Now the question is, how do you acquire customers? Customer acquisition is the first part of the cycle of selling customers -- getting customers. Archetypes can help you figure out where to find them.
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.
Blank, Steve and Bob Dorf. The Startup Owner's Manual. The Step-by-Step Guide for Building a Great Company. Pescadero, CA: K&S Ranch, 2012. Pages 93 - 97.
Blank, Steve. Blog Post. "Ardent War Story 4: You Know You’re Getting Close to Your Customers When They Offer You a Job."
Blank, Steve. Blog Post. "Ardent 2: Get Out of My Building”.
Blank, Steve. Stanford Entrepreneurship Corner, Video. Intimate Customer Understanding.
Questions for You
What do I know about my customers?
What knowledge do I lack?
Did customers find us where we thought they would?
Questions for Your Team
What do we know about our customers?
What knowledge do we lack?
Where can we gather more information?
Did our customers find us where we thought they would?
Tools and Exercises
Draw a day in the life of your customer. Learn everything you can about them -- from the time they get up, to the time they go to bed. What do they read? What kind of car do they drive? Where to they shop?
Blank, Steve. Founders Workbook. A companion to the Startup Owner’s Manual. (Website: Zoomstra.com/foundersworkbook)
Blank, Steve. Intimate Customer Understanding.