It’s all about customer acquisition

“The purpose of business is to create and keep a customer.”

― Peter F. Drucker

customers

I watched an entrepreneur pitch yesterday and his deck didn’t include a single slide on customer acquisition. Unfortunately this is all too often the case with entrepreneurs. They have learned about trying to paint a picture of a large enticing market opportunity and that they have to lay claim to garnering a big chunk of it, but exactly how they will accomplish that is often ignored.

Given that yesterday’s pitch, like so many these days, was for a mobile app, let’s take a quick stride through what customer acquisition means for an app developer.

  1. Discovery – with over two million apps in Apple’s App Store and Google’s Play Store how will your potential customers even find your app? This is where you really need to lay out your marketing plan – whether it’s social media, traditional media, partnering or best yet, built-in virality – how much money you will need to get customers to discover your app and how you’ll spend it are critical to your business plan. See my post on the new sales funnel.
  2. Download – once your app is discovered what will motivate your prospects to download it to the phone? How will you generate positive reviews in the app stores and other means of getting people to take action? Make sure that all your pitches do end with the call to action for your audience to download your app.
  3. Engagement – unfortunately, downloading an app is necessary, but far from sufficient to build a  business. It’s the job of marketing to get the app discovered and downloaded, but it’s the job of product development to make the app engaging enough so it is used frequently. Most apps are downloaded and used just once or twice and either deleted or shuffled off to the last screen of the home page. During app development make sure you focus on driving frequency of use – making your app engaging.
  4. Tell a Friend – the cost of customer acquisition in the consumer market is far too high ($150 a head or more) to rely on advertising or other traditional marketing spend. Your customers have to love your app enough that they want to tell a friend to download it – that’s what it means to go viral. See my previous post on why you need to build virality into your product, you can’t simply paste it on.
  5. Monetize – the tradition path in consumer apps is to gain traction – very large number of users, with high month over month growth, before monetizing. But like virality, you need to think about your business model before you develop your app. If you are going to rely on a freemium model or in-app purchases, architect your app to enable those business models. Understand the lifetime value of your customer, because the value of your business is based on the aggregate value of your customers.

The barrier to entry to start an app company has never been lower, given all the development tools, and help from incubators, accelerators and mentors like the MIT Venture Mentoring Service. But that means that the battle to gain people’s attention has never been fiercer.

So while I believe that anyone can build just about anything, I don’t believe that anyone can sell that thing. Too many startup teams are too focused on the supply side – creating the product, and not enough on the demand side – selling it. Don’t be one of those!

 

10 Success lessons from Peter Thiel – “PayPal Founder, Billionaire” for entrepreneurs

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Whatever you think of Peter Thiel, and he’s a divisive figure in high tech circles due to his support of Donald Trump, I have great admiration for what he has accomplished with PayPal and the PayPal mafia. So I highly recommend you peruse this advice from KnowStartup.com. 

Of these ten tips here’s the one that I think most product driven, engineering-trained founders usually ignore and to their peril.

As I tell my mentees, “I believe anyone can build anything, but I don’t believe anyone can sell it.” Customer acquisition is the Achilles heel of many startups.

7. Master marketing and sales

Many techies do not have a deep enough understanding of the dynamics and inter-connects of marketing, advertising, sales and distribution, which vary in B2C and B2B sectors. Some of these activities are about creating impressions and attachment among users, others are about cultivating long-term relationships. B2B sales are complex and require ‘rainmakers,’ whereas ‘megaphone’ strategies like TV ads may be better for B2C products. “Selling your company to the media is a necessary part of selling it to everyone else,” Thiel advises, this calls for a clear public relations strategy.

The other area that few founders pay enough attention to is building a Board of Directors. Too often they put a friend or angel investor on the Board, or just leave themselves or their co-founder on the Board. So while number 10, is last, it is not least.

 

The New Marketing & Sales Funnel for B2B Companies

newmarketingsalesfunnel1

Understanding the marketing and sales process – how to go from lead generation to a closed sale – is absolutely critical to the success of B2B startups. A good, but oversimplified way to understand this process is the traditional graphic of the sales funnel, with leads at the top and sales and the bottom. Steve Patrizi, a veteran marketing and sales executive, has a great blog post about the changes in the B2B marketing and sales process.

Why I say this funnel is an oversimplification is that it ignores the players in the sales process: the end user (the person who actually uses the product or service), the economic decision maker (the person who actually cuts or approves the check or P.O. for the purchase) and influencers, those within the buying group who have a say in selecting the product, such at the IT department when it comes to software.

The exercise I give to founders is to put numbers into the sales funnel: how many leads can they generate (and what are the marketing tools to generate those leads) and how many sales will eventually result from those leads. But how to do sales projections is the subject for another post.

 

What’s the biggest reason startups fail?

