What is your customer acquisition strategy? (startup marketing tactics)

by Giff on December 2, 2009

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“What is your growth strategy?” It is a classic question from VCs to early-stage consumer Internet companies, and one often difficult to answer at such an early point in a company’s life cycle because you have not yet seen which specific tactics work best.  There is usually no silver bullet answer, just a lot of hard work ahead.

This post, targeted at early stage Internet companies, tries to put some structure around that question, and provides some tactical ideas. I’ll preface with two caveats: 1. Internet marketing is a constantly evolving battleground and some tactics lose their usefulness; 2. this article does not cover important marketing topics like product-market fit, figuring out your target demographic or great customer support.

I’ll tee it off with three statements:

  • your marketing strategy should be iterative just like your product and business strategy
  • you can’t spend your way to product success on the Web (you can just fake it for a while)
  • you can lay out an initial game plan by thinking through tactics across four different areas:
  1. Viral marketing
    1. product design
    2. word of mouth
    3. pricing
  2. Active marketing/outreach
    1. Advertising
    2. PR (broadly defined)
    3. Direct outreach
  3. Distribution partnerships
  4. Design optimization

1. Virality

virusVCs hate the term “viral” when it is waved around like a magic wand, however they respond well if you’ve got concrete drivers of behavior.  There are multiple ways to encourage virality and I’ll break it into three sub-sections.

  • Product design
  • Word of mouth
  • Pricing

1.1 Product design :: Some products are well suited for virality — Hotmail was the big example in Web 1.0 with their simple email footer, and today the reigning champions are probably the social games. Playfish and Zynga have designed human motivators like competition, teamwork, pride, and generosity directly into the user experience to get people to interact and spread the word.

Take a step back from your product, think about touch points between people, and examine whether you can strengthen or encourage social interaction, and thus word of mouth, through your functionality, starting with the sign-up process all the way through.   Remember that your design has a huge influence over a customer’s behavior.  Viral triggers work best when integrated into an experience.

whisper1.2 Word of mouth :: Take a look at successful companies that are similar to yours and analyze their marketing practices.  In particular, try to study their latest tricks because their previous tricks are probably so copied that the noise level is overwhelming to consumers. If nothing else, this might help you get creative.

One simple approach is to enable “shout-outs” to sites like Facebook, Twitter, etc. but the key here is making sure you place these links where customers have a legitimate reason to shout out. Don’t think about what *you* want them to do, but rather focus on what they will want to do — and test it!

Again, don’t get so overzealous that you are causing a spam problem, because that will backfire.  If you are on Facebook, you’ll want to examine how successful social game companies are adapting to the FB redesign and policy changes, and pay attention to Justin Smith’s analyses on Inside Facebook and Inside Social Games.

Don’t overlook more traditional methods.  Blog widgets have gone a little bit out of style, but that might make them attractive again.  Email marketing can be incredibly effective.  For example, Mint.com was not a naturally viral application but they had incredibly passionate users.  In one instance, they ran an email marketing campaign asking their users to spread the word and more than 10 percent of the email recipients invited an average of 5 others to join, resulting in one new user signing up per 2.6 invitations (see case study).

Lastly, I’ll note that anything related to charitable giving always gets faster word of mouth than things purely commercial, but it must feel genuine.

1.3 Pricing :: don’t forget that you have an incentive structure in the form of pricing.  A few ideas: you can reward users with discounts for inviting others (or gift cards but just don’t kill your cash flow), offer group discounts to get teams to join in unison, and offer lifetime memberships in the early days.

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2. Active Marketing / Outreach

For Active Marketing, I want to hit on three areas:

  • Advertising
  • PR (which I define very broadly)
  • Direct outreach

I believe that most Internet successes came about because of a great product, not advertising.   I loved this recent quote from Sean Ellis:

It’s taken years for me to realize that our growth was less a function of clever marketing tactics than beginning with something that customers truly needed.  Some growth would have been automatic; the marketing team simply accelerated this growth.

Mint.com spent only about $50K on search terms. Pandora spent about $100K on search in the early days, but stopped that approach and founder Tim Westergren says “he’s not interested in traditional marketing” (source). Evernote hit 1.4 million registered users with no advertising, and EventBrite says growth has been primarily through word of mouth.  Social games company Playfish did no advertising, although I would be remiss to not point out that competitor Zynga advertises heavily on top of viral designs and admittedly has grown faster.

This does not mean that you should sit back and passively wait for organic growth to appear for your highly-iterated, agile-developed product.  Even without advertising, Mint.com says they spent ~$2 million on marketing in the two years prior to Intuit’s acquisition, which primarily went towards a marketing staff of 5 people and consultants like a PR agency and email marketing partner.

spudsm2.1 Advertising :: I think most early stage companies would be foolish to forecast significant spend on advertising. Google Search is no longer an affordable growth mechanism.  However, I do think you should experiment with advertising in small doses.  Folks seem to be increasingly turning to Facebook and possibly even StumbleUpon for more affordable, targeted campaigns.

