Startup Marketing Blog – By Sean Ellis

To Pay Or Not To Pay To Acquire Users?

I recently heard a VC say that startups “should spend the least amount of money possible on marketing.”  This is a healthier attitude than the opposite prescription of undisciplined land grab, but a better approach is pure ROI marketing.  Marketing opportunities that offer a fast payback with additional profit margin are a key component for reaching your startup’s full market potential.

Work from Free to Paid Drivers

Ultimately my goal with any startup is to acquire the highest number of qualified users possible – at a positive return on investment.  But it often takes several months after “launching” to transition to aggressive scaling. 

I like to start with free customer acquisition channels since they obviously offer the best opportunity to generate a positive ROI. Free drivers may include viral marketing, self-implemented SEO and listing with any directories that are appropriate for your product.  Leveraging this early user flow we optimize the first user experience for the right target users and introduce a business model that generates sufficient revenue to fund future paid user acquisition.  When we start developing paid channels, we work our way through the lowest hanging fruit first, beginning with demand harvesting channels, later adding demand creation channels. 

Kill the Opportunity for the Competition

If your growth is accelerating, you will attract competition.  And this competition will likely be savvy enough to replicate the customer acquisition and monetization approaches that you worked hard to invent.  So it is important to make it as difficult as possible for them to get traction.  I know some of you are saying “but your recent post told us to ignore the competition.”  My point was not to ignore the competition forever, simply to ignore them while you are figuring out a repeatable, positive ROI way to acquire customers. Competition (especially those that are spending irrationally) will distract you from this critical task.

But once you have optimized the first user experience and introduced a business model that generates sufficient revenue to fund user acquisition, it’s time to focus your marketing efforts to aggressively build new customer acquisition channels and scaling existing channels – both free and paid.

Posted in Acquiring Customers, Budgeting, Competitors, Demand Creation, Demand Harvesting, Launch, viral marketing
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Indifference is Your Real Competitor

Your Competitors are Clueless (initially)

If you are creating a new market (as is often the case for tech startups) your best chance of success is taking the time to figure out how to become relevant to the right people.   Most startups spend way too much time obsessing over their clueless competition. If the competition is going for a land grab, they feel compelled to do the same.  The likely result is mutually assured destruction. 

Take the Time to Understand Early Users

It’s OK to passively monitor your competition (in case they figure something out), but spend the majority of your time getting to know your early users.   They hold all the answers for reaching your full market potential.  If you don’t have any users, get some.  Acquiring several hundred users is relatively easy for a funded company.  Don’t worry too much about the acquisition cost on these initial users (but don’t go too crazy either). 

Once you have around 1000 users, shift all your energy to engaging/understanding them.  Who is most/least satisfied with your product and why?  What is the primary benefit they are getting from your product?  Why did they decide to try your product?  Did they have a problem that they thought you might be able to solve?  Or are they early adopters that often try interesting new software even if it isn’t likely to have a real practical application?

Context Creates Relevance

The key to effectively scaling customer acquisition is applying this understanding through the entire customer acquisition process.  And remember, a person isn’t actually acquired until they have a gratifying experience with your product. Start by trying to reach prospects when they’ll be most receptive to your message.  Obviously the most receptive users are the ones that are actually searching for a solution like yours.  Of course if your solution is truly creating a new market, don’t expect much relevant search volume. 

Next, look for other contextually relevant ways to reach prospects.  Getting their attention through the clutter is much easier if you reach them at a time they are likely to be experiencing the problem you are solving.

Be sure to have the relevant messages through the entire acquisition process (from landing page to actually using the product).   This post gives more insight on getting the full user acquisition flow right.

Posted in Acquiring Customers, Competitors, Demand Creation, Demand Harvesting
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Demand Harvesting – The Easiest Driver for Startups

I always begin a new startup marketing assignment by looking for any untapped existing demand.  Demand harvesting is much easier than demand creation – and it has a faster sales cycle.  You don’t have to convince someone they need your category of product, you just need to be easier to find/buy and have a better value proposition than the other guys. 

The first question to ask is “where would someone seek my product category?”  Twenty years ago the most obvious answer would have been the yellow pages, but today it is Google.   A lot of information has been published on getting the most out of SEO or SEM and there are also many experts you can tap in this area. Beyond Google, I’ve found it is helpful to survey existing users for other places they would potentially look.   It’s great news when discover healthy demand for your product category. 

The next step is to analyze the solutions competing for that demand.  The best situation is to discover heavy unmet demand and no competition.  That is about as likely as winning the lottery, so don’t count on it.  More realistically, there will be a few companies with varying offers competing for that demand.  In this case, you should hope for weak execution from these existing competitors.  If you can be significantly more effective at extracting money from each prospect, you can afford a more prominent promotion at the initial point of connection and begin capturing market share. 

If you discover that the existing competitors are executing well, you’ll have to differentiate your offer with a better value proposition for at least a segment of the existing prospects.  This was the situation in my last company.  We faced a well entrenched competitor who was harvesting the majority of existing demand and spending millions every month creating new demand.  Rather than simply trying to out-execute them (they were extremely efficient), we decided to counter with a free-to-premium offer. 

This gave us a high response rate among existing main category searchers but also played into a new trend that had been developing over the last few years.   In discovering a new expensive software solution, many prospective customers now check for free alternatives.   For this new segment of demand, we quickly became the dominant market player.  Once we had these users engaged on the free product, we could patiently upsell various complementary premium services. 

Whether competing for existing demand or creating a brand new product category, you’ll eventually have to begin creating demand.  This is a much more difficult and unpredictable art that I’ll cover in a future post.

Posted in Acquiring Customers, Demand Creation, Demand Harvesting, Freemium (Free-to-Premium)
3 comments