Bad idea? Poor vision? Lack of capital? Poor execution? Fight amongst the founders? Lack of product/market fit?

I’ve given this one a lot of thought having had more failures that successes in my life as a serial entrepreneur. And I’ve certainly seen startups fail for all of the above reasons and more.

And some successes baffle me totally. SnapChat? Who would want disappearing messages? Twitch? Why would anyone want to watch someone play video games? Yep,  I’m an out of touch old fogey.

But entrepreneur Bill Glass of IdeaLab fame has done more than give the question a lot of thought. He did an empirical study. Spoiler alert! The biggest reason startups fail is poor timing! Yep, if you are too soon with your big idea, like Webvan, trying to build a food delivery service before the advent of smartphones, or too late, when the market is crowded with clones of market leasers, it doesn’t matter. Either way you will fail.

Back in 2001 at SmartWorlds we developed a mobile app for online shopping, called iShop, six years before the iPhone was introduced. iShop was intriguing enough to get us an article in The Wall Street Journal, complete with an original hand drawn illustration. But we were years too early, so we failed.

Check out Bill’s Ted Talk.

Bill Gross has founded a lot of startups, and incubated many others — and he got curious about why some succeeded and others failed. So he gathered data from hundreds of companies, his own and other people’s, and ranked each company on five key factors. He found one factor that stands out from the others — and surprised even him.

 

Beware of Transaction Costs, Especially with B2B Customers

killer app

I been mentoring several entrepreneurs lately who are in the B2B, enterprise marketplace. They seem blissfully unaware of the issue of transaction costs for enterprise customers.

Very simply put, transaction costs are the non-cash costs of acquiring a new product or service.

 

I came across this powerful concept years ago in the classic business book Unleashing the Killer App: Digital Strategies for Market Dominance by Larry Downes and Chunka Mui.

I highly recommend you read the whole book, but here are the two key pages that elucidate and define the various types of transaction costs you need to take into account in your pricing and sales of your product.

transaction costs 1

transaction costs 2

The danger of 360 degrees of freedom

I often tell my mentees that the great thing about every zero stage startup is that you have 360 degrees of freedom – you can do anything, go any direction you want. And the  dangerous thing about having 360 degrees of freedom is … you can you anything, and go in any direction!

Startups need to be three things: fast, focused, and flexible. Where I  find many entrepreneurs have a problem is with focus. This is evident when you ask them “what is your total addressable market (TAM)?” The answers tend to be “everyone with a smartphone” or “everyone who owns a home” or other equally broad and unfocused ideas about who will actually buy their product.

All startups need to find a niche, dominate it, and expand from there. Microsoft was the classic case. They began by selling programming languages like BASIC and Pascal, built their business and became the dominant supplier to developers. From that base they were able to expand to operating systems, thanks to IBM, where their dominance in systems software then enabled them to enter, then dominate the applications software market with Microsoft Office.

The corollary to the rule about 360 degrees of freedom being 10 degrees too many is that if you are trying to be all things to all people you will end up be nothing to anyone.

Who’s the highest paid employee and why?

Most founders I’ve met assume that the CEO gets the highest salary, after all isn’t that the way it is in all companies? Now he or she may not get the most equity, depending if the CEO is a founder or brought in later. But that’s a totally separate issue. We are talking cash compensation here, not options or restricted stock grants.

But as a VC at one of the top VC firms explained to me, “The highest compensated person at your company should be your VP of Sales.” And before I could even ask “why?” he explained: sales execs are compensated largely by incentives based on meeting or exceeding their sales goals. So if your VP of Sales is making a lot of money that means what? That the company is generating a lot of revenue and it is increasing in value! That’s what any CEO or founder should want.

Related words of wisdom relate to capping a VP of Sales or other sales execs upside. Entrepreneurs tend to do this because they don’t have faith in their financial projections. Bad idea! The best sales execs don’t want their upside capped. So hunker down and make sure your financial projections are tight and you’ll be glad, not sad, when your sales VP knocks it out of the park and you have to pay a beyond forecast sales bonus.

Just make sure you are paying for real sales, not bookings. You always want expenses to trail revenues. So get those orders in the bank before paying sales bonuses. On the other hand making sales people wait until the end of the year can have a negative impact on their motivation, so work with your CFO on what makes sense for your company in terms of when sales bonuses are paid.

Brainstorming ideas for cold calls

I am not a sales guy, never played one on TV, and have no ambitions to be one – too tough a job for me! But I’ve done enough bus dev work to know a few things about getting meetings without having a warm introduction: one, figure out what’s in it for the person you want to meet with; two, your objective should be to get the meeting and learn, not to try to sell (“one call closes” are very rare); three, be interesting/intriguing/different; and four, in general people like sharing their expertise – a whole lot more than fending off a sales pitch..

