word-of-mouth marketing not only demonstrates greater efficiency but often also proves to be more cost-effective.

Once new members join, the focus shifts to engagement. High engagement is achieved by creating valuable content, facilitating meaningful conversations, and ensuring that the community environment is welcoming and inclusive. The goal is to make members feel valued and connected to the community.

The final step is retaining these engaged members over the long term. Retention strategies often involve recognizing and rewarding active members, continuously providing fresh and relevant content, and adapting to the evolving needs and interests of the community. Successful retention leads to members becoming advocates for the community, which in turn helps in acquiring new members, thus keeping the cycle going.

Why should a company specifically focus more on community engagement?

Simply attracting an audience for the product is just the first step; the real challenge lies in keeping that audience engaged. A person who notices the product but then quickly forgets about it, won’t generate word of mouth. In contrast, an engaged audience member will not only remember your product but is also more likely to talk about it and recommend it to others.

Community engagement is extremely beneficial for businesses for several reasons. Primarily, it is more cost-effective and profitable to focus on engaging and nurturing an existing audience to generate word-of-mouth promotion rather than trying to acquire new customers. This is because the cost of acquiring new customers is substantially higher, estimated to be 6 to 7 times more⁴, compared to retaining existing ones. Furthermore, a company’s top 10% of most loyal customers are likely to spend three times more per purchase than the remaining 90% of customers⁵. This fact highlights the substantial value that can be found in a dedicated customer base.

Additionally, existing customers are not only likely to spend 31% more compared to new customers, but they are also 50% more inclined to try new products from a brand they already trust⁶. This openness to new products can be a significant advantage for businesses looking to expand their offerings. Finally, it’s important to note that around 65% of a company’s business typically comes from its existing customers⁷, underscoring the importance of maintaining and nurturing these relationships for long-term business success. In this landscape, companies like Zealy are playing a crucial role by helping businesses keep their communities engaged and connected, further enhancing customer loyalty and business growth.

Why we invested in Zealy

Zealy is a community-led growth marketing platform where companies execute marketing strategies tailored to their communities.

We chose to invest in Zealy for several compelling reasons. The platform boasts an impressive user base of 1.5 million monthly active users (MAU) and hosts over 4,500 communities, all while maintaining a remarkably low customer acquisition cost (CAC). Notably, users exhibit heightened engagement levels per session on Zealy when compared to other established social media platforms.

A key driving force behind our investment is Zealy's adept and capital-efficient execution strategy. The platform has garnered substantial traction and appears to be steadily progressing towards achieving a robust product-market fit. The roster of existing clients further bolsters our confidence, with esteemed brands such as LVMH, Renault, Alpine, ZkSync, and dYdX already on board.

In the leadership team, Mathis Grosjean serves as the CEO of the company, he pursued his education in computer science at an innovative coding school called “42”. Louis Demeslay, the Chief Technology Officer (CTO), also emerged from the “42” computer science program, earning acclaim as the fastest programmer there in 2019 and having previously worked as a Software Engineer at Alf. Meanwhile, Fredrika Lindh, holding the role of Chief Product Officer (CPO), garnered recognition as the Top Maker of the Year 2021 on Product Hunt, showcasing her talents in the realm of product development. The team at Zealy is executing well and in a capital-efficient manner. Zealy stands out as a potential market leader in this category.

Summary

Cultivating an engaged community around a brand creates a mutually beneficial dynamic for both the customers and the company. Having a strong community around the offering could play a pivotal role in business development, customer acquisition, retention, product feedback, and brand advocacy. However, maintaining this engagement is not an easy task. It requires continuous effort, strategic communication, and innovative engagement techniques to keep the community active and interested. This is where companies like Zealy come into the picture. With their expertise in fostering and maintaining community engagement, they provide valuable support to businesses striving to keep their communities thriving. Zealy's unique strengths, encompassing monthly active users, retention, data acquisition, and impressive clientele, combined with its proficient team and promising trajectory, make it a compelling investment opportunity. By leveraging Zealy's services, businesses can effectively navigate the complexities of community engagement, ensuring a vibrant and loyal customer base.

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References:

1. Businesses lose over $75 billion each year due to poor customer service
2. After just one poor service experience, a staggering 72% of consumers are inclined to switch brands
3. A 5% increase in customer retention can lead to a significant 75% boost in profitability
4. It costs 6x to 7x more to acquire new customers than to retain existing ones
5. The top 10% of most loyal customers spend three times more per purchase than the other 90%
6. Existing customers tend to spend 31% more and are 50% more likely to try a new product
7. Around 65% of a company’s business comes from existing customers