Starting an App Business the Right Way

Building an app-based business can be a daunting project: Within such a competitive space, how can you make your app stand out, attract and retain the right audience, and then monetize it? What are the most important principles to keep in mind? What are the emerging trends?

To find the answers to these questions, we interviewed three finance experts from the Toptal network that have significant experience building successful apps: Nitin Mittal, John Lee, and John Manoogian.

They agreed on three essential insights:

• The key to retention is building an app that brings real value to its users and has a clear value proposition.
• An app should present minimal friction throughout its use and have a well-thought-out UX/UI.
• It is paramount to have a clear understanding of financials.

App Users’ Time Spent on Apps

What Is the Global Market for Apps Like in 2020?

The app space is not seeing signs of stopping its rapid growth and remains incredibly competitive. In 2019, the total number of app downloads worldwide was a staggering 204 billion, up from 141 billion in 2016, according to Statista.

Nitin Mittal: Timing Is Everything - Value Proposition

Nitin Mittal was an early Branding Brand employee, focusing on customer acquisition and monetization strategies for retailers such as Costco, Ralph Lauren, and Sephora. He joined at a pivotal point for the company and for the industry it served. At the time (2009), many businesses were just starting to grapple with eCommerce, and mobile was only responsible for very low single digits of traffic. Not only that, but companies were encountering significant issues converting customers (typically, conversion rates were 2% for a desktop eCommerce user and 0.5% for a mobile user). Slowly, mobile traffic picked up, creeping up to 10% of total traffic to eCommerce on average.

The real game-changer was the advent of tablets, which were used at home instead of laptops and made navigating (and shopping) on the internet a more seamless experience. Traffic doubled, until 50% of all traffic to eCommerce was from mobile or tablet. Specializing in apps became the way forward—the DTC business flourished with the advent of dropshipping and companies such as Shopify and Etsy.

For retailers, the fulfillment issue became the prime problem, and inventory their most significant concern. In this case, technological change spurred the momentum for the growth and evolution of Branding Brand and its customer base. The shift toward apps and mobile devices was driven by the explosion in the diffusion of smartphones and tablets, meaning that mobile apps became increasingly widespread and replaced computers for many daily tasks. Branding Brand excelled in capitalizing on this tailwind. Identifying key trends and anticipating what effect they are likely to have is the premise for carving proper market positioning.

Later in his career, Mittal created a fintech venture with a partner. In this case, they encountered other issues and were not as successful, eventually folding. Some of the problems were related to the app’s development and others to the value proposition of the app itself. What were the challenges for development? They were using bleeding-edge technology and didn’t have an ecosystem to support it. They effectively were ahead of their time from a technology point of view. From a customer point of view, they lacked a hook that would demonstrate immediate value to potential customers and keep them returning. The app was for personal finance, in a similar vein to robo-advisors such as Moneyfarm. This segment of fintech is particularly challenging compared to others, such as payments, like Venmo. With investments and personal finance, it takes a long time to see the results and how the app can help you, while with payments, you get immediate value. Apps need a clear call to action.

Mittal summarized the key takeaways of his experience in the following list of questions:

1. Is there a sense of urgency for the user of the app? He found that the answer was yes for mobile, but no for the fintech project.
2. How much better is the experience using the app? It needs to be meaningfully better for people to engage with it and change their habits. How do you reduce friction to retain users through the steps? How do you have someone trusting the brand enough to give their financial data? How much value do you provide?
3. Ensure that there is an ecosystem and infrastructure to support what you want to do. The more complicated, the more you need to trust the people that do the work for you.
4. Trust is vital when you outsource. You need to know what you want to make. If you are trying to be experimental, you need someone that is truly on board with you to identify technical requirements. He believes that the minimum number of staff necessary to build an app is, in order: first, a full-stack engineer, then a front-end developer, and then a back-end developer for the database. It is imperative to understand how data-heavy the app business will be, as this has important implications for the development, such as getting data from the back end, capabilities to read or write data.
5. What are you looking to achieve?
6. How can you find someone to help you build a project?

John Lee: Building Something People Want to Use - UX/UI and Product

John Lee founded CultureMe five years ago when he had the intuition that people may be, like he was, interested in researching places they were traveling, including what they needed to know before visiting or moving. In 2015, he started building the app himself while still holding on to his full-time job. The biggest challenge Lee encountered was quite simple: How do you figure out where to start? He could not find a complete checklist anywhere. What was most helpful was beginning with identifying people in his network that had the right knowledge to help him and then expanding his network by attending meetups and other similar events, which enabled him to address the programming gap while he learned to code enough to be able to communicate clearly with the developer team he later hired.

Most apps are intended to be used by individual consumers. For this reason, Lee stresses the importance of UX. Ultimately, having a good experience when using an app will drive retention rates—from the start, an app should be developed with UX and its final goal firmly in mind. One needs to have a very clear understanding of the customer, their motivations, and how they use your product, which may be different from the originally intended use.