Any business decision maker gets bombarded with sales and marketing calls, emails, texts, etc. so you are going to have to be very creative, very persuasive, and very persistent to connect with them.

I recently got an email from an old friend asking how he could get a C-Suite exec to talk with him about the product he was selling. So totally  uninhibited by a total lack of sales training or experience, I fired off an email with a list of ideas off the top of my head for how to attract the attention of a C-Suite exec. To my surprise he replied to the effect that the list could be useful. So here it is, in somewhat upgraded form.

1. Show up in person and try to worm your way in for a 10-minute talk. Be patient and willing to wait for some time, or come back later,  or follow them to their favorite coffee shop. You may well have to become best friends with the CXO’s assistant to pull this off.

2. Try sending a fax – no one but lawyers and accountants use fax machines any more, so that might get their attention. But make the content interesting or they or more likely their assistant won’t even bother to  read it. Remember, you are not trying to sell anything, you are just trying to get their attention/capture their imagination and get a meeting or at least a phone call.

3. Try sending them a personal letter – marked “personal and confidential” – asking for an informational interview on a subject you need to learn about and one they will have expertise on that they just might be willing to share. Again, personal letters are so rare it might get their attention. 

4. If they have an assistant, make friends with them and find out where the crevices are in the CXO’s schedule. See if you can’t convince them to slip you in for 10 minutes.

5. Follow them on Twitter, try to connect on LinkedIn, and otherwise use social media. But in a helpful way. Say it’s the CMO of sail boat company, see if you can find a really cool Instagram photo, or better yet a sailor/photographer with a stunning Instagram feed, and try DM or email or some other way get it to them them. Or send something else on social media they will find helpful or interesting.

6. Study up on the background of the exec you are trying to connect with. Web site bios, LinkedIn, Facebook, and Google – whatever you have to do to see what you two may have in common that increases the likelihood of their being willing to talk with you.

7. Is there someone at a level below the CXO who is easier to get to? Can work your way up?

8. Where do the CXOs you want to connect with hangout? Conferences? Trade shows? Alumni groups? Charitable events? Certain golf courses or health clubs? Try to connect with them outside the office.

9. Who do you work for? Do they have a Strategic Advisory Board? Can you get a prominent CXO of the type you are trying to connect with on it?

10. Obviously try to network your way to them, as nothing is better than a warm introduction, especially from another CXO.

11. In the spirit of Spinal Tap, here’s one more: find a great new book on whatever the CXO’s domain is – say they are a CFO, so make it a book on finance, and send it to them with a short personal note saying you thought this might interest them and could they spare 10 minutes for chat about a question you have about financial services?

My standard customer service warranty applies: double your money back if you are not 100% satisfied with this list of ideas.

Overcoming objections

Overcoming objections is a key sales skill – because no matter how good your product, there will always be one or more objections from decision makers, users, or influencers.

The trick is to carefully track these objections, formulate good counters, and most importantly, incorporate those objections and your counters into your next presentation.

For example, a typical objection is “But your product is too expensive. I can buy Brand Z for 10% less.” Good counters include, “Yes, but have you looked at the total lifetime cost of owning our product vs. Brand Z? We have data we are glad to share with you that shows you’ll save 25% over the product’s lifetime with our product over Brand Z.”

Or, “Did you know that Brand X charges a 20% restocking fee if you don’t like their product  and want to send it back. We not only charge no restocking fees, but we’ll ship you a
pre-paid shipping carton!”

Anticipating and countering prospect’s objections can impress them with your knowledge of their business and of your competition.

So instead of regarding sales objections as a hassle to be overcome, view them as an opportunity to improve your pitch, and if necessary, your product or service as well.

You can build it, but can you sell it?

I’m not an engineer, scientist or technologist, nor have I every played one on TV. But I’ve found after many years of mentoring technology startups, it’s not about the technology.

In fact what I fell my mentees is I certainly believe that they can build what they say they plan to build (Though I haven’t run into invisibility cloak or perpetual motion machine inventors, yet.)

But the big question is: can you (or some 3rd party) sell it?

Too many entrepreneurs focus totally on the supply side, creating the product and seem to have an “If I will build it, they will come” attitude. Where I find most startups need help is almost always in a non-technical area: customer acquisition, team building, raising capital, creating partnerships, and other, what have been called “soft skills.”

There are always a few exceptions where the product or service is either something I am very familiar with or pretty straightforward, where I can add value in advice about features or functions – usually suggesting how to cut some to get to market sooner. But mainly I confine myself to recommendations for usability testing, A/B testing, minimal path implementation (presentation, demo, prototype, beta, MVP), tech support, feature/function prioritization, and similar issues.

And the time to start finding out if you or a third party can sell your product or service needs to be done in parallel with product development, not after you have developed your product. See Steve Blank on customer development.