Investor Kevin O’Leary highlighted that excessive spending to acquire customers is the leading cause of early-stage startup failures and a critical factor for growth potential.
On Tuesday, O’Leary posted on X, sharing a clip from one of his recent talks, emphasizing the role of customer acquisition costs, or CAC, in startup survival.
“Why do 80% of businesses fail in the first 36 months? Customer acquisition cost,” O’Leary wrote.
He added, “If it costs you more to get a customer than they’re worth over their lifetime, you’re going bankrupt on ads.”
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In the clip, O’Leary elaborated: “These companies are never able to get their customer acquisition costs below the lifetime value of the customer. Until you figure out your CAC, the cost of requiring a customer, you can’t be profitable. Think about it.
He added, “The minute you do figure it out and it’s sustainable, investors like me come in pouring gasoline on the fire because you figured out how to grow the business.”
O’Leary stressed that once a company achieves sustainable CAC, it opens the door for rapid growth and investor support.
Why do 80% of businesses fail in the first 36 months? Customer acquisition cost. If it costs you more to get a customer than they’re worth over their lifetime, you’re going bankrupt on ads.
The minute you crack CAC profitably, investors like me pour gasoline on the fire. pic.twitter.com/lJ0qYEfJ8M
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Last week, O’Leary urged entrepreneurs to prioritize health, focus, and productivity over long workdays, warning that burnout led to poor decisions.
Reflecting on his early career, he said he used to work 18-hour days but later adopted healthier routines, including proper sleep, daily exercise, and avoiding major decisions after 1 p.m.
O’Leary also cautioned that startups often fail in their first year when founders rely on overly optimistic financial forecasts, stressing the importance of flexibility and cash preservation until a business’s real momentum becomes clear.
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