Make sure you do two things before you spend much money:

1. understand your cap on customer acquisition cost by guesstimating the “lifetime value” of an average customer (i.e. revenue) and subtracting how much it will cost you to operate your company and service in order to earn that “lifetime value”. Make sure your LTV is conservative, i.e. reasonable customer spend and over a limited time span. (interesting post on LTV)

2. have analytics in place so you can measure results of campaigns (and ideally A/B/n tests of campaigns)

If you are finding that an ad campaign is netting great conversions at affordable prices, then by all means continue! Expect that it will take several weeks to find your sweet spot on bid levels and conversion rates.

2.2 Public Relations :: PR covers not just getting press, but also engagement with the blogosphere and online communities.  If you are running the business end of a seed-stage company, don’t put this off to a PR firm — not only is it expensive but frankly, no one can explain your product and company as well as you.

With the media, don’t actively chase PR too early (wait until you are confident of product-market fit), but learn about the journalists who cover your space and try to build your own relationships even before you are asking for a story.  Be willing to share concrete metrics — that always increases the odds of getting a story.  Look for PR help when you are hitting more of a growth stride. You can hire a firm, or look for independent PR people/boutiques in your industry who offer better rates and might be more likely to understand your product.

With the blogosphere, you can’t market *at* the community — you have to join and support the community.  Find bloggers with content you respect and an audience that is relevant, and participate on their sites. Make comments and engage in a dialogue with them — not about your company but about the relevant topics you both love (otherwise you wouldn’t be doing a startup around it, and they wouldn’t be blogging about it).  Again, you are building relationships.  Having a blog of your own helps here.

Look for online forums with a match to your target demographic, and again participate with rather than market at. I heard that Microsoft generated some of its best early growth for Office Live by participating in SMB discussion sites.  Building up a reputation takes time but not a lot of direct cash, and as you grow, is something that can be passed on to bright, young (thus less-expensive) employees.

Create your own touch points, such as a blog, a Twitter account, and a Facebook page.  Put in the time to make these actually useful and interesting, i.e. think about adding value through interesting content, not just sending out the online version of press releases. You should also examine whether YouTube videos or knowledge sharing through Slideshare, Scribd, or Docstoc could be useful.

2.3 Direct Outreach :: Finally, don’t stop getting out there and selling individuals, especially (but not exclusively) those you consider influencers.  As you grow, don’t let customer interactions get captured by customer support, the marketing team, and HCI testing, but rather keep those sales skills honed.  The insights you will get from these discussions are invaluable. It battle-tests your ability to effectively message your product and company. It keeps you grounded in the marketplace rather than the la-la land of ivory tower thinking which has cratered so many startups.

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3. Distribution Partnerships

rainbowThis is always a doozy for me.  Sadly, many partnership deals are more useful for how they impress VCs than for what they actually do for your business.  Over 15 years, I’ve seen so many deals which looked good on paper deliver completely mediocre results.  Don’t get me wrong — you need to invest time in this area because the sales cycles can be very long (exceptions being partners who are explicitly in the distribution business such as Miniclip), but do not count on quick results.  As an unproven company, it will be tough just to get time and attention.

Ruthlessly prioritize your targets because trying to cut deals with big companies can suck up an enormous amount of time from both bizdev people and developers (what, you thought that mega company wasn’t going to demand new features or some crazy integration?). Make sure you really match up your target demographics with that of your target partner.  Make sure you really believe that results will come and don’t waste time on “press release” partnerships unless you really think it will transform your company’s credibility. For example:

  • will that big website really put your message front and center? They know they can’t clutter up their key pages with distractions, and if you can’t get prominent placement, is it worth the bother?  You know that users are used to tuning out distractions on a web page, and minor features/add-ons rarely get clicked. Even if you have a great champion who believes in the synergies, remember that the politics of web placement/design inside a big company can kill you.
  • are those VARs or enterprise sales people really going to give a damn about your upsell/add-on product? They are already getting huge pressure from the customer to discount the price on the core money-makers (and as a fledgling startup, you inherently are not yet that).
  • Is the technical integration between our two products going to be so complex for either party or for the end user that we’ll never effectively get off the ground?  Does the partner have the resources and urgency to get this done in a timely manner?

If you want access to someone else’s customer base, you are going to need to be prepared to pay in one form or another.  Thankfully, it’s no longer the bubble years where companies like AOL could charge millions up-front for a bullshit placement on a semi-buried page, but you should expect to give up a chunk of the economics and possibly of your company as well. The numbers really range quite widely. Please just don’t forget to negotiate performance metrics and contractual outs for yourself based on poor results (speaking as someone who has inherited deals missing these key elements, and had to attempt to renegotiate — *not fun*).

A wonderful thing for today’s startups is that there are a number of interesting, open platforms where you can get distribute your product without needing a partnership, such as Facebook, iPhone (cough, semi-open), Android, and maybe LinkedIn if they truly are opening up.  However, that kind of distribution takes you out of this section (i.e. those aren’t partnerships) and back into other marketing tactics.