Lee and his wife launched an MVP in August of 2017. It is another crucial piece of advice for anyone thinking of launching an app. Many apps are “overdeveloped” before they start, leading to very high costs, potential missteps, and building redundant app features. As Lee said, “you cannot do what you want if you do not know what needs to get done.” Crucially, having an MVP will allow you to collect feedback and real user data. It is useful to collect as much data as possible and to make sure that the questions to the users are put forth in a way that allows them to express their thoughts rather than reaffirming your hypotheses. The data will become the critical input for determining the technical roadmap, prioritizing features and development, and importantly, budgeting costs. The key is that people want and need the app.

If the product is viable, the next step is user acquisition. Lee started by speaking to customers in person first, then went on to do test advertising campaigns on Facebook and Quora, as well as using PR, which was particularly successful and brought a high conversion rate of 32% of app downloads to website visitors.

His next step was the beginning of monetization. What became clear during this stage of the journey was that in order to build a scalable B2C business, an enormous marketing budget is required to be able to acquire a sizable user base. This was a challenge in the travel industry where you would be competing with the larger travel players, meaning the cost of acquisition was going to be high, which eventually pushed Lee to explore a pivot toward an API delivery model rather than a B2C app approach.

Monetization, however, should not be an afterthought. It should be clear from the conceptual phase whether the intention is to build a community or a product and what the business model will be. Lee recommends doing this rather than focusing on going viral or the number of downloads.

Lee’s final piece of advice is to work with a business partner. Not only does a partner provide a second set of eyes but can also balance out any knowledge gaps.

John Manoogian: The Importance of Knowing Your Numbers

John Manoogian has significant experience in helping companies, particularly in gaming and subscription services, achieve growth through marketing and user acquisition. He has helped a German-based health and fitness startup with user growth in the US, analyzing KPIs to find areas where the company was most likely to grow and executing marketing strategies to accelerate registered user growth from 400,000 to 1.2+ million. He also ran influencer marketing campaigns that generated ROIs of 50-70% and negotiated and executed influencer partnerships that led to the acquisition of 100,000+ new users.

He believes that, while having a local VC investor can be useful, it is not as necessary in consumer-facing businesses as it is for B2B. However, he does stress the importance of being adequately capitalized for the target market—advertising in the US is about 3-4 times more expensive than in Europe. Manoogian, like Mittal and Lee, stressed the importance of user acquisition and retention as the most significant factors driving the Life Time Value (LTV) of apps.

Manoogian was adamant about the importance of understanding the economics of your app, particularly those that take a long time to realize profits. The key figures here are LTV and Customer Acquisition Cost (CAC). Knowing these two will give you the marginal value of each user, the ability to calculate ROI for marketing campaigns, and any other investment, as well as clarity on sustainability and funding needs. Unprofitable growth becomes a problem at some point; a potential strategy to combat it is to find new marketing strategies and new revenue streams.

For instance, in the gaming industry, there is now an understanding of what makes a game like Clash of Clans or Candy Crush successful: great UI, complex and advancing levels, Facebook integration, and a Freemium model with in-app purchases. For this reason, many new games replicate those characteristics. Retention, however, is very low—most people drop out within one month. It is essential to understand economics, particularly as the time required to monetize is unknown and is quite distant in the future. This lag creates the need for extensive and detailed statistical analyses and projections to be done daily and at a very detailed level. This is also important for product development. With that level of statistical insight, it becomes possible to understand how each new development step affects retention.

Manoogian sees significant value in building an influencer strategy. The influencers need to know their audience and create content that appeals to it. Usually, the most successful campaigns are predictable. The starting point for the process is building accurate customer personas and then finding influencers that match them.

Again, here it is essential to calculate the CAC and know it very well. Influencer marketing is becoming more expensive—the ROI has gone down as influencers see the value of their marketing and charge more. They are also advertising more products and thus diluting the message. Starting with influencers with smaller audiences can be useful for testing with a more modest budget, as long as those audiences are engaged.

Finally, Manoogian stressed the importance of customer data and what the best uses for it are. A few clear answers emerged: a social angle, using it to inform product decisions by analyzing who the best users are, and tailoring the product to them. As an entrepreneur, you should know your customers well. You can develop something that the customers don’t know they want. The key is to have a good product manager who becomes the customers’ advocate.

What Will the Future Hold?

The space, however, remains fiercely competitive. It is becoming increasingly harder to captivate (and retain) the attention of consumers. A quarter of all apps are only used once after downloading. After 10 sessions, global retention rates were at 32% for 2019, down from 38% the previous year.

Gaming apps are still the most popular, accounting for 25% of all active apps among Apple users. Some trends are clearly emerging. Home-based productivity apps, like Zoom, are attracting a lot of interest because of the changes in the way people work, particularly during COVID-19 related lockdowns. The data trend is not going anywhere—companies are finding new ways to use machine learning and AI, in any setting. Finally, there is an increased demand for apps that deliver content in many ways, such as audio and video. Gaming remains strong.

App Downloads by Type - 2020

A successful app solves a real problem for its users, with a clear call to action and value proposition. Before starting an app business, entrepreneurs should develop a clear vision of the app business model and what they want to achieve so that they can partner with the right developers and set a clear roadmap. The key then is to test, test, test, and verify the economics at each step.