Startup general interest

A customer that chooses your product will be more satisfied than one that is acquired through spend

By June 26, 2013 No Comments

Former private equity exec and now Microsoft employee Tren Griffin has a great post up: A dozen things I’ve learned about business. The full list is great, containing many themes and points that have been discussed here over the years. It’s pretty short and well worth a read. I’m going to highlight just one here, and narrowly beating Bezos’ “Your margin is my opportunity” which I love for it’s brazenness is the following from Bill Gurley which I chose because it is less widely trailed than many of the others:

10.  “A customer that ‘chooses’ your firm’s services will be much more satisfied than one that is persuaded to buy your product through spend.” Bill Gurley. http://www.forbes.com/sites/bruceupbin/2012/08/30/the-dangerous-seduction-of-the-lifetime-value-ltv-formula/2/ Big firms have these huge marketing budgets and forget that the essence of business is being able to cost-effectively acquire a customer. Fred Wilson talks about that problem at one point in this recent interview:  http://pandodaily.com/2013/06/17/pandomonthly-new-york-with-union-square-ventures-fred-wilson-the-full-interview/ Spending on customer acquisition should be tracked on a per customer basis. People who want to spend, for example, “$100 million” on marketing without breaking it down and working it out on a per customer basis are due for a fall.

Many large and successful businesses have been built through paid marketing, of course, but this is a reminder that the more difficult trick of acquiring customers for free generally creates more enduring value.