After spending all this time bashing BD deals, would I still spend time on this?  Yes, I definitely would, albeit with a rigorous filter for deals that could truly enable my business. Ask yourself:

  • who has an extremely synergistic product to mine?
  • who has a user base identical to my target demographic?
  • who would be really interested in the assets I’ve built up already (data, relationships, etc)
  • who has a track record of doing partnership deals in my general space?
  • who would be a good acquirer of my business?

Make sure you also think through competitive risk, but don’t let that cripple you.  Lastly, I will also note that you can achieve shorter sales cycles and possibly better terms if you and your target distribution partner(s) share the same investor. That is one useful criteria for examining which investor you want to work with.

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4. Design Optimization

abtestThis is no-brainer stuff, but it is worth remembering that you need a few key things when it comes to design:

  1. pay attention to SEO basics (here’s a recent Chris Dixon post on that topic)
  2. keep your messaging clear, concise, and compelling whether text or video
  3. A/B test both copy, images, and layout to try to find the best combination of the three on your website landing pages and your marketing emails

This stuff is critical for execution, but not really something you would bother talking to a VC about because it is just expected. However, if you have some concrete A/B testing results, they might find that both illuminating from a product/market perspective and see that you really walk the walk.

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Final Thoughts

1. I believe that an early stage company should experiment and iterate, using both qualitative feedback and quantitative analytics to help prioritize, grow or kill various initiatives. This post isn’t meant to be an all-encompassing list of marketing methods but hopefully it has helped with your brainstorming.

2. Remember that marketing tactics need to constantly evolve as effective channels become flooded over time, destroying their usefulness either out of noise or inflated cost.

3. As you think through lots of marketing activities and ideas, remember to bring your mind back to your product and think about how/if favorite concepts can be better integrated into your design.

4. This post talked about types of marketing activities, and if you want to read a great post about timing and priority of activities, check out Sean Ellis’ post Milestones to Startup Success.

5. I am constantly learning and would love to learn from you.  Please let me know your thoughts via comment or direct email to me.

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Additional posts you might find interesting:

  • http://twitter.com/BrianMcgovern Brian McGovern

    Giff -

    You're right – marketing plans must be iterative and constantly tested. We have to adjust to the reactions of the market (not just what they say, but how they act).

    Off topic a bit …
    Has anyone used Facebook or Twitter in the checkout process – such as, “click here to tell your Facebook friends you just bought the widget and get free shipping”?

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  • http://giffconstable.com giffc

    I'm definitely seeing “shout out” links to Fb and Twitter (among others) popping up on ecommerce sites, but I have yet to see it tied directly to a reward like free shipping. Someone should do that, although I'd do free shipping for the next item purchased, not the current one in checkout.

  • http://www.trafficspaces.com Niyi

    Well written Giff.

    Re PR, I find that you can increase awareness about your service by writing valuable pieces on the issues affecting your customers and publishing it for free.

    For it to work, you need to be seen as a trusted, objective, thought leader. This means that you should focus on the customer's needs and reduce the mentions of your own product, if at all.

    I'm also glad you mentioned A/B testing. I've used advice from abtests.com.

    Finally, site usability is also an important issue. At Trafficspaces, we use a lot of tips from Steve Krug's book “Don't Make Me Think”. At least, we try to :).

    Good article. Thanks for the links at the end. Keep 'em coming.

  • http://giffconstable.com giffc

    thank Niyi. Agree re: writing useful placement pieces, especially if you have a product in a sector with a niche industry magazine / newsletter / ejournal.

    Going to check out Krug's book :)

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  • http://zuupy.com Alvin Tan

    I thoroughly enjoyed the post; it was a highly insightful and enjoyable read. Customer acquisition can be daunting to most early-stage startups, but I agree that experimenting often with a variety of tactics or even strategies is a great starting point. Also, I echo your opinion that the blogosphere cannot (and should not) be marketed at. Participating genuinely and adding constructive contributions to the conversation would be a better alternative that gives rise to perceived authority.

  • http://zuupy.com Alvin Tan

    I thoroughly enjoyed the post; it was a highly insightful and enjoyable read. Customer acquisition can be daunting to most early-stage startups, but I agree that experimenting often with a variety of tactics or even strategies is a great starting point. Also, I echo your opinion that the blogosphere cannot (and should not) be marketed at. Participating genuinely and adding constructive contributions to the conversation would be a better alternative that gives rise to perceived authority.

  • Frederik-

    Great article, thanks!

  • Tim Aston

    Really useful ideas, thanks

  • http://twitter.com/chiscosayans francisco sayans

    pretty usefull article. I´m saving it for the future

  • Neeil

    Excellent article. Thanks for the post.

  • ket

    4 years has passed by and this article is still incredibily relevant ! cheers !

  • http://www.karabisoftware.com Himani Gupta

    Worthy article Giff. The most difficult area for a Tech Startup is customer acquisition. Hope this helps my company scale up !