As a mentor for the past 8+ years at the MIT Venture Mentoring Service (VMS) I have seen a very wide variety of early stage startups – and with a few exceptions all my mentees are at zero stage – idea conception or stage one – idea validation.
There’s one question I ask these very early stage startups to answer for me, but more importantly for themselves: Are they a high volume, low price business or a low volume, high price business? For example, creating apps for iOS and/or Android is a very high volume business – you will need thousands if not hundreds of thousands of users to succeed, because Apple and Google have set the pricing for apps incredibly low – a few dollars per app at the most. Conversely developing drugs for very rare diseases for a very small number of patients results in very high prices – as much as thousands of dollars per month.
Typically high volume, low price businesses are in the B2C market. There the cost of customer acquisition has to be very low. You can not afford a sales force if you are selling an app that cost $3. So it’s absolutely critical that you have a very well thought out customer acquisition strategy or another way to make money, such as in-app purchases. Typically consumer apps need to go viral – customers sell their friends and zero cost to you (search for viral on Mentorphile to see several posts on this subject). Conversely, if you are selling a very high end product you will probably need either your own sales force to call on the relatively few prospects you have, or a partner who does. The valley of death is littered with those companies try to do both: “We’re all floor wax! No, we’re a dessert topping!” Only on Saturday Night Live can you be both!
The reason Apple is a money machine and the most valuable company on earth is that they have succeeded in being a high volume, high price business! But that has only taken the genius of Steve Jobs and Steve Wozniak and thousands of brilliant designers, engineers, marketers, and executives and over thirty years to achieve.
So please, early stage founders, stay out of the valley of death! Determine if your business will be selling to millions of consumers who won’t pay more than $X or $XX, or a business that will sell to hundreds or perhaps thousands, but where customers will pay $XXX or even $XXXX+ for your product.
One thought on “The one business parameter that will determine your customer acquisition strategy”
I like your vivid analogies and phrases/words of wisdom to set in the mind of the beginner- you have so much info. re the nitty-gritty of the process of starting a business beyond “we have a great idea, don’t you think”, when they 1st come to you