When a startup takes VC funds, they usually accept the premise that they need to “get big fast”. VCs don’t fund lifestyle businesses.
Unfortunately desire for growth causes many startups to make poor choices. There are generally two opposite mindsets that lead to the same mistakes:
- Overconfidence: “We have lots of money, so let’s move fast (no need to be cautious).”
- Panic: “We are running out of money, so let’s move fast (get traction before we run out).”
For an entrepreneur focused on growth, it seems natural that they should “get the word out” about their new innovative solution. Thus many startups quickly launch awareness building initiatives ranging from advertisements in a tech magazine to exhibiting at tradeshows. Generally this is a complete waste of money.
While experienced marketers recognize the need for some positioning work upfront, they still generally lack a broader understanding of where to focus resources and in which order.
The first time I saw an effective go to market roadmap was when I read Steve Blank’s Four Steps to the Epiphany. His roadmap consists of the following four steps:
- Customer discovery
- Customer validation
- Customer creation
- Scale company
He warns that a company should not kick into growth mode until reaching the fourth step. By this point they have figured out a sustainable and scalable process for acquiring and monetizing customers. If you haven’t read the book, I highly recommend it. For a more detailed overview of the book see this post from Eric Ries.
The approach I’ve used to attract 10s of millions of users to startups is similar, but allows growth a little earlier (click graphic below for full size).
Within a few weeks of initiating the understand phase, we generally have enough user insight to baseline allowable acquisition costs of a new user and begin iterating. It can be tempting to start building all customer acquisition channels that fall within this allowable acquisition cost, but finding and managing these channels takes too much time to already be a priority. Instead, we just want to generate enough new user volume to iterate landing pages and sign up flows. These iterations can increase the allowable acquisition cost by more than 10X in only a few months.
At the completion of the iteration phase we can put all of our energy into building profitable customer acquisition channels. With a much higher allowable acquisition cost, the process of building profitable channels is relatively easy (and even fun). I recommend starting with free channels first and ultimately spending up to your allowable acquisition cost. This recent post gives more details on building these channels.
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I really like your blog and I’m reading Steve’s book based on Eric’s and your recommendations; it’s great.
Could you please expand on this sentence, specifically for advertised-based services: “Within a few weeks of initiating the understand phase, we generally have enough user insight to baseline allowable acquisition costs of a new user and begin iterating.”
For example, let’s say I’m starting a new blog. If I can get a bunch of readers, I can run ads and make money. What should I be tracking to build my understanding of my users? My currency is pageviews, the more I publish, the better.
Also, how do you attract customers if your allowable acquisition cost is really low?
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