Kauffman Founders School, The Lean Approach, Steve Blank, Customer Acquisition and Archetypes
>> Once you've been thinking about the business model canvas and you think about value proposition
and customer segment, you've been working on product market fit. And so you know, you
might have built something that customers kind of want. But the real question is how
do you acquire or get those customers to either your website or your physical store, or your
company's retail location. And that's the art of customer acquisition. If you really
think about it, customer acquisition is one piece of the life cycle of selling customers. You
want to get customers, keep customers and grow customers. Customer acquisition is that
front end of getting customers. So how do you get customers? Well, you might
start by creating demand so they either come to your website or store. And how do you create
demand? Well, you might use paid media like Google AdWords or Facebook ads, you might
want to go on Tumblr, et cetera. Or you might want to use free media, figuring how to get
stories or give keynotes at conferences, et cetera. In either case, you want people to
go to where you are, you want to acquire them. And once you acquire them, the next thing
you want to do is somehow activate them. Activation could be I got them to type in an email or
got them to use a product or download a demo and/or maybe even buy the product immediately
on the website. And that all falls into again, getting customers, keeping customers and growing
customers. We need to know something in detail about
those customers. Okay. We need to know a lot about those potential customers. And we call
that a lot to know stuff the customer archetype. You want to find out everything you can about
those customers because when you start creating demand, you want to understand where is the
most effective place I should actually be creating demand in. And so understanding the
customers in detail actually is not just some useless exercise, it will drive your customer
acquisition. But the real question is, how do I actually figure out where the archetype
is. And besides running all of these experiments of testing some archetypes you might have
in mind, how you actually figure this out is in your customer discovery process. You're
actually getting out of the building and trying to understand something which I call the day
in the life of the customer. You need to know everything about that customer. What are these
people doing from the minute they get up to when they go to bed. And more importantly
where are they living, what are they driving, what do they read in the morning what blogs,
what newspapers, what do they listen to. When they get to work, what's on their computer,
what kind of apps, what kind of computer are they using, what do they buy. While you might
think some of this stuff is extraneous, a good number of these things might actually
be useful later if you want to target them outside of the office or in their homes, et
cetera. If you don't know all the characteristics of their life, you're going to be missing
some opportunities. Or you might be missing an opportunity that your competitors just
haven't figured out. So my test for an entrepreneur is, here's a pen go up to the white board,
draw me a day in the life of the customer. If all you could do is well, they're 40 to
45 and they work in these kinds of companies, you really don't quite understand the entire
Gestalt of their life. You need to find out a bit more.
So in the beginning of a startup your customer archetype is also just a hypothesis. So what
you want to do is tie the customer hypothesis for archetype to the customer hypotheses for
acquisition programs. How you do that is by running a series of experiments. Gee, if we
believe that our customers are actually youth, 15 to 25 in urban areas for example, we would
try some acquisition programs with the either key words targeted to urban youth or we'd
run ads in places where we think they might be reading, watching or living. And we would
see if actually that is who our customers are. And in fact, we might even acquire them
and see if our belief that these are the people who would not only come to our site, but actually
activate were true. And that's an experiment in customer discovery and customer development.
It might be, as it often happens, that you're wrong. That while you did have in mind this
was the archetype, and you did run the experiment correctly, they're not behaving the way you
thought they should. And if you do cheap, fast and inexpensive tests that's not going
to put you out of business. That will just be a hypothesis that either failed or passed.
And if it passed you proceed and spend more money on that archetype. And if it failed
you go, huh, I wonder why, let's try something else. And so these are continual series of
cheap and fast experiments. Just as a reminder in the old days we would
just simple say oh, I'm the founder, I know my customers are going to be over here. And
then you would spend a ton of money, millions of dollars, assuming that's where your business
was. And unfortunately, most of the time you were wrong. The key difference now in lean
startups is we assume that we're possibly just incorrect. But we're going to test and
test quickly. So again, the way you tend to think about
customers is getting customers, keeping customers, and growing customers. And in startups the
focus tends to be on customer acquisition and activation. But the other two steps, keeping
and growing, is equally of interest. Because once you get customers, it's a lot cheaper
to just get them to buy more. And so you want to make sure they don't go away. And the reason
why you want to keep them is you're going to do some programs to grow them. That is
to get additional revenue from these customers. Loyalty programs, newsletters, great customer
support. Mistakes startups always make is thinking
about your initial sale as your total sales you make to a customer. And that's a little
shortsighted. And the number you really might want to be thinking about is what's the lifetime
value of a customer. That is once you get them, how much can you sell them over the
next couple of years. And once you keep them, how do I what's called cross‑sell. How do
I sell them something else? How do I next sell them? What's the next product you want
to sell them? Or, how do I up‑sell them? Sell them into a higher end version. And there
are whole sets of techniques for keeping and growing, as there were, for acquisition and
activation. And startups should just keep that in mind.
Another reason to think about the lifetime value of a customer is that it helps you understand
how much customer acquisition costs. That is how much you could spend on the front end
of actually getting a customer. If in fact, you have to amortize you'll go sometimes,
well I can't afford that advertising program because this is all they're going to spend.
But if you'll actually think a little further out to the future you might say, oh, this
customer will buy something now, but on average I could probably get them to buy something
every three months. And therefore the amount I could afford to acquire them and to spend
to acquire them actually is spread out across their lifetime value. So that's why you want
to think about the entire funnel of get, keep and grow.
There are a number of typical mistakes that entrepreneurs make thinking about customer
acquisition programs. The most common is I got it now. Let's just spend all the money.
We figured it out. Here's the customer segment. Here's the archetype. Boom. Let's spend hundreds
of thousands, if not millions of dollars. It kind of falls into the trap of if a startup
raises a million dollars they always tend to spend a million and one. And because you
have it doesn't mean you should spend it. I counsel experimentation until you find something
repeatable in acquisition programs. And then you pour in the money.
If you really don't understand your archetype, you're just guessing. And these are expensive
guesses. If you can't walk up to a white board and explain the experiments you've run to
convince yourself that this is the right archetype and you've derived this from the following
data, you might as well throw the money on the street.
And another parallel to this is you hire some ad agency early on in your startup and they
come in and tell you where to spend media dollars. Again, another waste of money. Not
that eventually you won't need an ad agency. And not that they're bad. It's just that the
learning needs to be done by you and your team, not by some third party early on in
the beginning of a company. And so use your acquisition dollars carefully.