It’s the same chicken and hen story for every StartUp – should you focus on customer acquisition or target revenues. While ideally, any StartUp would look for both of these at the same time, such ideal scenarios are exceptions rather than the norm. StartUps’ rely on what is known as the Disruptive Marketing Model which challenges the very nature, attributes and value proposition of products and services that customers are used to. So typically you would identify a problem (a gap or vacuum) for a product or service that exists in the market and provide a solution. If customers like your idea you can count on an exponential growth.
Hence “build it and they will come” doesn’t quite apply in a case of StartUps’. You have to aggressively market your idea and spend tonnes of cash on it to acquire customers and often this comes at the cost of revenue. But should you only focus on customer acquisition and not focus at all on the revenue? Well, this can prove to be costly and is one of the primary reasons most StartUps’ don’t survive beyond a few years as they are neck deep in debt and no viability of profits despite the customer base is on their side. While there is no doubt that acquiring customers should be your primary goal in the early days there are ways in which you can minimise your risks. Here are some ways in which you can approach this problem-
Build A Great Product
Some StartUps’ become so engrossed in customer acquisition and revenue generation that they often take their eyes off something that’s even more important – A GREAT PRODUCT. It is, after all, the most important factor that would decide how easily you can acquire customers and whether it will generate revenue. You should never lose focus on your product and make continuous improvements to help attract new customers.
Strike Balance between Customer Acquisition and Revenue
First, up your business is different and you should choose a path that suits you. In most cases how you go about will be dictated by your operating capital. If you are sitting on a pile of cash that has come from your early investors you can focus on reaching out to new customers at the cost of profits. But if your customer acquisition cost is putting you in a stiff position where you can’t pay salaries to your employees, you should focus on the cash flow part. Here you must also focus on another important issue – COMPETITION. If you don’t fancy much competition in near term you can focus on the revenue side and value proposition of your product and keep adding new customers how small the number may be. But if you are in a competitive space you can’t let your competitors take away lion’s share of the market. So how you play the game would often depend on the financial health of your business.
Identifying Your Core Customers
The key element to being successful with your customer acquisition is to try and identify your core customers. This is important as it would allow you to create a strong base of loyal customers who would make up for your operating expenditure (or part of it) in early days. For instance, if you are developing an app that would help people pool cars in a big city your, core customers or early adepters are those who drive their own car and not ones who are taking suburban railways or other modes of public transportation. You can take your app to the masses later. There are two benefits of it – firstly your core customers are likely to see value in your offering early and opt for your product, and secondly, you would spend less on a marketing campaign while acquiring customers.
Start With An MVP Instead of A Full Product
Should you blow all your cash and the funding you have got from the Angels in an aggressive marketing campaign? Well, some StartUps’ do that and do it successfully but if you fail you will hardly be left with any base to fall back upon. To mitigate risk and understand customer expectations, you should make it to the market with an MVP or a Minimum Viable Product which has all the core features/attributes of your idea sans the add-ons. Introduce it to the early adopters of your idea and look for the feedback. When you use this feedback in your next round of development it allows considerable improvement over your original product which is called pivoting. It would have improved the odds of acceptance in the market and would pave way for revenue growth.
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Focus on Retention over Acquisition
For most StartUps’ ‘customer acquisition’ seems to be the core objective in the initial days but it is equally important that you focus on ‘customer retention’. For instance, if you offer a service for free or a product that you price well below the market standards, you will get a good number of customers. But the moment you put a price on your service or bring your product price to the market level you risk chances of losing customers. So focus on retaining at least 20-25% of your initial customers before you plan a campaign for next level of acquisition. The bottom-line is that you should be able to show value in your product/service so that your early adopters are willing to stick to it even when you put a price on it.
Know When To Target Revenues
You can’t forever be focussed on customer acquisition at the cost of revenues. Even if you are, your investors would pull the strings and ask you to start focusing on monetizing the relationship that you have built with your customers. Ideally, you should know it and the best time to start this is when you start seeing health growth signs in terms of customer retention rate. This is when you know that you will be able to monetize this relationship.
These steps go a long way in helping solve the Chicken versus Hen story for most StartUps’ and they can build a great brand out of an idea.
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