Marketing Your Startup
Most t startups die from lack of customers. Others die because they realize too late that the economics of their customer acquisition process are impossible to survive. Both are painful deaths, so let’s try to avoid them.
As entrepreneurs, we’re all optimists and so we tend to dramatically underestimate the effort that will be required to get customers. We all think our new product or service is so amazing that customers will just be lining up with cash in their hands, but it never works out that way.
And so my purpose with this chapter is to get you to start building and testing your customer acquisition process now, long before you have an actual product ready to sell. As with everything else on the Launch Path process, it’s about continuous learning, optimization, and improvement.
Every venture is different, but customer acquisition is always a funnel.
You may have a business where getting customers is mostly old-fashioned sales calls, or maybe you’re an ecommerce startup where it’s all about online advertising, or maybe your new bakery is going to rely on local ads and neighborhood word-of-mouth. But customer acquisition can always be visualized as a funnel. You need a whole bunch of leads coming in the top of the funnel and then you slowly work those leads down through the funnel, and a certain percentage of them end up coming out of the bottom of the funnel as paying customers.
Let’s say you’re doing direct sales. You need to knock on 1,000 doors (top of the funnel) in order to get 35 people to invite you in. Of those, 18 ask you to send follow-up information (now they’re in your funnel).
You follow up with them, giving them more information, and of those 6 end up making purchases (they come out the bottom of the funnel). So now we know that every 1,000 doors we knock on will result in 6 sales, and we can figure out ways to optimize that process. For any business, the customer acquisition process can be visualized as a funnel.
The illustration above shows the activities that companies today typically use for each stage in the funnel. The top of the funnel is all the stuff that makes people aware of your company – events, ads, podcasts, articles, etc. Hopefully they check out our website, and enter their email address, and then we follow-up with them, give them more information, and hopefully they’ll come out the bottom of the funnel as a new paying customer.
Let’s look at how the math works for a typical funnel. We run some ads and 100,000 people visit our website, entering the top of our funnel. 20% of those give us their email address, and enter the “interested” section of the funnel. 10% of those respond to our follow-up emails, converting to the “consideration” phase and then 5% of those convert to “purchase”. If you do the math, our ad campaign yielded 100 new customers. But what if we worked to optimize each conversion by just two percentage points (to 22%, 12% and 7%)? Now our yield is 185 new customers — an 85% increase in new customers! Optimizing each conversion point in the funnel is the key to success.
Now let’s look at the economics. If we spent $1,000 on this campaign and got 100 new customers then our customer acquisition cost (CAC) was $10.00 each, right? But in the example above, if we optimize each funnel conversation point by two percentage points then with the optimized funnel our CAC is $5.41 — that’s a huge difference!
As we discussed in Chapter 5, in the end the success or failure of any startup venture distills down to one equation – CAC < LTV. Read that sentence two or three more times, just to make sure you have fully internalized it.
Some high-level thoughts on marketing for startups:
While the particular marketing mix for your startup will depend on your particular type of business, here are some high-level thoughts that nearly always apply to startups everywhere.
Not all customers are equal.
Two years from now, when you sit down and look at the numbers for your profitable startup, you will find that 80% of your profits are coming from 20% of your customers. It is nearly always true. And so the sooner we can identify the high-value subset of customers for your venture, the better off we’ll be. In Malcom Gladwell’s excellent book, The Tipping Point, he talks about how some members of any social structure are more influential than others. And so it is with the universe of potential customers for your startup. Some are more influential because they are respected by the community or because they are well-connected or because they are considered thought leaders that everyone looks to. So think about who the most influential people are for your product or service and target them. Targeting the right people can dramatically improve the efficiency of your customer acquisition effort.
Think about scaffolding customer segments.
A few years ago, Geoffrey Moore wrote a book called Crossing the Chasm. In it he discusses the fact that most startups can get an initial set of customers, but very few are able to “cross the chasm” and be able to get thousands (or millions) of customers, and he suggests a set of strategies that can help. His suggested methodology distill down to this very simple concept: Start with a “beach head” market, nail that one, and then add additional markets one at a time, using each one as a scaffold to the next. Many successful companies have done exactly this.
Owned Media, Earned Media, Paid Media
Your top-of-the-funnel will largely be people who heard about your startup from somewhere in the media landscape and are interested in finding out more. It’s useful to think of the media landscape as having three components:
Owned Media is the stuff you own and have complete control over: your social media posts, your blog posts on Medium, your website, your landing pages
Earned Media is the added exposure you get because you’ve “earned” it, not because you’ve paid for it. These include social media likes, shares, and retweets of your owned media. Newspapers, magazines, and blogs who write about you because you’re so awesome. Mentions on LinkedIn also count. And don’t forget speaking slots you’re offered at conferences because you are considered a thought leader.
Paid Media is all of your paid advertising. Here we have your paid search campaign on Google, your display ads on social media, your magazine ads, sponsored content, and the “influencers” you’ve paid to post about your product on Instagram.
You will need to generate activity in all three of those media types, and if you do, the media mentions will all help to drive each other. Remember, metrics matter, so you’ll want to have a way of measuring where the leads into the top of the funnel are coming from, so that you can optimize, optimize, optimize.
Summary
Every venture will require a slightly different process for acquiring and keeping customers. For some it will be more about a direct sales team that goes out making sales calls; for some it’s more about Instagram influencers; for others it’s more about Google search ads. But the funnel metaphor always applies, so think about how you will bring leads into the top of the funnel, and how you will move those leads down through the funnel and turn them into paying customers. Most importantly, have processes in place by which you can measure and optimize each step of the funnel process, and make sure you use and optimize those processes too. In the end, your venture comes down to one simple equation: CAC < LTV. Focusing on the continuous improvement of your CAC is likely the single most important factor in making your startup a success.